Income distance criterion
Also called: Income distance · Topic: Fiscal Federalism: Finance Commission, Devolution and Centre-State Finances · NCERT: Beyond NCERT
Meaning
The income distance criterion is a devolution criterion that gives a larger share of central taxes to states whose per capita income is further below a benchmark. The poorer a state is compared with the benchmark, the more it gets. It is the equalising core of the Finance Commission formula and carries the largest weight.
Example
- The 15th Finance Commission (2021-26) gave it a 45% weight and measured distance from the highest per capita GSDP state.
- The 16th Finance Commission (2026-31) cut the weight to 42.5%. It measured distance from the average per capita GSDP of the top three large states, using data from 2018-19 to 2023-24 and leaving out 2020-21.
This is why Bihar and Uttar Pradesh get large shares.
Don't confuse with
- Contribution to GDP criterion: introduced by the 16th FC with a 10% weight, it rewards states with a larger share of national output. Income distance rewards states that are poorer.