Which of the following statements with regard to recommendations of the 15th Finance Commission of India are correct?
I. It has recommended grants of ₹ 4,800 crores from the year 2022-23 to the year 2025-26 for incentivizing States to enhance educational outcomes.
II. 45% of the net proceeds of Union taxes are to be shared with States.
III. ₹ 45,000 crores are to be kept as performance- based incentive for all States for carrying out agricultural reforms.
IV. It reintroduced tax effort criteria to reward fiscal performance.

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Accepted Answer

The correct answer is option C. Statement I is correct. The 15th Finance Commission (XVFC) recommended grants of ₹4,800 crores (₹1,200 crore annually) for the period 2022-23 to 2025-26 to incentivize states for improving educational outcomes. Statement II is incorrect. The XVFC recommended maintaining the vertical devolution share of states in the divisible pool of central taxes at 41%, not 45%. This 41% is 1% lower than the 14th FC's recommendation of 42%, adjusted for the creation of the Union Territories of Jammu & Kashmir and Ladakh. Statement III is correct. The XVFC recommended ₹45,000 crores as a performance-based incentive for all states to undertake agricultural reforms. Statement IV is correct. The XVFC reintroduced the 'tax effort' criterion in its devolution formula to reward states that demonstrate better fiscal performance and efficiency in tax collection. Therefore, statements I, III, and IV are correct. The recommendations of Finance Commissions are crucial for understanding fiscal federalism in India and are a recurring topic for UPSC Economy.

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