(A weekly analysis of politics, policy and the economy, from the National Bureau of The Indian Express.)
Three of four states headed for elections this year will receive a higher share of the Union taxes and duties as recommended by the 16th Finance Commission, bringing them an additional amount of Rs 9,234 crore during the financial year 2026-27 as compared to what they would have received as per their share under the 15th Finance Commission.
The 16th Finance Commission (FC)’s report, which was tabled by Union Finance Minister Nirmala Sitharaman in the Lok Sabha on February 1, has recommended a higher share in the divisible pool for Assam, Kerala, Tamil Nadu, and a lower share for West Bengal. These four states, along with the Union Territory of Puducherry, are due for polls over the next few months.
While the BJP rules Assam and is part of the ruling coalition led by N Rangswamy’s All India N R Congress (AINRC) in Puducherry, the other three states are ruled by the parties which are in Opposition at the Centre and pose challenges to the BJP’s expansion.
Share in Union taxes, duties
The 16th FC’s recommendations regarding states’ share in the divisible pool have been accepted by the Centre and the Finance Minister has allocated the funds based on the same for the next financial year. The 16th FC has significantly changed the share which all states were getting during the term of the 15th FC from 2021-26.
Among the four poll-bound states, the biggest beneficiary now will be Left-ruled Kerala, which will get 2.382% of the net proceeds of the Union taxes and duties under the 16th FC – up from 1.925% during the 15th FC. With increased share, Kerala will receive an additional amount of Rs 6,975 crore from the total divisible pool of Rs 15.26 lakh crore during fiscal year 2026-27. Assam will get an additional amount of Rs 1,994 crore as its share in the divisible pool has marginally increased from 3.128% to 3.258%.
DMK-ruled Tamil Nadu’s share in the Union taxes and duties has increased by just 18 basis points to 4.097% from 4.079%, and it will receive an additional share of Rs 275 crore.
While these three states will get a higher share in the Central taxes, Trinamool Congress (TMC)-ruled West Bengal will receive a lower amount as compared to what it would have received under the 15th FC. Bengal’s share in the divisible pool has come down to 7.215% in the 16th FC from 7.523% in the 15th FC, due to which the state would receive Rs 4,700 crore less during the fiscal year 2026-27 as compared to what it would have received under the existing FC.
Grants for local bodies
The 16th FC has recommended a grant of Rs 7.91 lakh crore for local bodies for the next five years (2026-27 to 2030-31), of which Rs 4.35 lakh crore will be for rural local bodies including gram panchayat, block panchayat and district panchayat and Rs 3.56 lakh crore for urban local bodies.
Of the grants for rural local bodies, Assam will receive Rs 14,580 crore during the next five fiscal years, Kerala Rs 3,308 crore, Tamil Nadu Rs 16,930 crore and Bengal Rs 28,203 crore.
Of the grants for urban local bodies, Assam will get Rs 3249 crore, Kerala Rs 16,683 crore, Tamil Nadu Rs 25,069 crore, and Bengal Rs 22,023 crore.
Besides, Bengal’s Howrah and Tamil Nadu’s Coimbatore have been selected in the list of 22 cities, which will receive Special Infrastructure component grant. It is not clear yet how much these two cities will be allocated.
Disaster management funds
The 16th FC has also recommended a total corpus of Rs 2,04,401 crore for the State Disaster Response Fund (SDRF) and the State Disaster Mitigation Fund (SDMF) for the award period from 2026 27 to 2030 31. Of this, Assam will get Rs 5,825 crore, Kerala Rs 2,580 crore, Tamil Nadu Rs 11,314 crore and West Bengal Rs 9,158 crore.
Message for states
Apart from the grants and awards, the 16th FC seems to have sent a message to the states. The Commission has flagged Bengal’s Lakshmir Bhandar scheme, a cash transfer scheme for women, while highlighting the rising burden of subsidies on the states’ exchequer.
“There is a need to introduce sunset clauses, especially in schemes that provide subsidies on non merit private goods and general unconditional transfers. We recommend that governments establish mechanisms to review subsidies and transfers and include a sunset or exit clause in their implementation mechanisms,” the Commission stated in its report.
Salience of upcoming polls
The four states and one UT account for 116 of the 543 Lok Sabha members, 51 members of the Rajya Sabha and 840 members of the Legislative Assemblies. Of the 51 Rajya Sabha seats, 13 will become vacant later this year.
These states are crucial for the BJP, which has been trying to make inroads in the Southern states besides Bengal. For the Opposition parties, it will be a battle to retain their regional bastion. Besides, the results of these elections will also have a bearing on the Presidential elections to be held next year.