The states have not cared to create institutions and systems mandated in the Constitution, including the appointment of the State Finance Commissions, and even when they are appointed, states have not found it obligatory to place their reports in the legislature.
Despite the 73rd and 74th Constitutional amendments, except in a few states, there has been little progress at decentralisation—to both rural and urban local bodies. Most state governments have been reluctant to devolve the functions, funds and functionaries for delivering public services at the local level. The functions assigned are unclear, funds uncertain and inadequate, and decision-making functionaries are mostly drawn from the state bureaucracy. Local bodies do not even have powers to determine the base and rate structure of the taxes assigned to them. The states have not cared to create institutions and systems mandated in the Constitution, including the appointment of the State Finance Commissions, and even when they are appointed, states have not found it obligatory to place their reports in the legislature. In fact, the local bodies are not clear about delivering local public goods, with the prominent agenda of implementing central schemes obscuring their functions.
Admittedly, despite the landmark amendments, the effort at decentralisation reform has essentially been top-down. Part IX was inserted into the Constitution with Article 243 (A to O) specifying matters such as the constitution of local bodies, elections and the functions to be devolved under Schedules 11, 12, and 243 (I and Y) mandating the appointment of the State Finance Commissions by the Governor every five years to balance their functions with funds. Article 280 was seeded with an additional term of reference to the Union Finance Commission to recommend measures for augmenting the consolidated funds of the states to supplement the resources of local bodies. The major ‘birth defect’ of the entire process is that the ownership and responsibility for local governments rests squarely with the state government ensnarled in Entry 5 of the State List in the Seventh Schedule. Thus, the Constitution vests the responsibility of creating and sustaining local bodies entirely to the discretion of the state governments.
Article 243 (G and W), relating to the powers, authority and responsibilities to rural and urban local bodies, merely specifies that the state governments, “….may, by law, endow the panchayats and municipalities with powers and authority to enable them as institutions of self-government and such law may contain provisions for the devolution of powers and responsibilities upon these bodies subject to such conditions as may be specified therein, with respect to the preparation of economic development and social justice , performance of functions and implementation of schemes entrusted to them including those specified in the 12th Schedule”. Thus, it is entirely left for the states to decide, what and how much powers and functions should be devolved to the third level.
There are no easy mechanisms to ensure compliance of even the provisions prescribed in the Constitution by the states. Most states have not complied with the requirement of appointing Gram Sabhas (243 A), Ward Committees (243), District Planning Committees and Metropolitan Planning Committees. There have been several attempts to postpone elections though they are required to hold them well before the expiry of the prevailing elected body or before six months if the body is dissolved for some reason, as required under 243 K and U. Although under Article 243 (I) and (Y), the states are required to appoint State Finance Commissions and place the reports received in the legislature, their records show complete violations of the Constitutional provisions.
One of the major shortcomings in the scheme is the absence of clearly defined revenue sources for local bodies. There is no separate list of tax bases assigned to them in the Constitution, and they have to depend on the state governments to levy the taxes that the states choose to devolve. In fact, even when the taxes like property tax is assigned to them, local bodies do not have the discretion to change the base and rate structure. Any proposal for the change has to be approved by the state government.
What is the role of Union Finance Commission in furthering the decentralisation process? While one would like to think that an organic link is provided to it by seeding an additional term of reference in Article 280, enabling it to act as a champion, a careful reading of the Article shows that the role is confined to recommend measures to augment the Consolidated funds of the states to supplement the finances of local bodies based on the recommendations of the State Finance Commissions. The Union Finance Commission cannot directly transfer funds to local bodies; its job is only to augment the consolidated funds of the States to supplement the resources of local bodies. Again, the role is supplemental and the main responsibility of financing lies at the door of the state governments based on the recommendations of respective State Finance Commissions.
There is some speculation that the Fifteenth Finance Commission will advance the cause of decentralisation and include performance-based incentives in their recommendations. The package of performance-based grants recommended by the Thirteenth Finance Commission (TFC) was discontinued by the Fourteenth Finance Commission (FFC) mainly because it considered that the Constitution gives discretion to the states in choosing the extent and form, and does not suggest a particular model of decentralisation. It also considered that the role of the Union Finance Commission is only supplemental, as stated above. Moreover, according to the performance grants recommended by the TFC, the local governments were to get the performance grants only when the state governments fulfilled the 13 conditions listed! Not surprisingly, states had no incentive to comply.
The FFC considered that it had a limited role in fostering decentralisation in the prevailing Constitutional scheme. It stated, “…We note that … the Constitutional provisions give primacy to the role of the States in this regard, by placing local government squarely in the State List. … In our view neither the TOR nor the Constitution permits the Finance Commission to play any role in the devolution of powers to panchayats and municipalities or to promote a particular model of decentralization.” (Para 9:63; p.111)
How can we move forward on decentralisation? In terms of a legal framework, it is important to specify a separate list of functions and sources of revenue to local bodies to create clarity of functions and independent sources of finance. Second, there should be clear mechanisms to ensure that the states comply with the Constitutional provisions, particularly in the appointment and implementation of the recommendations of the SFCs. Finally, the top-down process must be supplemented with the bottom-up effort. Sustainable decentralisation comes from people’s demand for decentralisation. Unfortunately, there is very little objective intellectual discussion or advocacy based on serious research on the subject which is important for a participatory democracy and responsive local public service delivery.
Chief economic adviser, Brickwork Ratings, and councillor, Takshashila Institution Views are personal