Explaining the key highlights of the 16th Finance Commission’s recommendations, Vualnam noted that the 41% tax devolution remains unchanged from the 15th Finance Commission, reflecting sustained resource sharing between the Centre and states. He added that this marks a significant shift compared to a decade ago, when states received only 32% of the divisible pool.
“The resources going to state governments are substantial, and they are free to utilise them as they deem fit,” Vualnam said.
A major new thrust of the 16th Finance Commission is enhanced support for urban and rural local bodies under the 73rd and 74th Constitutional Amendments. The Commission has recommended ₹7.9 lakh crore for municipalities and Panchayats—almost double the previous outlay.
Vualnam described this as a “whole-of-country development” approach, aimed at strengthening governance and service delivery at the grassroots level.
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Below is the excerpt of the interview.
Q: Expenditure Secretary, let’s also give our viewers an understanding of what the 16th Finance Commission has put out by way of its recommendations, because that’s another important document with significant recommendations. I think everybody has only understood the big headline number, which is the 41% devolution to states that remains at 41%. But some of the other changes that the 16th Finance Commission has brought about over the 15th Finance Commission’s recommendations, and what that will mean for both the Centre as well as the states—if you can explain some of those big highlights.
Vualnam: The Finance Commission is the body that decides on the sharing of taxes between the central government and the state governments. It is a constitutional provision, so commissions are constituted accordingly, and expert bodies are co-opted into the process.
The 16th Finance Commission’s recommendations have been accepted and approved by the Cabinet along with the Budget documents. So it goes together, and it went together this time.
The 41% which has been mentioned means that 41% of the divisible pool of taxes will be shared with the state governments. This is the same as what was done by the previous 15th Finance Commission, and somewhat similar to the 14th, but it is a big jump if we go back beyond the last 10 years, because it was 32% earlier.
There is a huge sharing of resources now with the state governments. Even at that time, with the 14th Finance Commission, the central government had approved it, and we continue to accept that.
This time, 41% of our divisible pool of taxes will go to the state governments for them to utilise in whatever manner they deem fit within their system. That is one part of it.
The other big thing which the 16th Finance Commission has done is to boost support to what we call the 73rd and 74th Amendment-related to local bodies—that is, the urban local bodies and the rural local bodies.
The 16th Finance Commission has recommended that money worth ₹7.9 lakh crore will go to these local bodies from the central government. To understand the magnitude of the recommendation, it is almost a doubling of what the previous Finance Commission had recommended.
So, in some ways, it is a huge jump and a significant outflow from the central government. But we also see it as a whole-of-government, or even a whole-of-country, kind of development at the cutting edge.
Ultimately, whether it is in big cities or in rural areas, when local bodies are really activated—our municipal bodies, municipal corporations, and Panchayati bodies—and are fully up to the mark, our daily lives are affected.
So again, the central government has accepted these. These are the two very big recommendations that the 16th Finance Commission has made.
Watch accompanying video for entire conversation.
