29-Aug-2021: As per 15th Finance Commission recommendations, Rs. 1.42 Lakh Crore tied grant to Panchayats for water & sanitation during 2021-22 to 2025-26

Rs. 1,42,084 Crore tied grant to rural local bodies (RLBs)/ panchayats for water and sanitation for the five years 2021–22 to 2025–26, which has been recommended by the 15th Finance Commission, will have a huge impact on ensuring these services in villages and thus on public health and quality of life in rural areas. The 15th Finance Commission tied grants will ensure more funds to Gram Panchayats to make their water supply and sanitation-related plans implemented and Gram Panchayats can function as local ‘public utilities’ with a focus on ‘service delivery. This is a big step towards strengthening the local self-government in line with the 73rd Amendment to the Constitution of India.

The Department of Expenditure, Ministry of Finance, Government of India has issued the Guidelines for release and utilization of grants recommended by the 15th Finance Commission for RLBs/ PRIs during the period 2021–22 to 2025–26. The Dept. of Drinking Water & Sanitation (DDWS), Ministry of Jal Shakti, Govt of India will act as the nodal Department for determining the eligibility of the rural local bodies for the ‘15th FC tied grant for water & sanitation’ and recommend release of tied grant for water & sanitation, to the Dept. of Expenditure, Ministry of Finance for all States.

Department of Drinking Water and Sanitation has recommended for release of 1st installment of tied grant to 25 States for water & sanitation activities & onward transfer to RLBs/ PRIs. With 50 thousand Crore budgetary support by Government of India, 30 thousand Crore State’s share for Jal Jeevan Mission and this year allocation of Rs. 28 thousand Crore under 15th Tied grant for water and sanitation, more than one lakh crore fund is available for making provision of piped water supply in villages. This will gave a huge impact on the rural economy.

To help and enable RLBs/ panchayats to perform their functions as recommended by the 15th Finance Commission, State’s Water & Sanitation/ Rural Water Supply/ Public Health Engineering Departments will provide technical assistance to these Panchayats/ RLBs. To simplify and help RLBs/ panchayats, the Department of Drinking Water & Sanitation, Ministry of Jal Shakti has prepared a manual for utilization of these funds and the same has been made available to all State Governments. They have been requested to get the manual translated into vernacular language and it should be made available to every village Panchayat. A massive drive is to be taken to sensitize, train and empower the panchayat functionaries to utilize this fund to ensure tap water supply and improved sanitation in villages.

In all, the 15th Finance Commission recommended Rs. 2,36,805 Crore to RLBs/ PRIs for the period 2021-22 to 2025-26. Commission also identified ‘water supply and sanitation’ as national priority areas, which determines the quality of life of people living in rural areas. It has recommended 60% of the allocation to RLBs/ Panchayats i.e. Rs. 1,42, 084 Crore as a tied grant to be utilized for a.) supply of drinking water, rainwater harvesting and water recycling; and b.) sanitation & maintenance of open-defecation free (ODF) status.

To translate the vision of Prime Minister Shri Narendra Modi i.e. assured potable tap water supply to every household and improved sanitation, Union Government is working in partnership with States to ensure these two basic services in rural areas. Assured availability of potable drinking water in adequate quantity, of prescribed quality at household level on a regular and long-term basis, and improved sanitation & hygiene have a significant impact on public health and better socio-economic condition of people. To ensure water supply and sanitation services, earmarking such a substantial amount by 15th Finance Commission for basic water and sanitation services in villages is a huge step to ensure tap water supply and improved sanitation in the villages.

Since August 2019, Jal Jeevan Mission (JJM) is under implementation in partnership with States to make provision of tap water supply to every rural home, ensuring ‘no one is left out’ with an outlay of Rs. 3.60 Lakh Crore. The transformational mission will enable every rural household to get drinking water supply on a regular and long-term basis at affordable service delivery charges, thereby improving the quality of life and enhancing the ‘ease of living’ of people living in villages.

