Thirteenth Finance Commission

The Thirteenth Finance Commission (ThFC) was constituted by the President of India on November 13, 2007, under the chairmanship of Dr. Vijay Kelkar. Its primary mandate was to make recommendations on the distribution of tax revenues between the Union and the states, and among the states themselves, for the period covering April 1, 2010, to March 31, 2015. The Commission submitted its report to the President on December 30, 2009.

Key Recommendations

• Fiscal Consolidation: The ThFC emphasized the need for fiscal consolidation at both the Union and state levels. It recommended reducing the revenue deficit to zero and bringing down the fiscal deficit to 3% of Gross Domestic Product (GDP) by 2014-15. It also suggested setting up independent fiscal councils at both Union and State levels.
• Tax Devolution: The Commission recommended that 32% of the net proceeds of shareable central taxes be devolved to the states. This was a significant increase from the 30.5% recommended by the Twelfth Finance Commission.
• Grants-in-Aid: In addition to tax devolution, the ThFC recommended grants-in-aid to states for various purposes, including local bodies, state-specific needs, and disaster management. A significant portion of grants was earmarked for improving the performance of local bodies, especially at the Panchayati Raj Institution (PRI) level, through incentivizing better financial management and service delivery.
• Debt Consolidation and Relief: The Commission continued the debt consolidation and relief facility for states, subject to compliance with fiscal responsibility legislation and achieving fiscal targets. This aimed to alleviate the debt burden of states and encourage responsible fiscal behavior.
• Goods and Services Tax (GST): The ThFC strongly advocated for the early introduction of Goods and Services Tax (GST), viewing it as a crucial reform for simplifying the indirect tax regime and boosting economic growth. It recommended steps to ensure smooth implementation of GST, including the establishment of a robust information technology infrastructure.
• Environmental Concerns: The Commission recognized the importance of addressing environmental issues and recommended incorporating environmental considerations into development planning. It suggested leveraging resources from the National Clean Energy Fund for environmental protection and renewable energy projects.

Impact and Significance

The recommendations of the Thirteenth Finance Commission had a significant impact on Centre-State fiscal relations. The increased tax devolution provided states with greater financial autonomy and resources for development. The grants-in-aid helped address specific needs and improve local governance. The emphasis on fiscal consolidation encouraged both the Union and states to pursue responsible fiscal policies. The focus on GST implementation helped pave the way for the eventual introduction of this landmark tax reform.

Furthermore, the ThFC's recommendations underscored the importance of good governance, efficient service delivery, and environmental sustainability in achieving inclusive and sustainable economic growth. Its report served as a roadmap for Centre-State financial relations and contributed to strengthening the fiscal federalism in India.