Fourteenth Finance Commission report tabled in Parliament

The report of the Fourteenth Finance Commission
was tabled in Parliament on February 24, 2015.11

The Finance Commission is a constitutional body
that is constituted once in five years, and gives
suggestions on centre-state financial relations,
among other things. Recommendations of the
Commission include:

The share of taxes of the centre to states to be
increased from 32% to 42%. Additional
budgetary needs of the states will be filled by
grants-in-aid to the states.
 Revenue compensation to states for theGoods and Services Tax (GST) should be forfive years. 100% compensation should bepaid to states in the first, second and thirdyears, 75% compensation for the fourth year,and 50% compensation should be paid in thefifth and final year.
 An autonomous and independent GSTCompensation Fund to be set up in order tofacilitate compensation to states.
 Fiscal deficit of states should be aimed at 3%of the GSDP, with a flexibility of 0.25% over
this limit. If the interest payments are lessthan or equal to 10% of revenue receipts in a
year, states will be eligible for an additionalborrowing limit of 10% of GSDP. A state
can avail of these additional limits only if ithas no revenue deficit for the year in whichthe limits are fixed, and the preceding year.
 The Fiscal Responsibility and BudgetManagement Act (FRBM), 2003 should beamended. The definition of effective revenuedeficit (difference between revenue deficitand grants for creation of capital assets)should be removed from the Act.
 The FRBM Act should be amended tomandate the creation of an independent fiscal
council to evaluate the fiscal policyimplications of budget proposals, before thebudget. States are advised to amend theirFRBM Acts in the same man