The financial body responsible for devising the federal revenue-sharing formula has a constitutionally mandated five-year term. Although the 15th Finance Commission’s tenure was extended until 2025-26, preparations are underway to establish the 16th Finance Commission this November. This new commission will propose a revenue-sharing formula between the central and state governments for the five-year period commencing in 2026-27.
As per Article 280 of the Constitution, this crucial financial panel is formed every five years to recommend revenue distribution ratios among states. Officials involved in the commission’s notification process have indicated that the central government has yet to determine the panel’s terms of reference.
The 15th Finance Commission faced several controversial tasks, including determining funding mechanisms for defence and internal security expenditures and basing recommendations on Census 2011 data. These decisions raised concerns among states that had demonstrated better performance in health and population management.
Re-defining the Revenue Sharing Formula: Centre Gears Up for 16th Commission
An official revealed that finalising the terms of reference might take some time due to the ongoing global challenges and potential emergence of new priorities by November. The central government will initiate the process by appointing a special duty officer to oversee the commission’s groundwork. Typically, this officer is later appointed as the Finance Commission’s member secretary.
An additional challenge for the 16th Commission will be to account for the influence of decisions made by another constitutional body, the Goods and Services Tax (GST) Council. As a permanent entity, the GST Council’s decisions on tax rates and administration changes can significantly impact the Finance Commission’s projections.
The Indian government intends to inaugurate the 16th Finance Commission in November to devise a revenue distribution formula between the central and state governments for the term starting in 2026-27. While the commission’s specific responsibilities remain undefined, it will face the unique challenge of considering the effects of decisions made by the Goods and Services Tax Council.
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