New Delhi,In a late-night meeting scheduled for today, the Union Cabinet is set to discuss the establishment of the 16th Finance Commission, according to sources. The meeting, expected to take place in New Delhi at 8 pm, may address the formation of the commission tasked with shaping financial relations between the center and states for the next five years.
The 15th Finance Commission submitted its report on November 20, applicable for the fiscal years from FY 21-22 to FY 25-26. Finance Secretary T V Somanathan had earlier indicated in August that the 16th Finance Commission would be constituted by the end of November, in line with statutory requirements.
The upcoming commission holds the responsibility of recommending the division ratio of taxes between the central and state governments for the next five years, starting from April 1, 2026. This division is crucial for state funding, used in developmental projects, welfare programs, and priority-sector initiatives. Currently, 41 percent of taxes collected by the Centre are devolved to states in 14 installments throughout the fiscal year.
The constitution of the 16th Finance Commission assumes significance amid ongoing disputes between the central and state governments on various issues, including the use of cesses, compensation for GST revenue shortfalls, and allocation of funds for central subjects. As India’s economic momentum faces challenges, the allocation of public funds becomes increasingly contentious.
The commission’s role in suggesting the distribution of net proceeds to states has gained significance over the years. From the 11th Finance Commission to the 14th, the share of net proceeds recommended for devolution to states increased incrementally. This evolving landscape will likely shape the financial dynamics between the center and states in the years to come.
