New Delhi, March 7 -- The 16th Finance Commission's emphasis on reducing revenue deficits and increasing growth-oriented capital spending is expected to strengthen states' fiscal health over the long term though near-term constraints remain due to limited additional fiscal support, as per Crisil Ratings.

The commission, which recommends fiscal transfers between the Centre and states for fiscal 2027-31, has kept the states' share in central taxes unchanged at 41 per cent. It has also introduced states' contribution to gross domestic product (GDP) as a criterion for tax distribution, encouraging higher growth-focused capital investment.

Revenue deficit (RD) grants recommended by earlier finance commissions have been discontinued to correc...