Question 66→ 2025 IAS Prelims GS I : Genius Classroom Explanation

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

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

₹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.

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.

₹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.

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.

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

✅ Correct Combination: I, III and IV