Indian govt to set 16th Finance Commission soon; chairman and members to be selected next

The Indian government is working to set up the 16th Finance Commission, which decides the sharing of resources between the Centre and the states, over the next few weeks even though the term of the current commission’s term is valid till 2026, reported TOI.

One of the reasons that the Centre is already making its decision to appoint the next commission is to ensure that the next panel gets adequate time to deal with the issues and submit its recommendations.

While finalising the terms of reference, the government will also have to look for a chairman and members, which is already a matter of discussion, reported TOI.


The last commission, the 15th Finance Commission, was impacted by the pandemic, which resulted in two sets of recommendations - one for FY 2020-21 and the second for 2021-26.

Not just the pandemic but the tenure of the current finance commission was also affected by the bifurcation of Jammu and Kashmir and Ladakh, which were carved out as separate union territories during the tenure of the last Finance Commission.

The government is debating the terms of reference at a time when several states are facing financial stress and

One of the key worries of the government is the freebies. As the states in the country are facing financial stress, the Centre is worried about the impact of freebies that are being announced across the country without factoring in the fiscal situation and the impact in the long run.

Policymakers and experts view freebies as one of the key challenges before the states, an issue on which the Centre has already expressed its concern. In fact, they see it as an issue on which the Commission's assessment will be crucial, reported TOI.

Another issue that the commission will have to tackle is the old pension scheme, which is sought to be brought back in several states.

With Covid pushing up borrowings, the cap on them suggested by the 15th Finance Commission has also not been implemented with several states in breach of the limit. For the states, a key issue will be life after GST rollout given that the compensation for "losses" (basically for annual growth under 14%) has come to an end.