Current development ·
16th Finance Commission keeps States' share at 41 per cent
The 16th Finance Commission (chair: Arvind Panagariya), whose report was tabled with the Budget, retained States' share of the divisible pool at 41 per cent for 2026–31 and revised the horizontal devolution formula.
What changed
The 16th Finance Commission, chaired by Dr Arvind Panagariya, covers 2026–27 to 2030–31. Its report was tabled in Parliament on 1 February 2026. It keeps vertical devolution at 41 per cent of the divisible pool. In the horizontal formula, the weight for income distance falls to 42.5 per cent (from 45), population (2011) rises to 17.5 per cent (from 15), demographic performance and area fall to 10 per cent each, and a new criterion for contribution to GDP is added. The Government accepted the devolution recommendation.
Foundation connections
Study devolution of finances and federal issues and challenges.
Exam use and limits
- Prelims: Article 280 constitutes the Commission. Cesses and surcharges sit outside the divisible pool.
- Mains: Equity against efficiency in the formula, the demand by many States for 50 per cent, and the growing share of cesses.
Source: PRS Legislative Research