7 PM Editorial |Avenues of Resource Mobilization for Local Bodies to Combat COVID 19| 9th June 2020

 

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Avenues of Resource Mobilization for Local Bodies to Combat COVID 19

Context:

COVID 19 pandemic has brought unprecedented health and economic crisis to all. It posed challenges in terms of public health management, economic growth, livelihoods, resource mobilization for governments. Tackling these challenges need response from all tiers of government – Centre, states and local bodies. Outbreak response needs activities of contact tracing, quarantine, monitoring, creating health infrastructure, data collection at ground level. These activities are best performed by local governments. In order to perform these tasks, local government’s need fiscal resources.

Sources of fiscal resources at local level include:

  1. Local finances generated by the local government itself. This includes bonds issued by these governments
  2. Devolution from Finance commissions of Center and state
  3. Other sources – Funds of schemes like MPLADS which are meant for local area development

To effectively tackle COVID 19, local governments need to be empowered fiscally. Let us see how we can mobilize funds from various sources to tackle COVID crisis.

Local finances:.

This includes taxes, fines, fees etc levied and collected directly by local governments. Water charges are an example. Economic Survey 2017-18 points out local taxation increases accountability of local governments. This is needed in times of COVID.

As per Economic survey 2017-18, only 5% of total revenue is from local sources for Rural Local Bodies (RLB’s). Whereas this is 44% for Urban Local Bodies (ULB’s). This shows that local resources are not mobilized to full potential. In UP, Bihar and Jharkhand local taxes for RLB’s is nearly zero. Hence there is a need to increase resource mobilization at local level.

Steps to boost local finances:

  1. Property tax is a major source of local finance across the world. In India, revenue from property tax as % of GDP has been reducing since 2002-03. In 2017-18, property tax is only 0.14% of GDP. This is low when compared to OECD countries with 2.1%.
    14th Finance commission recommended removal of exemptions from property tax to increase mobilization under this. Also, technologies like satellite mapping technology (Bhuvan of ISRO) to assess properties and taxes paid can be used. This is being done in Telangana.
  2. Land monetization and betterment levy needs to be collected
  3. Bonds by local bodies for COVID containment with lower coupon rates than market rates need to be issued. Demand for these bonds with lower yields need to be generated by appealing to sentiments of brotherhood and patriotism
Fifteenth Finance Commission(FFC):

In its interim award for 2020-21, FFC has provided for Rs. 90000 crore for Local bodies. In addition, tied funds to the basic funds ratio has been fixed at 50:50. This is an increase from the devolution of the 14th Finance commission. But it is not sufficient.

Flexibility is needed to tackle emerging situations due to COVID 19. Hence 50% of tied funds prevents effective response from local bodies. Hence there must be 100% of grant as basic grant. In addition, the centre must directly devolve these funds to local bodies instead of routing through states. This ensures predictability by preventing state governments diverting funds meant for local governments.

FFC report also provides for mitigation and adaptation funds to tackle disasters. But these funds are not possible in the short term. Disaster Management Act, 2005 needs to be amended to include pandemics as a disaster. By doing so, Disaster response funds under this act can be mobilized and appropriate actions can be taken to tackle COVID.

Other sources- MPLADS:

The MPLADS scheme was suspended for 2 years by the central government. These funds of about 4000 crore per annum need to be made available to local bodies to invest in health infrastructure and containment of COVID.

Going ahead:

COVID has shown the importance of local governments in disaster response. They must be empowered fiscally to ensure relevant actions are taken to combat COVID. In addition to ensuring adequate fiscal resources, governance reforms also need to be taken up such as reduction of parallel parastatal bodies, devolution of 3F’s – funds, functionaries and functions.

By empowering local governments fiscally and functionally, we can achieve effective response to COVID

Sourcewww.The hindu.com

Mains Question:
  1. Local body finances need to be bolstered to effectively tackle COVID 19 pandemic. Explain role of local bodies in COVID 19 response?  Suggest some measures to bolster local body finances? [15 marks, 250 words]

 

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