The Twelfth Finance Commission of India was appointed on 1 November 2002 to make recommendations on the distribution of net proceeds of sharable taxes between union and states. The commission was headed by veteran

economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...

of India,

C. Rangarajan Chakravarthi Rangarajan (born 1932) is an Indian economist, a former Member of Parliament and 19th Governor of the Reserve Bank of India. He is the former Chairman of the Prime Minister's Economic Advisory Council, he resigned the day the UPA ...

. The commission submitted its report on 30 November 2004 and covered the period from 2005-10.

Members

The members of the Commission were: * Dr.

, Chair * Shri T.R Prasad,

IAS IAS may refer to: Science * Institute for Advanced Study, in Princeton, New Jersey, United States * Image Analysis & Stereology, the official journal of the International Society for Stereology & Image Analysis. * Iowa Archeological Society, Uni ...

(retired) * Prof. D.K Srivastava * Shri Som Pal, Part time Member, resigned 14 May 2004 * Dr. Shankar N. Acharya, Part time Member, replacing Som Pal from 2 July 2004

Terms of Reference

The commission was asked to make recommendations on the following matters: # The distribution of net proceed of taxes between union and states which are to be divided under chapter 1 part 12 of the constitution. # The policies required to increase the consolidated fund of states on the basis of recommendation made by the finance commission of states to supplement the resources of municipalities and panchayats in the state. In making the recommendation, the commission was asked to pay regard to # The resources of the union government and state government for five years starting from 1 April 2005 on the basis of the total tax and non-tax that it will likely to receive by the end of 2003-04. # The demand of the resources by the central government, in particular the need of expenditure on civil administration, internal security, defence, debt servicing and other committed expenditure and liabilities.

Major recommendations

* Macro-economic stability - The total

fiscal deficit The government budget balance, also alternatively referred to as general government balance, public budget balance, or public fiscal balance, is the overall difference between government revenues and spending. A positive balance is called a ''g ...

for Centre & states to be reduced to 3% of

GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is often ...

and the total tax-GDP ratio of both centre& states to be increased to 17.6% of GDP in 2009-10. The

revenue In accounting, revenue is the total amount of income generated by the sale of goods and services related to the primary operations of the business. Commercial revenue may also be referred to as sales or as turnover. Some companies receive reven ...

deficit for the centre& states combined to be reduced to 0% by 2008.... * Distribution of Union Tax - The total share of states in the total sharable central taxes to be fixed at 30.5% and the share of states will come down to 29.5% if the states levy

sales tax A sales tax is a tax paid to a governing body for the sales of certain goods and services. Usually laws allow the seller to collect funds for the tax from the consumer at the point of purchase. When a tax on goods or services is paid to a govern ...

sugar Sugar is the generic name for sweet-tasting, soluble carbohydrates, many of which are used in food. Simple sugars, also called monosaccharides, include glucose, fructose, and galactose. Compound sugars, also called disaccharides or double ...

textiles Textile is an umbrella term that includes various fiber-based materials, including fibers, yarns, filaments, threads, different fabric types, etc. At first, the word "textiles" only referred to woven fabrics. However, weaving is not the ...

and

tobacco Tobacco is the common name of several plants in the genus '' Nicotiana'' of the family Solanaceae, and the general term for any product prepared from the cured leaves of these plants. More than 70 species of tobacco are known, but the ...

. * Grants to local bodies - The total grant that will have to be given to the states for

panchayati raj The Panchayat raj is a political system, originating from the Indian subcontinent, found mainly in India, Pakistan, Bangladesh, Sri Lanka, and Nepal. It is the oldest system of local government in the Indian subcontinent, and historical menti ...

institutions and local urban bodies for the period of 2005-09 will be Rs 20000 crores and Rs 5000 crores respectively. * Calamity Relief Fund - The calamity relief fund scheme will continue as it was in the previous plans with central & states contributing in the ratio of 75: 25. The size of fund will be Rs 21333 crore for the period of 2005-10. * Grant in aids to the states - For the period of 2005-10, the total non-plan revenue deficit grant of Rs 56856 crores is recommended to 15 states and the total grant of Rs 10172 is recommended for 8 educationally backward states. A grant of Rs 15000 crores is recommended for building roads and bridges which is in addition to the normal

expenditure An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition is a ...

of the states while the grants that are recommended to the states for maintenance of

public buildings A building, or edifice, is an enclosed structure with a roof and walls standing more or less permanently in one place, such as a house or factory (although there's also portable buildings). Buildings come in a variety of sizes, shapes, and funct ...

forest A forest is an area of land dominated by trees. Hundreds of definitions of forest are used throughout the world, incorporating factors such as tree density, tree height, land use, legal standing, and ecological function. The United Nations' ...

s, heritage conservation and specific needs of states are Rs 500 crore, Rs 100 crore, Rs 625 crore and Rs 7100 crore.

References

Further References

* * Finance Commission of India 2002 establishments in India {{Finance Commission of India