16th Finance Commission: Local Body Grants and State Autonomy
Why in the news
With the 16th Finance Commission finishing its recommendations, a dispute has arisen over earmarking money straight for local bodies. The Centre wants a stronger third tier; several States say it cuts into their constitutional role and fiscal space.
Key facts
- The Finance Commission is set up under Article 280 to recommend tax devolution to States; recent commissions have leaned more on grants-in-aid for local bodies.
- Local Government is a State subject (List II, Seventh Schedule).
- Conditions reported for local bodies: audited accounts and property tax reforms.
The two sides
| Aspect | States’ view | Supporters’ view |
|---|---|---|
| Conditions | Centre dictates how municipalities are run | Reforms build self-reliance (Atmanirbhar) in the long run |
| Role of SFCs | Their ability to meet local needs is limited | Many states form SFCs late or ignore their advice |
| Fund flow | Direct earmarking bypasses the State | Money reaches the grassroots, not diverted to cover State deficits |
| Tied grants | Local bodies become agents of the Centre | National priorities are met in villages |
Tied grants
- A large share is now tied to sanitation, water supply (Jal Jeevan Mission) and health.
- Gain: national goals reach village level.
- Cost: less freedom to fund unique local needs such as a bridge or market.
Constitutional basis
- The 73rd and 74th Amendments (1992) added Articles 243-I and 243-Y.
- These ask the Commission to suggest steps to augment a State’s Consolidated Fund to supplement local body resources.
Exam angle
- Finance Commission: Article 280; appointed by the President every five years.
- Local Government: Entry 5 of the State List.
- Relevant for UPSC GS-2 (federalism, local bodies) and RBI Grade B ESI.