During the last seven years, huge efforts and investments have been made to enable our villages to become Open Defecation Free (ODF), and to sustain these efforts, Swachch Bharat Mission (SBM) Phase-II is under implementation with an objective to achieve ODF plus status of villages in the country. The focus is on Solid and Liquid Waste Management, plastic free villages and ensuring ODF status of villages.

In the last 20 months, the importance of public health during the Covid -19 pandemic has been widely recognized. Thus, it is very important to have provision of clean drinking water and improved sanitation in our villages. The 15th FC tied grant will prove to be a boon for rural areas by making provision of these services as well as in controlling water-borne diseases and managing grey water, which poses a public health hazard.

For effective utilization of the tied grant for water and sanitation, States need to identify nodal departments and to put in place the system in accordance with the guidelines during 15th Finance Commission period. Further, massive training/ orientation programme for the people of Rural Local Bodies/ Panchayati Raj Institutions on various aspects of the tied-grants, its release, and utilization, planning and execution work, audit & accounting, etc. to be organized. For this purpose, the National Jal Jeevan Mission, Department of Drinking Water & Sanitation has selected 84 eminent institutions as Key Resource Centres (KRCs) and to impart training and capacity building of RLBs/ Gram Panchayats for ensuring assured water supply, improved sanitation, and hygiene in the country.

Stress is given on putting in place a robust ‘operation and maintenance’ policy in States to recover service charges from households in line with the recommendations of the successive Finance Commissions to meet the recurring expenditure on rural water supply and sanitation services in villages for long-term and assured service delivery.

It is important that water supply schemes and sanitation facilities created in villages remain operational on long-term basis and Gram Panchayat or its sub-committee manages the same. In accordance with the 73rd Amendment to the Constitution, Gram Panchayats are empowered to manage these two basic services in villages, which are considered as one of the core functions of Panchayats. This tied grant has provided a golden opportunity for Gram Panchayats to redefine the local self-governance in line with Gandhiji’s ‘Gram Swaraj’. This will help in developing ‘responsible and responsive leadership’ at grassroot level. This empowerment process is in line with the motto of the Government i.e. ‘Sabka Saath, Sabka Vikas, Sabka Viswas and Sabka Prayas’ as announced by the Prime Minister in his address to the nation on last Independence Day.

Following the bottom-approach, it is expected that every Gram Panchayat and/ or its sub-committee, i.e., Village Water & Sanitation Committee (VWSC)/ Pani Samiti functions as a ‘local public utility’ that can plan, approve, implement, manage, operate and maintain in-village water supply and sanitation services on a regular and long-term basis with focus on service delivery, rather than mere infrastructure creation. Gram Panchayats or their sub-committees to ensure water supply schemes are operated and maintained properly, and last their full design period, i.e., the next 30 years and to ensure the investment made on sanitation for ODF sustainability and solid and liquid waste management in the villages is utilized on long-term basis. For this, every village needs to prepare a 5-year Village Action Plan co-terminus with 15th Finance Commission period, comprising of critical components of drinking water source strengthening, water supply, grey water treatment & its reuse, operation & maintenance, sloid & liquid waste management, etc. These Village action Plans to be part of Gram Panchayat Development Plans.

The main objective of the 15th Finance Commission tied grant for water and sanitation is to enable RLBs/ Gram Panchayats to shoulder the responsibility for potable water supply to every household, schools, anganwadi centres, ashram shalas, PHCs/ CHCs, community centres, marketplaces, playgrounds, etc. on long-term and regular basis; greywater management; solid waste management; maintenance of open-defecation free status and improved sanitation in villages. 15th FC tied grant will be hugely beneficial to achieve tangible outputs with intended outcomes viz. reduced water-borne diseases and improved health, reduced dropout from schools, reduction of drudgery, etc.

9-Nov-2020: The 15th Finance Commission submits its Report for 2021-22 to 2025-26 to the President of India

The Fifteenth Finance Commission (XVFC) led by Chairman Sh N K Singh, today submitted its Report for the period 2021-22 to 2025-26 to the Hon’ble President of India. Members of the Commission, Shri Ajay Narayan Jha, Prof. Anoop Singh, Dr. Ashok Lahiri and Dr. Ramesh Chand along with Secretary to the Commission Shri Arvind Mehta accompanied the Chairman.

