This PPT delivered to Scholars of Indian School of Public Policy explains in detail role played by Central Finance Commission in India with regard to devolution of funds to urban local bodies of India.

1. Central Finance Commissions
and Local Governments
Presentation to Scholars of Indian School of Public Policy
Dr. Ravikant Joshi

2. The Context
⚫ Art 275 – Central Finance Commissions (CFC)
to look in to to the distribution of divisible taxes
between the Union and the States and of grants-
in-aid to states
⚫ 73rd & 74th Constitutional Amendment and Art
280 (3) (bb) and 280 (3) (c ) require CFC to
suggest measures needed to augment the
consolidated fund of a state to supplement the
resources of the rural & urban local
governments on the basis of the
recommendations made by the finance
commissions of states.

3. CFC and Local Governments - History
⚫10th FC – no reference in TOR – took
cognizance of 73 & 74 CAA – Adhoc Grant
⚫11th & 12th FC – TOR provided that –
the measures needed to augment the
consolidated fund of a state to supplement the
resources of the panchayats and municipalities
on the basis of recommendations made by the
Finance Commissions of the concerned states.
⚫Both FC’s found SFC reports and data
inadequate so recommended adhoc grants

4. QUANTUM OF DEVOLUTION
CFCs and Urban Local Governments

5. Quantum of recommended devolution
⚫ 10th FC – Rs. 100 per capita in rural areas -1971
census – Rs. 4380.93 crore
Rs. 1000 crore for municipalities
Total grants worked out 1.38% of divisible pool
⚫ 11th FC – Rs. 8000 crore for rural local bodies
and Rs. 2000 crore for urban local bodies –
0.78% of divisible pool
⚫ 12th FC – Rs. 20000 crore for rural local bodies
and Rs. 5000 crore for urban local bodies –
1.24% of divisible pool
MOPRI demanded 5% share of divisible pool and MOUD demanded 3% share
of divisible pool from 13th CFC

6. 13 CFC Quantum Recommendations
⚫ General Basic Grant – 1.5% of the previous year’s divisible
pool. All state will have this grant as per criteria and weights.
⚫ General Performance Grant – 0.5% to 1% of the previous
year’s divisible pool. Only those states which meet
performance stipulations
⚫ Special Area Basic Grant - Rs. 20 per capita per year
⚫ Special Area Performance Grant - Rs. 10 per capita for
2011-12 & Rs. 20 per capita for the subsequent three years
⚫ Rs. Crore 10-11 11-12 12-13 13-14 14-15 Total
⚫ GBG 8022 9303 10873 12883 15253 56335
⚫ GPG 160 239 319 319 319 1357
⚫ SAB&PG 0 3181 7462 8802 10382 29826
⚫ Total 8182 12724 18654 22004 25955 87519

7. What is Divisible Pool?
⚫*Divisible pool is Gross Tax revenues of
the Union Govt, and includes Corporation
Tax, Income Tax, Customs, Union Excise
Duties, Service Tax/GST and Other
Taxes. Under Article 270 of the
Constitution, surcharge on taxes and cess
should not form part of the divisible pool

8. 14th CFC Quantum Recommendations
⚫Removed % linkage to Divisible Pool but
increased quantum substantially
⚫Recommended Rs. 200292 cr for RLB and
Rs. 87114 cr. for ULBs
⚫It was almost four time increase
⚫It amounted 3.54 % of total divisible pool

9. 15th FC – Quantum Recommendations - 2020-21
⚫ Rs. 90000 cr. for local govt. for the year 2020-21 in the ratio of
67.5 : 32.5 between rural and urban local governments
⚫ Substantive increase in grants to Urban Local Bodies (ULBs)
to Rs 30,000 cr, an increase of 29% from grants in 2019-20.
⚫ Special focus on metropolitan governance through 100%
performance linked grants (Rs 9,229 cr) for 50 million+ Urban
Agglomerations (UAs) tied to air quality, water and sanitation.
These 50 UAs comprise 264 ULBs and 40% of urban
population.
⚫ Out of Rs. 9229 cr = Rs. 4400 cr MoEF&CC + 4829 Cr
MoHUA
⚫ For the other 3,771 ULBs, grants of Rs 20,021 cr with 50%
untied and the remaining 50% tied specifically to drinking
water and solid waste management.
⚫ It is expected to amount 4.31 % of Divisible Pool in 2020-21.

