Question map
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.
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] https://prsindia.org/policy/report-summaries/report-15th-finance-commission-2021-26
- [2] https://prsindia.org/policy/report-summaries/report-15th-finance-commission-2021-26
- [3] https://fincomindia.nic.in/asset/doc/commission-reports/15th-FC/reports/studies/Measurable%20performance%20based%20incentives%20for%20States%20in%20India.pdf
- [4] https://fincomindia.nic.in/asset/doc/commission-reports/15th-FC/reports/studies/Measurable%20performance%20based%20incentives%20for%20States%20in%20India.pdf
- [5] https://fincomindia.nic.in/asset/doc/commission-reports/15th-FC/reports/studies/Measurable%20performance%20based%20incentives%20for%20States%20in%20India.pdf
PROVENANCE & STUDY PATTERN
Full viewThis 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.
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?
- Statement 2: Did the 15th Finance Commission recommend sharing 45% of the net proceeds of Union taxes with States?
- Statement 3: Did the 15th Finance Commission allocate ₹45,000 crore as performance-based incentives for all States for carrying out agricultural reforms?
- Statement 4: Did the 15th Finance Commission reintroduce tax-effort criteria to reward fiscal performance?
Shows the Finance Commission's explicit role to recommend principles and specific grants-in-aid to States.
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.
Reiterates the FC's remit (distribution of taxes, grants-in-aid, measures to augment state funds and other matters referred by the President).
Use this rule to accept that the 15th FC could include sectoral incentive grants (like for education) in its recommendations.
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.
A student could check whether a 2022–23 to 2025–26 payment schedule fits within the FC's award timeline and plausible implementation windows.
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.
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.
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.
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.
Gives the specific percentage the 15th FC recommended for 2020–21: 41% (and notes it was 42% in 2019–20).
A student could compare this stated 41% against the claimed 45% and consult the 15th FC report or official government releases to confirm the correct figure.
Mentions that the 15th FC used a devolution formula to allocate funds among states, indicating the Commission sets a specific shared-taxes percentage and distribution method.
Knowing the FC issues a devolution percentage, a student can look up the 15th FC's devolution section (formula and percentage) to verify whether 45% was recommended.
States Article 280’s mandate that the Finance Commission recommends 'the percentage of the net proceeds of income-tax' to be assigned to states — establishing that such percentages are formal Commission recommendations.
Using this rule, a student can treat any claimed percentage (like 45%) as a testable output of the 15th FC and seek the Commission’s formal recommendation text.
Provides a historical example where a Finance Commission recommendation specified an exact percentage (55% assigned to states), showing commissions do publish precise percentages.
By analogy, a student can expect the 15th FC to have likewise published a specific percentage and thus verify whether it was 45% or another number.
Notes the 15th Finance Commission was constituted to recommend transfers for 2020–2025 and to 'safeguard the interests of the States in the shared Taxes', implying it would state the share percentage for that period.
A student can use this to justify checking the 15th FC’s formal recommendations for the 2020–25 period to see the exact percent (e.g., 41% vs 45%).
Lists 'Implementation of Agricultural Reforms' as a category of performance-based incentives and enumerates the specific reform areas that would be rewarded.
A student could use this to infer that the 15th FC framework included performance-linked incentives for agriculture and then check external sources for the total amount and whether it covered all States.
Describes the 15th Finance Commission's constitution, membership and its mandate to make recommendations for transfers to States for 2020–2025.
One could combine this with the existence of performance-based agricultural incentives to look up the 15th FC report or press releases to verify any specific ₹45,000 crore allocation.
Gives an example of a specific sum (₹11,092 crore) sanctioned to States based on the 15th FC recommendation (State Disaster Risk Management Fund).
Use this as a pattern that the 15th FC recommended specific cash allocations to States, so one could plausibly search the FC's recommendations for a comparable ₹45,000 crore item for agricultural reforms.
Mentions the 'Devolution Formula Used by 15th Finance Commission', indicating the FC produced allocation formulas and related recommendations.
This suggests there are formal allocation mechanisms to inspect; a student could consult the devolution/allocation annexures of the 15th FC to confirm or refute the ₹45,000 crore claim.
- Shows historical use of 'Tax Effort' and 'Fiscal Discipline' as criteria by earlier Finance Commissions (Eleventh, Twelfth, Thirteenth).
- Provides context that earlier commissions used tax-effort, which is relevant to whether the 15th reintroduced it.
- Describes the 15th Finance Commission's instruction to NCAER to develop a methodological framework for 'measureable performance-based incentives', indicating the Commission was focused on a range of performance indicators.
- Does not mention reintroducing tax-effort specifically, suggesting the 15th's work emphasized broader measurable indicators.
- Notes the large number and variety of performance dimensions the 15th considered, highlighting measurement challenges and a broad indicator set rather than a simple tax-effort metric.
- Implicates that the 15th focused on multiple outcome/sector indicators (making a sole focus on tax-effort less evident).
Mentions a 'Devolution Formula Used by 15th Finance Commission' — indicating the 15th FC specified criteria/formula to allocate funds among States.
A student could look up the actual components of that devolution formula to see if 'tax-effort' or performance-linked metrics are included.
States that the 15th FC was constituted to strengthen cooperative federalism, improve quality of public spending and help protect fiscal stability — goals consistent with rewarding fiscal performance.
Use these stated objectives to justify searching the Commission's report for performance‑based incentives (e.g., tax‑effort) as part of achieving those goals.
Defines the Finance Commission's function to recommend principles governing grants‑in‑aid and distribution of tax proceeds — showing it has the mandate to adopt criteria (like tax‑effort) when allocating funds.
