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The Sixteenth Finance Commission
Instead of a fixed vertical share for the entire award period, an upward revision of vertical devolution to the states as and when there is an increase in cess and surcharges by the union government should be considered. It is also worth considering the creation of a horizontal equity stabilisation fund to be distributed as grants under Article 275 to those states that witness a significant fall in horizontal share as compared to the award of the previous finance commission.
The author thanks Pinaki Chakraborty and D Shyjan for giving useful comments and rendering valuable help in finalising this article.
The appointment of the Sixteenth Finance Commission is expected shortly. A pronounced federal feature of our Constitution is Article 280, mandating quinquennial or earlier appointment of finance commissions by the President with a clear and constitutionally enunciated task of recommending a prescribed share of taxes collected by the union to the states and to recommend grants to the “states in need of assistance.”
Though the recommendations of the finance commissions are subject to presidential acceptance, experience since the First Finance Commission reveals that their recommendations with regard to the tax share to be distributed to the states has always been accepted by the President. However, there have been certain recommendations relating to grants that have not been accepted. For example, the recommendations of the Third Finance Commission to consider plan and non-plan grants were not accepted and instead the dissent note of the member-secretary was accepted.
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