Government Approves Extension of 16th Finance Commission’s Term Till November 30, 2025

The Government of India has approved the extension of the 16th Finance Commission’s term until November 30, 2025, providing the commission with added time to finalize its critical recommendations on Centre-State financial relations for the next five-year award period. Originally scheduled to submit its final report by October 31, 2025, this extension recognizes both the complexity of post-pandemic fiscal realities and the need for thorough consultation with all stakeholders.​

16th Finance Commission

The 16th Finance Commission was constituted on December 31, 2023, under Article 280 of the Indian Constitution.

• Chaired by Dr. Arvind Panagariya, former Vice-Chairman of NITI Aayog.
• Full-time members: Annie George Mathew (retired bureaucrat), Manoj Panda (economist).
• Part-time members: Soumya Kanti Ghosh (SBI Group Chief Economic Advisor), T Rabi Sankar (RBI Deputy Governor).
• Secretary: Ritvik Pandey.
• The commission’s recommendations will impact revenue sharing between the Centre and states for the period April 1, 2026, to March 31, 2031.​

Government Approves Extension of 16th Finance Commission’s Term Till November 30, 2025

The commission is responsible for complex recommendations, including:

• Tax devolution between the Centre and the states.
• Revenue augmentation measures.
• Fiscal arrangements for disaster management funds under the Disaster Management Act, 2005.
• Assessing debt sustainability, incentives for fiscal discipline, and performance-based grants.
• Post-pandemic macroeconomic changes and shifting state priorities have required more extensive deliberation and analysis.

What Will the 16th Finance Commission Recommend?

• Principles for the distribution of central taxes among all states and union territories.
• Mechanisms for grant-in-aid, funding for local bodies (Panchayats and Municipalities), and disaster management finance.
• Balanced tax-sharing models and focus on strengthening fiscal federalism.
• Review and upgrade of disaster management funds for effective national and state emergency responses.
• Enhanced guidance to ensure the sustainability of debt across the Centre and states.

Background: Past Finance Commissions

The previous (15th) Finance Commission, led by NK Singh, recommended 41% devolution of the divisible pool of central taxes to states for 2021–2026, maintaining the share set by the 14th Commission (YV Reddy).

The 16th Commission is expected to address increasing demands from states for fiscal autonomy and improved clarity in central scheme funding.​

Significance of the Extension of 16th Finance Commission

This extension till November 30, 2025, ensures the commission can provide well-calibrated, detailed guidance on fiscal arrangements for the five-year period starting April 2026, crucial for managing the financial stability and growth of both the Centre and the states in a changing economic landscape. The move reaffirms the government’s commitment to cooperative federalism and thorough, consultative policymaking.