The Union government accepted the Sixteenth Finance Commission's recommendations to retain the States’ share in the divisible pool at 41% while deferring structural reforms on off-budget borrowings
GS3Economy · S&T · Environment · Security· Fiscal policy, budget & taxation (GST)· Mains·
Why in news
The Union government accepted the Sixteenth Finance Commission's recommendations to retain the States’ share in the divisible pool at 41% while deferring structural reforms on off-budget borrowings.
Background
The Union government accepted the FC16's horizontal formula, local body grants, and disaster management corpus. The Commission discontinued revenue deficit, sector-specific, and State-specific grants while noting a shrinking divisible pool.
Facts for Prelims
- FactStates' share in the divisible pool is retained at 41% as per FC16 recommendations.
- BodyThe Finance Commission (FC16) discontinued revenue deficit, sector-specific, and State-specific grants.
- FactLocal body grants are conditional on audited accounts and timely constitution of State Finance Commissions.
For Mains
Q. Examine the implications of the shrinking divisible pool on India's fiscal federalism despite the retention of the 41% states' share.
Dimensions to cover in your answer
- Fiscal asymmetry: Shrinking divisible pool limits states' autonomous spending capacity despite fixed percentage share
- Enforcement gap: Lack of binding mechanisms for Fiscal Responsibility Legislation and off-budget borrowing controls
- Conditional devolution: Linking local body grants to State Finance Commission audits creates administrative hurdles
Keywords: Fiscal Federalism · Divisible Pool · Horizontal Formula · Off-budget Borrowings · Fiscal Responsibility
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