Finance Commission triples grants to urban local governments, Pg9

Key Highlights:

• The 16th Finance Commission report, tabled on February 1, recommends allocating ₹3.5 lakh crore to Urban Local Governments (ULGs) over the next five years.
• This allocation matches the total spending on centrally sponsored schemes through the Centre’s share over the past 13 years.
• The report suggests this funding boost will improve infrastructure and services in smaller towns and cities.
• ULGs will receive 45% of local government grants, up from 36% previously.
• The allocation to ULGs represents a 230% increase compared to the 15th Finance Commission's allocation of ₹1.5 lakh crore for 2021-26.

Detailed Insights:

• The Finance Commission's allocation includes ₹10,000 crore for an urbanisation premium grant, incentivising rural-urban transition.
• Kerala experienced the highest increase in allocation (over 400%), while Himachal Pradesh faced a near 50% decrease among major states.
• Over 60% of the grants to ULGs are basic grants, divided into "tied" grants for basic services like sanitation and water supply, and "untied" grants for local needs, excluding salary and establishment expenses.
• Increased funding aims to empower ULGs to address local challenges and improve service delivery, fostering more sustainable and resilient urban centers.
• The Finance Commission plays a crucial role in fiscal federalism, balancing the financial resources between the Union and State governments, and promoting equitable development across the country.

Key Concepts Involved:

• Urban Local Governments (ULGs): Local bodies administering urban areas, responsible for providing civic services.
• Finance Commission: A constitutional body that recommends measures for the financial relations between the Union and States.
• Fiscal Federalism: Division of financial powers and responsibilities between different levels of government.