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Q66 (IAS/2025) Economy › Government Finance & Budget › Finance Commission transfers Answer Verified

Which of the following statements with regard to recommendations of the 15th Finance Commission of India are correct? I. It has recommended grants of ₹ 4,800 crores from the year 2022-23 to the year 2025-26 for incentivizing States to enhance educational outcomes. II. 45% of the net proceeds of Union taxes are to be shared with States. III. ₹ 45,000 crores are to be kept as performance-based incentive for all States for carrying out agricultural reforms. IV. It reintroduced tax effort criteria to reward fiscal performance. Select the correct answer using the code given below.

Result
Your answer: —  ·  Correct: C
Explanation

The correct answer is option C (I, III, and IV are correct).

**Statement I is correct**: The 15th Finance Commission recommended grants of Rs 4,800 crore for educational outcomes[1], which aligns with the statement's claim about incentivizing states to enhance educational outcomes.

**Statement II is incorrect**: The 15th Finance Commission recommended 41% (not 45%) of the net proceeds of Union taxes to be shared with states. This is a well-established fact about the Commission's recommendations for the 2021-26 period.

**Statement III is correct**: The Commission allocated Rs 45,000 crores for implementation[2] of agricultural reforms, which serves as a performance-based incentive for states.

**Statement IV is correct**: Previous Finance Commissions (Eleventh and Twelfth) had used tax effort as a criterion alongside fiscal discipline[3], and the 15th Finance Commission reintroduced this criterion. The Commission was specifically tasked with examining measurable performance-based incentives for states, which was described as the most detailed and ambitious listing[4] of state functions ever suggested to a Finance Commission[5].

Sources
  1. [1] https://prsindia.org/policy/report-summaries/report-15th-finance-commission-2021-26
  2. [2] https://prsindia.org/policy/report-summaries/report-15th-finance-commission-2021-26
  3. [3] https://fincomindia.nic.in/asset/doc/commission-reports/15th-FC/reports/studies/Measurable%20performance%20based%20incentives%20for%20States%20in%20India.pdf
  4. [4] https://fincomindia.nic.in/asset/doc/commission-reports/15th-FC/reports/studies/Measurable%20performance%20based%20incentives%20for%20States%20in%20India.pdf
  5. [5] https://fincomindia.nic.in/asset/doc/commission-reports/15th-FC/reports/studies/Measurable%20performance%20based%20incentives%20for%20States%20in%20India.pdf
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PROVENANCE & STUDY PATTERN
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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. Which of the following statements with regard to recommendations of the 15th Finance Commission of India are correct? I. It has recommen…
At a glance
Origin: Mostly Current Affairs Fairness: Low / Borderline fairness Books / CA: 0/10 · 2.5/10
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This question is a classic 'Wolf in Sheep's Clothing'. It looks like a data-heavy bouncer requiring you to memorize obscure grant figures (₹4,800cr, ₹45,000cr), but it is actually a 'Sitter' designed to be solved by eliminating a single fundamental error in Statement II.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Did the 15th Finance Commission recommend grants of ₹4,800 crore from 2022-23 to 2025-26 to incentivize States to enhance educational outcomes?
Origin: Weak / unclear Fairness: Borderline / guessy
Indirect textbook clues
Laxmikanth, M. Indian Polity. 7th ed., McGraw Hill. > Chapter 46: Finance Commission > FUNCTIONS > p. 431
Strength: 5/5
“~FUNCTIONS The Finance Commission is required to make recommendations to the President of India on the following matters: • 1. The distribution of the net proceeds of taxes to be shared between the Centre and the states, and the allocation between the states of the respective shares of such proceeds. • 2. The principles that should govern the grants-in-aid to the states by the Centre (Le., out of the consolidated fund of India), Till 1960, the commission also suggested the grants given to the States of Assam, Bihar, Odisha and West Bengal in lieu of assignment of any share of the net proceeds in each year of export duty on jute and jute products.”
Why relevant

Shows the Finance Commission's explicit role to recommend principles and specific grants-in-aid to States.

How to extend

A student can infer that the FC is empowered to design targeted grants (e.g., for education) and therefore could propose multi-year incentive grants.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 1. Finance Commission Grants > p. 182
Strength: 4/5
“The Finance Commission is required to recommend to the President on the following matters. • The distribution of the net proceeds of taxes to be shared between the centre and the states (vertical devolution) and the allocation of such proceeds among the states (horizontal devolution).• The principles that should govern the grants-in-aid to the states by the Centre out of the Consolidated fund of India.• The measures needed to augment the consolidated fund of a state to supplement the resources of the Panchayats and the Municipalities in the state on the basis of the recommendations made by the State Finance Commissions.• Any other matter referred to it by the President in the interests of sound finance.”
Why relevant

Reiterates the FC's remit (distribution of taxes, grants-in-aid, measures to augment state funds and other matters referred by the President).

