Why is it in the news?
The 16th Finance Commission retained States’ tax devolution share at 41%.
Introduced major changes in horizontal distribution formula and proposed ‘grand bargain’.
Category: Polity
Important Points:
● Retained 41% share of States in divisible pool (unchanged from 15th FC)
● Proposed ‘grand bargain’ to merge cesses/surcharges into shareable taxes
● Horizontal formula weights: Income Distance (42.5%), Population 2011 (17.5%), Demographic Performance (10%), Forest & Ecology (10%), Area (10%), Contribution to GDP (10%)
● Contribution to GDP (10%) replaced tax effort/fiscal discipline criterion
● Grants-in-Aid total Rs 9.47 lakh crore
● Rs 8 lakh crore for local bodies (Rs 4.4 lakh cr rural; Rs 3.6 lakh cr urban)
● Disaster Management allocation Rs 2.04 lakh crore (90:10 for NE/Himalayan; 75:25 others)
● Recommended Centre reduce fiscal deficit to 3.5% of GDP by 2030–31; States to maintain 3% of GSDP
● Recommended ending off-budget borrowings and including liabilities in deficit calculations
● Article 279: Net proceeds certified by CAG (gross revenue minus collection costs)