SUMMARY OF KEY RECOMMENDATIONS MADE BY THE 12FC

 The total fiscal deficit for Centre & states to be reduced to 3% of GDP and the total
tax-GDP ratio of both centre& states to be increased to 17.6% of GDP in 2009-10.
The revenue deficit for the centre & states combined to be reduced to 0% by 2008.
 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 on sugar, textiles and tobacco.
 The total grant that will have to be given to the states for panchayati raj institutions
and local urban bodies for the period of 2005-09 will be Rs 20000 crores and Rs
5000 crores respectively.
 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.
 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 of the states while the grants that are recommended to the
states for maintenance of public buildings, forests, heritage conservation and
specific needs of states are Rs 500 crore, Rs 100 crore, Rs 625 crore and Rs 7100
crore.

BACKGROUND
The Finance Commission is constituted by the President of India every five years under
Article 280 of the Indian Constitution, and lays the framework for the federal transfer of
resources for the ensuing five-year period. The Finance Commission is mandated by
the Indian Constitution to provide recommendations on: the sharing of Union tax
collections between the Central Government and the Indian State Governments; the
various non-plan grants to be provided by the Central Government to the State
Governments; and the measures that may be taken to augment the resources of the
Urban and Rural Local Bodies, which form the third tier of Government in India.
Additionally, the Commission provides recommendations on specific areas as may be
mandated by the President of India. 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 of India, C. Rangarajan. The commission submitted its report on 30
November 2004 and covered the period from 2005-10.

SHARING OF UNION TAX REVENUES

  The share of the states in the net proceeds of shareable central taxes shall be 30.5 per
cent. For this purpose, additional excise duties in lieu of sales tax are treated as a part
of the general pool of central taxes. If the tax rental arrangement is terminated and the
states are allowed to levy sales tax (or VAT) on these commodities without any
prescribed limit, the share of the states in the net proceeds of shareable central taxes
shall be reduced to 29.5 per cent.

If any legislation is enacted in respect of service tax after the eighty eighth
Constitutional amendment is notified, it must be ensured that the revenue accruing to a
state under the legislation should not be less than the share that would accrue to it, had
the entire service tax proceeds been part of the shareable pool.

The indicative amount of over all transfers to states may be fixed at 38 per cent of the
central gross revenue receipt. 12. The states should be given a share as specified in
1 

Table 1 in the net proceeds of all the shareable Union taxes in each of the five financial
years during the period 2005-06 to 2009-10.

Criteria and Relative Weights for determining Inter- se shares of States by 11th Finance
Commission and 12th Finance Commission has been as under

Criterion Relative Weight (per cent)

11th Finance 12th Finance
Commission Commission
1. Population 10.0 25.0
2. Income (Distance Method) 62.5 50.0
3. Area 7.5 10.0
4. Index of infrastructure 7.5 0.0
5. Tax effort 5.0 7.5
6. Fiscal Discipline 7.5 7.5

Source :doe.gov.in

Commission has recommended that if any legislation is enacted in respect of service

tax after the eighty eighth Constitutional amendment is notified, it must be ensured that
the revenue accruing to a State under the legislation should not be less than the share
that would accrue to it, had the entire service tax proceeds been part of the shareable
pool.

GRANTS

The Non-plan grants under Article 275 of the constitution as per 12th Finance
Commission are significantly higher when compared with the corresponding grants for
the period of 11th Finance Commission 2000-05 as shown below
Purpose of Grant During 2000-05 (11th FC) During 2005-10 (12th FC)
1. Local Bodies grants 10,000.00 25,000.00
2. Centre's share in Calamity 8,255.69 16,000.00
Relief
3. Non-Plan revenue deficit 35,359.07 56,855.87
grants
4. Grant for education Nil 10,171.65
5. Grant for heath Nil 5,887.08
6. Grant for maintenance of Nil 15,000.00
roads and bridges
7. Grant for maintenance of Nil 5,000.00
public buildings
8. Grant for maintenance of Nil 1,000.00
forest.
9. Grant for heritage Nil 625.00
conservation.
10. Grant for State-specific Nil 7,100.00
needs
11. Upgradation and special 4,972.63 Nil
problem grants.
12. Centre's share of Incentive 5303.86 Nil
Fund
Total Non Plan Grants 63891.25 1,42,639.60

Note: amounts in Rs crore

Source :doe.gov.in

Under the scheme of transfer recommended by the TFC, the share of grants in the total
transfer is 18.9 percent, whereas it was 8.1%, 11.1%, 13.8%,10.3% and 14.5% as per
the recommendations of last five commissions.

