GS Paper II and III

News Excerpt:

NK Singh, Chairperson of the 15th Finance Commission and the Institute of Economic Growth, suggested that a specific percentage of the Goods and Services Tax (GST) could be allocated to local bodies.

Evolution of Local bodies:

• With the passing of the 73rd and 74th Constitutional amendments, it became mandatory for every state to have rural and urban local self-governments in place and the mechanisms to fund these bodies. It also became compulsory that these bodies carry out elections every five years. 
• With the creation of this local governance, rural and urban local bodies were given the constitutional status that ensured uniformity in their functioning and structure across India.
• At present, there are over 250,000 local self-government bodies across the country, with over 3.1 million elected representatives. Out of this, 1.3 million representatives are women.

Challenges faced by local bodies:

Way Forward:

• Allocation out of GST collections to the third tier is not a function of the Finance Commission but of the GST Council.
• States can negotiate with the Central Government regarding the increment in their share of the taxes, provided by the GST Council.

• The timely formation of a State Finance Commission, functioning similarly to the Central Finance Commission, and the thorough analysis of recommendations, submission to the State Legislature, and presentation reports related to action taken- significantly impact the financial viability of third-tier institutions.
• Necessity of coherence and symmetry in the regulatory framework for the entire urban sector.
• Balancing federalism with investor-friendly policies is essential.
• There is a need for change in processes, procedures, and mindsets of the bureaucrats and developmental banks, to innovate private capital.
• They should use guarantees, hybrid capital, blended finance, and avoid the principle of cascade finance.
• This will allow them and governments to harness private capital more innovatively and creatively than before, avoiding the need for public sector banks waiting for clients.
• There is a need to spend $140 per person per year but instead India spends around $20. Masterplans for transportation and more coherent metropolitan architecture are needed.
• E.g.- Mumbai has 10 Municipal Bodies and 1 Panchayati Raj body running the city.
• The model of certain cities in successful urban planning can be followed.
• E.g.- cities such as Surat and Ahmedabad have seen a drastic reduction of slums.
• Urban planning needs political will to be pushed through to implementation.
• Financial transparency: It builds trust in government among the citizens and courting their willingness to pay their taxes and other levies which in turn maximizes the authority’s budget.
• The local government should pay attention to the preparation, presentation, and dissemination of quality financial information to the citizens in a timely and engaging manner.

Mains PYQ

Q. In the absence of well–educated and organized local-level government system, Panchayats and Samitis have remained mainly political institutions and not effective instruments of governance. Critically Discuss (UPSC 2015)

Q. To what extent, in your opinion, has the decentralization of power in India changed the governance landscape at the grassroots? (UPSC 2022)

Prelims PYQ

Q. Local self-government can be best explained as an exercise in (UPSC 2017)

(a) Federalism

(b) Democratic decentralization

(c) Administrative delegation

(d) Direct democracy

Q. The fundamental object of the Panchayati Raj system is to ensure which among the following? (UPSC 2015)

1. People’s participation in development
2. Political accountability
3. Democratic decentralization
4. Financial mobilization

Select the correct answer using the code given below

(a) 1, 2 and 3 only

(b) 2 and 4 only

(c) 1 and 3 only

(d) 1, 2, 3 and 4