In what ways are the terms of reference of the 16th Finance Commission different from that of the previous Finance Commissions? Despite increasingly progressive devolution by subsequent Finance Commissions, examine the factors that propel economic disparities across various States.

16th Finance Commission has been setup by the President under Article 280 of the Indian constitution.

Provid Panagariya as its chairman have to provide the formula for distribution of taxes for the period 2026 - 2028.

Terms of Reference of 16th Finance commission:

These items are different from Previous Finance Commissions :

Previous Finance Commissions:

5th Finance commission: Allotment of funds to some states categorised as special category states

14th Finance commission: Increased vertical devolution from ~32%. to 42%. and SCS under status was no longer used.

15th Finance commission: 41/. vertical devolution and 17. to newly created UT of Jammu and Kashmir

These items are different from Previous Finance Commissions :

However, some factors has led to economic disparities among states:

i) Increasing cess and surcharge reducing the divisible pool of taxes

ii) Income distance given high weightage

iii) State contributing more such as Tamil Nadu, Maharashtra, Karnataka getting less and Bihar, UP - major receiver.

iii) Dependence on the aid - aid curse - despite receiving funds, no effort to maintain fiscal consolidation and growth.

iv) High revenue expenditure leading to fiscal deficit of states. OPS announced in some states.

6 Finance commission forms important part of fiscal federalism of the country. States must manage their finances to reduce disparities.