10. 15th FC – Quantum Recommendations - 2021-26
⚫ The total size of the grant to local governments = Rs. 4,36,361 crore
⚫ For Rural Local Governments = Rs. 2,36,805 crore
⚫ For urban local bodies = Rs. 1,21,055 crore
⚫ Competition-based Grants for Incubation of New Cities = Rs. 8000 crore
⚫ Shared Municipal Services - Grants for National Data Centre = Rs. 450 cr
⚫ No basic grant to 50 million+ urban agglomerations
⚫ 40 % basic and 60 % performance grants to non-million ULBs & PRIs

11. 15th FC – Quantum Recommendations - 2021-26
⚫ Rs. 70,051 crore earmarked for the health sector at rural
and urban local body levels.
 Support for diagnostic infrastructure to the primary healthcare
facilities = 18472 cr
⚫ Sub centres = 7738 cr
⚫ PHCs = 8639 cr
⚫ Urban PHCs = 2095 cr
 Block level public health units = 5279 cr
 Urban health and wellness centres (HWCs) = 24028 cr
 Building-less Sub centres, PHCs, CHCs = 7167 cr
 Conversion of rural PHCs and sub centres into health and
wellness centre = 15105 cr
 Total Health Grants = 70051 cr

12. Quantum of devolution
CFC Devolution allotted (Rs. In Cr) & % of
Divisible Pool
Amount Drawn (Rs. In Cr. & %)
PRI ULB Total % PRI ULB
10th 4381 1000 5381 1.38 3576.35 (66.5%) 833.88 (83.4%)
11th 8000 2000 10000 0.78 6601.85 (82.5%) 1751.89 (87.6%)
12th 20000 5000 25000 1.24 18927.0 (94.6%) 4024.54 (89.4%)
13th 64408 23111 87519 1.93 58257 (90.7%) 18980 (82.1%)
14th 200292 87144 287436 3.06 179491 (89.6%) 74259 (85.2%)
15th for 20-21 60000 30000 90000 4.31
15th for 21-26 236805 121055 436361 Failure to draw amount by ULBs / PRIs
due to inability to meet conditionalities
Rs. 38196 cr. for fifty metropolitan areas + Rs 82859 cr. other ULB = Rs. 121055 cr.
Over period of five years !!
Out of Rs. 436361 cr, Rs. 70051 cr for health sector, Rs. 8000 cr for incubation of
cities and Rs. 450 cr grants for shared municipal services

13. BASIS OF DISTRIBUTION
Central Finance Commissions

14. Basis of Horizontal Distribution – FC X
⚫Finance Commission - X
PRI grant on the basis of state-wise rural
population as per the 1971 Census.
ULB grant on the basis of the inter-state ratio of
slum population derived from the urban
population figures of the 1971 Census.

15. Basis of Horizontal Distribution – FC XI
⚫FC-XI distributed grants amongst the states
as per the following parameters:
i) Population: 40 per cent
ii) Distance from highest PCI: 20 per cent
iii) Revenue effort: 10 per cent
iv) Geographical area: 10 per cent
v) Index of decentralisation: 20 per cent

16. Basis of Horizontal Distribution – FC-XII
⚫ FC-XII made allocations to states based on the
following indicators:
i) Population: 40 per cent
ii) Distance from highest PCI: 20 per cent
iii) Revenue effort:
⚫a) With respect to state’s own revenue: 10 per cent
⚫b) With respect to GSDP: 10 per cent
iv) Geographical area: 10 per cent
v) Index of deprivation: 10 per cent

