Economy: February 2021 Current Affairs Current Affairs Notes | EduRev

Current Affairs & Hindu Analysis: Daily, Weekly & Monthly

Current Affairs : Economy: February 2021 Current Affairs Current Affairs Notes | EduRev

 Page 1


 
                                                                                                                                                        
3. ECONOMY 
3.1. FIFTEENTH FINANCE COMMISSION REPORT  
Why in News?  
The Fifteenth Finance released its report which was recently tabled in the Parliament.  
About the Fifteenth FC 
• The Commission was chaired by Mr. 
N.K. Singh and the report was titled 
‘Finance Commission in COVID times.’ 
• The Commission was required to submit 
two reports. The first report, consisting 
of recommendations for the financial 
year 2020-21. The final report with 
recommendations for the 2021-26 
period.  
o Also, this is also the first ever 
Commission to have given 
recommendations spanning a 
period of six years, that is, 2020-26. 
• The Commission was asked to prepare a 
report on a many new and unique demand via its Terms of Reference (ToR).  
How the Terms of Reference (ToR) of Fifteenth FC were different from previous commissions?  
• Fiscal Consolidation Roadmap: The Commission was asked to review the current finances of both state and 
central government and recommend a fiscal consolidation roadmap for sound fiscal management.  
o This task became all the more difficult with the outbreak of the Pandemic, as the need for fiscal room 
became dire.  
• Indirect Taxation System: The commission was asked to evaluate the impact of the GST, including the need 
for payment of compensation for possible loss of revenues for 5 years, and abolition of a number of cesses.  
• Measurable Performance Incentives: The Commission was asked to consider proposing of measurable 
performance-based incentives for States, at the appropriate level of government in areas like deepening of 
tax nets, population control, power sector reforms etc. 
• Using 2011 population against 1971 population data: The Commission had to use the population data of 2011 
while making its recommendations. This was tricky as there was an active opposition from Southern States on 
usage 2011 population data.  
• Other unique demands:  
o Analyzing the possibility of creation of a non-lapsable defense fund. 
o Reviewing the present arrangements on financing Disaster Management initiatives.  
What are the recommendations given by the Fifteenth FC Report for 2021-26 period?  
Vertical Devolution The commission has recommended maintaining the vertical devolution at 41%.  
• The idea is to maintain the same level of devolution as recommended by 14
th
 FC (i.e., 42%), 
the adjustment of about 1% has been made due to the changed status of the erstwhile State 
of Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and Kashmir. 
• Gross tax revenue for 5-year period is expected to be 135.2 lakh crore. Out of that, Divisible 
pool (after deducting cesses and surcharges & cost of collection) is estimated to be 103 lakh 
crore.  
Horizontal Devolution The horizontal devolution is primarily based on three principles namely need of states, equity 
among states and performance of states. To balance all three principles, six criteria are used to 
calculate tax distribution- Income Distance, Area, Population (2011), Demographic Performance, 
Forest and Ecology and Tax and Fiscal Transfers.  
Finance Commission  
The Finance Commissions are commissions periodically constituted 
by the President of India under Article 280 of the Indian 
Constitution. Following are key functions assigned to it-  
• Distribution of 'net proceeds' of taxes between Center and the 
States, to be divided as per their respective contributions to the 
taxes. 
• Determine factors governing Grants-in-Aid to the states and the 
magnitude of the same. 
• To make recommendations to the president as to the measures 
needed to augment the Fund of a State to supplement the 
resources of the panchayats and municipalities in the state on 
the basis of the recommendations made by the finance 
commission of the state. 
• Any other matter related to it by the president in the interest of 
sound finance. 
Page 2


 
                                                                                                                                                        
3. ECONOMY 
3.1. FIFTEENTH FINANCE COMMISSION REPORT  
Why in News?  
The Fifteenth Finance released its report which was recently tabled in the Parliament.  
About the Fifteenth FC 
• The Commission was chaired by Mr. 
N.K. Singh and the report was titled 
‘Finance Commission in COVID times.’ 
• The Commission was required to submit 
two reports. The first report, consisting 
of recommendations for the financial 
year 2020-21. The final report with 
recommendations for the 2021-26 
period.  
o Also, this is also the first ever 
Commission to have given 
recommendations spanning a 
period of six years, that is, 2020-26. 
• The Commission was asked to prepare a 
report on a many new and unique demand via its Terms of Reference (ToR).  
How the Terms of Reference (ToR) of Fifteenth FC were different from previous commissions?  
• Fiscal Consolidation Roadmap: The Commission was asked to review the current finances of both state and 
central government and recommend a fiscal consolidation roadmap for sound fiscal management.  
o This task became all the more difficult with the outbreak of the Pandemic, as the need for fiscal room 
became dire.  
• Indirect Taxation System: The commission was asked to evaluate the impact of the GST, including the need 
for payment of compensation for possible loss of revenues for 5 years, and abolition of a number of cesses.  
• Measurable Performance Incentives: The Commission was asked to consider proposing of measurable 
performance-based incentives for States, at the appropriate level of government in areas like deepening of 
tax nets, population control, power sector reforms etc. 
• Using 2011 population against 1971 population data: The Commission had to use the population data of 2011 
while making its recommendations. This was tricky as there was an active opposition from Southern States on 
usage 2011 population data.  
• Other unique demands:  
o Analyzing the possibility of creation of a non-lapsable defense fund. 
o Reviewing the present arrangements on financing Disaster Management initiatives.  
What are the recommendations given by the Fifteenth FC Report for 2021-26 period?  
Vertical Devolution The commission has recommended maintaining the vertical devolution at 41%.  
• The idea is to maintain the same level of devolution as recommended by 14
th
 FC (i.e., 42%), 
the adjustment of about 1% has been made due to the changed status of the erstwhile State 
of Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and Kashmir. 
• Gross tax revenue for 5-year period is expected to be 135.2 lakh crore. Out of that, Divisible 
pool (after deducting cesses and surcharges & cost of collection) is estimated to be 103 lakh 
crore.  
Horizontal Devolution The horizontal devolution is primarily based on three principles namely need of states, equity 
among states and performance of states. To balance all three principles, six criteria are used to 
calculate tax distribution- Income Distance, Area, Population (2011), Demographic Performance, 
Forest and Ecology and Tax and Fiscal Transfers.  
Finance Commission  
The Finance Commissions are commissions periodically constituted 
by the President of India under Article 280 of the Indian 
Constitution. Following are key functions assigned to it-  
• Distribution of 'net proceeds' of taxes between Center and the 
States, to be divided as per their respective contributions to the 
taxes. 
• Determine factors governing Grants-in-Aid to the states and the 
magnitude of the same. 
• To make recommendations to the president as to the measures 
needed to augment the Fund of a State to supplement the 
resources of the panchayats and municipalities in the state on 
the basis of the recommendations made by the finance 
commission of the state. 
• Any other matter related to it by the president in the interest of 
sound finance. 
 
