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Recommendation of 15th Finance Commission and challenges faced by Local Bodies
Recently, 15th Finance Commission report has provided many recommendations for improving the functioning of Local Bodies. The challenges faced by local bodies in India are manyfolds and there is no one-stop solution to them.
Approach of previous Finance Commissions with respect to Local Bodies:
So far four Finance Commissions (11th FC to 14th FC) have given their recommendations for local bodies. Overall they provided for,
First, the increase in quantum of Funds: In recent years, the grants recommended by successive Finance Commissions in absolute terms have increased. For example, the combined grants for rural and urban local bodies recommended by the 14th FC were three times the amount recommended by the 13th FC.
Second, different Commissions followed distinct criteria while recommending resources for local governments. The only common criteria considered by all of them were population and geographical area.
Recommendations of Fifteenth Finance Commission:
First, the 15th FC suggested strict adherence to its recommendation for the constitution of State Finance Commissions(SFCs).
- It recommends “All States must constitute SFCs and also act upon their recommendations”.
- States also need to place the action taken report before the State legislature on or before March 2024.
- No grants should be released to the States that have not constituted SFC.
- MoPR(Ministry of Panchayati Raj) will certify the compliance of the State in this respect before the release of their share of grants.
Second, with respect to the Grants to Local Governments, the commission earmarked 60 per cent of funds for national priorities. These priorities include drinking water supply, rainwater harvesting and sanitation etc. The other recommendations include,
- The report favours a fixed amount rather than a proportion of the divisible pool of taxes. This is to ensure greater predictability of the quantum and timing of fund flow
- The report provides entry-level condition to local bodies to avail grants. These conditions will include online availability of both provisional accounts of the previous year and audited accounts of the year before that.
Third, the report calls for the Integration of the Financial Management Systems for transparency in the audit and functioning of local bodies.
Fourth, the report recognises Urbanisation as the Engine of Growth. It mentions few important recommendations like,
- Establishment of Million-Plus Cities Challenge Fund for cities having million-plus population. The devolution of the fund will be linked to the performance of these cities in improving their air quality and meeting the service level benchmarks for urban drinking water supply, sanitation, and solid waste management, etc.
- It also mentions that informal burning, as well as spontaneous combustion at landfills in Urban areas, should be monitored carefully.
- The report calls for basic grants for urban local bodies in the non-Million-Plus cities category.
- The report also asks for allocating grants on the basis of population for the Cantonment Boards falling within the State’s territory.
Fifth, the 15th FC’s other recommendations include:
- Involving Panchayati Raj Institutions as supervising agencies in primary health care institutions. The Commission believes, it would strengthen the overall primary health care system.
- The commission provided for a performance-based challenge fund of Rs. 8,000 crore to States for incubation of new cities.
- The commission recommends an amendment to the Constitution to revise the professions tax.
Various challenges faced by the local bodies:
Challenges with respect to functions:
First, there is an Excessive control of State government in the functions of PRIs. For example, state government approval is needed in project finalization, Local bodies Budget, Loan requirement, etc. States, instead of guiding PRIs, are restricting the functions of local bodies.
Second, local bodies lack adequate data on essential services and cannot involve in Urban and Rural planning. Though data on Census is available, it consists of data of previous years and not the current data. For example, they do not have data on local traffic, urban sewage, migration of people, etc.
Challenges with respect to funding:
First, Article 243-I of the Constitution requires SFCs(State Finance Commission) to be appointed at the ‘expiration of every fifth year’. Several States have still not moved beyond the second or third SFC. Even if formed they face challenges like inadequate resources, poor administrative support and the delayed placement of action taken reports(ATR), etc.
Second, the tax base of Urban and Rural local bodies is very narrow. For example, Urban Local bodies cannot levy a profession tax of more than 2500. They also have a problem in levying entertainment taxes and property taxes.
Third, the Majority of the local bodies do not have access to the Capital market to raise required funds except few Urban local Bodies such as Pune, Chennai, etc
Challenges with respect to the Functionaries:
Role of women elected members. There are many instances where, in the name of elected women representative their husband operates and takes the decision on her behalf. This undermines the agenda to empower women by providing 33% reservation to them.
