16th Finance Commission Report

The 16th Finance Commission, constituted in 2023 under the chairmanship of Dr. Arvind Panagariya, has its key recommendations accepted by the Government for implementation from 2026-27 to 2030-31. 

16th Finance Commission (16th FC): 

Dimension	Key Details
Constitution and Chairmanship	16th Finance Commission is constituted in 2023 under the chairmanship of Dr. Arvind Panagariya, former Vice-chairman of NITI Aayog.
Legal Basis	Constitutional body under Article 280.
Constituting Authority and Frequency	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.
Report Laying	Under Article 281, Government lays the Finance Commission’s report and an Action Taken Memorandum before Parliament.
Vertical Devolution	States’ share in the divisible pool remains at 41%, unchanged from the 15th Finance Commission.
Divisible Pool	The divisible pool consists of gross tax revenue excluding the cost of collection, cesses, and surcharges.
Horizontal Devolution	Horizontal devolution provides for how the 41% share is divided among states.
Criteria changes	Southern States will see higher devolution due to inclusion of Contribution to GDP as a criteria, and 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 the Special Assistance to States for Capital Investment (SASCI) scheme.