Discuss the significance of the recommendations of the latest Finance Commission for the fiscal relations between the Union Government and the States in India, with specific reference to resource allocation and revenue sharing.
In short
The 16th Finance Commission (2026-31) keeps states' share of central taxes at 41%, giving predictable transfers, while large local body grants and a disaster corpus strengthen fiscal federalism. It recommends ₹7.91 lakh crore for local bodies and ₹2.04 lakh crore for disasters, while cesses stay outside the divisible pool.
Model answer
Ghissu Editorial · Verified 4 Oct 2026 · 253 words
₹7.91 Lakh Crore Grants for Local Bodies
Emphasizing rural-urban balance and performance components, these grants strengthen fiscal decentralization and address intra-state disparities, benefiting diverse regions such as Andhra Pradesh’s Rayalaseema.
Performance and Equity-Based Criteria
The Commission applies criteria including income distance, population, and forest cover to balance equity and incentivize fiscal discipline, ensuring fair horizontal distribution among states.
Disaster Management Fund of ₹2.04 Lakh Crore
This corpus enhances states’ fiscal resilience against calamities, crucial for disaster-prone states like Andhra Pradesh.
Balanced Vertical and Horizontal Sharing
The Commission uses equitable criteria to address regional imbalances while maintaining significant vertical transfers, upholding constitutional fiscal federalism.
Incentives for Fiscal Discipline
Performance-based grants encourage states to improve tax efforts and governance, as seen in Andhra Pradesh’s efforts to resolve ₹1,806 crore revenue audit impacts (2021-22) and ₹2,772 crore outstanding observations (2023).
This model answer is indicative and the model can make mistakes; please verify key facts independently.
Practise this question
1Get the answer sheet
Sized for this question.
2Write your answer
Timed, by hand.
3Get it marked
Your score and what to fix.
This chapter in the exam
Government Budgeting (Union)15 questions
Asked in 6 of 8 sittings since 2008
Most tested: Finance Commission, deficits, and fiscal consolidation in the Indian federal budget system.
- 2025What do you understand by Government Budget? Briefly explain the types of public expenditure and how these expenditures are classified in the government budget.
- 2025Define the term 'deficit' in government finance. Explain the various types of deficits and their economic implications.
All 15 questions, sorted by sub-topic, with model answers and practice.
Question from the official APPSC Group-I Mains 2025 paper. Answer written by Ghissu's engine and checked against our editorial standards. Found an error? Tell us and we correct it within 48 hours.