India approves new finance commission to suggest how federal taxes will be shared with states

The Indian government on Tuesday approved the setting up of a new Finance Commission that will recommend how federal taxes will be shared with states.

Union Finance Minister Nirmala Sitharaman spoke in the Rajya Sabha, highlighting the Modi governments economic achievements and development since the UPA government. She criticized the opposition for their ‘Gareebo Hatao slogan and commented on the state of the banking sector. Sitharaman stated that the Indian economy is in a unique and rare position in the world, and several global agencies, along with the RBI, predict growth prospects.

Speaking at the inauguration of BITS Pilani's Mumbai Campus in Kalyan, Maharashtra, Sitharaman observed that Systems Thinking and User Feedback and Grievance Redressal were the second and third pillar that were able to produce the outcome in a transparent fashion without working in silos.

The Indian government is expected to set up the 16th Finance Commission soon to propose suggestions on Centre-state financial relations, including how tax should be divided between them for the next five years starting from April 1, 2026. A constitutional body, the finance commission gives suggestions on Centre-state financial relations. The Terms of Reference (ToR) and the commission's members are currently being worked out by the government. The previous commission had proposed setting the tax devolution ratio at 42 per cent, which was accepted, and the current commission's mandate will include fiscal deficit, debt path, and additional borrowing capacity for states.

The centre has appointed Arvind Panagariya, former Vice-Chairman of Niti Aayog, to head the 16th Finance Commission. Ritwik R Pandey will be the secretary of the commission, while the names of other members will be notified separately, the government said in a gazette notification issued Sunday.

'The members would be notified as soon as possible as they have to finish the report within two years from the date of appointment,' said Union Minister for Information and Broadcasting Anurag Singh Thakur on Wednesday

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India Business News: The Union cabinet has recommended setting up of the 16th Finance Commission to decide on sharing of taxes between the Centre and the states, setting o

The Finance Commission is constituted every fifth year or earlier, as per the constitutional provisions. The commission is tasked with making recommendations related to the distribution of tax revenues between the Union (central government) and the states.

It should find a clear way to carve out funds for local bodies that India needs to empower financially.