{"id":5889,"date":"2026-04-08T12:05:34","date_gmt":"2026-04-08T06:35:34","guid":{"rendered":"https:\/\/vajiramandravi.com\/upsc-exam\/?p=5889"},"modified":"2026-04-10T11:45:38","modified_gmt":"2026-04-10T06:15:38","slug":"16th-finance-commission","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/upsc-exam\/16th-finance-commission\/","title":{"rendered":"16th Finance Commission, Members, Period, Recommendations, Impact"},"content":{"rendered":"<p><span style=\"font-weight: 400\">The Finance Commission is a constitutional body under <\/span><b>Article 280<\/b><span style=\"font-weight: 400\"> that strengthens India\u2019s fiscal federalism. Constituted every five years, it recommends tax devolution, grants-in-aid, and fiscal reforms to address vertical and horizontal imbalances between the Union and the States.<\/span><\/p>\r\n<p><span style=\"font-weight: 400\">The <strong>16th Finance Commission<\/strong>, chaired by Shri Arvind Panagariya, covers the period 2026\u201327 to 2030\u201331. It represents a clear shift towards performance, transparency and long-term fiscal sustainability. The 16th Finance Commission\u2019s recommendations span <\/span><b>tax devolution<\/b><span style=\"font-weight: 400\">, local body financing, disaster management, fiscal consolidation, power-sector reforms, subsidy rationalisation, and public sector enterprise restructuring. Together, these measures aim to promote <\/span><b>inter-state equity<\/b><span style=\"font-weight: 400\">, strengthen fiscal discipline, enhance local governance, and align public finances with India\u2019s developmental priorities.<\/span><\/p>\r\n<h2><span style=\"font-weight: 400\">Finance Commission Meaning<\/span><\/h2>\r\n<p><span style=\"font-weight: 400\">The <\/span><a href=\"https:\/\/vajiramandravi.com\/upsc-exam\/finance-commission\/\" target=\"_blank\"><span style=\"font-weight: 400\">Finance Commission <\/span><\/a><span style=\"font-weight: 400\">is a constitutional commission under <\/span><b>Article 280<\/b><span style=\"font-weight: 400\"> that ensures fiscal federalism in India.<\/span><\/p>\r\n<ul>\r\n\t<li><b>Constitution:<\/b><span style=\"font-weight: 400\"> The Finance Commission is constituted by the President of India every five years.<\/span><\/li>\r\n\t<li><b>Composition:<\/b>\r\n<ul>\r\n\t<li><span style=\"font-weight: 400\">One Chairman<\/span><\/li>\r\n\t<li><span style=\"font-weight: 400\">Four Members with expertise in finance, economics, or public administration<\/span><\/li>\r\n<\/ul>\r\n<\/li>\r\n\t<li style=\"font-weight: 400\"><b>Core Function:<\/b><span style=\"font-weight: 400\"> The Finance Commission recommends the sharing of net tax proceeds between the Union and States.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><b>Taxes Covered:<\/b><span style=\"font-weight: 400\"> Includes Income Tax, GST, and other central taxes as examined by the Finance Commission.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><b>Inter-State Distribution:<\/b><span style=\"font-weight: 400\"> The Finance Commission decides the criteria for distribution among states (<\/span><i><span style=\"font-weight: 400\">horizontal devolution<\/span><\/i><span style=\"font-weight: 400\">).<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><b>Grants-in-Aid:<\/b><span style=\"font-weight: 400\"> The Finance Commission recommends grants to revenue-deficient states under <\/span><b>Article 275.<\/b><\/li>\r\n\t<li style=\"font-weight: 400\"><b>Local Bodies:<\/b><span style=\"font-weight: 400\"> The Finance Commission suggests measures to <\/span><i><span style=\"font-weight: 400\">strengthen the finances of Panchayats and Municipalities.<\/span><\/i><\/li>\r\n\t<li style=\"font-weight: 400\"><b>Fiscal Discipline:<\/b><span style=\"font-weight: 400\"> The Finance Commission advises on expenditure control, debt, and fiscal reforms.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><b>Advisory Role:<\/b><span style=\"font-weight: 400\"> The Finance Commission examines financial matters referred by the President.