Karnataka resulted in benefiting the most while Madhya Pradesh stood to gain the least from the 16th Finance Commision’s horizontal devolution formula.
As per the new formula, Karnataka’s share in the Centre’s tax devolution was increased to 4.13% for 2026–31, compared to 3.65% under the 15th Finance Commission. This would imply an additional Rs 7,387 crore, increasing Karnataka’s allocation to Rs 63,050 crore, in comparison to the Rs 55,663 crore Karnataka would have secured according to the previous formula.
The 10% weight for “contribution to Gross Domestic Product” in the devolution formula was a key element that spurred the shift. This was used as a yardstick to gauge a state’s economic performance and reward it for performing well. Karnataka, with its sizable contribution to the national output via manufacturing, services, and technology, stands to reap unbalanced rewards due to this.
Kerala trailed as the second-most prominent beneficiary, with its allocation increasing by Rs 6,975 crore and its share went up to 2.38% from 1.93%. Gujarat (Rs 4,228 crore) and Haryana (Rs 4,090 crore) also saw significant gains, due to their higher per capita incomes and considerable contribution to GDP.
Maharashtra gained Rs 1,893 crore, with its share increasing to 6.44%.
Madhya Pradesh saw the least benefits, with its allocation reducing by Rs 7,677 crore to Rs 1.12 lakh crore. Its share in the Centre’s divisible pool reduced to 7.35% from 7.85%, due to it not measuring up as well compared to the other states on the newly introduced efficiency metric.
Large, population-heavy states also witnessed decreased allocations. Uttar Pradesh saw a decline of Rs 4,884 crore, and West Bengal is facing a reduction of Rs 4,701 crore. Bihar lost Rs 1,679 crore, despite staying the second-largest recipient in absolute terms.
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