Recommendations of the 15th Finance Commission for 2020-21

Rohin Garg - February 3, 2020

The Finance Commission is a constitutional body formed by the President of India to give suggestions on centre-state financial relations. The 15^th Finance Commission is required to submit two reports. The first report will consist of recommendations for the financial year 2020-21. The final report with recommendations for the 2021-26 period will be submitted by October 30, 2020. In this post, we explain the key recommendations of the report.

What is the amount of tax devolution to the states, and how is it being calculated?

The Finance Commission uses certain criteria when deciding the devolution to states. For example, income distance criterion has been used by the 14^th and 15^th Finance Commissions. Under this criterion, states with lower per capita income would be given a higher share to maintain equity among states. Another example is Demographic Performance criterion which has been introduced by the 15^th Finance Commission. The Demographic Performance criterion is to reward efforts made by states in controlling their population.

The 15^th Finance Commission used the following criteria while determining the share of states: (i) 45% for the income distance, (ii) 15% for the population in 2011, (iii) 15% for the area, (iv) 10% for forest and ecology, (v) 12.5% for demographic performance, and (vi) 2.5% for tax effort. For 2020-21, the Commission has recommended a total devolution of Rs 8,55,176 crore to the states, which is 41% of the divisible pool of taxes. This is 1% lower than the percentage recommended by the 14^th Finance Commission.

Table 1 below compares the new criteria with the criteria recommended by the 14^th Finance Commission.

Table 1: Criteria for devolution (2020-21)

Criteria	14^thFC 2015-20	15^thFC 2020-21
Income Distance	50.0	45.0
Population 1971	17.5	-
Population 2011	10.0	15.0
Area	15.0	15.0
Forest Cover	7.5	-
Forest and Ecology	-	10.0
Demographic Performance	-	12.5
Tax Effort	-	2.5
Total	100	100

Sources: Report for the year 2020-21, 15^thFinance Commission; PRS.

Uttar Pradesh and Bihar have received the largest devolutions for 2020-21, receiving Rs 1,53,342 crore, and Rs 86,039 crore respectively. Karnataka and Kerala saw the largest decreases in the share of the divisible pool with a decrease of 0.49% and 0.25% respectively. Table 2 below displays the state-wise breakdown of the share in the divisible pool and the total devolution.

Table 3: Share of states in the centre’s taxes

State	14^th Finance Commission		15^th Finance Commission		Devolution for FY 2020-2021
State	Share out of 42%	Share in divisible pool	Share out of 41%	Share in divisible pool	(In Rs crore)
Andhra Pradesh	1.81	4.31	1.69	4.11	35,156
Arunachal Pradesh	0.58	1.38	0.72	1.76	15,051
Assam	1.39	3.31	1.28	3.13	26,776
Bihar	4.06	9.67	4.13	10.06	86,039
Chhattisgarh	1.29	3.07	1.4	3.42	29,230
Goa	0.16	0.38	0.16	0.39	3,301
Gujarat	1.3	3.1	1.39	3.4	29,059
Haryana	0.46	1.1	0.44	1.08	9,253
Himachal Pradesh	0.3	0.71	0.33	0.8	6,833
Jammu and Kashmir	0.78	1.86	-	-	-
Jharkhand	1.32	3.14	1.36	3.31	28,332
Karnataka	1.98	4.71	1.49	3.65	31,180
Kerala	1.05	2.5	0.8	1.94	16,616
Madhya Pradesh	3.17	7.55	3.23	7.89	67,439
Maharashtra	2.32	5.52	2.52	6.14	52,465
Manipur	0.26	0.62	0.29	0.72	6,140
Meghalaya	0.27	0.64	0.31	0.77	6,542
Mizoram	0.19	0.45	0.21	0.51	4,327
Nagaland	0.21	0.5	0.23	0.57	4,900
Odisha	1.95	4.64	1.9	4.63	39,586
Punjab	0.66	1.57	0.73	1.79	15,291
Rajasthan	2.31	5.5	2.45	5.98	51,131
Sikkim	0.15	0.36	0.16	0.39	3,318
Tamil Nadu	1.69	4.02	1.72	4.19	35,823
Telangana	1.02	2.43	0.87	2.13	18,241
Tripura	0.27	0.64	0.29	0.71	6,063
Uttar Pradesh	7.54	17.95	7.35	17.93	1,53,342
Uttarakhand	0.44	1.05	0.45	1.1	9,441
West Bengal	3.08	7.33	3.08	7.52	64,301
Total	42	100	41	100	8,55,176

Sources: Reports of 14^th and 15^th Finance Commission; PRS.

What are the various grants recommended by the 15^th Finance Commission?

The Terms of Reference of the Finance Commission require it to recommend grants-in-aid to the States. These grants include: (i) revenue deficit grants, (ii) grants to local bodies, and (iii) disaster management grants.

14 states are estimated to face a revenue deficit post-devolution. To make up for this deficit, the Commission has recommended revenue deficit grants worth Rs 74,341 crore to these 14 states. Additionally, three states (Karnataka, Mizoram, and Telangana) have received special grants worth Rs 6,674 crore. The special grants are being given to compensate for a decline in the sum of tax devolution and revenue deficit grants in 2020-21 as compared to 2019-20.

The Commission has recommended a total of Rs 90,000 crore for grants to the local bodies in 2020-21. This amounts to an increase over the Rs 87,352 crore allocated for 2019-20 for the same. The new allocation is 4.31% of the divisible pool. Of this sum, Rs 60,750 crore has been recommended for rural local bodies, and Rs 29,250 crore for urban local bodies. These grants will be made available to all three tiers of Panchayat- village, block, and district.

