Has the 16th Finance Commission sidelined the States and prioritised the Centre’s needs?

Has the 16th Finance Commission sidelined the States and prioritised the Centre’s needs?

The 16th Finance Commission (FC)’s vertical devolution recommendations prioritise the needs of the Centre over the realities of States. By merely acknowledging, rather than heeding, States’ fiscal pressures, the FC has taken a distinctly conservative stance. By favouring cesses and surcharges over standard tax instruments, the Centre effectively shrinks the shareable revenue; conversely, a shift back to traditional taxation would expand it.

Finance Commission and states’ tax shares

Cess and surcharge are not included in the central tax allocation to states and they are absorbed by the Centre. As a result, states are at a disadvantage in spending power.