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Fiscal Policy & Revenue (Part – V)

📆 October 15, 2024

Total Questions: 50

31. The recommendation of the 14th Finance Commission for increase the share of net proceeds of union taxes between Centre to States has been fixed at: [Jharkhand P.C.S. (Pre) 2016]

Correct Answer: (c) 42 percent
Solution:The 14th Finance Commission recommended the share of taxes of the Centre to States to be increased from 32% to 42%. The 15th Finance Commission in its reports, has recommended the share of States in the Centre's taxes to be decreased from 42% during the 2015-20 period to 41% for 2020-21 and 2021-26 period. The 1% decrease is to provide for the newly formed Union Territories of Jammu and Kashmir and Ladakh from the resources of the Central Government.

32. With reference to the Fourteenth Finance Commission, which of the following statements is/are correct? [I.A. S. (Pre) 2015]

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 :

Correct Answer: (a) 1 only
Solution:The 14th Finance Commission was appointed by the President of India on 2 January, 2013 under the chairmanship of Dr.Y.V. Reddy. The commission has recommended States share in net proceeds of Central tax revenue (divisible pool) be 42 percent, a huge jump from the 32 percent recommended by the 13th Finance Commission. 14th FC had not made recommendations concerning sector-specific grants. 15th Finance Commission has recommended that 41 percent of the net proceeds of Central taxes be shared with the States.

33. Who was the Chairman of the 14th Finance Commission? [Chhattisgarh P.C.S (Pre) 2015]

Correct Answer: (d) Dr. Y.V. Reddy
Solution:The 14th Finance Commission was appointed by the President of India on 2 January, 2013 under the chairmanship of Dr.Y.V. Reddy. The commission has recommended States share in net proceeds of Central tax revenue (divisible pool) be 42 percent, a huge jump from the 32 percent recommended by the 13th Finance Commission. 14th FC had not made recommendations concerning sector-specific grants. 15th Finance Commission has recommended that 41 percent of the net proceeds of Central taxes be shared with the States.

34. According to the 14th Finance Commission, the percentage share of States in the net proceeds of the shareable Central tax revenue should be: [Uttarakhand P.C.S. (Pre) 2016, B.P.S.C. (Pre) 2017]

Correct Answer: (d) 42 percent
Solution:The 14th Finance Commission was appointed by the President of India on 2 January, 2013 under the chairmanship of Dr.Y.V. Reddy. The commission has recommended States share in net proceeds of Central tax revenue (divisible pool) be 42 percent, a huge jump from the 32 percent recommended by the 13th Finance Commission. 14th FC had not made recommendations concerning sector-specific grants. 15th Finance Commission has recommended that 41 percent of the net proceeds of Central taxes be shared with the States.

35. Who has been appointed as the Chairman of the 13th Finance Commission on 14 November, 2007? [Uttarakhand P.C.S. (Pre) 2006, U.P. Lower Sub. (Spl.) (Pre) 2004]

Correct Answer: (c) Dr. Vijay L. Kelkar
Solution:The Thirteenth Finance Commission has been constituted in pursuance of the provisions of Article 280 of the Constitution of India by the President under the chairmanship of Dr. Vijay L. Kelkar in November, 2007. The commission made recommendation covering a period of five years (2010-15) commencing from the 1 April, 2010. The Sixteenth (16th) Finance Commission is constituted on 31 December, 2023 un- der the chairmanship of Arvind Panagariya.

Some key aspects of 13th Finance Commission,

  • Performance-Based Grants: For the first time, the 13th Finance Commission introduced the concept
    of performance-based grants, wherein a certain portion of the grants was tied to the achievement of specific performance criteria by the local bodies. This incentivised local bodies to improve their performance.
  • General Basic Grants: The Commission recommended the allocation of general basic grants that could be used by local bodies at their discretion. This was an important departure from earmarked grants and enhanced the financial autonomy of local bodies.
  • State-Level Property Tax Reforms: Recognizing that property tax is a significant source of revenue
    for local bodies, the Commission incentivised states to conduct property tax reforms by linking a portion of the grants to such reforms.
  • Maintenance of Capital Assets: The Commission recommended a portion of the grants to be used
    for the maintenance of capital assets created by local bodies. This was a crucial recommendation to ensure the sustainability of assets created by local bodies.
  • Strengthening of State Finance Commissions: The 13th Finance Commission laid stress on
    strengthening the State Finance Commissions (SFCs) by providing funds for setting up of SFC cells and conducting studies related to local body finances.

