Which of the following statements with regard to recommendations of the 15th Finance Commission of India are correct?

I. It has recommended grants of ₹ 4,800 crores from the year 2022-23 to the year 2025-26 for incentivizing States to enhance educational outcomes.
II.45% of the net proceeds of Union taxes are to be shared with States.
III.₹ 45,000 crores are to be kept as performance-based incentive for all States for carrying out agricultural reforms.
IV. It reintroduced tax effort criteria to reward fiscal performance.

Select the correct answer using the code given below.

(a) I, II and III
(b) I, II and IV
(c) I, III and IV
(d) II, III and IV

The correct answer is (c) I, III and IV.

Explanation

Statement I: Correct. The 15th Finance Commission recommended several sector-specific grants. This includes a grant of ₹4,800 crores (for the period 2022-26) to incentivize states to improve their educational outcomes.
Statement II: Incorrect. The Commission recommended that 41% of the net proceeds of Union taxes be shared with the States for the 2021-26 period. This was a 1% reduction from the 14th Finance Commission’s 42% share, explicitly to account for the new Union Territories of Jammu & Kashmir and Ladakh (which would get their share from the Centre’s resources).
Statement III: Correct. The Commission introduced performance-based incentives for states. This included a grant of ₹45,000 crores for states that undertake specific reforms in the agricultural sector, such as those related to agricultural markets (APMC reforms).
Statement IV: Correct. The 15th Finance Commission reintroduced “Tax and Fiscal Efforts” as a criterion in its horizontal devolution formula with a 2.5% weightage. This was done to reward states that show higher efficiency in collecting their own taxes and managing their finances.

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What is the Finance Commission?

The Finance Commission is a constitutional body set up under Article 280 of the Constitution of India. Its main job is to recommend how the tax revenues should be distributed between the Union (Central) government and the State governments.

The 15th Finance Commission, chaired by N. K. Singh, made recommendations for the period 2021-2026.

Key Concepts in the Question

Vertical Devolution (Statement II): This refers to the vertical sharing of taxes between the Centre and the States. The 15th FC set this at 41% for the states.
Horizontal Devolution (Statement IV): This refers to the horizontal sharing of that 41% among the states. The Commission uses a formula based on several criteria to decide how much each state gets.The 15th FC’s criteria were:
- Income Distance (45%): How far a state’s income is from the highest-income state (to promote equity).
- Population (15%): Based on the 2011 census.
- Area (15%): Larger states get more.
- Forest and Ecology (10%): To reward states with large forest cover.
- Demographic Performance (12.5%): To reward states that controlled their population growth.
- Tax and Fiscal Efforts (2.5%): To reward states that are efficient at collecting their own revenue.
Performance-Based Grants (Statements I & III): These are additional grants given to states only if they meet certain reform-related conditions in specific sectors, such as agriculture, power, or education.