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Business News/ Opinion / Views/  India’s 16th Finance Commission should prioritize urbanization

India’s 16th Finance Commission should prioritize urbanization

  • It should demystify its work, widen public participation and address the need for significantly better funded towns and cities.

There has been a significant increase in city funding through centrally sponsored schemes, with a 500% increase in allocations between 2009-10 and 2020-21.

The wheels have been firmly set in motion for the 16th Finance Commission (FC) with the publication of the Terms of Reference and notification of its chairperson and members. Unlike for the 15th FC, the terms for the latest FC hold no surprises. It sticks to the constitutional mandate, unlike the previous FC, where certain additions triggered debates.

The wheels have been firmly set in motion for the 16th Finance Commission (FC) with the publication of the Terms of Reference and notification of its chairperson and members. Unlike for the 15th FC, the terms for the latest FC hold no surprises. It sticks to the constitutional mandate, unlike the previous FC, where certain additions triggered debates.

Central FCs have also contributed to the country immensely through thought leadership and policy innovations, governance reforms and the like to advance equitable human development in India, besides discharging their core function of recommending formulae for government resource allocation. They are effective in addressing the gap between the Centre and states on their collected resources, referred to as a ‘vertical imbalance,’ and inter-state gaps (which states get how much), or ‘horizontal imbalances.’ The central FC also determines specific allocations for local governments, even as state-level FCs do the same in the context of state finances under Articles 243(I) and 243(Y) introduced by the Constitution (74th Amendment) Act, 1992.

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Central FCs have also contributed to the country immensely through thought leadership and policy innovations, governance reforms and the like to advance equitable human development in India, besides discharging their core function of recommending formulae for government resource allocation. They are effective in addressing the gap between the Centre and states on their collected resources, referred to as a ‘vertical imbalance,’ and inter-state gaps (which states get how much), or ‘horizontal imbalances.’ The central FC also determines specific allocations for local governments, even as state-level FCs do the same in the context of state finances under Articles 243(I) and 243(Y) introduced by the Constitution (74th Amendment) Act, 1992.

Over the years, central FCs have also pushed the envelope on governance and public finance reforms. Streamlining centrally sponsored schemes and unbundling power utilities, for example, and advocating other power-sector reforms and measures for fiscal sustainability at the central as well as state levels.

(graphic:mint)

They have played a significant role for local governments through resource allocation to panchayati raj institutions (PRIs) and urban local bodies (ULBs). Allocations to local governments have risen by 398% to 4.36 trillion between the 13th and 15th FCs. Against the backdrop of Vocal for Local, Lifestyle For Environment (LiFE) and Jan Bhagidari espoused by the prime minister for greater citizen participation in governance, the 16th FC’s potential to transform the governance in general and public finance in particular of India’s cities is immense.

There has been a significant increase in city funding through centrally sponsored schemes, with a 500% increase in allocations between 2009-10 and 2020-21. The allocations and recommendations of the 15th FC have raised the bar for the 16th FC for cities. Raising the share of funding for cities (within local government share) from 30% to 35%, giving only performance-based grants to metropolitan cities, mandating the publication of audited annual accounts on Cityfinance.in, setting base rates and growth rates in property tax as basic eligibility conditions, and pushing for ‘whole of government’ accounting by aligning ULB and state accounts were all progressive recommendations.

While we have been brought up on the adage “India lives in its villages," we should be aware that India is urbanizing at a rapid pace, and over half of us will be living in urban areas by 2050.

Despite the significant increase in funding for cities, city dwellers are gasping due to challenges of flooding, air pollution, availability of quality housing, sanitation, water supply and public transport, among others. India’s major cities face challenges that rival those of mid-sized countries in providing for their residents. The country needs to prioritize urbanization as a distinct development agenda to accomplish its goal of becoming a developed economy by 2047.

Here we offer specific suggestions for raising the salience of the 16th FC by making its work more accessible and visible to citizens at large. These steps would be catalytic as they could set a virtuous cycle of reforms in motion.

First, the 16th FC should consider revamping the Finance Commission of India’s website to publish the rich data that successive FCs have collected. An open data microsite would have a significant catalytic effect on public finance in India, particularly at the state level. The seminal work of FCs across data, research and reform recommendations deserve to be digitally democratized.

Second, it should build a modern and contemporary user interface to crowdsource inputs for their recommendations, with built-in checks for relevance and quality. This would lend an innovative yet much-needed participatory character to its work. The complexity arising from India’s heterogeneity and contextual differences, say every 100km, would benefit significantly from broader engagement and feedback mechanisms.

Third, to ensure diversity, equity and inclusion in its participatory outreach, the new FC could consider meeting with many more mayors and councillors, women’s self-help groups, which are increasingly engaged in public-service delivery, and civil society organizations in not just various state capitals, but also smaller cities and towns. The significance of the long tail of 4,500 small towns with populations of under 100,000 in India’s urbanization and development cannot be over-emphasized, nor the need to mainstream the voices of women, youth and the urban poor in government resource-allocation decisions.

Fourth, the 16th FC should engage the public more on social media to demystify its work and generate wider engagement. Notably, real-time updates on who they meet, and, to the extent they deem it appropriate, a synopsis of the discussions and views represented at such meetings would be extremely useful to generate greater public discourse on this critical agenda.

The 16th FC can be a force for a generational shift in urban public finance and could alter the trajectory of human development in India. Broader public engagement and recognition of its salience is a much-needed first step.

This is the first of a three-part series.

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