The Twelfth Finance Commission (TFC)
was appointed on November 1, 2002
to make recommendations regarding the distribution between
the Union and the States
of net proceeds of shareable taxes, the principles which
should govern the grants-in-aid of the revenues of States
from the Consolidated Fund of India and the measures needed
to augment the Consolidated Fund of a State to supplement
the resources of local bodies in the State on the basis of
the recommendations made by the Finance Commission of the
State. The terms of reference mandated the Commission to
review the state of the finances of the Union and the States
and suggest a Plan by which the Governments, collectively
and severally, restore budgetary balance, achieve
macroeconomic stability and debt reduction
along with equitable growth. Furthermore, the Commission was
also asked to suggest
corrective measures for debt sustainability and to review
the Fiscal Reform Facility introduced by the Central
Government.
The Commission submitted its report on November 30, 2004
covering the period 2005-10. On Feb. 2, 2005 Union
Government accepted all recommendations of 12th Finance
Commission.
The Commission recommended debt relief to States linked
to fiscal reforms, doing away
with the present system of Central assistance to State plans
in the form of grants and loans
and transfer of external assistance to States on the same
terms and conditions as
attached to such assistance by external funding agencies.
The TFC raised the share
of States in shareable Central taxes from 29.5 per cent to
30.5 per cent. Total transfers
to States recommended by the TFC amount to Rs.7,55,752 crore
over the five year period
2005-10. Of this, transfers by way of share in Central taxes
and grants-in-aid amount to
Rs.6,13,112 crore and Rs.1,42,640 crore, respectively. The
total transfers recommended by the TFC are higher by 73.8
per cent over those recommended by the Eleventh Finance
Commission (EFC). Within the total transfers, while the
share in Central taxes is higher by 62.9 per cent, grants-inaid
recommended by the TFC are higher by 143.5 per cent over
those recommended by the EFC.
