The Sixteenth Finance Commission is due to be set up shortly. Many critical changes have taken place since the constitution of the Fifteenth Finance Commission in November 2017 that includes COVID-19 and the subsequent geopolitical challenges. The combined government debt-GDP ratio had also shot up close to 90% at the end of 2020-21. Many States show large fiscal imbalances too.
The vertical and horizontal dimensions
The Fourteenth Finance Commission had raised the share of States in the divisible pool of central taxes to 42% from 32%. This was revised to 41% when the number of States in India was reduced to 28. However, the Centre could manage the situation because of the withdrawal of Planning Commission grants as the Planning Commission was abolished. There may not be a strong case for recommending any further increase in the States’ share of central taxes in view of the Centre’s large fiscal imbalances. Alongside, a re-examination of the role of non-shareable cesses and surcharges is required.
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