The recommendations of the Sixteenth Finance Commission (SFC) for the period 2026-31, which have been accepted by the Union government, have raised serious concerns about the future of federal balance. Further, by tweaking the devolution formula, 14 states, mostly the smaller states, have got a lower share in taxes than in the previous commission. This compositional shift — from tax shares and Article 275 statutory grants towards Article 282 discretionary mechanisms and third-tier focus — has three problematic dimensions. Also, the SFC has, contrary to the Constitution, made local bodies effectively another stakeholder, besides the states, in the scheme of vertical distribution. Consequently, the horizontal distribution has been bifurcated: Formula-driven tax devolution primarily for the second tier (states), with grants increasingly tailored for the third tier (local bodies).

Source: Indian Express April 07, 2026 13:57 UTC