Sixteenth Finance Commission Expected To Be Set Up By November

The government plans to establish the Sixteenth Finance Commission by the end of November, according to Finance Secretary T V Somanathan.

"The Finance Commission is expected to be constituted by end of November because that's the statutory requirement," he told PTI.

The Terms of Reference for the Commission are being finalised, he said.

The Finance Commission is a constitutional body that provides recommendations on financial relations between the central and state governments.

One of its key responsibilities is to suggest the division of taxes between the centre and states for a five-year period, which, for the next cycle, begins 1 April 2026.

The previous Finance Commission presented its report to the President on 9 November 2020, covering the fiscal years 2021-22 to 2025-26.

The report of the commission was accepted by the central government, resulting in the allocation of 42 per cent of the divisible tax pool to the states during the period of 2021-22 to 2025-26.

The recommendations of the Fifteenth Finance Commission cover various aspects such as fiscal deficit, debt path for the Union and states, and additional borrowing room for states based on their performance in power sector reforms.

The government aims to reduce the fiscal deficit to 4.5 per cent of the gross domestic product (GDP) by the fiscal year 2025-26, following a glide path for fiscal consolidation.

For the current fiscal, the projected deficit stands at 5.9 per cent of the GDP, which is lower than the 6.4 per cent recorded in the previous fiscal that ended on 31 March 2023.

The government is committed to achieving the fiscal deficit target of 5.9 per cent of the GDP. Strong tax and non-tax collections are expected to help meet the spending requirements and compensate for any shortfall in disinvestment proceeds.