16th Finance Commission Revises Fiscal Transfers and Emphasizes State Fiscal Discipline

The 16th Finance Commission has introduced significant changes to India's fiscal federalism, including ending revenue deficit grants to encourage fiscal discipline among states. It emphasizes the constitutional role of state finance commissions (SFCs) in local resource allocation, though the Commission suggests delinking devolution from SFC reports, a move some view as undermining fiscal federalism principles. The Commission also recommended a Rs 15.26 lakh crore tax devolution to states for 2026-27, amid concerns about transparency and the growing share of non-divisible surcharges and cesses retained by the Union government.