Mumbai, March 6 -- The recommendations of the 16th Finance Commission (FC), which emphasise reducing revenue deficits and boosting growth-oriented capital spending, are expected to support the fiscal health of states in the long term, according to a report by CRISIL Ratings. However, the rating agency noted that near-term challenges may persist due to limited incremental fiscal support from the Centre.

The Finance Commission, mandated to recommend fiscal transfers between the Centre and states for fiscal years 2027-31, has retained the vertical devolution, the states' share in central taxes, at 41 per cent. It has also introduced a new criterion for distributing taxes among states based on their contribution to the national gross domesti...