Model Answer
0 min readIntroduction
The Fourteenth Finance Commission (2015-2020), chaired by Y.V. Reddy, was a pivotal body in reshaping Centre-State fiscal relations in India. Recognizing the critical role of agriculture in the Indian economy – employing over 50% of the population and contributing significantly to GDP – the FFC aimed to address the sector’s persistent challenges. Prior commissions had largely focused on plan expenditure, but the FFC adopted a different approach, emphasizing untied funds to states, allowing them greater flexibility in addressing their specific needs, including agricultural development. This shift was predicated on the understanding that states were better positioned to tailor agricultural policies to their unique agro-climatic conditions and local requirements.
Context of Indian Agriculture (Pre-FFC)
Prior to the FFC, Indian agriculture faced several challenges including declining public investment, fragmented landholdings, inadequate irrigation facilities, weak market infrastructure, and limited access to credit. The share of agriculture in GDP was declining, and agricultural growth was often volatile. State governments, constrained by limited fiscal resources and centrally dictated schemes, often lacked the autonomy to effectively address these issues. The FFC sought to rectify this situation through a more decentralized and flexible approach to funding.
Key Policy Initiatives of the Fourteenth Finance Commission
1. Increased Fiscal Devolution to States
The most significant initiative was the substantial increase in the states’ share of the divisible pool of central taxes from 32% to 42%. This represented a massive transfer of resources to the states, providing them with greater financial autonomy. The FFC reasoned that states were better equipped to design and implement agricultural policies tailored to their specific needs. This increased devolution amounted to approximately ₹6.25 lakh crore over the five-year period (2015-2020).
2. Grants to States – Focus on Specific Areas
While emphasizing untied funds, the FFC also provided grants to states for specific purposes. These included:
- Grants for Irrigation and Flood Control: Recognizing the importance of irrigation for agricultural productivity, the FFC allocated grants for improving irrigation infrastructure and managing flood risks.
- Grants for Agricultural Research and Education: To promote innovation and improve agricultural practices, grants were provided for strengthening agricultural universities and research institutions.
- Grants for Strengthening Veterinary Services: Recognizing the importance of livestock in rural economies, the FFC allocated funds for improving veterinary infrastructure and services.
3. Emphasis on Rainfed Areas
The FFC recognized the critical importance of rainfed agriculture, which constitutes a significant portion of India’s cultivated area. It recommended increased investment in water conservation measures, watershed development programs, and drought-proofing initiatives in rainfed regions. This was aimed at enhancing resilience to climate change and improving agricultural productivity in these vulnerable areas.
4. Market Reforms and Agricultural Marketing
The FFC advocated for reforms in agricultural marketing to improve price discovery, reduce transaction costs, and enhance farmers’ access to markets. It encouraged states to adopt the Agricultural Produce Market Committee (APMC) Model Act, 2003, to promote competition and private sector participation in agricultural marketing. The FFC also emphasized the need for developing post-harvest infrastructure, such as storage facilities and cold chains, to reduce post-harvest losses.
5. Credit and Financial Inclusion
The FFC highlighted the importance of providing affordable credit to farmers. It recommended strengthening rural credit institutions and promoting financial inclusion through initiatives like the Pradhan Mantri Jan Dhan Yojana (PMJDY). It also advocated for crop insurance schemes to protect farmers against weather-related risks.
Impact and Assessment
The impact of the FFC’s recommendations was mixed. The increased fiscal devolution undoubtedly provided states with greater financial flexibility. However, the extent to which these funds were actually utilized for agricultural development varied significantly across states. Some states prioritized other sectors, while others effectively leveraged the increased resources to invest in irrigation, agricultural research, and market infrastructure. Data from the Reserve Bank of India (RBI) indicates a moderate increase in state government expenditure on agriculture and allied activities post-FFC, but the impact on agricultural growth remained uneven.
| Area of Focus | FFC Recommendation | Expected Outcome |
|---|---|---|
| Fiscal Devolution | Increase state share to 42% | Greater state autonomy in agricultural policy |
| Irrigation | Grants for irrigation & flood control | Improved irrigation coverage & drought resilience |
| Market Reforms | APMC Model Act adoption | Better price discovery & reduced transaction costs |
Conclusion
The Fourteenth Finance Commission’s policy initiatives represented a significant shift towards greater fiscal decentralization and state autonomy in agricultural development. While the increased devolution of funds provided states with greater resources, the effectiveness of these initiatives depended on the states’ own priorities and implementation capacity. The FFC’s emphasis on rainfed areas, market reforms, and credit access were crucial steps towards addressing the challenges facing Indian agriculture, but sustained investment and policy support are essential to achieve long-term and inclusive agricultural growth. Future commissions should focus on mechanisms to ensure greater accountability and transparency in the utilization of funds allocated for agricultural development.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.