                                                                                                                                                        
 
• Income distance: Income distance is the distance of a state’s income from the state with the 
highest income.  Income of a state has been computed as average per capita GSDP during 
the three-year period between 2016-17 and 2018-19.  A state with lower per capita income 
will have a higher share to maintain equity among states.  
• Demographic performance: The demographic performance criterion has been used to 
reward efforts made by states in controlling their population.  States with a lower fertility 
ratio will be scored higher on this criterion.  
• Forest and ecology: This is calculated as the share of the dense forest of each state in the 
total dense forest of all the states. 
• Tax and fiscal efforts: This criterion has been used to reward states with higher tax collection 
efficiency.  It is measured as the ratio of the average per capita own tax revenue and the 
average per capita state GDP during the three years between 2016-17 and 2018-19. 
Grants to States  
 
• Revenue deficit grants: 17 states will receive grants worth Rs 2.9 lakh crore to eliminate 
revenue deficit. 
• Sector-specific grants: Sector-specific grants of Rs 1.3 lakh crore will be given to states for 
sectors like health, education, implementation of agricultural reforms etc.  A portion of 
these grants will be performance-linked. 
• State-specific grants: The Commission recommended state-specific grants of about 0.5 lakh 
crore.  These will be given in the areas of social needs, administrative governance and 
infrastructure etc.  
• Grants to local bodies: The total grants to local bodies will be Rs 4.36 lakh crore (a portion 
of grants to be performance-linked).  
o Grants to local bodies (other than health grants) will be distributed among states based 
on population and area, with 90% and 10% weightage, respectively.   
o Also, no grants will be released to local bodies of a state after March 2024 if the state 
does not constitute State Finance Commission and act upon its recommendations by 
then. 
• Disaster risk management:  The Commission recommended retaining the existing cost-
sharing patterns between the centre and states for disaster management funds.  The cost-
sharing pattern between centre and states is: (i) 90:10 for north-eastern and Himalayan 
states, and (ii) 75:25 for all other states.  State disaster management funds will have a corpus 
of Rs 1.6 lakh crore (centre’s share is Rs 1.2 lakh crore). 
• Incubation of new cities: Finance Commission has recommended Rs 8,000 crore to states 
for incubation of new cities, granting Rs 1,000 crore each for eight new cities. The focus of 
urban grants for million-plus cities is improvement in air quality and meeting the service level 
benchmark of solid waste management and sanitation.  
Total transfers • Including total grants of Rs. 10.33 lakh crore and tax devolution of Rs. 42.2 lakh crore (41% 
of 103 lakh crore), aggregate transfers to States is estimated to remain at around 50.9 per 
cent of the divisible pool during 2021-26 period. 
• Total transfers (devolution + grants) constitutes about 34 per cent of estimated Gross 
Revenue Receipts of the Union.  
Fiscal Management 
and Consolidation 
Roadmap 
The Commission suggested that the centre bring down fiscal deficit to 4% of GDP by 2025-26.  For 
states, it recommended the fiscal deficit limit (as % of GSDP) of: (i) 4% in 2021-22, (ii) 3.5% in 
2022-23, and (iii) 3% during 2023-26.   
• Extra annual borrowing worth 0.5% of GSDP will be allowed to states during first four years 
(2021-25) upon undertaking power sector reforms including: (i) reduction in operational 
Page 3


 
                                                                                                                                                        
