While interacting with the FFC, the states appreciated the fact that the Thirteenth Finance Commission had acknowledged the need for providing local bodies with a predictable, buoyant source of revenue and had recommended a grant which was equivalent to a specified percentage of the divisible pool. That FC had brought in a regime which was in the direction of strengthening urban governance in India, when it made a departure from the previous Commissions and divided the grants to be distributed to the states for local bodies into two parts - namely, a basic grant and a performance-linked grant.
It is gratifying to note that the FFC has continued this line and again provided for grants in two parts, the division between the basic grant and the performance grant being 80:20.
While the 80:20 ratio has been maintained for the basic and the performance grant, this Commission has advocated that it is for the state governments to work out a detailed procedure for the disbursal of the performance grant to ULBs. This is a deviation from the recommendation made by the previous FC, which had laid down nine conditions to be fulfilled for the ULBs to lay claim to the performance grant, which were all very relevant and in the form of reforms.
For example, repeated recommendations relating to the strengthening of State Finance Commissions did not make much impact and that seems to be the reason to require the states to prescribe through an Act the qualifications of members of SFCs through passage of legislation. It seems more than clear that many states could not act promptly with respect to these nine reforms, and as a result the total performance grant claimed must be too small.
The FFC, after leaving it to the states to lay down the required procedures, talks of only three eligibility criteria for the urban bodies: the submission of audited annual accounts; an increase in "own-revenues" over the preceding year; and the yearly publication of benchmarks relating to basic urban services.
Further, the FFC has emphatically recommended that no further conditions or directions other than those indicated by the Commission should be imposed either by the central or the state governments for release of funds. This should make it easier for the ULBs to claim most if not all of the performance grant component. In the context of a general unwillingness of both states and local bodies to adopt reform, this change in approach should help.
There are other recommendations also which could help improve the urban governance system in the country. Saying that there is considerable scope for local bodies to improve revenues from their own sources, the FFC puts the onus on the state governments to take measures to augment those resources - by taking action relating to property tax, levy of vacant land tax, sharing of land conversion charges with municipalities, and many others. The importance of municipal bonds as a key source of revenue for the urban bodies has once again been emphasised by this Commission by recommending that local bodies and states explore the issuance of municipal bonds as a source of finance with suitable support from the Union.
Basing its argument on the point that improvements in the quality of basic services are likely to lead to an increase in the willingness of citizens to pay for the services, the FFC says grants to local bodies should be spent on strengthening the delivery of basic services such as water supply, sanitation, sewerage, solid waste management, street lighting, roads and others.
While the FFC has ensured that urban local bodies get more resources during the five-year period from 2015 to 2020, it has also given a detailed agenda for action. Who will monitor whether states are taking these up in all seriousness and providing the required support measures? Since the central government is presently giving shape to two high-profile urban programmes ("Smart Cities" and "500 Habitations"), it would be desirable to introduce these requirements laid down by the FFC as reform conditions to be met by the states during this five-year period.
This would be a major contribution to strengthening urban governance in the country and ensure improvements in basic services delivery across India's cities and towns.
The writer was secretary, Urban Development