16th Finance Commission: High Capex Needed for Decades, 6.5% Combined Deficit Targeted

• The 16th Finance Commission emphasizes the need for high capital expenditure (capex) by both Centre and States for world-class infrastructure over the next two decades.
• A combined fiscal deficit of 6.5% is proposed for FY27-FY31, with the Centre aiming for 3.5% and States maintaining 3% annually.
• The Centre's 3.5% deficit includes a 0.5% impact from 50-year interest-free loans to states for capex, while states' 3% excludes this impact.
• States are currently allowed additional borrowing for capex beyond their normal 3% fiscal deficit limit.
• The Commission suggests the Centre's deficit reach 3.5% by FY31, which could reduce its debt to 47.6% of GDP, contrasting with the Centre's 50% +/-1% target.

Why It Matters: The 16th Finance Commission recommends sustained high capex and a 6.5% combined fiscal deficit for long-term infrastructure growth.