17. Basis of Horizontal Distribution – FC-XIII
⚫ Criterion Weights Allocated (%)
PRI ULBs
⚫ Population 50 50
⚫ Area 10 10
⚫ Distance from highest per
Capita sectoral income 10 20
⚫ Index of devolution 15 15
⚫ SC/STs proportion in
the population 10 --
⚫ FC local body grants
utilisation index 5 5
⚫ Total 100 100

18. Basis of Horizontal Distribution – FC-XIII
⚫The general basic grant and the general
performance grant will initially be
segmented in to rural and urban shares on
the basis of their respective populations as
per the 2001 Census, with 26.82 per cent
as the urban share and 73.18 per cent as
the rural share.

19. Basis of Horizontal Distribution – FC-IXV
⚫ Horizontal distribution of grants to the States using 2011
population data with weight of 90 per cent and area with
weight of 10 per cent.
⚫ The grant to each State to be divided into a grant to GP
and municipalities, on the basis of urban and rural
population of that State using the data of Census 2011.
⚫ No share to Taluka and District Panchayats – State to
take care of them
⚫ Grants to be released in two instalments- June / October
⚫ To be released by State within 15 days
⚫ No conditions other than Performance Grant

20. Basis of Horizontal Distribution – FC-IXV
⚫A basic grant and a performance grant for
gram panchayats and municipalities.
Gram panchayats, 90 per cent basic grant and
10 per cent performance grant.
Municipalities, basic and performance grant will
be on a 80:20 basis.
⚫ Sharing of grants among different types of ULBs,
among the same type of ULBs and GPs – as per
SFC formulae, if there is no formulae then
90% weightage to population (in the year 2011) and
10% weightage to area

21. Basis of Horizontal Distribution – FC-XV
⚫The XV FC has recommended a gradual
increase of urban share from 32.5 % of
grants to local bodies to 40 % by the end
of the XV FC period
⚫The distribution of grants between local
bodies within a state (called inter se
distribution) will be based on population
and area in the ratio of 90:10, unchanged
from the XIV FC period.

22. Basis of Horizontal Distribution – FC-XV
⚫ The inter se distribution of funds within the state
should be on the basis of recommendations of
the latest SFC.
⚫ In case the SFC recommendation is not
available, allocations should be based on
population and area in the ratio of 90:10.
⚫ Funds shall be distributed in 2 tranches, one in
June and the other in October.
⚫ States should also make allotment of grants on
population basis for Cantonment Boards

23. Horizontal Sharing Criteria of CFCs
Criteria 10th
CFC
11th
CFC
12th
CFC
13th
CFC
PRI
13th
CFC
ULBs
14th
CFC
ULBs
15th
CFC
ULBs
Population 1971 1971 2001 2001 2001 2011 2011
Population (% 40 40 50 50 90 90
Area 10 10 10 10 10 10
Distance from highest PCI 20 20 10 20
Index of Devolution --- --- 15 15
Share of sc/st population --- --- 10 05
FC Grant utilisation Index --- --- 05 05
Revenue Efforts SOR 10 10
Revenue Efforts GSDP --- 10
Index of Deprivation --- 10
Index of Decentralisation 20
Total 100 100 100 100 100 100

24. CONDITIONALITIES IMPOSED
CFC on Local Governments

25. Conditionalities Imposed by CFCs
⚫ CFC-X – not for establishment costs, matching contribution
by local bodies, given in four installments
⚫ CFC-XI - listed the core civic services for support - primary
education, health, drinking water, street lighting, sanitation.
 To be used for O&M of these function but not for establishment costs
⚫ CFC – XII – grants to be utilised to improve service delivery
in respect of water supply and sanitation schemes subject to
their recovering at least 50 per cent of the recurring cost in
the form of user charges.
 at least 50 per cent of the grants provided to each state for ULBs
should be earmarked for solid waste management through public-
private partnership.
 CFC-XII recognised that the conditionalities imposed for release of
funds to local bodies ultimately handicapped the very local bodies for
which they were meant.

