16th Finance Commission: Key Aspects
The 16th Finance Commission is expected to submit its report in six months, covering a five-year period starting April 1, 2026. Its primary role, under Article 280 of the Constitution, is to recommend how tax revenues should be distributed between the Union and state governments.
States' Views on Fiscal Resource Sharing
- Increase in State Share:
- States, including those governed by the National Democratic Alliance, demand an increase in their share of the divisible pool from 41% to 45-50%.
- Concerns Over Cesses and Surcharges:
- The Union's increased reliance on cesses and surcharges, which are not part of the divisible pool, affects resources available to states.
- The current tax devolution stands at 33.3% of the Union’s gross tax receipts, below the 15th Finance Commission's recommendation of 41%.
- State Contribution to GDP:
- Tamil Nadu suggests considering a state's GDP contribution in tax revenue distribution, favoring larger and wealthier states.
Additional Areas for Discussion
- Rationalization of Centrally Sponsored Schemes (CCS):
- Reducing and rationalizing CCS can allow states to tailor spending to local needs and potentially increase the divisible pool over time.
- State Debt Levels:
- High state debt levels are a concern, with some states exceeding 30% of their Gross State Domestic Product (GSDP).
- Specific states like Punjab could see debt levels exceeding 50% of GSDP by 2027-28, posing risks to growth and stability.
- The commission may incentivize states to manage budget and debt effectively.
