What are the recommendations of the Fourteenth Finance Commission with respect to the grant to local governments, fiscal deficit and FRBM Act?

Fourteenth Finance Commission was constituted in 2013 under the chairmanship of Dr. Y. V Reddy to recommend the report for the duration of 1st April, 2015 to 31st March, 2020.

Grants to Local Governments

  • Should be distributed to states for local bodies on the basis of the 2011 population data; the grants be divided into two broad categories on the basis of rural and urban population — constituting gram panchayats, and constituting municipal bodies respectively.
  • Performance-based grants: A basic grant and a performance grant — the ratio of basic to performance grant be 90:10, with respect to panchayats; and 80:20 in the case of municipalities.
  • 14th FC has recommended a grant-in aid for local governments that is equal to an estimated 3% of the divisible pool.
  • For inter se distribution of local government grants to the states, the FFC uses the 2011 population with weight of 90% and area 10%.
  • States may permit levy of Advertisement Tax by Panchayats.
  • With regard to trust on local bodies it held that There is a need to trust and have respect for local bodies.

Fiscal Deficit

  • Ceiling of 3% of GDP on fiscal deficit during 2016-17 to 2019-20.
  • Fiscal deficit of all states to be anchored at 3% of GSDP.

FRBM Act

The current FRBM Act is to be amended to explain the nature of shocks which require relaxation from the target and to be merged with a Debt ceiling and Fiscal responsibility Act.

Synopsis

KeywordsFourteenth (14th) Finance Commission
PaperAPPSC Group I 2020 Mains Paper IV: Economy and Development
Question4 (a). What are the recommendations of the Fourteenth Finance Commission with respect to the grant to local governments, fiscal deficit and FRBM Act?
SourceOfficial Fourteenth Finance Commission Report – Link

Analysis

Though the question is straight forward, the more you organise the answer the better you score. So the model answer divided question into three sections separately with at least one point. This fetch more score than simply writing all points under one heading.

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