Date: 13/12/2022

Relevance: GS-2: Issues and challenges pertaining to the federal structure, devolution of powers, and finances up to local levels and challenges therein.

Key Phrases: Intergovernmental Competition For Producing Maximum Social Utility, Rule By Proxy, Dilution Of The Very Basic Tenets Of Decentralisation, Inadequate Devolution Of Powers, Lack Of Financial Resources, Lack Of Functionaries

Why in News?

• India will celebrate the 30th anniversary of the enactment of the 73rd and 74th amendments of the Indian Constitution next year.
• These constitutional amendments are the cornerstones of decentralisation in India, however, a lot remains to be done to have truly decentralised local bodies in the country.

Key Highlights:

• Decentralisation is supposed to stimulate intergovernmental competition for producing maximum social utility.
• However, the current intergovernmental competition in India is akin to dilution of the very basic tenets of decentralisation and unfortunately, nothing much has changed in the last 30 years,
• Elections in PRIs (Panchayati Raj Institutions) are still irregular.
• In many states, there has been no local body for a prolonged period of time.
• There is still inadequate devolution of powers, a lack of financial resources as well as the perennial problem of Rule by Proxy.

73rd Amendment Act:

• The 73rd Amendment 1992 added a new Part IX to the constitution titled “The Panchayats” covering provisions from Article 243 to 243(O); and a new Eleventh Schedule covering 29 subjects within the functions of the Panchayats.
• This amendment implements article 40 of the DPSP which says that “the State shall take steps to organise village panchayats and endow them with such powers and authority as may be necessary to enable them to function as units of self-government”.

74th Amendment Act:

• Constitution Seventy Fourth Amendment Act, 1992 has introduced a new Part IXA in the Constitution, which deals with Municipalities in article 243 P to 243 ZG.
• The 74th constitutional amendment act mandated the setting up and devolution of powers to Urban local bodies (ULBs) or city governments as the lowest unit of governance in cities and towns.
• Three types of Municipalities - Nagar panchayat (transition from rural to urban), Municipal councils (small towns), and Municipal Corporations (big cities).

Lack of financial resources as a major blockade for Local bodies:

• Both rural local bodies (RLBs) and urban local bodies (ULBs) across the country are under financial stress.
• RLBs are exclusively dependent on grants from State Finance Commissions (SFCs) or Union Finance Commission (UFC) and are rarely able to generate their own revenue.
• It is the responsibility of SFCs not only to devolve resources between the State and the local body but also to recommend measures for local bodies to raise their own tax and non-tax revenues but SFCs in some states are either defunct, or nobody pays any heed to SFCs’ reports.

Key issues with the efficient functioning of SFCs:

1. States do not constitute SFCs:
   • Article 243 I of the Constitution warrants States to constitute SFCs to review the financial position of RLBs and ULBs and make suggestions to the Governor about-
     • distribution of taxes between State and LBs,
     • determination of taxes, duties, etc., which may be assigned to or appropriated by LBs,
     • grants in aid to LBs by the State.
   • As per constitutional provisions, States should have constituted their first SFC by April 1, 1994, and subsequent FCs after expiration of every five years. By 2022, most States should have constituted at least their 5th FC. However, some States have not even constituted their third and fourth SFCs.
2. SFCs work under resource constraints:
   • SFCs are non-permanent bodies and six to seven months are spent finding office space.
   • Later, this is cited as one of the reasons for seeking an extension for submitting the report citing a lack of infrastructural facilities.
3. Lack of accurate and updated data on the finances of the local bodies:
   • The SFCs are not presented with accurate and updated data on the finances of the local bodies. In the absence of data, recommendations by SFCs tend to be the ad-hoc opinion of the chairperson of the SFC, which is not grounded in data.
   • No rigorous fiscal analysis is possible without disaggregated fiscal data for the PRIs and ULBs.
4. Failure to place the ATR before the legislature:
   • Once the SFC submits its report, states are constitutionally bound to lay the explanatory memorandum as to the action taken report(ATR) before the state legislature (Article 243I (4)).
   • There are numerous instances where states have either simply failed in placing ATR before the legislature or taken several years to do so.
5. Failure to implement the recommendations of SFC:
   • Unlike the Union Finance Commission, where the Union Government accepts nearly all recommendations, there are instances of States rejecting even basic requests.
   • They are well within their rights to do so. However, once the recommendations are accepted, the States simply fail to implement them. Bihar is an example. The government simply failed to release the Devolution and Grant of FY 2015-16.

Conclusion:

• Finances at the Union level are always under the democratic watch. However, some states contravene the Constitutional provisions repeatedly without any repercussions.
• States should devolve more powers and resources to local bodies since, “devolution of resources to States and local bodies is not a charity but a Constitutional obligation of the central and state governments respectively. ”

Source: Hindu BL

Mains Question:

Q. Decentralisation is supposed to stimulate intergovernmental competition for producing maximum social utility. However, the current intergovernmental competition in India is akin to the dilution of the fundamental tenets of decentralisation where nothing much has changed in the last 30 years. Comment. (250 words).