Budget 2026: The recommendations of the 16th Finance Commission will not only determine the financial position of the states but also the direction of funds allocated for disaster management and local bodies (Panchayats & Municipalities). Although the report is not yet public, it is believed that the government will accept these recommendations and lay the foundation for major financial changes in the budget.
Budget 2026: This time, all eyes are on the 16th Finance Commission's report in India's upcoming Union Budget. This commission, chaired by Arvind Panagariya, has submitted its recommendations to President Droupadi Murmu, which are to be implemented from April 1, 2026. This report will determine how much of its revenue the central government will share with the states for the next five years.
What is the Finance Commission and its role?
The Finance Commission is a constitutional body whose main function is to maintain financial balance between the central and state governments. This commission determines how much money from the taxes collected by the central government should go to the states and how much 'grant-in-aid' (financial assistance) should be given to each state.
The Journey of the 16th Finance Commission
Formation: Formed on December 31, 2023, under the leadership of former NITI Aayog Vice Chairman Arvind Panagariya.
Key Members: It includes prominent figures like Annie George Mathew, Manoj Panda, Soumya Kanti Ghosh, and T. Rabi Shankar.
Submission of Report: The commission submitted its confidential report to the President, Prime Minister, and Finance Minister on November 17, 2025.
Issues to Watch Out For
Generally, the Finance Commission uses certain criteria for tax devolution, such as:
Population and Area: States with larger populations and areas receive more resources.
Fiscal Effort: States that demonstrate better tax collection and fiscal discipline.
Demographic Performance: This has been a point of contention for the South Indian states, as they have done well in population control, leading to concerns that they might be disadvantaged in population-based funding.
A look at past data
Previous commissions had made significant changes to the states' share.