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><b>Significance:<\/b><span style=\"font-weight: 400\"> The Finance Commission is the key commission ensuring equitable resource distribution and cooperative federalism in India.<\/span><\/li>\r\n<\/ul>\r\n<h2><span style=\"font-weight: 400\">16th Finance Commission Members<\/span><\/h2>\r\n<ul>\r\n\t<li><b>16th Finance Commission Chairman:<\/b><span style=\"font-weight: 400\"> Shri Arvind Panagariya, former Vice-Chairman, <\/span><a href=\"https:\/\/vajiramandravi.com\/upsc-exam\/niti-aayog\/\" target=\"_blank\"><span style=\"font-weight: 400\">NITI Aayog<\/span><\/a><span style=\"font-weight: 400\">.<\/span><\/li>\r\n\t<li><b>Members:\u00a0<\/b>\r\n<ul>\r\n\t<li><b>Shri. Ajay Narayan Jha - <\/b><span style=\"font-weight: 400\">Former member, 15th Finance Commission and former Secretary, Expenditure (Full-time Member)<\/span><\/li>\r\n\t<li><b>Smt. Annie George Mathew -<\/b><span style=\"font-weight: 400\"> Former Special Secretary, Expenditure (Full-time Member)<\/span><\/li>\r\n\t<li><b>Dr Niranjan Rajadhyaksha - <\/b><span style=\"font-weight: 400\">Executive Director, Artha Global (Full-time Member)<\/span><\/li>\r\n\t<li><b>Dr Soumya Kanti Ghosh - <\/b><span style=\"font-weight: 400\">Group Chief Economic Advisor, State Bank of India (Part-time Member)<\/span><\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<h2><span style=\"font-weight: 400\">16th Finance Commission Recommendations<\/span><\/h2>\r\n<p><span style=\"font-weight: 400\">The Report of the 16th Finance Commission was tabled in Parliament on February 1, 2026, covering the <\/span><b>period of five years<\/b><span style=\"font-weight: 400\"> from 2026-27 to 2030-31.\u00a0 Key recommendations of the Commission include:<\/span><\/p>\r\n<h3><span style=\"font-weight: 400\">Share of States in Central Taxes<\/span><\/h3>\r\n<p><span style=\"font-weight: 400\">The 16th Finance Commission has recommended a <\/span><b>41% share for states in the divisible pool<\/b><span style=\"font-weight: 400\"> of central taxes, unchanged from the <\/span><a href=\"https:\/\/vajiramandravi.com\/upsc-exam\/15th-finance-commission\/\" target=\"_blank\"><span style=\"font-weight: 400\">15th Finance Commission.<\/span><\/a><\/p>\r\n<ul>\r\n\t<li><span style=\"font-weight: 400\">The divisible pool is calculated by excluding the cost of collection, cesses, and surcharges from the gross tax revenue of the central government.<\/span><\/li>\r\n<\/ul>\r\n<h3><span style=\"font-weight: 400\">Criteria for Devolution<\/span><\/h3>\r\n<p><span style=\"font-weight: 400\">Finance Commissions use a formula-based approach with assigned weights to specific criteria to distribute central taxes among states.<\/span><\/p>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">The table below presents the criteria and weightages adopted by the 16th Finance Commission for determining each state\u2019s share.<\/span><\/li>\r\n<\/ul>\r\n<table>\r\n<tbody>\r\n<tr>\r\n<td class=\"tb-color\">\r\n<p><b>Criteria<\/b><\/p>\r\n<\/td>\r\n<td class=\"tb-color\">\r\n<p><b>15th FC (2021\u201326)<\/b><\/p>\r\n<\/td>\r\n<td class=\"tb-color\">\r\n<p><b>16th FC (2026\u201331)<\/b><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><span style=\"font-weight: 400\">Income Distance<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">45%<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">42.5%<\/span><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><span style=\"font-weight: 400\">Population (2011)<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">15%<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">17.5%<\/span><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><span style=\"font-weight: 400\">Demographic Performance<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">12.5%<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">10%<\/span><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><span style=\"font-weight: 400\">Area<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">15%<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">10%<\/span><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><span