Maharashtra seeks to increase share in divisible tax pool; requests allocation of ₹1,28,231 crore to fund infra projects

16th Finance Commission Chairman Arvind Panagariya addressing a press conference. File
| Photo Credit: The Hindu

To increase Maharashtra’s share in the receipt of tax revenue, the State Government on Thursday (May 9, 2025) recommended to the 16^th Finance Commission (FC) to raise the weightage of population share in devolution formula from 15% to 20%, along with a request for allocation of ₹1,28,231 crore for the infrastructure development in the Mumbai Metropolitan Region (MMR).

These projects include interlinking of rivers, hostel requirements of post-graduate medical students, prison upgradation and a new Bombay High Court complex and proposed for the overall allocation under the State Disaster Response Fund (SDRF), altering the ratio between the Centre and State from 75:25 to 90:10. Also raise the grant-in-aid for local bodies from 4.23% to 5%.

Hailing Maharashtra’s fiscal policy, 16th FC, chairman, Dr. Arvind Panagariya said, “The State’s finances appear to be in good state with low fiscal deficit and borrowings within the limit of 3% set by the Centre. The State has asked to increase population share in the horizontal devolution formula to 20%, making clear allocations of 10% for urban fund devolution and 10% for fund devolution.”

According to the Chief Minister Office statement, Maharashtra asked to increase the vertical devolution in the divisible tax pool from the existing 41% to 50%, similar to other States’ requirements. The divisible pool consists of tax revenue shared among the Central Government and State Governments in a country, based on a report prepared by the Finance Commission.

These recommendations were made during a meeting with the 16^th Financial Commission, headed by Mr. Panagariya, who is currently on a two-day visit to Maharashtra to prepare a report on the State’s financial requirements and consult experts concerning the fund allocation for the projects. The meeting was a part of consultations with all the States of India to finalise recommendations for the distribution of tax revenues for the five years starting from 2026. Along with Deputy Chief Minister (DCM) Ajit Pawar and Eknath Shinde, Chief Minister Devendra Fadnavis represented the State during the 16th FC meeting on Thursday (May 8, 2025.)

Other recommendations

Maharashtra Government has urged FC to introduce the new criteria for horizontal devolution — Sustainable development and green energy, giving weightage of 22.5% and 2.5% weightage for the State implementable contribution to India’s Gross Domestic Product (GDP). Besides, the State insisted on reducing the ‘ Income distance’ to 37.5%. Income distance means the distance of a State’s income from the State with the highest per capita income; the lower the income, the higher the share, while reducing ‘Demographic performance’ from the existing 12.5% to 10%.

Horizontal devolution facilitates the allocation of Central taxes among the States based on assigned weights and criteria. The 15^th FC had six criteria for horizontal devolution, including income distance, population, area, forest and ecology, demographic performance, and tax effort.. The Government aims to receive high allocations to develop infrastructure and enhance public services.