Hyderabad: The 16th Finance Commission, headed by noted economist Dr Arvind Panagariya, commended the Telangana government for its comprehensive presentation on the state’s finances and development roadmap. “One of the standout points of Telangana's presentation was its emphasis on urban development,” he said.
Speaking at a press conference at Praja Bhavan here on Tuesday, Dr Panagariya praised the state for thinking "far ahead" in terms of urban planning, an area that often takes the backseat in development agendas. He noted that the commission had "very frank discussions" with the state government on Tuesday.
“Urban development is generally neglected, but Telangana is bringing it to the forefront,” he remarked. Although urban development falls outside the Finance Commission's mandate, the commission was impressed by the state’s forward-thinking approach. he said.
Referring to Telangana's request to increase the share of the divisible pool of taxes allocated to the states from 41 to 50 per cent, he said that the commission had not yet made any decision and that "the process to finalise the recommendations will take time."
He acknowledged that states had been vocal in raising concerns about the distribution of tax resources and fiscal federalism, particularly regarding cesses and surcharges collected by the Centre. Dr Panagariya noted that while surcharges are not part of the divisible pool, the central government is "statutorily obligated to devolve 41 per cent of funds to the states."
On the contentious issue of cesses and surcharges, he suggested that a Constitutional amendment might be needed to resolve the matter, as it required a consensus between the Centre and the states.
Dr Panagariya said that the Telangana government had refreshingly briefed them about the finances, including both on-Budget and off-Budget liabilities, adding that Telangana was "very upfront" about its financial outlook.
With this visit, the commission completed its discussions with six states — Maharashtra, Chhattisgarh, Punjab, Rajasthan, Karnataka and Telangana. The commission will visit 22 other states before finalising its recommendations on the division of tax revenues for the period from 2026-27 to 2030-31.
Dr Panagariya reiterated that the commission’s focus remained on its terms of reference, which include the distribution of tax revenues between the Union and the states, as well as measures to bolster the resources of panchayats and municipalities based on the recommendations of State Finance Commissions.
