16th FC was constituted in 2023 under the chairmanship of Dr. Arvind Panagariya, former Vice- chairman of NITI ayog,
- Its key recommendations have been accepted by the Government for implementation from 2026-27 to 2030-31
About FC
- It is a Constitutional body under Article 280, constituted by the President of India every 5 years or earlier.
- Composition: Chairman and 4 other members appointed by the president for a term specified by him.
- Under Article 281, Government lays the Finance Commission’s report and an Action Taken Memorandum before Parliament.
Key recommendation
- Vertical devolution: States’ share in the divisible pool remains at 41%, unchanged from the 15th FC.
- The divisible pool consists of gross tax revenue excluding the cost of collection, cesses, and surcharges
- Horizontal Devolution: how the 41% is divided among states
- Southern States will see higher devolution due to inclusion of Contribution to GDP as a criteria, reduced weightage to Income distance and area.
- Path to Macro and Fiscal Stability: States’ fiscal deficit should be capped at 3 % of their respective GSDP (excluding loans under Special Assistance to States for Capital Investment (SASCI) scheme).
