publications

S Irudaya Rajan & Udaya S Mishra

“Finance Commission resource sharing formulas have led to some states consistently losing out on devolution of resources. This puts stress on the federal spirit. One way to ease the situation is to consider raising the devolution of the divisible pool among states to 50 percent from the current 41 percent”

Finance commissions are set up every five years as a constitutional obligation to decide on the distribution of divisible pool of taxes by the Centre to the states. The 16th Finance Commission is at work now. Earlier, a major departure was made in the 15th Finance Commission wherein a state’s population count of 2011 replaced the conventional population count of 1971. Also, a fresh recognition of demographic performance of states was included among the list of criterion with differential weightage.

The two components of population count and demographic performance received a weightage of 15 percent and 12.5 percent respectively, which is a significant departure when compared with the weightage scheme adopted by earlier finance commissions. This undoubtedly generated a premature uproar among southern states. To be sure, 15th FC did adopt rationalization to account for population count on one hand and demographic performance on the other to strike a balance.
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