To promote local-level mitigation activities, the Commission has recommended the setting up of National and State Disaster Management Funds. Recommended grants for the State Disaster Risk Management Fund is Rs 28,983 crore, while the allocation for the National Disaster Risk Management Fund is Rs 12,390 crore.

Apart from these, guidelines for performance-based grants and sector-specific grants have been outlined. The Commission has recommended a grant of Rs 7,375 crore for nutrition in 2020-21. Sectors for which sector-specific grants will be provided in the final report include: (i) nutrition, (ii) health, (iii) pre-primary education, (iv) judiciary, and (v) railways.

For more details, please see our summary of the report.

Policy

Examining pendency of cases in the Judiciary

Roshni Sinha - August 8, 2019

Yesterday, Parliament passed a Bill to increase the number of judges in the Supreme Court from 30 to 33 (excluding the Chief Justice of India). The Bill was introduced in view of increasing pendency of cases in the Supreme Court. In 2012, the Supreme Court approved the Scheme of National Court Management System to provide a framework for case management. The scheme estimated that with an increase in literacy, per capita income, and population, the number of new cases filed each year may go up to 15 crore over the next three decades, which will require at least 75,000 judges. In this blog, we analyse the pendency of cases at all three levels of courts, i.e. the Supreme Court, the Highs Courts, and the subordinate courts, and discuss the capacity of these courts to dispose of cases.

Pendency in courts has increased over the years; 87% of all pending cases are in subordinate courts

Sources: Court News, 2006, Supreme Court of India; National Data Judicial Grid accessed on August 7, 2019; PRS.

Overall, the pendency of cases has increased significantly at every level of the judicial hierarchy in the last decade. Between 2006 and now, there has been an overall increase of 22% (64 lakh cases) in the pendency of cases across all courts. As of August 2019, there are over 3.5 crore cases pending across the Supreme Court, the High Courts, and the subordinate courts. Of these, subordinate courts account for over 87.3% pendency of cases, followed by 12.5% pendency before the 24 High Courts. The remaining 0.2% of cases are pending with the Supreme Court. The primary reason for growing pendency of cases is that the number of new cases filed every year has outpaced the number of disposed of cases. This has resulted in a growing backlog of cases.

In High Courts and subordinate courts, over 32 lakh cases pending for over 10 years

Sources: National Data Judicial Grid accessed on August 7, 2019; Court News, 2006-17, Supreme Court of India; PRS.

In the High Courts, over 8.3 lakh cases have been pending for over 10 years. This constitutes 19% of all pending High Court cases. Similarly, in the subordinate courts, over 24 lakh cases (8%) have been pending for over 10 years. Overall, Allahabad High Court had the highest pendency, with over seven lakh cases pending as of 2017.

Despite high pendency, some High Courts have managed to reduce their backlog. Between 2006 and 2017, pendency of cases reduced the most in Madras High Court at a rate of 26%, followed by Bombay High Court at 24%. Conversely, during the same period, the pendency of cases doubled in the Andhra Pradesh High Court, and increased by 2.5 times in Karnataka High Court.

As a result of pendency, number of under-trials in prison is more than double that of convicts

Sources: Prison Statistics in India, 2015, National Crime Record Bureau; PRS.

Over the years, as a result of growing pendency of cases for long periods, the number of undertrials (accused awaiting trial) in prisons has increased. Prisons are running at an over-capacity of 114%. As of 2015, there were over four lakh prisoners in jails. Of these, two-thirds were undertrials (2.8 lakh) and the remaining one-third were convicts.

The highest proportion of undertrials (where the number of inmates was at least over 1,000) were in J&K (85%), followed by Bihar (82%). A total of 3,599 undertrials were detained in jails for more than five years. Uttar Pradesh had the highest number of such undertrials (1,364) followed by West Bengal (294).

One interesting factor to note is that more criminal cases are filed in subordinate courts than in High Courts and Supreme Court. Of the cases pending in the subordinate courts (which constitute 87% of all pending cases), 70% of cases were related to criminal matters. This increase in the pendency of cases for long periods over the years may have directly resulted in an increase in the number of undertrials in prisons. In a statement last year, the Chief Justice of India commented that the accused in criminal cases are getting heard after serving out their sentence.

Vacancies in High Courts and Subordinate Courts affect the disposal of cases

Sources: Court News, 2006-17, Supreme Court of India; PRS.

Vacancy of judges across courts in India has affected the functioning of the judiciary, particularly in relation to the disposal of cases. Between 2006 and 2017, the number of vacancies in the High Courts has increased from 16% to 37%, and in the subordinate courts from 19% to 25%. As of 2017, High Courts have 403 vacancies against a sanctioned strength of 1,079 judges, and subordinate courts have 5,676 vacancies against a sanctioned strength of 22,704 judges. As of 2017, among the major High Courts (with sanctioned strength over 10 judges), the highest proportion of vacancies was in Karnataka High Court at 60% (37 vacancies), followed by Calcutta High Court at 54% (39 vacancies). Similarly, in major subordinate courts (with sanctioned strength over 100 judges), the highest proportion of vacancies was in Bihar High Court at 46% (835 vacancies), followed by Uttar Pradesh High Court at 42% (1,348 vacancies).

Home

MPs & MLAs

Legislatures

Parliament

State

Bills & Acts

Budgets

Policy

LAMP

Careers

Recommendations of the 15th Finance Commission for 2020-21

Examining pendency of cases in the Judiciary

Recent Posts