Union and State

IAS Parliament 6 years

KEY POINTS

· As per A-243 (I) of the Constitution, State governments have to constitute SFCs and obtain their recommendations, so that these can be suitably factored in by the Central FC while recommending on the overall devolution from the central pool of divisible resources to the States.

· But, many States have not been setting up their SFCs every five years.

· Also, there are cases where the recommendations of an SFC have neither been formally accepted by the State government, nor were the SFC report laid before the State legislature.

· There are also instances where the State government, despite having accepted its SFC’s recommendations fully or partially, has de-facto not implemented them and dealt with the recommendations in a perfunctory manner.

· These developments have affected empowerment and finances of local bodies.

Suggestions

· Incentivise – The 15^th Finance Commission must incentivize the States to constitute their SFCs and empower their local bodies.

· A portion of the earmarked funds for PRIs and ULBs could be distributed as incentive to States which constitute their SFCs as per the constitutional norm.

· This should empower them to raise tax and non-tax revenue in areas specified by 15^th FC and SFCs.

· Local bodies of States performing better, will gain, which should induce the other State governments to be more conscious of their responsibilities

· Institutionalize – 15^th FC must institutionalize the devolution process to PRIs and ULBs so that, the recommended funds flow to them in a time-bound manner.

· As per the existing system, all funds devolved to States on recommendations of Central finance commissions are directly transferred to State governments’ treasuries.

· The 15^th Finance Commission should recommend that the funds earmarked for PRIs and ULBs, should be managed through Public Financial Management System (PFMS).

· PFMS would track flow of funds on a real-time basis and will eliminate delays in transfers to local bodies.