Fifteenth Finance Commission

The Fifteenth Finance Commission (FFC) is the latest constitutionally mandated body tasked with redefining the fiscal relationship between India’s Union and its states for the five‑year period 2025‑26 to 2029‑30. Chaired by former Union Finance Minister N. K. Singh, the commission’s recommendations—particularly the increase of the states’ share of central taxes to 42 percent and a revamped GST‑compensation formula—have reshaped the nation’s fiscal federalism at a time when both the centre and the states grapple with widening deficits and heightened demand for public services.

Constitutional Basis and Formation

Article 280 of the Constitution empowers the President to constitute a Finance Commission every five years, or sooner if fiscal circumstances demand. The FFC was constituted on 27 November 2017 under this provision, succeeding the Fourteenth Finance Commission (2015‑20). Its mandate covered the allocation of central tax proceeds, the design of grants‑in‑aid, and the formulation of a disaster relief fund for the period beginning with the Union Budget 2025‑26. The commission’s formation coincided with the rollout of the Goods and Services Tax (GST), a reform that required a new framework for compensating states for revenue shortfalls.

Composition and Mandate

The commission comprised four members: Chair N. K. Singh, former Deputy Governor of the Reserve Bank of India Dr K. S. Rajan, former Planning Commission member Dr A. K. Shiva Kumar, and Professor Ramesh Chand of the Indian Institute of Management, Ahmedabad. Their collective expertise spanned public finance, monetary policy, and development economics. The FFC’s terms of reference, as stipulated by the President, required it to (i) recommend the share of central taxes to be devolved to states, (ii) propose the methodology for GST compensation, (iii) suggest grants‑in‑aid for health, education, and local bodies, and (iv) outline the contribution to a National Disaster Relief Fund (NDRF).

Key Recommendations

The FFC’s report, submitted on 30 November 2020, raised the states’ share of central taxes from 41 percent (under the Fourteenth Commission) to 42 percent for the entire 2025‑30 horizon, translating into an estimated devolution of ₹ 5.71 lakh crore in FY 2025‑26. It introduced a “decentralised” GST‑compensation mechanism: 50 percent of the compensation pool would be allocated on the basis of each state’s share of GST collected, while the remaining 50 percent would follow the population‑based formula used previously. The commission also earmarked a contribution of 0.5 percent of total central tax revenue to the NDRF, creating a dedicated disaster‑relief corpus.