New Delhi, Feb. 3 -- The 16th Finance Commission (FC) must be commended for breaking the mould of earlier FCs in what is perhaps the most contentious area of fiscal federalism: 'horizontal devolution' or how each state's share of India's divisible pool of taxes is worked out.

The 16th FC's report covers four broad areas-namely, revenue-deficit grants, local-body grants, disaster-management funds and public finances-apart from the two main aspects of horizontal and vertical devolution; the latter refers to the binary split-up of taxes between the Union and states taken together.

The report poses five questions. One, how should the share of states be allocated among 28 states over the award period of 2026-27 to 2030-31? Two, what principl...