STRENGTHENING DECENTRALIZATION - Augmenting the Consolidated Fund of the states by th Thirteenth Finacnce Commission: A NORMATIVE APPROACH

Abstract

One of the terms of reference of the Thirteenth Finance Commission (ThFC) calls upon the Finance Commission to look at ‘Measures needed to augment the consolidated fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of the recommendations made by the Finance Commission of the State’. In view of this, the present study examines issues related to fiscal federalism at the third tier in general and grants to local bodies in particular. It is well documented in the literature that the state of finances of local bodies, both urban and rural, displays a dismal picture in India. In contrast, the finances of the Central and State Governments are on a healthier track with the implementation of the rule based fiscal framework. The study opines that there is a need to fine tune the micro design of grants for local bodies (both urban and local) and their devolution across the States.