1. Share of States in Central Taxes
The 16th Finance Commission has recommended that states receive 41% of the divisible pool of central taxes — unchanged from the recommendation made by the 15th Finance Commission. The divisible pool is calculated by excluding the cost of collection, cesses, and surcharges from the gross tax revenue collected by the central government.
2. Criteria for Devolution
The Commission uses a weighted formula across several parameters to determine how central taxes are distributed among states. The table below compares the criteria and their respective weights under the 15th and 16th Finance Commissions:
| Criteria | 15th FC (2021–26) | 16th FC (2026–31) |
|---|---|---|
| Income Distance (Per Capita GSDP) | 45% | 42.5% |
| Population (2011 Census) | 15% | 17.5% |
| Demographic Performance | 12.5% | 10% |
| Area | 15% | 10% |
| Forest | 10% | 10% |
| Tax and Fiscal Efforts | 2.5% | — |
| Contribution to GDP (New) | — | 10% |
| Total | 100% | 100% |
Key Changes in Devolution Criteria
- Income Distance: Defined as the difference between a state’s per capita GSDP and the average per capita GSDP of the top three large states. Per capita GSDP is computed as an average over 2018–19 and 2023–24, excluding the pandemic year 2020–21. States with lower per capita GSDP receive a higher share, promoting equity.
- Population: Devolution share based on a state’s share in the population as per the 2011 Census. The weight has been increased from 15% to 17.5%.
- Demographic Performance: Previously measured by change in Total Fertility Rate (TFR), the 16th FC has redefined this parameter to account for population growth between 1971 and 2011. States with lower population growth over this period receive a higher share.
- Forest: The 16th FC now assigns weight to both a state’s share in overall forest area and its share in the increase in forest area between 2015 and 2023. Crucially, open forests are now also counted — unlike the 15th FC, which considered only dense and moderately dense forests.
- Contribution to GDP (New): This new parameter replaces the earlier “Tax and Fiscal Efforts” metric. A state’s contribution is measured as the square root of its GSDP divided by the sum of the square roots of all states’ GSDPs, using average nominal GSDP from 2018–19 to 2023–24 (excluding 2020–21).
3. Grants-in-Aid (2026–31)
The 16th FC has recommended total grants-in-aid worth ₹9,47,409 crore over the five-year period. These grants cover two broad categories: (i) local body grants and (ii) disaster management grants. Notably, the Commission has discontinued revenue deficit grants, sector-specific grants, and state-specific grants that were recommended by the 15th FC.
| Grant Type | Amount (₹ crore) |
|---|---|
| Local Governments (Total) | 7,91,493 |
| Rural Local Bodies — Basic Grant | 3,48,188 |
| Rural Local Bodies — Performance Grant | 87,048 |
| Urban Local Bodies — Basic Grant | 2,32,125 |
| Urban Local Bodies — Performance Grant | 58,032 |
| Special Infrastructure Component (ULB) | 56,100 |
| Urbanisation Premium (ULB) | 10,000 |
| Disaster Management | 1,55,916 |
| Grand Total | 9,47,409 |
Structure of Local Body Grants
All local body grants come with three mandatory entry-level criteria:
- constitution of local bodies as per the Constitution
- publication of provisional and audited accounts in the public domain
- timely constitution of the State Finance Commission.
Basic Grants: 50% of the basic grant is untied, while the remaining 50% is tied to sanitation and solid waste management, and/or water management.
Performance Grants: Divided into state performance grants (linked to minimum benchmark transfers to local bodies from own resources) and local body performance grants (linked to own source revenue growth).
Special Infrastructure Grants (₹56,100 crore): Tied to development of comprehensive wastewater management systems in cities with populations between 10–40 lakh as per the 2011 Census.
Urbanisation Premium Grants (₹10,000 crore): A one-time grant for merger of peri-urban villages into adjoining urban local body areas, and for formulating a Rural to Urban Transition Policy.
Disaster Management Grants: A corpus of ₹2,04,401 crore has been recommended for State Disaster Relief and Management Funds (SDRF and SDMF). The centre-state cost-sharing ratio is 90:10 for north-eastern and Himalayan states, and 75:25 for all other states. The centre’s share amounts to ₹1,55,916 crore.