Annexure I: Devolution of Central Taxes

State Share (all shareable taxes Share of Service Tax

excluding service tax)
(per cent)
(per cent)
1. Andhra Pradesh 7.356 7.453
2. Arunachal Pradesh 0.288 0.292
3. Assam 3.235 3.277
4. Bihar 11.028 11.173
 5. Chhattisgarh 2.654 2.689
6. Goa 0.259 0.262
7. Gujarat 3.569 3.616
8. Haryana 1.075 1.089
9. Himachal Pradesh 0.522 0.529
10. Jammu & Kashmir 1.297 0.000
11. Jharkhand 3.361 3.405
12. Karnataka 4.459 4.518
13. Kerala 2.665 2.700
14. Madhya Pradesh 6.711 6.799
15. Maharashtra 4.997 5.063
16. Manipur 0.362 0.367
17. Meghalaya 0.371 0.376
18. Mizoram 0.239 0.242
19. Nagaland 0.263 0.266
20. Orissa 5.161 5.229
21. Punjab 1.299 1.316
22. Rajasthan 5.609 5.683
23. Sikkim 0.227 0.230
24. Tamil Nadu 5.305 5.374
25. Tripura 0.428 0.433
26. Uttar Pradesh 19.264 19.517
27. Uttaranchal 0.939 0.952
28. West Bengal 7.057 7.150
All States 100.000 100.000

Source: doe.gov.in

Annexure II: Grants

Grant-in-aid for Non-Plan Revenue Deficit (2005-10) (Rs. in crore)

State 2005-06 2006-07 2007-08 2008-09 2009- 2005-

10 10(Total)

1. Arunachal 271.84 262.94 293.07 273.92 256.1 1357.88

Pradesh 1

2. Assam 305.67 Nil Nil Nil Nil 305.67

3. Himachal 2164.12 2107.14 2120.96 1991.64 1818. 10202.38

Pradesh 52
4. Jammu & 2458.56 2446.64 2552.18 2510.64 2385. 12353.46
Kashmir 44

5. Kerala 470.37 Nil Nil Nil Nil 470.37

6. Manipur 808.39 841.17 889.10 918.50 934.8 4391.98

2

7. Meghalaya 376.67 359.02 393.24 355.78 312.1 1796.86

5

8. Mizoram 537.19 556.52 605.17 634.00 644.9 2977.79

1

9. Nagaland 993.65 1037.66 1124.44 1168.17 1212. 5536.50

58

10. Orissa 488.04 Nil Nil Nil Nil 488.04

11. Punjab 1556.83 922.64 653.20 Nil Nil 3132.67

12. Sikkim 66.81 47.06 52.86 21.94 Nil 188.67

13. Tripura 1041.91 1064.30 1122.91 1131.90 1133. 5494.20

18

14. Uttaranchal 1112.91 1064.30 1115.02 992.02 830.4 5114.68

3

15. West Bengal 2438.90 605.82 Nil Nil Nil 3044.72

Total States 15091.8 11315.2 10922.1 9998.51 9528. 56855.87

6 1 5 14
Grants-in-aid for Education Sector (major head 2202) and Health Sector (major
head 2210 & 2211) (Rs in crore)

State 2005-06 2006- 2007- 2008- 2009- 2005-10

07 08 09 10 (Total)

- Education Sector (major

head 2202)

Assam 183.20 200.60 219.66 240.53 263.38 1107.37

Bihar 443.99 486.17 532.36 582.93 638.31 2683.76

Jharkhand 107.82 118.06 129.28 141.56 155.01 651.73

Madhya 76.03 83.25 91.16 99.82 109.30 459.56

Pradesh

Orissa 53.49 58.57 64.13 70.22 76.89 323.30

Rajasthan 20.00 20.00 20.00 20.00 20.00 100.00

Uttar 736.87 806.87 883.52 967.45 1059.3 4454.07

Pradesh 6

West Bengal 64.83 70.99 77.73 85.11 93.20 391.86

Total 1686.23 1844.5 2017.8 2207.6 2415.4 10171.6

1 4 2 5 5

- Health Sector (major head

2210 & 2211)

