An Explanatory Memorandum issued by the Ministry of Finance on February 1, 2026, is seen as a useful document, not only for what it states or approves but also for observing a pattern of what it does not.
The Union government accepted the Sixteenth Finance Commission’s (FC’s) recommendation to retain the States’ share in the divisible pool at 41%. It also accepted the horizontal formula, the local body grants, and the disaster management corpus. However, it deferred everything structural, such as amending the Fiscal Responsibility Legislation, controlling off-budget borrowings, reforming power sector distribution companies, and rationalising subsidies.
This observed asymmetry is not bureaucratic caution. It became the settlement.
The headline number deserves scrutiny before the settlement does. A 41% share sounds like continuity. In nominal terms, it is. But the divisible pool is not gross tax revenues.
Cesses and surcharges, levied and retained entirely by the Union, sit outside the pool, and their share has been growing.
As the FC16 report documents, the divisible pool as a proportion of gr
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