Model Answer
0 min readIntroduction
Financial suitability, for Urban Local Bodies (ULBs), signifies their capacity to independently and sustainably fund their mandated functions – provision of basic services like water supply, sanitation, waste management, and urban planning. Despite the 74th Constitutional Amendment Act, 1992, which aimed to empower ULBs, their financial autonomy remains severely limited. ULBs largely depend on state governments for funds, creating a situation where their ability to deliver essential services is perpetually constrained. The question highlights a fundamental truth: true financial empowerment of ULBs is contingent upon receiving their legitimate share of public finances.
Current Financial Landscape of ULBs
The financial resources of ULBs in India are derived from three primary sources:
- Own Funds: Property tax, water charges, user fees, and revenue from markets. These constitute a relatively small portion of total revenue, often hampered by low tax collection efficiency and political reluctance to revise rates.
- State Government Transfers: Grants, shares of state taxes (like stamp duty and vehicle tax), and funds for specific schemes. This is the largest source of funding, but is often discretionary and insufficient.
- Central Government Transfers: Grants recommended by the Finance Commission, and funds under centrally sponsored schemes. While important, these are often tied to specific projects and don’t contribute to core revenue.
The Gap in Financial Resources
Despite the constitutional mandate for devolution, ULBs face a significant resource gap. Several factors contribute to this:
- Inadequate Tax Devolution: State Finance Commissions (SFCs) are mandated to recommend tax devolution to ULBs, but their recommendations are often not fully implemented by state governments.
- Dependence on Grants: Over-reliance on grants makes ULBs vulnerable to political and administrative delays. It also disincentivizes them from improving their own revenue generation.
- Limited Borrowing Powers: ULBs often lack the creditworthiness to access market borrowing, further restricting their financial options.
- Weak Revenue Mobilization: Low property tax coverage, inefficient collection mechanisms, and resistance to cost recovery for services contribute to weak revenue mobilization.
Why a Due Share of Public Finances is Crucial
Receiving their due share of public finances is essential for ULBs to achieve financial sustainability and effectively fulfill their responsibilities. This would enable them to:
- Invest in Infrastructure: Adequate funds would allow ULBs to invest in essential infrastructure like roads, water supply, and sanitation, improving the quality of life for citizens.
- Improve Service Delivery: Financial autonomy would empower ULBs to provide better quality and more reliable services, reducing dependence on state government intervention.
- Strengthen Urban Planning: ULBs could invest in comprehensive urban planning, addressing issues like congestion, pollution, and affordable housing.
- Promote Local Economic Development: Financial resources would enable ULBs to support local businesses and create employment opportunities.
Finance Commission Recommendations
Successive Finance Commissions have emphasized the need for greater financial devolution to ULBs. The 15th Finance Commission (2020-2026) recommended increasing the share of the divisible pool of taxes for local bodies, and incentivizing states to implement SFC recommendations. It also suggested performance-based grants to ULBs based on indicators like service delivery and financial management. However, implementation remains a challenge.
| Constitutional Amendment | Key Provisions related to ULB Finances |
|---|---|
| 74th CAA, 1992 | Mandated SFCs, tax devolution, and assignment of functions to ULBs. |
| 12th & 13th Finance Commissions | Recommended grants to ULBs based on population and performance. |
| 15th Finance Commission | Increased share of divisible pool, performance-based grants, incentivizing SFC implementation. |
Conclusion
In conclusion, the financial suitability of ULBs is inextricably linked to their access to a fair and predictable share of public finances. While constitutional provisions and Finance Commission recommendations provide a framework for devolution, effective implementation by state governments is crucial. Strengthening the financial autonomy of ULBs is not merely an administrative issue; it is fundamental to achieving inclusive and sustainable urban development, and realizing the vision of truly decentralized governance in India.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.