Modi government seeks to reduce states' share of central taxes from 2026: Reports
New Delhi: The Union government is considering reducing the share of tax revenue allocated to states, sources familiar with the matter have said.
The proposal will be submitted to the constitutionally-appointed Finance Commission of India, which makes recommendations on tax sharing and other aspects of Union-state fiscal relations. The commission, headed by economist Arvind Panagariya, is expected to submit its recommendations by October 31, with implementation set for the 2026-27 fiscal year. The recommendations are binding.
According to one source, the Union government intends to lower the states' share of tax revenue from the current 41% to at least 40%. A cabinet decision on the proposal is expected by the end of March before being forwarded to the Finance Commission. A 1% reduction in states' share would give the Union government approximately ₹35,000 crore ($4.03 billion), based on current tax projections.
The Ministry of Finance and the Finance Commission have not yet responded to queries regarding the proposal.
The share of central taxes allocated to states has increased from 20% in 1980 to 41% at present. However, the Union government’s spending requirements, particularly during economic slowdowns, have led to calls for a reduced allocation to states. India's fiscal deficit is projected at 4.8% of GDP for 2024-25, while state deficits stand at 3.2% of GDP.
States account for over 60% of total government expenditure, primarily focusing on social infrastructure such as health and education. Meanwhile, the Union government allocates more resources to physical infrastructure. The introduction of the Goods and Services Tax (GST) in 2017 has limited states' ability to generate independent revenue. Additionally, since the COVID-19 pandemic, the Union government has increased the share of cesses and surcharges, taxes not shared with states, to over 15% of gross tax revenue, up from 9-12% earlier.
The Union government is also expected to propose measures to discourage states from offering cash handouts, debt waivers, and other welfare schemes often labeled as "freebies" for political gains. One possibility under consideration is linking Union grants to states' adherence to specific fiscal conditions.
Over the past five years, revenue-deficit grants to states have declined from ₹1.18 lakh crore ($13.61 billion) in 2021-22 to an estimated ₹13,700 crore ($1.58 billion) for 2025-26. It remains unclear whether grants will be denied to states that continue to offer such welfare schemes.
Let the Truth be known. If you read VB and like VB, please be a VB Supporter and Help us deliver the Truth to one and all.
Himanta resigns as Assam CM, paving way for formation of new govt
Guwahati (PTI): Assam Chief Minister Himanta Biswa Sarma on Wednesday resigned along with his cabinet colleagues, paving the way for formation of a new government led by the BJP, officials said.
The BJP-led NDA bagged 102 seats in the 126-member assembly. The assembly elections were held in a single phase on April 9, and counting of votes took place on May 4.
"Following the formal notification of the results of #AssamElections2026 and to enable the formation of the new government, Dr @himantabiswa tendered his resignation as Chief Minister along with that of the council of Ministers to Hon'ble Governor Shri @Laxmanacharya54 today at Lok Bhawan," the Chief Minister's Office said in a post on X.
ALSO READ: 11-year-old dies by suicide after sexual assault in Bareilly; accused arrested
The Governor has accepted the resignation, and requested Sarma to continue as the caretaker CM till the new government assumes office, it said.
Later, speaking to reporters outside the Lok Bhawan, Sarma said the oath-taking ceremony is likely to take place after May 11.
“As it was a historic win, we have invited Prime Minister Narendra Modi to grace the occasion," he said.
The new Assam chief minister will be selected at a meeting of the BJP legislature party in presence of central observers, Sarma said.
