The Union government is gearing up to constitute the Sixteenth Finance Commission in November this year to recommend the formula for sharing revenues between the Centre and the States for the five-year period beginning 2026-27, a top government official has confirmed to The Hindu.
The critical fiscal panel, which is also tasked with recommending the distribution ratio of revenues between States, along with other terms of reference that the Centre proposes, is to be formed every five years according to Article 280 of the Constitution. However, the Fifteenth Finance Commission, which was headed by N.K. Singh, had been given an extended mandate to make recommendations for six years, up till 2025-26.
“Since the last Commission was set up in November 2017, we are eyeing the same month this year to constitute the Sixteenth Commission. That should give the panel enough time to ready its report by around October 2025,” the official said.
The government is bound to consider the Commission’s suggestions and submit an action taken report that conveys its stance on those ideas, along with the first Union Budget of the five-year period. That will be the Budget of 2026-27, likely to be presented on February 2, 2026 as February 1 falls on a Sunday that year.
The last time the Constitutional body was given a six-year mandate was for the Ninth Finance Commission formed in June 1987. But the Tenth Finance Commission was still constituted in June 1992 within the five-year deadline specified by the Constitution.
ToRs not finalised
The official who will be involved in the notification process of the Commission said that the Centre is yet to make up its mind on the terms of reference that may be prescribed for it.
The Fifteenth Finance Commission was handed some contentious tasks, such as determining whether a separate mechanism was warranted for funding defence and internal security spends. It was also asked to rely on Census 2011 data for its recommendations, which had caused concern among some States that had done better on health and population management vis-à-vis other peers.
“The terms of reference will take a while to work out. The world is in the midst of multiple challenges and new priorities may emerge by the time it is November. For now, we will begin by identifying an officer on special duty who will take charge of the process of laying the groundwork to constitute the Commission,” the official said.
GST Council impact
Typically, this officer is also appointed the member secretary of the Finance Commission, once it is constituted. A fresh challenge for the Sixteenth Commission is that it will have to figure out a way to factor in the impact of decisions taken by another Constitutional body created recently — the Goods and Services Tax (GST) Council.
“While the Finance Commission is not a permanent body, the GST Council is, and the latter’s decisions on tax rate and administration changes can impact the former’s projections,” Fifteenth Finance Commission chief Mr. Singh has noted.