style=\"font-weight: 400\">Forest<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">10%<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">10%<\/span><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><span style=\"font-weight: 400\">Tax and Fiscal Efforts<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">2.5%<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">\u2013<\/span><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><span style=\"font-weight: 400\">Contribution to GDP<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">\u2013<\/span><\/p>\r\n<\/td>\r\n<td>\r\n<p><span style=\"font-weight: 400\">10%<\/span><\/p>\r\n<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\r\n<p><b>Total<\/b><\/p>\r\n<\/td>\r\n<td>\r\n<p><b>100%<\/b><\/p>\r\n<\/td>\r\n<td>\r\n<p><b>100%<\/b><\/p>\r\n<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<h3><span style=\"font-weight: 400\">Per Capita GSDP Distance (Income Distance)\u00a0\u00a0<\/span><\/h3>\r\n<p><span style=\"font-weight: 400\">The 16th Finance Commission defines income distance as the <\/span><i><span style=\"font-weight: 400\">gap between a state\u2019s per capita GSDP and the average per capita GSDP of the top three large, high-income states.<\/span><\/i><\/p>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Per capita GSDP is calculated as an average for 2018\u201319 to 2023\u201324, excluding the pandemic year 2020\u201321.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">States with lower per capita GSDP receive a higher share under this criterion, ensuring equity in inter-state fiscal transfers.<\/span><\/li>\r\n<\/ul>\r\n<h3><span style=\"font-weight: 400\">Demographic Performance<\/span><\/h3>\r\n<p><span style=\"font-weight: 400\">The 15th Finance Commission<\/span> <span style=\"font-weight: 400\">introduced the demographic performance parameter to reward states for population control, using the Total Fertility Rate (TFR) as the basis.<\/span><\/p>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">The 16th Finance Commission has <\/span><b><i>redefined this criterion<\/i><\/b><span style=\"font-weight: 400\"> to measure population growth between 1971 and 2011, replacing the TFR-based assessment.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">States with lower population growth during this period receive a higher share, reinforcing incentives for long-term demographic management.\u00a0<\/span><\/li>\r\n<\/ul>\r\n<h3><span style=\"font-weight: 400\">Forest<\/span><\/h3>\r\n<p><span style=\"font-weight: 400\">The 16th Finance Commission assigns weightage to both a state\u2019s share in total forest area and its contribution to the increase in forest cover (2015\u20132023).<\/span><\/p>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">It also<\/span><b> includes open forests<\/b><span style=\"font-weight: 400\"> while calculating the total forest area.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">In contrast, the 15th Finance Commission considered only dense and moderately dense forests and assessed states solely on their share in the overall forest area.<\/span><\/li>\r\n<\/ul>\r\n<h3><span style=\"font-weight: 400\">Contribution to GDP<\/span><\/h3>\r\n<p><span style=\"font-weight: 400\">The 16th Finance Commission has <\/span><b>introduced \u201ccontribution to national GDP\u201d<\/b><span style=\"font-weight: 400\"> as a new parameter.<\/span><\/p>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">This replaces the \u201ctax and fiscal efforts\u201d criterion of the 15th Finance Commission, which rewarded higher tax collection efficiency.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">A state\u2019s contribution to GDP is computed as the square root of its GSDP divided by the sum of the square roots of GSDP of all states.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">GSDP values are taken as the average nominal GSDP for 2018\u201319 to 2023\u201324, excluding the pandemic year 2020\u201321.