15th Finance Commission of Ind
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The 15th Finance Commission of India was constituted in 2017 and submitted its final report for the period 2021–26.
It plays a crucial role in determining how financial resources are shared between the Union (central) government and the States, particularly tax revenue distribution.
Overview
Feature Description
Constituted on 27 November 2017
Chairman N. K. Singh (former bureaucrat and economist)
Other members Ajay Narayan Jha, Ashok Lahiri, Ramesh Chand, Anoop Singh
Term Covered 2021–22 to 2025–26
Submitted Final Report November 2020 (tabled in Parliament in February 2021)
Mandate
The 15th Finance Commission was asked to:
• Recommend how tax revenues should be divided between the Union and the States
• Suggest principles for grants-in-aid to states and local bodies
• Evaluate the impact of the GST on Union and State finances
• Make recommendations regarding defense and internal security funding
Key Recommendations
1. Vertical Devolution (Centre to States)
• 42% share of divisible tax pool was previously given by the 14th FC
• The 15th FC reduced it slightly to 41%, to account for the newly created Union Territory of Jammu & Kashmir
2. Horizontal Devolution (Among States)
Criteria for dividing funds among states included:
Criterion Weight (%)
Income distance (poorer states get more) 45%
Population (2011 census) 15%
Demographic performance 12.5%
Forest & ecology 10%
Tax effort 2.5%
Area 15%
Notably, it continued to use the 2011 Census, unlike previous commissions that used 1971.
Some southern states objected to this change, fearing it penalized population control.
3. Grants-in-Aid to States
• Over ₹10.3 lakh crore was recommended as grants, including:
• Revenue deficit grants
• Grants to local governments
• Disaster risk management grants
• Sector-specific and performance-based grants
4. Local Bodies
• ₹4.36 lakh crore allocated for urban and rural local bodies (2021–26)
• Emphasis on transparency, digital governance, and sanitation
5. Defense and National Security
• Recommended setting up a non-lapsable Modernization Fund for Defense and Internal Security (MFDIS)
Notable Features
• First Finance Commission after the implementation of GST
• Had to factor in COVID-19’s economic impact
• Aimed to strengthen fiscal federalism while ensuring fiscal sustainability
Criticisms and Challenges
Issue Concern
Use of 2011 Census
Penalizes states that controlled population growth (mainly southern states)
Center-State Fiscal Tension Some states felt the Centre still controls too much of the fiscal pie
Revenue Uncertainty GST shortfalls and COVID-19 made fiscal projections difficult
Conclusion
The 15th Finance Commission attempted a balanced approach between equity and efficiency while addressing new challenges like:
• GST regime,
• COVID-19 recovery,
• defense modernization, and
• decentralization to local bodies.
It remains central to India’s cooperative federalism framework, defining how India’s vast and diverse states share and manage public finances.
Would you like a comparison with the 14th Finance Commission, a deeper look at grant structures, or the political implications of its recommendations?
