Most of the state finance commissions set up by provision of article 243 Y seemed to start with a handicap. Most state governments did not have the political will to transfer or share it’s domain of power with a supposedly lower level of governance. With the Courts keeping a close eye on implementation on Local Body reforms these finance commissions were formed by in all states. The reluctance can be judged by time delay between passing of 74th amendment and the date of formation of these commissions. Nearly all states set finance commission to the effect by early 1995.
Most of the information like revenue collected as taxes, tolls, fees from property (House), Ferry, Street-light, Shops, Rickshaws, Bi-cycle, Hats etc. and the expenditure on salary of staff,stationery, postage, rent, electricity charges, etc. was available partially but since no standard format for data maintenance existed, it became difficult to compile such information .Further, lack of uniformity in the maintenance of Accounts and the lack of regular audit of Accounts, also lead to complexities of available local finance data.
The initial recommendation was of all State Finance Commissions was
that following of minimum level of data to be maintained by the Local Bodies . Assessment and collection inputs for various taxes and non-tax revenues, Annual Accounts Register, Cash Book, Posting etc were either missing or clinically and critically fudged with. Register of other assets and liabilities, List of Roads, Wells, Lights, Drains, Sewerage and Water Supply, Buildings (Schools, etc.) presented a different picture of domains of these Urban Local Bodies on paper than the realities.
The foremost recommendations of the First Commissions were a fixed percentage of share of State Taxes had to be transferred to local bodies . Sharing of Motor Vehicle Tax with Urban local bodies was recommended by all State Finance Commissions. The devolution of fiscal powers to the
local bodies in Water Supply, Sanitation/Sewerage, Solid Waste collection and disposal, Primary Education covering Primary Schools , Primary health covering Public Health Sub-Center , roads and culverts and Housing were further recommended. The first state commissions seem to have focused on defining the status of the local bodies ,areas of concern and establish fields where power could be shared . The means therein for devolution seemed to be too time consuming and secondary step to the Commissions. The staffing needs of these local bodies were paid much attention at times leading to the some neglect on core issue of delegation of financial powers to local bodies.
The recommendations of Zakaria committee seemed to help the second state finance commissions . Some credit must be accoladed to Zakaria committee and there forth to the Government of India in setting up of minimum Per Capita Norms for operation and maintenance of Urban local Bodies. It ensured that water supply in nearly all Urban areas was transferred to Municipal Bodies .
Recommendation to sharing of individual tax and non tax revenue were also made. The State had to share a certain percentage of the net proceeds of State’s own tax revenue to ULBs(to the maximum of 4%). Some share of net proceeds of States were earmarked for the incentives to these local bodies for mobilizing revenue from their own sources (nearly 0.5% to 1%).
Share of Entertainment Tax and Mineral Royalty (in case of PR bodies) were common recommendations of all Second State Finance Commissions. that the State Government may consider transfer of entire proceeds of entertainment tax to the Urban Local Bodies.
Most State Commission were also of the view that entire funds may be transferred as untied grants. These funds recommended as untied grants could be utilized by the respective Urban Local Bodies on maintenance and improvement in basic civic services, up gradation of basic
infrastructure, computerization.
Even in revenue raising areas, specially obligatory taxes, the ULBs did not have full autonomy. They were dependent on Government in respect of the rates of the tax and the date from which it was to be levied. Even revision in rates was not in their domain. All state commissions noted that financial autonomy was necessary functional independence.
The third finance commissions fell into east trap of the troubled state and central government relationship. It stems from the the fact that the primary recommendation of most State Finance Commission was plea for higher quantum of Central Finance Commission grants to local bodies .
It seems to had become necessary considering the precarious financial health of many states. It also may be due to the lowered priority being given to local governance in new millennium than the 1990s. The demands of State regards devolution from Center is expected to become fervent citing further pleas of new State finance Commissions based on 243 I and 243 Y. Some commissions went to extent of stating that the investment requirements for creation of infrastructure and other facilities should be met from various Central Government Programs (centrally sponsored schemes JNNURM) and international agencies like the World Bank, Asian Development Bank, etc.
A revelation was that that smaller ULBs (like class III and class IV) had generated more internal income as compared to larger ULBs in the findings of most reports. In the total income of best operating ULBs (2004-05), internal income was only one fourth . This indicated that ULBs were mostly dependent on the external income. Some state commissions stated that 30% of MLAs Constituency Development Fund falling in urban areas should be earmarked for improving core civic services.
All the three commission of all states are of the view that the poor quality of services rendered by the ULBs was due to not only by a constraint of resources but also due to poor staffing and poor quality of management, among other reasons. The resource potentials of ULBs did not match with
their functional responsibilities, leading to near absolute fiscal dependence on State Government. Most of the ULBs were financially weak, generated less resources considering the work they are expected to do, and hence were heavily grant dependent.
All state commissions have stated in the 15 years of functioning have felt the need of sharing of higher percentage of state revenue with local bodies . The poor staffing issue has remained more or less similar through out.
“Status of Implementation of Second SFC Recommendations of in respect of ULBs” as listed in the the third SFC report of nearly all states recognizes the fact that “All the activities listed in the twelfth schedule of the Constitution have not been transferred to the ULBs along with budget,
staff and logistic support.
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