TERMS OF REFERENCE FOR THE 16th FINANCE COMMISSION

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Context: The Union Cabinet, headed by Prime Minister Narendra Modi, has given approval for the Terms of Reference (ToR) for the Sixteenth Finance Commission.

Details

• The Union Cabinet has approved the Terms of Reference (ToR) for the Sixteenth Finance Commission. The ToR will be notified in due course, and the recommendations of the commission, upon acceptance by the government, will cover the period of five years commencing April 1, 2026.

About Finance Commission

• Article 280(1) of the Constitution outlines the modalities for setting up a Finance Commission. It mandates the commission to make recommendations on the distribution of net proceeds of taxes, grants-in-aid, and measures to supplement the resources of Panchayats during the award period.
• The 15th Finance Commission was constituted in 2017 and made recommendations covering the period of six years commencing on April 1, 2020, up to the financial year 2025-26.
• The 16th Finance Commission may review the financing arrangements for Disaster Management initiatives and make recommendations concerning funds constituted under the Disaster Management Act, 2005.
• The 16th Finance Commission is expected to make its report available by October 31, 2025, covering five years commencing on April 1, 2026.

Terms of Reference for the Sixteenth Finance Commission

• Distribution of net proceeds of taxes between the Union and the States.
• Allocation between the States of respective shares of such proceeds.
• Principles governing grants-in-aid of the revenues of the States from the Consolidated Fund of India.
• Sums are to be paid to the States as grants-in-aid for specified purposes under Article 275 of the Constitution.
• Measures to augment the Consolidated Fund of a State to supplement the resources of Panchayats and Municipalities.

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Sixteenth Finance Commission: https://www.iasgyan.in/daily-current-affairs/sixteenth-finance-commission

15th Finаnсe Соmmissiоn and Its Recommendations: https://www.iasgyan.in/blogs/abc

PRACTICE QUESTION Q. What role does the Finance Commission of India play in the country's fiscal federalism, and how does it contribute to the distribution of financial resources among the central government and the states? What are some of the key recommendations made by the 15th Finance Commission, and how might they impact the overall economic development and stability of the nation?