RAS question
The 16th Finance Commission introduced GDP contribution as a new criterion with what weightage for horizontal tax devolution?
Correct answer: (C) 10%.
The Sixteenth Finance Commission assigned a 10% weight to contribution to GDP as a new criterion in the horizontal tax devolution formula.
Explanation
The 16th Finance Commission, chaired by Arvind Panagariya, kept states' share at 41% of the divisible pool for FY27 to FY31, but changed the horizontal devolution formula by adding contribution to GDP. The Financial Express reported that this new criterion was given a calibrated 10% weight to avoid sharp redistribution shocks. That matters because horizontal devolution is about how the states' share is divided among states, not the total vertical share from the Centre to states. This shift reduced Rajasthan's share from 6.03% to 5.93%, which is why the new 10% GDP-contribution criterion is exam-relevant for Rajasthan.
Why the other options are wrong
- (A) 5% is too low; contribution to GDP was assigned a 10% weight in the 16th Finance Commission's horizontal formula.
- (B) 15% was not the weight for the new GDP-contribution criterion; 10% was the calibrated weight.
- (D) 20% overstates the new criterion's role, since the 16th Finance Commission gave contribution to GDP a 10% weight.
Concept
This tests Finance Commission devolution, especially the distinction between vertical devolution and the horizontal formula used to distribute states' shares. It recurs in RAS because Rajasthan's fiscal position is directly affected by changes in devolution criteria and state-wise shares.