Which one of the following criteria got the highest weight for determination of shares of States in the formula given by the 14th Finance Commission?
- A.Population
- B.Income distance
- C.Area
- D.Tax effort
Correct answer
Explanation
The correct answer is B, Income distance. In the 14th Finance Commission's formula for sharing central taxes among the States, income distance carried a weight of 50 percent, the highest of all the criteria.
The 14th Finance Commission, chaired by Y. V. Reddy, covered 2015 to 2020 and raised the States' share of the divisible pool of central taxes from 32 to 42 percent. Its weights were: income distance 50 percent, population of 1971 17.5 percent, area 15 percent, forest cover 7.5 percent and demographic change, measured by the population of 2011, 10 percent. Income distance gives a bigger share to a State whose per capita income is farther below that of the richest State.
Option A is wrong because the 1971 population carried only 17.5 percent. Option C is wrong because area carried 15 percent. Option D is wrong because the 14th Commission did not use tax effort at all; the 15th Commission brought back tax and fiscal effort with a weight of 2.5 percent.
Exam tip: 14th FC: 42 percent share, income distance 50 percent; 15th FC: 41 percent share, income distance 45 percent.
Practice Questions
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