Telangana Hopes For More Under New Fin. Panel

Hyderabad: The Union Budget 2026-27 to be presented in Parliament on February 1 is expected to reflect the broad contours of the 16th Finance Commission’s recommendations, raising expectations in the state government that fiscal flows from the Centre would increase after years of declining allocations. The finance commission recommendations will come into effect from April 1, beginning of the new financial year.

Telangana’s share in Central tax devolution has steadily reduced in the decade under the two previous finance commissions. Under the 14th commission, the state received 2.437 per cent of the divisible pool, which declined to 2.102 per cent under the 15th Finance Commission.

Terming this downward trend a cause for concern, the state government had made a strong case before the 16th Finance Commission for correcting what it viewed as an imbalance that disadvantaged economically productive and well-performing states.

In the run-up to the commission preparing its report, the state government had submitted a comprehensive memorandum seeking a fairer distribution of Central taxes and enhanced financial support to ensure debt sustainability, accelerate infrastructure creation and strengthen social welfare initiatives.

A key demand of the state government was the increase in the vertical devolution of Central taxes to states from the present 41 per cent to 50 per cent. Telangana had argued that the Centre was increasingly relying on cesses and surcharges, which are not shared with states. This had effectively reduced the real share of states in gross tax revenues.

Telangana has also raised broader concerns affecting southern states, contending that the existing framework penalised regions that contribute significantly to national economic growth. The government had urged the commission to adopt a more rational and incentive-based approach that rewarded efficiency, fiscal discipline and economic performance rather than disproportionately favouring population-based indicators.

A major reform that Telangana pertained to horizontal devolution criteria. The state has recommended moving away from the heavy reliance on the “per capita income distance” formula, arguing that it failed to capture intra-state disparities and developmental challenges. Instead, Telangana had suggested assigning at least 50 per cent weightage to gross state domestic product, asserting that such a shift would ensure a more equitable allocation of resources to growth-driving states.

Deputy Chief Minister and finance minister Mallu Bhatti Vikramarka had reiterated these demands during a meeting with 16th Finance Commission chairman Arvind Panagariya and members at Praja Bhavan in September 2024. He stressed the need for greater fiscal autonomy for states, particularly in tailoring centrally sponsored schemes to local priorities. Enhanced vertical devolution, he said, would provide states the fiscal space required to bridge infrastructure gaps, expand welfare coverage and focus on grassroots development.

Addressing concerns over welfare spending, Bhatti had highlighted that programmes such as Rythu Bharosa, farm loan waivers and food subsidies should not be dismissed as “freebies” but recognised as essential investments in social stability and inclusive growth.