Under Article 281 of the Constitution, the government

Solution

The Finance Commission of India is established under Article 280 of the Constitution. It makes recommendations on the distribution of the net proceeds of taxes between the Union and the States. It also covers allocation between the States of the respective shares of such proceeds, grants-in-aid to States , review arrangements on financing Disaster Management initiatives, etc. As mandated by Article 281, the President causes the Finance Commission’s recommendations and an Explanatory Memorandum detailing the action taken to be laid before both Houses of Parliament.   The 16^th Finance commission: ·        The ₹1.4 lakh crore grants provided for FY 2026-27 specifically include funding for Rural and Urban Local Bodies and Disaster Management. ·        It covers a period of five years commencing on the 1^st April, 2026 to 31^st March 2031. ·        Vertical devolution - The 16th Finance Commission recommended keeping the vertical share at 41%, which is a continuation of the rate established by the 15th Finance Commission. ·        Horizontal devolution - The formula now includes a new parameter: a state's GDP contribution, with a weightage of 10%, to recognize state efficiency and contribution to the country's GDP. Further, 2.5% weight for states’ tax efforts has been removed, and there is increase in the population share by 2.5 percentage points. There is also decrease in the weight of area, demographic performance, and per capita GSDP distance. ·        The 16^th Commission is currently chaired by Dr Arvind Panagariya.