About the Fourteenth Finance Commission?
- The Fourteenth Finance Commission (FFC) was a constitutional body constituted by the President of India under Article 280 of the Constitution.
- It was established to recommend the distribution of financial resources between the Union and State Governments for the period 2015–2020.
- Chairman: Dr. Y. V. Reddy, former Governor of the Reserve Bank of India.
Constitutional Provisions Governing Finance Commission
- Article 280:
- Provides for the constitution of a Finance Commission by the President.
- The President constitutes it every five years or earlier, if considered necessary.
- It consists of a Chairman and four other members.
- Article 281:
- Requires the President to lay the recommendations of the Finance Commission, along with an explanatory memorandum on the action taken, before both Houses of Parliament.
Major Recommendations of the Fourteenth Finance Commission
1. Vertical Devolution (Centre–State Tax Distribution)
- Recommended increasing the States’ share in the divisible pool of Central taxes from 32% to 42%.
- This was the highest-ever increase in the share of States recommended by a Finance Commission at that time.
- It aimed to strengthen fiscal autonomy and financial resources of States.
2. Horizontal Devolution (Distribution Among States)
Recommended the following criteria for distributing the States’ share among individual States:
| Criteria | Weightage |
| Income Distance | 50% |
| Population (1971) | 17.5% |
| Population (2011) | 10% |
| Area | 15% |
| Forest Cover | 7.5% |
3. Grants-in-Aid
- Recommended grants to States to address revenue deficits.
- Suggested grants for rural and urban local bodies.
- Recommended grants for disaster management.
4. Fiscal Discipline
- Recommended a fiscal deficit limit of 3% of Gross State Domestic Product (GSDP) for States.
- Allowed additional fiscal deficit flexibility of up to 0.5% of GSDP, subject to specified conditions.
14th vs 15th Finance Commission
| Particulars | 14th Finance Commission | 15th Finance Commission |
| Chairman | Y. V. Reddy | N. K. Singh |
| Award Period | 2015–2020 | 2021–2026 |
| Constitutional Article | Article 280 | Article 280 |
| States’ Share in Divisible Pool | 42% | 41% |
| Major Focus | Greater fiscal autonomy to States | Balancing equity, efficiency and performance |
| Criteria | 14th FC (2015–20) | 15th FC (2021–26) |
| Income Distance | 50% | 45% |
| Population (1971) | 17.5% | — |
| Population (2011) | 10% | 15% |
| Area | 15% | 15% |
| Forest Cover | 7.5% | — |
| Forest & Ecology | — | 10% |
| Demographic Performance | — | 12.5% |
| Tax & Fiscal Efforts | — | 2.5% |
| Total | 100% | 100% |
Significance of the Fourteenth Finance Commission
- Fiscal Federalism: Strengthened the financial position of States by increasing their share in Central taxes.
- State Autonomy: Provided States with greater flexibility in deciding their expenditure priorities.
- Local Governance: Recommended financial support for Panchayati Raj Institutions and Urban Local Bodies.
- Cooperative Federalism: Promoted greater financial participation of States in India’s development process.
Conclusion
The Fourteenth Finance Commission played an important role in strengthening fiscal federalism by increasing the States’ share in the divisible pool of Central taxes from 32% to 42%, thereby providing greater financial autonomy to State Governments.
| This concept has been mentioned in the following article:” Fast Track Special Courts (FTSCs) |