The Twelfth Finance Commission 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.

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.

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