What is on the agenda for the 16th Finance Commission?
- July 2, 2024
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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What is on the agenda for the 16th Finance Commission?
Sub: Polity
Sec: Federalism
Context:
- The 16th Finance Commission (FC) has begun its work, established under Article 280 of the Indian Constitution, primarily focusing on the devolution of the consolidated fund.
More on news:
- Since the 73rd and 74th constitutional amendments, local bodies have gained significant recognition within the federal system.
- These amendments introduced sub-clauses 280(3)(bb) and (c), which mandate the FC to recommend measures to augment State consolidated funds for supporting panchayats and municipalities.
What about cities?
- The National Commission on Urbanisation in the mid-80s described cities as “engines of growth.”
- Cities contribute around 66% of India’s GDP and about 90% of total government revenues.
- Cities, thus, are an important spatial zone for the overall development of the country. However, our economic scale is insufficient to meet rising needs.
What about the taxation system?
- The introduction of the Goods and Service Tax (GST) has reduced ULBs’ tax revenue (excluding property tax) from about 23% in 2012-13 to around 9% in 2017-18.
- IGTs from States to ULBs are very low, with State Finance Commissions recommending only about 7% of States’ own revenue in 2018-19.
- Increasing the quantum of IGTs as a percentage of GDP is necessary.
- Despite the 74th constitutional amendment’s aim to financially strengthen ULBs, progress over three decades has fallen short.
- The 13th Finance Commission observed that parallel agencies and bodies are emasculating local governments both financially and operationally.
- Local governments require support from Union and State governments through funds, functionaries, and technical aid.
How important is the Census?
- In the absence of the 2021 Census, reliance on 2011 data is inadequate for evidence-based fiscal devolution.
- India has approximately 4,000 statutory towns and an equal number of Census towns, with an estimated 23,000 villages, all of which are effectively urban.
- These figures must be captured by the 16th FC, including the significant migration to Tier-2 and 3 cities.
About Finance Commission:
- The Finance Commission is a constitutional body under Article 280 created every five years to recommend the transfer of financial resources from the Centre to the States.
- The Commission also decides the principles on which grants-in-aid will be given to the States.
- The State Finance Commission (SFC) is an institution created by the 73rd and 74th Constitutional Amendments (CAs) to rationalize and systematize State/sub-State-level fiscal relations in India.
- Article 243I of the Constitution mandated the State Governor to constitute a Finance Commission every five years.
- Article 243Y of the Constitution states that the Finance Commission constituted under article 243 I shall also review the financial position of the Municipalities and make recommendations to the Governor.