Roots of a Devolution Showdown

Few countries manage to navigate the asymmetry of a political majority being vastly poorer than an economic minority. Without political settlement, this is an existential threat

- RATHIN ROY

Here are newspaper reports that the Sixteenth Finance Commission (XVI FC) has recently finalized its recommendations and will submit its report on schedule in October 2026. The chairman is quoted saying that no significant increase in devolution to states is contemplated.

The process of appointing a finance commission is not a consultative one. The Prime Minister appoints the members and chairperson. The central finance ministry drafts the terms of reference. This administration has been parochial in its appointments to the commission. The Fifteenth Finance Commission (XV FC) comprised an IMF bureaucrat, an economist-turned-BJP politician and civil servants. There was no representation from the peninsula. The XVI FC follows the same pattern, with just one civil servant from South India, whose career has been spent entirely in New Delhi, serving the central government.

Only the terms of reference (ToR) of the XVI FC seemed to indicate that things would not be business as usual, given the emergent contentious issues. It dispensed with the usual gaggle of meaningless supplementary asks (the XV FC's ToR was particularly egregious on this score, drafted by civil servants with little knowledge of fiscal federalism and endorsed by an inexperienced and clumsy political leadership) and wanted the commission to focus on the core issue of vertical and horizontal devolution.

This unusual brevity and precision on the part of the Government of India recognizes a formidable challenge confronting intergovernmental fiscal relations. It is unlikely that the southern states will passively accept the findings of the XVI FC as non-partisan. What this lack of acceptance means in practice is unclear, as the Centre can override any dissent to adopt the commission's recommendations once its report is placed in parliament.