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15th February 2024 (8 Topics)

16th Finance Commission (XVI-FC)

Context

The 16th Finance Commission (XVI-FC) held its first meeting under the Chairmanship of Arvind Panagariya here.

Terms of Reference for the 16th Finance Commission-

During the meeting, the commission discussed its Terms of Reference-

  • Distribution of Net Proceeds:Addressing the division of net tax proceeds between the Union and States, along with the allocation among States.
  • Principles for Grants-in-Aid:Defining principles governing grants-in-aid of State revenues from the Consolidated Fund of India.
  • Resource Augmentation:Identifying measures to supplement the Consolidated Fund of a State for empowering Panchayats and Municipalities, aligning with State Finance Commission recommendations.
  • Disaster Management Financing: Reviewing current financing arrangements for Disaster Management initiatives, proposing recommendations based on the Disaster Management Act, 2005.

The panel will make its recommendations available by October 31, 2025, covering an award period of five years commencing on April 1, 2026.

Background

  •  Finance Commission is constitutional bodies set up under Article 280 of the Constitution every five years to make recommendations on the distribution of financial resources between the Union and the states.
  • It is a quasi-judicial body.
  • It is constituted by the President every fifth year or even earlier. 
  • It is required to make recommendations to the President on the following matters:
    • The distribution of the net proceeds of taxes to be shared between the Centre and the states, and the allocation between the states, the respective shares of such proceeds. The principles which should govern the grants-in-aid to the states by the Centre (i.e., out of the Consolidated Fund of India).
    • The measures needed to augment the consolidated fund of a state to supplement the resources of the panchayats and the municipalities in the state on the basis of the recommendations made by the State Finance Commission.
    • Any other matter referred to it by the President in the interests of sound finance.
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