26. Conditionalities Imposed by CFCs
⚫CFC – XIII - No conditionality for basic
grant / six conditionalities for PRIs and
nine conditionalities for ULBs to avail
performance grant.
⚫In case States were unable to draw their
performance grant, the amount not drawn
was to be redistributed in a specified
manner

27. 13th CFC - Conditionalities for
performance grant
⚫1. State government to add special
supplement to its budget and finance
accounts –
Showing the detailed plan- and non plan-wise
classification of transfers separately for all
categories of ULBs and all tiers of PRIs, from
major head to object head
incorporating details of funds transferred
directly to the local bodies outside the State
Government’s budget.
providing details of spatial distribution of
transfers–at least up to district level

28. 13th CFC - Conditionalities for
performance grant
⚫ 2. The C&AG must be given TG&S over the
audit of all the local bodies in a state at every
tier/category and his Annual Technical
Inspection Report as well as the Annual Report
of the Director of Local Fund Audit must be
placed before the state legislature.
⚫ 3. Put in place a system of independent local
body ombudsmen who will look into complaints
of corruption and maladministration against the
functionaries of local bodies, both elected
members and officials

29. 13th CFC - Conditionalities for
performance grant
⚫ 4. Put in place a system to electronically transfer
local body grants provided by this Commission
to the respective local bodies within five days of
their receipt from the Central Government.
⚫ 5. Prescribe through an Act the qualifications of
persons eligible for appointment as members of
the SFC consistent with Article 243I (2) of the
Constitution.
⚫ 6. All local bodies should be fully enabled to levy
property tax (including tax for all types of
residential and commercial properties) and any
hindrances in this regard must be removed.

30. 13th CFC - Conditionalities for
performance grant
⚫ 7. Put in place a state level Property Tax Board,
which will assist all municipalities and municipal
corporations in the state to put in place an
independent and transparent procedure for
assessing property tax.
⚫ 8. State Governments must gradually put in
place standards for delivery of all essential
services provided by local bodies.
⚫ 9. All municipal corporations with a population of
more than 1 million (2001 census) must put in
place a fire hazard response and mitigation plan
for their respective jurisdictions.

31. 14th CFC Conditionalities –
Performance Grant
⚫ An unconditional basic grant and conditional perf. grant
⚫ Performance grants for
 (i) making available reliable data on local bodies' receipt and
expenditure through audited accounts;
 (ii) improvement in own revenues.
 (iii) publishing of slb for basic services.
⚫ A detailed procedure for the disbursal of the
performance grant to GP and to ULBs to be designed by
the State Governments concerned, subject to certain
eligibility criteria.
 On submission of audited accounts
 Increase in own revenue over preceding year
 Publication of service level benchmarks

32. 15th CFC Conditionalities - General
⚫ To be eligible for ANY grant during 2021-2026, For all local
governments, both urban and rural, web-based availability of
annual accounts for the previous year and audited accounts
for the year before previous is an entry level qualification for
grants.
⚫ For urban local bodies, an additional entry level condition for
receiving grants is the notification of minimum floor rates of
property taxes by the relevant State followed by consistent
improvement in the collection of property taxes in tandem with
the growth rate of State's own gross state domestic product.
⚫ MoHUA to create a national online platform for publication of
ULB accounts and CAG to lead the efforts to build an
integrated accounting system to facilitate integrated view of
ULB accounts with state accounts, leveraging the
IFMIS/PFMS.

