Economics · Economy
Finance Commissions have historically relied on need-based criteria to support poorer states. In discussing recommendations for horizontal devolution, which of the following reflects a structural proposal balancing equity and efficiency?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The per capita GSDP distance weightage was reduced to 42.5% to balance equity with efficiency, accompanied by the introduction of a 10% weightage for Contribution to GDP which replaces the previous tax effort criterion.✓
- 2To aggressively preserve redistribution, the weightage for Population (2011) was retained at 15% while the per capita GSDP distance parameter was raised to 45%, ensuring need-based criteria remain absolute.
- 3The States' share in the divisible pool was deliberately reduced to accommodate the Union Government, accompanied by the introduction of a 15% weightage for Contribution to GDP which replaces the demographic performance metric.
- 4The weightage for demographic performance was increased to 12.5%, and the income distance parameter was entirely eliminated to transition the framework exclusively toward performance-linked federalism.
Correct answer
The per capita GSDP distance weightage was reduced to 42.5% to balance equity with efficiency, accompanied by the introduction of a 10% weightage for Contribution to GDP which replaces the previous tax effort criterion.
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