Right track

Finance Commission for direct funding of local bodies

Published: Tuesday 30 November 2004

in a move towards direct funding of Panchayati Raj Institutions (pris) by the Union government, the 12th Finance Commission (fc) has decided to recommend allocating one per cent of the divisible pool of central taxes and duties for pris. This is the first time pris will share the central tax pool with the central and state governments.

The fc is trying to evolve a formula to divide this one per cent among the three tiers of local government (village, block and district levels), sources say. The village panchayats are expected to get a large share of the booty. fc officials, however, refuse to comment on the details of the recommendations.

In the past nine months, the fc has debated three possible ways of funding the pris from the central tax pool: sharing the tax pool, continuing with the 11th fc mechanism of ad-hoc grant to local bodies, and supplementing ad-hoc grants with additional resources. Finally, after hearing representations from pris and considering the resource-crunch in panchayats, it decided in favour of the first option. This was the first time the 12th fc heard local government representatives while finalising its recommendations.

The fc's decision was set in motion during a seminar on panchayati raj finances in January 2004 in Hyderabad. C Rangarajan, chairperson of the 12th fc, acknowledged the considerable gap between the requirement and availability of resources for most local bodies for providing essential services like drinking water and sanitation.

While welcoming the fc decision, experts express doubts about the devolution mechanism of funds. The 11th fc recommended Rs 10,000 crore for local bodies but the utilisation of this amount was highly inadequate. Manoj Rai, Centre for Participatory Research In Asia, a non-governmental organisation, suggests: "The fiscal devolution must be backed by a strict time-frame and functional devolution to panchayats."

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