Discuss various ways to revive local revenue-raising, and widen Urban Local Bodies' functional and fiscal space. (200 Words)
Refer - Financial Express
Enrich the answer from other sources, if the question demands.
IAS Parliament 3 years
KEY POINTS
Five suggestions focused on how to make grant-in-aid work better, revive local revenue raising, and widen ULBs functional and fiscal space are presented here:
· Bring in a hard budget constraint for ULBs: There is enough global evidence to suggest that transfers do not function under conditions of a soft budget where local governments operate sub-optimally in matters of resource raising and service delivery. Setting benchmarks for local revenue raising—a kind of fiscal responsibility—is a prerequisite for a transfer-grant system to become effective;
· Use an index of local revenue effort with a substantial weightage as a key criterion in the interstate allocation of the recommended grant-in-aid: It should work as an incentive for states to provide ULBs autonomy in making choices about tax bases, tax rates, tax exemption, fixing surcharges on state taxes that have a strong local orientation, etc. It will be a major step towards self-governing ULBs;
· Provide a dedicated grant-in-aid window for ULBs to implement those 12th Schedule functions that are drawn from the Concurrent List of the Constitution, such as planning for economic and social development, urban forestry and protection of environment;
· Pull in the Reserve Bank of India (RBI) in the standardisation and publication of a volume on municipal finances, complementary to that on state finances. It is an essential step to assessing the fiscal health of ULBs;
· Initiate a process of amending Article 280(3)(c): In its existing format, this Article is discriminatory to local bodies in that it denies them access to the ‘divisible pool of resources’, and consequently a place in the country’s intergovernmental fiscal framework. Under the existing arrangement, local governments are at best grantee institutions.
· Article 280(3)(c) is also an unusual and cumbersome provision that requires the FCs to make use of the reports of the state finance commission (SFCs) for assessing the requirements of ULBs
