Sp issue on 16th Fin Commission-wl-5588-Finance Commission Grants – Quantum, Conditionalities and Absorption

Finance Commissions (FC) are mandated to recommend sharing of taxes and grants-in-aid of revenues to states. Examination of FC reports reveal that grants recommended by them were predominantly in the nature of gap-filling grants. Over the years their scope, coverage and numbers have increased but their share in FC transfers remained small. The study finds that utilisation of sector-specific grants, which account for a small proportion of FC grants, is low in some sectors as also in select states. Moreover, FC sector-specific grants are too small as compared to states’ expenditure on respective sectors to bring about any behavioural change in states. It is also observed that there is a growing trend of attaching conditionalities to grants, which further reduced their utilisation.