The Middle Path

Apart from Finance Commission grants and the tax devolutions received from the Centre, the States in their effort to bridge gaps, rely continually on borrowing. It was under this backdrop that states submitted their memoranda before the Commission. Its Chairman, Arvind Panagariya, recently disclosed at a press conference that 22 out of 28 States — including Uttar Pradesh — have advocated devolution of a 50 per cent share from the divisible pool of resources

- UDAYAN HAZARIKA The writer is a former IAS officer, who retired as Secretary, Finance, Government of Assam

In less than four months from now (October 2025), the Sixteenth Finance Commission (SFC) has to wind up its assessment and submit a report so that recommendations can be accommodated in the Union budget of 2026-27 as well as the State budgets. This would not only ensure commencement of the SFC recommendations (1-04-2026) in time but also enable the national and sub-national economies a safe landing in 2031. The Commission may also prefer to go the last Finance Commission's way and submit the first year's recommendation early, keeping the reports about remaining years in abeyance for the time being.

The SFC was constituted well in time (Dec 2023) under the chairmanship of Arvind Panagariya and two other members. Thereafter, right from January 2024, Mr. Panagariya was on the move from State to State and also meeting various authorities. Since visiting the States has almost come to an end, it can now safely be surmised that the Commission is engaged in drafting with full force and vigour.

This time, the States are expecting some positive awards from the 16th FC, especially taking into account their two major demands, namely 1) adopting a set of more effective criteria for determining the rational share of each State from the divisible pool of taxes and 2) enhancing the total share to be devolved to the States. The divisible pool of taxes refers to the "net proceeds of all taxes (after deducting cess, surcharge, and cost of collection) collected by the Union, which is sharable with the States.

The 11th FC shared 29.5 per cent of the divisible pool with the States. It marginally increased to 30.5 per cent in the 12th FC, 32 per cent in the 13th FC, 42 per cent in the 14th FC, and 41 per cent in the 15th FC. Almost all Indian states—irrespective of their size of per capita income and GSDP—depend largely on the funds transferred by the Union government in varying degrees.