33. 15th CFC Conditionalities - General
⚫ For PRIs - 60 per cent is earmarked for national priorities like
drinking water supply and rainwater harvesting and sanitation,
while 40 per cent is untied and is to be utilized at the
discretion of the panchayati raj institutions for improving basic
services.
⚫ For Metropolitan Area - one-third of CFC grant is for achieving
ambient air quality based on identified parameters, while the
remaining two thirds is for meeting service level benchmarks
on drinking water supply, rainwater harvesting and water
recycling, solid waste management and sanitation.
⚫ For other ULBs - 40 per cent of the grants is untied while 60
per cent is tied to the national priorities of drinking water,
rainwater harvesting, solid waste management and sanitation.

34. 15th CFC Conditionalities - Million+ UAs
⚫ Improving ambient air quality - The Ministry of
Environment, Forest & Climate Change (MoEFCC) must
publish benchmarks by April 2020
⚫ Basis of allocation of 2nd tranche is as follows
 YoY improvement in air quality in Jan 2021 (%) = > 5 - 100; 4-5 –
80%; 3-4 – 60%; 2-3 – 40% 1-2 – 20%; < 1 – 0%
⚫ In case of non-achievement of targets, 50% of
unallocated funds to be distributed to top performers
based on criteria prescribed in the table below, while
remaining 50% to be distributed to other cities in
consultation with State Governments, in proportion to
their population.
 Cities with improvement > 5 – 40% Share
 Cities with improvement 4-5 - 35 % Share
 Cities with improvement 3-4 – 25 % Share

35. Million+ UAs
⚫ Fifty urban centres with million plus population – the Million-
Plus cities. These fifty, in turn, consist of forty-four urban
agglomerations (excluding Delhi, Chandigarh and Srinagar)
and six cities which the Census 2011 does not classify as
urban agglomerations (Jaipur, Visakhapatnam, Ludhiana,
Faridabad, VasaiVirar City and Kota). The forty-four urban
agglomerations encompass sixty-seven cities with a
population between 100,000 to less than one million and
1,048 towns with a population of less than 100,000.
⚫ Grants to the tune of Rs. 38,196 crore in the form of a Million-
Plus cities Challenge Fund (MCF). This amount is linked to
the performance of these cities in improving their air quality
and meeting the service level benchmarks for urban drinking
water supply, sanitation and solid waste management.

36. 15th CFC Conditionalities - Million+ UAs
⚫ Improving water and solid waste management
Improvement to be measured by the following service
level benchmarks
 Water supply 1.Households covered with piped water supply
2.Water supplied in litre per capita per day 3.Reduction in non-
revenue water
 Water conservation methods 1.Rainwater harvesting 2.Reuse/
recycling of water 3.Rejuvenation of water bodies
 Solid Waste Management 1.Garbage free star rating of the cities
2.Coverage of water supply for public/community toilet
⚫ For the purpose of star ratings, ULBs are mandated to
self declare against parameters and marking procedures
prescribed by MoHUA.

37. 15th CFC Conditionalities
⚫ We recommend that all States which have not done so,
must constitute SFCs, act upon their recommendations
and lay the explanatory memorandum as to the action
taken thereon before the State legislature on or before
March 2024. After March 2024, no grants should be
released to a State that has not complied with the
Constitutional provisions in respect of the SFC and these
conditions. The MoPR will certify the compliance of all
Constitutional provisions by a State in this respect before
the release of their share of grants for 2024-25 and
2025-26.

38. OTHER RECOMMENDATIONS
Central Finance Commissions

39. Other Recommendations of earlier CFCs
⚫ CFC X – no other recommendation
⚫ CFC XI – recommendation
 i) Imposition of taxes on land/farm income.
 ii) Surcharge/cess on state taxes.
 iii) Levy of profession taxes.
 iv) improvement in efficiency of collection of property tax
 v) assignment of a suitable tax with buoyant revenues in lieu of
octroi.
 vi) levy and periodic revision of user charges.
 vii) Prescription of the format for maintenance of accounts by the
Comptroller and Auditor General (C&AG).
 viii) Audit of accounts by the C&AG, whose report should be
placed before a committee of the State Legislature constituted
on the same lines as Public Accounts Committee.
 ix) Transfer of functions and schemes to local bodies to be
specifically mandated by legislation and made operational at
earliest

