The 16th Finance Commission (XVI FC), chaired by economist Arvind Panagariya, on Monday submitted report on fiscal transfers for the 2026–31 period to President Droupadi Murmu.
The report has been prepared after nearly two years of analysis and nationwide consultations and will shape tax devolution, grants-in-aid and other transfers over the next five years.
It was also presented to Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman and will be made public once tabled in Parliament.
The Commission undertook a comprehensive review of Union and state finances, holding discussions with central ministries, state governments, local bodies, former Finance Commission members, academic institutions, multilateral agencies and other experts. Its findings are presented in two volumes: Volume I containing recommendations aligned with the terms of reference (ToR), and Volume II featuring detailed annexures.
Mandated to determine the distribution of the Centre’s net tax proceeds from April 1, 2026, the XVI FC also reviewed disaster-management financing and grant requirements. To better understand state-level fiscal realities, the panel visited all 28 states, examining their fiscal capacities, development priorities and resource gaps. The ToR for the current Commission were narrower than those of its predecessor, reflecting states’ demands for a more focused assessment.
During consultations, several states pressed for raising their aggregate share of the divisible tax pool from 41% to 50%, citing poverty burdens, demographic trends and the need to sustain growth-oriented spending. Many also urged a reduction in the 45% weight assigned to income distance in the horizontal devolution formula.
Tamil Nadu proposed lowering it to 35%, while Maharashtra suggested 37.5%.
Tamil Nadu, Karnataka and Gujarat further pushed for assigning a 15% weight to states’ contributions to national GDP. The Commission is expected to weigh these competing demands as it finalises the devolution framework for FY27–31.
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