We live and die in the care of local governments. From birth to death certificates, the everyday context of our lives is shaped by what local governments do (or don?t do): water supply, sanitation, trash collection, traffic planning, tree planting, park maintenance, zoning and addresses are all part of their work. We need them to be responsive and capable, both motivated and able to undertake these tasks.
Their ?coming of age? tale has been a long saga. The Constitution recognised local governments in 1992, the same year that Sebi was formed. Then the plot stalled. The fact that local governance is a state subject under the Constitution has precluded one of the most common dynamics of local government empowerment-from-above. Most of Latin America?s local governments went from non-entities to relatively independent service providers in a decade and a half, for example, when national governments decided to send funds, functions and democratic processes straight to the third tier and skip the second until much later. Their motives may have been centrist?many observers saw the attention to local governments as an effort to undercut state leaders by supporting a weaker, smaller group of rivals?but the effect has been the opposite.
Will the recommendations of 13th Finance Commission report finally overcome these hurdles to produce mature local governance? Maybe, hopefully, but not without breaking the fourth wall, the imaginary dividing line between the actors and the audience. Not without spectator participation in the story. The report deserves the praise it is getting for being a game changer. It secures a buoyant revenue base for local bodies with a clever move around the constitutional prohibition on devolving part of the divisible tax pool to local governments: the Commission recommends annually varying grants-in-aid based on defined shares of the divisible tax pool for the previous year, to be voted in the Union Budget.
The report has some teeth?in rhetoric and reality. Its review of the cycle of recommendations, reiterations and re-recommendations in the past few reports would be almost comic if the unmet goals did not include such basic steps as having credible and complete data on local government finances. The Commission sets aside a quarter of the overall potential grant as a performance grant to be disbursed based on specific criteria for upgrades in state accounting and auditing, streamlining of fund transfers from state to local bodies, and support for property tax administration. Cities must make and publicise clear commitments on service provision, and states must create an independent local body ombudsman to look into local governance problems. The penalty for not meeting these criteria rewards early movers and particularly punishes the laggards.
The most important contribution of the 13th Finance Commission report (at least on local government finance), however, is to set the stage for audience participation in the next act. It sets up a system to motivate performance on process, but these changes are unlikely to improve service provision unless they activate a new wave of political pressure from below.
Accounting and auditing reforms have the greatest impact on outcomes of public expenditure when citizens and citizen groups use this information to demand that the funds flow into the infrastructure and services that they most want. Local accounting supplements to state budget documents may sound like relatively boring additions to the public domain, but they are a treasure trove of information that can be used to identify gaps between rhetoric, intention and action. Researchers and activists today struggle simply to compile information on what funds have left the state for local governments, what has arrived, and how the two match. Never mind assessing spatial patterns, trends, project timelines or other aspects of public spending. Citizens typically operate on even less information?without hours to file right to information acts, pore over miscellaneous tidbits of information and try to piece together a paper trail of conflicting media reports. It can be hard to determine what agency is responsible for a new flyover, much less roadwork for unknown purposes.
Faster and clearer processes for funds transfers from state to local governments are not going to lead to better garbage collection or cleaner water unless somebody watches who is sitting on the money and delaying the implementation of a project or initiation of maintenance. The funds transfer requirement removes a whole set of excuses for poor performance, immediately eliminating the finger-pointing about fund delays, mistakes made in disbursements, and other ?technical problems? affecting local government projects.
Similarly, announcing service level commitments means little unless cities? residents remember them, compare the achievements to promises and vote based on that assessment. The ombudsman creates a formal, recorded space for grievances about local government malfeasance, but it only works if people report corruption and maladministration.
The 13th Finance Commission?s recommendations introduce a new level of transparency into local government finance, but it is up to us to determine the conclusion by using it.
?The author is director, Centre for Development Finance at the Institute for Financial and Management Research, Chennai