Sixteenth Finance Commission: Misses and Concerns

Why in News?

The Sixteenth Finance Commission marks an important phase in India’s fiscal federal framework, But several concerns arise regarding its approach and outcomes.

What about the vertical devolution?

• Background of increasing state share – The Fourteenth Finance Commission had significantly raised the States’ share in the divisible pool of central taxes from 32% to 42%.
• This was justified by the discontinuation of State Plan grants, which constituted around 3% of the divisible pool at that time.
• Subsequently, the Fifteenth Finance Commission reduced the share marginally to 41%, primarily due to the reorganisation of Jammu and Kashmir.
• The Sixteenth Finance Commission retained this 41% share, thereby imparting a degree of semi-permanence to the arrangement.
• Issue of cesses and surcharges – Following the Fourteenth Finance Commission’s award, the Centre responded to the enhanced State share by:
  • Increasing non-shareable cesses and surcharges
  • Reducing its contribution to Centrally Sponsored Schemes
  • Not fully accepting sector- or State-specific grants recommended by the Fifteenth Commission

Cesses and surcharges, by constitutional design (Articles 270 and 280), are not shareable with States.

• Their growing use effectively reduces the divisible pool.
• Instead of firmly addressing this issue, the Sixteenth Commission proposed a “grand bargain,” whereby:
  • States would accept a smaller share of a larger divisible pool
  • The Centre would merge a significant portion of cesses and surcharges into regular taxes
• However, this approach raises concerns:
  • It appears to dilute the Commission’s constitutional responsibility to objectively determine States’ share.
  • It does not explicitly critique the steep increase in cesses and surcharges, which arguably undermines fiscal federalism.
• Declining effective transfers – Effective transfers (tax devolution plus Finance Commission grants) as a percentage of the Centre’s pre-transfer gross revenue receipts show the following trend:
  • 11th–13th FC periods: 27–28%
  • 14th FC period: 35.6% (sharp increase)
  • 15th FC period: 34.4%
  • 2026–27 (first year of 16th FC award): 32.7% (Budget Estimate)
• Thus, although the statutory devolution share remains at 41%, the effective transfer ratio shows a declining trend.
• The Commission assumed nominal GDP growth of 11% for 2026–27, higher than the Budget estimate of 10%.
• It did not account for the revenue-reducing effects of major GST reforms undertaken in September 2025.
• These factors may result in overestimation of the divisible pool and actual transfers.
• Discontinuation of revenue deficit and sector-specific grants – The Commission discontinued revenue deficit grants and did not recommend State- or sector-specific grants.
• The Implications are:
  • Reduces fiscal space for vulnerable States
  • Lowers effective transfer share compared to the Fifteenth Commission
  • Limits scope for need-based equalisation

What about the horizontal devolution?

• Introduction of “contribution” criterion – The Commission introduced a new efficiency-based criterion called “contribution,” measured through a State’s share in aggregate Gross State Domestic Product (GSDP).
• The concerns are:
  • GSDP reflects production efficiency, not fiscal efficiency.
  • Inter-State GSDP differences are influenced by capital mobility, labour migration, and market forces.
  • Concentration of capital in developed States skews outcomes.
• Thus, production-based indicators may not accurately measure fiscal performance.
• Conceptual contradiction in use of gsdp – The Commission used GSDP in two opposite ways:
  • Income distance criterion – Lower per capita GSDP → Higher share
  • Contribution criterion – Higher per capita GSDP → Higher share
• To moderate the distortion, the Commission used the square root of GSDP rather than the absolute value.
• This was intended to reduce excessive benefits to richer States.
• Nevertheless, this adjustment appears largely judgement-based rather than normatively grounded.
• Dropping fiscal discipline criterion – The Commission removed the tax effort/fiscal discipline criterion—an established fiscal efficiency indicator.
• This appears inconsistent with its stated emphasis on efficiency, as fiscal responsibility and revenue effort directly reflect governance quality.

What are the Losses and Gains?

