Friction over formula: why some States get more from Centre

Subject : Polity

Section: Federalism

Concept :

The Centre’s tax collections are pooled-in from the states and a part of it is transferred to the states based on the formula devised by Finance Commission.

15th Finance Commission

The Finance Commission (FC) is a constitutional body, that determines the method and formula for distributing the tax proceeds between the Centre and states, and among the states as per the constitutional arrangement and present requirements.
Under Article 280 of the Constitution, the President of India is required to constitute a Finance Commission at an interval of five years or earlier.
The 15th Finance Commission was constituted by the President of India in November 2017, under the chairmanship of NK Singh. Its recommendations will cover a period of five years from the year 2021-22 to 2025-26.

Vertical Devolution (Devolution of Taxes of the Union to States):

It has recommended maintaining the vertical devolution at 41% – the same as in its interim report for 2020-21.
It is at the same level of 42% of the divisible pool as recommended by the 14th Finance Commission.
It has made the required adjustment of about 1% due to the changed status of the erstwhile State of Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and Kashmir.

Horizontal Devolution (Allocation Between the States):

For horizontal devolution, it has suggested 12.5% weightage to demographic performance, 45% to income, 15% each to population and area, 10% to forest and ecology and 2.5% to tax and fiscal efforts.