4. Fiscal Roadmap
The Commission has recommended that the Centre bring its fiscal deficit down to 3.5% of GDP by 2030–31. For states, the annual fiscal deficit limit has been set at 3% of GSDP. Key fiscal discipline measures include:
- Strict discontinuation of off-budget borrowings by states, with all such borrowings to be brought on-budget.
- Expansion of the definition of fiscal deficit and debt to uniformly include all off-budget borrowings.
- The combined debt of the central and state governments is projected to decline from 77.3% of GDP in 2026–27 to 73.1% of GDP by 2030–31.
5. Power Sector Reforms
The Commission has recommended that states actively pursue the privatisation of electricity distribution companies (DISCOMs). To protect private investors from the debt burden upon DISCOM takeover, a Special Purpose Vehicle (SPV) may be created to warehouse the debt. States will be permitted to use funds from the Special Assistance Scheme for Capital Investment only after the privatisation process is complete.
6. Subsidy Expenditure Rationalisation
The Commission has called on states to review and rationalise their subsidy expenditure, noting that schemes offering unconditional cash transfers tend to have large and untargeted beneficiary bases. Key recommendations include:
- Setting clear exclusion criteria and a rigorous review process to improve targeting of subsidies.
- Discontinuing financing of subsidies through off-budget borrowings.
- Adoption of a uniform approach for accounting and disclosure of subsidies and transfers across states, addressing the current misclassification of subsidies as assistance, grants, or other expenditure.
7. Public Sector Enterprise (PSE) Reforms
The Commission recommended a review and closure of 308 inactive State Public Sector Enterprises (SPSEs). Further recommendations include:
- Formulation of a state-level PSE disinvestment policy targeting inactive and underperforming enterprises.
- Any state or union PSE incurring losses for three out of four consecutive years must be placed before the respective Cabinet, which may decide on closure, privatisation, or continuation based on strategic importance.
Top Individual State Shares (out of 100):
- Uttar Pradesh: 17.62
- Bihar: 9.95
- Madhya Pradesh: 7.35
- West Bengal: 7.22
- Maharashtra: 6.44
State-wise Data
Individual Share of States in Devolved Taxes (out of 100)
| State | 14th FC (2015–20) | 15th FC (2021–26) | 16th FC (2026–31) |
|---|---|---|---|
| Andhra Pradesh | 4.31 | 4.05 | 4.22 |
| Arunachal Pradesh | 1.37 | 1.76 | 1.35 |
| Assam | 3.31 | 3.13 | 3.26 |
| Bihar | 9.67 | 10.06 | 9.95 |
| Chhattisgarh | 3.08 | 3.41 | 3.30 |
| Goa | 0.38 | 0.39 | 0.37 |
| Gujarat | 3.08 | 3.48 | 3.76 |
| Haryana | 1.08 | 1.09 | 1.36 |
| Himachal Pradesh | 0.71 | 0.83 | 0.91 |
| Jharkhand | 3.14 | 3.31 | 3.36 |
| Karnataka | 4.71 | 3.65 | 4.13 |
| Kerala | 2.50 | 1.93 | 2.38 |
| Madhya Pradesh | 7.55 | 7.85 | 7.35 |
| Maharashtra | 5.52 | 6.32 | 6.44 |
| Manipur | 0.62 | 0.72 | 0.63 |
| Meghalaya | 0.64 | 0.77 | 0.63 |
| Mizoram | 0.46 | 0.50 | 0.56 |
| Nagaland | 0.50 | 0.57 | 0.48 |
| Odisha | 4.64 | 4.53 | 4.42 |
| Punjab | 1.58 | 1.81 | 2.00 |
| Rajasthan | 5.50 | 6.03 | 5.93 |
| Sikkim | 0.37 | 0.39 | 0.34 |
| Tamil Nadu | 4.02 | 4.08 | 4.10 |
| Telangana | 2.44 | 2.10 | 2.17 |
| Tripura | 0.64 | 0.71 | 0.64 |
| Uttar Pradesh | 17.96 | 17.94 | 17.62 |
| Uttarakhand | 1.05 | 1.12 | 1.14 |
| West Bengal | 7.32 | 7.52 | 7.22 |
Cities Eligible for Special Infrastructure Component (ULB Grants)
The following cities with populations between 10–40 lakh (2011 Census) are eligible for the Special Infrastructure Component under urban local body grants:
Pune (Maharashtra), Jaipur (Rajasthan), Lucknow (Uttar Pradesh), Kanpur (Uttar Pradesh), Nagpur (Maharashtra), Indore (Madhya Pradesh), Bhopal (Madhya Pradesh), Visakhapatnam (Andhra Pradesh), Patna (Bihar), Vadodara (Gujarat), Ludhiana (Punjab), Faridabad (Haryana), Rajkot (Gujarat), Dhanbad (Jharkhand), Amritsar (Punjab), Howrah (West Bengal), Ranchi (Jharkhand), Coimbatore (Tamil Nadu), Vijayawada (Andhra Pradesh), Jodhpur (Rajasthan), Madurai (Tamil Nadu), Raipur (Chhattisgarh).