Assam 153.58 171.24 190.93 212.89 237.38 966.02

Bihar 289.30 322.57 359.66 401.02 447.14 1819.69

Jharkhand 57.39 63.99 71.35 79.55 88.70 360.98

Madhya 28.88 32.20 35.90 40.03 44.63 181.64

Pradesh

Orissa 31.22 34.81 38.81 43.28 48.25 196.37

Uttar 367.63 409.90 457.04 509.60 568.21 2312.38

Pradesh

Uttaranchal 10.00 10.00 10.00 10.00 10.00 50.00

Total 938.00 1044.7 1163.6 1296.3 1444.3 5887.08

1 9 7 1

Grants-in-aid for Maintenance of Roads & Bridges, Public Buildings and Forest (Rs.
incrore)

State 2005-06 2006- 2007- 2008- 2009- 2005-10

07 08 09 10 (Total)

- Maintenance of Roads
& Bridges

1. Andhra 0 245.03 245.03 245.03 245.03 980.12

Pradesh

2. Arunachal 0 11.09 11.09 11.09 11.09 44.36

Pradesh

3. Assam 0 82.53 82.53 82.53 82.53 330.12

4. Bihar 0 77.34 77.34 77.34 77.34 309.36

5. Chhattisgarh 0 65.60 65.60 65.60 65.60 262.40

6. Goa 0 9.87 9.87 9.87 9.87 39.48

7. Gujarat 0 223.80 223.80 223.80 223.80 895.20

8. Haryana 0 45.68 45.68 45.68 45.68 182.72

9. Himachal 0 65.41 65.41 65.41 65.41 261.64

Pradesh

10. Jammu & 0 29.42 29.42 29.42 29.42 117.68

Kashmir

11. Jharkhand 0 102.26 102.26 102.26 102.26 409.04

12. Karnataka 0 364.53 364.53 364.53 364.53 1458.12

13. Kerala 0 160.58 160.58 160.58 160.58 642.32

14. Madhya 0 146.72 146.72 146.72 146.72 586.88

Pradesh

15. Maharashtra 0 297.42 297.42 297.42 297.42 1189.68

16. Manipur 0 19.24 19.24 19.24 19.24 76.96

17. Meghalaya 0 21.60 21.60 21.60 21.60 86.40

18. Mizoram 0 10.53 10.53 10.53 10.53 42.12

19. Nagaland 0 30.22 30.22 30.22 30.22 120.88

20. Orissa 0 368.77 368.77 368.77 368.77 1475.08

21. Punjab 0 105.24 105.24 105.24 105.24 420.96

22. Rajasthan 0 158.33 158.33 158.33 158.33 633.32

23. Sikkim 0 4.66 4.66 4.66 4.66 18.64

24. Tamil Nadu 0 303.60 303.60 303.60 303.60 1214.40

25. Tripura 0 15.37 15.37 15.37 15.37 61.48

26. Uttar 0 600.79 600.79 600.79 600.79 2403.16

Pradesh

27. Uttaranchal 0 81.14 81.14 81.14 81.14 324.56

28. West Bengal 0 103.23 103.23 103.23 103.23 412.92

Total 0 3750.0 3750.0 3750.0 3750.0 15000.0

0 0 0 0 0

- Maintenance of Public
Buildings

1. Andhra 0 60.64 60.63 60.63 60.63 242.53

Pradesh

2. Arunachal 0 14.35 14.35 14.36 14.36 57.42

Pradesh
3. Assam 0 57.66 57.66 57.66 57.66 230.64

4. Bihar 0 89.90 89.90 89.91 89.90 359.61

5. Chhattisgarh 0 45.78 45.77 45.77 45.77 183.09

6. Goa 0 6.05 6.05 6.04 6.04 24.18

7. Gujarat 0 50.90 50.90 50.90 50.91 203.61

8. Haryana 0 37.95 37.95 37.95 37.95 151.80

9. Himachal 0 36.90 36.90 36.90 36.90 147.60

Pradesh

Grants-in-aid for Maintenance of Roads & Bridges, Public Buildings and Forest (Rs.
incrore)

State 2005-06 2006- 2007- 2008- 2009- 2005-10

07 08 09 10 (Total)

