16th Finance Commission’s terms are short, but all-encompassing: Somanathan

“They are shorter than those of many recent commissions. We have prepared these Terms of Reference — I was part of a working group that was involved in drafting what finally got decided — we took a lot of effort to consult the states. We have paid a lot of attention to their suggestions… this is short but it is all encompassing,” he said.

“In a sense, one could argue that less is more — in the sense that this actually gives the commission much more leeway and freedom to take into account all the inputs that they get from different layers of government in India, the different experts, the different people who appear before the FC. And they can then fashion an award which is within the constitutional frame but takes into account all the stakeholder feedback without too many pre-decided items in the Terms of Reference,” he said.

Asked if allocation of resources would be linked to parameters such as population — amid concerns by southern states that they are being penalised for population control — Somanathan said the ToR are neutral and give every state the freedom to make their submissions. “I am not in a position to speculate on what the 16th Finance Commission may or may not do. All I can say is that the Terms of Reference are neutral. They give every state the freedom to make its submission before the Commission and for the Commission to take all of those submissions into account and then pronounce an award or recommendation that is best balanced between the different considerations,” he said.

The Union Cabinet on Tuesday approved the broad ToR for the 16th FC as mandated by the Constitution for central tax devolution and grants-in-aid to states, without any mention of other factors such as conditionalities or performance-based incentives that should be factored in by the FC. It also did not announce who will head the Commission and its members. These will be notified soon. The 16th FC will submit its report by October 31, 2025, and its award will be for five years beginning FY27.