Important: The Fifteenth Finance Commission:- Excerpts and Our suggestions…Forming a nodal agency to regulate all municipalities under one roof to making Union territories ….


Important: The Fifteenth Finance Commission:- Excerpts and Our suggestions…Forming a nodal agency to regulate all municipalities under one roof to making Union territories ….

The final report of the Fifteenth Finance Commission of India for FY 2021-22 to FY 2025-26 was tabled in the Parliament on February 1, 2021 alongside the Union Budget 2021-22. The commission’s interim report for FY 2020-21 was tabled along with Union Budget 2020-21. We take some excerpts from the same and will try to put our own suggestions.

If one sees the overall development of the country one will find that the municipalities are one who have mostly underperformed across the board , from Metro cities to small towns. They have been example of Indian corruption. Further, an estimated 180 million rural people that live next to India’s 70 largest urban centres, a number that will increase to about 210 million by 2030 pointing to the future course of urbanisation and challenges therein in India. The United Nations projections suggest that India’s urban population will increase from about 461 million in 2018 to 877 million in 2050, with India contributing the largest share of global urban population growth from 2018 to 2050.

This class for certain urgency in urban planning and better management across the state of affairs with respect to the municipalities in the country. From gram panchayats operating at block levels and villages to the municipalities across the towns and municipal corporations of large mega cities, there is a clear case of better transparent and efficient administration and operations.

Indian urban local governments are amongst the weakest in the world in terms of fiscal autonomy and also their capacity to deliver civic infrastructure and services to meet the demands of growing urbanisation and rapid economic growth. Municipal revenues/expenditures in India have been stagnating at around 1 per cent of the GDP for over a decade. This is because the constitutional provisions for devolution in India have been very weak and even the existing provisions have not been implemented. The sources of own revenue of urban local governments are also limited and ineffective. By comparison, for 3 example, the municipal revenues/expenditures in Brazil account for 7.4 per cent of GDP and in South Africa for 6 per cent.

The Constitution (74th Amendment) Act, 1992, formally recognised urban local governments as the third tier of government. The Amendment became effective in June 1993. The Act recommended that state governments assign to municipal governments a set of 18 legitimate municipal functions such as urban planning including town planning, regulation of land use and construction of buildings, roads and bridges, provision of water, sanitation and solid waste management, public health, slum upgradation and urban poverty alleviation, etc. These functions are listed in the 12th Schedule which was inserted into the Constitution of India. But there was no comparable recommendation by the 74th Amendment on the finances of municipal governments.

Two important studies – High Powered Expert Committee (HPEC Ahluwalia 2011) and McKinsey (2010) have brought out how Indian municipalities are under-spending in core infrastructure like transport, water supply, sewerage, drainage, etc. for decades, striking at the very root of the country’s potential for economic growth and prosperity. Since total municipal revenue for the country as a whole was estimated at about Rs 1 lakh crore, and bulk of this goes towards staff salaries, pensions, and operational expenses, the urban local governments are in no position to meet the huge capital expenditure requirements.

Our Suggestions and some recommendations for futire and further discussions :

While the 15th draft Finance commission report ( to be tabled soon in parliament) has done a commendable job in preparing the report and highlighting the issues honestly we are of the opinion that a few more things can be added to it besdies the ones that are being considered. We list here some of them.

1. Better financial practices:- Following the Eleventh Finance Commission recommendations and the guidelines issued by the Ministry of Finance, Government of India, Comptroller and Auditor General of India (CAG) constituted a Task Force in 2001 to recommend budget and accounting formats for urban local governments in India. The CAG Task Force issued a ‘Report on Accounting and Budget Formats for urban local governments’. Based on this Report, Ministry of Urban Development, Government of India formulated the National Municipal Accounts Manual (NMAM) in 2004. The NMAM comprehensively details the accounting policies, procedures, guidelines designed to ensure correct, complete and timely recording of municipal transactions and produce accurate and relevant financial reports. Urban local governments are required to maintain their accounts on accrual based double entry system and prepare financial statements such as Balance Sheets, Income and Expenditure Statements, Statements of Cash flows and Receipt and Payment Accounts, at the end of each quarter.

in practice this is not being done across many states and municipalities and as a result there is big malpractices going on.

2. Better utilisation of central grant:- The 11th Finance Commission, for example, indicated that the grants should be earmarked for operation and maintenance of core civic services such as primary education, health, drinking water and sanitation. The 12th Finance Commission stipulated that at least 50 per cent of the grants should be earmarked for solid waste management through public-private partnership and a part of these grants should be used for maintenance of accounts. Recognising that a major challenge seemed to be the lack of maintenance of accounts by the local bodies and delayed audits, the 13th Finance Commission felt that a much stronger incentive system was needed to bring about reforms in local governance.

However in practice there is again big lacuna in the implementation. We are of the opinion that finances should not be left alone to the discretion of local bodies. The 15th FC must consider forming expert panels for each state separately who can guide the urban bodies on how to utilise the funds better and guide them suitably. These experts can be from any walk of life and not necessarily be only from IAS / Politicians and IIT / IIM lobbies.

3. MoU and need of central body :- The 15th FC draft report recommends signing Memorandum of Understanding between state Financial commission (SFCs) and Central financial commissions (CFCs) . WE are of the opinion that this is an important initiative so that the SFCs and CFCs can remain on one platform and discuss and plan things. WE further recommend and suggests that the whole gamut be brought under Niti Aayoga which can play the role of a national assembler or an independent body be formed who can coordinate between local bodies, SFCs and CFCs.

4. Database:- The report also suggests forming a large active data base for keeping all the records. WE strongly recommend this initiative and would like to request the FC to allocate special funds for maintaining an IT cell across each municipal commission that should come under CFC ( or other central nodal body) directly and maintain the database just like the NICs does.

5. Last but not least this we have recommended earlier too that all metro must be brought as UNION TERRITORIES for better management of not only civic governance but also from a security point of view as the country faces more and increasing challenges going ahead.

Dr. Asheesh Shah


Asheesh Shah
Author: Asheesh Shah

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