3. ECONOMY 
3.1. FIFTEENTH FINANCE COMMISSION REPORT  
Why in News?  
The Fifteenth Finance released its report which was recently tabled in the Parliament.  
About the Fifteenth FC 
• The Commission was chaired by Mr. 
N.K. Singh and the report was titled 
‘Finance Commission in COVID times.’ 
• The Commission was required to submit 
two reports. The first report, consisting 
of recommendations for the financial 
year 2020-21. The final report with 
recommendations for the 2021-26 
period.  
o Also, this is also the first ever 
Commission to have given 
recommendations spanning a 
period of six years, that is, 2020-26. 
• The Commission was asked to prepare a 
report on a many new and unique demand via its Terms of Reference (ToR).  
How the Terms of Reference (ToR) of Fifteenth FC were different from previous commissions?  
• Fiscal Consolidation Roadmap: The Commission was asked to review the current finances of both state and 
central government and recommend a fiscal consolidation roadmap for sound fiscal management.  
o This task became all the more difficult with the outbreak of the Pandemic, as the need for fiscal room 
became dire.  
• Indirect Taxation System: The commission was asked to evaluate the impact of the GST, including the need 
for payment of compensation for possible loss of revenues for 5 years, and abolition of a number of cesses.  
• Measurable Performance Incentives: The Commission was asked to consider proposing of measurable 
performance-based incentives for States, at the appropriate level of government in areas like deepening of 
tax nets, population control, power sector reforms etc. 
• Using 2011 population against 1971 population data: The Commission had to use the population data of 2011 
while making its recommendations. This was tricky as there was an active opposition from Southern States on 
usage 2011 population data.  
• Other unique demands:  
o Analyzing the possibility of creation of a non-lapsable defense fund. 
o Reviewing the present arrangements on financing Disaster Management initiatives.  
What are the recommendations given by the Fifteenth FC Report for 2021-26 period?  
Vertical Devolution The commission has recommended maintaining the vertical devolution at 41%.  
• The idea is to maintain the same level of devolution as recommended by 14
th
 FC (i.e., 42%), 
the adjustment of about 1% has been made due to the changed status of the erstwhile State 
of Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and Kashmir. 
• Gross tax revenue for 5-year period is expected to be 135.2 lakh crore. Out of that, Divisible 
pool (after deducting cesses and surcharges & cost of collection) is estimated to be 103 lakh 
crore.  
Horizontal Devolution The horizontal devolution is primarily based on three principles namely need of states, equity 
among states and performance of states. To balance all three principles, six criteria are used to 
calculate tax distribution- Income Distance, Area, Population (2011), Demographic Performance, 
Forest and Ecology and Tax and Fiscal Transfers.  
Finance Commission  
The Finance Commissions are commissions periodically constituted 
by the President of India under Article 280 of the Indian 
Constitution. Following are key functions assigned to it-  
• Distribution of 'net proceeds' of taxes between Center and the 
States, to be divided as per their respective contributions to the 
taxes. 
• Determine factors governing Grants-in-Aid to the states and the 
magnitude of the same. 
• To make recommendations to the president as to the measures 
needed to augment the Fund of a State to supplement the 
resources of the panchayats and municipalities in the state on 
the basis of the recommendations made by the finance 
commission of the state. 
• Any other matter related to it by the president in the interest of 
sound finance. 
 
                                                                                                                                                        
 
• Income distance: Income distance is the distance of a state’s income from the state with the 
highest income.  Income of a state has been computed as average per capita GSDP during 
the three-year period between 2016-17 and 2018-19.  A state with lower per capita income 
will have a higher share to maintain equity among states.  
• Demographic performance: The demographic performance criterion has been used to 
reward efforts made by states in controlling their population.  States with a lower fertility 
ratio will be scored higher on this criterion.  
• Forest and ecology: This is calculated as the share of the dense forest of each state in the 
total dense forest of all the states. 
• Tax and fiscal efforts: This criterion has been used to reward states with higher tax collection 
efficiency.  It is measured as the ratio of the average per capita own tax revenue and the 
average per capita state GDP during the three years between 2016-17 and 2018-19. 
Grants to States  
 
• Revenue deficit grants: 17 states will receive grants worth Rs 2.9 lakh crore to eliminate 
revenue deficit. 
• Sector-specific grants: Sector-specific grants of Rs 1.3 lakh crore will be given to states for 
sectors like health, education, implementation of agricultural reforms etc.  A portion of 
these grants will be performance-linked. 
• State-specific grants: The Commission recommended state-specific grants of about 0.5 lakh 
crore.  These will be given in the areas of social needs, administrative governance and 
infrastructure etc.  
• Grants to local bodies: The total grants to local bodies will be Rs 4.36 lakh crore (a portion 
of grants to be performance-linked).  
o Grants to local bodies (other than health grants) will be distributed among states based 
on population and area, with 90% and 10% weightage, respectively.   
o Also, no grants will be released to local bodies of a state after March 2024 if the state 
does not constitute State Finance Commission and act upon its recommendations by 
then. 
• Disaster risk management:  The Commission recommended retaining the existing cost-
sharing patterns between the centre and states for disaster management funds.  The cost-
sharing pattern between centre and states is: (i) 90:10 for north-eastern and Himalayan 
states, and (ii) 75:25 for all other states.  State disaster management funds will have a corpus 
of Rs 1.6 lakh crore (centre’s share is Rs 1.2 lakh crore). 
• Incubation of new cities: Finance Commission has recommended Rs 8,000 crore to states 
for incubation of new cities, granting Rs 1,000 crore each for eight new cities. The focus of 
urban grants for million-plus cities is improvement in air quality and meeting the service level 
benchmark of solid waste management and sanitation.  
Total transfers • Including total grants of Rs. 10.33 lakh crore and tax devolution of Rs. 42.2 lakh crore (41% 
of 103 lakh crore), aggregate transfers to States is estimated to remain at around 50.9 per 
cent of the divisible pool during 2021-26 period. 
• Total transfers (devolution + grants) constitutes about 34 per cent of estimated Gross 
Revenue Receipts of the Union.  
Fiscal Management 
and Consolidation 
Roadmap 
The Commission suggested that the centre bring down fiscal deficit to 4% of GDP by 2025-26.  For 
states, it recommended the fiscal deficit limit (as % of GSDP) of: (i) 4% in 2021-22, (ii) 3.5% in 
2022-23, and (iii) 3% during 2023-26.   
• Extra annual borrowing worth 0.5% of GSDP will be allowed to states during first four years 
(2021-25) upon undertaking power sector reforms including: (i) reduction in operational 
 
