Finance Commission's Recommendations for Local Governments: Vertical Devolution and Equity, Lab Reports of Law

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• 1 APRIL

I. No recognition of the third tier [Editorial]

II. NEWS IN SHORT

Inside the Article

➢ This article is a brief critique of the recommendations of

the 15

th

Finance Commission with regard to local

governments.

➢ The primary task of the Finance Commission is to rectify

the vertical and horizontal imbalances in resources and

expenditure responsibilities between Union and States,

which after the 73 rd and 74 th Constitutional

Amendments includes the third tier of local

governments.

➢ This Commission is the fifth after the incorporation of Part IX and Part IXA to the Constitution which mandate the Union Finance Commission to supplement the resources of panchayats and municipalities on the basis of the recommendations of the State Finance Commission (Article 243 - I). ➢ Unlike the previous Commissions, the Fifteenth Finance Commission was in the background of the COVID 19 pandemic which reinforced the significance of local governments, gram sabha and other participatory institutions in containing the crisis and delivering social protection in India.

➢ Compared with the Fourteenth Finance Commission there is a 52 % increase in the vertical share. ➢ Even after deducting the grant of ₹ 70 , 051 crore earmarked for improving primary health centres, the share is still an all-time high of 4. 19 %. ➢ All the Commissions since the Eleventh Commission have tied specific items of expenditure to local grants and the Fifteenth Finance Commission has raised this share to 60 % and linked them to drinking water, rainwater harvesting, sanitation and other national priorities in the spirit of cooperative federalism.

➢ However, it reduced the performance-based grant to just ₹ 8 , 000 crore — and that too for building new cities, leaving out the Panchayati Raj Institutions (PRIs) altogether. ➢ The performance-inked grants thoughtfully introduced by the 13 th Finance Commission earmarked 35 % of local grants specifying six conditions for panchayats and nine for urban local governments and covered a wide range of reforms: establishment of an independent ombudsman to notifying standards for service sectors such as drinking water and solid waste management.

Entry-level criterion

➢An important recommendation of the 15 th Finance Commission is the entry-level criterion to avail the union local grant (except health grant) by local governments (strictly speaking, it is performance-inked). ➢For panchayats, the condition is online submission of annual accounts for the previous year and audited accounts for the year before. ➢For urban local governments, two more conditions are specified: after 2021 - 22 , fixation of minimum floor for property tax rates by the relevant State followed by consistent improvement in the collection of property taxes in tandem with the State’s own Gross State Domestic Product.

➢Although Finance Commissions, from the Eleventh to the Fourteenth, have recommended measures to standardise the accounting system and update the auditing of accounts, the progress made has been halting. ➢However, the question is, will this bring about substantive changes?

➢Articles 243 G, 243 W and 243 ZD read along with the functional decentralisation of basic services like drinking water, public health care, etc., mandated in the 11 th and 12 th schedules demand better public services and delivery of ‘ economic development and social justice ’ at the local level. ➢While the grants to the primary health centres must be acknowledged as a great gesture, a good opportunity to ensure comparable minimum public services to every citizen irrespective of her choice of residential location has not been taken forward in an integrated manner.

Equalisation principle ➢AlmaAta declaration of the World Health Organization ( 1978 ) outlined an integrated, local government-centric approach with simultaneous focus on access to water, sanitation, shelter and the like. ➢ 15 th^ Finance Commission claims that it seeks to achieve the “ desirable objective of evenly balancing the union and the states ”. ➢It is not clear why there is no recognition of the third tier in this balancing act.

➢Article 280 ( 3 ): It shall be the duty of the Commission to make recommendations to the President as to ➢(bb): the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats in the State on the basis of the recommendations made by the Finance Commission of the State ➢(c): the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State

➢Although the Fifteenth Finance Commission stresses the need to implement the equalisation principle, it is virtually silent when it comes to the local governments. ➢It is equally important to note that in the criteria used by the 15 th Finance Commission for determining the distribution of grant to States for local governments, it employed population ( 2011 Census) with 90 % and area 10 % weightage the same criteria followed by the 14 th Finance Commission. ➢While this ensures continuity, equity and efficiency criteria are sidelined.

III. NEWS IN SHORT

1. Military farms shut down ➢Military farms have been closed after 132 years of service, the Army said. ➢The sole requirement of supplying hygienic cow milk to troops in garrisons across British India. ➢The first military farm was raised on February 1 , 1889 , at Allahabad. ➢In December 2016 , the Lt. Gen. D.B. Shekatkar (retd.) committee had recommended the closure of the farms.

2. Pakistan allows import of cotton and sugar from India

➢Partially reversing a two yearold decision to suspend all trade with India, Pakistan announced on Monday that it would allow the import of cotton and sugar from India. ➢The decision follows the Line of Control (LoC) ceasefire announced by India and Pakistan in February, and a number of moves seen as part of a larger dialogue process to defreeze ties. ➢The decision to cancel trade was taken by the Imran Khan government on August 9 , 2019 , days after the government amended Article 370 and reorganised Jammu and Kashmir.