[Answered] Critically evaluate the financial dependency of local governments in India on their respective State governments. Suggest measures to improve their financial autonomy.

Introduction: Give brief description of local governments in India

Body: Evaluate financial dependency of local governments and measures to improve financial autonomy

Conclusion: Way forward

The 73rd and 74th Constitutional Amendment Acts created the new Local Governance Framework in India, which became operational in April 1993. The Acts focused on enabling democratic decentralization, that devolved a range of powers and responsibilities to local elected bodies and made them accountable to the people for their implementation. The financial dependency of local governments on their respective State governments in India has been a matter of concern for many years.

Evaluation of financial dependency of local government

  • Lack of Fiscal Decentralization: Fiscal decentralization is the key to local financial autonomy. In India, State governments control most of the revenue sources and budgetary decisions, leaving local bodies with little discretion over their finances. This limits their ability to prioritize and finance local projects effectively.
  • Unequal Resource Distribution: Budgets from State governments are frequently distributed arbitrarily and unequally to local organizations. The allocation of resources may become uneven as a result of political factors taking precedence over the true needs of local populations.
  • Administrative inefficiencies: A lot of municipal organizations lack the resources and know-how necessary to effectively collect taxes. Low revenue collection as a result leads to reliance on state transfers.
  • Lack of Accountability: The lack of financial autonomy can lead to a lack of accountability, as local governments may not feel responsible for their financial decisions when most of their funding comes from the State. This can hinder effective governance and service delivery.

Measures to improve financial autonomy

  • Devolution of Financial Powers: To give local organizations the autonomy to independently collect and handle taxes, state governments ought to grant them greater financial authority. This covers user fees, municipal taxes, and property taxes.
  • Capacity Building: To enhance revenue collection and financial management, local governments should make investments in capacity building. This entails supplying the required equipment and technology, as well as training local officials.
  • Strengthen Local Governance: Strengthen local governance by promoting the participation of local communities in decision-making processes. Empower local governments to make decisions that align with local needs and priorities.
  • Encourage Economic Development: Local governments should be encouraged to promote economic development within their jurisdictions. This can help them generate additional revenue through increased economic activities and investments.


The provisions of the 73rd/74th Constitutional Amendments should be implemented in true spirit like the formation of State Finance Commissions regularly after 5 years like the Union Finance Commission. The governments should make adequate efforts to devolve funds, functions, and functionaries to local bodies so that they can effectively plan economic development and social justice schemes.

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