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.
