THE GIST of Editorial for UPSC Exams : 03 February 2020 (Cognisant of constraints: On 15th Finance Commission’s interim report (The Hindu))

Cognisant of constraints: On 15th Finance Commission’s interim report (The Hindu)

Mains Paper 3: Economy
Prelims level: 15th Finance Commission
Mains level: Highlights the recommendations of the 15th Finance Commission

Context:

• The interim report of the 15th Finance Commission, tabled in Parliament has largely preserved the devolution mathematics of its predecessor, belying concerns of a sizeable cut in States’ share.

Recommendation highlights:

• The commission has recommended a one percentage point reduction in the vertical split of the divisible pool of tax revenues accruing to States to 41%.
• This follows the reorganisation of the erstwhile State of Jammu and Kashmir into the Union Territories of Jammu and Kashmir and Ladakh.
• While the former ........................................

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Demographic performance:

• A crucial new parameter, demographic performance, has been added to the mix.
• Having been mandated to adopt the population data from the 2011 Census, the commission has incorporated the additional criterion to ensure that States that have done well on demographic management are not unfairly disadvantaged.
• And since the norm also indirectly evaluates performance on the human capital outcomes of education and health, it has been assigned a weight of 12.5%.
• This should address the concerns voiced by several States over the switch to the 2011 Census from the 1971 data.

Reduction is share of taxes:

• Among the States, with the exception of Tamil Nadu, all the other four southern States see a reduction in the recommended share of taxes for the year 2020-21.
• It suggested devolution to Odisha and Uttar Pradesh have also shrunk in percentage terms.
• Crucially, the ............................................

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Way forward:

• However, the increase in the percentage of outcome-tied funds to 50%, from 10%, could prove vexing to the last mile providers of basic services in India’s federal and highly fragmented structure of governance.
• The commission has also been justifiably critical of the Union and State governments’ tendency to finance spending through off-budget borrowings and via parastatals.
• It has done well to ask that such extra-budgetary liabilities be clearly earmarked and eliminated in a time-bound manner.

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Prelims Questions:

Q.1) With reference to the Logistics, consider the following statements:
1. India’s logistics sector is highly defragmented and the aim is to reduce the logistics cost from the present 14% of GDP to less than 10% by 2022.
2. A National Logistics Policy will be released soon to create a single window e-logistics market and focus on generation of employment, skills and make MSMEs competitive.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) 1 and 2 only
(d) None

Answer..........................

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Mains Questions:
Q.1) Describe the key highlights of the 15th Finance Commission report.