Tie state grants to local body devolution

Related measures to map, augment municipal resources.

The Thirteenth Finance Commission has proposed to award up to 2.50 per cent of the divisible pool of resources during 2009-14 as grants to local bodies, which includes panchayati raj institutions (PRI) and urban local bodies (ULB).

The basic grant is to comprise 1.5 per cent, whereas up to 1 per cent would be a performance-based component. All states would be eligible. The performance grant is to be effective from 2011-12 and will be 0.5 per cent for 2011-12 and 1 per cent for the next three years. The total recommended grant for local bodies is Rs 87,519 crore.

To ensure proper utilisation, the Finance Commission has proposed that state governments be eligible for general performance grant and special areas performance grant only if they comply with some stipulations.

The performance-based component is to available only to those states who comply with Finance Commission guidelines by 2011-12. This is aimed at improving the functioning of local bodies, ensuring predictability and transparency in transfer of funds, and enhancing the functioning of State Finance Commissions.

The Finance Commission also showed concern on non-utilisation of funds allocated to local bodies by previous commissions. While there was some improvement over 2005-09, compared to those of the 10th and 11th Finance Commissions, still ULBs and PRIs were unable to use 10.6 per cent and 7.4 per cent, respectively, of the money in 2005-09.

In the 12th Finance Commission period, the amount allocated for PRIs and ULBs were Rs 18,000 crore and Rs 4,500 crore, respectively. The amount drawn by PRIs and ULBs in the same period was Rs 16,664.8 crore and Rs 4,024.5 crore.

On property tax collection, the Finance Commission said only about Rs 4,500 crore on this head is collected in a year, the total across 36 cities. It says large cities take in no more than 63 per cent of the total assessment. It suggested local bodies do more to exploit this potential; it wants the collection level in all states to reach at least 85 per cent, which would translate to an addition of Rs 22,000-32,000 crore in a year.

It also wants every state to establish a Central Valuation Board, on the lines of the West Bengal Central Valuation Board, to standardise property assessment and valuation. It also suggested the states institute a geographic information system (GIS) for mapping all properties in cities, which will result in increased coverage.

The Finance Commission also urged states to incentivise revenue collection by local bodies, including mandating some or all local taxes as obligatory. And, that states strengthen their local fund audit departments.

To ensure accountability in states, the Commission said recommendations of any State Finance Commission (on devolution within a state) be implemented without delay and the Action Taken Report be placed before the legislature at the earliest.