Why in News?
On April 1, 2026, the Union Government released over ₹1,536 crore in XVFC grants to eight states, including Arunachal Pradesh, Gujarat, and Odisha. This follows a larger release of ₹2,461 crore on March 31 to help local bodies meet infrastructure and sanitation goals.
Key Points
- Period & Chair: The XVFC, chaired by N.K. Singh, covered a six-year award period from 2020–21 to 2025–26.
- Vertical Devolution (41%): The Commission recommended that 41% of the divisible pool of central taxes be shared with states. This was a 1% adjustment from the previous commission to account for the newly formed Union Territories of Jammu & Kashmir and Ladakh.
Horizontal Devolution Criteria
Funds are distributed among states based on:
- Income Distance (45%): Largest weight, favouring states with lower per capita income.
- Population (15%) and Area (15%).
- Demographic Performance (12.5%): Rewarding states with lower fertility rates.
- Forest & Ecology (10%) and Tax/Fiscal Effort (2.5%).
Local Body Grants (₹4.36 Lakh Crore)
A massive allocation was made for rural and urban local bodies.
- Untied Grants: Can be used for any local-level felt needs (excluding salaries).
- Tied Grants: Specifically restricted to sanitation (ODF status) and drinking water supply.
- Health Focus: Recommended that states increase health spending to over 8% of their budgets and proposed an All-India Medical and Health Service.
- Defence Fund: Suggested creating a non-lapsable Modernisation Fund for Defence and Internal Security (MFDIS) with a corpus of approximately ₹2.4 lakh crore.
- Fiscal Roadmap: Aimed to bring the central fiscal deficit down to 4% of GDP and state deficits to 3% of GSDP by the end of 2025–26.
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