- Maintenance of
Forests

21. Punjab 0.40 0.40 0.40 0.40 0.40 2.00

22. Rajasthan 5.00 5.00 5.00 5.00 5.00 25.00

23. Sikkim 1.60 1.60 1.60 1.60 1.60 8.00

24. Tamil 6.00 6.00 6.00 6.00 6.00 30.00

Nadu

25. Tripura 3.00 3.00 3.00 3.00 3.00 15.00

26. Uttar 4.00 4.00 4.00 4.00 4.00 20.00

Pradesh

27. 7.00 7.00 7.00 7.00 7.00 35.00

Uttaranchal

28. West 3.00 3.00 3.00 3.00 3.00 15.00

Bengal

Total 200.00 200.0 200.0 200.0 200.0 1000.00

0 0 0 0

Grants-in-aid for Heritage Conservation (Rs. in Crore)

State 2005- 2006- 2007- 2008- 2009- 2005-

06 07 08 09 10 10(Total)

1. Andhra Pradesh 0 10.00 10.00 10.00 10.00 40.00

2. Arunachal 0 1.25 1.25 1.25 1.25 5.00

Pradesh

3. Assam 0 5.00 5.00 5.00 5.00 20.00

4. Bihar 0 10.00 10.00 10.00 10.00 40.00

5. Chhattisgarh 0 2.50 2.50 2.50 2.50 10.00

6. Goa 0 5.00 5.00 50 5.00 20.00

7. Gujarat 0 6.25 6.25 6.25 6.25 25.00

8. Haryana 0 3.75 3.75 3.75 3.75 15.00

9. Himachal 0 2.50 2.50 2.50 2.50 10.00

Pradesh

10. Jammu & 0 2.50 2.50 2.50 2.50 10.00

Kashmir

11. Jharkhand 0 2.50 2.50 2.50 2.50 10.00

12. Karnataka 0 12.50 12.50 12.50 12.50 50.00

13. Kerala 0 6.25 6.25 6.25 6.25 25.00

14. Madhya 0 5.00 5.00 5.00 5.00 20.00

Pradesh
15. Maharashtra 0 12.50 12.5 12.50 12.5 50.00

16. Manipur 0 1.25 1.25 1.25 1.25 5.00

17. Meghalaya 0 1.25 1.25 1.25 1.25 5.00

18. Mizoram 0 1.25 1.25 1.25 1.25 5.00

19. Nagaland 0 1.25 1.25 1.25 1.25 5.00

20. Orissa 0 12.50 12.50 12.5 12.50 50.00

21. Punjab 0 2.50 2.50 2.50 2.50 10.00

22. Rajasthan 0 12.50 12.50 12.50 12.50 50.00

23. Sikkim 0 1.25 1.25 1.25 1.25 5.00

24. Tamil Nadu 0 10.00 10.00 10.00 10.00 40.00

25. Tripura 0 1.25 1.25 1.25 1.25 5.00

26. Uttar Pradesh 0 12.50 12.50 12.50 12.50 50.00

27. Uttaranchal 0 1.25 1.25 1.25 1.25 5.00

28. West Bengal 0 10.00 10.00 10.00 10.00 40.00

Total States 0 156.25 156.25 156.25 156.25 625.00

Grants-in-aid for State-Specific Needs (Rs. in Crore)

State 2005 2006- 2007- 2008- 2009- 2005- Purpose

-06 07 08 09 10 10(Tota
l)

1. Andhra 0 125.0 125.0 125.0 125.0 500.00 Drinking Water Supply to

Pradesh 0 0 0 0 Flouride effected area ( Rs.
325 crore), Improving the
Socio-economic condition of
people in remote areas(Rs.
175 crore)

2. 0 2.50 2.50 2.50 2.50 10.00 Treasury building

Arunachal
Pradesh

3. Assam 0 32.50 32.50 32.50 32.50 130.00 Development of Urban

areas (Rs 121 crore), Health
infrastructure (Rs. 9 crore)

4. Bihar 0 100.0 100.0 100.0 100.0 400.00 Technical education (Rs. 50

0 0 0 0 crore), Administrative
training Institute. (RS. 50
crore), E-Governance (RS. 40
crore), Construction of
Homes under juvenile
justice

Act and improvement of

remand home , etc.(Rs. 20
crore), Improvement of
Urban water supply
&drainage (Rs. 180
crore)Fire services (Rs. 10
crore), Residential schools &
Hostels for SC/ST/OBC (Rs.
50 crore)

5. 0 75.00 75.00 75.00 75.00 300.00 Development of State

Chhattisga Capital at Raipur(Rs. 200
rh crore), Police
infrastructure(Rs. 100 crore)

6. Goa 0 2.50 2.50 2.50 2.50 10.00 Health infrastructure(Rs. 10

crore)

