RBI study suggests changes in devolution of funds to local bodies
19 Aug 2009
A Reserve Bank of India study, released today has recommended fine-tuning of the micro design of local body grants in view of the recent developments in the central and state finances. The study has also suggested a review of the criteria for the devolution of local body grants across the states.
The study, 'Strengthening Decentralisation - Augmenting the Consolidated Fund of the States by the Thirteenth Finance Commission: A Normative Approach,' under the aegis of the Development Research Group of the Reserve Bank, has made the following suggestions:
* Provide Rs94,451 crore as the local body grant.
* Set up a Rs6,000 crore incentive fund to assist local bodies to access capital market.
* Include a measure of decentralisation in the devolution formula for the share in central taxes.
* Keep grants to local bodies unconditional.
* Ensure even distribution of local body grants released over the fiscal year.
* Ensure that the state governments transfer local body grants promptly and efficiently.
* Provide a uniform template to the SFCs.
* Incentivise state governments to set up a data warehouse for the local bodies.
* Set up a central pool of fiscal experts from which the state governments may select at least one member of SFC.
* Provide a time line to the state governments linked to the release of share in central taxes for making progress in the arena of SFC.
* Estimate the grants to local bodies on a normative basis.
Till such time as the decentralisation truly takes root and SFCs are well established and recognised, talk directly to the local bodies (at the district level) and think of transferring resources directly to them.
Development Research Group (DRG) is constituted in the RBI's Department of Economic Analysis and Policy for undertaking effective policy-oriented research backed by strong analytical and empirical basis on subjects of current interests.
RBI, however, said the study, conducted by Abhay Pethe of the University of Mumbai along with an RBI research team consisting of BM Misra (adviser DEAP) and Rakhe PB (research officer at DEAP), does not represent the RBI view.