Illustrates the key aspects of fiscal federalism, focusing on local finance and resource allocation.
Illustrates the key aspects of fiscal federalism, focusing on local finance and resource allocation.
Article 280: Finance Commission
73rd & 74th Amendments
Property Tax
State & Central Grants
12th Schedule (18 Items)
Decentralized Service Delivery
Vertical Fiscal Imbalance
Strengthening SFCs
Article 280: Finance Commission
73rd & 74th Amendments
Property Tax
State & Central Grants
12th Schedule (18 Items)
Decentralized Service Delivery
Vertical Fiscal Imbalance
Strengthening SFCs
Constitutional Basis:
- Articles 268-281 deal with financial relations between the Centre and States.
- Article 280 mandates the constitution of a Finance Commission (Central) every five years to recommend devolution of central taxes and grants to states.
- Article 243I (for Panchayats) and Article 243Y (for Municipalities) mandate the constitution of a State Finance Commission (SFC) every five years to review the financial position of local bodies.
Revenue Sources for ULBs:
- Own sources: Property tax, professional tax, entertainment tax, octroi (abolished in many states), user charges, fees, and non-tax revenues.
- Assigned revenues: Taxes collected by state governments but assigned to ULBs.
- Grants: From state government (based on SFC recommendations) and central government (e.g., through Central Finance Commission recommendations or Centrally Sponsored Schemes).
- Borrowings: From financial institutions or through municipal bonds.
Expenditure Responsibilities for ULBs:
- As per the Twelfth Schedule (18 items) of the Constitution, including urban planning, roads, water supply, sanitation, public health, slum improvement, and urban poverty alleviation.
Inter-governmental Transfers:
- Central Finance Commission (CFC) Grants: Recommendations for grants to states, which then devolve funds to ULBs.
- State Finance Commission (SFC) Recommendations: Devolution of state's own taxes, duties, tolls, and fees to ULBs; grants-in-aid from the Consolidated Fund of the State.
- Centrally Sponsored Schemes: Funds for specific schemes (e.g., Smart Cities, AMRUT) flow from Centre to States and then to ULBs.
Challenges:
- Vertical imbalance (revenue sources vs. expenditure responsibilities), horizontal imbalance (disparities among ULBs), political interference in fund allocation, lack of financial autonomy, and weak own-revenue generation.
Illustrates the key aspects of fiscal federalism, focusing on local finance and resource allocation.
Fiscal Federalism & Local Finance
Constitutional Basis:
- Articles 268-281 deal with financial relations between the Centre and States.
- Article 280 mandates the constitution of a Finance Commission (Central) every five years to recommend devolution of central taxes and grants to states.
- Article 243I (for Panchayats) and Article 243Y (for Municipalities) mandate the constitution of a State Finance Commission (SFC) every five years to review the financial position of local bodies.
Revenue Sources for ULBs:
- Own sources: Property tax, professional tax, entertainment tax, octroi (abolished in many states), user charges, fees, and non-tax revenues.
- Assigned revenues: Taxes collected by state governments but assigned to ULBs.
- Grants: From state government (based on SFC recommendations) and central government (e.g., through Central Finance Commission recommendations or Centrally Sponsored Schemes).
- Borrowings: From financial institutions or through municipal bonds.
Expenditure Responsibilities for ULBs:
- As per the Twelfth Schedule (18 items) of the Constitution, including urban planning, roads, water supply, sanitation, public health, slum improvement, and urban poverty alleviation.
Inter-governmental Transfers:
- Central Finance Commission (CFC) Grants: Recommendations for grants to states, which then devolve funds to ULBs.
- State Finance Commission (SFC) Recommendations: Devolution of state's own taxes, duties, tolls, and fees to ULBs; grants-in-aid from the Consolidated Fund of the State.
- Centrally Sponsored Schemes: Funds for specific schemes (e.g., Smart Cities, AMRUT) flow from Centre to States and then to ULBs.
Challenges:
- Vertical imbalance (revenue sources vs. expenditure responsibilities), horizontal imbalance (disparities among ULBs), political interference in fund allocation, lack of financial autonomy, and weak own-revenue generation.
Illustrates the key aspects of fiscal federalism, focusing on local finance and resource allocation.
Fiscal Federalism & Local Finance