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Notification of Fourteenth Finance Commission
January, 03rd 2013

                            PRESS INFORMATION BUREAU
                              GOVERNMENT OF INDIA

                      Fourteenth Finance Commission Constituted

                                                                  New Delhi, Pausa 12, 1934
                                                                            January 2, 2013

      As mandated by the Article 280 of the Constitution, the Government has constituted
the Fourteenth Finance Commission consisting of Dr. Y.V.Reddy, former Governor
Reserve Bank of India, as the Chairman and the following four other members, namely: -

     1.   Prof Abhijit Sen                               Member
          Member, Planning Commission                    (Part Time)

     2.   Ms. Sushma Nath                                Member
          Former Union Finance Secretary

     3.   Dr. M.Govinda Rao                       Member
          Director, National Institute for Public
          Finance and Policy, New Delhi

     4.   Dr. Sudipto Mundle                             Member
          Former Acting Chairman,
          National Statistical Commission

       Shri Ajay Narayan Jha shall be the Secretary to the Commission. The Commission
shall make its report available by the 31st October, 2014, covering a period of five years
commencing on the 1st April, 2015.

        The Commission shall make recommendations regarding the sharing of Union taxes,
principles governing Grants-in-aid to States and transfer of resources to local bodies.

       Terms of Reference and the matters that shall be taken into consideration by the
Fourteenth Finance Commission in making the recommendations are as under :

1. (i) the distribution between the Union and the States of the net proceeds of taxes which
   are to be, or may be, divided between them under Chapter I, Part XII of the Constitution
   and the allocation between the States of the respective shares of such proceeds;

    (ii) the principles which should govern the grants-in-aid of the revenues of the States out
    of the Consolidated Fund of India and the sums to be paid to the States which are in need
    of assistance by way of grants-in-aid of their revenues under article 275 of the
        Constitution for purposes other than those specified in the provisos to clause (1) of that
        article; and

        (iii) the measures needed to augment the Consolidated Fund of a State to supplement the
        resources of the Panchayats and Municipalities in the State on the basis of the
        recommendations made by the Finance Commission of the State.

2.      The Commission shall review the state of the finances, deficit and debt levels of the
Union and the States, keeping in view, in particular, the fiscal consolidation roadmap
recommended by the Thirteenth Finance Commission, and suggest measures for maintaining
a stable and sustainable fiscal environment consistent with equitable growth including
suggestions to amend the Fiscal Responsibility Budget Management Acts currently in force
and while doing so, the Commission may consider the effect of the receipts and expenditure
in the form of grants for creation of capital assets on the deficits; and the Commission shall
also consider and recommend incentives and disincentives for States for observing the
obligations laid down in the Fiscal Responsibility Budget Management Acts.

3.     In making its recommendations, the Commission shall have regard, among other
considerations, to ­

(i)        the resources of the Central Government, for five years commencing on 1st April
           2015, on the basis of levels of taxation and non-tax revenues likely to be reached
           during 2014-15;

(ii)       the demands on the resources of the Central Government, in particular, on account of
           the expenditure on civil administration, defence, internal and border security, debt-
           servicing and other committed expenditure and liabilities;

(iii)      the resources of the State Governments and the demands on such resources under
           different heads, including the impact of debt levels on resource availability in debt
           stressed states, for the five years commencing on 1st April 2015, on the basis of levels
           of taxation and non-tax revenues likely to be reached during 2014-15;

(iv)       the objective of not only balancing the receipts and expenditure on revenue account of
           all the States and the Union, but also generating surpluses for capital investment;

 (v)       the taxation efforts of the Central Government and each State Government and the
           potential for additional resource mobilisation to improve the tax-Gross Domestic
           Product ratio in the case of the Union and tax-Gross State Domestic Product ratio in
           the case of the States;

 (vi)      the level of subsidies that are required, having regard to the need for sustainable and
           inclusive growth, and equitable sharing of subsidies between the Central Government
           and State Governments;

 (vii)     the expenditure on the non-salary component of maintenance and upkeep of capital
           assets and the non-wage related maintenance expenditure on plan schemes to be
       completed by 31st March, 2015 and the norms on the basis of which specific amounts
       are recommended for the maintenance of the capital assets and the manner of
       monitoring such expenditure;

(viii) the need for insulating the pricing of public utility services like drinking water,
       irrigation, power and public transport from policy fluctuations through statutory

   (ix) the need for making the public sector enterprises competitive and market oriented;
        listing and disinvestment; and relinquishing of non-priority enterprises;

   (x) the need to balance management of ecology, environment and climate change
       consistent with sustainable economic development; and

   (xi) the impact of the proposed Goods and Services Tax on the finances of Centre and
        States and the mechanism for compensation in case of any revenue loss.

4.     In making its recommendations on various matters, the Commission shall generally
take the base of population figures as of 1971 in all cases where population is a factor for
determination of devolution of taxes and duties and grants-in-aid; however, the Commission
may also take into account the demographic changes that have taken place subsequent to

5.      The Commission may review the present Public Expenditure Management systems in
place including the budgeting and accounting standards and practices; the existing system of
classification of receipts and expenditure; linking outlays to outputs and outcomes; best
practices within the country and internationally, and make appropriate recommendations

6.     The Commission may review the present arrangements as regards financing of
Disaster Management with reference to the funds constituted under the Disaster Management
Act, 2005(53 of 2005), and make appropriate recommendations thereon.

7.    The Commission shall indicate the basis on which it has arrived at its findings and
make available the State-wise estimates of receipts and expenditure.

8.     The Commission shall make its report available by the 31st October, 2014, covering a
period of five years commencing on the 1st April, 2015.

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