The Thirteenth Finance Commission (2010-2015)

The Thirteenth Finance Commission (TFC), constituted in 2007 under the chairmanship of Dr. Vijay Kelkar, made recommendations for the period spanning 2010-2015. Its primary mandate was to review the state of finances of the Union and States, suggest principles governing the distribution of tax revenues between them, and recommend measures to improve the quality of public expenditure and promote fiscal stability.

Key Recommendations

Tax Devolution: The TFC recommended increasing the share of states in the net proceeds of shareable central taxes to 32%, a significant jump from the 30.5% recommended by the Twelfth Finance Commission. This was intended to provide greater resources to the states for their developmental needs.

Grants-in-Aid: Besides tax devolution, the Commission recommended various grants-in-aid to states, including:

• Revenue Deficit Grants: To address revenue deficits in certain states. The grants were conditional upon states achieving certain fiscal targets and improving their own revenue generation.
• Local Body Grants: To empower local governments (Panchayats and Municipalities) and ensure better service delivery at the grassroots level. These grants were earmarked for specific purposes like water supply, sanitation, and infrastructure development.
• Special Area Grants: To address specific problems faced by certain states, such as those related to forests, environment, and internally displaced persons.

Fiscal Consolidation: A key focus of the TFC was fiscal prudence. It urged both the Union and States to adhere to fiscal responsibility legislation and set targets for reducing fiscal deficits and public debt. The Commission emphasized the importance of sustainable debt management and recommended measures to improve the efficiency of public expenditure.

Goods and Services Tax (GST): The TFC strongly advocated for the implementation of a Goods and Services Tax (GST), viewing it as a crucial reform for boosting economic growth and improving tax compliance. It proposed a design for the GST, highlighting the need for a simple and transparent structure.

Debt Restructuring: Recognizing the debt burden of some states, the Commission recommended a debt restructuring package, offering relief in the form of lower interest rates and extended repayment periods. This was intended to ease the financial burden on these states and enable them to invest more in developmental activities.

Impact and Significance

The recommendations of the Thirteenth Finance Commission had a significant impact on the fiscal landscape of India. The increased tax devolution provided states with greater fiscal autonomy and resources for their development programs. The focus on fiscal consolidation and debt management helped promote fiscal discipline. The emphasis on local body grants contributed to the strengthening of local governance and improved service delivery at the grassroots level.

The TFC’s advocacy for GST laid the groundwork for its eventual implementation, which has had a transformative effect on India’s indirect tax system. By promoting fiscal responsibility, efficient public expenditure, and equitable resource distribution, the Thirteenth Finance Commission played a crucial role in fostering inclusive growth and sustainable development in India.