Grants by the Finance Commission

Grants by the Finance Commission

Context: The 15^th finance commission recommended a total of Rs 10, 33, 062 crore as grants under various heads.

Concept:

• The Finance Commission is a Constitutionally mandated body that is at the Centre of fiscal federalism.
• It is set up under Article 280 of the Constitution, its core responsibility is to evaluate the state of finances of the Union and State Governments, recommend the sharing of taxes between them, lay down the principles determining the distribution of these taxes among States.

Types of grants by the Finance Commission

1. Grants for rural local bodies: Post 73rd the Finance Commission (FC) also has role to ensure these local bodies are adequately funded. Nearly half of the Finance Commission Grants in Union Budget goes to village local bodies.
2. Grants for urban local bodies: Under 74th amendment urban local bodies like municipal councils receive the largest chunk of Finance Commission Grants after Rural Local Bodies and Post Devolution Deficit Grants to states.
3. Assistance to SDRF: The central government also provides funds to State Disaster Relief Fund (on its recommendations) in addition to funding the National Disaster Management Authority (NDMA).
4. Post devolution revenue deficit grants: About a third of the total revenue collected by the Centre is directly transferred to states as their share in the divisible pool. However, the Finance Commission also provides a mechanism for compensation of any loss incurred by states, which is called post-devolution revenue deficit grants. It forms 2nd largest chunk of grants by the FC.

Other grants:

1. Assistance to states from NDRF (separate from the grants given to state SDRF under Finance Commission Grants)
2. Central pool of resources for north-eastern region and Sikkim
3. Externally aided project grants
4. Externally aided project loans
5. Schemes for north-east council
6. Schemes under Article 275 (1) of the Constitution
7. Special assistance under the demand: Transfers to states. Special central assistance to scheduled castes and special central assistance to tribal area.