ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Trust-based Approach for Local Bodies

Fourteenth Finance Commission

The Fourteenth Finance Commission's trust-based approach has made state finance commission reports central to its recommendations on local governments. Given that states have been reluctant towards empowering local governments, only time can tell how states and local bodies respond.

The Fourteenth Finance Commission (FFC) brought cheer to both state and local governments—a 10% increase in devolutions from the divisible pool for the former, and for the latter, a more than threefold increase in grants allocated by the Thirteenth Finance Commission (TFC). The FFC worked out the total grant size to local bodies at Rs 2,87,436 crore to Rs 2,00,292.2 crore for rural and Rs 87,143.8 crore for urban local bodies (ULBs) for the five-year award period of 2015–20 (Finance Commission 2015: para 9.69). The grants are more than double of what the four previous finance commissions recommended. Higher allocations, the FFC considers, will provide financial stability “through assured transfers for planning and delivering of basic services smoothly and effectively” (Finance Commission 2015: para 9.68).

The FFC adopted an approach that contributes to building “trust” between three layers of government—union, state and local (Finance Commission 2015: para 2.20). It felt that “rewards of placing trust would far exceed the costs of administering the conditionalities” (Finance Commission 2015: para 2.22). It decided against decentralisation or devolution indices for allocating grants to local bodies and preferred population and area (Finance Commission 2015: paras 9.63–9.64).1 Enhanced grants, minimum conditions, strengthening state finance commissions (SFCs) and placing trust in local bodies is part of its approach towards local bodies (Finance Commission 2015: para 2.37).

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