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TFC for giving 2.5% of Central tax revenues to local bodies
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Local bodies such as municipalities and village councils should be given as much as 2.5% of Central tax revenues, the Thirteenth Finance Commission has recommended, thus providing them with stable and increasing income to offer services to citizens.
The Finance Commission, appointed every five years, performs a constitutional function of recommending the distribution of the "divisible pool" of Union taxes between the Central and state governments. The Thirteenth Finance Commission was constituted to give specific recommendations on the sharing of tax receipts between the Centre and States and to suggest measures to augment the Consolidated Funds of the States to supplement the resources of the Panchayats and Municipalities. The Thirteenth Commission was headed by Vijay Kelkar and the Commission Report was tabled in Parliament on 25th February, 2010.
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Dr. Vijay Kelkar |
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Grants to local bodies
Rs billions
| Year |
2010-11 |
2011-12 |
2012-13 |
2013-14 ! 2014-15 |
Aggregate
grant to local
bodies |
81.82 |
127.24 |
186.54 |
220.04 ! 259.55 |
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Source : 13th Finance Commission
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With increased urbanisation, the obligations of the third tier of government has been rapidly increasing without any meaningful or automatic devolution to the third tier. Thus, urban and rural local bodies routinely lament the lack of funds, or non-transfers by their respective state finance commissions. One mechanism in past commissions has been to include explicit grants meant for local bodies. A forthright devolution to the third tier is not possible without a Constitutional amendment. But the TFC has, for the first time, augmented grants with an incentive-based devolution that rewards intra-state decentralisation. Thus, those states with an effective devolution to their local bodies will get some extra support. The increased salience of the state of local governments in the life of a citizen is obvious, given that the states' share constitutes 60 per cent of the combined expenditure of states and the Centre.
The panel has also recommended that local bodies set aside 1% of their funds to undertake crucial reforms that include establishing accounting and audition norms, and setting up boards to assess and levy property taxes.
The commission has further suggested that the devolution of funds between urban and local bodies be based on population, thus making it more equitable. Earlier, urban municipalities received a lump sum while entitlements for rural bodies was based on population.
The commission projects that local administrations could get as much as Rs875.19 billion between 2001 and 2015, of which at least 5,000 notified urban areas would get as much as Rs240 billion. A separate special area grant of Rs20 per capita carved out of the basic grant should go to local bodies in tribal areas, it said.
"All local bodies need to be supported through a predictable and buoyant source of revenue, substantially higher than current levels, in addition to their own tax revenues and other flows from state and Central governments," the commission has said in its report.
This is a radical departure from the current system of funding local bodies through grants and would enable local administrations to borrow additional money from the bond market.
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