Overview of the River Interlinking Concept

The concept of river interlinking in India traces its origins to the 19th century, when Sir Arthur Cotton first proposed inter-basin water transfer to address irrigation issues. Over time, this idea was refined by other experts. It evolved into the National Water Grid and, later, the River-Interlinking Project (ILR) under the Ministry of Water Resources. The goal is to transfer surplus water from rivers to drought-prone areas, aiming for water security, irrigation, and power generation.

Key Projects and Initiatives

• Ken-Betwa River Link Project (KBLP): Launched in December 2024, the KBLP will link the water-surplus Ken River with the drought-stricken Betwa River. It aims to irrigate over 10 lakh hectares, supply drinking water to 62 lakh people, and generate hydropower and solar power. However, concerns over the environmental impact of building a dam within the Panna Tiger Reserve have been raised.
• National River Linking Project (NRLP): The NRLP, formally known as the National Perspective Plan, is an ambitious proposal that includes 30 river links—14 Himalayan and 16 Peninsular—to connect India's rivers and create a giant South Asian Water Grid.

Benefits of Interlinking Rivers

• Flood and Drought Mitigation: Redistributing water from surplus areas to drought-prone regions, such as Bundelkhand, will reduce the severity of floods and droughts.
• Agriculture and Irrigation: Expanding irrigation systems across 35 million hectares of land could significantly boost agricultural productivity and food security.
• Hydropower Generation: The interlinking project has the potential to generate up to 34 GW of hydropower, contributing to India's renewable energy targets.
• Economic Growth: Improving water availability can boost industries, provide drinking water, and support economic development in underdeveloped regions.
• Inland Waterways: The project will also contribute to the expansion of inland waterways, benefiting trade and reducing transportation costs.

Challenges and Concerns

• Environmental Impact:
  • Biodiversity Loss: Projects like the Ken-Betwa project raise alarms about the destruction of ecologically sensitive areas, such as the Panna Tiger Reserve.
  • River Ecosystem Disruption: Altering natural river courses can harm aquatic life, disrupt deltaic ecosystems, and degrade water quality. For instance, the Sardar Sarovar Dam's impact on the Narmada river system shows the long-term consequences of such projects.
  • Pollution: The mixing of cleaner and more polluted rivers could exacerbate water contamination issues.
• Social and Financial Costs:
  • Displacement: Large-scale interlinking projects will displace millions, especially marginalized communities and indigenous people, and disturb local livelihoods.
  • High Financial Burden: The total estimated cost of the NRLP is ?5.5 lakh crore, which does not include environmental rehabilitation costs or the long-term maintenance of the infrastructure.
• Climate Change: Predictions suggest that climate change could affect river flows and the availability of surplus water. This might render the interlinking project ineffective in the long term.
• Inter-State Conflicts: Water-sharing disputes, like the long-standing issues over the Cauvery and Krishna rivers, could intensify with more interlinking projects.
• Infrastructural Challenges: Maintaining vast canal networks and reservoirs, managing sedimentation, and acquiring land for construction are logistical hurdles.

Alternative Approaches and Solutions

• Efficient Water Management:
  • Integrated Watershed Management: Implementing a comprehensive approach to manage existing water resources can reduce the need for large-scale river transfers.
  • Groundwater Recharge: Focusing on efficient groundwater management by identifying recharge mechanisms and regulating water use is crucial for sustainability.
• Modern Irrigation Techniques:
  • Drip Irrigation: Israel’s success with drip irrigation, which reduces water use by 25%-75%, provides an example of how modern technologies can save significant amounts of water.
• Virtual Water: Emphasizing the import of water-intensive goods (like wheat) could save local water resources, which would otherwise be used for domestic agriculture.
• National Waterways Project (NWP): An alternative to the interlinking project, NWP aims to improve water management by creating navigation channels that double as water distribution networks with a fraction of the land use.