                                                                                                                                                        
losses, (ii) reduction in revenue gap, (iii) reduction in payment of cash subsidy by adopting 
direct benefit transfer, and (iv) reduction in tariff subsidy as a percentage of revenue. 
• It recommended forming a high-powered inter-governmental group to: (i) review the Fiscal 
Responsibility and Budget Management Act (FRBM), (ii) recommend a new FRBM 
framework for centre as 
well as states and oversee 
its implementation. 
• The inverted duty structure 
between intermediate 
inputs and final outputs 
present in GST needs to be 
resolved.  Revenue 
neutrality of GST rate 
should be restored which 
has been compromised by 
multiple rate structure and 
several downward 
adjustments.   
• A comprehensive 
framework for public 
financial management 
should be developed. An 
independent Fiscal Council 
should be established with powers to assess records from the Centre as well as states.   
Other 
recommendations 
• Disaster Management Fund: Setting up the state and national level Disaster Risk Mitigation 
Fund (SDRMF), in line with the provisions of the Disaster Management Act. 
• Defense Modernization Fund: Creation of a separate non-lapsable fund for modernization 
of defense and internal security. The objective is to bridge the gap between defense budget 
allocations and the projected budgetary requirements.  
o The Commission has also recommended that Rs 1,000 crore per annum should be 
allocated from this fund for the welfare of families of the defense and CAPF personnel 
who sacrifice their lives in frontline duties. 
• Health: States should increase spending on health to more than 8% of their budget by 2022.  
Primary healthcare expenditure should be two-thirds of the total health expenditure by 
2022.  
• Centrally sponsored schemes (CSS): A threshold should be fixed for annual allocation to CSS 
below which the funding for a CSS should be stopped (to phase out CSS which outlived its 
utility or has insignificant outlay) 
3.2. DRAFT BLUE ECONOMY POLICY FOR INDIA 
Why in news? 
Ministry of Earth Sciences (MoES) has rolled out the Draft Blue Economy policy for India in the public domain 
inviting suggestions and inputs from various stakeholders including industry, NGOs, academia, and citizens. 
About Blue Economy 
• According to World Bank, Blue Economy refers to sustainable use of ocean resources for economic growth, 
improved livelihood and jobs, and ocean ecosystem health.  
• Blue Economy seeks to promote economic growth, social inclusion and the preservation or improvement of 
livelihoods as well as ensuring environmental sustainability of the oceans and coastal areas. 
• The economic philosophy of the Blue Economy was first introduced in 1994 by Professor Gunter Pauli at the 
United Nations University (UNU) to reflect the needs of future growth and prosperity, along with the threats 
posed by global warming.  
Page 4


 
                                                                                                                                                        
3. ECONOMY 
3.1. FIFTEENTH FINANCE COMMISSION REPORT  
Why in News?  
The Fifteenth Finance released its report which was recently tabled in the Parliament.  
About the Fifteenth FC 
• The Commission was chaired by Mr. 
N.K. Singh and the report was titled 
‘Finance Commission in COVID times.’ 
• The Commission was required to submit 
two reports. The first report, consisting 
of recommendations for the financial 
year 2020-21. The final report with 
recommendations for the 2021-26 
period.  
o Also, this is also the first ever 
Commission to have given 
recommendations spanning a 
period of six years, that is, 2020-26. 
• The Commission was asked to prepare a 
report on a many new and unique demand via its Terms of Reference (ToR).  
How the Terms of Reference (ToR) of Fifteenth FC were different from previous commissions?  
• Fiscal Consolidation Roadmap: The Commission was asked to review the current finances of both state and 
central government and recommend a fiscal consolidation roadmap for sound fiscal management.  
o This task became all the more difficult with the outbreak of the Pandemic, as the need for fiscal room 
became dire.  
• Indirect Taxation System: The commission was asked to evaluate the impact of the GST, including the need 
for payment of compensation for possible loss of revenues for 5 years, and abolition of a number of cesses.  
• Measurable Performance Incentives: The Commission was asked to consider proposing of measurable 
performance-based incentives for States, at the appropriate level of government in areas like deepening of 
tax nets, population control, power sector reforms etc. 
• Using 2011 population against 1971 population data: The Commission had to use the population data of 2011 
while making its recommendations. This was tricky as there was an active opposition from Southern States on 
usage 2011 population data.  
• Other unique demands:  
o Analyzing the possibility of creation of a non-lapsable defense fund. 
o Reviewing the present arrangements on financing Disaster Management initiatives.  
What are the recommendations given by the Fifteenth FC Report for 2021-26 period?  
Vertical Devolution The commission has recommended maintaining the vertical devolution at 41%.  
• The idea is to maintain the same level of devolution as recommended by 14
th
 FC (i.e., 42%), 
the adjustment of about 1% has been made due to the changed status of the erstwhile State 
of Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and Kashmir. 
• Gross tax revenue for 5-year period is expected to be 135.2 lakh crore. Out of that, Divisible 
pool (after deducting cesses and surcharges & cost of collection) is estimated to be 103 lakh 
crore.  
Horizontal Devolution The horizontal devolution is primarily based on three principles namely need of states, equity 
among states and performance of states. To balance all three principles, six criteria are used to 
calculate tax distribution- Income Distance, Area, Population (2011), Demographic Performance, 
Forest and Ecology and Tax and Fiscal Transfers.  
Finance Commission  
The Finance Commissions are commissions periodically constituted 
by the President of India under Article 280 of the Indian 
Constitution. Following are key functions assigned to it-  
• Distribution of 'net proceeds' of taxes between Center and the 
States, to be divided as per their respective contributions to the 
taxes. 
• Determine factors governing Grants-in-Aid to the states and the 
magnitude of the same. 
• To make recommendations to the president as to the measures 
needed to augment the Fund of a State to supplement the 
resources of the panchayats and municipalities in the state on 
the basis of the recommendations made by the finance 
commission of the state. 
• Any other matter related to it by the president in the interest of 
sound finance. 
 
