Consider the following statements : 1. The 15th Finance Commission used fiscal effort as a criterion for horizontal devolution unlike the 14th Finance Commission 2. Both the 14th and the 15th Finance Commission used pre-2011 demographic variables as a criteria for horizontal devolution Which of the statements given above is/are correct?
- (a)1 only
- (b)2 only
- (c)Both 1 and 2
- (d)Neither 1 nor 2
Correct — C, Both 1 and 2. Statement 1 holds. The Fifteenth Finance Commission's horizontal formula carries six criteria — income distance 45 per cent, area 15 per cent, population of 2011 15 per cent, demographic performance 12.5 per cent, forest and ecology 10 per cent, and tax and fiscal efforts 2.5 per cent. The Fourteenth Commission's formula had five — income distance 50, area 15, population of 1971 17.5, demographic change 10 and forest cover 7.5 — with no fiscal-effort element at all. Statement 2 holds too, though it takes a step to see. The Fourteenth Commission used the 1971 population directly at 17.5 per cent weight. The Fifteenth was told by its terms of reference to use the 2011 population, and it answered the resulting complaint from the southern States by building the demographic performance criterion out of the reciprocal of each State's total fertility ratio scaled by its 1971 population. So a pre-2011 demographic variable sits inside both formulas.
- (a)1 only — It denies that the Fifteenth Commission used any pre-2011 demographic variable. The demographic performance criterion, worth 12.5 per cent, is scaled by the 1971 population precisely so that States which curbed fertility early are not penalised.
- (b)2 only — It denies that fiscal effort was new. The Fourteenth Commission dropped the fiscal discipline criterion that the Thirteenth had used and put nothing in its place; tax and fiscal efforts returns with the Fifteenth, at 2.5 per cent.
- (d)Neither 1 nor 2 — Both statements survive checking against the two published formulas, so rejecting both is the furthest from the record.
A Finance Commission answers two questions. Vertical devolution fixes the States' collective share of the divisible pool — 42 per cent under the Fourteenth Commission, 41 per cent under the Fifteenth after Jammu and Kashmir became a Union territory. Horizontal devolution then splits that share among the States by a weighted formula. Income distance measures how far a State's per capita income falls below the highest, and carries the largest weight, so the formula is redistributive by construction.
Comparing two formulas is easier by difference than by memorising both. Between the Fourteenth and the Fifteenth, two criteria appeared — demographic performance and tax and fiscal efforts — one was renamed and re-weighted, forest cover becoming forest and ecology at 10 per cent, income distance fell from 50 to 45, and the population base moved from 1971 to 2011. Statement 2 is the subtle one, because it asks about a variable rather than a criterion, and the 1971 population survives inside the new demographic performance measure even though it no longer appears as a criterion of its own.
- Fifteenth Finance Commission weights: income distance 45, area 15, population 2011 15, demographic performance 12.5, forest and ecology 10, tax and fiscal efforts 2.5.
- Fourteenth Finance Commission weights: income distance 50, area 15, population 1971 17.5, demographic change 10, forest cover 7.5.
- Demographic performance is computed from the reciprocal of a State's total fertility ratio, scaled by its 1971 population.
- The Fourteenth Commission used no fiscal-effort criterion; the Thirteenth had used fiscal discipline at 17.5 per cent.
- States' share of the divisible pool was 42 per cent under the Fourteenth Commission and 41 per cent under the Fifteenth.
The 1971 population never leaves the formula; it changes from a criterion of its own into the scale factor of another.
- Assuming the Fifteenth Commission dropped 1971 data entirely because its terms of reference specified the 2011 census.
- Confusing fiscal discipline, used by the Thirteenth Commission, with tax and fiscal efforts, used by the Fifteenth.
- Reading demographic change, in the Fourteenth Commission's formula, as the same thing as demographic performance.
A two-statement comparison of consecutive Finance Commissions, where the second statement rewards a candidate who knows how a criterion is computed and not merely what it is called.
Consider the following: 1. Demographic performance 2. Forest and ecology 3. Governance reforms 4. Stable government 5. Tax and fiscal efforts For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance?
- (a) Only two
- (b) Only three
- (c) Only four
- (d) All five
Answer(b) Only three
The same devolution formula, counted instead of weighted. Demographic performance, forest and ecology, and tax and fiscal efforts are the three criteria the Fifteenth Commission added beyond population, area and income distance.
- practice — not a real PYQ
In the Fifteenth Finance Commission's formula for horizontal devolution, the criterion carrying the largest weight is
- (a)Area
- (b)Income distance
- (c)Population of 2011
- (d)Demographic performance
Answer(b) Income distance — 45 per cent, the largest single weight in the formula.
- practice — not a real PYQ
The demographic performance criterion of the Fifteenth Finance Commission is computed using
- (a)The decadal growth rate of population
- (b)The reciprocal of the total fertility ratio, scaled by 1971 population
- (c)The sex ratio recorded in the 2011 Census
- (d)The infant mortality rate
Answer(b) The reciprocal of the total fertility ratio, scaled by 1971 population — so States with lower fertility score higher.