Discussion on 16th Finance Commission

Finance Commission (FC) constituted under Article 280 of the Constitution is an important mechanism for distribution of resources between the Union and the States and interse between the States. The 16th FC report has been tabled in Parliament along with the Action Taken Report.

In the discussion here, we look at the main recommendations of the 16th FC and briefly analyse their impact.

16th FC has adopted gradualism but made the crucial departure of not recommending any post-devolution grants under Article 275 (which enables Union to make grants to States in need of assistance on the recommendation of the FC). The Commission also did not make any assessment of union and state finances for its award period.

We discuss the impact of retaining the share of States in Union taxes at 41 per cent, the new criteria for interse distribution of taxes among States, conditionalities for grants to local governments under Article 280(3) (bb) and (c) and briefly look at the recommendations in the roadmap for fiscal consolidation.