16th Finance Commission (FC) Report

News: The report of the 16th Finance Commission was presented to Parliament on February 1, 2026.
Duration: 2026-27 to 2030-31 (5 years).
Article 281: The Central Government shall present to Parliament the report of the Finance Commission and the action taken thereon.
Constitution: A constitutional body constituted every five years by the President of India under Article 280.
Composition: A Chairperson and four members with expertise in finance, economics, or public administration.
- Chairman: Arvind Panagariya (former Vice Chairman of NITI Aayog)
- Members:
  1. Ajay Narayan Jha (replaced by T. Rabi Shankar),
  2. Annie George Mathew,
  3. Dr. Niranjan Rajadhyaksha (replaced by Dr. Manoja Panda),
  4. Dr. Soumya Kanti Ghosh.
- Secretary: Ritwik Ranjanam Pandey

Recommendations

State’s Share in Central Taxes: The share of states in the divisible pool of central taxes has been recommended at 41%.
- (15th FC-41%)
Key Criteria for Horizontal Devolution

Per Capita GSDP Distance (Income Distance): This is the difference between a state's per capita GSDP and the average of the per capita GSDP of the top three large states with the highest per capita GSDP.
- States with lower per capita GSDP will receive a higher share under this parameter.
- This will help ensure equity in inter-state financial transfers.
Population: State's population as per the 2011 Census.
Demographic Performance: The 16th Finance Commission redefined this to take into account population growth between 1971 and 2011 rather than changes in the total fertility rate (TFR).
- States with lower population growth will receive a higher share under this parameter.
Forests: The 16th Finance Commission has given weightage to both a state's share in its total forest area and its share in the increase in total forest area between 2015 and 2023.
- Additionally, open forests have also been included in determining the total forest area.
- The 15th Finance Commission considered only dense and medium dense forests.
Contribution to GDP: The 16th Finance Commission introduced this parameter to take into account the contribution to national GDP.
- It replaces the 15th Finance Commission's tax and fiscal reforms parameter.

The 16th Finance Commission has recommended grants worth Rs. 9.47 lakh crore over a period of five years. These include:

The 16th Finance Commission has discontinued the following grants recommended by the 15th Finance Commission:

The 16th Finance Commission has recommended grants of Rs. 4 lakh crore each and Rs. 3 lakh crore each for rural and urban local bodies, respectively.

- These grants are divided into basic (80%) and performance-based (20%) components.
- Basic Grant: 50% of the basic grant will be untied, and the remaining 50% will be tied to:
  1. sanitation and solid waste management, and/or
  2. water management.

Performance Grants: These grants for local bodies have been further divided into two parts: State Performance Grants and Local Body Performance Grants.
Special Infrastructure Grants and Urbanization Premium Grants have also been recommended for urban local bodies.
Special Infrastructure Grants: This component will be linked to the development of comprehensive wastewater management systems in cities with a population of 10-40 lakh as per the 2011 Census.

- - Eligible cities under the Special Infrastructure Component from Rajasthan: Jaipur, Jodhpur

Urbanization Premium Grant: These grants will be released as one-time grant sum to states for:
1. Merging peri-urban villages into adjoiningurban local body areas, and
2. Formulating a rural-to-urban transition policy.

- - Under the Urbanization Premium Component, Rs.10,000 crore has been recommended.

Disaster Management Grants: The Commission has recommended a Disaster Management corpus of Rs.2,04,401 crore for the State Disaster Relief and Management Funds (SDRF and SDMF).

- The cost sharing pattern between the Centre and states has been suggested as follows: 90:10 for North-Eastern and Himalayan states and 75:25 for all other states.

Other Recommendations

Fiscal Roadmap: The central government should reduce the fiscal deficit to 3.5% of GDP by FY 2030-31.
- It is recommended that the annual fiscal deficit limit for states be set at 3% of GSDP.
- It is also recommended that states should strictly discontinue the practice of off-budget borrowing and include all such borrowings in their budgets.
- The definition of fiscal deficit and debt should be expanded to uniformly include all types of off-budget borrowing.
Power Sector Reforms: The Commission recommended that states actively pursue the privatization of power distribution companies (DISCOMs).
- To shield private investors from the debt burden after the acquisition of a DISCOM, a Special Purpose Vehicle (SPV) could be created to warehouse the debt.
Subsidy Expenditure Reforms: The Commission recommended states review and rationalize their subsidy expenditures.
- It also noted that unconditional cash transfer schemes tend to have large and untargeted beneficiary numbers.

16th Finance Commission - 5.9%
- 15th Finance Commission - 6.0%
- 14th Finance Commission - 5.5%
However, the state's total allocation increased from Rs. 83,940.45 crore to Rs. 90,445.85 crore.
Grants to Rajasthan
1. Disaster Management Grant: Rs 9,211 crore
2. Grants for Urban and Rural Local Bodies

Type	Rural Local Bodies (RLB) Grants	Urban Local Bodies (ULB) Grants
Basic	Rs. 25,173 crore	Rs. 10,145 crore
RLB/ULB Display	Rs. 3,147 crore	Rs. 1,268 crore
State performance	Rs. 3,147 crore	Rs. 1,268 crore