Official Question UPSC 2025
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.
Solution & Analysis
Answer: C
According to the final report submitted by the 15th Finance Commission for the period 2021-26, the framework for devolution and sector-specific grants was heavily performance-based.
•Statement I is Correct: The Commission specifically earmarked ₹4,800 crores as performance-based grants to incentivize states to improve educational outcomes.
•Statement II is Incorrect: The Commission recommended that 41% of the divisible pool of taxes be shared with states (down from the 42% recommended by the 14th FC, adjusting 1% for the newly created UTs of J&K and Ladakh). It is definitely not 45%.
•Statement III is Correct: A massive ₹45,000 crore performance-based incentive was provisioned for states that successfully implement sweeping agricultural reforms.
•Statement IV is Correct: To promote fiscal discipline and revenue mobilization, the Commission reintroduced the 'tax effort' criterion (giving it a 2.5% weightage), rewarding states that generate higher tax revenue relative to their GSDP.