Way Forward

• Comprehensive Impact Assessments: The need for multidisciplinary studies to evaluate the environmental, social, and economic impacts of river interlinking projects cannot be overstated. Stakeholder engagement is crucial for equitable decision-making.
• Sustainable Water Policies: A national water policy should prioritize sustainable water practices, focusing on local solutions, such as water harvesting, watershed management, and smart irrigation.
• Focus on Regional Solutions: Smaller, state-specific projects should be prioritized to address water scarcity issues without triggering large-scale environmental degradation.

In News:

Climate change is significantly affecting Earth's water cycle, leading to extreme weather events such as intense floods and prolonged droughts. According to the 2024 Global Water Monitor Report, this disruption is increasingly evident, as seen in the devastating weather patterns experienced worldwide in 2024. The report, based on data from international researchers, highlights how these changes are directly linked to rising global temperatures and the resulting shifts in precipitation patterns.

Understanding the Water Cycle

The water cycle is the continuous movement of water in various forms—solid, liquid, and gas—throughout the Earth's atmosphere, land, and bodies of water. This cycle involves processes such as:

• Evaporation: Water from the surface of oceans, lakes, and rivers turns into vapor.
• Transpiration: Water is absorbed by plants from the soil and released as vapor.
• Precipitation: Water vapor condenses into clouds and falls as rain or snow, replenishing the Earth's surface.
• Runoff and Infiltration: Precipitation either flows into rivers or infiltrates the soil, contributing to groundwater.

The water cycle is vital for maintaining the planet’s ecosystems, regulating weather patterns, and providing water for all living organisms. However, climate change is intensifying these natural processes, with far-reaching consequences.

Impact of Climate Change on the Water Cycle

As global temperatures rise, climate change is having a profound impact on the water cycle. Warmer temperatures lead to:

• Increased evaporation: As air temperatures soar, more water evaporates into the atmosphere. For every 1°C rise in temperature, the atmosphere can hold about 7% more moisture, which exacerbates storms and increases the intensity of rainfall.
• More intense precipitation: With more moisture in the atmosphere, storms have become more intense, leading to severe flooding in various regions.
• Increased droughts: Warmer air also dries out the soil. This reduces the amount of water available for crops and plants, while also increasing the evaporation rate from soil, leading to longer and more intense droughts.

This disruption of the water cycle is already causing erratic weather patterns, as some regions face severe droughts, while others are experiencing extreme rainfall and floods.

Key Findings from the 2024 Global Water Monitor Report

The 2024 report presents several alarming statistics that highlight the growing impact of climate change on the water cycle:

• Water-related disasters: In 2024, these disasters caused over 8,700 fatalities, displaced 40 million people, and resulted in economic losses exceeding $550 billion globally.
• Dry months: There were 38% more record-dry months in 2024 than the baseline period (1995-2005), underlining the growing frequency of droughts.
• Intense rainfall: Record-breaking rainfall occurred 27% more frequently in 2024 compared to 2000, with daily rainfall records set 52% more often. This shows the growing intensity of precipitation events.
• Terrestrial water storage (TWS): Many dry regions faced ongoing low TWS levels, reflecting the scarcity of water in these areas, while some regions, such as parts of Africa, saw an increase in water storage.
• Future predictions: Droughts may worsen in regions like northern South America, southern Africa, and parts of Asia, while areas like the Sahel and Europe could experience increased flood risks in the coming years.

Conclusion

The findings of the 2024 report underscore the alarming impact of climate change on the global water cycle. As temperatures continue to rise, we can expect more frequent and severe weather events, including extreme flooding and devastating droughts. These changes will affect billions of people worldwide, highlighting the urgent need for action to mitigate climate change and adapt to its consequences. Addressing this challenge requires global cooperation to reduce emissions, enhance water management systems, and protect vulnerable regions from the intensifying effects of climate change.

