 "finance commission")
The government may request the next Finance Commission to consider a higher weight for human development index (HDI) and sustainable development goals (SDGs) for the recommendations the Commission makes regarding the distribution of resources among states, The Economic Times (ET) has reported. The government is also likely to ask the Commission to add climate goals to the formula.
Currently, the government is working on the terms of reference for the 16th Finance Commission, which is expected to be set up soon. Among other things, the Commission may also be asked to consider the conditions related to fiscal transfers to urban and rural local bodies, a top official familiar with the development told ET.
Moreover, the official said, the 16th Finance Commission will build upon the last (15th) Commission. "It can be asked to look at (whether) more weight can be given to the human development index and sustainable development goals while determining the revenue share," the official was quoted as saying in the newspaper.
What was the weightage distribution in the 15th Finance Commission?
For the 15th Finance Commission, demographic performance was given 12.5 per cent weight, income was given 45 per cent, 15 per cent was given to population, 10 per cent to forest and ecology, and 2.5 per cent weight was given to tax and fiscal efforts, the Economic Times report said. The official said that the terms of reference are expected to be notified "soon".
What is the Finance Commission?
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Article 280 of the Indian Constitution says that the President of India can constitute a Finance Commission to make recommendations regarding the distribution of tax proceeds between the Centre and states. The Commission distributes tax proceeds based on the terms of reference set by the Ministry of Finance for a given five-year period. The recommendations made by the 16th Finance Commission will be applicable for the period between April 2026 and March 2031.
Challenges before the Commission
The government wants to improve the financial health of municipal bodies. Earlier, the Reserve Bank of India (RBI), the Department of Expenditure, and state finance commissions have repeatedly flagged inefficiency in the utilisation of funds as well as poor accounting practices by some municipal bodies, the ET report said.
The 15th Finance Commission allocated Rs 54,770 crore to the National Disaster Relief Fund and Rs 1.28 trillion for State Disaster Relief Funds, according to the ET report. Local government bodies were granted Rs 4.36 trillion, whereas rural local bodies were given Rs 2.36 trillion. Urban local bodies were allocated Rs 1.21 trillion. Rs 70,051 crore was allocated towards health grants via local governments, the report said.