• Major losing states – Compared to the Fifteenth Commission, the main losing States include:
  • Madhya Pradesh
  • Uttar Pradesh
  • West Bengal
  • Bihar
  • Odisha
  • Chhattisgarh
  • Rajasthan
• Additionally, several north-eastern and small States—Arunachal Pradesh, Meghalaya, Manipur, Nagaland, Tripura, Sikkim, and Goa—also witnessed relative losses.
• Uneven gains – Richer States gained, but not uniformly.
• The redistribution pattern reflects the altered weights and criteria in the new devolution formula.
• The missing equalisation framework – Devolution alone cannot address India’s wide cost and need differentials.
• Article 275 provides for grants-in-aid to meet State-specific needs. These need not be confused with revenue deficits.
• They can be normatively designed to:
  • Equalise standards of essential services like health and education
  • Address structural disadvantages
  • Neutralise losses arising from formula changes
• While ad hoc grants are undesirable, well-designed equalisation grants remain crucial in a heterogeneous federation like India.
• By discontinuing revenue gap grants entirely, the Sixteenth Commission arguably adopted an expedient route rather than undertaking the complex normative assessment required for balanced equalisation.

What lies ahead?

• The Sixteenth Finance Commission sought to balance fiscal prudence, efficiency, and federal equity. While it retained the 41% devolution share, concerns persist regarding:
  • The unchecked expansion of cesses and surcharges
  • The decline in effective transfers
  • The conceptual inconsistency in the horizontal formula
  • The abandonment of revenue gap and equalisation grants
• In a deeply diverse and asymmetrical federation like India, fiscal federalism must reconcile efficiency with equity.
• The Sixteenth Commission’s approach tilts toward formulaic redistribution while weakening the equalisation function—raising important questions about the evolving nature of India’s cooperative federalism.

Reference

The Hindu| 16^th FC Misses and Concerns

Critical Thinking – Its Importance in the Age of Artificial Intelligence

Why in News?

Recently, with increasing integration of AI in sectors such as finance, healthcare, law, education, and governance, concerns are being raised about automation-led job displacement.

What are the recent developments?

• The age of AI – The rapid advancement of Artificial Intelligence (AI) has transformed economies, governance, and labour markets across the world. From automating routine administrative tasks to performing complex data analysis, AI is reshaping the nature of work.
• Persistent question – In this context, the pressing question before policymakers and educators is:
  • How should education prepare students for an AI-driven world?
• The answer lies not in narrowly focusing on technical skills that algorithms may soon master, but in cultivating distinctly human capacities such as critical thinking, ethical reasoning, creativity, and leadership.
• The automation of skills – AI excels at performing repetitive, rule-based, and systematised tasks at extraordinary speed and scale.
• Technical competencies once considered specialised—coding, financial forecasting, legal research, medical diagnostics, and data analytics—are increasingly subject to automation pressures.
• A skill, by definition, is learnable and repeatable.
• If it can be codified and documented, it can potentially be taught to an algorithm.
• This transformation is not dystopian; rather, it reflects technological progress that can enhance productivity and free human potential for higher-order functions.
• However, while machines process information efficiently, they lack the capacity for genuine understanding, imagination, and ethical judgment.

What are the importance of Critical Thinking (CT)?

• Critical thinking – It is the intellectually disciplined process of actively analyzing, evaluating, and synthesizing information to guide belief and action.
• Key aspects – It involves:
  • Meaning-making rather than mere pattern recognition
  • Ethical reasoning grounded in values and empathy
  • Imagination to envision possibilities beyond existing data
  • Contextual judgment informed by culture and lived experience
• AI vs CT – AI can summarise existing knowledge but cannot imagine unknown futures or navigate moral complexities in deeply human contexts.
• Adaptability, emotional intelligence, and value-based decision-making remain uniquely human strengths.

Why there is a need to rethink education?

• Issues with narrow education system – An education system narrowly focused on skill acquisition risks becoming obsolete in a rapidly changing technological landscape.
• Need for transformation – Education must, nurture:
  • Intellectual curiosity
  • Analytical reasoning
  • Creativity and innovation
  • Moral and civic responsibility
• Education must move from producing skilled workers to cultivating thoughtful citizens and leaders capable of addressing complex global challenges.
• Interdisciplinary learning – It is not merely about studying multiple subjects; it is about synthesising diverse perspectives to solve real-world problems.
• Contemporary challenges
  • Climate change
  • Public health crises
  • Digital ethics and data privacy
  • Economic inequality
  • The future of work
• These challenges, exist at the intersection of technology, society, policy, culture, and human behaviour.
• Addressing them requires intellectual agility and systemic thinking.
  • For instance, while AI can optimise a supply chain, it cannot adequately assess the social consequences of labour displacement.
  • Similarly, data analytics may predict voting trends but cannot fully evaluate democratic values, historical contexts, and ethical implications.
• Interdisciplinary learning cultivates the ability to balance efficiency with equity, logic with empathy, and innovation with responsibility.
• Experiential learning – Critical thinking is deepened through lived experiences.
• Experiential learning—through internships, fieldwork, community engagement, research projects, and industry collaborations—exposes students to real-world complexity.
• Such engagements require students to:
  • Question assumptions
  • Adapt to diverse perspectives
  • Reflect on ethical dilemmas
  • Develop emotional intelligence
• Experiences such as study-abroad programmes, global faculty interactions, and collaborative research with international institutions foster global awareness and reinforce interdisciplinary thinking.
• Unlike AI simulations, these experiences demand human presence, reflection, and moral reasoning.
• Needed policy reforms – For countries like India aspiring to become knowledge economies, reforms in higher education are crucial.
• Educational policies must:
  • Encourage flexibility in curriculum design
  • Promote interdisciplinary programmes
  • Strengthen industry-academia linkages
  • Integrate ethical and civic education
  • Invest in research and innovation ecosystems
• Preparing future leaders requires aligning educational reforms with technological transformation while preserving human values.