As per the terms of reference (ToR), the Commission was mandated to give its recommendations for five years from 2021-22 to 2025-26 by 30 October, 2020. Last year, the Commission had submitted its report containing recommendations for the year 2020-21 which was accepted by the Union Government and tabled in the Parliament on 30 January 2020.

The Commission was asked to give its recommendations on many unique and wide-ranging issues in its terms of reference. Apart from the vertical and horizontal tax devolution, local government grants, disaster management grant, the Commission was also asked to examine and recommend performance incentives for States in many areas like power sector, adoption of DBT, solid waste management etc. The Commission was also asked to examine whether a separate mechanism for funding of defence and internal security ought to be set up and if so how such a mechanism could be operationalised. The Commission has sought to address all its ToRs in this Report to the Union government.

This Report has been organised in four volumes. Volume I and II, as in the past, contain the main report and the accompanying annexes. Volume III is devoted to the Union Government and examines key departments in greater depth, with the medium-term challenges and the roadmap ahead. Volume IV is entirely devoted to the States. The Commission has analysed the finances of each State in great depth and has come up with State-specific considerations to address the key challenges that individual States face.

The Report will be available in the public domain once it is tabled in the Parliament by the Union Government along with explanatory memorandum/action taken report on the recommendations contained in the Report. The cover and title of the Report are also unique in this Report- “Finance Commission in Covid Times” and the use of Scales on the cover to indicate the balance between the States and the Union.

30-Oct-2020: The 15th Finance Commission concludes deliberations

​The Fifteenth Finance Commission (XVFC), headed by Chairman Shri N K Singh, today concluded their deliberations on the Report for the year 2021-2022 to 2025-2026. The Report was signed by Shri N. K. Singh, the Chairman of the XVFC, and, Members of the Commission, Shri. Ajay Narayan Jha, Prof. Anoop Singh, Dr. Ashok Lahiri and Dr. Ramesh Chand.

​The Commission had sought time to present its Report to the Honourable President of India. It has now been communicated by the Office of the President that the Report submission will be on 9th November 2020.

​The Commission will also present a copy of the Report to the Honourable Prime Minister later next month.

The Report will be tabled in the Parliament by the Union Finance Minister along with an Action Taken Report of the Government of India. The Report contains recommendations pertaining to 5 financial years, 2021-22 to 2025-26. The Report of the XVFC for the year 2020-21, presented to the Honourable President in December 2019, was laid by the Government in the Parliament along with an Action Taken Report.

XV-FC was constituted by the Honourable President of India in pursuance of clause (1) of article 280 of the Constitution, read with the provisions of the Finance Commission (Miscellaneous Provisions) Act, 1951 (33 of 1951) with Shri N.K. Singh as Chairman, Mr. Shri Shaktikanta Das, Dr. Anoop Singh, Dr. Ashok Lahiri and Dr. Ramesh Chand as Members and Shri Arvind Mehta as Secretary. Subsequent to Shri. Shaktikanta Das demitting his office, Shri. Ajay Narayan Jha was appointed as a Member.

The Commission has finalized their Report after wide-ranging consultations with the Union and State Governments, local governments at different tiers, Chairmen and Members of previous Finance Commissions, Advisory Council to the Commission and other domain experts, academic institutions of eminence and multi-lateral institutions.

31-Jul-2020: 15th Finance Commission’s HLEG on Agricultural Exports submits report

The High Level Group (HLEG) on Agricultural Exports set up by the Fifteenth Finance Commission to recommend measurable performance incentives for States to encourage agricultural exports and to promote crops to enable high import substitution, has submitted its report to the Commission today.

After intensive research and consultations and taking inputs from stakeholders and the private sector through intensive consultations, the HLEG has made its recommendations, major among which are :

1. Focus on 22 crop value chains – demand driven approach.
2. Solve Value Chain Clusters (VCC) holistically with focus on value addition.
3. Create State led export plan with participation from stakeholders.
4. Private Sector should play an anchor role.
5. Centre should be an enabler.
6. Robust institutional mechanism to fund and support implementation.

