The 15th Finance Commission, constituted under Article 280, submitted its report covering 2021-26, reshaping Centre-State fiscal relations at a time of post-pandemic economic stress and evolving cooperative federalism demands.
The 15th FC recommended that 41% of the net proceeds of divisible Union taxes be devolved to States, a marginal reduction from the 14th FC's 42%, primarily to accommodate the newly formed Union Territories of Jammu & Kashmir and Ladakh. This vertical share remains the foundational pillar of fiscal transfers.
The Commission introduced demographic performance as a criterion, rewarding States that managed population growth effectively. It also retained income distance and area-based criteria, while reintroducing tax effort to incentivise States' own revenue mobilisation — a significant shift toward performance-linked federalism.
Grants were recommended for health, education, and local bodies with performance conditions attached. Education-linked grants aimed at improving learning outcomes were included, though the precise allocation was tied to measurable indicators rather than unconditional transfers, nudging States toward outcome-based governance.
The Commission recommended performance-based incentives linked to agricultural sector reforms, including market liberalisation and land-lease reforms, though actual uptake by States remained limited given political sensitivities around farm legislation.
The 15th FC's architecture balances equity with efficiency by linking grants to outcomes and rewarding fiscal discipline. Sustained implementation depends on States' administrative capacity and Centre-State trust, both of which remain works in progress.
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