What lies ahead?

• In an AI-driven era, the goal is not to compete with machines in mechanical efficiency but to harness them as tools.
• The true competitive advantage of nations will lie in the quality of their thinkers—individuals capable of:
  • Asking better questions
  • Connecting disparate ideas
  • Exercising moral judgment
  • Envisioning transformative futures
• Education must therefore prioritise the cultivation of imagination, critical inquiry, and leadership.
• As artificial intelligence continues to redefine the contours of work and governance, the role of education must evolve accordingly.
• The future belongs not to those who merely execute skills, but to those who think deeply, question boldly, imagine creatively, and lead responsibly.
• Equipping the present generation with critical thinking and ethical clarity is not just an educational imperative—it is a civilisational necessity.

Reference

The Hindu| Importance of Critical Thinking

Tamil Nadu's First Dark Sky Park

Why in News?

Recently, Tamil Nadu Forests Minister launched the State’s first Dark Sky Park at a cost of Rs 1 crore.

Dark Sky Park

• A protected area with minimal artificial light pollution.
• Enables clear observation of celestial phenomena such as the stars, planets, the moon, milky way galaxy.
• Ideal Conditions – Locations with naturally dark skies, dry weather, and clear, cloudless nights for observatories and stargazing.
• Benefits – Protects nocturnal wildlife from disruption.
• Preserves the natural and cultural heritage of star-filled skies.
• Encourages responsible tourism and astronomy education.

TN’s First Dark Sky Park

• Location – Ariyur Shola Reserve Forest, Kolli Hills, Namakkal district.
• Terrain – Kolli Hills chosen for elevated terrain, dense forest, and low light pollution.
• Operation – The site has a clear sky view for nearly 6 months of the year.
• Hence, it will operate from January 15 to June 15 and remain closed during the monsoon season.
• The facility will operate during the day to promote astronomy awareness and scientific learning among students, researchers, and the public.
• Light-Free Zone – 1.5 km radius around Ariyur Shola Reserve Forest remains free from artificial light.
• Equipment – Equipped with three advanced telescopes for structured sky-watching sessions.
  • Solar panels installed for sustainable power.

The Pench Tiger Reserve (PTR) in Maharashtra is India's first Dark Sky Park and is the 5^th in Asia.

References

1. TH | Dark Sky Park
2. New IE | Dark Sky Park

FDA Clears First-Line Lung Cancer Drug

Why in News?

Recently, the U.S. Food and Drug Administration (FDA) approved zongertinib (Hernexeos) of Boehringer Ingelheim as a first-line treatment for a rare form of lung cancer.

Zongertinib

• The drug Zongertinib is marketed as Hernexeos.
• Type – The drug is a Tyrosine kinase inhibitor (TKI).

Tyrosine kinase is a protein in the body that helps control how cells grow and function by sending signals inside the cell.

• Tyrosine kinase inhibitors (TKIs) are a kind of targeted therapy.
• They work by blocking tyrosine kinase enzymes, stopping cancer cells from growing and dividing. 
• Target – For adults with advanced non-squamous non-small cell lung cancer (NSCLC) having HER2 (ERBB2) tyrosine kinase domain mutations.
• Approval Status – Earlier approved for the patient whose cancer progressed despite prior treatment.
• Now approved as first-line treatment for previously untreated patients.
• Clinical result – Around 76% of untreated patients showed substantial tumour reduction, compared to current standard of care which achieved 30–45%.
• Benefits – It may be easier to take, have fewer side effects, and work better than current treatments.