The Group in its report has recommended a State-led Export Plan -  a business plan for   a crop value chain cluster, that will lay out the opportunity, initiatives and investment required to meet the desired value chain export aspiration. These plans will be action-oriented, time-bound and outcome-focused.  The Group has also said that for the success of the State led Export Plan, the following factors needed to be considered:-

• Plans should be collaboratively prepared with private sector players and Commodity Boards.
• Leveraging of  state plan guide and value chain deep dives.
• Private sector should play an anchor role in driving outcomes and execution.
• Centre should enable state-led plans.
• Institutional governance should be promoted across state and centre.
• Funding through convergence of existing schemes, Finance Commission allocation and private sector investment.

The Group was of the view that the private sector players had a pivotal role to play in ensuring demand orientation and focus on value addition; ensuring project plans are feasible, robust, implementable and appropriately funded; providing funds for technology based on business case and for creating urgency and discipline for project implementation.

The HLEG feels that-

• India’s agricultural export has the potential to grow from USD 40 billion to USD 70 billion in a few years.
• The estimated investment in agricultural export could be in the tune to USD  8-10 billion across inputs, infrastructure, processing and demand enablers.
• Additional exports is likely to create an estimated 7-10 million jobs.
• It will lead to higher farm productivity and farmer income.

The Members of the HLEG include Shri Sanjiv Puri, Chairman and Managing Director, ITC Chairman;  Ms. Radha Singh, Former Agriculture Secretary;  Shri Manoj Joshi, Representative of Ministry of Food Processing Industries;  Shri Diwakar Nath Misra, Chairman and Shri Paban Kumar Borthakur, Former Chairman, APEDA; Shri Suresh Narayanan, CMD, Nestle India; Shri Jai Shroff, CEO, UPL Limited; Shri Sanjay Sacheti, Country Head India, Olam Agro India Ltd; Dr. Sachin Chaturvedi, Director General, Research and Information System for Developing Countries (RIS).

The Terms of Reference of the HLEG include:

• To assess export & import substitution opportunities for Indian agricultural products (commodities, semi-processed, and processed) in the changing international trade scenario and suggest ways to step up exports sustainably and reduce import dependence.
• To recommend strategies and measures to increase farm productivity, enable higher value addition, ensure waste reduction, strengthen logistics infrastructure etc. related to Indian agriculture, to improve the sector's global competitiveness.
• To identify the impediments for private sector investments along the agricultural value chain and 3 suggest policy measures and reforms that would help attract the required investments.
• To suggest appropriate performance-based incentives to the state governments for the period 2021-22 to 2025-26, to accelerate reforms in the agriculture sector as well as implement other policy measures in this regard.

The Commission appreciated the efforts of the Group and  will now look into all the recommendations for finalising its own Report to the Government of India.

26-Jun-2020: Finance Commission holds meeting with the Ministry of Agriculture and Farmers’ Welfare states to be incentivized on their Agricultural Reforms agenda

The 15th Finance Commission headed by Chairman, Shri N. K. Singh including its Members today held a meeting with the Minister for Agriculture and Farmers’ Welfare, Shri Narendra Singh Tomar and senior officials of his Ministry.

In view of fact that in the third tranche of Rs 20 lakh crores fiscal stimulus package, Government of India had announced various measures to boost agriculture to strengthen Infrastructure Logistics and Capacity Building for Agriculture, Fisheries and Food Processing Sectors and in order to re-orient its proposed formulation on the agriculture reforms and incentives for exports in the light of para 7 of the ToR, FC-XV had called for this discussion with the Union Minister of Agriculture and Farmers’ Welfare and hence this meeting.