Introduction:

China has approved the construction of the Yarlung Tsangpo hydropower project, the world's largest hydropower project, with a capacity of 60,000 MW, on the Brahmaputra River in Tibet. This mega-dam, located at the Great Bend in Medog county, has significant geopolitical, environmental, and socio-economic implications for India, Bhutan, and Bangladesh, the downstream riparian countries.

Geographical and Geopolitical Context:

• The Brahmaputra is a transboundary river system flowing through China, India, Bhutan, and Bangladesh.
• China, located at the river’s source in Tibet, is the uppermost riparian nation, controlling water flow into India and Bangladesh.
• All riparian countries, including China, India, Bhutan, and Bangladesh, have proposed major water infrastructure projects in the river basin, which has become a site for geopolitical rivalry, with mega-dams symbolizing sovereignty.

China’s Hydropower Ambitions:

• The Yarlung Tsangpo project is part of China’s 14th Five-Year Plan (2021-2025) and aims to address the country's energy needs while moving towards net carbon neutrality by 2060.
• The river's steep descent from Tibet provides an ideal location for hydroelectricity generation.
• China’s previous mega-projects, like the Three Gorges Dam, highlight the scale of these ambitions but also raise concerns about environmental and social consequences, including ecosystem disruption, displacement, and seismic risks.

Impact on Downstream Communities:

• Water Flow and Agriculture: China’s mega-dam may significantly alter water flow to India, particularly affecting agriculture and water availability in the northeastern regions. India, reliant on the Brahmaputra for irrigation and drinking water, could face disruptions.
• Silt and Biodiversity: The blocking of silt essential for agriculture could degrade soil quality and damage biodiversity in the river basin.
• Seismic Risks: The region’s seismic activity, coupled with the construction of large dams, heightens the risk of catastrophic events such as landslides and Glacial Lake Outburst Floods (GLOFs), which have previously caused devastation in the Himalayas.

Hydropower Competition Between China and India:

• Both China and India are competing to harness the Brahmaputra's potential for hydropower, with India planning its own large project at Upper Siang.
• Bhutan has also proposed several medium-sized dams, raising concerns in downstream countries about cumulative impacts.
• No comprehensive bilateral treaty exists between India and China to regulate shared transboundary rivers, though they have mechanisms for data sharing and discussions on river issues.

Environmental and Regional Concerns:

• The Brahmaputra river basin is an ecologically sensitive region. The construction of large dams threatens the fragile ecosystem, including agro-pastoral communities, biodiversity, and wetlands.
• Tibet’s river systems are vital for the global cryosphere, affecting climate systems, including monsoon patterns. Disruption to these systems could have broader implications for regional and global climate stability.

Challenges in Bilateral Cooperation:

• India and China have struggled with effective coordination on river management. China has shown reluctance to share critical hydrological data, a concern amplified by the lack of a binding agreement.
• The ongoing geopolitical tensions between the two countries, particularly over the border dispute, further complicate cooperation on transboundary water issues.

Recommendations for India:

• Enhanced Cooperation: India should push for renewed agreements and mechanisms for real-time data exchange with China to prevent ecological and socio-economic damage.
• Public Challenges: India needs to challenge China’s claims that its hydropower projects will have minimal downstream impact, ensuring that India's concerns are addressed in international forums.
• Diplomatic Engagement: Water issues should be prioritized in India’s diplomatic engagement with China, emphasizing the importance of transparency and cooperation to ensure mutual benefit and regional stability.

Conclusion:

The Yarlung Tsangpo mega-dam project poses significant risks to the entire Brahmaputra river basin. A collaborative approach, involving transparent dialogue and cooperation among riparian countries, is essential to mitigate the potential adverse impacts on downstream communities and the fragile Himalayan ecosystem.

In News:

• NITI Aayog, the National Institution for Transforming India, completed its 10th anniversary on January 1, 2025.
• Established to replace the Planning Commission, NITI Aayog was designed to address contemporary challenges such as sustainable development, innovation, and decentralization in a dynamic, market-driven economy.

