The Sixteenth Finance Commission has left out a useful set of numbers. Unlike the 13th, 14th and 15th Commissions, it has not published state-wise projections of gross state domestic product for 2026-31, although its report shows that such projections were prepared. The published report carries only the projected aggregate GSDP of all states.
FC reports decide how central taxes are shared between the Union and the states. They also give state governments, economists, investors and researchers a common fiscal map. The omission, therefore, is not a technical detail. It changes what states can see about the next five years.
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Finance Commission GSDP projections
FCs are set up under Article 280 of the Constitution to recommend the sharing of central taxes and grants-in-aid. Over time, their reports have also become the most authoritative public assessment of state finances.
Previous commissions projected state revenues, expenditure, deficits and growth for the award period. These projections were not binding on any government. Their value lay elsewhere. They used common assumptions across states and gave each government a benchmark against which to test its own forecasts.
The Sixteenth FC did do the exercise. It used comparable market-price GSDP data for 2011-12 to 2023-24 from the Ministry of Statistics and Programme Implementation. It calculated each state’s growth elasticity against aggregate GSDP growth and applied those elasticities to its nominal GDP projection to derive state GSDP growth rates through 2030-31.
The question is why the results were not published.
Revenue deficit grants dropped
Ritvik Pandey, secretary to the Sixteenth Commission, has argued that this is not a transparency issue. The projections were earlier used mainly to estimate states’ own-tax revenues and expenditure needs. Those estimates fed into the calculation of post-devolution revenue deficit grants.
The Sixteenth FC has abandoned that route. It concluded that revenue deficit grants had not produced the fiscal correction expected of them. In its summary, the commission says it does not recommend revenue deficit grants, sector-specific grants or state-specific grants.
The report’s reasoning is clear enough. It says the expectation of revenue deficit grants weakens the incentive to rationalise subsidies, improve tax administration and curb revenue expenditure. Its preferred answer is discipline by withdrawal, not support through gap-filling.
That is a legitimate policy choice. It is also a hard one for weaker states, especially hill and northeastern states whose spending needs are not always captured by standard revenue measures. Several states had argued before the commission that revenue deficit grants were needed to meet fiscal constraints, high delivery costs and basic service obligations.
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State fiscal planning loses a benchmark
Once revenue deficit grants were dropped, the commission saw little use in publishing projections that no longer fed a recommendation. That is a narrow view of the report’s function.
State governments prepare medium-term fiscal frameworks. They estimate tax collections, revenue expenditure, borrowing requirements and debt sustainability. Each of these depends on assumptions about nominal GSDP growth. A Finance Commission projection gave them an external check.
DK Srivastava of EY India has made the same point. State-wise projections would have helped governments assess tax buoyancy and other fiscal parameters against comparable states. Without them, each state is left with its own assumptions, and those assumptions matter.
A state that underestimates tax collections may hold back public investment. A state that overestimates growth may overstate its fiscal space. Neither error is harmless when salaries, pensions, subsidies, infrastructure spending and borrowing limits are all tied to GSDP.
The information is also used outside government. Credit rating agencies, researchers, investors and multilateral institutions rely on Commission reports to assess state fiscal sustainability. A missing table can still create a real information gap.
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Devolution formula is not the issue
There is a counterpoint. M Govinda Rao, a member of the Fourteenth Finance Commission, has argued that forward-looking GSDP projections do not enter the tax devolution formula. A state’s share is based on historical data. Once fixed, it holds for the award period.
That is correct. The Sixteenth Finance Commission’s formula uses past GSDP data, not future projections. PRS notes that the commission retained the states’ aggregate share in the divisible pool at 41% and introduced contribution to GDP as a 10% criterion for horizontal devolution.
But that does not settle the matter. Finance Commission reports have always done more than state the formula. Their credibility comes from the fact that they assemble fiscal information under one constitutional process and apply a comparable method across states.
The Sixteenth FC has narrowed that role. It may be justified in ending revenue deficit grants. It is less convincing when it withholds the projections prepared to reach that position. Publishing them would not have changed the devolution formula. It would have helped states, markets and citizens judge the fiscal assumptions behind the next five years.