The Fourteenth Finance Commission has more than doubled the grant for local bodies and recommended that nearly all of this money be spent on improving basic services.
In its report, which covers the period between 2015 and 2020, the commission has fixed the grant at Rs 2.87 lakh crore - over Rs 2 lakh crore more than the Thirteenth Finance Commission's.
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Of this money, nearly Rs 2 lakh crore has been allotted to panchayats, while the rest will go to municipalities. According to the central government, there are over 2.6 lakh panchayats in India. The Finance Commission's report notes the allotted grant works to Rs 488 per capita per annum.
The commission has divided the grant in two parts: A basic part and a performance part. The performance part would be dependent two factors. One, the local authority would need to have an audited account for the previous year. Second, it will have to demonstrate that it has increased its own revenue over the previous year.
In the case of gram panchayats, the commission has recommended the ratio between basic and performance grant as 80 and 20, while in the case of municipalities it has been kept at 90 and 10. To improve the utilisation of funds, the commission has recommended the grants should go directly to the gram panchayats and municipalities, without any share for other levels.
The commission has also asked the state governments to take action to facilitate local bodies to compile accounts and have them audited in time. To improve the resources of local bodies, the Finance Commission has suggested the state governments to empower local governments to impose advertisement tax and to assign productive local assets to panchayats.
The Commission also said "it is of the view that mining puts a burden on the local environment and infrastructure and therefore, it is appropriate that some of the income from royalties be shared with the local body in whose jurisdiction the mining is done. This would help the local body ameliorate the effects of mining on the local population."