                                                                                                                                                        
 
• Income distance: Income distance is the distance of a state’s income from the state with the 
highest income.  Income of a state has been computed as average per capita GSDP during 
the three-year period between 2016-17 and 2018-19.  A state with lower per capita income 
will have a higher share to maintain equity among states.  
• Demographic performance: The demographic performance criterion has been used to 
reward efforts made by states in controlling their population.  States with a lower fertility 
ratio will be scored higher on this criterion.  
• Forest and ecology: This is calculated as the share of the dense forest of each state in the 
total dense forest of all the states. 
• Tax and fiscal efforts: This criterion has been used to reward states with higher tax collection 
efficiency.  It is measured as the ratio of the average per capita own tax revenue and the 
average per capita state GDP during the three years between 2016-17 and 2018-19. 
Grants to States  
 
• Revenue deficit grants: 17 states will receive grants worth Rs 2.9 lakh crore to eliminate 
revenue deficit. 
• Sector-specific grants: Sector-specific grants of Rs 1.3 lakh crore will be given to states for 
sectors like health, education, implementation of agricultural reforms etc.  A portion of 
these grants will be performance-linked. 
• State-specific grants: The Commission recommended state-specific grants of about 0.5 lakh 
crore.  These will be given in the areas of social needs, administrative governance and 
infrastructure etc.  
• Grants to local bodies: The total grants to local bodies will be Rs 4.36 lakh crore (a portion 
of grants to be performance-linked).  
o Grants to local bodies (other than health grants) will be distributed among states based 
on population and area, with 90% and 10% weightage, respectively.   
o Also, no grants will be released to local bodies of a state after March 2024 if the state 
does not constitute State Finance Commission and act upon its recommendations by 
then. 
• Disaster risk management:  The Commission recommended retaining the existing cost-
sharing patterns between the centre and states for disaster management funds.  The cost-
sharing pattern between centre and states is: (i) 90:10 for north-eastern and Himalayan 
states, and (ii) 75:25 for all other states.  State disaster management funds will have a corpus 
of Rs 1.6 lakh crore (centre’s share is Rs 1.2 lakh crore). 
• Incubation of new cities: Finance Commission has recommended Rs 8,000 crore to states 
for incubation of new cities, granting Rs 1,000 crore each for eight new cities. The focus of 
urban grants for million-plus cities is improvement in air quality and meeting the service level 
benchmark of solid waste management and sanitation.  
Total transfers • Including total grants of Rs. 10.33 lakh crore and tax devolution of Rs. 42.2 lakh crore (41% 
of 103 lakh crore), aggregate transfers to States is estimated to remain at around 50.9 per 
cent of the divisible pool during 2021-26 period. 
• Total transfers (devolution + grants) constitutes about 34 per cent of estimated Gross 
Revenue Receipts of the Union.  
Fiscal Management 
and Consolidation 
Roadmap 
The Commission suggested that the centre bring down fiscal deficit to 4% of GDP by 2025-26.  For 
states, it recommended the fiscal deficit limit (as % of GSDP) of: (i) 4% in 2021-22, (ii) 3.5% in 
2022-23, and (iii) 3% during 2023-26.   
• Extra annual borrowing worth 0.5% of GSDP will be allowed to states during first four years 
(2021-25) upon undertaking power sector reforms including: (i) reduction in operational 
 
                                                                                                                                                        
losses, (ii) reduction in revenue gap, (iii) reduction in payment of cash subsidy by adopting 
direct benefit transfer, and (iv) reduction in tariff subsidy as a percentage of revenue. 
• It recommended forming a high-powered inter-governmental group to: (i) review the Fiscal 
Responsibility and Budget Management Act (FRBM), (ii) recommend a new FRBM 
framework for centre as 
well as states and oversee 
its implementation. 
• The inverted duty structure 
between intermediate 
inputs and final outputs 
present in GST needs to be 
resolved.  Revenue 
neutrality of GST rate 
should be restored which 
has been compromised by 
multiple rate structure and 
several downward 
adjustments.   
• A comprehensive 
framework for public 
financial management 
should be developed. An 
independent Fiscal Council 
should be established with powers to assess records from the Centre as well as states.   
Other 
recommendations 
• Disaster Management Fund: Setting up the state and national level Disaster Risk Mitigation 
Fund (SDRMF), in line with the provisions of the Disaster Management Act. 
• Defense Modernization Fund: Creation of a separate non-lapsable fund for modernization 
of defense and internal security. The objective is to bridge the gap between defense budget 
allocations and the projected budgetary requirements.  
o The Commission has also recommended that Rs 1,000 crore per annum should be 
allocated from this fund for the welfare of families of the defense and CAPF personnel 
who sacrifice their lives in frontline duties. 
• Health: States should increase spending on health to more than 8% of their budget by 2022.  
Primary healthcare expenditure should be two-thirds of the total health expenditure by 
2022.  
• Centrally sponsored schemes (CSS): A threshold should be fixed for annual allocation to CSS 
below which the funding for a CSS should be stopped (to phase out CSS which outlived its 
utility or has insignificant outlay) 
3.2. DRAFT BLUE ECONOMY POLICY FOR INDIA 
Why in news? 
Ministry of Earth Sciences (MoES) has rolled out the Draft Blue Economy policy for India in the public domain 
inviting suggestions and inputs from various stakeholders including industry, NGOs, academia, and citizens. 
About Blue Economy 
• According to World Bank, Blue Economy refers to sustainable use of ocean resources for economic growth, 
improved livelihood and jobs, and ocean ecosystem health.  
• Blue Economy seeks to promote economic growth, social inclusion and the preservation or improvement of 
livelihoods as well as ensuring environmental sustainability of the oceans and coastal areas. 
• The economic philosophy of the Blue Economy was first introduced in 1994 by Professor Gunter Pauli at the 
United Nations University (UNU) to reflect the needs of future growth and prosperity, along with the threats 
posed by global warming.  
 
