Give Rs 94k-cr grants to local bodies: RBI

A study by the Reserve Bank of India (RBI) has recommended that the local bodies be provided with grants of about Rs 94,000 crore so that they can take up developmental programmes.

Pointing out the need to fine tune the way grants were provided to the local bodies, the study released by the central bank today has emphasised that the criteria for devolution of grants across the states should be reviewed.

In order to help the local bodies’ access capital markets, the study — “Strengthening decentralisation - augmenting the consolidated fund of the states by the 13th Finance Commission: A Normative Approach” — has recommended setting up an incentive fund of Rs 6,000 crore. It further said that while giving grants, an element of decentralisation should be inserted in the devolution for share in the central taxes. In addition, the grants should be unconditional.

According to the authors, the release of grants to local bodies should be evenly distributed over the financial year. Also, state governments should transfer the grants promptly and efficiently.

It highlighted the need to incentivise the state governments to set up a data warehouse for the local bodies. Further to it, the study suggested setting up a central pool of fiscal experts of which the state governments can select at least one member of select finance commission.

The report emphasised on providing a timeline to the state governments on the release of share in central taxes. It stressed upon estimating the grants to local bodies on a normative basis.

The study said, “Till such time as the decentralisation truly takes roof and SFCs are well established and recognised, talk directly to the local bodies (at the district level) and think of transferring resources directly to them.”