• The Centre has released the first instalment of the 15th Finance Commission grants for FY 2024-25 to the Rural Local Bodies (RLBs) in Karnataka.

• The funds are meant for all the 5,949 eligible gram panchayats in the state. 

• The government of India through the Ministry of Panchayati Raj and Ministry of Jal Shakti recommends the release of XV-FC grants to the Rural Local Bodies which are then released by the Ministry of Finance. The allocated grants are recommended and released in two instalments in a financial year.

• The grants will be utilised by the RLBs for location-specific requirements under the 29 subjects enshrined in the 11th Schedule of the Constitution, except for salaries and other establishment costs.

The grants can be used for the basic services of:

a) Sanitation and maintenance of ODF status, and this should include management and treatment of household waste, and human excreta and faecal sludge management in particular.

b) Supply of drinking water, rainwater harvesting and water recycling.

Grants for local governments

• The total size of the grant to local governments should be Rs 4,36,361 crore for the period 2021-26.

• Of these total grants, Rs 8,000 crore is performance-based grants for incubation of new cities and Rs 450 crore is for shared municipal services. 

• A sum of Rs 2,36,805 crore is earmarked for rural local bodies, Rs1,21,055 crore for urban local bodies and Rs 70,051 crore for health grants through local governments.

• Urban local bodies have been categorised into two groups, based on population, and different norms have been used for flow of grants to each, based on their specific needs and aspirations.

• Basic grants are proposed only for cities/towns having a population of less than a million. For Million-Plus cities, 100 per cent of the grants are performance-linked through the Million-Plus Cities Challenge Fund (MCF).

What is the Finance Commission?

• The Finance Commission is constituted by the President under Article 280 of the Constitution, mainly to give its recommendations on distribution of tax revenues between the Union and the states and among the states themselves.

• The 15th Finance Commission was constituted on November 27, 2017 against the backdrop of the abolition of the Planning Commission (as also of the distinction between Plan and non-Plan expenditure) and the introduction of the Goods and Services Tax (GST), which has fundamentally redefined federal fiscal relations.

• In November 2020, the 15th Finance Commission, led by chairman N.K. Singh, submitted its report for the period 2021-22 to 2025-26 to the then President Ram Nath Kovind.

What are the functions of Finance Commission?

Two distinctive features of the commission’s work involve redressing the vertical imbalances between the taxation powers and expenditure responsibilities of the Centre and the states respectively and equalisation of all public services across the states.

It makes recommendations on:

• The distribution between the Union and the states of the net proceeds of taxes that are to be, or may be, divided between them and the allocation between the states of the respective shares of such proceeds.

• The principles that should govern the grants-in-aid of the revenues of the states out of the Consolidated Fund of India.

• The measures needed to augment the consolidated fund of a state to supplement the resources of the panchayats in the state on the basis of the recommendations made by the Finance Commission of the state.

• The measures needed to augment the consolidated fund of a state to supplement the resources of the municipalities on the basis of the recommendations made by the Finance Commission of the state.

What are the qualifications required for its members?

As per the provisions contained in the Finance Commission (Miscellaneous Provisions) Act, 1951, and The Finance Commission (Salaries & Allowances) Rules, 1951, the chairman of the commission is selected from among persons who have had experience in public affairs, and the four other members are selected from among persons who:

a) are, or have been, or are qualified to be appointed as judges of a High Court or

b) have special knowledge of the finances and accounts of government or

c) have had wide experience in financial matters and in administration or

d) have special knowledge of economics.

(The author is a trainer for Civil Services aspirants.)