Subject: Indian Polity

The 13th Finance Commission (2010-15) marked a paradigm shift in strengthening local government finances through innovative recommendations, focusing on performance-based grants and fiscal autonomy of local bodies. This departure from previous commissions' approach aimed at ensuring better fiscal decentralization and accountability.

Key Departures in Recommendations

Grants-in-Aid Structure

• Introduction of a dual-component grant system consisting of:
  • Basic Grant Component: Assured transfers for essential civic services and basic functioning.
  • Performance-Based Component: Additional funds contingent upon meeting specified criteria.
• Linking grants to the previous year's divisible pool of taxes, creating a more predictable and stable funding mechanism.

Performance Parameters

• Establishment of nine performance criteria including:
  • Setting up of Property Tax Boards for standardized assessment.
  • Implementation of Local Body Ombudsman system for grievance redressal.
  • Adoption of modern accounting systems for transparency.
• Introduction of performance-linked incentives to promote efficiency and accountability in local governance.

Revenue Enhancement Measures

• Emphasis on strengthening property tax as a primary revenue source for local bodies.
• Recommendations for improved tax collection mechanisms and regular property valuation updates.
• Focus on building capacity of local bodies for better revenue generation.

Institutional Reforms

• Mandating the creation of intermediary institutions for better fiscal management.
• Promoting e-governance initiatives for improved service delivery.
• Emphasis on participatory planning and budgeting at the local level.

The transformative recommendations of the 13th Finance Commission laid the foundation for a more robust local government finance system. The introduction of performance-based grants and institutional reforms has paved the way for strengthening the third tier of governance, as envisioned in the 73rd and 74th Constitutional Amendments. Success stories like Kerala's decentralized planning and Karnataka's municipal reforms demonstrate the positive impact of these recommendations.