Q. How have the recommendations of the 14th Finance Commission of India enabled the states to improve their fiscal position?

Model Answer: 

The 14th Finance Commission of India was constituted in 2013 to recommend the distribution of tax revenue between the central government and the states. The commission’s recommendations had a significant impact on the fiscal position of the states. In this answer, we will discuss how the recommendations of the 14th Finance Commission enabled the states to improve their fiscal position.

Increase in Share of Central Taxes:

The 14th Finance Commission recommended an increase in the share of central taxes to be transferred to the states from 32% to 42%. This increase in the share of central taxes has helped the states in the following ways:

• Increased revenue: The increase in the share of central taxes has led to an increase in the revenue of the states, which has enabled them to undertake more development activities.
• Fiscal autonomy: The increase in the share of central taxes has given the states more fiscal autonomy, which has allowed them to plan their finances better.
• Reduced dependence on central grants: The increase in the share of central taxes has reduced the dependence of the states on central grants, which has given them more flexibility in the implementation of their development plans.

Untied Grants:

The 14th Finance Commission recommended untied grants to the states. These grants can be used by the states for any purpose, which has helped the states in the following ways:

• Flexibility in planning: The untied grants have given the states more flexibility in planning their finances, as they can use the grants for any purpose they deem fit.
• Improved fiscal discipline: The untied grants have encouraged the states to improve their fiscal discipline, as they need to demonstrate accountability for the use of these grants.

Performance-based Grants:

The 14th Finance Commission recommended performance-based grants to the states. These grants are given to the states based on their performance in achieving certain targets, which has helped the states in the following ways:

• Encouraging competition: The performance-based grants have encouraged competition among the states to achieve the targets, which has led to better performance.
• Improved efficiency: The performance-based grants have encouraged the states to be more efficient in implementing their development plans, as they need to achieve the targets to receive the grants.

Conclusion:

The recommendations of the 14th Finance Commission have enabled the states to improve their fiscal position by increasing their revenue, giving them more fiscal autonomy, reducing their dependence on central grants, providing them with untied grants, and offering performance-based grants. These measures have encouraged the states to improve their fiscal discipline, plan their finances better, and be more efficient in implementing their development plans.