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With reference to the Fourteenth Finance Commission, which of the following statements is/are correct? 1. It has increased the share of States in the central divisible pool from 32 percent to 42 percent. 2. It has made recommendations concerning sector-specific grants. Select the correct answer using the code given below.
Explanation
The correct answer is option A (1 only).
The Fourteenth Finance Commission (FFC) indeed increased the share of states in the central divisible pool from 32 percent to 42 percent,[2] which was the biggest ever[3] increase in vertical tax [1]devolution. This was a landmark recommendation that significantly enhanced fiscal federalism in India.
However, statement 2 is incorrect. The sector-specific grants mentioned in the sources refer to state-specific grants that are tied grants covering six broad themes including social needs, administrative governance, water conservation, culture preservation, physical infrastructure, and tourism, which fall under formula-based devolution (41%) and other grants.[4] These are not referred to as "sector-specific grants" in the context of the FFC's recommendations. The Commission's main achievement was the substantial increase in untied tax devolution, while grants were categorized differently as state-specific grants addressing special needs and cost disabilities.
Therefore, only statement 1 is correct.
Sources- [1] https://www.indiabudget.gov.in/budget2015-2016/es2014-15/echapvol1-10.pdf
- [3] https://documents.worldbank.org/curated/en/634911468180255296/pdf/100453-P156828-make-PUBLIC-10-29-530pm-DC-time-Box393236B-India-Development-Update-October-2015.pdf
- [4] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 5. State Specific Grants > p. 184
PROVENANCE & STUDY PATTERN
Guest previewThis question tests the 'Headline' vs the 'Fine Print'. Statement 1 was the famous 42% figure (the Headline), but Statement 2 tested the structural trade-off (the Fine Print): to afford this hike, the Commission removed sector-specific tied grants. You must study major reports as a package of 'Gives' and 'Takes'.
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Explicitly states the FFC increased the states' share from 32 percent to 42 percent.
- Identifies this as a radical/enormous increase compared to previous commissions.
- States' share in the divisible pool is explicitly reported to have increased from 32% to 42% following FFC recommendations.
- Provides an independent academic confirmation of the change.
- World Bank document states the 14th Finance Commission recommended increasing the states' share from 32 to 42 percent.
- Frames the increase as a transfer of untied resources to states, confirming the nature of the change.
States' share percentages year-to-year are reported (15th FC: 41% in 2020-21; 'in 2019-20, it was 42%'), showing that the divisible-pool share can be expressed and tracked across commissions/years.
A student could use this reported 42% for 2019-20 (which lies in the 14th FC period) to infer that the preceding commission's recommendation likely set a ~42% share and compare that to earlier commissions' shares (e.g., a hypothesized 32%) from historical data.
The 15th Finance Commission's vertical devolution figure (41% of central taxes) is given, illustrating that successive Finance Commissions change the percentage shared with states.
Use the 15th FC's 41% as a point of comparison to see if the 14th's percentage (which covered 2015–20) was higher (42%) or a jump from an earlier lower figure (32%).
Identifies the time period the 14th Finance Commission covered (2015–16 to 2020–21), so any share percentage reported for years inside that period (e.g., 2019–20) can be attributed to the 14th FC's recommendations.
A student can map the 2019–20 42% figure (from other snippets) to the 14th FC period to support assessing whether the 14th set that level.
Explains the Finance Commission's constitutional role to recommend the distribution of net proceeds of taxes between Centre and States (i.e., the percentage share is a core FC function).
Knowing FCs set these shares, a student can look up which FC covered which years and attribute observed share changes (e.g., from 32% to 42%) to the relevant FC's recommendations.
Gives historical examples where Finance Commissions substantially changed share percentages (e.g., earlier commissions raised states' shares), showing precedent for large percentage changes by a FC.
A student could treat past precedent of large changes as plausibility support and then seek the specific numeric history (to confirm if a 32→42 jump occurred at the 14th FC).
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