<\/span><\/li>\r\n<\/ul>\r\n<h3><span style=\"font-weight: 400\">Grants-in-Aid<\/span><\/h3>\r\n<p><span style=\"font-weight: 400\">The 16th Finance Commission has recommended grants totalling \u20b99.47 lakh crore for the five years.\u00a0<\/span><\/p>\r\n<ul>\r\n\t<li><span style=\"font-weight: 400\">These grants are limited to:<\/span>\r\n<ul>\r\n\t<li><span style=\"font-weight: 400\">Urban and rural local bodies, and<\/span><\/li>\r\n\t<li><span style=\"font-weight: 400\">Disaster management.<\/span><\/li>\r\n<\/ul>\r\n<\/li>\r\n\t<li><span style=\"font-weight: 400\">The 16th Finance Commission has <\/span><b>discontinued the following grants<\/b><span style=\"font-weight: 400\"> provided by the 15th Finance Commission:<\/span>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Revenue deficit grants<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Sector-specific grants<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">State-specific grants<\/span><\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<h3><span style=\"font-weight: 400\">Grants for Local Bodies\u00a0<\/span><\/h3>\r\n<p><span style=\"font-weight: 400\">The 16th Finance Commission has recommended \u20b94.4 lakh crore for rural local bodies and \u20b93.6 lakh crore for urban local bodies over five years.<\/span><\/p>\r\n<ul>\r\n\t<li><b>Local body grants<\/b><span style=\"font-weight: 400\"> are split into:<\/span>\r\n<ul>\r\n\t<li><span style=\"font-weight: 400\">Basic grants (80%)<\/span><\/li>\r\n\t<li><span style=\"font-weight: 400\">Performance-based grants (20%)<\/span><\/li>\r\n<\/ul>\r\n<\/li>\r\n\t<li><span style=\"font-weight: 400\">For urban local bodies, the Commission has also proposed:<\/span>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Special Infrastructure Grants, and<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Urbanisation Premium Grants<\/span><\/li>\r\n<\/ul>\r\n<\/li>\r\n\t<li style=\"font-weight: 400\"><b>Entry-Level Conditions<\/b><span style=\"font-weight: 400\"> for all local body grants: Grants are released only upon fulfilment of:<\/span>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Constitution of local bodies as per the Constitution<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Public disclosure of provisional and audited accounts<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Timely constitution of the State Finance Commission<\/span><\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<p><b>Grant Components<\/b><\/p>\r\n<ul>\r\n\t<li><b>Basic Grants:<\/b>\r\n<ul>\r\n\t<li><span style=\"font-weight: 400\">50% untied<\/span><\/li>\r\n\t<li><span style=\"font-weight: 400\">50% tied to: Sanitation &amp; solid waste management, and\/or Water management<\/span><\/li>\r\n<\/ul>\r\n<\/li>\r\n\t<li><b>Special Infrastructure Grants (Urban):<\/b><span style=\"font-weight: 400\">\u00a0<\/span>\r\n<ul>\r\n\t<li><span style=\"font-weight: 400\">For comprehensive wastewater management systems<\/span><\/li>\r\n\t<li><span style=\"font-weight: 400\">Applicable to cities with a population of 10\u201340 lakh (Census 2011)<\/span><\/li>\r\n\t<li><span style=\"font-weight: 400\">\u20b956,100 crore recommended over five years<\/span><\/li>\r\n<\/ul>\r\n<\/li>\r\n\t<li><b>Urbanisation Premium Grants:<\/b><span style=\"font-weight: 400\"> One-time grants for\u00a0<\/span>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Merger of peri-urban villages into urban areas<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Preparation of Rural-to-Urban Transition Policy<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">\u20b910,000 crore allocated<\/span><\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<p><b>Disaster Management Grants<\/b><\/p>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">Total disaster management corpus: \u20b92,04,401 crore for SDRF and SDMF<\/span><\/li>\r\n\t<li><span style=\"font-weight: 400\">Cost-sharing pattern:<\/span>\r\n<ul>\r\n\t<li><span style=\"font-weight: 400\">90:10 for North-Eastern and Himalayan states<\/span><\/li>\r\n\t<li><span style=\"font-weight: 400\">75:25 for other states<\/span><\/li>\r\n<\/ul>\r\n<\/li>\r\n\t<li><span style=\"font-weight: 400\">Centre\u2019s share: \u20b91,55,916 crore<\/span><\/li>\r\n<\/ul>\r\n<h3><span style=\"font-weight: 400\">Fiscal Roadmap<\/span><\/h3>\r\n<p><span style=\"font-weight: 400\">The 16th Finance Commission has recommended <\/span><b>reducing the Centre\u2019s fiscal deficit to 3.5%<\/b><span style=\"font-weight: 400\"> of GDP by 2030\u201331.