Previous Year Question
Which of the following is/are among the noticeable features of the recommendations of the Thirteenth Finance Commission?
A design for the Goods and Services Tax and a compensation package linked to adherence to the proposed design
A design for the creation of lakhs of jobs in the next ten years in consonance with India’s demographic dividend
Devolution of a specified share of Central taxes to local bodies as grants
Select the correct answer using the code given below:
1 only
2 and 3 only
1 and 3 only
1, 2 and 3
Correct Answer: C
Detailed Solution
The Thirteenth Finance Commission was constituted under Article 280 of the Constitution. It was chaired by Dr. Vijay L. Kelkar, and its recommendations principally covered 2010-11 to 2014-15.
Statement 1 is correct
The Thirteenth Finance Commission recommended a Grand Bargain between the Centre and the States for implementing GST.
Its recommendations included:
A comprehensive GST design;
A coordinated tax structure between the Centre and States;
A broad GST base;
Rationalisation of rates and exemptions; and
A compensation mechanism for States adhering to the proposed GST design.
The Commission proposed a compensation package of approximately ₹50,000 crore to incentivise implementation of the recommended GST model. Access to compensation was linked to compliance with the proposed design.
Therefore, Statement 1 is correct.
Statement 2 is incorrect
The Thirteenth Finance Commission did not recommend a separate ten-year design for creating lakhs of jobs in accordance with India’s Demographic Dividend.
The principal constitutional functions of a Finance Commission are to recommend:
Distribution of taxes between the Union and States;
Inter-State distribution of the States’ share;
Principles governing Grants-in-Aid; and
Measures for augmenting the resources of Panchayats and Municipalities.
Designing a broad national employment-generation programme is not its principal constitutional function.
Therefore, Statement 2 is incorrect.
Statement 3 is correct
The Commission recommended linking grants for Local Bodies to a specified proportion of the Centre’s Divisible Pool.
The objective was to provide Panchayats and Municipalities with a more predictable and buoyant source of revenue. The Commission recommended total grants of approximately ₹87,519 crore for Local Bodies.
These broadly included:
General Basic Grants
General Performance Grants
Special Area Basic Grants
Special Area Performance Grants
To qualify for Performance Grants, States had to satisfy prescribed conditions relating to accounting, auditing, property taxation and financial administration of Local Bodies.
Therefore, Statement 3 is correct.
Other important recommendations
The Thirteenth Finance Commission also recommended:
Increasing the States’ share in the Divisible Pool of Central Taxes to 32%;
Reducing the Centre’s Fiscal Deficit to 3% of GDP;
Strengthening fiscal discipline among States; and
Reforming Fiscal Responsibility legislation.