What can local bodies expect from the 16th FC?, Pg8

Key Highlights:

• The 16th Finance Commission (FC) submitted its report to the President of India on November 17.
• Key expectations include recommendations for the vertical transfer of resources from the Central revenue pool to the States for the next five years.
• The report is also expected to improve the finances of Panchayats and Municipalities as mandated under Article 280 (3) bb and c of the Constitution.
• State Finance Commissions (SFCs) are constituted every five years to make recommendations to State legislatures regarding devolutions to local bodies.

Detailed Insights:

• Local governments deliver essential public services like drinking water, sanitation, and public health, but face a gap between revenues and expenditure.
• The 73rd and 74th Constitutional Amendments empower State governments to assign revenue handles and expenditure responsibilities to local governments, leading to variations in fiscal powers across States.
• Functional responsibilities should align with financial powers delegated to local governments, but there is no separate list for either.
• State governments often assign responsibilities without providing adequate revenue or officials, affecting the development and operational efficiency of local bodies.
• Previous Union Finance Commissions (UFCs) made ad hoc arrangements and recommended lump sum grants, with the 13th UFC suggesting a percentage share in the union tax divisible pool.
• Subsequent UFCs reverted to lump sum grants and introduced conditional grants tied to reform instruments, but each UFC discontinued the reforms initiated by the previous one.
• The 16th UFC is expected to assess the resource requirements of 2.7 lakh Panchayats and about 5,000 Municipalities to enable them to act as institutions for economic development and social justice.

Key Concepts Involved:

• Vertical Transfer: The allocation of financial resources from the central government to state governments.
• Horizontal Distribution: The allocation of financial resources among different states.
• Grants-in-aid: Financial assistance provided by one level of government to another.
• Fiscal Devolution: The transfer of financial resources and decision-making power from central to local governments.