40. Other Recommendations of earlier CFCs
⚫ CFC XII – noted that XI CFC recommendation not
implemented
 Recommended that SFCs should follow the procedure for data
acquisition as well as report writing adopted by the CFCs.
 14 best practices witch PRIs can adopt
 High priority to be given to creation of a data base and
maintenance of accounts through the use of modern technology
and management systems.
 the Comptroller and Auditor General (CAG) should be entrusted
with the responsibility of exercising control and supervision over
the maintenance of accounts and audit of all tiers of rural and
urban local bodies, and that its audit report should be placed
before a committee of the State legislature.

41. 13th CFC - Other Recommendations
⚫ Article 280 (3) (bb) & (c) of the Constitution
should be amended such that the words ‘on the
basis of the recommendations of the Finance
Commission of the State’ are changed to ‘after
taking into consideration the recommendations of
the Finance Commission of the State’
⚫ Article 243-I of the Constitution should be
amended to include the phrase ‘or earlier’ after
the words ‘every fifth year’
⚫ State Governments should lay down guidelines
for the constitution of Nagar Panchayats

42. 13th CFC - Other Recommendations
⚫ State Governments should strengthen their local
fund audit departments through capacity building
as well as personnel augmentation
⚫ The State Governments should incentivize
revenue collection by local bodies by
mandating some or all local taxes as obligatory at non-
zero rates of levy;
deducting deemed own revenue collection from transfer
entitlements of local bodies
a system of matching grants

43. 13th CFC - Other recommendations
⚫ The states should implement in all urban local
bodies an accounting framework consistent with the
accounting format and codification pattern
suggested in the National Municipal Accounts
Manual.
⚫ Development authorities should be dissolved and
their functions taken over by the local bodies in
whose jurisdiction they operate. In interim share a
percentage of their income (including income from
land sales) with local bodies.
⚫ The Government of India and the State
Governments should issue executive instructions
that all their respective departments pay
appropriate service charges to local bodies

44. 13th CFC - Other recommendations
⚫ Given the increasing income of State
Governments from mining royalties, they should
share a portion of this income with those local
bodies in whose jurisdiction such income arises
⚫ The development plans for civilian areas within the
cantonment areas (excluding areas under the
active control of the forces) may be brought before
the district planning committees
⚫ State Governments should ensure that the
recommendations of SFCs are implemented
without delay and that the Action Taken Report is
promptly placed before the legislature

45. 14th CFC – Other Recommendations
⚫ Stern action should be ensured if irregularities in the application of
funds are noticed or pointed out.
⚫ State Governments should strengthen SFCs through timely
constitution, proper administrative support and adequate resources
for smooth functioning and timely placement of the SFC report before
State legislature, with action taken notes.
⚫ Facilitate the levy of property tax and the granting of exemptions be
minimised. The assessment of properties may be done every four or
five years and the urban local bodies should introduce the system of
self-assessment.
⚫ Levy of vacant land tax by peri-urban panchayats be considered.
⚫ A part of land conversion charges to be shared by State Governments
with municipalities and panchayats.
⚫ States should review the position and prepare a clear framework of
rules for the levy of betterment tax.

46. 14th CFC – Other Recommendations
⚫ States may like to consider steps to empower local bodies to impose
advertisement tax and improve own revenues from this source.
⚫ States review the structure of entertainment tax and take action to
increase its scope to cover more and newer forms of entertainment.
⚫ The ceiling of professions tax from Rs. 2,500 to Rs. 12,000 per
annum. Article 276(2) of the Constitution may be amended to
increase the limits on the imposition of professions tax by States.
The amendment may also vest the power to impose limits on
Parliament with the caveat that the limits should adhere to the
Finance Commission's recommendations and the Union
Government should prescribe a uniform limit for all States.
⚫ State Governments take action to assign productive local assets to
the panchayats, put in place enabling rules for collection and
institute systems so that they can obtain the best returns while
leasing or renting common resources.

