UPSC Mains 2021 GS Paper 2 Q3: model answer
How have the recommendations of the 14th Finance Commission of India enabled the States to improve their fiscal position?
What the question wants
Explain how the 14th FC's recommendations helped States strengthen their fiscal position.
How to structure it
How have: list the main recommendations and attach the fiscal effect to each, then add a limit.
- Headline change
- Other measures
- Effect on States
- Limits
How to think it through
42% is the number everybody remembers. The marks come from showing what it did: more untied money, less dependence on CSS, more freedom to borrow wisely.
Model answer
The 14th Finance Commission (2015–20, chaired by Y.V. Reddy) made the biggest jump in States' share in the history of devolution: from 32% to 42% of the divisible pool.
Key recommendations
- 42% devolution, mostly untied.
- New horizontal criteria: forest cover (7.5%) added; 2011 population given weight with 1971.
- Revenue deficit grants to 11 States.
- State fiscal deficit limit of 3% of GSDP, with extra room of up to 0.5% for States with low debt and interest burden.
- Local body grants of about ₹2.87 lakh crore to gram panchayats and municipalities.
How States gained
- More untied money let States choose their own priorities.
- The end of Normal Central Assistance and fewer CSS meant less tied spending.
- Borrowing flexibility rewarded prudent States.
- Gram panchayats got direct money for basic services, and began GPDPs.
Limits
Central cesses grew outside the divisible pool, and CSS sharing shifted towards 60:40, so the real gain was smaller than 10 points. Still, it changed the habit: States began to see devolution as a right, not a favour, and the 15th and 16th FCs kept it near that level.
Draw: A bar chart: 13th FC 32%, 14th 42%, 15th 41%, 16th 41%.
Keywords, cases and data to drop in
14th FC Y.V. Reddy, 42%, untied transfers, forest criterion 7.5%, revenue deficit grants, 3% FD + 0.5% flexibility, GPDP, cesses.
Where most answers lose marks
- Writing the 15th FC's 41% as the 14th FC's figure.
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Question text as printed in the official UPSC Civil Services (Main) question paper. The model answer is original Battle IAS work; use it to learn structure, not to memorise.
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