About NITI Aayog

Establishment and Mandate

• Formation: Created through a Union Cabinet resolution in 2015.
• Primary Mandates:
  • Overseeing the adoption and monitoring of the Sustainable Development Goals (SDGs).
  • Promoting competitive and cooperative federalism between States and Union Territories.

Composition

• Chairperson: Prime Minister of India.
• Governing Council: Includes Chief Ministers (CMs) of all States and UTs, Lt. Governors, the Vice Chairperson, full-time members, and special invitees.
• CEO: Appointed by the PM for a fixed tenure.

Key Achievements

Policy Advisory and Decentralized Governance

• Shifted focus from financial allocation to policy advisory roles.
• Promoted decentralized governance through data-driven initiatives like the SDG India Index and the Composite Water Management Index.

Innovative Initiatives

• Aspirational Blocks Programme (2023): Focused on 500 underdeveloped blocks for 100% coverage of government schemes.
• Atal Innovation Mission (AIM): Trained over 1 crore students through Atal Tinkering Labs and incubation centres.
• Initiatives like e-Mobility, Green Hydrogen, and the Production-Linked Incentive (PLI) Scheme were conceptualized to drive innovation and sustainability.

Role and Functions of NITI Aayog

Strategic Advice and Federal Cooperation

• Provides policy formulation and strategic advice to both central and state governments.
• Fosters cooperative federalism by encouraging collaboration between the central and state governments.

Monitoring and Evaluation

• Plays a crucial role in monitoring and evaluating policies and programs to ensure alignment with long-term goals.

Promoting Innovation and SDGs

• NITI Aayog contributes to aligning national development programs with the Sustainable Development Goals (SDGs), focusing on innovation, research, and technology in critical sectors.

Key Differences Between Planning Commission and NITI Aayog

Aspect                                            Planning Commission                                                                                                              NITI Aayog

Purpose                                         Centralized planning and resource allocation.                                                Focus on cooperative federalism and policy research.

Structure                                       Led by the PM, with Deputy Chairman and full-time members.                   Led by the PM, with Vice-Chairperson, CEO, and Governing Council.

Approach                                      Top-down, centralized.                                                                                   Bottom-up, encouraging state participation.

Role in Governance                     Executive authority over policies.                                                                  Advisory body without enforcement power.

Five-Year Plans                            Formulated and implemented.                                                                        Focus on long-term development, no Five-Year Plans.

Challenges Faced by NITI Aayog

• Limited Executive Power: Lacks authority to enforce its recommendations, restricting its influence.
• Coordination Issues: Achieving effective collaboration between central and state governments remains challenging.
• Data Gaps: Inconsistent state-level data hampers accurate policymaking and evaluation.
• Resource Constraints: Limited resources hinder full implementation of initiatives.
• Resistance to Change: Some states resist NITI Aayog's initiatives due to concerns over autonomy and alignment with local needs.

Future Vision and Planning

• Agenda for 2030: Focus on achieving the Sustainable Development Goals (SDGs) in areas like poverty alleviation, education, healthcare, clean energy, and gender equality.
• Vision for 2035: NITI Aayog's 15-year vision document aims for sustainable, inclusive growth, with an emphasis on economic growth, social equity, and environmental sustainability.
• Innovation and Digitalization: Promotes digitalization and innovation through data-driven policymaking and regional focus on tribal and hilly areas.

Conclusion: Reflections on the First Decade

• Despite significant achievements, NITI Aayog’s influence remains limited by its advisory role and resource constraints.
• The shift away from centralized planning, evident since the dissolution of the Planning Commission, has sparked debate about the effectiveness of such a model in ensuring long-term development and inclusive growth.

In News:

The Government of India has introduced the long-awaited draft Digital Personal Data Protection Rules, 2025 to operationalize the Digital Personal Data Protection Act, 2023. These rules contain several significant provisions, including the controversial reintroduction of data localisation requirements, provisions for children's data protection, and measures to strengthen data fiduciaries' responsibilities.