Receive Daily Updates
Recent Posts
- In the Large States category (overall), Chhattisgarh ranks 1st, followed by Odisha and Telangana, whereas, towards the bottom are Maharashtra at 16th, Assam at 17th and Gujarat at 18th. Gujarat is one State that has seen startling performance ranking 5th in the PAI 2021 Index outperforming traditionally good performing States like Andhra Pradesh and Karnataka, but ranks last in terms of Delta
- In the Small States category (overall), Nagaland tops, followed by Mizoram and Tripura. Towards the tail end of the overall Delta ranking is Uttarakhand (9th), Arunachal Pradesh (10th) and Meghalaya (11th). Nagaland despite being a poor performer in the PAI 2021 Index has come out to be the top performer in Delta, similarly, Mizoram’s performance in Delta is also reflected in it’s ranking in the PAI 2021 Index
- In terms of Equity, in the Large States category, Chhattisgarh has the best Delta rate on Equity indicators, this is also reflected in the performance of Chhattisgarh in the Equity Pillar where it ranks 4th. Following Chhattisgarh is Odisha ranking 2nd in Delta-Equity ranking, but ranks 17th in the Equity Pillar of PAI 2021. Telangana ranks 3rd in Delta-Equity ranking even though it is not a top performer in this Pillar in the overall PAI 2021 Index. Jharkhand (16th), Uttar Pradesh (17th) and Assam (18th) rank at the bottom with Uttar Pradesh’s performance in line with the PAI 2021 Index
- Odisha and Nagaland have shown the best year-on-year improvement under 12 Key Development indicators.
- In the 60:40 division States, the top three performers are Kerala, Goa and Tamil Nadu and, the bottom three performers are Uttar Pradesh, Jharkhand and Bihar.
- In the 90:10 division States, the top three performers were Himachal Pradesh, Sikkim and Mizoram; and, the bottom three performers are Manipur, Assam and Meghalaya.
- Among the 60:40 division States, Orissa, Chhattisgarh and Madhya Pradesh are the top three performers and Tamil Nadu, Telangana and Delhi appear as the bottom three performers.
- Among the 90:10 division States, the top three performers are Manipur, Arunachal Pradesh and Nagaland; and, the bottom three performers are Jammu and Kashmir, Uttarakhand and Himachal Pradesh
- Among the 60:40 division States, Goa, West Bengal and Delhi appear as the top three performers and Andhra Pradesh, Telangana and Bihar appear as the bottom three performers.