<\/span><\/p>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">The 16th Finance Commission has fixed the annual fiscal deficit ceiling for states at 3% of GSDP.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">The 16th Finance Commission has <\/span><i><span style=\"font-weight: 400\">called for the strict discontinuation of off-budget borrowings<\/span><\/i><span style=\"font-weight: 400\"> by states and their full inclusion in state budgets.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">It has <\/span><b><i>recommended expanding the definition of fiscal deficit<\/i><\/b><span style=\"font-weight: 400\"> and public debt to uniformly cover all off-budget borrowings.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">The combined debt of the Centre and States is projected to decline from 77.3% of GDP in 2026\u201327 to 73.1% of GDP by 2030\u201331.<\/span><\/li>\r\n<\/ul>\r\n<h3><span style=\"font-weight: 400\">Power-sector Reforms<\/span><\/h3>\r\n<p><span style=\"font-weight: 400\">The 16th Finance Commission has advised states to actively pursue the <\/span><b>privatisation of electricity DISCOMs.<\/b><\/p>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">To protect private investors from legacy liabilities, it recommended creating a <\/span><i><span style=\"font-weight: 400\">Special Purpose Vehicle (SPV) to warehouse existing DISCOM debt.<\/span><\/i><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">The repayment or pre-payment of this debt may be supported through the <\/span><b>Special Assistance Scheme for Capital Investment.<\/b><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">States should be allowed to access this assistance only after completion of the privatisation process.<\/span><\/li>\r\n<\/ul>\r\n<h3><span style=\"font-weight: 400\">Subsidy Expenditure<\/span><\/h3>\r\n<p><span style=\"font-weight: 400\">The 16th Finance Commission recommended that states review and <\/span><b><i>rationalise subsidy expenditure<\/i><\/b><span style=\"font-weight: 400\"> to improve efficiency.<\/span><\/p>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">It observed that unconditional cash transfer schemes often have large, untargeted beneficiary bases.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">The Commission advised clear exclusion criteria and a rigorous review mechanism to ensure better targeting.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">It also recommended ending subsidy financing through off-budget borrowings.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">The Commission flagged the lack of standardisation in how subsidies and transfers are defined, classified, and accounted for across states.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">It noted frequent misclassification of subsidies as assistance, grants, or other expenditures.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">To address this, it <\/span><b><i>recommended a uniform framework for accounting<\/i><\/b><span style=\"font-weight: 400\"> and transparent disclosure of subsidies and transfers.<\/span><\/li>\r\n<\/ul>\r\n<h3><span style=\"font-weight: 400\">Public Sector Enterprise Reforms<\/span><\/h3>\r\n<p><span style=\"font-weight: 400\">The 16th Finance Commission has<\/span> <b><i>recommended review and closure<\/i><\/b> <span style=\"font-weight: 400\">of 308 inactive State Public Sector Enterprises (SPSEs).<\/span><\/p>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">It advised states to frame a <\/span><i><span style=\"font-weight: 400\">state-level PSE disinvestment policy<\/span><\/i><span style=\"font-weight: 400\"> focusing on inactive and underperforming SPSEs.