Itanagar: The Arunachal Pradesh government has submitted a formal request to the 16th Finance Commission for a special financial package of Rs 6.89 lakh crore, citing the state’s exclusion from externally aided projects (EAPs) funded by international agencies—an exclusion the state attributes to geopolitical interference from China. The demand was made during a high-level interaction between the Finance Commission and Chief Minister Pema Khandu, along with Deputy Chief Minister Chowna Mein, in Itanagar.
Finance Commission member Annie George Mathew, speaking at a press conference on April 8 during the Commission’s five-day consultation visit to the state, underscored the seriousness of the issues raised by the Arunachal leadership. The state’s ineligibility for EAPs, despite its developmental needs and strategic border location, has posed a major roadblock to critical infrastructure and social sector investments.
Mathew, accompanied by fellow Commission members Dr Manoj Panda and Dr Soumya Kanti Ghosh, further disclosed that the Arunachal Pradesh government has also sought the restoration of Special Category Status for northeastern and Himalayan states. The restoration, officials believe, would ensure better access to central assistance and reflect the state’s unique topographical, ecological, and infrastructural challenges.
In addition, the state has proposed a revision in the vertical devolution of central taxes to states—from the current 41 per cent, as recommended by the 15th Finance Commission, to 47 per cent. This increase, Arunachal argues, is necessary for a fairer, need-based allocation of central funds. Vertical devolution refers to the split of net tax revenues between the Centre and the states, crucial for enabling state-level developmental initiatives.
The state also pushed for a sharp increase in horizontal devolution, seeking to raise its share from 1.757 per cent (as set by the 15th Finance Commission) to 3 per cent. Citing its border-sensitive location and the urgent need for rapid socio-economic development, the Arunachal government believes a higher share is both justified and necessary.
To strengthen its case, the state government has recommended amending the criteria used for horizontal devolution. It has proposed increasing the weightage for ‘forest and ecology’ from 10 per cent to 12 per cent, noting the critical role of Arunachal’s forest cover in mitigating climate change and supporting India’s net-zero emission goals. Additionally, it has called for replacing the current 12.5 per cent weightage for ‘demographic performance’ with a new metric focused on the “preservation of tribal heritage,” better reflecting the region’s rich cultural fabric.
Another key demand includes revising the funding pattern for centrally sponsored schemes. While northeastern states currently follow a 90:10 split between Centre and state, Arunachal Pradesh has urged the Finance Commission to recommend full 100 per cent central funding, given its geographical remoteness and limited revenue capacity.
All these demands were formally submitted to the Commission in the form of a comprehensive memorandum. Chief Minister Khandu and top bureaucrats made a strong pitch for customised central schemes that align with the state’s unique terrain and demographic characteristics.
Explaining the broader mandate of the Commission, Mathew said the 16th Finance Commission is charged with recommending the distribution of central tax revenues to the states for the period 2026–2031. Formed under Article 280 of the Constitution on December 31, 2023, it will also advise on grants-in-aid to states and principles for fiscal transfers from the Consolidated Fund of India.
The Commission has already concluded consultations in 22 states and is set to cover the remaining six before submitting its final report to the central government by October 31, 2025.
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