Sixteenth Finance Commission Submits Report to President; Reforms Recommended

The XVIFC was tasked with making fiscal recommendations for the five-year period beginning 1 April 2026, covering a broad mandate central to India’s Centre–State financial relations.

 

The Sixteenth Finance Commission (XVIFC), constituted by the Hon’ble President of India under Article 280(1) of the Constitution, formally submitted its comprehensive report today. The Commission, chaired by eminent economist Dr. Arvind Panagariya, presented its findings and recommendations to the President at Rashtrapati Bhavan. Following this, the Commission also submitted copies of the report to the Prime Minister and the Union Finance Minister, marking a major milestone in India’s fiscal federalism framework.

Accompanying the Chairperson during the submission were XVIFC Members Smt. Annie George Mathew, Dr. Manoj Panda, Shri T. Rabi Sankar, Dr. Soumyakanti Ghosh, and Secretary Shri Ritvik Pandey.

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Constitutional Mandate and Five-Year Timeframe

The XVIFC was tasked with making fiscal recommendations for the five-year period beginning 1 April 2026, covering a broad mandate central to India’s Centre–State financial relations.

Key Terms of Reference (ToR) Included:

• Distribution of the net proceeds of taxes between the Union and States

• Determining the inter se shares of States

• Recommendations on grants-in-aid to States

• Reviewing financing mechanisms for Disaster Management

• Strengthening fiscal sustainability frameworks

• Assessing the fiscal needs of Union Territories

• Streamlining mechanisms for fiscal transfers and accountability

These recommendations will shape how financial resources are shared, allocated, and governed across India’s federal structure for the next five years.

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A Deep-Dive into India’s Fiscal Architecture

During its tenure, the Commission undertook a rigorous, evidence-driven analysis of the finances of both the Union and the States. This included detailed examinations of:

• Revenue performance

• Expenditure patterns

• Debt sustainability

• Fiscal deficits and consolidation trajectories

• Social-sector spending

• Infrastructure investment gaps

• Climate financing and resilience requirements

• State-level disparities in development

The Commission’s approach combined quantitative analysis with extensive stakeholder consultations, ensuring that the report reflects both macroeconomic realities and local governance needs.

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Extensive Consultations Across India

To prepare its report, the XVIFC held wide-ranging discussions with:

• Union Ministries and Departments

• All State Governments and Union Territories

• Panchayati Raj Institutions and Urban Local Bodies

• Former Members and Chairpersons of previous Finance Commissions

• Reserve Bank of India, NITI Aayog, and constitutional bodies

• Academic experts and leading think tanks

• Multilateral institutions such as the World Bank, IMF, and ADB

• Subject matter experts across public finance, taxation, climate policy, and disaster management

These consultations enabled the Commission to craft recommendations that are not only constitutionally sound, but also attuned to economic developments, structural changes, and emerging challenges.

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Report Structure: Recommendations in Two Volumes

The final report is organised into two volumes:

Volume I

Contains the Commission’s primary recommendations in line with the Terms of Reference. This volume addresses:

• Tax devolution formula

• Sector-specific grants

• Performance-linked incentives

• Climate and disaster resilience financing

• Borrowing limits and fiscal discipline

• Strengthening local government finances

• Special category and transitional needs for certain States

Volume II

Includes detailed annexures, technical analyses, supporting data, and research materials underpinning the recommendations. It provides state-by-state financial profiles and explains the analytical models used by the Commission.

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Public Release of the Report

In adherence to Article 281 of the Constitution, the report will be placed before both Houses of Parliament by the Union Finance Minister. Once tabled, it will become available in the public domain, enabling policymakers, researchers, and citizens to study the recommendations in detail.

The implementation of the report will play a pivotal role in shaping India’s fiscal trajectory, strengthening fiscal federalism, and ensuring equitable development across States in the upcoming plan period starting FY 2026–27.

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A Significant Step in Strengthening Federal Governance

The submission of the Sixteenth Finance Commission’s report marks a crucial moment in India’s ongoing efforts to modernise its fiscal framework and deepen cooperative federalism. With its forward-looking analyses and carefully calibrated recommendations, the XVIFC lays the foundation for:

• A more predictable and stable resource-sharing arrangement

• Better financial empowerment of States

• Stronger disaster management capabilities

• Improved transparency in intergovernmental transfers

• Enhanced accountability and performance-linked outcomes

As India moves toward Viksit Bharat @ 2047, the recommendations of the XVIFC are expected to help steer public finances toward sustainability, inclusivity, and long-term growth.