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Q29 (IAS/2023) Economy › Government Finance & Budget › Finance Commission transfers Official Key

Consider the following : 1. Demographic performance 2. Forest and ecology 3. Governance reforms 4. Stable government 5. Tax and fiscal efforts For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance?

Result
Your answer: —  ·  Correct: B
Explanation

The correct answer is Option 2 (Only three).

The Fifteenth Finance Commission (XVFC) used six specific criteria for the horizontal distribution of taxes among states for the 2021-26 period. These are:

  • Income Distance (45%)
  • Area (15%)
  • Population (2011 Census) (15%)
  • Demographic Performance (12.5%)
  • Forest and Ecology (10%)
  • Tax and Fiscal Efforts (2.5%)

The question asks for criteria used other than population, area, and income distance. From the provided list, only Demographic performance (1), Forest and ecology (2), and Tax and fiscal efforts (5) were utilized by the Commission. Governance reforms and Stable government are not part of the XVFC’s formula for tax devolution. Therefore, exactly three of the listed criteria were used, making Option 2 the correct choice.

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Q. Consider the following : 1. Demographic performance 2. Forest and ecology 3. Governance reforms 4. Stable government 5. Tax and fisc…
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 6/10 · 4/10
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Statement 1
Was "Demographic performance" included as a criterion by the Fifteenth Finance Commission for horizontal tax devolution, other than population, area and income distance?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > The XV Finance Commission has recommended the following transfers for 2021-26: > p. 183
Presence: 5/5
“The parameters for distribution of taxes among the states (horizontal distribution) are: • Income Distance (45%),• Population (2011 Census) (15%),• Demographic Performance (12.5%),• State Area (15%),• Forest and Ecology (10%),• Tax and fiscal effort (2.5%)• (ii) As Grants-in-Aid (Article 275) in the form of (these are charged on Consolidated Fund of India and tied grants) following five types:”
Why this source?
  • Explicit list of horizontal distribution parameters includes 'Demographic Performance (12.5%)' alongside Income Distance, Population (2011 Census) and State Area.
  • Gives a clear weight (12.5%), showing it was a distinct criterion used for tax devolution.
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > 2.1Grants-in-Aid of Revenue to States: > p. 124
Presence: 5/5
“Indian Economy • Criterion: Forest & Ecology; Weight (%): 10%; Remarks (as compared to previous FC): Weightage has been increased (from 7.5% to 10%). • Criterion: Income Distance (i.e. based on per capita income of states - higher devolution to states with lower PCI); Weight (%): 45%; Remarks (as compared to previous FC): Weightage has been decreased (from 50% to 45%). • Criterion: Demographic Performance (based on total fertility rate); Weight (%): 12”
Why this source?
  • Specifies 'Demographic Performance (based on total fertility rate)' with an assigned weight (~12%), confirming the metric and inclusion.
  • Mentions it as a criterion in the devolution formula context for the 15th Finance Commission.
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Statement analysis

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