Finance Commissions recommendations for local government

India Apr 06, 2021

Encouraging standardization of accounting system

An important recommendation of the 15th financOne of the primary tasks of the Union Finance Commission is to rectify the vertical and horizontal imbalances in expenditure between union and states including the third tier of local government i.e. Gram Panchayat, Panchayat Samiti and Zilla Parishad. Part IX and Part IX-A were included in the constitution to mandate the Union Finance Commission to supplement the resources of Panchayats and Municipalities. Nearly 2.5 lakh local governments and over 3.4 million representatives form the real democratic base of Indian Federal Polity.

Increase in Vertical Devolution

The 15th finance commission has raised the vertical devolution recommended by the local government to 4.23% with a reasonable estimate of 4,36,361 crore. The 15th finance commission has raised this share to 60% and has provided them with drinking water rainwater harvesting sanitation and other national priorities in the spirit of cooperative federalism.

Reduction in Performance-based grants

The commission has reduced the performance-based grant to Rs.8000 crore and that too for building new city’s living out the Panchayat raj institutions altogether. The performance-like grants were introduced by the 13th finance commission and covered a wide range.

e commission is their entry criteria to avail the union local grant by local government, for Panchayat the condition is the online submission of annual accounts for the previous year and audited accounts for the year. For urban local government two more conditions as specified fixation of the minimum floor for property tax and improvement in its collection, it’s not clear why gram panchayats are left out from this all the finance commission. Measures to standardize the country’s custom and update auditing have been halting.

Missing equalization principle for local government principal for local government

The 15th finance commission claims that it seeks to achieve the desired objective of even balancing the union and states. It is not clear why there is no recognition of the third year in this balancing act. It may be relevant to recall that the Alma Ata declaration of the world health organization 1978 outlined an integrated local government-centric approach with a simultaneous focus on the excess of water, sanitation and shelter. There is no integrated approach in the recommendation in the commission although it stresses the need for the equalisation principle.

Equity and efficiency sideline

The 15th finance commission employed a population with 90% and 10% area weightage for determining the distribution of grants states for local governments the same criteria were followed by the 14th finance commission while this ensures continuity equity and efficiency criteria are sidelined. Abandoning tax effort criteria on incentives dependency inefficiencies and non-accountability.


The 15th finance commission failed to carry basic services like drinking water public healthcare mandated in the 11th and 12 schedules reminded better public services and delivery of economic development and social justice at the local level a good opportunity to ensure compare rebel minimum public services to every citizen irrespective of our choice of residential location has not been taken forward in an integrated manner.

In sum, if decentralization is meant to empower local people, the primary task is to physically empower local governments to deliver territorial equality. We are far away from this goal

This article has been written by Siddhesh Patil for The Paradigm

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