❖ The 16th Finance Commission (FC) has begun its work, primarily focusing on the devolution of the consolidated fund.

❖ It was established under Article 280 of the Indian Constitution.

❖ In the absence of the 2021 Census, reliance on 2011 data is inadequate for the evidence-based fiscal devolution.

❖ India has approximately 4,000 statutory towns and an equal number of Census towns, with an estimated 23,000 villages, all of which are effectively urban.

❖ These figures must be captured by the 16th FC, including the significant migration to Tier-2 and 3 cities.

❖ Intergovernmental transfers (IGTs) to Urban Local Bodies (ULBs) in India are about 0.5% of GDP.

❖ It is much lower than the 2-5% typical of other developing nations.

❖ For instance, South Africa allocates 2.6%, Mexico 1.6%, the Philippines 2.5%, and Brazil 5.1% of their GDPs to their cities.

❖ Increasing the quantum of IGTs as a percentage of GDP is necessary.