This development holds substantial implications for both Indian citizens' data privacy and global tech companies, especially with respect to compliance, security measures, and data processing.

Data Localisation Mandates

Key Provision: The draft rules propose that certain types of personal and traffic data must be stored within India. Specifically, "significant data fiduciaries", a category that will include large tech firms such as Meta, Google, Apple, Microsoft, and Amazon, will be restricted from transferring certain data outside India.

• Committee Oversight: A government-appointed committee will define which types of personal data cannot be transferred abroad, based on factors like national security, sovereignty, and public order.
• Localisation Re-entry: This provision brings back data localisation, a contentious issue previously removed from the 2023 Data Protection Act after heavy lobbying by tech companies.
• Impact on Big Tech: Companies like Meta and Google had previously voiced concerns that strict localisation rules could hinder their ability to offer services in India, with Google arguing for narrowly tailored data localisation norms.

Role and Responsibilities of Data Fiduciaries

Key Provision: The rules lay out a clear framework for data fiduciaries, defined as entities that collect and process personal data.

• Significant Data Fiduciaries (SDFs): This subcategory will include entities that process large volumes of sensitive data, such as health and financial data. These companies will be held to higher standards of compliance and security.
• Data Retention: Personal data can only be stored for as long as consent is valid; after which, it must be deleted.
• Security Measures: Data fiduciaries must implement stringent measures such as encryption, access control, unauthorized access monitoring, and data backups.

Parental Consent for Children's Data

Key Provision: The draft rules include provisions aimed at protecting children's data, including mechanisms to ensure verifiable parental consent before children under 18 can use online platforms.

• Verification Process: Platforms must verify the identity of parents or guardians using government-issued identification or digital locker services.
• Exceptions: Health, mental health institutions, educational establishments, and daycare centers will be exempted from needing parental consent.

Data Breach Reporting and Penalties

Key Provision: In the event of a data breach, data fiduciaries are required to notify affected individuals without delay, detailing the breach's nature, potential consequences, and mitigation measures. Failure to comply with breach safeguards can result in penalties.

• Penalties for Non-Compliance: Entities that fail to adequately protect data or prevent breaches could face fines of up to Rs 250 crore.
• Breach Notification: The rules mandate timely reporting of all breaches, whether minor or major, and an emphasis on transparency in the breach notification process.

Safeguards for Government Data Processing

Key Provision: The draft rules seek to ensure that the government and its agencies process citizen data in a lawful manner with adequate safeguards in place.

• Exemptions for National Security and Public Order: The rules also address concerns that the government may process data without adequate checks by stipulating lawful processing and protections when data is used for national security, foreign relations, or public order.

Compliance Challenges for Businesses

Key Challenges: The introduction of these rules will impose several challenges for businesses, particularly tech companies:

• Consent Management: Companies will need to implement robust systems to handle consent records, allowing users to withdraw consent at any time. This will require significant infrastructure changes.
• Data Infrastructure Overhaul: Organizations will need to invest in data collection, storage, and lifecycle management systems to ensure compliance.
• Security Standards: Experts have raised concerns about the vagueness of certain security standards, which could lead to inconsistent implementation across sectors.

Penalties and Enforcement

Key Provisions:

• Penalties for Non-Compliance: Entities failing to adhere to the rules may face significant financial penalties, including fines up to Rs 250 crore for serious breaches.
• Repeat Violations: Consent managers who repeatedly violate rules could have their registration suspended or cancelled.

Conclusion:

The Digital Personal Data Protection Rules, 2025 bring important changes to India’s data privacy framework, particularly the reintroduction of data localisation and more stringent requirements for data fiduciaries. These rules aim to strengthen citizen privacy and ensure greater accountability from businesses. However, the challenges in compliance, especially for global tech firms, and the potential impact on service delivery, will need to be closely monitored as the final rules take shape.

