10th Finance Commission Report: Key Recommendations and Impact
The Tenth Finance Commission (TFC) of India, constituted in 1992 and submitting its report in 1994, played a crucial role in shaping the fiscal federalism framework between the Union government and the states. Headed by K.C. Pant, the commission’s primary mandate was to recommend principles governing the distribution of tax revenues between the Union and the States, and to determine the principles which should govern the grants-in-aid to the States out of the Consolidated Fund of India.
Key Recommendations
The TFC made several significant recommendations, aiming to foster greater fiscal autonomy for states while ensuring financial stability and equity. One of the most prominent was its recommendation regarding the devolution of central taxes. Unlike previous commissions that specified the share of individual taxes to be devolved, the TFC recommended a unified pool of central taxes from which a fixed percentage would be shared with the states. This marked a shift towards a more flexible and predictable system of revenue sharing.
Specifically, the commission recommended that 29% of the gross receipts of all central taxes should be devolved to the states. This percentage was a substantial increase from the previous commission’s recommendation, reflecting the TFC’s commitment to strengthening state finances. This unified approach provided states with greater autonomy in resource allocation and planning.
Besides tax devolution, the TFC also addressed the issue of grants-in-aid. It recommended a needs-based approach to grants, taking into consideration factors such as infrastructure development, backwardness, and special problems faced by individual states. These grants were designed to address horizontal imbalances and ensure that all states could provide essential services to their citizens.
Another important recommendation was the emphasis on fiscal discipline and prudent financial management by both the Union and the States. The commission advocated for reforms in state finances, including measures to improve tax collection, reduce unproductive expenditure, and enhance the efficiency of public sector undertakings.
Impact and Significance
The TFC’s recommendations had a profound impact on India’s fiscal federalism. The unified pool approach to tax devolution simplified the system, increased predictability, and provided states with greater flexibility in managing their finances. The increased share of central taxes devolved to the states empowered them to undertake developmental activities and address their specific needs.
The emphasis on grants-in-aid targeted at addressing regional imbalances helped to promote equitable development across the country. By focusing on backwardness and special problems, the commission ensured that disadvantaged states received additional support to catch up with the rest of the nation.
While the TFC’s recommendations were largely accepted and implemented, some criticisms were raised. Some states felt that the criteria used for allocating grants were not entirely fair or transparent. However, the overall impact of the TFC was positive, leading to greater fiscal autonomy for states and a more balanced and equitable distribution of resources.
The 10th Finance Commission’s report remains a landmark document in the evolution of India’s fiscal federalism, laying the groundwork for a more decentralized and cooperative approach to governance.