The 13th Finance Commission of India

The 13th Finance Commission (Thirteenth FC) was constituted by the President of India in November 2007, under the chairmanship of Dr. Vijay Kelkar. Its primary mandate was to make recommendations on the distribution of net proceeds of taxes between the Union and the States, the principles governing grants-in-aid to States, and measures needed to improve the financial position of States. The Commission’s recommendations covered the period from April 1, 2010, to March 31, 2015.

Key Recommendations

The 13th FC’s report, submitted in December 2009, contained several significant recommendations that had a substantial impact on fiscal federalism in India. Here are some of the key highlights:

• Tax Devolution: The Commission recommended increasing the States’ share in the net proceeds of Union taxes to 32%, a significant increase from the 30.5% recommended by the 12th Finance Commission. This was aimed at providing greater fiscal autonomy to the States and enabling them to address their developmental needs more effectively.
• Grants-in-Aid: Besides tax devolution, the 13th FC recommended grants-in-aid to the States under various categories, including revenue deficit grants, special purpose grants (for education, environment, and specific local body requirements), and grants for local bodies. The aim was to address specific fiscal needs and incentivize better performance in areas like education and environmental protection.
• Fiscal Consolidation: The Commission emphasized the importance of fiscal consolidation and suggested specific fiscal targets for both the Union and the States. It recommended the enactment of fiscal responsibility legislation by all States and urged them to reduce their debt-to-GSDP ratio. This focus on fiscal prudence aimed to ensure long-term fiscal sustainability.
• Debt Relief: To provide further relief to indebted States, the 13th FC recommended a debt consolidation and waiver scheme. This aimed to reduce the debt burden of States and free up resources for development spending.
• Local Bodies: The Commission gave significant attention to strengthening local bodies (Panchayats and Municipalities). It recommended substantial grants for local bodies, conditional on them meeting certain performance criteria related to transparency, accountability, and financial management. This aimed to improve the delivery of essential services at the grassroots level.
• Disaster Management: Recognizing the increasing frequency and intensity of natural disasters, the 13th FC recommended the creation of a National Disaster Response Fund (NDRF) and State Disaster Response Funds (SDRF) to provide resources for disaster relief and rehabilitation.

Impact and Significance

The recommendations of the 13th Finance Commission had a profound impact on fiscal federalism in India. The increased tax devolution to States provided them with greater resources to finance their development programs. The emphasis on fiscal consolidation and debt management helped to improve the fiscal health of both the Union and the States. The focus on local bodies led to increased funding and improved governance at the grassroots level.

Overall, the 13th Finance Commission played a crucial role in strengthening the financial position of States, promoting fiscal discipline, and improving the delivery of public services in India.