36. The period of recommendations made by Thirteenth Finance Commission is: [U.P.P.C.S. (Mains) 2010, U.P.U.D.A./L.D.A. (Spl.) (Pre) 2010]

Correct Answer: (b) 2010-15
Solution:The Thirteenth Finance Commission has been constituted in pursuance of the provisions of Article 280 of the Constitution of India by the President under the chairmanship of Dr. Vijay L. Kelkar in November, 2007. The commission made recommendation covering a period of five years (2010-15) commencing from the 1 April, 2010. The Sixteenth (16th) Finance Commission is constituted on 31 December, 2023 un- der the chairmanship of Arvind Panagariya.

Some key aspects of 13th Finance Commission,

  • Performance-Based Grants: For the first time, the 13th Finance Commission introduced the concept
    of performance-based grants, wherein a certain portion of the grants was tied to the achievement of specific performance criteria by the local bodies. This incentivised local bodies to improve their performance.
  • General Basic Grants: The Commission recommended the allocation of general basic grants that could be used by local bodies at their discretion. This was an important departure from earmarked grants and enhanced the financial autonomy of local bodies.
  • State-Level Property Tax Reforms: Recognizing that property tax is a significant source of revenue
    for local bodies, the Commission incentivised states to conduct property tax reforms by linking a portion of the grants to such reforms.
  • Maintenance of Capital Assets: The Commission recommended a portion of the grants to be used
    for the maintenance of capital assets created by local bodies. This was a crucial recommendation to ensure the sustainability of assets created by local bodies.
  • Strengthening of State Finance Commissions: The 13th Finance Commission laid stress on
    strengthening the State Finance Commissions (SFCs) by providing funds for setting up of SFC cells and conducting studies related to local body finances.

37. States in Indian Union will receive at last what part of the following percentage of Central Tax under 13th Finance Commission recommendations? [U.P.P.C.S. (Mains) 2009]

Correct Answer: (b) 32.0 percent
Solution:The Thirteenth Finance Commission under the Chairman- ship of Dr. Vijay L. Kelkar recommended increase in the share of States to 32 percent of net proceeds of Central taxes as against the 30.5 percent of the 12th FC.

Some key aspects of 13th Finance Commission,

  • Performance-Based Grants: For the first time, the 13th Finance Commission introduced the concept
    of performance-based grants, wherein a certain portion of the grants was tied to the achievement of specific performance criteria by the local bodies. This incentivised local bodies to improve their performance.
  • General Basic Grants: The Commission recommended the allocation of general basic grants that could be used by local bodies at their discretion. This was an important departure from earmarked grants and enhanced the financial autonomy of local bodies.
  • State-Level Property Tax Reforms: Recognizing that property tax is a significant source of revenue
    for local bodies, the Commission incentivised states to conduct property tax reforms by linking a portion of the grants to such reforms.
  • Maintenance of Capital Assets: The Commission recommended a portion of the grants to be used
    for the maintenance of capital assets created by local bodies. This was a crucial recommendation to ensure the sustainability of assets created by local bodies.
  • Strengthening of State Finance Commissions: The 13th Finance Commission laid stress on
    strengthening the State Finance Commissions (SFCs) by providing funds for setting up of SFC cells and conducting studies related to local body finances.

