Still No Recognition Of The Third Tier

Context: A brief critique of recommendations of the Fifteenth Finance Commission with regard to local governments.

The performance­-linked grants was introduced  by the 13^th Finance Commis­sion - earmarked 35% of local grants specifying six conditions for panchayats and nine for urban local governments and covered a wide range of reforms: from the establishment of an independent ombudsman to notifying standards for service sectors such as drinking water and solid waste management.

Alma­Ata declaration of the World Health Organization (1978) which outlined an integrated, local go­vernment­-centric approach with simultaneous focus on access to water, sanitation, shelter and the like.

About Finance Commission

• Primary task: Constitutional body set up under Article 280, to rectify vertical and horizontal imbalances in resources and expenditure responsibilities between Union and States.
  • The tasks of the Union Finance Commission were broadened as part of the decentralisation reforms (280(3) (bb) and (c)) is a firm recognition of the organic link of public finance with the development process at all tiers of government.

Positive aspects of 15th FC recommendations

• Higher vertical devolution to local governments: From 0.78% share of the divisible pool by 11^th FC to 4.23% by 15^th
• Raised share of tie-up expenditure: Raised tie-up expenditure share to 60% and linked them to drinking water, rainwater harvesting, sanitation and other national priorities in the spirit of cooperative federalism.
• Entry-level criterion to avail the local grant: Aim is to standardise the accounting system.
  • For Panchayats: Online submission of accounts;
  • For Urban local bodies: fixation of the minimum floor for pro­perty tax rates and also a consistent improvement in their collections.
• Grant to primary health centres: Upholding constitutional mandate of functional decentralisation of basic services like drinking water, public health care, etc.
• Continuity in the basis of distribution: it employed population (2011 Census) with 90% and area 10% weightage the same criteria followed by the Fourteenth Finance Commission.

Criticisms of 15th FC recommendations

• Reduced performance-based grant: Focus on building new cities, leaving out Panchayati raj institutions.
• Questions on data reliability and efficacy of entry-level criterion: No objective analysis to examine how and where the financial reporting system has failed.
• Overlooking India’s regional heterogeneity: Opportunity to ensure comparable minimum public services to every citizen irrespective of her choice of residential location not been taken forward.
• Missing equalisation principle: Although the commission outlines nine guiding principles as the basis of its recommendation to local governments, there is no integrated approach, and local governments are side-lined in the balancing act.
• Side-lining equity and efficacy criteria for determining distribution: Abandoning tax effort criterion incentivises dependency, inefficiency and non-accountability.