Building From Below

Context: Mechanisms for devolution of funds to panchayats and municipal bodies from the Fifteenth Finance Commission (FC) could catalyze accountability and effective governance at the grassroots.

Key issues faced by the local governments:

• Rising urbanization: 61% urban population resides in UAs, 40% in 55 million-plus cities (The urban share of the total population went up from 28% in 2001 to 31% in 2011).
• Low revenues: Due to persistent fiscal deficit of the government and rising urban population, local governments need to mobilize revenues to overcome the budget allocation deficit.
• The efficiency, smooth functioning and accountability of local bodies have been plagued by:
  • Lack of readily accessible and timely audited accounts,
  • Absence of timely recommendations of State Finance Commissions and suitable actions
  • Inadequate mobilization of property tax revenues (especially in ULBs).

Key Features of FC’s recommendations for Local Governments:

• Grants of Rs 4,36,361 crore (52% increase) to local government; 90% weightage to population and 10% to the area.
  • Distribution: Rs 70,051 for Primary healthcare, Rs 8000 crores for the incubation of new cities and Rs 450 crores for shared municipal services.
  • Boost to Urbanization: The remaining sum Rs. 3,57,860 is distributed in favour of the urban local bodies (ULBs) from 67:33 in 2021-22 to 65:35 by 2025-26.
• Incubation of new cities and shared municipal services:
  • Seed/venture capital to boost innovation to transform cities with speed and scale.
  • Combined area-based development to spur economic growth and job creation and decongesting through the development of satellite townships.
  • Shared Municipal service model: to synergize the capacities through combined institutional and technological innovations.
• Coverage: Improves functional coordination and facilitate the creation of assets collectively.
  • All three tiers of Panchayat and Municipalities, whose forward and backward linkages are interlinked, are covered.
  • Similarly, for urban local bodies, the FFC grants cover cantonment boards also.
• Outcome based grants for local governance: 
  • Million- plus Challenge Fund (2021-26): can be accessed by million-plus cities only through adequate improvements in their air quality and meeting service level benchmarks for drinking water supply, sanitation, and solid waste management.
  • Grants distribution for Rural local bodies and ULBs (other than Million plus cities):
    • 40% funds are basic/untied (can be used for needs under the 29 subjects enshrined for panchayats in the Eleventh Schedule, and 18 for urban local bodies in the Twelfth Schedule of the Constitution)
    • 30% earmarked for drinking water, rainwater harvesting and water recycling.
    • 30% performance-based: i) maintenance of open defecation free (ODF) status and (ii) star ratings in sanitation for urban local bodies.

Conclusion: Through a partnership among the Union, states, and local governments, in the spirit of cooperative federalism, these recommendations can improve governance delivery significantly.