Non-Small Cell Lung Cancer (NSCLC)

• Disease – Most common form of lung cancer, typically growing and spreading more slowly than small cell lung cancer.
• Type – Adenocarcinoma – Most common type that usually starts in mucus-producing gland cells, often in the outer parts of the lung.
• Squamous cell carcinoma – Starts in the central airways within the flat cells lining the airways.
• Large cell carcinoma – A less common, fast-growing type that can appear anywhere.
• Symptoms – Persistent cough, coughing up blood, chest pain, breathlessness, hoarseness, weight loss, and sometimes bone pain or neurological problems in advanced stages.
• Cause – Mainly due to tobacco smoking.
• Also linked exposure to asbestos, radon, arsenic, chromium, nickel, ionising radiation, and air pollution.
• Higher risk in pulmonary fibrosis and HIV patients.
• Stages – In early stages (I–III), the cancer is mainly limited to the lung or nearby areas and may still be cured with treatment.
• In Stage IV, the cancer has spread to distant organs like the brain, bones, or liver, making it harder to cure.
• Treatment –
  • Surgery for the removal of the tumour
  • Chemotherapy with anti-cancer drugs
  • Radiation therapy involves high-energy rays to kill cancer cells.
  • Targeted therapy with drugs acting on specific gene mutations
  • Immunotherapy (boosts the body’s immune system to fight cancer), and combination therapy, depending on stage and patient condition.

References

1. TH | FDA Clears First-Line Lung Cancer Drug
2. FDA | Zongertinib
3. NCBI | Non-Small Cell Lung Cancer Treatment

Discovery of Yadava-era stone pillar remains

Why in News?

Researchers recently found the remains of a 12^th-century Yadava-era temple-style stone pillar near the Vena River banks at Hinganghat, Maharastra.

• Researchers found some stone fragments lying in an open space while studying ancient temples along the riverbank.
• Historical Context - The stones were linked to Yadava-era temple architecture that remains dated back to the 12th century.
• Material and Craftsmanship - The stone fragments are carved from locally available black basalt.
• Basalt is considered a very hard stone, and carving on it indicates skilled craftsmanship.
• A finely carved lotus motif is on the remains.
• Architectural Significance - The pillar may have been part of an important section of a temple, such as the sabhamandap or a pillar in front of the garbhagriha.
• Another fragment is believed to be part of the temple's base, or the pedestal of a main pillar.
• Architectural Style - The carvings are typical characteristics of the Yadava-era Hemadpanti architectural style, the style involved stone interlocking without the use of lime.
• According to historians, several parts of Vidarbha flourished religiously, culturally and commercially during the Yadava rule.

Reference

Times of India | Yadava-era temple-style stone pillar

Eligible Manufacturer Importer (EMI) Scheme

Why in News?

Recently, as announced in the Union Budget 2026–27, India has announced a deferred Customs Duty payment facility.

• EMI Scheme is a Trust-Based Customs Facilitation Scheme.
• Aim – This measure enables Eligible Manufacturer Importers (EMIs) to clear imported goods without having to pay Customs duty at the time of clearance.

• Launched By – Central Board of Indirect Taxes and Customs.
• Under – Section 47(1) of Customs Act, 1962.
• Governed By – Deferred Payment of Import Duty Rules, 2016.
• It Promote compliance under the Authorised Economic Operator (AEO) framework.

AEO (Authorised Economic Operator) is a trade facilitation programme implemented by the Central Board of Indirect Taxes and Customs under the World Customs Organization framework.

• Key Features – Allows – Clearance of imported goods without upfront customs duty payment for certain manufacturers, eases pressure on their working capital.
• Encourages progression to AEO-T2/AEO-T3 status.
• Eligibility Criteria – Strong Customs and GST compliance, turnover, sound financial standing and a clean past track record.
• Existing AEO-T1 entities (including MSMEs) are eligible if conditions are met.
• Validity – 1 April 2026 – 31 March 2028
• Applications open from 1 March 2026 (via AEO portal)
• New category – The scheme creates a new category, Eligible Manufacturer Importers (EMIs), with duty payable on a monthly basis instead of at import.
• Benefits – Improve working capital and liquidity.
• Encourage domestic production and exports.
• Enhance Ease of Doing Business.

Quick Facts

• AEO three Tiers – AEO T1, AEO T2, AEO T3, where AEO T3 is the highest level of accreditation for Exporters and Importers.
• There is one more category of AEO- LO that covers all other entities in the supply chain other than the importers and exporters.

References

1. PIB | Eligible Manufacturer Importer (EMI) Scheme
2. ET | Eligible Manufacturer Importer (EMI) Scheme