Q18.How have the recommendations of the 14th Finance Commission of India enabled the states to improve their fiscal position?

The 14th Finance Commission (FC) aimed to strengthen fiscal federalism by recommending significant changes to central-state financial relations, particularly enhancing states' fiscal autonomy.

Key Recommendations and their Impact on States' Fiscal Position

• Increased states' share in the divisible pool of central taxes from 32% to 42%. This substantial increase provided states with significantly more untied funds, allowing greater flexibility and autonomy in designing and implementing their development priorities and schemes without central conditionalities.
• Grants to local bodies (Panchayats and Municipalities) were based on population and area, directly strengthening grassroots governance and local service delivery by providing dedicated resources.
• Discontinuation of most sector-specific grants further untied funds, giving states more discretion over expenditure and reducing their reliance on centrally sponsored schemes.
• Recommendations on a fiscal consolidation roadmap encouraged prudent financial management and debt sustainability for states, improving their overall fiscal health and creditworthiness.

Overall, the 14th FC's recommendations significantly enhanced states' fiscal space, promoting greater fiscal autonomy, expenditure flexibility, and a more robust, cooperative fiscal federalism in India.