47. 14th CFC – Other Recommendations
⚫ ULB should rationalise their service charges to at least recover the
operation and maintenance costs from the beneficiaries.
⚫ Mining puts a burden on the local environment and infrastructure,
and, therefore, some of the income from royalties be shared with the
local body in whose jurisdiction the mining is done to ameliorate the
effects of mining on the local population.
⚫ Union and State Governments to examine in depth the issue of
properly compensating local bodies for the civic services provided
by them to government properties by enacting suitable legislation
⚫ The local bodies and States explore the issuance of municipal
bonds as a source of finance with suitable support from the Union
Government. The States may allow the larger municipal
corporations to directly approach the markets while an intermediary
could be set up to assist medium and small municipalities who may
not have the capacity to access the markets directly.
⚫ Union Government to intervene for the upgradation of administration
as well as development of the areas covered under the proviso to

48. 15th FC – Other Recommendations
⚫ State Governments, while deciding the share of basic grant among
various urban local bodies in cities other than Million-Plus cities,
shall make allotment of grants (only under basic grants) on a per
capita basis for the Cantonment Boards falling within the State.
⚫ The grants recommended by us for rural local bodies and non-
Million-Plus cities shall be released in two equal instalments each
year in June and October after ascertaining the entry level
benchmarks and other requirements recommended by us. The
States shall transfer grants-in-aid to the local bodies within ten
working days of having received them from the Union Government.
Any delay beyond ten working days will require the State
Governments to release the same with interest as per the effective
rate of interest on market borrowings/State Development Loans for
the previous year.

49. CFCs and Urban Local
Government
Thank You

50. Representations,
Recommendations, Issues taken
in to consideration by 13th CFC

51. MOUD presentation 13th CFC
⚫ Fiscal space of municipalities is shrinking
⚫ Internal resources provide less than half of the
total expenditure
⚫ Octroi abolished without viable alternative
⚫ ULBs under exploiting property tax
⚫ Transfers by states and centre are inadequate
⚫ A significant part of resource transfer is tied and
non-discretionary, limiting the abilities of the
urban local bodies to match resources to locally
felt needs.
⚫ Earlier CFC adopted adhoc approach, 13th CFC
should adopt structured approach

52. MOUD presentation 13th CFC
⚫Urban India – present status
Only 70 per cent of urban households have
access to piped water,
Only 74 per cent of urban households have
access to latrines,
Only 23 per cent of sewage is treated,
Only 30 per cent of solid waste generated is
treated prior to disposal.

53. ULBs presentation to 13th CFC
⚫ States should be incentivised to delegate funds, functions
and functionaries to the local bodies.
⚫ The maximum limit of profession tax collectable should be
raised from the present value of Rs. 2,500 per annum.
⚫ Local bodies should be permitted to levy tax on the
properties of the Central Government.
⚫ Earmarking of funds should not be confined to water
supply and solid waste management.
⚫ Grants should be untied.
⚫ Grant should be given in single annual grant
⚫ 5% of grant should be allowed for administrative expend

54. 11th Plan Document Observations
⚫ Local governments be given a pivotal place in
centrally sponsored schemes in keeping with
their constitutional mandate of economic
development and social justice.
⚫ Local governments being closer to the people,
are in the best position to appreciate problems
holistically, identify local priorities and forge a
consensus amongst disparate socioeconomic
groups.
⚫ They are also better placed to come out with
cross-sectoral solutions based upon appropriate
technologies.

