UPSC Prelims 2023 · Question 49 of 97

UPSC Prelims 2023 question on Finance Commission Devolution Criteria

Consider the following:

1. Demographic performance
2. Forest and ecology
3. Governance reforms
4. Stable government
5. Tax and fiscal efforts

For the horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as criteria other than population area and income distance?

  1. Only two
  2. Only three
  3. Only four
  4. All five
Show answer

Answer: B. Only three

Based on principles of need, equity and performance, the overall devolution formula of the 15th Finance Commission is as follows:

Criteria and Weights:
1. Population – 15.0
2. Area – 15.0
3. Forest and ecology – 10
4. Income distance – 45
5. Tax and fiscal efforts – 2.5
6. Demographic performance – 12.5

On horizontal devolution, the XVFC agreed that the Census 2011 population data better represents the present need of States. To reward States which have done better on the demographic front, XVFC assigned a 12.5 per cent weight to the demographic performance criterion. XVFC re-introduced the tax effort criterion to reward fiscal performance.

From the given list, the criteria used (other than population, area and income distance) are: Demographic performance, Forest and ecology, and Tax and fiscal efforts — that is, 3 from the list.

Hence option (b) Only three is the correct answer.

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