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

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  • Chakraborty, Lekha

    (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.

Suggested Citation

  • Chakraborty, Lekha, 2026. "Fiscal Consolidation and the 16th Finance Commission: The Federal aspects of India's Union Budget 2026," Working Papers 26/447, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:26/447
    Note: Working Paper 447, 2026
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