How to extend

Use this rule to accept that the 15th FC could include sectoral incentive grants (like for education) in its recommendations.

Introduction to the Constitution of India, D. D. Basu (26th ed.). > Chapter 25: DISTRIBUTION OF FINANCIAL POWERS > The States, similarly, have their receipts from- > p. 390
Strength: 4/5
“The 14th Finance Commission has submitted its recommendations for the period 2015-16 to 2020-21. They are likely to have major implications for the Center-State relations. The 15th Finance Commission was constituted in November 2017 to give recommendations on the transfer of resources from the Centre to States for the five-year period from 2020 to 2025. The 15th Finance Commission has been constituted with the objective of strengthening co-operative federalism and improving the quality of public spending, and helping protect fiscal stability. Safeguarding the interests of the States in the shared Taxes.”
Why relevant

Identifies the 15th Finance Commission's mandate and the five-year award period (2020–2025), establishing the timeframe within which multi-year grants would be recommended.

How to extend

A student could check whether a 2022–23 to 2025–26 payment schedule fits within the FC's award timeline and plausible implementation windows.

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. 123
Strength: 4/5
“• a. Post-devolution revenue deficit grants of ₹74,340 crore to 14 states and ₹36,423 crore for 9 northeastern and hilly states. • b. Special grants of ₹6,764 crore to 3 states (Karnataka, Mizoram & Telangana) in which the sum of tax devolution and revenue deficit grants is projected to decline in 2020-21 over 2019-20. • c. Nutrition grants of ₹7,735 crore to states. This is an additional grant by centre to states to reduce malnutrition. Disaster Mitigation Fund introduced at both national & state levels (NDMF and SDMF) as a part of NDRMF and SDRMF. Funds tied for mitigation to be 20 per cent and for response to be 80 per cent (in previous FC, there was no fund tied for disaster mitigation). • f.”
Why relevant

Provides examples of specific, named grants (post-devolution revenue deficit grants, special grants, nutrition grants) with exact rupee amounts, showing the FC/centre issues targeted grants with quantified allocations.

How to extend

By analogy, a student could judge that a quantified grant of ₹4,800 crore for education is the sort of specific allocation the Commission or central government might recommend or fund, and then seek the exact schedule.

Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 1. Revenue Deficit Grants > p. 183
Strength: 3/5
“After the devolution of funds (41%), some States face revenue deficit. So FC recommends post devolution revenue deficit grants. While recommending such grants FC has ensured that deficiency in fiscal capacity is corrected but inadequate revenue effort or excessive expenditure is not encouraged. In the first year of the award period (2021-22), FFC has recommended this grant for 17 State but going forward it has reduced the number of States to six in 2025-26.”
Why relevant

Describes how the FC recommends revenue-deficit grants over the award period and adjusts coverage over years (example: 2021–22 to 2025–26 changes), illustrating multi-year, state-targeted funding patterns.

How to extend

A student could use this pattern to expect similar year-by-year phasing for any incentive grant (including education) and thus verify if ₹4,800 crore over 2022–23 to 2025–26 is consistent with known phasing practices.

Statement analysis

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Statement analysis

This statement analysis shows book citations, web sources and indirect clues. The first statement (S1) is open for preview.

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Statement analysis

This statement analysis shows book citations, web sources and indirect clues. The first statement (S1) is open for preview.

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SIMILAR QUESTIONS

IAS · 2015 · Q2 Relevance score: 1.78

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.

CDS-II · 2006 · Q79 Relevance score: 0.04

Consider the following statement s about 11 Finance Commission 1. It was constituted to go recommendations on specified aspects of Centre - State fiscal relations during 2005- 2010. 2. It has recommended that the share of states in the net proceeds of share alike Central taxes shall be 50%. Which of the statements given above is/ are correct ?

IAS · 2012 · Q58 Relevance score: 0.00

Which of the following is/are among the noticeable feature of the recommendations of the Thirteenth Finance Commission? 1. A design for the Goods and Services Tax, and a compensation package linked to adherence to the proposed design 2. A design for the creation of lakhs of jobs in the next ten years in consonance with India’s demographic dividend 3. Devolution of a specified share of central taxes to local bodies as grants Select the correct answer using the codes given below:

CAPF · 2008 · Q35 Relevance score: -0.31

Consider the following statements : 1. No money bill can be introduced in the Parliament without the recommendation of the President of India. 2. The Prime Minister appoints Finance Commission for distribution of taxes between the Union and the States. Which of the statements given above is/are correct ?

IAS · 2024 · Q85 Relevance score: -0.96

With reference to Union Budget, consider the following statements : 1. The Union Finance Minister on behalf of the Prime Minister lays the Annual Financial Statement before both the Houses of Parliament. 2. At the Union level, no demand for a grant can be made except on the recommendation of the President of India. Which of the statements given above is/are correct ?