Recommendations of the Fourteenth Finance Commission (FFC) which seek to strengthen federalism in India.

Civil Services Main Examination

General Studies (Paper - 2) : Model Question & Answers


ParliamentQuestion: Discuss the key recommendations of the Fourteenth Finance Commission (FFC) which seek to strengthen federalism in India.

Answer: The Constitution of India envisages cooperative federalism as the bedrock of financial governance in the Country. Union and States pool their resources together for achieving common national goals.

Making a compelling case for cooperative federalism, FFC has suggested:


1. Necessary institutional changes to minimize discretion and improve the design of fiscal transfers from Centre to States, for the transfers made outside FFC recommendations.

2. The new institutional arrangement should
a. identify sectors in the States eligible for grants,
b. indicate criteria for inter-state distribution,
c. help design schemes with flexibility in implementation, and
d. identify and provide area specific grants

3. Role of Inter-State Council should be expanded to include the above.

4. Some of the current CSS (Centrally Sponsored Schemes) relate to subjects that can be best handled entirely by States. Hence, they should be in the fiscal space of States alone.

5. Expenditure on the CSS that needs to be transferred to the States has been considered for the higher devolution of 42% to the States.

6. A new criteria of forest cover has been introduced for deciding the horizontal distribution of finances. This incentivizes States to increase and maintain the forest cover, thereby making them stakeholders in environmental protection alongside the Centre.

7. Abolition of the distinction between conditional and unconditional transfers.

The Government is restructuring the CSS with better targeting. With strengthened autonomy and participation of the States, the CSS would be need based, i.e. doing away with the onesize- fits all approach. This is likely to strengthen Centre-State relations and rationalize the funding. In the envisaged set up of the new government, NITI must provide required guidance and monitoring in this regard to achieve the idea of “Team India” achieving national goals.

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