2 min readNew DelhiUpdated: Feb 1, 2026 05:19 PM IST
The Sixteenth Finance Commission has recommended a grant of ₹7.91 lakh crore for local bodies for the next five years (2026-27 to 2030-31), of which ₹4.35 lakh crore will be for rural local bodies, including gram panchayat, block panchayat and district panchayat, and ₹3.56 lakh crore for urban local bodies.
The commission report was tabled by Union Finance Minister Nirmala Sitharaman in the Lok Sabha on Sunday.
The grant recommended for the rural local bodies is almost double the amount recommended by the Fifteenth Finance Commission, which had recommended a grant of ₹2.37 lakh crore, of which ₹1.75 lakh crore has been released by the Centre till July 2025.
Of the ₹4.35 lakh crore grant recommended for the rural local bodies, ₹3.48 crore will be basic grant, ₹43,524 crore rural local body performance grant and ₹43,524 crore will be state performance grants. Of the total rural local body grant, 90 per cent will be given to gram panchayats, while block and district panchayats will get 10 per cent each. Among the states, the grant will be distributed based on the projected rural population for 2026 and the total area of a state.
A year-wise allocation of the rural local body grant shows that the states will receive an amount of ₹55,909 crore as rural local body grant in the 2026-27 financial year, ₹71,300 crore in 2027-28, ₹92,166 crore in 2028-29, ₹1,02,303 crore in 2029-30, and ₹ 1,13,558 crore in 2030-31.
“The local body grants shall continue to be released in minimum two equal instalments each year, consistent with the existing practice and subject to the fulfilment of the conditions stipulated by the Commission,” the report stated.
“State governments should ensure the transfer of the grants‑in‑aid to their respective local bodies within 10 working days of their receipt from the Union Government. Any delay in this transfer beyond the stipulated 10 working days shall obligate the state governments to release the funds along with interest, calculated at the effective rate of interest applicable to market borrowings/State Development Loans for the preceding financial year,” it added.
