The 16th Finance Commission's agenda
As per the Indian Constitution's Article 280, the 16th Finance Commission (FC) of India has commenced its functions. This is to guarantee that all governmental levels, including local ones, receive an equitable part of the combined fund. The most recent amendments, the 73rd and 74th, have improved local governments' status in the federal system and instructed the Commission to investigate ways to increase the amount of money that panchayats and municipalities get.
Cities' Importance to the Indian Economy
India's cities are significant economic centers, accounting for 90% of government revenue and roughly 66% of the nation's GDP. This significant contribution demonstrates the importance of cities for the development of the country. Despite this, cities still face significant challenges, such as inadequate funding from higher government levels, which makes it more difficult for them to expand their current infrastructure and construct new ones.
Difficulties with Urban Local Bodies' (ULBs') Fiscal Devolution
The state and federal governments provide Urban Local Bodies (ULBs) with approximately 0.5% of the GDP. Compared to other developing nations, this is far less. Intergovernmental transfers (IGTs) are what we term this. The financial situation of towns has gotten worse due to this lack of assistance, which has a detrimental effect on city productivity and living conditions. Furthermore, ULBs' income streams have significantly shrunk since the Goods and Services Tax (GST) was implemented, increasing their dependence on the volatile IGTs.
Concurrent Organizations and Fiscal Inversion
Although constitutional amendments were intended to give local governments additional authority, they have instead lost more and more control over their operations and budgets. It is more difficult for local governments to perform their obligations effectively and maintain financial stability as a result of these overlaps. Furthermore, initiatives such as the Member of Parliament Local Area Development Scheme further complicate matters financially by altering the way scheduled fiscal devolutions and employment are implemented.
The Need for Current Census Information
It is more difficult to implement devolutions and evidence-based economic policies when the 2021 Census is postponed. Starting with data from 2011 obscures the significant shifts in population and urbanization, particularly the expansion of already-existing cities and the emergence of numerous new ones. For the 16th Finance Commission to make informed decisions regarding its expenditure of funds, precise and current data is required.
Suggestions for the Finance Commission of 16
In order to enhance cities' financial well-being and infrastructure, the 16th Finance Commission must focus on a number of critical matters. These include advocating for a significant increase in the GDP share allotted to IGTs for ULBs, modifying property tax laws to conform to state GST regulations, and guaranteeing funding for essential services like garbage collection, water, and sewerage. If Indian cities are to continue developing as major economic hubs, they will have to address these issues.