UPSC Prelims 2023 Q29: Indian Economy – Fiscal Policy & Budget
- (a) Only two
- (b) Only three
- (c) Only four
- (d) All five
Answer: (b) Only three
Explanation
15th Finance Commission — Horizontal Devolution Criteria
The 15th Finance Commission (2020–26) used the following criteria for horizontal tax devolution (distribution among states):
| Criteria Used | Weight |
|---|---|
| Income Distance | 45% |
| Population (2011) | 15% |
| Area | 15% |
| Demographic Performance (fertility ratio improvement) | 12.5% |
| Forest and Ecology | 10% |
| Tax and Fiscal Efforts | 2.5% |
From the given list:
1. Demographic performance — YES (12.5% weight) ✓
2. Forest and ecology — YES (10% weight) ✓
3. Governance reforms — NO — not a 15th FC criterion
4. Stable government — NO — not a criterion
5. Tax and fiscal efforts — YES (2.5% weight) ✓
Three criteria from the list were used (1, 2, 5).
Answer: (b) Only three.
Why each option is right or wrong
- (a) Incorrect. 'Only two' — three of the five listed items (demographic performance, forest/ecology, tax efforts) are actual 15th FC criteria.
- (b) CORRECT. Demographic performance, forest and ecology, and tax/fiscal efforts are genuine 15th Finance Commission criteria. Governance reforms and stable government are not.
- (c) Incorrect. 'Only four' — governance reforms and stable government are not among the 15th FC's devolution criteria.
- (d) Incorrect. 'All five' — stable government is not an objective, measurable criterion used by the Finance Commission.
Key point
15th FC criteria (beyond population/area/income distance): Demographic Performance + Forest & Ecology + Tax & Fiscal Efforts = 3 from the list. Governance reforms and stable government are NOT criteria.
Remember
The 15th Finance Commission used three criteria beyond population, area, and income distance: Demographic Performance, Forest and Ecology, and Tax and Fiscal Efforts. Governance reforms and stable government were not used.
Common mistakes
- Including 'governance reforms' as a criterion — while governance is discussed, the 15th FC did not use it as a formal devolution criterion.
- Confusing 15th FC criteria with policy objectives — stable government is a political goal, not a quantifiable devolution metric.
- Not knowing that 'demographic performance' rewards states with better fertility control — a new 15th FC innovation using 2011 census data.
Exam tip
15th FC new criteria: DFT — Demographic (fertility), Forest (ecology), Tax (fiscal effort). Plus standard: Income distance, Population, Area. Total 6 criteria. DFT = the three non-standard ones tested in exams.
Sources
- 15th Finance Commission Report — Horizontal Devolution Formula
- Ministry of Finance — Finance Commission of India