The Government on Wednesday released limited technical details about Terms of Reference (ToR) for the 16th Finance Commission. The Commission’s recommendations will be implemented from April 1, 2026 for 5 years.

The limited ToRs were decided by the Union Cabinet in its meeting on Tuesday. According to Information and Broadcasting Minister Anurag Singh Thakur, the Finance Commission will make recommendations on the distribution between the Union and the States of the net proceeds of taxes that are to be divided between them.

It will also suggest the principles that should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India and the sums to be paid to the States by way of grants-in-aid of their revenues under Article 275 of the Constitution for purposes other than those specified in the provisos to clause (1) of that article.

Steps to augment funds

The ToRs also included the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State. The Commission may review the present arrangements on financing disaster management initiatives with reference to the funds constituted under the Disaster Management Act, 2005 (53 of 2005), and make appropriate recommendations thereon, the Minister added.

Southern Discomfort

The 15th Finance Commission did not have any members from the southern peninsula. While the government announced limited ToRs, it refrained from announcing the names of the members of the 16th Finance Commission. “The names of the chairman and members are to be announced later,” Anurag Thakur said.

There was, simultaneously, no clarity given about whether the proposed commission would give recommendations based on criteria and weights assigned for horizontal devolution. The previous 15th Finance Commission had retained the criteria and weights according to which 15 per cent weight each is for population and area, 10 per cent for forest and ecology, 45 per cent of income distance, 45.0 2.5 per cent for tax and fiscal efforts, and 12.5 per cent for demographic performance.

This is a point of discomfort for the southern States which have higher human development indices and a low population. In the fiscal redistribution process based on weightage to population, their shares get reduced.