16th Finance Commission Holds First Meeting Under Chairmanship of Arvind Panagariya

The 16th Finance Commission (FC) convened its inaugural session with Arvind Panagariya at the helm to deliberate upon its Terms of Reference (ToR). The commission aims to engage in comprehensive analytical endeavors and leverage expertise from prominent research institutions and think tanks specializing in fiscal federal relations.

Terms of Reference (ToR)

Distribution of Tax Proceeds:

• • Discuss the apportionment of net tax proceeds between the Union and states as outlined in Chapter I, Part XII of the Constitution.
  • Allocate respective shares of tax proceeds among states.

Grants-in-Aid Principles:

• • Determine principles governing grants-in-aid of state revenues from the Consolidated Fund of India.
  • Prescribe sums to be disbursed to states as grants-in-aid of their revenues.

Augmentation of State Consolidated Fund:

• • Propose measures to bolster the Consolidated Fund of a State to enhance resources for panchayats and municipalities.

Consultation and Stakeholder Engagement

The 16th FC acknowledges the necessity for extensive consultations with diverse stakeholders, including state governments, local bodies, various ministries of the Government of India, and subject matter experts.

Meeting Details: The meeting took place at Jawahar Vyapar Bhawan in New Delhi.

Recommendations Timeline

The commission commits to delivering its recommendations by October 31, 2025, covering a five-year award period starting from April 1, 2026.

Composition of the Commission

• Full-time members: Arvind Panagariya (Chairman), Ajay Narayan Jha, Annie George Mathew, and Niranjan Rajadhyaksha.
• Part-time member: Soumya Kanti Ghosh, Group Chief Economic Advisor of the State Bank of India.

Role of the Finance Commission

The FC is constitutionally mandated to formulate a framework for distributing net tax proceeds between the Centre and states, as well as among states and local bodies. Presently, India allocates 41% of federal taxes to states based on the recommendations of the 15th panel.