14TH FINANCE COMMISSION

The 14th Finance Commission (FFC) was constituted on 2 January, 2013 under the Chairmanship of Dr. Y. V. Reddy, former RBI Governor with Prof. Abhijit Sen, Ms. Sushma Nath, Dr. M. Govinda Rao and Dr. Sudipto Mundle

as the other four members. The recommendations of the commission will apply on the period 2015–20 and its report has to be submitted by 31 October, 2014.

The broad Terms of Reference and the matters to be taken into consideration by the commission are:

(i) Tax Devolution & Grant related references

(a) the distribution between the union and states of the net proceeds of taxes which are to be, or may be, divided between them under Chapter I, Part XII of the Constitution and the allocation between the states of the respective shares of such proceeds;

(b) the principles which should govern the grants-in-aid of the revenues of the states out of the Consolidated Fund of India and the sums to be paid to the states which are in need of assistance by way of grants-in- aid of their revenues under Article 275 of the Constitution for the purposes other than those specified in the provisos to Clause (1) of that article; and

(c) measures needed to augment the Consolidated Fund of a state to supplement the resources of the panchayats and municipalities in the state on the basis of the recommendations made by the finance commission of the state.

(ii) To review the state of finances, deficit, and debt levels of the union and states, and suggest measures for maintaining a stable and sustainable fiscal environment consistent with equitable growth including suggestions to amend the FRBMAs currently in force. The commission has been asked to consider and recommend incentives and disincentives for states for observing the obligations laid down in the FRBMAs.

(iii) In commission is required to consider—

(a) the resources of the Central government and the demands on the resources of the central government;

(b) the resources of the state governments and demands on such resources under different heads, including the impact of debt levels on resource availability in debt-stressed states;

revenue account of all the states and the union but also generating surpluses for capital investment;

(d) the taxation efforts of the central government and each state government and the potential for additional resource mobilisation;

(e) the level of subsidies required for sustainable and inclusive growth and equitable sharing of subsidies between the central and state governments;

(f) the expenditure on the non-salary component of maintenance and upkeep of capital assets and the non-wage-related maintenance expenditure on Plan schemes to be completed by March 31, 2015 and the norms on the basis of which specific amounts are recommended for the maintenance of capital assets and the manner of monitoring such expenditure;

(g) the need for insulating the pricing of public utility services like drinking water, irrigation, power, and public transport from policy fluctuations through statutory provisions;

(h) the need for making public-sector enterprises competitive and market oriented; listing and disinvestment; relinquishing of non-priority enterprises;

(i) the need to balance management of ecology, environment, and climate change consistent with sustainable economic development; and

(j) the impact of the proposed goods and services tax on the finances of the Centre and states and the mechanism for compensation in case of any revenue loss.

(iv) To review the present public expenditure management systems and recommend, including—

(a) budgeting and accounting standards and practices;

(b) the existing system of classification of receipts and expenditure;

(d) best practices within the country and internationally.

(vi) To review the present arrangements of financing of Disaster Management with reference to the funds constituted under the Disaster

Management Act 2005 and make recommendations.

(vii) To indicate the basis on which it has arrived at its findings and make available the state-wise estimates of receipts and expenditure.

The commission is required to 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 up to 1971.