TAG: GS 3: ECONOMIC DEVELOPMENT
THE CONTEXT: The government is likely to ask the next Finance Commission to consider a higher weight for the human development index (HDI) and sustainable development goals (SDGs) while recommending the distribution of resources among states.
- The government is currently finalizing the terms of reference for the 16th Finance Commission, which is likely to be set up shortly.
- According to the senior official, the commission may also be asked to look at the conditions attached to fiscal transfers to urban and rural local bodies, to ensure that the funds are effectively utilised.
- The 15th Finance Commission gave 12.5% weight to demographic performance, 45% to income, 15% each to population and area, 10% to forest and ecology, and 2.5% to tax and fiscal efforts.
ABOUT FINANCE COMMISSION
- The Finance Commission is a constitutional body that determines the method and formula for distributing tax proceeds among the Centre and states.
- It suggests distribution of taxes and grants and works based on the terms of reference set by the finance ministry for a five-year period.
- The recommendation of the 16th Finance Commission will be applicable for the period from April 2026 to March 2031.
- Ritwik Pandey, a 1998 batch IAS officer of the Karnataka cadre, appointed as an officer on special duty at the advance cell of the Finance Commission.
TERMS OF REFERENCE FOR THE 16th FINANCE COMMISSION
According to the official, the terms of reference could include consideration of climate issues while deciding distribution of funds among states keeping in view India’s commitment to climate financing and to prepare states and cities to tackle future adverse weather conditions and natural disasters.
THE 15th FINANCE COMMISSION
- The 15th Finance Commission had allocated ₹54,770 crore under the National Disaster Relief Fund and ₹1.28 lakh crore for state disaster relief funds.
- The Centre’s share in state disaster relief funds was ₹98,080 crore.
- Improving the financial health of municipal bodies is part of the government’s pending agenda.
INEFFICIENT FUND UTILISATION
- The Reserve Bank of India, the Department of Expenditure and state finance commissions have repeatedly flagged inefficient fund utilization as well as poor accounts and record keeping by some municipal bodies.
- According to the official, the commission could be asked to look at conditions-based transfer to make fund utilization by local bodies effective and transparent.
- The total central grant to local governments is estimated to be ₹4.36 lakh crore for the 15th Finance Commission period (FY22-FY26), of which ₹2.36 lakh crore is earmarked for rural local bodies and ₹1.21 lakh crore for urban local bodies.
- Another ₹70,051 crore is for health grants through local governments.
HUMAN DEVELOPMENT INDEX(HDI)
- The Human Development Index (HDI) is a statistical tool used to measure a country’s overall achievement in its social and economic dimensions.
- Every year United Nations Development Programme (UNDP) ranks countries based on the HDI report released in their annual report.
- HDI is one of the best tools to keep track of the level of development of a country.
SUSTAINABLE DEVELOPMENT GOALS(SDGs)
- The Sustainable Development Goals (SDGs), also known as the Global Goals, were adopted by the United Nations in 2015 as a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity.
- The 17 SDGs are integrated.
- They recognize that action in one area will affect outcomes in others, and that development must balance social, economic and environmental sustainability.