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Indian EconomyMediumAsked in: UPSC Civil Services · CSE Prelims 2023, GS Paper I

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?

  1. A.Only two
  2. B.Only three
  3. C.Only four
  4. D.All five

Correct answer

B. Only three

Explanation

The correct answer is B, Only three. Besides population, area and income distance, the Fifteenth Finance Commission used demographic performance, forest and ecology, and tax and fiscal efforts.

Horizontal devolution is the sharing of the divisible tax pool among the states. The Fifteenth Finance Commission, chaired by N. K. Singh, gave these weights: income distance 45 per cent, population (2011 Census) 15, area 15, forest and ecology 10, demographic performance 12.5, and tax and fiscal efforts 2.5. Demographic performance rewarded states that controlled their fertility rate, and tax effort rewarded states that collect more of their own taxes.

A is wrong because it counts only two of the three extra criteria.

C is wrong because governance reforms and stable government were not criteria for sharing taxes.

D is wrong for the same reason; a ruling party's stability is never a basis for devolution.

Exam tip: 15th Finance Commission (2021–26), chairman N. K. Singh, states' share 41 per cent; income distance has the biggest weight.

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