In News:

The Indian government has decided to extend the special subsidy on Di-Ammonium Phosphate (DAP) fertilizer for another year, a decision aimed at stabilizing farmgate prices and addressing the challenges posed by the depreciation of the Indian rupee.

Key Government Decision

• Extension of Subsidy: The Centre has extended the Rs 3,500 per tonne special subsidy on DAP from January 1, 2025 to December 31, 2025.
• Objective: This extension aims to contain farmgate price surges of DAP, India’s second most-consumed fertilizer, which is being impacted by the fall in the rupee's value against the US dollar.

Fertilizer Price Dynamics and Impact

• MRP Caps on Fertilizers: Despite the decontrol of non-urea fertilizers, the government has frozen the maximum retail price (MRP) for these products.
  • Current MRPs:
    • DAP: Rs 1,350 per 50-kg bag
    • Complex fertilizers: Rs 1,300 to Rs 1,600 per 50-kg bag depending on composition.
• Subsidy on DAP: The subsidy includes Rs 21,911 per tonne on DAP, plus the Rs 3,500 one-time special package.
• Impact of Currency Depreciation:
  • The rupee's depreciation has made imported fertilizers significantly more expensive.
    • The landed price of DAP has increased from Rs 52,960 per tonne to Rs 54,160 due to the rupee falling from Rs 83.8 to Rs 85.7 against the dollar.
    • Including additional costs (customs, port handling, insurance, etc.), the total cost of imported DAP is now Rs 65,000 per tonne, making imports unviable without further subsidy or MRP adjustments.

Industry Concerns and Viability Issues

• Import Viability:
  • Fertilizer companies face significant cost pressures due to rising import prices and the current MRP caps.
  • Without an increase in government subsidies or approval to revise MRPs upwards, imports will be unviable.
  • Even with the extended subsidy, companies estimate a Rs 1,500 per tonne shortfall due to currency depreciation.
• Stock Levels and Supply Challenges:
  • Current stock levels for DAP (9.2 lakh tonnes) and complex fertilizers (23.7 lakh tonnes) are below last year's levels.
  • With inadequate imports, there are concerns about fertilizer supply for the upcoming kharif season (June-July 2025).

Government’s Strategy and Fiscal Implications

• Compensation for Imports:
  • In September 2024, the government approved compensation for DAP imports above a benchmark price of $559.71 per tonne, based on an exchange rate of Rs 83.23 to the dollar.
  • With the rupee falling below Rs 85.7, these previous compensation calculations have become outdated.
• Fiscal Impact:
  • The extended subsidy will cost the government an additional Rs 6,475 crore. Despite this, political implications of raising the MRP are minimal, as only non-major agricultural states are facing elections in 2025.

Future Outlook and Priorities

• Immediate Priority: The government’s primary concern is securing adequate fertilizer stocks for the kharif season, focusing on ensuring sufficient imports of both finished fertilizers and raw materials.
• Balancing Factors: The government will need to navigate the complex balance of maintaining fertilizer affordability for farmers, ensuring the viability of fertilizer companies, and managing fiscal constraints.

As the subsidy extension is implemented, all eyes will be on the government's ability to ensure a stable supply of fertilizers while safeguarding both farmer interests and economic sustainability in the face of an increasingly challenging exchange rate environment.

In News:

The Union Ministry of Home Affairs has recently introduced significant revisions to the Model Prison Manual, 2016, and the Model Prisons and Correctional Services Act, 2023. These changes aim to eliminate caste-based discrimination in Indian prisons and establish a standardized approach to defining and treating habitual offenders across the country.

Background

In October 2024, the Supreme Court of India expressed concerns over the persistence of caste-based discrimination within prisons and the lack of consistency in how habitual offenders are classified. In response, the Court instructed the government to amend prison regulations to promote equality and fairness. The newly introduced reforms are in line with the Court's directives and focus on aligning prison practices with constitutional principles.

