CAG to audit municipalities in context of 74th constitutional amendment

The CAG audit looks into utilisation of grants that are released from the Centre to ULBs on recommendations of the finance commission

The Comptroller and Auditor General of India (CAG) has decided to audit the urban local bodies (ULBs) to bring out the performance of these authorities in the context of the 74th constitutional amendment carried out in early 1990s and respective state Acts.

Sources said that the audit of the implementation of the amendment is aimed at a holistic performance audit of these bodies.

The audit, to be carried out in the states, is based on the provisions of the amendment and the state Acts governing ULBs as well as rules and manuals framed there under.

The sources said empowerment of ULBs through the creation of a robust institutional framework as well as devolution/ transfer of functions, funds and functionaries is the key area of assessment.

They pointed out that financial grants to ULBs are released from the Centre through the states based on recommendations of the finance commission. "The CAG audit looks into utilisation of such grants," one of them said.

According to the 15th Finance Commission and studies conducted by think tanks, barring a few states, most of the state finance commissions (SFCs) have been rendered ineffective and toothless by the state governments, and many have not set up new SFCs after the stipulated five-year period. This impacts the flow of funds and the necessary devolution of powers to local bodies.

"The SFCs need to play a much more critical role in recommending taxes assigned to municipalities and other local governments and related financial relations between the States and their municipalities,” the 15th Finance Commission had said in its report for the period 2021-2026. It added that there is a need to ensure consistency in the operation of SFCs and to ensure their continuing collaboration with Central Finance Commissions.

Some municipal bodies such as Surat were also required to go for a CAG audit when they went to raise funds through bonds. The sources said this time the audit will be a comprehensive study and not limited to a few specific initiatives.

They said while CAG had conducted audits of the ULBs earlier too, this time it would be holistic in nature in the context of the 74th amendment to the Constitution.

"What was the objective of that amendment? Whether those were fulfilled or not are some of the aspects the CAG would determine,” another source said.

While the Directive Principles of State Policy refer to village panchayats, there is no specific reference to municipalities except indirectly in Entry-5 of the State List. This entry places the subject of local self-government as a responsibility of the respective state.

As such, the 74th constitutional amendment was introduced in Parliament in 1991 and enacted in 1993. It introduced a new part 'IXA' in the Constitution, which deals with the issues relating to municipalities.

The main provisions introduced by the above Act included the constitution of municipalities. It provided for three types of municipalities -- Nagar Panchayat, Municipal Council, and Municipal Corporation depending upon the size and area. The Municipal Corporation is the biggest of the three. It is left for the states to decide the area under these bodies. There have to be direct elections for these municipalities after every five years, according to the amendment.

The amendment left it to the state legislatures to specify the powers and responsibilities of the municipalities with respect to the preparation of plans for economic development and social justice and for the implementation of schemes as may be entrusted to them.

It has also been left to the state legislature to specify by law matters relating to the imposition of taxes by these municipalities.