Earlier the Fifteenth Finance Commission had also constituted a Committee on Agricultural Exports under the chairmanship of Mr. Sanjeev Puri, CMD, ITC. Some of the key points related to Agri-exports discussed in the Committee meetings so far are given below:

• India is the second highest agriculture producer in the world and world leader in many significant agriculture categories. It has competitive advantage over other countries in agriculture as its diverse agro-climatic conditions created diverse crop portfolio potential; two main cropping seasons (Kharif and Rabi) and relatively low cost of labour and manufacturing.
• However, given the Competitive edge, India is only ranked 11th globally in terms of agriculture exports.
• Despite India’s global advantage in terms of hectares of arable land, it significantly lags smaller countries in export $ per hectare, driven amongst other things by (a) Lower yields and farm productivity (b) Low focus on value addition, allowing it to be captured by others such as Vietnam (c) Larger domestic market.
• India’s processed exports have been steadily improving, but still has a higher global share of raw commodities than processed goods.
• India’s agricultural exports have been volatile for the last 10 years, but have flattened more recently.
• Due to effect of fall in global prices and back to back drought during 2014, 2015 and 2016, exports dropped by 10% CAGR Recent growth rates show that agri-food production is rising faster than growth in domestic demand, and volume of surplus for export is witnessing accelerated growth. This offer scope and opportunity for capturing overseas markets to earn foreign exchange and enable producers to earn higher prices for farm produce.
• India’s top 50 commodities and agriculture products make up 75% of its total exports
• India exports 70% of its agriculture value to 20 countries; opportunity to export more to Europe and the Americas.
• While India imports over $20B in agriculture products, it still maintains a significant trade surplus of $18B.

Today’s discussions focused on the recent announcements (post-Covid) made by the Government related to agriculture sector which would be taken into consideration by the FC-XV for its award period from 2021-22 to 2025-26. Primary among them are:

• Details of the agriculture related reforms as part of the fiscal stimulus package.
• Amendment to Essential Commodities Act.
• The Farming Produce Trade and Commerce (Promotion and Facilitation) Ordinance, 2020'.
• The Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Ordinance, 2020.

A detailed presentation was made by the Ministry which included the recent steps taken by the Union Government for the upliftment of the sector.  The Commission was also made a ‘presentation’ on the implementation and budget requirement of Department of Agricultural Research and Education (DARE)/ ICAR Central Sector Schemes during 2021-22 to 2025-26.

The meeting also held discussions on the framework/recommendations given by FC-XV in its report  for  2020-21 regarding performance grants to States for agricultural reforms.  In a significant move the Finance Commission along with the Ministry of Agriculture has been  set up a Group consisting of  Member XVFC (Shri Ramesh Chand), Secretary (Agriculture) and   Secretary (DARE) to devise mechanism for incentivisation of states in areas of agricultural reforms agenda for the purpose of inclusion in the Commission’s recommendations in its final report.

3-Feb-2020: 15th Finance Commission’s interim report tabled in Parliament.

The report of the 15th Finance Commission headed by N K Singh was tabled in Parliament.

The interim report of the 15th Finance Commission has largely preserved the devolution of its predecessor. As part of an effort to balance the principles of fiscal needs, equity and performance, as well as the need to ensure stability and predictability in transfers, the criteria for the horizontal sharing of taxes among States have been rearranged.

A crucial new parameter, demographic performance, has been added to the mix. Having been mandated to adopt the population data from the 2011 Census, the commission has incorporated the additional criterion to ensure that States that have done well on demographic management are not unfairly disadvantaged. And since the norm also indirectly evaluates performance on the human capital outcomes of education and health, it has been assigned a weight of 12.5%. This should address the concerns voiced by several States over the switch to the 2011 Census from the 1971 data.

Changes introduced by 15th FC:

• The 15th Finance Commission has recommended reducing states share by 1% from Centre’s divisible pool to 41% in 2020-21 as against 42%
• The one percentage point cut has come on account of the re-organisation of the erstwhile State of Jammu & Kashmir.
• While the former State’s estimated share based on the parameters for horizontal devolution would have been about 0.85%, the commission has cited the security and other special needs of the two territories to enhance their aggregate share to 1%, which would be met by the Centre.

In its report, the FC has tweaked the criteria and weights under which funds are allocated to States.

