16th Finance Commission UPSC | What Local Bodies Can Expect – Governance Analysis

Constitutional Mandate

  • 73rd & 74th Amendments → SFCs every 5 years.
  • Finance Commission (Art 280) must devolve funds to PRIs/ULBs.

Core Issue

  • Large functions but tiny finances for PRIs/ULBs → dependence on states.

Past FC Problems

  • Didn’t assess actual expenditure needs.
  • Switching between % based and lump-sum grants.
  • Inconsistent performance grants.
  • No stable formula for autonomy.

Key Problems

  • Heavy vertical dependence on states.
  • No predictable transfers.
  • FCs not integrating SFC reports.
  • Conditional grants → no long-term structural reform.

What the 16th FC May Do

  • Clear formula for basic + performance grants.
  • Estimate expenditure needs of 2.7 lakh Panchayats + 5000 ULBs.
  • Ensure stable devolution.
  • Strengthen capacity for development & social justice.

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