India's Finance Commissions, 1st to 16th

India's Constitution gives the Union the most productive taxes (income tax, corporation tax, customs) and gives the states most of the day-to-day spending: police, health, schools, agriculture. That mismatch is called vertical fiscal imbalance. On top of it, states differ hugely in income, so even with the same tax effort a poor state raises far less than a rich one: horizontal imbalance.

Article 280 answers both with a body that is set up afresh every five years, looks at the finances of the Union and every state, and recommends how to share. It is a constitutional body, but its recommendations are advisory: the Union government lays the report before Parliament with an explanatory memorandum of the action taken (Article 281). In practice the tax-sharing recommendations have been accepted.

Every award makes three decisions. Vertical: what share of the divisible pool goes to the states as a group. Horizontal: how that share is divided among the states, by a formula of weighted criteria. Grants: extra money for specific gaps the formula leaves (local bodies, disasters and, until the 16th FC, revenue deficits). Follow ₹100 of central tax through the first two below.

For the first ten commissions, only two taxes were shared: income tax (Article 270, as it then stood) and Union excise duties (the old Article 272), each at its own rate. The 10th FC proposed an alternative scheme: give the states a fixed share of all central taxes, so they gain from buoyancy in any tax and the Centre has no reason to prefer one tax over another. The 80th Constitutional Amendment (2000) rewrote Article 270 to do exactly that, and from the 11th FC on the award is a single share of the whole divisible pool.

Exams ask the chairs in order far more than anything else about the early commissions. The ones that changed the system are marked; the 15th and 16th get their own chapters below.

The 15th FC was told to use the 2011 Census for population, where earlier commissions had used 1971. Southern states, which had brought their population growth down, argued this would cut their share. The Commission's answer was a new criterion, demographic performance (12.5%), scoring states with lower fertility higher. It also added tax and fiscal effort (2.5%), measured by own tax revenue relative to state GDP.

The 16th FC discontinued revenue deficit grants, sector-specific grants and state-specific grants. What remains is ₹9.47 lakh crore for local bodies and disaster management. Half of each basic grant to local bodies is untied; the other half is tied to sanitation and solid waste management and/or water management. To qualify, local bodies must be constituted as the Constitution requires, publish provisional and audited accounts, and the state must constitute its State Finance Commission on time.