CONTEXT – The 5th State Finance Commission has recommended that the state government should increase devolution to local bodies, Panchayat Raj institutions (PRIs) and urban local bodies (ULBs), including the Bruhat Bengaluru Mahanagara Palike (BBMP)

5TH STATE FINANCE COMMISSION

The state government constituted fifth state finance commission by appointing former Lok Sabha member and Congress leader C Narayanaswamy as its head. The commission will review the financial position of the Zilla Panchayats, Taluk Panchayat

NOTE – The Karnataka government haD constituted the fourth State Finance Commission with CG Chinnaswamy as Chairman and HD Amaranathan and H Shashidhar as members in 2015

STATE FINANCE COMMISSION

• Article 243-I of the Constitution of India mandates the establishment of a Finance Commission in every state appointed by Governor of state
• This provision ensures that local bodies, such as panchayats and municipalities, receive a share of the state’s financial resources.
• The tenure of a State Finance Commission is determined by the state government. The commission is appointed periodically to review and make recommendations on fiscal matters related to local bodies
• Functions of State Finance Commission:
  • The primary functions of a State Finance Commission include:
  • Reviewing the financial position of local governments within the state.
  • Recommending principles for the distribution of state revenues to local bodies.
  • Suggesting measures to improve the financial health of local bodies.
  • Assesses the impact of grants-in-aid provided by the state government to local bodies. It recommends measures to enhance the effectiveness of such grants in supporting local governance and development.
• Criteria for Distribution: SFCs consider various criteria when recommending the distribution of funds, including population, area, revenue-raising capacity, and the responsibilities assigned to local bodies. The goal is to ensure an equitable distribution of resources

FUNDS TO LOCAL BODIES IN KARNATAKA

• Tax on buildings and lands, levy water rate, tax on entertainment, vehicles, advertisement and hoarding and collect market fee, fee on bus stands and on grazing cattle
• Charge fee on property used by others, and they do not have powers to levy taxes
• proceeds from cess on land revenue, surcharge on stamp duty levied by the State Government
• Except for these, the panchayats have to depend solely on the resources transferred from the Government
• Devolution by government through state finance commission

ANALYSIS OF THE KEY ASPECTS AND IMPLICATIONS OF DEVOLUTION TO LOCAL BODIES BY STATE FINANCE COMMISSIONS:

1. Fiscal Decentralization: Devolution through SFCs is a mechanism for fiscal decentralization, promoting the idea that local governments should have control over their finances and decision-making. This enhances local autonomy and allows for the tailoring of development initiatives to meet the specific needs of communities.
2. Equitable Distribution: SFCs play a crucial role in recommending principles for the equitable distribution of financial resources between the state and local bodies. This ensures that funds are allocated fairly, considering factors such as population, area, revenue-raising capacity, and the responsibilities assigned to local bodies.
3. Local Development Initiatives: Devolution empowers local bodies to plan and implement development initiatives according to the priorities of their communities. This can lead to more effective and context-specific projects that address the unique challenges and requirements of local areas.
4. Participatory Governance: Devolution fosters participatory governance by involving local communities in decision-making processes related to resource allocation and project implementation. This enhances democratic practices and promotes citizen engagement in local development.
5. Capacity Building: Devolution is an opportunity for local bodies to build their administrative and financial management capacities. As they gain experience in managing funds and projects, local governments can become more efficient and accountable in delivering services to their constituents.
6. Transparency and Accountability: The devolution process, when accompanied by transparency measures, ensures that the allocation and utilization of funds are open to public scrutiny. This transparency fosters accountability at both the local and state levels, reducing the risk of mismanagement or corruption.
7. Challenges in Implementation: Despite the positive intentions, challenges in the effective implementation of devolution may exist. These can include bureaucratic resistance, inadequate capacity at the local level, and issues related to monitoring and evaluation of projects.
8. Impact on Service Delivery: Devolution can have a positive impact on service delivery, as local bodies are better positioned to understand and address the immediate needs of their constituents. This includes the provision of basic amenities, infrastructure development, and social services.
9. Funding Stability: Devolution provides local bodies with a more stable and predictable source of funding. This stability is crucial for planning and executing long-term development projects and ensures that local bodies are not overly dependent on ad-hoc grants.
10. Need for Continuous Evaluation: The effectiveness of devolution strategies should be subject to continuous evaluation. Regular assessments of the impact on local development, governance structures, and fiscal sustainability are essential to refine policies and address emerging challenges.