📘 IAS Prelims 2025 — GS-III Q.66 | Classroom Explanation

(15th Finance Commission | Devolution, Grants & Performance Criteria)

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📌 Question Focus

Recommendations of the 15th Finance Commission (XV-FC).

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✅ Correct Answer: (c) I, III and IV

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🧑‍🏫 Statement-wise Explanation (UPSC-oriented)

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🔹 Statement I

₹4,800 crore grants (2022-23 to 2025-26) to incentivize States to enhance educational outcomes.

✅ Correct

• XV-FC recommended ₹4,800 crore total
  → ₹1,200 crore per year from 2022-23 to 2025-26
• Objective:
  • Improve learning outcomes
  • Strengthen school education quality
• This is part of performance-based sectoral grants, not unconditional devolution.

📌 Education incentives are a new reform-oriented feature of XV-FC.

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🔹 Statement II

45% of net proceeds of Union taxes are to be shared with States.

❌ Incorrect

• XV-FC recommended 41% vertical devolution, not 45%.
• Reason for reduction from FC-XIV (42%):
  • Creation of Union Territories of Jammu & Kashmir and Ladakh
• The reduction is technical, not fiscal tightening.

📌 Exam Trap:
UPSC often inserts inflated figures (45%, 50%) to test precision.

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🔹 Statement III

₹45,000 crore as performance-based incentive for States for agricultural reforms.

✅ Correct

• XV-FC earmarked ₹45,000 crore for:
  • Agricultural market reforms
  • Diversification
  • Water-use efficiency
• Funds linked to reform implementation, not population size.

📌 This reflects a shift from entitlement-based to reform-linked transfers.

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🔹 Statement IV

Reintroduced tax effort criterion to reward fiscal performance.

✅ Correct

• XV-FC revived “Tax Effort” as a horizontal devolution criterion.
• Tax effort =
  👉 Ability of a State to raise own tax revenue relative to its capacity.
• Purpose:
  • Discourage fiscal complacency
  • Reward States improving revenue mobilization

📌 This criterion was absent or diluted in earlier commissions.

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📊 Quick Revision Table (High-Value)

Aspect	XV Finance Commission
Period	2021-26
Vertical Devolution	41%
Education Grants	₹4,800 crore
Agriculture Reforms Incentive	₹45,000 crore
Tax Effort Criterion	Reintroduced
Approach	Reform-linked, performance-based

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🧠 Why Option (c) is Correct

• ✔ Statement I → Correct
• ✘ Statement II → Incorrect (41%, not 45%)
• ✔ Statement III → Correct
• ✔ Statement IV → Correct

✅ Correct Combination: I, III and IV

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