                                                                                                                                                        
 
Draft Blue Economy Policy: 
• The draft blue economy policy document outlines the vision and strategy that can be adopted by the 
Government of India to utilize the plethora of oceanic resources available in the country. 
• The policy document aims:  
o to enhance contribution of the blue economy to India’s GDP,  
o improve lives of coastal communities,  
o preserve marine biodiversity,  
o maintain the national security of marine areas and resources. 
• It is in line with the Government of India’s Vision of New India by 2030 stressing the need for a coherent 
policy integrating different sectors so as to improve the lives of the coastal communities and accelerate 
development and employment. 
o 6
th
 Dimension of Vision 2030 deals with scaling up Sagarmala, India’s coastline and ocean waters will 
power development. 
• It highlights blue economy as one of the ten core dimensions for national growth.  
• The draft policy framework emphasizes policies across several key sectors to achieve holistic growth of India’s 
economy.  
• The document recognizes the following seven thematic areas- 
? National accounting framework for the blue economy and ocean governance: A new robust mechanism 
to generate and collect reliable data pertaining to the Blue Economy would be developed. 
? Coastal marine spatial planning and tourism: India needs to adapt the Coastal Marine Spatial Planning 
(CMSP) approach of the Intergovernmental Oceanic Commission (IOC)-UNESCO guidelines and to establish 
a national level authority to define the scope and nature of CMSP. This will allow integration of various 
sectors of blue economy, local communities private players and government to meet local and national 
needs. 
? Marine fisheries, aquaculture, and fish processing: To increase sustainability of marine fisheries through 
a new national policy along with proper legal and institutional framework for effective its management. 
? Manufacturing, emerging industries, trade, technology, services, and skill development: To ensure high 
capital infusion through public-private partnership (PPP) and enhance Ease of Doing Business in the sector. 
? Logistics, infrastructure and shipping, including trans-shipments: Government should formulate a 30 
year holistic shipbuilding plan across existing and Greenfield shipyards under Atmanirbhar Bharat to boost 
shipping and ship building sector. 
? Coastal and deep-sea mining and offshore energy: Envisaged to launch a National Placer Mission to 
explore workable placer deposits and evolve a roadmap for their extraction. India will also take a lead role 
in exploration of cobalt rich Sea Mount Ferro Manganese Crust (SFMC) in the Indian Ocean.   
Page 5


 
                                                                                                                                                        
3. ECONOMY 
3.1. FIFTEENTH FINANCE COMMISSION REPORT  
Why in News?  
The Fifteenth Finance released its report which was recently tabled in the Parliament.  
About the Fifteenth FC 
• The Commission was chaired by Mr. 
N.K. Singh and the report was titled 
‘Finance Commission in COVID times.’ 
• The Commission was required to submit 
two reports. The first report, consisting 
of recommendations for the financial 
year 2020-21. The final report with 
recommendations for the 2021-26 
period.  
o Also, this is also the first ever 
Commission to have given 
recommendations spanning a 
period of six years, that is, 2020-26. 
• The Commission was asked to prepare a 
report on a many new and unique demand via its Terms of Reference (ToR).  
How the Terms of Reference (ToR) of Fifteenth FC were different from previous commissions?  
• Fiscal Consolidation Roadmap: The Commission was asked to review the current finances of both state and 
central government and recommend a fiscal consolidation roadmap for sound fiscal management.  
o This task became all the more difficult with the outbreak of the Pandemic, as the need for fiscal room 
became dire.  
• Indirect Taxation System: The commission was asked to evaluate the impact of the GST, including the need 
for payment of compensation for possible loss of revenues for 5 years, and abolition of a number of cesses.  
• Measurable Performance Incentives: The Commission was asked to consider proposing of measurable 
performance-based incentives for States, at the appropriate level of government in areas like deepening of 
tax nets, population control, power sector reforms etc. 
• Using 2011 population against 1971 population data: The Commission had to use the population data of 2011 
while making its recommendations. This was tricky as there was an active opposition from Southern States on 
usage 2011 population data.  
• Other unique demands:  
o Analyzing the possibility of creation of a non-lapsable defense fund. 
o Reviewing the present arrangements on financing Disaster Management initiatives.  
What are the recommendations given by the Fifteenth FC Report for 2021-26 period?  
Vertical Devolution The commission has recommended maintaining the vertical devolution at 41%.  
• The idea is to maintain the same level of devolution as recommended by 14
th
 FC (i.e., 42%), 
the adjustment of about 1% has been made due to the changed status of the erstwhile State 
of Jammu and Kashmir into the new Union Territories of Ladakh and Jammu and Kashmir. 
• Gross tax revenue for 5-year period is expected to be 135.2 lakh crore. Out of that, Divisible 
pool (after deducting cesses and surcharges & cost of collection) is estimated to be 103 lakh 
crore.  
Horizontal Devolution The horizontal devolution is primarily based on three principles namely need of states, equity 
among states and performance of states. To balance all three principles, six criteria are used to 
calculate tax distribution- Income Distance, Area, Population (2011), Demographic Performance, 
Forest and Ecology and Tax and Fiscal Transfers.  
Finance Commission  
The Finance Commissions are commissions periodically constituted 
by the President of India under Article 280 of the Indian 
Constitution. Following are key functions assigned to it-  
• Distribution of 'net proceeds' of taxes between Center and the 
States, to be divided as per their respective contributions to the 
taxes. 
• Determine factors governing Grants-in-Aid to the states and the 
magnitude of the same. 
• To make recommendations to the president as to the measures 
needed to augment the Fund of a State to supplement the 
resources of the panchayats and municipalities in the state on 
the basis of the recommendations made by the finance 
commission of the state. 
• Any other matter related to it by the president in the interest of 
sound finance. 
 