Addressing Caste-Based Discrimination in Prisons

The recent amendments take specific steps to combat caste-based discrimination within correctional facilities:

• Ban on Discrimination: Prison authorities are now mandated to ensure there is no caste-based segregation or bias. All work assignments and duties will be distributed impartially among inmates.
• Legal Provision Against Discrimination: A new clause, Section 55(A), titled "Prohibition of Caste-Based Discrimination in Prisons and Correctional Institutions", has been added to the Model Act, establishing a formal legal framework to address caste discrimination.
• Manual Scavenging Ban: The amendments extend the provisions of the Prohibition of Employment as Manual Scavengers and their Rehabilitation Act, 2013 to include prisons, prohibiting the degrading practice of manual scavenging or any hazardous cleaning within correctional facilities.

Redefining Habitual Offenders

The updated amendments also standardize the classification and treatment of habitual offenders, in accordance with the Supreme Court’s directions:

• Uniform Definition: A habitual offender is now officially defined as an individual convicted and sentenced to imprisonment for two or more separate offences within a continuous five-year period, provided the sentences were not overturned on appeal or review. Importantly, time spent in jail under sentence is excluded from this five-year period.
• National Consistency: States that do not have specific Habitual Offender Acts must amend their laws within three months to ensure consistency with the new national framework.

Importance of the Reforms

• Promoting Equality: These amendments seek to uphold the constitutional rights of prisoners, ensuring that all individuals, regardless of caste or background, are treated equally and with dignity.
• Eliminating Degrading Practices: The extension of the manual scavenging prohibition to prisons is a vital step in eliminating degrading and inhumane practices, ensuring a more humane environment for prisoners.
• Uniform Framework: The establishment of a standardized definition of habitual offenders ensures a consistent approach in handling repeat offenders across all states, reducing the possibility of arbitrary classifications.

Conclusion

The reforms introduced by the Union Home Ministry mark a significant milestone in India’s prison reform journey. By addressing caste-based discrimination and standardizing the classification of habitual offenders, these amendments reaffirm the country’s commitment to human rights and the rule of law. These changes not only improve the conditions within prisons but also set the stage for future reforms aimed at creating a fairer and more equitable correctional system.

Why is it in the News?

The government appointed former NITI Aayog Vice-Chairman Arvind Panagariya Chairman of the 16th Finance Commission, which will recommend the tax revenue sharing formula between the Centre and States for the five-year period beginning April 2026.

Constitution of the 16th Finance Commission:

• The Government of India, with the approval of the President of India, has constituted the 16th Finance Commission, in pursuance to Article 280(1) of the Constitution.
• Dr Arvind Panagariya, former Vice-Chairman, of NITI Aayog, and Professor, at Columbia University will be the Chairman.
• Members of the 16th Finance Commission would be notified separately.
• Shri Ritvik Ranjanam Pandey has been appointed as Secretary to the Commission.
• The 16th Finance Commission shall make recommendations as to the following matters, namely:
• The distribution between the Union and the States of the net proceeds of taxes which are to be, or maybe, divided between them under Chapter I, Part XII of the Constitution and the allocation between the States of the respective shares of such proceeds;
• The principles which should govern the grants-in-aid of the revenues of the States out of the Consolidated Fund of India and the sums to be paid to the States by way of grants-in-aid of their revenues under Article 275 of the Constitution for the purposes other than those specified in the provisos to clause (1) of that article; and
• The measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State.
• The 16th Finance Commission may review the present arrangements on financing Disaster Management initiatives, with reference to the funds constituted under the Disaster Management Act, 2005 (53 of 2005), and make appropriate recommendations thereon.
• The 16th Finance Commission has been requested to make its report available by the 31st day of October 2025 covering a period of five years commencing on the 1st day of April 2026.

