Syllabus: Devolution of powers and finances up to local levels and challenges therein.
Constitutional and Budgetary Context
- The 16th Finance Commission report was tabled in the Lok Sabha on February 1.
- It sets the framework for tax devolution between the Centre and States.
- The Commission recommended a record ₹3.5 lakh crore allocation for Urban Local Governments.
Scale and Significance of Urban Grants
- The allocation covers five years of transfers to Urban Local Governments.
- Funds are devolved through Central and State government grants to municipalities.
- Janaagraha analysis states allocation equals Centre’s scheme spending over the last 13 years.
- The report highlights potential to improve first-mile infrastructure in smaller towns and cities.
Urbanisation Premium and Incentives
- A dedicated ₹10,000 crore urbanisation premium grant has been recommended.
- The grant aims to incentivise rural-to-urban transition processes.
- It supports towns experiencing rapid demographic and spatial expansion.
Change in Share of Local Government Grants
- The Commission allocated 45% of total local government grants to urban bodies.
- This marks an increase from 36% under the previous Finance Commission.
- The shift signals greater policy emphasis on urban governance and service delivery.
Comparison with 15th Finance Commission
- The 15th Finance Commission allocated ₹1.5 lakh crore for 2021–26.
- The 16th Commission raised allocations by approximately 230% for the next period.
- The scale reflects growing fiscal recognition of urban development needs.
Inter-State Variation in Urban Grants
- Kerala recorded the highest increase, exceeding 400% in urban allocations.
- Himachal Pradesh experienced a decline of nearly 50% in such grants.
- Variations reflect differential urbanisation patterns and fiscal criteria.
Structure of Grants
- Over 60% of grants are classified as basic grants.
- Tied grants support sanitation and water supply services.
- Untied grants address location-specific needs, excluding salaries and establishment costs.