                                                                                                                                                        
 
• Income distance: Income distance is the distance of a state’s income from the state with the 
highest income.  Income of a state has been computed as average per capita GSDP during 
the three-year period between 2016-17 and 2018-19.  A state with lower per capita income 
will have a higher share to maintain equity among states.  
• Demographic performance: The demographic performance criterion has been used to 
reward efforts made by states in controlling their population.  States with a lower fertility 
ratio will be scored higher on this criterion.  
• Forest and ecology: This is calculated as the share of the dense forest of each state in the 
total dense forest of all the states. 
• Tax and fiscal efforts: This criterion has been used to reward states with higher tax collection 
efficiency.  It is measured as the ratio of the average per capita own tax revenue and the 
average per capita state GDP during the three years between 2016-17 and 2018-19. 
Grants to States  
 
• Revenue deficit grants: 17 states will receive grants worth Rs 2.9 lakh crore to eliminate 
revenue deficit. 
• Sector-specific grants: Sector-specific grants of Rs 1.3 lakh crore will be given to states for 
sectors like health, education, implementation of agricultural reforms etc.  A portion of 
these grants will be performance-linked. 
• State-specific grants: The Commission recommended state-specific grants of about 0.5 lakh 
crore.  These will be given in the areas of social needs, administrative governance and 
infrastructure etc.  
• Grants to local bodies: The total grants to local bodies will be Rs 4.36 lakh crore (a portion 
of grants to be performance-linked).  
o Grants to local bodies (other than health grants) will be distributed among states based 
on population and area, with 90% and 10% weightage, respectively.   
o Also, no grants will be released to local bodies of a state after March 2024 if the state 
does not constitute State Finance Commission and act upon its recommendations by 
then. 
• Disaster risk management:  The Commission recommended retaining the existing cost-
sharing patterns between the centre and states for disaster management funds.  The cost-
sharing pattern between centre and states is: (i) 90:10 for north-eastern and Himalayan 
states, and (ii) 75:25 for all other states.  State disaster management funds will have a corpus 
of Rs 1.6 lakh crore (centre’s share is Rs 1.2 lakh crore). 
• Incubation of new cities: Finance Commission has recommended Rs 8,000 crore to states 
for incubation of new cities, granting Rs 1,000 crore each for eight new cities. The focus of 
urban grants for million-plus cities is improvement in air quality and meeting the service level 
benchmark of solid waste management and sanitation.  
Total transfers • Including total grants of Rs. 10.33 lakh crore and tax devolution of Rs. 42.2 lakh crore (41% 
of 103 lakh crore), aggregate transfers to States is estimated to remain at around 50.9 per 
cent of the divisible pool during 2021-26 period. 
• Total transfers (devolution + grants) constitutes about 34 per cent of estimated Gross 
Revenue Receipts of the Union.  
Fiscal Management 
and Consolidation 
Roadmap 
The Commission suggested that the centre bring down fiscal deficit to 4% of GDP by 2025-26.  For 
states, it recommended the fiscal deficit limit (as % of GSDP) of: (i) 4% in 2021-22, (ii) 3.5% in 
2022-23, and (iii) 3% during 2023-26.   
• Extra annual borrowing worth 0.5% of GSDP will be allowed to states during first four years 
(2021-25) upon undertaking power sector reforms including: (i) reduction in operational 
 
                                                                                                                                                        
losses, (ii) reduction in revenue gap, (iii) reduction in payment of cash subsidy by adopting 
direct benefit transfer, and (iv) reduction in tariff subsidy as a percentage of revenue. 
• It recommended forming a high-powered inter-governmental group to: (i) review the Fiscal 
Responsibility and Budget Management Act (FRBM), (ii) recommend a new FRBM 
framework for centre as 
well as states and oversee 
its implementation. 
• The inverted duty structure 
between intermediate 
inputs and final outputs 
present in GST needs to be 
resolved.  Revenue 
neutrality of GST rate 
should be restored which 
has been compromised by 
multiple rate structure and 
several downward 
adjustments.   
• A comprehensive 
framework for public 
financial management 
should be developed. An 
independent Fiscal Council 
should be established with powers to assess records from the Centre as well as states.   
Other 
recommendations 
• Disaster Management Fund: Setting up the state and national level Disaster Risk Mitigation 
Fund (SDRMF), in line with the provisions of the Disaster Management Act. 
• Defense Modernization Fund: Creation of a separate non-lapsable fund for modernization 
of defense and internal security. The objective is to bridge the gap between defense budget 
allocations and the projected budgetary requirements.  
o The Commission has also recommended that Rs 1,000 crore per annum should be 
allocated from this fund for the welfare of families of the defense and CAPF personnel 
who sacrifice their lives in frontline duties. 
• Health: States should increase spending on health to more than 8% of their budget by 2022.  
Primary healthcare expenditure should be two-thirds of the total health expenditure by 
2022.  
• Centrally sponsored schemes (CSS): A threshold should be fixed for annual allocation to CSS 
below which the funding for a CSS should be stopped (to phase out CSS which outlived its 
utility or has insignificant outlay) 
3.2. DRAFT BLUE ECONOMY POLICY FOR INDIA 
Why in news? 
Ministry of Earth Sciences (MoES) has rolled out the Draft Blue Economy policy for India in the public domain 
inviting suggestions and inputs from various stakeholders including industry, NGOs, academia, and citizens. 
About Blue Economy 
• According to World Bank, Blue Economy refers to sustainable use of ocean resources for economic growth, 
improved livelihood and jobs, and ocean ecosystem health.  
• Blue Economy seeks to promote economic growth, social inclusion and the preservation or improvement of 
livelihoods as well as ensuring environmental sustainability of the oceans and coastal areas. 
• The economic philosophy of the Blue Economy was first introduced in 1994 by Professor Gunter Pauli at the 
United Nations University (UNU) to reflect the needs of future growth and prosperity, along with the threats 
posed by global warming.  
 