- Among the 90:10 division States, Mizoram, Himachal Pradesh and Tripura were the top three performers and Jammu & Kashmir, Nagaland and Arunachal Pradesh were the bottom three performers
- West Bengal, Bihar and Tamil Nadu were the top three States amongst the 60:40 division States; while Haryana, Punjab and Rajasthan appeared as the bottom three performers
- In the case of 90:10 division States, Mizoram, Assam and Tripura were the top three performers and Nagaland, Jammu & Kashmir and Uttarakhand featured as the bottom three
- Among the 60:40 division States, the top three performers are Kerala, Andhra Pradesh and Orissa and the bottom three performers are Madhya Pradesh, Jharkhand and Goa
- In the 90:10 division States, the top three performers are Mizoram, Sikkim and Nagaland and the bottom three performers are Manipur and Assam
In a diverse country like India, where each State is socially, culturally, economically, and politically distinct, measuring Governance becomes increasingly tricky. The Public Affairs Index (PAI 2021) is a scientifically rigorous, data-based framework that measures the quality of governance at the Sub-national level and ranks the States and Union Territories (UTs) of India on a Composite Index (CI).
States are classified into two categories – Large and Small – using population as the criteria.
In PAI 2021, PAC defined three significant pillars that embody Governance – Growth, Equity, and Sustainability. Each of the three Pillars is circumscribed by five governance praxis Themes.
The themes include – Voice and Accountability, Government Effectiveness, Rule of Law, Regulatory Quality and Control of Corruption.
At the bottom of the pyramid, 43 component indicators are mapped to 14 Sustainable Development Goals (SDGs) that are relevant to the States and UTs.
This forms the foundation of the conceptual framework of PAI 2021. The choice of the 43 indicators that go into the calculation of the CI were dictated by the objective of uncovering the complexity and multidimensional character of development governance
The Equity Principle
The Equity Pillar of the PAI 2021 Index analyses the inclusiveness impact at the Sub-national level in the country; inclusiveness in terms of the welfare of a society that depends primarily on establishing that all people feel that they have a say in the governance and are not excluded from the mainstream policy framework.
This requires all individuals and communities, but particularly the most vulnerable, to have an opportunity to improve or maintain their wellbeing. This chapter of PAI 2021 reflects the performance of States and UTs during the pandemic and questions the governance infrastructure in the country, analysing the effectiveness of schemes and the general livelihood of the people in terms of Equity.
Growth and its Discontents
Growth in its multidimensional form encompasses the essence of access to and the availability and optimal utilisation of resources. By resources, PAI 2021 refer to human resources, infrastructure and the budgetary allocations. Capacity building of an economy cannot take place if all the key players of growth do not drive development. The multiplier effects of better health care, improved educational outcomes, increased capital accumulation and lower unemployment levels contribute magnificently in the growth and development of the States.
The Pursuit Of Sustainability
The Sustainability Pillar analyses the access to and usage of resources that has an impact on environment, economy and humankind. The Pillar subsumes two themes and uses seven indicators to measure the effectiveness of government efforts with regards to Sustainability.
The Curious Case Of The Delta
The Delta Analysis presents the results on the State performance on year-on-year improvement. The rankings are measured as the Delta value over the last five to 10 years of data available for 12 Key Development Indicators (KDI). In PAI 2021, 12 indicators across the three Pillars of Equity (five indicators), Growth (five indicators) and Sustainability (two indicators). These KDIs are the outcome indicators crucial to assess Human Development. The Performance in the Delta Analysis is then compared to the Overall PAI 2021 Index.
Key Findings:-
In the Scheme of Things
The Scheme Analysis adds an additional dimension to ranking of the States on their governance. It attempts to complement the Governance Model by trying to understand the developmental activities undertaken by State Governments in the form of schemes. It also tries to understand whether better performance of States in schemes reflect in better governance.
The Centrally Sponsored schemes that were analysed are National Health Mission (NHM), Umbrella Integrated Child Development Services scheme (ICDS), Mahatma Gandh National Rural Employment Guarantee Scheme (MGNREGS), Samagra Shiksha Abhiyan (SmSA) and MidDay Meal Scheme (MDMS).
National Health Mission (NHM)
INTEGRATED CHILD DEVELOPMENT SERVICES (ICDS)
MID- DAY MEAL SCHEME (MDMS)
SAMAGRA SHIKSHA ABHIYAN (SMSA)
MAHATMA GANDHI NATIONAL RURAL EMPLOYMENT GUARANTEE SCHEME (MGNREGS)