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">State or Union PSEs incurring losses in three out of four consecutive years should be placed before the respective Cabinet.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><span style=\"font-weight: 400\">The Cabinet may decide on closure, privatisation, or continuation, based on the strategic importance of the enterprise.<\/span><\/li>\r\n<\/ul>\r\n<h2><span style=\"font-weight: 400\">16th Finance Commission Impact<\/span><\/h2>\r\n<p><span style=\"font-weight: 400\">The impact of the recommendations of the 16th Finance Commission can be attributed to its devolution of taxes.<\/span><\/p>\r\n<p><b>Impact on Southern States<\/b><\/p>\r\n<p><span style=\"font-weight: 400\">Under the revised devolution formula of the 16th Finance Commission, all five Southern States have witnessed an increase in their share of tax devolution.<\/span><\/p>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><b>Andhra Pradesh:<\/b><span style=\"font-weight: 400\"> Share increased from 4.047% \u2192 4.217%.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><b>Karnataka:<\/b><span style=\"font-weight: 400\"> Share increased from 3.647% \u2192 4.131%.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><b>Kerala:<\/b><span style=\"font-weight: 400\"> Share increased from 1.925% \u2192 2.382%.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><b>Tamil Nadu:<\/b><span style=\"font-weight: 400\"> Share marginally increased from 4.079% \u2192 4.097%.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><b>Telangana:<\/b><span style=\"font-weight: 400\"> Share increased from 2.102% \u2192 2.174%.<\/span><\/li>\r\n<\/ul>\r\n<p><b>Contrasting Trend in Large Northern States<\/b><\/p>\r\n<ul>\r\n\t<li style=\"font-weight: 400\"><b>Uttar Pradesh:<\/b><span style=\"font-weight: 400\"> Share declined from 17.939% \u2192 17.619%.<\/span><\/li>\r\n\t<li style=\"font-weight: 400\"><b>Bihar:<\/b><span style=\"font-weight: 400\"> Share declined from 10.058% \u2192 9.948%.<\/span><\/li>\r\n<\/ul>\r\n<h2><span style=\"font-weight: 400\">16th Finance Commission UPSC PYQs<\/span><\/h2>\r\n<p><b>Question 1: <\/b><span style=\"font-weight: 400\">How is the Finance Commission of India constituted? What do you know about the terms of reference of the recently constituted Finance Commission? Discuss. <\/span><b>(UPSC Mains 2018)<\/b><\/p>","protected":false},"excerpt":{"rendered":"<p>The 16th Finance Commission, commencing April 1, 2026, is chaired by Dr Arvind Panagariya. Check out more 16th Finance Commission, Members, Recommendations.<\/p>\n","protected":false},"author":6,"featured_media":5890,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[38,27],"tags":[817,40,632],"class_list":{"0":"post-5889","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-notes","8":"category-upsc-polity-notes","9":"tag-16th-finance-commission","10":"tag-quest","11":"tag-upsc-polity-notes"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/upsc-exam\/wp-json\/wp\/v2\/posts\/5889","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/upsc-exam\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/upsc-exam\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/upsc-exam\/wp-json\/wp\/v2\/users\/6"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/upsc-exam\/wp-json\/wp\/v2\/comments?post=5889"}],"version-history":[{"count":3,"href":"https:\/\/vajiramandravi.com\/upsc-exam\/wp-json\/wp\/v2\/posts\/5889\/revisions"}],"predecessor-version":[{"id":23514,"href":"https:\/\/vajiramandravi.com\/upsc-exam\/wp-json\/wp\/v2\/posts\/5889\/revisions\/23514"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/upsc-exam\/wp-json\/wp\/v2\/media\/5890"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/upsc-exam\/wp-json\/wp\/v2\/media?parent=5889"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/upsc-exam\/wp-json\/wp\/v2\/categories?post=5889"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/upsc-exam\/wp-json\/wp\/v2\/tags?post=5889"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}