Mumbai, Sep 24 Uttar Pradesh Finance Minister Suresh Kumar Khanna on Thursday flagged concerns over the 16th Finance Commission’s devolution formula, saying the new criteria give greater importance to contribution to the GDP compared to a state’s need and could result in relatively lower transfers to high-population states.
“The principal concern is that the new criterion gives greater importance to output compared with need,” Khanna said while addressing the 13th SBI Banking & Economics Conclave 2026.
He said there was a concern that states with higher GSDP could benefit under the new framework, while states such as Uttar Pradesh, Bihar, Rajasthan and Madhya Pradesh, which have larger populations and greater needs, could receive relatively less devolution.
“There is a concern that states with higher GSDP, along with two other states, could benefit, while states such as Uttar Pradesh, Bihar, Rajasthan and Madhya Pradesh, which have larger populations and greater needs, could receive relatively less devolution,” he said.
Khanna said several parameters adopted by the 16th Finance Commission were “quite alarming”, pointing to the increase in the weight assigned to contribution to GDP to 10 per cent and reduction in the weight of income distance from 45 per cent to 42.5 per cent.
“The weight assigned to contribution to GDP has been increased to 10 per cent, replacing the earlier tax-effort criterion,” he said.
He also called for a fiscal framework that is “consistent, predictable and fair”, saying transfers should balance efficiency and equity so that weaker states do not fall behind.
“Fiscal equalisation means developing a fiscal structure that is consistent, predictable and fair,” Khanna said.
“Transfers must strike a balance between efficiency and equity so that weaker states do not fall behind,” he added.
Khanna said states should not be viewed merely as administrative units but as key drivers of India’s economic development.
“Therefore, states need to be empowered not merely as administrative units but as partners and drivers of India’s development story,” he said.
He said states play a central role in managing schools, hospitals, roads, local infrastructure, agricultural support and public welfare services, and therefore require adequate and predictable resources.
The Centre has fixed the states’ share in divisible tax revenues at 41 per cent for 2026-27 to 2030-31. The 16th Finance Commission, headed by Arvind Panagariya, submitted its report on November 17, 2025. The report was tabled in Parliament on February 1, 2026.
Khanna also pointed to the fiscal pressure faced by states and said the combined liabilities of the 28 states had reached Rs 90.51 lakh crore in 2024-25. On Uttar Pradesh, Khanna said the state’s own tax revenue had increased substantially from Rs 81,146 crore in 2015-16 to Rs 2,12,243 crore in 2024-25 and Rs 2,37,542 crore in 2025-26.
(PTI News)
