A member of the 16th Finance Commission has strongly defended the commission's recommendations against criticism from former colleagues, arguing that discussions about federal transfers should focus on constitutional mandates rather than unverified rhetoric. According to reports from Business Standard, the expert emphasized that any critique of federal transfers must distinguish between constitutionally mandated responsibilities and discretionary decisions made within available powers. The response comes as members of the 14th Finance Commission have separately argued for examining the 16th FC recommendations, particularly regarding the 10 percentage-point increase in tax devolution from 32% to 42%. The expert clarified that the 14th Finance Commission's Terms of Reference did not mandate the ₹11 trillion divisible pool increase, as strongly emphasized by critics. The core mandate focused on recommending distribution of net tax proceeds between Union and states, principles governing grants-in-aid, and measures for panchayats and municipalities.
The expert clarified that the 14th Finance Commission's Terms of Reference did not mandate the ₹11 trillion divisible pool increase, as strongly emphasized by critics. As reported by Business Standard, the core mandate focused on recommending distribution of net tax proceeds between Union and states, principles governing grants-in-aid, and measures for panchayats and municipalities. The ₹28,951 crore Normal Central Assistance component from the Gadgil formula was too small to explain the full 10 percentage-point increase in states' share, constituting only about 2% of the divisible pool in 2014-15. The expert noted that the 14th Finance Commission voluntarily adopted a comprehensive approach to assess both Plan and Non-Plan expenditure, but this was not a mandate from the Terms of Reference. The ₹28,951 crore Normal Central Assistance figure is too small to explain the full increase in vertical devolution, constituting only about 2% of the ₹11 trillion divisible pool for that year.
The 16th Finance Commission evaluated the effectiveness of revenue deficit grants over three decades, finding little systemic relationship between normative assessments and actual revenue deficits. According to Business Standard, revenue deficit grants rose from 1.1% of gross tax receipts under the 13th Finance Commission to 2.2% under the 14th Finance Commission, but actual revenue deficits remained above 0.5% of GDP in most years. The commission discontinued revenue deficit grants, with the 15th Finance Commission maintaining 1.9% allocation, as the mechanism failed to promote durable fiscal adjustment. The 14th Finance Commission had recommended increasing states' share in the divisible pool from 2.7% of GDP in 2014-15 to 3.7% in 2015-16, with total transfers rising from 48.8% to 56.4% of gross tax revenue. The combined revenue balance of the states, which had recorded surpluses in certain years, subsequently reverted to deficit, while the number of revenue-deficit states increased from 5 in 2011-12 to 14 in 2025-26 and remained in double digits since then.
The expert highlighted the significant impact of Central Sector Schemes on state welfare, noting that ₹17.72 trillion was allocated in the Union Budget 2026-27. As reported by Business Standard, major allocations include ₹3.10 trillion for road transport, ₹2.78 trillion for railways, ₹2.28 trillion for food distribution, and ₹63,500 crore for PM-Kisan farmer support. The PMGKAY food security programme legally entitles food grain to 75% of rural population and 50% of urban population, benefiting over 810 million citizens through seamless national coverage. These expenditures finance national highways, railway infrastructure, food security for over 810 million beneficiaries, and offer direct income support to farming households across the country entirely funded by the central government. The PMGKAY Act is the largest free food grain programme running in the world and legally entitles food security to up to 75% of the rural population and up to 50% of the urban population (nearly 67% citizens as per 2011 census). The economic and social benefits thus accrue directly to the states by strengthening connectivity, lowering logistics costs, supporting agriculture incomes, enhancing food security and stimulating regional economic activity.
