On September 23rd, CAG of India’s Audit Report on Union Government (Finance Accounts) for the year 2018-19 got tabled in parliament. This showed a savings of Rs 5000 crore or more by way of non-disbursal of grants, which included savings worth Rs 15,669.92 crores due to lower payments by way of ‘Grants for Local Bodies’.
When this was pointed out by the national auditor to the department responsible for these disbursements to state governments, it stated:
“(These savings) were attributed by the Department to non-fulfillment of prescribed terms and conditions for release of grants by some State Governments.”
The 74th Constitutional Amendment has paved the way for decentralised planning and governance with devolution of several functions to local governments. However, these devolved functions can be carried out effectively by Panchayati Raj Institutions and Urban Local Governance Institutions only when they have sufficient funds.
How do these local institutions secure funds? That, according to the CAG of India’s performance audit report on Implementation of the 74thConstitutional Amendment Act in Karnataka, can happen if and only if “predictable fiscal transfers are ensured through a robust State Finance Commission mechanism and compliance with State and Central Finance Commission recommendations.”
Some may argue that the 74th Constitutional Amendment also provides for empowering ULBs to raise their own revenue, but as this performance audit has shown, about 63% of the revenue of ULBs in Karnataka during the period under review was from intergovernmental fiscal transfers.
In an article titled, ‘India’s cities drive economic growth but are short on resources, how can the gap be bridged’, Meera Mehta, Dinesh Mehta and Dhruv Bhavsar states:
When compared to the global experience, municipal corporations in India lag far behind in, both, the extent of inter-governmental transfers that they receive as well as in their own revenues. In India, the share of such transfers to municipal governments is estimated to be 0.45% of the GDP. In Brazil, Indonesia, the Philippines and Mexico, such transfers accounted for 5.1%, 5.4%, 2.5% and 1.6% of their GDPs respectively. In some European countries, it was as high as 6 to 10% of GDP.
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