Finance Ministry’s FC‑16 Memorandum: 41% Share Kept, Structural Reforms Deferred The Finance Commission (FC‑16) report was tabled on 1 February 2026 . While the Union accepted the headline recommendation of a 41% share of the divisible pool , it deferred several structural measures, signalling a shift towards fiscal predictability for the Centre at the cost of State‑level reforms. Key Developments Retention of the 41% share for States, but the pool has been shrinking from 89.2% (FC‑13) to 78.3% (FC‑15) of gross tax revenues. Horizontal devolution formula changed: tax‑and‑fiscal‑effort criterion (2.5%) replaced by contribution‑to‑GDP criterion (10%) , favouring high‑GDP states. Local‑body grants split into basic and performance components, with multiple compliance conditions that disadvantage weaker states. Structural reforms such as amendment of the Fiscal Responsibility Legislation , control of off‑budget borrowings , and power‑sector restructuring were postponed. GST compensation ended in June 2022, leaving States without the guaranteed 14% annual growth in SGST revenues. Important Facts The memorandum accepted the quantum of borrowing ceilings but noted that off‑budget controls, FRL amendments, and the Centre’s own fiscal deficit path would be examined "separately" – a euphemism for "later". States such as Tamil Nadu face a projected shortfall of nearly ₹20,000 crore in 2024‑25 due to the GST‑compensation gap. Debt‑to‑GSDP ratios illustrate the stress: Punjab 42.9% , Rajasthan 37.9% , West Bengal 38.3% , and Andhra Pradesh 34.6% (2023‑24). These figures coexist with weak enforcement of existing fiscal rules. UPSC Relevance Understanding FC‑16 is crucial for <span class="key-term" data-definition="Centre‑State fiscal federalism — The constitutional arrangement governing financial relations between the Union and States, including tax devolution and grants