55. National Commission for Review of the
Constitution Recommendation
⚫ State Governments were unwilling to share their fiscal
powers with local bodies despite the 73rd and 74th
amendments.
⚫ Constitution be amended and the subjects listed in
Schedules XI and XII be mandatorily assigned to rural
and urban local bodies respectively
⚫ The requirement in Article 280(bb) and (c) of the
Constitution, that the Finance Commission make its
recommendations about local bodies on the basis of the
recommendations of the SFCs, was unduly restrictive.
⚫ the ceiling on profession tax imposed by Article 276 of
the Constitution be removed

56. 2nd Administrative Reforms Commission
⚫ Amendment of article 243G and W to make it
mandatory
⚫ Clear delineation of function for each tier
through activity mapping and passing of
framework law to formalize the State-Local
Government relations
⚫ Improving working of SFCs
⚫ Synchronizing recommendations of SFCs and
CFC
⚫ Capacity building of local governments
⚫ Adoption of DEAS by all ULBs

57. 2nd Administrative Reforms Commission
⚫ Creation of District Councils in place of DPC and
MPC
⚫ Audit committees in local bodies
⚫ Separate standing committee for local bodies in
the state legislature
⚫ Constitution a separate ombudsman for local
bodies who will report to Lokayukta
⚫ The powers of the State Government to suspend
Local government and to rescind the resolutions
passed by them would be withdrawn
⚫ Suzerainty of the C&AG over the audit of
accounts of urban local bodies, even if they are
to be initially undertaken by other agencies

58. 2nd Administrative Reforms Commission
⚫ Functional independence to Director Local Fund Audit
⚫ LG to broaden and deepen tax revenue, improving
collection efficiency
⚫ State Governments should ensure that all local bodies
switch over to the unit area method or capital value
method of assessing property tax and limit exemptions.
⚫ Tax details should be placed in the public domain
⚫ A computerised data base of all properties using GIS
mapping should be prepared for all municipal areas.
⚫ Sale proceeds of land collected by development
authorities should be shared with the municipalities to
the extent of at least 25 per cent.

59. 2nd Administrative Reforms Commission
⚫ Even in the case of those State Governments
which had decentralised their functions, such an
exercise had merely been limited to entrusting
these bodies with the responsibility for
implementation of State Government schemes.
⚫ Local bodies had not been given an opportunity
to prepare and implement plans on their own,
thus reducing them to an implementing arm of
the State Government.

60. Issues noted by 13th CFC
⚫the data supplied by the State Governments
as well as the reports of the SFCs did not
provide a sound basis to quantify uniformly
across all states the supplementation
required to the resources of their respective
rural and urban local bodies
⚫In spite of successive CFC recommending
no improvement in data base

61. Issues Addressed by the 13th CFC
⚫ Devolution related issues
Use of devolution index
Providing a share of divisible pool to LBs
Use of conditionality
Accounts of local bodies
Audit and accountability of local bodies
State finance commissions
⚫Synchronicity with CFC
⚫Quality of SFC reports
⚫Implementation of SFC reports
Role of other development authorities
Areas where Part IX & IXA of Constitution do not
apply

62. MoHUA’s -revised memorandum
⚫ The mandatory condition of growth of property
tax in tandem with the growth of gross state
domestic product (GSDP) in order to qualify for
grants, made by us in the report for 2020-21,
may be removed as there is no correlation
between the two. Instead, it should be
mandatory for urban local bodies to notify a road
map for increasing collection of property taxes
and user charges to cover operations and
maintenance cost.

63. MoHUA’s -revised memorandum
⚫A substantial increase in grants is needed
for bridging the resource gap of
municipalities, which is anticipated at Rs.
12.27 lakh crore over the period 2021-22
to 2025-26.
⚫Devolution to municipalities may be
increased by at least four times (Rs.
3,48,575 crore), as compared to the FC-
XIVaward.

64. ⚫Ministry of Jal Shakti and Ministry of EFCC
demanded money for water and clean air
programs
⚫Almost all the State Governments urged
that grants be provided for all the three
tiers of rural local bodies instead of only
Gram Panchayats.