RAS question
What percentage of central taxes has the 16th Finance Commission recommended for devolution to states?
Correct answer: (B) 41%.
The Sixteenth Finance Commission recommended retaining States' share in the divisible pool of central taxes at 41 per cent.
Explanation
The Sixteenth Finance Commission kept vertical devolution unchanged by recommending that States' share in the divisible pool be retained at 41 per cent. This matters because vertical devolution is the split of tax revenues between the Union and the States, while horizontal devolution comes later and divides the States' share among individual States. The report also places this recommendation within a fiscal-consolidation path: it assessed that the Union Government's fiscal deficit should fall to 3.5 per cent of GDP by 2030-31, the end of the award period. So the key exam point is continuity: FC-16 did not raise or cut the States' share; it retained the 41 per cent share.
Why the other options are wrong
- (A) 38 per cent is not the recommended FC-16 share; the report explicitly retains States' share in the divisible pool at 41 per cent.
- (C) 45 per cent overstates the recommendation, because FC-16 kept the States' share at 41 per cent rather than increasing it.
- (D) 42 per cent belongs to the earlier FC-14 increase, while FC-16 retained the States' share at 41 per cent.
Concept
This tests vertical tax devolution under Finance Commission recommendations. It recurs in RAS because Centre-State fiscal relations link Indian Economy, polity and current public finance.