Which of the following recommendations of Fourteenth Finance Commission are applicable in the ...........

Economic Affairs Tax System

Which of the following recommendations of Fourteenth Finance Commission are applicable in the context of vertical distribution?

1. Increase in the share of tax devolution from 32 per cent to 42 per cent of the divisible pool

2. Sector-specific Finance Commission grants to be dispensed with

3. Grants-in-aid to be given for local bodies, disaster management and post-devolution revenue deficit

4. For calculating post devolution revenue deficit grants, states’ entire revenue expenditure has been taken into consideration without making a distinction between plan and non-plan expenditure

5. Distinction between non-special category and special category states has been removed

Codes

1, 2, 3 and 5 Only

1, 2, 3 and 4 Only

2, 3, 4 and 5 Only

All of the above

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Explanation:

The Fourteenth Finance Commission (FFC) in India made recommendations regarding the distribution of finances between the central government and state governments. The key recommendations of the Fourteenth Finance Commission relevant to vertical distribution (i.e., distribution between the central and state governments) include:

Increase in the Share of States: The FFC recommended an increase in the share of states in the divisible pool of taxes from 32% to 42%. This means that a larger portion of the central taxes would be directly allocated to the states, enhancing their fiscal autonomy.
Tax Devolution: The commission recommended a higher devolution of central taxes to states. This devolution is a direct transfer of taxes from the central government to the state governments without any conditions attached, providing states with greater flexibility in utilizing these funds.
Removal of Revenue Deficit Grants: The FFC recommended discontinuing revenue deficit grants and focusing more on providing a higher share of divisible taxes to the states. This move was intended to ensure that states have more control over their finances and could use the funds as per their own priorities.
Performance-Based Incentives: The commission suggested the introduction of performance-based incentives for states. These incentives are linked to specific reforms and performance indicators, encouraging states to improve governance, fiscal management, and other developmental parameters.
Flexibility in Fiscal Responsibility and Budget Management (FRBM) Targets: The FFC recommended providing states with more flexibility in meeting Fiscal Responsibility and Budget Management (FRBM) targets, recognizing the need for states to have some flexibility in managing their fiscal policies.

These recommendations aimed at empowering states with greater financial resources and autonomy, allowing them to better address their specific developmental needs and priorities. By enhancing the share of states in the divisible pool and encouraging performance-based incentives, the Fourteenth Finance Commission sought to promote a more balanced and cooperative fiscal federalism in India.