Dr. Arvind Panagariya, Chairman 16th Finance Commission. File
| Photo Credit: Sandeep Saxena

T.V. Somanathan, Finance Secretary. File.
| Photo Credit: KAMAL NARANG

The government is expected to constitute the 16th Finance Commission by end of November, Finance Secretary T V Somanathan said.

Finance Commission is a constitutional body that gives suggestions on Centre-State financial relations.

It suggests, among other things, the ratio in which tax is to be divided between the Centre and States for five years, beginning April 1, 2026.

“The Finance Commission is expected to be constituted by end of November because that’s the statutory requirement,” he told PTI in an interview.

Terms of Reference (ToR) for the Commission is being finalised, he said.

The previous Finance Commission submitted its report on November 9, 2020, for the 5 fiscals — 2021-22 to 2025-26 — to the President.

The 15th Commission under N.K. Singh had kept the tax devolution ratio at 42% — at the same level suggested by the 14th Commission.

The Central government accepted the report of the commission, and accordingly, the States are being given 42% of the divisible tax pool of the Centre during the period 2021-22 to 2025-26.

The 15th finance commission’s recommendations include the fiscal deficit, debt path for the Union and States, and additional borrowing room to states based on performance in power sector reforms.

As per the glide path for fiscal consolidation, the government aims to bring down the fiscal deficit to 4.5% of gross domestic product (GDP) by the 2025-26 fiscal.

For the current fiscal, the deficit is projected at 5.9% of GDP, lower than 6.4% in the last fiscal ended March 31, 2023.

He also said the government will stick to the fiscal deficit target of 5.9% of the GDP as robust tax, non-tax collections will help meet the spending requirement and make up for any shortfall in disinvestment proceeds.

Although there would be a shortfall with respect to disinvestment, he said, this shortfall would be met by non-tax revenue mobilisation.

“Disinvestment target is unlikely to be met. However, I would say in aggregate the collective amount between disinvestment and non-tax revenue is likely to be very close to the budget,” he said.

The total of disinvestment receipts, plus non-tax receipts are likely to be very close to the Budget Estimates, he said.

“We expect to adhere to our fiscal deficit target this year…none of the events so far have caused anything for us to deviate from it,” he said.

The government has already got a higher dividend from the Reserve Bank of India and expects higher dividends from public sector banks and other PSUs than estimated in the Budget.

The Reserve Bank of India in May approved a ₹87,416-crore dividend payout to the central government for 2022-23, nearly triple of what it paid in the preceding year. The government was expecting ₹48,000 crore from the RBI, public sector banks and financial institutions in the current fiscal.

The dividend payout by the RBI was ₹30,307 crore for the accounting year 2021-22. With public sector banks posting record profits of over ₹1 lakh crore in fiscal 2022-23, the government’s earnings from them are likely to be higher.