The panel, which will be constituted by the President over the next few days, is proposed to be given a simple mandate, instead of expanding it to include issues, such as, GST or ease of doing business, as was the case in the past.Official sources said the Centre wanted to avoid any controversy and has opted for a simple set of terms of reference.
At the cabinet meeting late Tuesday, the government decided to limit the mandate to devise the principles, that should govern the grants, in addition to measures to augment the Consolidated Fund of a State to supplement the resources of the panchayats and municipal bodies. Besides, it will review the arrangements on financing disaster management initiatives, Union I&B minister Anurag Singh Thakur said.
Under the Constitution, the Centre has to set up the finance commission every five years. Thakur said the 16th Finance Commission will be given two years to finalise its report.
At present, states are entitled to 41% share of the divisible pool, which comprises all central taxes, excluding the cesses and surcharges. In addition, 1% of the central taxes is to be shared with J&K and Ladakh, which became union territories after the 15th Finance Commission headed by NK Singh was set up.
States have been demanding a larger share of the pie, arguing that they have to bear the burden of a lot of schemes that are announced by the Centre. On its part, the Centre believes that it is funding several schemes, such as, health and education that are part of the mandate given to the states.
The process to set up the finance commission was initiated last month with an advance cell set up. Amid indications that a former finance secretary is tipped to be the chairman, Thakur said that an announcement will be made soon.