16th FC breaks with precedent, leaves out statewise GSDP projections

Unlike its three predecessors, the Sixteenth Finance Commission has not published state-wise GSDP projections for 2026-31, citing the absence of revenue deficit grants

The Sixteenth Finance Commission (16th FC) has departed from the practice of its three predecessors by not publishing forward-looking projections of gross state domestic product (GSDP) for individual states over its 2026-31 award period, even though its report shows that such projections were prepared.

 

The report, tabled in Parliament on February 1, carries only a projection of the combined GSDP of all states. 

 

The omission leaves states without a yardstick to assess their medium-term growth and fiscal trajectories.

 

Without statewise projections, governments lose a comparable reference point for estimating tax buoyancy, revenue capacity, and spending paths over 2026-31, making fiscal planning more dependent on their own assumptions.

 

To be sure, this has not affected the devolution formula itself, which is based on trailing GSDP data. The comparable historical GSDP series that the commission fed into its formula is available on its website.

 

The report makes clear that the projections were, in fact, prepared. It said the commission first projected the GSDP of each state using comparable market-price data for 2011-12 to 2023-24 from the Ministry of Statistics and Programme Implementation.

 

It then estimated each state’s growth responsiveness to the aggregate GSDP growth of all states by comparing the state’s trend growth rate with that of all states over the same period.

 

“These State-specific elasticities are then applied to the estimated nominal GDP growth rate to derive the GSDP growth rates of various States during the period from 2024-25 to 2030-31,” the report said. 

 

Earlier commissions had published this material in detail. The Finance Commissions set out a year-by-year assessment for each state over its award period in an annex titled “Assessed Own Revenue Receipts and Revenue Expenditure”.

 

The table for each state opened with its projected GSDP for each year of the award, followed by projected own tax and non-tax revenues, revenue expenditure, and the resulting pre-devolution revenue deficit or surplus. 

 

Ritvik Pandey, secretary, 16th FC, said the normative GSDP projections were used mainly to estimate states’ tax revenues and deficit grants, and the commission had found that this gap-filling approach had not really delivered results for the previous Finance Commissions. 

 

“So the commission says this scheme of gap-filling (revenue-deficit) grants has not worked. Therefore, it did not recommend any gap-filling grant. And because you don’t give a gap-filling grant, there is no need to give forward-looking projections for state finances, simply because there is no constitutional requirement to do it. It is just an exercise in futility,” Pandey added.

 

D K Srivastava, chief policy advisor at EY India, said the GSDP projections for states would have enabled them to estimate the buoyancy of their own tax revenues and other critical fiscal parameters and benchmark them against the performance of comparable states.

 

“Such projections may potentially have served as a benchmark for individual state governments in terms of their fiscal planning, budgeting and policy formulation as the commission’s fiscal projections would generally be on a normative or partially normative basis,” he said. 

 

M Govinda Rao, a member of the 14th Finance Commission, however, played down the significance of the missing projections. A state’s share in devolution, he pointed out, rests on the average GSDP of the preceding years — the current data rather than forward-looking numbers — and, once fixed, held for the entire award period.

 

“You don’t have to publish your projections of GSDP,” he said, since those projections did not themselves enter the devolution calculation. 

Mind the gap

• Without state-wise projections, fiscal planning becomes more dependent on assumptions
• The Commission found gap-filling approach ineffective, hence did not provide projections for state-finanaces
• According to a former member,  state’s devolution share depends on the average GSDP of previous years
• To ensure the devolution formula remains unaffected, the historical GSDP series has been made available