38. What percentage of central tax revenue has been recommended for allocation to the States by the Thirteenth Finance Commission? [U.P.P.C.S. (Mains) 2009]

Correct Answer: (c) 32.0%
Solution:The Thirteenth Finance Commission under the Chairman- ship of Dr. Vijay L. Kelkar recommended increase in the share of States to 32 percent of net proceeds of Central taxes as against the 30.5 percent of the 12th FC.

Some key aspects of 13th Finance Commission,

  • Performance-Based Grants: For the first time, the 13th Finance Commission introduced the concept
    of performance-based grants, wherein a certain portion of the grants was tied to the achievement of specific performance criteria by the local bodies. This incentivised local bodies to improve their performance.
  • General Basic Grants: The Commission recommended the allocation of general basic grants that could be used by local bodies at their discretion. This was an important departure from earmarked grants and enhanced the financial autonomy of local bodies.
  • State-Level Property Tax Reforms: Recognizing that property tax is a significant source of revenue
    for local bodies, the Commission incentivised states to conduct property tax reforms by linking a portion of the grants to such reforms.
  • Maintenance of Capital Assets: The Commission recommended a portion of the grants to be used
    for the maintenance of capital assets created by local bodies. This was a crucial recommendation to ensure the sustainability of assets created by local bodies.
  • Strengthening of State Finance Commissions: The 13th Finance Commission laid stress on
    strengthening the State Finance Commissions (SFCs) by providing funds for setting up of SFC cells and conducting studies related to local body finances.

39. Thirteenth Finance Commission has proposed that the combined debt-GDP ratio of the Centre and the States by year 2014-15 should be: [U.P.P.C.S. (Mains) 2009, U.P.P.C.S. (Spl.) (Mains) 2008]

Correct Answer: (c) 68 percent
Solution:The Thirteenth Finance Commission has assessed the finances of the Union and the States and specified a combined debt target of 68% of Gross Domestic Product (GDP) to be met by 2014-15. It had also worked out a road map for Fiscal Deficit (FD) and Revenue Deficit (RD) for the Award period.

Some key aspects of 13th Finance Commission,

  • Performance-Based Grants: For the first time, the 13th Finance Commission introduced the concept
    of performance-based grants, wherein a certain portion of the grants was tied to the achievement of specific performance criteria by the local bodies. This incentivised local bodies to improve their performance.
  • General Basic Grants: The Commission recommended the allocation of general basic grants that could be used by local bodies at their discretion. This was an important departure from earmarked grants and enhanced the financial autonomy of local bodies.
  • State-Level Property Tax Reforms: Recognizing that property tax is a significant source of revenue
    for local bodies, the Commission incentivised states to conduct property tax reforms by linking a portion of the grants to such reforms.
  • Maintenance of Capital Assets: The Commission recommended a portion of the grants to be used
    for the maintenance of capital assets created by local bodies. This was a crucial recommendation to ensure the sustainability of assets created by local bodies.
  • Strengthening of State Finance Commissions: The 13th Finance Commission laid stress on
    strengthening the State Finance Commissions (SFCs) by providing funds for setting up of SFC cells and conducting studies related to local body finances.

40. Which one of the following has been assigned the highest weightage by the Thirteenth Finance Commission of India while recommending devolution of Union taxes amongst States? [U.P.P.C.S. (Mains) 2011]

Correct Answer: (d) Fiscal Capacity Distance
Solution:Criteria and weightage for devolution used by Finance Commissions are as follows:

    Weight accorded (%)

Criteria13th FC (2010-15)14th FC (2015-20)15th FC (2020-21)15th FC (2021-26)
Population (1971)25.017.5------
Population (2011)---10.015.015.0
Area10.015.015.015.0
Fiscal Capacity/Income Distance47.550.045.045.0
Forest Cover---7.5------
Forest and Ecology------10.010.0
Fiscal Discipline17.5---------
Demographic Performance------12.512.5
Tax and Fiscal efforts------2.52.5
Total100100100100

Note: #14th FC used the term 'demographic change' which was defined as Population in 2011. *The report for 2020-21 used the term 'tax effort', the definition of the criterion is same.

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