A new funding system envisaged by the government for local bodies from April 1 is likely to deplete their fiscal and functional autonomy and challenge the significance of the State Finance Commission.
The system, being introduced as part of fiscal consolidation initiatives, will do away with the constitutional fund devolution package on the basis of State Finance Commission awards, and for all practical purposes, the local governments will be reduced to an adjunct of the government.
Instead of releasing the general purpose, maintenance, expansion and development funds directly to the account of local governments as fixed by the State Finance Commission, the Finance Department will provide funds in three instalments in March, July, and November against the bills of expenditure submitted by the secretaries of local bodies.
Thus, the commission will become redundant and its recommendations for devolving funds and institutionalising decentralisation of powers will become irrelevant.
Flexibility may go
Local bodies will be deprived of the flexibility to carry over unspent funds allotted for a year to the next financial year. The latest reform is likely to run contrary to the concept of transferring powers to the grass-roots level, and put an end to a fund distribution system that had been in vogue for the past three decades.
Also it would stymie innovations such as preparing a shelf of projects to be completed during a five-year Plan period. Local governments will have to work out only annual projects and will not have to plan beyond a year. All curbs on treasury payments will have a direct impact on the bill clearing process, and the functioning of local bodies.
A draft approach paper of the Fifth State Finance Commission highlighting the issues of fiscal devolution had cautioned that the government may be forced to impose curbs on granting funds and incurring expenditure on many items of local self-government institutions.
Cut in allocation
Currently, the State government devolves 16.6 per cent of the State’s own tax revenue to the local bodies. The financial crisis may force the government to slash the allocation in the coming years, it was pointed out. It also means more stringent financial curbs are in store for local governments, sources said.
