The Thirteenth Finance Commission (TFC), constituted in 2007 under the chairmanship of Dr. Vijay Kelkar, submitted its report concerning the period 2010-2015. It played a significant role in shaping the fiscal landscape of India, influencing the distribution of resources between the Union government and the states, and promoting fiscal prudence at all levels of governance.
One of the key recommendations of the TFC was increasing the share of states in the divisible pool of central taxes from 30.5% to 32%. This was a notable enhancement, providing states with greater financial autonomy and resources for their developmental needs. The divisible pool comprises taxes collected by the central government that are constitutionally mandated to be shared with the states.
Beyond simply increasing the quantum of transfers, the TFC emphasized performance-based incentives. Grants were linked to improvements in fiscal management, particularly debt reduction and revenue mobilization. This encouraged states to adopt sustainable fiscal practices and reduce their reliance on central government assistance. The Commission suggested a detailed roadmap for fiscal consolidation, urging both the Union and State governments to adhere to specific deficit and debt targets.
The TFC also focused extensively on local governance, recommending substantial grants to Panchayati Raj Institutions (PRIs) and Urban Local Bodies (ULBs). These grants were aimed at improving basic services like water supply, sanitation, and infrastructure at the grassroots level. The Commission strongly advocated for the empowerment of local bodies, emphasizing the importance of capacity building and financial accountability to ensure the effective utilization of these funds.
Furthermore, the Commission addressed sector-specific challenges. It recommended grants for sectors like education, health, environment, and infrastructure, recognizing the importance of these areas for overall economic and social development. For instance, grants were provided for improving primary education and healthcare facilities in underserved areas. Specific attention was also given to forestry management and environmental conservation.
The Thirteenth Finance Commission also examined the issues related to Goods and Services Tax (GST). While the GST was not implemented during its tenure, the Commission provided crucial insights and recommendations on its design and implementation, highlighting potential challenges and suggesting ways to address them. It acknowledged the importance of a unified tax system for economic efficiency and emphasized the need for a fair and equitable revenue-sharing mechanism between the center and the states under the GST regime.
In summary, the Thirteenth Finance Commission played a pivotal role in shaping India’s fiscal federalism. By increasing the states’ share of central taxes, promoting fiscal discipline, empowering local bodies, and addressing sector-specific needs, the TFC contributed significantly to balanced and sustainable economic development across the country. Its emphasis on performance-based incentives and responsible fiscal management set a benchmark for subsequent Finance Commissions to follow.
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