Suggestions with respect to functions:
First, the Second ARC has recommended a special problem-solving body to resolve the issue of disqualification of elected members. It also suggested an unbiased approval of Local body budgets, projects, etc. State governments need to implement this.
Second, State Governments should provide local bodies with the power to recruit personnel to fulfil their functions properly. Apart from that the State governments also have to allow the local bodies to collect the local data for future use and preliminary planning.
Suggestions with respect to funding:
First, States should implement 15th FC recommendation to appoint SFCs or else grants released to the respective State can be halted.
Second, the power to levy taxes on the Union and State Government properties can be provided to local governments. Apart from that, they should be empowered to levy taxes on wealthy people in their locality, impose water cess, irrigation cess etc. For example, a case study in Karnataka has proved that the levy of water cess is a feasible alternative for local bodies.
Third, separate grants may be allocated to local bodies for creating public health infrastructure and primary health care clinics.
Suggestions with respect to the functionaries:
To improve the performance of functionaries, the timely election is the need of the hour. Apart from that, the State can encourage Public-Private Partnerships. It will improve the skills of elected local representatives with market expertise and modern methods.
The state government can form strict guidelines for the active involvement of elected women representatives in all spheres of the functioning of local bodies.
Apart from implementing the recommendations of the 15th FC, the voluntary contribution of States is also the need of the hour. The States have to understand that empowerment of local bodies is needed to find solutions to the number of issues faced by them like enhancing tax base, providing adequate primary health and education services, etc.
15th Finance commission: Reforming financial governance of India’s municipalities
Source: Indian Express
Gs2: Issues and Challenges Pertaining to the Federal Structure, Devolution of Powers and Finances up to Local Levels and Challenges Therein.
Synopsis: The reforms suggested by the 15th Finance commissions (interim report) can improve the financial governance of India’s municipalities.
- The 15th Finance Commission submitted an interim report for FY 2020-21.
- Now, the final report for FY 2021-22 to FY 2025-26 is expected to be tabled along with the forthcoming Budget 2021-22.
- The Interim report for 2020-21 talks about raising the standards of financial governance of India’s municipalities in four specific ways.
- Implementation of the suggested 4 changes can be a watershed moment in the financial governance reforms of India’s municipalities.
What are the four changes suggested by the 15th Finance commission?
The 15th Finance commission in its interim report has suggested the following changes to bring reforms to the financial governance of India’s municipalities.
- First, increasing the overall financial disbursement for municipalities (including panchayats) from the existing 30 per cent to 40 percent, in phases. This will result in increased financial resource for the municipalities over the five years.
- Second, it has set two very important conditions for all municipalities, for receiving grants. First, Publication of audited annual accounts. Second, notification of floor rates for property tax. It will result in financial accountability and increased revenue of Municipalities.
- Moreover, an Additional borrowing limit has been set for states (Rs 50,000 crore). It is linked to reforms in property taxes and user charges for water and sanitation.
- Third, 100 percent outcome-based funding to 50 million-plus urban agglomerations (excluding Union Territories). Conditions emphasize specifically air quality, water supply, and sanitation.
- Note: India has 4,500 municipalities out of which approx. 250 municipalities are urban agglomerations with 53 million-plus population. It contains 44 per cent of the total urban population.
- Whereas, the remaining 4,250-plus municipalities comprise 56 per cent of the total urban population.
- Fourth, it has recommended a common digital platform for municipal accounts. This will give a consolidated view of municipal finances and sectoral outlays at the state level.
What are the suggestions?
Constitutional bodies like the finance commission can only prepare the grounds of reforms. The ultimate responsibility for municipal finance reforms remains with the state governments. Thus, State governments need to enact municipal legislation towards following 5 Objectives:
- Fiscal decentralisation by strengthening state finance commissions.
- Revenue optimisation to enhance their own revenues.
- Fiscal responsibility and budget management to accelerate municipal borrowings.
