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15th Finance Commission Pdf UPSC - 15th FC Terms of reference

15th Finance Commission Pdf UPSC – 15th FC Terms of reference

About Finance Commission 

  • Article 270- sharing of central taxes
  • Article 275- grant in aid of revenues (grant-in-aid/statutory grants/non-plan grants are to be given to the States in need of assistance and the amount of grant-in-aid and the principles for judging the eligibility of states for these grants-in-aid are to be determined by the Finance Commission)
  • Article 280- provides the main responsibilities of the finance commission
  • The central government collects majority of the taxes in the form of Income tax, Corporate tax, Customs, Central GST etc whereas it is the state which needs to provide a huge amount of services to the public hence it is natural for the states to fall into revenue imbalance/gap
  • Prior to 2000, only Income tax and union excise on certain duties were shared but the constitutional amendment in 2000 allowed all the central taxes to be shared with the states
  • The government has amended the constitution twice – 80th CAA and 88th CAA in 2000 and 2003 respectively in order to change the scheme of distribution of taxes between the centre and the states
  • The tax sharing is done so as to correct the vertical and horizontal imbalances which arise due to constitutional assignment of tax powers and responsibilities of the expenditure
  • The tax sharing recommendations given by the FC does not form the part of consolidated fund of India

Background of Finance Commission  -15th Finance Commission Pdf



  • The first Finance Commission was established by the President of India in 1951 under Article 280of the Indian Constitution.
  • It was formed to define the financial relations between the central government of India and the individual state governments.

November, 2017:

  • The Government of India, with the approval President of India, has constituted Fifteenth Finance Commission.
  • Please note: It is in pursuance of clause (1) of article 280 of the Constitution, read with the provisions of the Finance Commission (Miscellaneous Provisions) Act, 1951e.f. 27thNovember, 2017.


  • Five years

Commence on:

  • April 1st, 2020


  • Available by 30th October, 2019
  • The recommendations would be applicable for the period from 2020-2025

15th Finance Commission Terms of References

Review the current status of:

  • finance,
  • deficit,
  • debt levels, and
  • cash balances and fiscal discipline efforts of the Union and the States.
  • The distribution of tax proceeds between the centre and states
  • Principles governing grant in aid to the states
  • Measures to be taken to augment the consolidated fund of states
  • Review the impact of the 14th Finance Commission recommendations on the fiscal position of the centre
  • Review the debt level of the centre and states, and recommend a roadmap
  • Study the impact of GST on the economy
  • Recommend performance-based incentives for states based on their efforts to control population, promote ease of doing business, and control expenditure on populist measures, among others
  • Should there be a provision of revenue deficit grants

Major issues revolving around 15th Finance Commission’s Terms of References are as follows:

  • While the terms of reference for the 14th Finance Commission were to use the 1971 Census data for determining devolution of taxes, duties and grants-in-aid.
  • The Central government asked the 15th Finance Commission’s ToR to use the 2011 data. 
  • This move would result in lower resource allocation to the southern States.

15th Finance Commission Pdf UPSC - 15th FC Terms of reference

Lets Compare BIMARU States Vs Southern States


  • In 1971, the BIMARU states had 57% more population than the southern states and today it twice that of southern states
  • The total population of four southern states is lower than the combined population of UP and Rajasthan
  • The northern states’ share of population has increased from 38.7% (1971) to 42.4% (2011) whereas that of southern states has fallen down from 24.7% to 20.7%

Total Fertility Rates (TFR)

  • TFR for India was 5.5 in 1971 and has been brought down to 2.3 by 2013
  • The southern states’ TFR ranged between 3.9 for TN to 4.6 in AP in 1971, which was way below the national average. By 2013 it has been brought down to the range of 1.7 to 1.9
  • The northern states’ TFR in 1971 was over 6 and by 2013 has been brought down to the range of 1.9 to 3.4

Size of the Economy

  • At 1980-81 prices the size of the BIMARU states was 32% larger than the combined size of the southern states
  • By 2016-17, the economic size of the southern states is 15% more than the northern states

Per Capita Income 

  • The per capita income of southern states is much higher than that of northern states .
  • The lowest PCI in a southern state is of Rs.95566 .
  • Per Capita Income of Rajasthan Rs.72072 is the highest amongst the northern states.

Contributions to direct taxes

  • Southern states contributed 23.5% whereas northern states’ contribution was just 9.7% (Karnataka contributed 10.1%)

What are the other aspects refered to the 15th Finance Commission pdf?

  •  15th Finance Commission has been asked to analyse the impact on the finances of the Union government due to enhanced devolution to states.
  • This is an indication that the enhanced devolution of 42% (from 32%) might be reversed if the Union feels financially constrained.
  • Notably, Brazil had recently reversed some of its decentralisation initiatives, and thereby is a genuine concern to India’s federal perception too.
  • In India’s case, reversal will be counterproductive as the 2014 devolution did not lead to any change in the quantum of funds that reaced the states.
  • The only change was that the funds that were given away through central flagship schemes was trimmed and the money thus saved was tranfered to the state kitty for facilitating unfettered spending as per state discretion.
Curbing Populism
  • The 15th commission has also been asked to examine ways to curb populist spending due to electoral calculations.
  • Given the growing concerns over rising state deficits (especially in Bihar and Punjab), the concerns over excessive state spending are well taken.
  • But there is no clear definition of “populist” programmes or on who decides what is populaist and thereby the ambiguity is very open.
  • Additionally, dictating the states on what and how to spend doesn’t sound good for cooperative federalism, and it is best for the union merely advice.
  • Also, the union budget too has populist aspects, which needs to be curtailed.
  • Finding ways to encourage “Ease of Doing Business” has also been mandated from the 15th Finance commission.
  • While competition among states for investment is welcome, a race among states to dismantle all regulation is what might unfold, which is undesirable.
  • Better analysis of constrains to business is needed rather than the merely removing regulatory checks that are to key to sustain the business ecosystem.

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