Agenda of 16th FC

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Context: The 16th Finance Commission (FC) has begun its work recently.

Details:

Background on Finance Commission and Urbanization Recognition:

The Finance Commission (FC) under Article 280 of the Indian Constitution focuses on devolution of funds, including for local bodies (panchayats, municipalities).
Amendments like 73rd and 74th have enhanced recognition and mandate for local bodies' financial support.

Main agenda and challenges

Importance of Cities:

Cities contribute significantly to India’s GDP (66%) and government revenues (90%).
They are crucial for national development, but face infrastructure funding gaps estimated at $840 billion.

Issues with Financial Devolution to Cities:

Despite efforts from previous Finance Commissions (FCs), financial support to urban local bodies (ULBs) remains inadequate.
Intergovernmental transfers (IGTs) to ULBs in India are only 0.5% of GDP, far below other developing nations (e.g., Brazil, South Africa).

Taxation Challenges:

Introduction of GST reduced ULBs' tax revenue significantly (from 23% to 9%).
IGTs from states to ULBs are minimal (only about 7% of states' own revenue).

Impact of Parallel Agencies:

Growth of parallel agencies (e.g., MP and MLA local area development schemes) undermines local governments' financial and operational roles.

Importance of Census Data:

Absence of updated census data (since 2011) hampers evidence-based fiscal planning.
India has a complex urban landscape with statutory towns, Census towns, and significant migration to Tier-2 and 3 cities and the census data ensures informed decisions are taken .

FC Principles (15th FC):

Nine guiding principles of the 15th FC require reconsideration, particularly in enhancing property tax collection, maintaining accounts, and allocating resources for essential urban services like health care, waste management, and water supply.

Way ahead for the 16th Finance Commission:

Address the dynamic urbanization in India and ensure substantial increase in IGTs to urban areas.
Consider reports (like McKinsey's) warning of infrastructure deficiencies leading to water and sewage management crises.

Sixteenth Finance Commission

It is the Finance Commission constituted by the Government of India under Article 280 of Constitution. Arvind Panagariya has been appointed as the Chief of the Commission with the main task of determining revenue sharing between Central Government and State Government for a period of five years from April 1, 2026.

The Sixteenth Finance Commission comprises a chairman and various members that are appointed by the President of India. It also consists of one secretary post. The composition is as follows:

●Chairman - Arvind Panagariya, former Vice-Chairman of NITI Aayog

●Member - Ajay Narayan Jha, former member, 15th Finance Commission; former Finance Secretary, Government of India

●Member - Annie George Mathew, former Special Secretary, Department of Expenditure, Ministry of Finance, Government of India

●Member - Manoj Panda, former Director, Institute of Economic Growth

●Part-time Member - Soumya Kanti Ghosh, Group Chief Economic Advisor, State Bank of India

●Secretary - Ritvik Ranjanam Pandey, Joint Secretary, Department of Revenue, Ministry of Finance, Government of India

This article only highlights about the important agendas. For detailed study on 16th FC refer:

https://www.iasgyan.in/daily-current-affairs/sixteenth-finance-commission

Source

https://www.thehindu.com/news/national/what-is-on-the-agenda-for-the-16th-finance-commission-explained/article68356820.ece#:~:text=Not%20all%20of%20them%20but,%2C%20etc.%2C%20deserve%20attention.

PRACTICE QUESTION

Q) Which of the following is NOT a primary mandate of the Finance Commission of India as per its terms of reference under Article 280 of the Constitution?

1. Recommending the distribution of net proceeds of taxes between the Union and the States.

2. Assessing the impact of fiscal measures on the consolidated fund of each State.

3. Reviewing the financial position of the Municipal Corporations in major metropolitan cities.

4. Recommending measures to augment the consolidated fund of States to provide adequate resources to Panchayats and Municipalities.

Options:

A. Only 1 and 2
B. Only 2 and 3
C. Only 3 and 4
D. Only 3

Answer: D

Statement 1 is correct:

●This is a primary mandate of the Finance Commission. The Commission recommends the sharing of taxes collected by the Union between the Union government and the State governments.

Statement 2 is correct:

●This is also within the purview of the Finance Commission's terms of reference. The Commission evaluates the fiscal measures and their impact on the finances of the States, ensuring financial stability and autonomy.

Statement 3 is incorrect:

●The Finance Commission primarily deals with the distribution of financial resources between the Union and the States, and recommends measures to strengthen the financial position of Panchayats and Municipalities, not specifically Municipal Corporations in major cities. This falls more under the jurisdiction of urban development bodies and local governance structures.

Statement 4 is correct:

●This is a correct mandate of the Finance Commission. It recommends measures to augment the consolidated fund of States in order to provide adequate financial resources to Panchayats and Municipalities, thus promoting decentralization and local governance.