- Strengthening institutional capacities by an adequately skilled workforce.
- Facilitate transparency and citizen participation for democratic accountability.
- Also, State governments need to shift from the present discretionary grants practice to predictable fiscal transfers to municipalities.
Sixth Schedule discriminates against the non-tribal
Context – The Sixth Schedule was incorporated to protect the rights of the minority tribals living within a larger state dominated by the majority.
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- Khasi Students’ Union (KSU) an influential students’ body in Meghalaya has put up banners labelling all Bengalis in the state as Bangladeshis.
- It is also spearheading an agitation for an Inner Line Permit (ILP) to regulate outsiders coming into the state.
What is Inner Line Permit?
- The Inner Line Permit is an official travel document that allows Indian citizens to stay in an area under the ILP system. The document is currently required by visitors to Arunachal Pradesh, Manipur, Nagaland and Mizoram.
- The ILP is issued by the concerned state government .The permits issued are mostly of different kinds, provided separately for tourists, tenants and for other purposes.
What is the Sixth Schedule?
- The Sixth Schedule consists of provisions for the administration of tribal areas in Assam, Meghalaya, Tripura and Mizoram, according to Article 244 of the Indian Constitution.
- Passed by the Constituent Assembly in 1949, it seeks to safeguard the rights of the tribal population through the formation of Autonomous District Councils (ADC).
- The ADCs are like miniature states having specific powers and responsibilities in respect of all the three arms of government: legislature, executive and judiciary.
- The governors of these states are empowered to reorganize boundaries of the tribal areas.
How Sixth Schedule discriminates against the non-tribal resident?
The Sixth Schedule, has faced opposition as it infringes upon the rights of non-tribals and discriminates against them in various ways-
Violating many of the fundamental rights granted to citizens under the Constitution like-
- The right to equality before law (Article 14).
- Right against discrimination on the grounds of caste, race, sex, place of birth or religion (Article 15).
- Right to equality of opportunity in public appointment (Article 16).
- Right to settle anywhere in India (Article 19).
What were the impacts of Sixth Schedule of the Constitution on non-tribal people of Meghalaya?
- Forces migration– the KSU have driven many non-tribals out of the state,
- The share of population of non-tribals dwindling from 20 per cent in 1972, when the state was carved out of Assam, to 14 per cent in 2011.
- Nearly no jobs for non-tribal population– The new State also promptly implemented near total reservation of jobs for its tribal population.
- Non-tribal people were barred from acquiring property in Meghalaya.
- The state’s abject failure to provide protection to the minority non-tribals or punish those responsible for violence against them.
- 90 per cent of the Assembly seats (55 out of 60 in Meghalaya) reserved for the tribals.
What is the way forward?
- The Sixth Schedule undermines social harmony, stability and economic development of the state and the region.
- Indeed, it is now the rights of minority non-tribals that need protection.
‘Back to Village’ programme in J&K
Back to Village(B2V) programme
News: Jammu and Kashmir Government announced the third phase of ambitious Back to Village(B2V) programme.
- Back to Village(B2V) programme: The programme aims to involve the people of the state and government officials in a joint effort to deliver the mission of equitable development. It also aims to energize Panchayats and direct development efforts in rural areas through community participation.
- Four main goals:
- energising panchayats.
- collecting feedback on the delivery of government schemes and programmes.
- capturing specific economic potential.
- undertaking assessment of needs of villages.
- Phase I: To understand people’s grievances and demands.
- Phase-II: It focused on the devolution of powers to panchayats and tried to understand how these panchayats are functioning and what are the grievances and demands
- Phase-III: It has been designed on the format for grievance redressal.
- Features of Back to Village(B2V) programme.:
- As part of the programme, each gazetted officer will be assigned a gram panchayat where he/she will interact and obtain feedback from the panchayat representatives about their concerns, developmental needs and economic potential of the area.
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The feedback obtained will help the government in needs assessment and subsequently to tailor the various central and state government schemes/programmes in improving the delivery of village-specific services and making the village life better in terms improved amenities and economic upliftment.