Fiscal Consolidation and the 16th Finance Commission: The Federal aspects of India's Union Budget 2026

Lekha Chakraborty ()
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Lekha Chakraborty: National Institute of Public Finance and Policy

Working Papers from National Institute of Public Finance and Policy

Abstract: The Union Budget 2026–27, presented alongside the 16th Finance Commission's recommendations, represents a critical juncture in India's fiscal federalism. Amidst a commitment to fiscal consolidation, the budget targets a central fiscal deficit of 4.3 percent of GDP while advancing debt sustainability goals. The retention of 41 percent vertical devolution, combined with performance-linked grants and incentives for state-level reforms, aims to address persistent vertical and horizontal imbalances. This paper examines the federal implications across key dimensions of Union Budget 2026-27 including the fiscal consolidation paths for centre and states, tax devolution dynamics, power sector reforms and the calculus of consent in the subtle targeted sectoral announcements, and concludes.

Pages: 14
Date: 2026-04
Note: Working Paper 447, 2026
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