                                                                                                                                                        
 
Draft Blue Economy Policy: 
• The draft blue economy policy document outlines the vision and strategy that can be adopted by the 
Government of India to utilize the plethora of oceanic resources available in the country. 
• The policy document aims:  
o to enhance contribution of the blue economy to India’s GDP,  
o improve lives of coastal communities,  
o preserve marine biodiversity,  
o maintain the national security of marine areas and resources. 
• It is in line with the Government of India’s Vision of New India by 2030 stressing the need for a coherent 
policy integrating different sectors so as to improve the lives of the coastal communities and accelerate 
development and employment. 
o 6
th
 Dimension of Vision 2030 deals with scaling up Sagarmala, India’s coastline and ocean waters will 
power development. 
• It highlights blue economy as one of the ten core dimensions for national growth.  
• The draft policy framework emphasizes policies across several key sectors to achieve holistic growth of India’s 
economy.  
• The document recognizes the following seven thematic areas- 
? National accounting framework for the blue economy and ocean governance: A new robust mechanism 
to generate and collect reliable data pertaining to the Blue Economy would be developed. 
? Coastal marine spatial planning and tourism: India needs to adapt the Coastal Marine Spatial Planning 
(CMSP) approach of the Intergovernmental Oceanic Commission (IOC)-UNESCO guidelines and to establish 
a national level authority to define the scope and nature of CMSP. This will allow integration of various 
sectors of blue economy, local communities private players and government to meet local and national 
needs. 
? Marine fisheries, aquaculture, and fish processing: To increase sustainability of marine fisheries through 
a new national policy along with proper legal and institutional framework for effective its management. 
? Manufacturing, emerging industries, trade, technology, services, and skill development: To ensure high 
capital infusion through public-private partnership (PPP) and enhance Ease of Doing Business in the sector. 
? Logistics, infrastructure and shipping, including trans-shipments: Government should formulate a 30 
year holistic shipbuilding plan across existing and Greenfield shipyards under Atmanirbhar Bharat to boost 
shipping and ship building sector. 
? Coastal and deep-sea mining and offshore energy: Envisaged to launch a National Placer Mission to 
explore workable placer deposits and evolve a roadmap for their extraction. India will also take a lead role 
in exploration of cobalt rich Sea Mount Ferro Manganese Crust (SFMC) in the Indian Ocean.   
 
                                                                                                                                                        
? Security, strategic dimensions, and international engagement: MDA needs to be strengthened by 
integrating national geo-intelligence framework and space applications along with international 
partnerships with key partner countries. 
Significance of Blue Economy 
• Economic Growth- Indian Ocean Region is of 
strategic importance to India’s economic growth as 
the most of the country’s oil, and gas is imported 
through the sea. Further, this dependency is 
expected to rise by 2025 exponentially. 
o India’s Exclusive Economic Zone of over 2 
million square kilometers has a huge living and 
non-living resources with significant 
recoverable resources such as crude oil and 
natural gas. 
• Harnessing Ocean Wealth- Mining of polymetallic 
nodules present in the seabed in the Central Indian 
Ocean Basin can help India improve availability of 
nickel, copper, cobalt and manganese. Through an 
agreement with the International Seabed Authority, India has a right to explore and mine polymetallic 
nodules over 750,000 square km. 
•  Trade potential- The Indian Ocean Region presents tremendous trade potential for the country. The countries 
in the Indian Ocean Rim Association (IORA) exhibited significant dynamism in the past few years as the trade 
in the region increased by over four 
times. 
• Fisheries and Aquaculture- India 
has a National Fisheries policy for 
promoting 'Blue Growth Initiative' 
which focus on sustainable 
utilization of fisheries wealth from 
the marine and other aquatic 
resources. 
• Sustainable Development- The 
Ocean-based Blue Economy is the 
next sunrise issue for 
development experts. Blue 
Economy is based on the idea to 
use locally available resources and employ renewable inputs, for example, ‘ocean-as-a-resource’ that 
addresses the problems of resource scarcity and enables sustainable development.  
? This marine based economic development will reduce environmental risks and mitigate ecological 
challenges. As a result, the optimized and responsible resource utilization will enable to achieve balanced 
socio-economic development. 
Way Forward 
• Encourage emerging industries: There are other emerging industries such as aquaculture, marine 
biotechnology, ocean energy and sea-bed mining that have the potential to create jobs and spur worldwide 
economic growth. 
• Inclusive Framework: Indian Ocean region needs a sustainable and inclusive framework for international 
partnerships. Countries in the region need to not only coordinate and manage the growing security challenges 
in the region but also realize the substantial economic potential the Indian Ocean area presents.  
• Cooperation: India’s commitment to strengthen its cooperation with the regional partners and build a 
sustainable ocean economy aligns well with its domestic mega-modernisation projects that will enable the 
nation to harness the full potential of the Ocean based Blue Economy.  
• Economic incentives: The granting of economic incentives to small fishermen to adopt sustainable practices, 
or the increase in protected maritime areas, to recover the habitats and productivity of the seas. 
Placer deposit 
• It is an accumulation of valuable minerals formed 
by gravity separation from a specific source rock 
during sedimentary processes.  
• India is rich in Placer minerals like nickel, uranium, 
copper, thorium, titanium, poly metallic sulphides, 
poly metallic manganese nodules, coastal ilmenite, 
garnet and zircon etc. 
• Polymetallic nodules and polymetallic massive 
sulphides are the two mineral resources of 
commercial interest to developers in the Indian 
Ocean.  
o Typically found at 4 to 5 km in water depth, 
polymetallic nodules are golf-to-tennis ball-
sized nodules containing nickel, cobalt, iron, 
and manganese that form over millions of years 
on the sediment of the seafloor.  
Read More
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