#performance-based incentives

Over the last few years, the central government has used various ways to coerce the State governments to amend their respective APMC Acts to liberalise agricultural markets. In the terms of reference of the Fifteenth Finance Commission, the central government specifically asked it to consider using performance-based incentives for the provision of grants. Consequently, in its report for the year 2020-21, the Finance Commission introduced performance-based grants and recommended that the States that pass the model “Agricultural Marketing Produce and Livestock Marketing (Promotion and Facilitation) Act”, “Model Agricultural Produce and Livestock Contract Farming and Services (Promotion & Facilitation) Act” and the “Model Agricultural Land Leasing Act, 2016” in their legislatures would “become eligible to avail the grants awarded by us from 2021-22 onwards”. This was an unusual recommendation. Although several Finance Commissions in the past have used developmental indicators to measure resource requirements of States, to facilitate them to take policy measures for development in the States, and more recently, to impose fiscal discipline on the States, there are not many precedents of Finance Commissions demanding specific legislative changes by States for them to become eligible for grants. The most important, and perhaps the first such case, was when the 13th Finance Commission made amendment/enactment of the FRBM Acts by States as a precondition to get the State-specific grants. But the Fifteenth Finance Commission went a step further, unprecedented in the history of Finance Commissions, to demand that States enact legislation in areas that were not  directly related to State finances or fiscal discipline of the States.