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Fourteenth Finance Commission Recommendations

This paper examines the recommendations of the Fourteenth Finance Commission from the point of view of horizontal equity, which has been a prime consideration in the devolutions of the finance commissions in the past. The paper argues that the FFC recommendations mark a big blow to the equity dimension. As a result of the change in the devolution formula the poor states of Rajasthan, Odisha, UP and Bihar have suffered substantial reduction in transfers while many rich states have improved their share in tax devolution. An intriguing aspect of the tax devolution recommended by the 14 th FC is that the states whose share in tax devolution has declined are mostly governed by non-NDA parties, while the most of the NDA ruled states have gained in their share. Per capita total transfers are much higher in case of middle income category states as compared to the low income category states and high income category states. Within the category of low income states, per capita transfers to the poorest state of Bihar are the lowest. The degree of progressivity is lower than that of 13 th FC per capita transfers. The fiscal transfers recommended by the FFC have also failed to reduce substantially the disparities in the revenue capacities of the states. The declining emphasis on horizontal equity during a period when regional disparities are rising bodes ill for the Indian federalism.