How have the recommendations of the 14th Finance Commission of India enabled the States to improve their fiscal position?
The 14th Finance Commission (FC) significantly enhanced the fiscal position of Indian States primarily through a landmark increase in their share of the divisible pool of central taxes from 32% to 42%. This substantial devolution provided States with a larger quantum of untied funds, granting them greater fiscal autonomy and flexibility to allocate resources based on their specific developmental needs, rather than relying heavily on conditional Central grants.
This increased financial elbow room allowed States to prioritize spending on critical sectors like infrastructure, health, and education without much central interference. Additionally, the Commission recommended revenue deficit grants for States post-devolution, ensuring a stable financial base for those in need. It also provided direct grants to local bodies, which indirectly eased the financial burden on States for grassroots development. By shifting towards a revenue-sharing model, the 14th FC empowered States with more predictable and independent financial resources, significantly strengthening their overall fiscal health and reducing dependence on the Centre.
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