7. Gujarat 0 50.00 50.00 50.00 50.00 200.00 Salinity ingress

8. Haryana 0 25.00 25.00 25.00 25.00 100.00 Water logging / salinity and
declining water table

9. 0 12.50 12.50 12.50 12.50 50.00 Development of Urban

Himachal areas
Pradesh

10. Jammu 0 25.00 25.00 25.00 25.00 100.00 Tourism(Rs. 90 crore),

& Kashmir Construction of Public
 Service Commission
building in Jammu (RS. 10
crore)

11. 0 82.50 82.50 82.50 82.50 330.00 Development of State

Jharkhand Capital at Ranchi (Rs. 200
crore), spl.needs of Police
force (Rs. 130 crore)

12. 0 150.0 150.0 150.0 150.0 600.00 General Administration(Rs.

Karnataka 0 0 0 0 250 crore), Youth Service
and Sports facility (Rs. 100
crore),improvement of
Police administration(Rs.
100 crore), & Health
Services(Rs. 150 crore)

13. Kerala 0 125.00 125.00 125.00 125.00 500.00 Inland water and
canals(Rs. 225 crore),
Coastal Zone
management (Rs. 175
crore),improvement of
quality of School
education (Rs. 100
crore)
14. 0 75.00 75.00 75.00 75.00 300.00 Development of
Madhya Tourism(Rs. 67 crore),
Pradesh Development of road
infrastructure(Rs. 208
crore), Dev. Of urban
areas(Rs. 25 crore)

15. 0 75.00 75.00 75.00 75.00 300.00 Infrastructure for

Maharasht Women-child
ra development
programme(Rs. 50
crore), Postal and eco-
tourism(Rs. 250 crore)

16. 0 7.50 7.50 7.50 7.50 30.00 Secretariat complex(Rs.

Manipur 3.50 crore), Sports
complex (Rs. 15 crore)
Loktak lake (Rs. 11.50
crore)

17. 0 8.75 8.75 8.75 8.75 35.00 Zoological Park (Rs. 30

Meghalaya crore), Botanical garden
(Rs. 5 crore)

18. 0 16.25 16.25 16.25 16.25 65.00 Bamboo flowering(Rs.

Mizoram 40 crore), Sports
complex (Rs. 25 crore)

19. 0 11.25 11.25 11.25 11.25 45.00 Health facility (Rs. 15

Nagaland crore), Assembly Sectt.
(Rs. 30 crore)

20. Orissa 0 42.50 42.50 42.50 42.50 170.00 Eco-restoration work in

Chilika lake (Rs. 30
crore), For Sewerage
system for
Bhubaneswar(RS. 140
crore)

21. Punjab 0 24.00 24.00 24.00 24.00 96.00 Stagnant agriculture

22. 0 112.50 112.50 112.50 112.50 450.00 Indira Gandhi Nahar

Rajasthan Pariyojana (Rs. 300
crore), Meeting drinking
 waster scarcity in
Border and desert
districts(Rs. 150 crore)

23. Sikkim 0 25.00 25.00 25.00 25.00 100.00 Construction of airport

24. Tamil 0 75.00 75.00 75.00 75.00 300.00 Development of urban

Nadu areas(Rs. 250 crore),
Sea erosion (Rs. 50
crore)

25. Tripura 0 12.25 12.25 12.25 12.25 49.00 Construction of capital

complex(Rs. 28 crore),
Hospital for Dhalai
District at Kulai (Rs. 11
crore), Model prison at
Bishalgarh(Rs. 10 crore)

26. Uttar 0 200.00 200.00 200.00 200.00 800.00 Renovation of

Pradesh Collectorate buildings
(Rs. 60 crore),
Development of
Bundelkhand and
Eastern regions(Rs. 700
crore), Development of
urban area(Rs. 40 crore)

27. 0 60.00 60.00 60.00 60.00 240.00 Development of State

Uttarancha Capital (Rs 200 crore),
l Promotion of tourism
(Rs. 35 crore), Health
(Rs. 5 crore)

28. West 0 222.50 222.50 222.50 222.50 890.00 Arsenic contamination

Bengal of ground water(Rs. 600
crore), Erosion by
Ganga Padma river in
Malda and
Murshidabad Distts.
(Rs. 190 crore,
Development of
Sundarban regions(Rs.
100 crore)
Total 0 1775.0 1775.0 1775.0 1775.0 7100.00 -
0 0 0 0

Source :doe.gov.in