New Delhi: The Union Budget 2026-27 presented by Finance Minister Nirmala Sitharaman on Sunday has earmarked ₹1.4 lakh crore in grants and transfers to states as part of the 16th Finance Commission award, reinforcing fiscal support for sub-national governments ahead of the new five-year cycle of tax devolution and transfers.
Under constitutional arrangements, the Finance Commission recommends the sharing of net proceeds of central taxes and grants-in-aid to states for the period 2026-31, a framework formally tabled in the Lok Sabha alongside the Budget.
The allocation comprises the Centre’s share of tax devolution along with specific grants aimed at supporting state finances for priority sectors such as health, education, local infrastructure and disaster management.
The new awards come into effect from April 1, 2026, marking a shift from the outgoing 15th Finance Commission period, and are expected to play a key role in strengthening state capacities to implement welfare schemes and capital expenditure programmes.
Officials said the size of the transfers reflects the government’s emphasis on cooperative federalism and balanced development, even as the Centre seeks to maintain macroeconomic stability and a credible fiscal path.
The Finance Commission’s formula takes into account multiple parameters — including population, fiscal capacity, area and performance — to determine the share of each state’s entitlement from the central divisible pool.
The transfers are also likely to shape how states approach their own budgetary priorities for FY27, including capital spending and social sector outlays.