Combine this mandate with the existence of a 15th‑FC devolution formula (snippet 3) to check whether tax‑effort was adopted as one such principle.
Gives historical examples of Finance Commissions changing allocation shares and examining states' debt/financial positions — demonstrating commissions historically used fiscal indicators in allocations.
A student could infer that the 15th FC might likewise include fiscal performance measures (like tax‑effort) and therefore examine its report for analogous indicators.
Identifies the 15th FC (chair and term) confirming which commission's report to consult for any change in allocation criteria.
Use the commission identity and timeframe to locate its official report or government releases to verify whether tax‑effort was reintroduced.
- [THE VERDICT]: Sitter (via Elimination). While Statements I and III are obscure data points, Statement II contains a fundamental error (45% vs 41%) that eliminates options A, B, and D instantly.
- [THE CONCEPTUAL TRIGGER]: Fiscal Federalism & The 15th Finance Commission Report (a mandatory read for Economy/Polity).
- [THE HORIZONTAL EXPANSION]: Memorize the 15th FC Horizontal Devolution Criteria & Weights: Income Distance (45%), Area (15%), Population 2011 (15%), Demographic Performance (12.5%), Forest & Ecology (10%), Tax Effort (2.5%).
- [THE STRATEGIC METACOGNITION]: Never memorize every sector-specific grant amount. Focus on the 'Macro Numbers': Vertical Devolution % (41%) and the Horizontal Formula. If the examiner changes the Macro Number (e.g., to 45%), that is your entry point to solve the question.
The Finance Commission's constitutional remit includes recommending distribution of tax proceeds and the principles for grants-in-aid to subnational governments, which is directly relevant to any claim about specific grant recommendations.
High-yield for questions on fiscal federalism and Centre–subnational fiscal relations; links to budgetary allocation, Article 280, and questions on how targeted grants can be mandated. Mastering this helps answer items on who can authorise transfers and the limits of the Finance Commission's role.
- Laxmikanth, M. Indian Polity. 7th ed., McGraw Hill. > Chapter 46: Finance Commission > FUNCTIONS > p. 431
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 1. Finance Commission Grants > p. 182
Knowing the 15th Commission's term and the award period is necessary to assess whether it could have recommended grants for 2022-23 to 2025-26.
Useful for timeline-based questions about commissions and their recommendations; connects to administrative chronology, evaluation of specific awards, and identifying which commission's remit covers a given fiscal period.
- 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
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > 15<sup>th</sup> FINANCE COMMISSION > p. 122
The Commission issues different categories of grants—post-devolution revenue-deficit grants, special grants, and sectoral grants (e.g., nutrition)—which frames evaluation of any claimed new grant for educational outcomes.
Important for distinguishing grant categories when analysing fiscal measures; helps answer questions on purpose-specific vs general grants, and how incentives for social outcomes might be structured through the FC's instruments.
- 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
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 1. Revenue Deficit Grants > p. 183
Finance Commissions recommend a specific percentage of net Union tax proceeds to be transferred to States as vertical devolution.
High-yield for UPSC: questions often ask about the percentage share recommended by recent Finance Commissions and its implications for Centre–State fiscal relations; mastering this helps answer budget/fiscal federalism questions and interpret changes across successive Commissions.
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > Recommendations of 15th FC (for FY 2020-21) > p. 122
- Indian Polity, M. Laxmikanth(7th ed.) > Chapter 15: Centre-State Relations > I I Finance Commission > p. 156
The Finance Commission is constitutionally required to recommend distribution and allocation of tax proceeds and principles of grants-in-aid.
Core constitutional concept: frequently tested in polity and governance; connects to Centre–State relations, fiscal federalism, and budgetary questions. Understanding the mandate enables tackling questions on devolution, grants, and Commission reports.
- 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. 387
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 1. Finance Commission Grants > p. 182
Vertical devolution is the share of Union taxes allotted to States; horizontal devolution is the subsequent allocation among States.
Practically useful across UPSC papers: helps analyze how total transfers are split and the criteria for intra-state allocation; useful for questions on fiscal equity, resource distribution, and interpreting Finance Commission formulas.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 4: Government Budgeting > 1. Finance Commission Grants > p. 182
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > Recommendations of 15th FC (for FY 2020-21) > p. 122
The 15th Finance Commission was constituted in November 2017 to recommend transfer of resources from the Centre to States for the five-year period 2020–2025.
Understanding the Commission's mandate and period is high-yield for questions on fiscal federalism, Centre-State resource transfers and timed policy recommendations. It connects to topics on devolution, grants, and the institutional basis for budgetary allocations, enabling answers on who decides intergovernmental fiscal transfers and over what cycles.
- 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
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > 15<sup>th</sup> FINANCE COMMISSION > p. 122
The 'Demographic Performance' criterion (12.5% weight). This was the 15th FC's specific mechanism to reward states with lower fertility rates (mostly Southern states) to offset the penalty of using 2011 population data instead of 1971.
The 'Anchor Fact' Strategy. Identify the most standard fact in the list. Here, it is the Devolution Percentage (Statement II). You know 14th FC was 42% and 15th FC is 41% (adjusted for J&K/Ladakh). 45% is historically incorrect. Eliminating II removes A, B, and D. Answer is C.
Links to GS-2 (Cooperative Federalism) and GS-3 (Government Budgeting). The 15th FC's shift to 'Performance-based Incentives' (for Agri/Education) represents a structural move from 'Entitlement-based' transfers to 'Outcome-based' fiscal federalism.