• Population of a State: 15 per cent weight (down from 17.5 per cent allocated by the 14th Finance Commission) has been assigned.
• Weight for demographic performance: It has been increased to 12.5 per cent (as against 10 per cent allocated by the 14th Finance Commission).
• Income Distance (difference of a state’s per capita income from that of the state with the highest per capita income): It has reduced the weight for income distance from 50% to 45%.
• “Tax Effect”: The 15th FC report has introduced a new criteria, the “tax effect”, for states, with 2.5% weightage.

Local Bodies: The commission’s effort to improve the granularity in devolution to local bodies has generated some interesting results. Urban local bodies, especially municipalities in cities with populations of more than one million, are set to get a larger share of the pie.

Other Recommendations:

• The Commission also suggested that the country needs an overarching fiscal framework for Centre as well as states, on the lines of the FRBM Act, which would lay down accounting, budgeting and auditing standards to be followed at all levels of the government.
• The Commission has also been critical of the Union and State governments’ tendency to finance spending through off-budget borrowings and via parastatals.
• It has done well to ask that such extra-budgetary liabilities be clearly earmarked and eliminated in a time-bound manner.

Formula used by 14th FC had five elements:

1. Population as of 1971 with a weight of 17.5%;
2. Demographic Change reflecting population shifts between 1971 and 2011 with a weight of 10%;
3. Fiscal Capacity measured by the income distance method with a weight of 50%; and
4. Area with a weight of 15%;
5. Forest cover with a weight of 7.5%.

17-Jul-2019: Cabinet approves extension of the term of the Fifteenth Finance Commission up to 30th November, 2019

The Union Cabinet chaired by Prime Minister Narendra Modi has approved the extension of the term of Fifteenth Finance Commission up to 30th November, 2019. It will enable the Commission to examine various comparable estimates for financial projections in view of reforms and the new realities to finalise its recommendations for the period 2020-2025.

Background: The Fifteenth Finance Commission has been constituted by the President on 27th November, 2017 in ‘ pursuance of clause (1) of article 280 of the Constitution and Finance Commission (Miscellaneous Provisions) Act, 1951. The Commission was to submit its Report on the basis of its Terms of Reference (ToR) by 30th October, 2019 covering a period of five years commencing from 1st April, 2020.

The constitution of the Commission has been in the backdrop of various major fiscal/budgetary reforms introduced by the Union Government in the past four years like closure of the Planning Commission and its replacement by NITI Aayog, removal of distinction between Non-Plan and Plan expenditure, advancing the budget calendar by one month and passing of the full budget before commencement of the new financial year i.e. on 1st February, introduction of Goods and Services Tax (GST) from July 2017 and New FRBM architecture with debt and fiscal deficit path.

The ToR of the Commission takes into account the above fiscal/budgetary reforms. The task of determining the expenditure and receipts of the Union and State governments based on which the Commission shall make its recommendations is time consuming, as checks for data consistency across time and data sets become challenging.

9-May-2018: Fifteenth Finance Commission constitutes an Advisory Council to advise on the matters related to its Terms of Reference

The Fifteenth Finance Commission has constituted an Advisory Council to advise and assist the Commission.

The role and functions of the Advisory Council will be:

• To advise the Commission on any issue or subject related to the Terms of Reference (ToR) of the Commission, which may be of relevance;
• To assist in the preparation of any paper or research study which would enhance the Commission's understanding on the issues containing in its ToR; and
• To help in broadening the Commission's ambit and understanding to seek best national and international practices on matters pertaining to fiscal devolution and improving the quality and reach and enforcement of its recommendations.

Advisory Council will have following members:

1. Arvind Virmani, President, Forum for Strategic Initiatives
2. Surjit S. Bhalla, Part-time Member of PMEAC and Sr. Indian Analyst for the Observatory Group and Chairman of Oxus Research and Investments
3. Sanjeev Gupta, Ex-Deputy Director (Fiscal Affairs Department), IMF
4. Pinaki Chakraborty, Professor (NIPFP)
5. Shri Sajjid Chinoy, Chief India Economist, JP Morgan
6. Shri Neelkanth Mishra, Managing Director and the Credit Suisse India Economist and Strategist