15h Finance Commission Recommendations (Effective from 2021 to 2026):

• Tax Proceeds Allocation: The Commission advocates for an equitable distribution of tax proceeds between the central government and states, fostering a well-balanced fiscal sharing mechanism.
• Assessment of GST Impact: The FC underscores the importance of analyzing the impact of the Goods and Services Tax (GST) on the economy.
• This evaluation aims to comprehend the implications of GST implementation across various sectors.
• Performance-Linked Incentives: Proposed incentives are tied to states' efforts in addressing key issues like population control, ease of doing business, and other pertinent factors.
• Financial Assistance to States: The FC suggests the provision of revenue deficit grants, grants to local bodies, and disaster management grants to states.
• These grants are intended to bolster the financial requirements of the states and promote effective governance.

Proposed Recommendations for the 16th Finance Commission:

• Review of the 2018 Amendment to the Centre’s FRBM: This proposal aligns with the suggestion made by the 15th Finance Commission.
• In the fiscal year 2020-21, the combined debt-GDP ratio of the central and state governments reached 89.8%.
• While these figures have started declining, they remain significantly higher than the corresponding Fiscal Responsibility and Budget Management (FRBM) norms of 40% and 20% established in the 2018 amendment.
• With the Centre’s fiscal deficit at 9.2% of GDP and that of states at 4.1% in 2020-21, it becomes imperative to re-examine the 2018 amendment to the Centre’s FRBM, especially considering the deviations from established norms.
• Limiting Freebies: Some state governments exhibit relatively higher debt and fiscal deficit figures compared to their Gross State Domestic Products (GSDPs).
• Two primary concerns arise in this context: the widespread distribution of subsidies and the reintroduction of the previous pension scheme in states without a clear identification of funding sources and the resultant fiscal burdens.
• Often, these subsidies are financed by increasing the fiscal deficit. While advocating for safety nets for the poor is essential in a country facing economic challenges, a prudent approach is crucial.
• The next Finance Commission should provide explicit guidelines to ensure long-term fiscal sustainability and responsible spending on gratuities.

Freebies Must Be Restricted Through Reform:

• An innovative approach to address this issue is the establishment of a loan council, as suggested by the 12th Finance Commission.
• This independent body would monitor the scale and profiles of loans taken by both the central and state governments.
• The 16th Finance Commission should thoroughly scrutinize non-merit subsidies.
• It is crucial for the Finance Commission to enforce strict adherence to fiscal deficit limits by states.
• Incentives should be provided for states maintaining fiscal discipline, potentially integrating fiscal performance as a criterion in horizontal distribution.
• Conversely, measures should be imposed on states exceeding fiscal deficit limits, with appropriate actions taken on their borrowing capacities.

Conclusion

During the pre-reform era, Finance Commission recommendations held less significance, given alternative methods the Centre employed to compensate states. However, with the abolition of the Planning Commission, the Finance Commission has emerged as the primary architect of India's fiscal federalism, shouldering substantial responsibility and wielding significant influence. The recommendations provided by the 16th Finance Commission will be critical as India progresses towards becoming the world's third-largest economy.

Finance Commission:

• The Finance Commission is a constitutional body responsible for providing recommendations on the distribution of tax revenues among the Union and the States, as well as among the States themselves.
• Composition: Constituted by the President under Article 280 of the Constitution, the Finance Commission is formed at the end of every fifth year or earlier, as deemed necessary.
• Parliament has the authority to establish the requisite qualifications for commission members and determine the selection process, as enacted by The Finance Commission (Miscellaneous Provisions) Act, 1951.
• Mandate: The Commission is tasked with making recommendations to the President on various aspects, including the distribution of net tax proceeds between the Union and the States, principles governing grants-in-aid to State revenues, measures to augment a State's Consolidated Fund, and other matters referred to it by the President in the interest of sound finance.
• Composition: The Finance Commission comprises a Chairman and four other members appointed by the President.
• The Chairman is selected from individuals with experience in public affairs, while the other members may have qualifications related to judiciary, financial expertise, administration, or economics.
• Tenure: Each member serves a term specified by the President and is eligible for reappointment.
• Independence: The recommendations of the Finance Commission, although significant, are not binding on the government.