16th Finance Panel Will Be Constituted In November

16th Finance Panel Will Be Constituted In November


The Union government is gearing up to convene the Sixteenth Finance Commission in November this year to recommend the formula for sharing revenues between the Centre and the States for the five-year term beginning 2026-27

Points to Ponder:

  • The Union government intends to establish the Sixteenth Finance Commission in November 2023, which will recommend a revenue-sharing formula for the five-year term beginning in 2026-27. 
  • Under Article 280 of the Constitution, the Commission is constituted every five years and is responsible for determining the revenue-sharing ratio between states, among other terms of reference presented by the Centre.
  • The previous Finance Commission, led by N.K. Singh was given a six-year mandate to make recommendations till 2025-26.

Terms of reference

  • The Finance Commission’s terms of reference are the precise obligations and tasks allocated to it by the Union government. These phrases define the Commission’s work and provide direction on the problems it must cover when issuing recommendations.
  • Recommending a formula for revenue sharing between the Centre and the States for the next five years (2026-27 to 2030-31).
  • Suggesting strategies to supplement states’ resources so that they can achieve their developmental needs.
  • Proposing ways to improve state fiscal consolidation and management quality.
  • Recommending the principles that should govern grants-in-aid from the Consolidated Fund of India’s revenues.
  • Examining the impact of the GST Council’s decisions on state budgetary positions and advising strategies to alleviate any negative implications.
  • Assessing distinct states’ fiscal capabilities and demands based on population, region, resources, and other important aspects.
  • Reviewing the previous Finance Commission’s recommendations and making any required changes or adjustments.

GST council impacts

  • The GST Council is a permanent council that makes decisions on tax rates and management. The Finance Commission will have to consider how these rulings may affect its predictions and recommendations.
  • The GST Council’s choices on revenue sharing with states and the allocation of Integrated GST (IGST) income may have an impact on the Finance Commission’s recommendations on state revenue grants-in-aid.
  • The GST Council’s choices on tax rates and exemptions can have a direct impact on states’ revenue positions, influencing the Finance Commission’s evaluation of their financial capacity and needs.
  • While considering the GST Council’s decisions and their impact on State finances, the Finance Commission would have to assess the impact of the COVID-19 epidemic on the economy and GST collections.
  • The Finance Commission may be required to recommend actions to address any concerns originating from GST Council decisions that may have an impact on state fiscal positions, such as compensation for revenue losses or changes in the distribution formula of Central taxes.