Critical Analysis of 15th Finance Commission Recommendations for Local Bodies

Synopsis: Critical analysis of the recommendation of the 15th Finance Commission Recommendations on grants to the local bodies.

Background

• The primary task of the Union Finance Commission (FC) is to rectify the vertical and horizontal imbalances between the Union, the States, and the Local bodies.
• Part IX and Part IX-A of the Constitution mandate the FC to supplement the resources of panchayats and municipalities. It should be on the basis of the recommendations of the State Finance Commission.
• Local governance in India consists of nearly 2.5 lakh local governments and over 3.4 million elected representatives.
• The significance of Local governments was highlighted during the Pandemic. The Gram Sabha and other participatory institutions were instrumental in containing the crisis and delivering social protection in India.

What were the lacunas in the recommendation of the 15^th FC for the local government?

While there are some critical lacunae, it has several positive features too,

Positives:

• First, the Grants to local bodies are high compared to the previous Finance Commission. For example, Finance Commission has granted Rs 4,36,361 crore from the central divisive tax pool to local governments.
• Second, it will strengthen cooperative federalism. Out of the total grants earmarked for Panchayati raj institutions, 60 percent is earmarked for national priorities. (drinking water, rainwater harvesting, sanitation, etc.,).

Concerns:

1. First, the 15^th FC has failed to provide Performance-based grants for the Panchayati raj. While only 8000 crores (for incubation of new cities) has been allocated to Urban local bodies.
   • • The performance-linked grants were thoughtfully introduced by the 13^th Finance Commission.
     • It earmarked 35% of local grants specifying six conditions for panchayats and nine for urban local governments. For example, the establishment of an independent ombudsman, notifying standards for service sectors such as drinking water and solid waste management, etc.,
     • Performance-linked conditionality is vital for improving the quality of decentralised governance, especially in underperforming local bodies.
     • By neglecting the Performance-based grants, 15^th FC has failed to acknowledge the transformative potential in it.
2. Second, there are no entry-level criteria specified for Gram Panchayats to avail grants.
   • • Whereas, the 14^th FC, has recommended measures to standardize the accounting system and update the auditing of accounts.
     • Without reliable data on Financial performance, it will be difficult to ensure Good governance.
3. Third, the 15^th FC has missed the opportunity to ‘restructure the public finance’ for greater fiscal decentralization in providing basic services. It will ensure comparable minimum public services to every citizen irrespective of her choice of residential location.
   • The 11^th and 12^th schedules demand better public services and delivery of ‘economic development and social justice at the local level.
   • To fulfill this mandate we need fiscal decentralization. Public finance is an integrated whole and there needs to be an integrated, local government-centric approach as envisioned in the Alma-Ata declaration of the World Health Organization
4. Fourth, the 15^th FC has used the criteria of the population (2011 Census) with 90% weightage and area 10% weightage for determining grant to local governments. However, it ignores equity and efficiency criteria.

We need to fiscally empower local governments to deliver territorial equity and to empower local people.

Source: The Hindu