The 14th Finance Commission (2015-2020) has radically enhanced the share of the states in the central divisible pool from:

Question

Accepted Answer

The correct option is 3: 32% to 42%.

The 14th Finance Commission, headed by Dr. Y. V. Reddy and covering the period 2015-2020, delivered a historic recommendation regarding the sharing of central taxes with state governments. The Commission drastically increased the vertical devolution—the share of taxes transferred from the Center to the States—from 32% (recommended by the 13th Finance Commission) to a massive 42% of the net proceeds of Union Taxes. This unprecedented 10 percentage point jump was hailed as a major step toward strengthening fiscal federalism in India, providing states with greater untied resources and flexibility in expenditure planning. The underlying philosophy was to empower states to take on a larger share of development expenditure responsibilities, thereby encouraging efficiency and autonomy in resource management. This move significantly altered the federal financial landscape of the country during its operational period.

The incorrect option is 1: 42% to 33%.
This option is factually incorrect as it suggests a major reduction in the states' share, which runs counter to the devolution mandate of the 14th Finance Commission. Furthermore, the base rate from the 13th Finance Commission was 32%, not 42%.

The incorrect option is 2: 33% to 43%.
While this option correctly indicates an increase, the starting point (33%) is incorrect; the 13th Finance Commission recommended 32%. The proposed final share of 43% is also slightly higher than the actual 42% recommended by the 14th Finance Commission.

The incorrect option is 4: 43% to 32%.
This option is incorrect because it reflects a decrease (from 43% to 32%), suggesting that the 14th Finance Commission reduced the states’ share. In reality, the Commission implemented a radical enhancement to the states' share to promote fiscal decentralization.