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14th Finance Commission Submits Report
Dec 23, 2014

The 14th Finance Commission headed by former RBI Governor Y.V. Reddy has submitted its report to the President of India. Prof. Abhijit Sen, Member, Planning Commission; Ms. Sushma Nath, Former Union Finance Secretary; Dr. M.Govinda Rao, Director, National Institute for Public Finance and Policy and Dr. Sudipto Mundle, Former Acting Chairman, National Statistical Commission were the members of the Commission.

The recommendations are related to the period April 1, 2015 to March 31, 2020. The 14th Finance Commission (A Constitutional Body) had recently been given time till December 31 to submit its report. The extension was given to enable the Finance Commission to examine financial projections and carry out consultations with the Government of Andhra Pradesh and Telengana. The President of India had constituted the 14th Finance Commission on January 1, 2013.

Working of Finance Commission

The Constitution seeks to secure to all citizens, justice—social, economic and political. It requires the creation of a Finance Commission every five years to recommend devolution of taxes collected by the centre between the centre and the states. It plays a role in securing economic justice.

Though non-binding, the centre would find it tough to ignore the recommendations of an expert body. There is logic in using the population of a state as the first basis for revenue distribution among states—the population gives rise to economic activities that yield tax revenues.

The main function of finance commission is to recommend how the Union government should share taxes levied by it with the states. These recommendations are meant for the period of five years. The commission also lays down rules by which the centre should provide grants-in-aid to states out of the Consolidated Fund of India and also in case of special provision of states. Finance Commission is also assigned the duty of suggesting measures to augment the resources of states and ways to supplement the resources of Panchayati Raj institutes and municipalities.

Apart from its recommendations on the sharing of tax proceeds between the Centre and the States which will apply for a five-year period beginning April 1, 2015, the Commission has been asked to suggest on:

  • Pricing of public utilities such as electricity and water in an independent manner and also look into issues like disinvestment, GST compensation, sale of non-priority PSUs and subsidies.

  • Measures for maintaining a stable and sustainable fiscal environment consistent with equitable growth including suggestions to amend the Fiscal Responsibility Budget Management Acts.

  • With regard to debt-stressed states, the Commission has been asked to suggest steps for augmenting revenues of states which are lagging.

  • Review the present arrangements as regards financing of Disaster Management with reference to the funds constituted under the Disaster Management Act, 2005, and make appropriate recommendations thereon.


In making its recommendations on various matters, the Commission shall generally take the base of population figures as of 1971 in all cases where population is a factor for determination of devolution of taxes and duties and grants-in-aid; however, the Commission may also take into account the demographic changes that have taken place subsequent to 1971.

The 14th finance commission was mandated to devolve a fresh formula for sharing of taxes between the Centre and states. It is expected to have suggested enhancing the states’ share in Central taxes, in tune with the new government’s focus to provide more fiscal autonomy to states.

At present, states are given 32 per cent of Central taxes, in line with the recommendation of the 13th Finance Commission.

Additionally, the 14th Finance Commission is also expected to have given recommendations on issues including the fiscal deficit of Centre and states, additional resource mobilisation to improve the tax-Gross Domestic Product ratio, spending on subsidies, disinvestment in PSUs as well as the impact of the goods and services tax on the finances of Centre and states.


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