The Thirteenth Finance Commission (XIII FC)
The Thirteenth Finance Commission (XIII FC) of India, constituted under Article 280 of the Constitution, was chaired by Dr. Vijay Kelkar. Its primary mandate was to recommend the principles governing the distribution of net proceeds of taxes between the Union and the States (vertical devolution) and the allocation of these proceeds among the States (horizontal devolution) for the period 2010-2015.
A key recommendation of the XIII FC was increasing the share of states in the divisible pool of central taxes from 30.5% to 32%. This enhanced fiscal autonomy for states, allowing them greater flexibility in planning and implementing their development programs. The Commission emphasized a formula-based approach to devolution, aiming for objectivity and transparency. The criteria used for horizontal distribution included population, income distance, area, fiscal discipline, and tax effort.
Key Recommendations and Focus Areas:
- Fiscal Consolidation: The XIII FC strongly advocated for fiscal consolidation at both the central and state levels. It prescribed targets for revenue deficit and debt-to-GDP ratios, urging governments to prioritize revenue enhancement and expenditure rationalization.
- Debt Management: The Commission recommended the creation of a debt consolidation and relief facility, incentivizing states to improve their debt sustainability. This aimed to reduce the overall debt burden on state governments and promote responsible borrowing practices.
- Local Government Finances: Recognizing the importance of local bodies, the XIII FC earmarked a significant portion of grants for Panchayati Raj Institutions and Urban Local Bodies. These grants were linked to reforms in accounting practices, auditing, and service delivery.
- Disaster Management: The Commission reviewed the existing disaster management framework and recommended strengthening institutional mechanisms for disaster preparedness, mitigation, and response. They suggested establishing a National Disaster Mitigation Fund and a State Disaster Mitigation Fund.
- Goods and Services Tax (GST): The XIII FC played a significant role in advocating for the introduction of the Goods and Services Tax (GST). It highlighted the potential benefits of a unified tax system in terms of economic efficiency and revenue enhancement. Although GST was implemented later, the Commission’s work laid the groundwork for its eventual adoption.
The XIII FC’s report provided a comprehensive framework for Centre-State financial relations. It emphasized the need for fiscal prudence, efficient resource management, and strengthened local governance. The Commission’s recommendations had a significant impact on the fiscal landscape of India, influencing policy decisions related to revenue sharing, debt management, and local government finances. Its focus on incentivizing reforms and promoting good governance principles contributed to improved financial health of state governments and enhanced service delivery at the grassroots level.
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