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Decentralisation of powers in State Government

Decentralisation of powers in State Government

Tag: GS 2 || Polity || Local Government || Panchayati Raj, Municipalities

Why in news?

  • The states have not cared to create institutions and systems mandated in the Constitution, including the appointment of the State Finance Commissions.

73rd and 74th Constitutional amendments

  • Despite the 73rd and 74th Constitutional amendments, except in a few states, there has been little progress at decentralisation—to both rural and urban local bodies.


  • 3Fs: Most state governments have been reluctant to devolve the functions, funds and functionaries for delivering public services at the local level.
    • The functions assigned are unclear,
    • funds uncertain and inadequate, and
    • decision-making functionaries are mostly drawn from the state bureaucracy.
  • Taxes: Local bodies do not even have powers to determine the base and rate structure of the taxes assigned to them.
    • One of the major shortcomings in the scheme is the absence of clearly defined revenue sources for local bodies.
    • There is no separate list of tax bases assigned to them in the Constitution, and they have to depend on the state governments to levy the taxes that the states choose to devolve.
    • In fact, even when the taxes like property tax is assigned to them, local bodies do not have the discretion to change the base and rate structure.
    • Any proposal for the change has to be approved by the state government.
  • Institutions: The states have not cared to create institutions and systems mandated in the Constitution, including the appointment of the State Finance Commissions, and even when they are appointed, states have not found it obligatory to place their reports in the legislature.
    • In fact, the local bodies are not clear about delivering local public goods, with the prominent agenda of implementing central schemes obscuring their functions.
    • Admittedly, despite the landmark amendments, the effort at decentralisation reform has essentially been top-down.
  • Part IX: Part IX was inserted into the Constitution with Article 243 (A to O) specifying matters such as the constitution of local bodies, elections and the functions to be devolved under Schedules 11, 12, and Article 243 (I and Y) mandating the appointment of the State Finance Commissions by the Governor every five years to balance their functions with funds.
  • Mechanisms to ensure compliance: There are no easy mechanisms to ensure compliance of even the provisions prescribed in the Constitution by the states.
    • Most states have not complied with the requirement of appointing Gram Sabhas (243 A), Ward Committees (243), District Planning Committees and Metropolitan Planning Committees.
    • There have been several attempts to postpone elections though they are required to hold them well before the expiry of the prevailing elected body or before six months if the body is dissolved for some reason, as required under 243 K and U.
    • Although under Article 243 (I) and (Y), the states are required to appoint State Finance Commissions and place the reports received in the legislature, their records show complete violations of the Constitutional provisions.

Role of Union Finance Commission

  • Article 280: Article 280 was seeded with an additional term of reference to the Union Finance Commission to recommend measures for augmenting the consolidated funds of the states to supplement the resources of local bodies.
  • No direct role: However, a careful reading of the Article shows that the role is confined to recommend measures to augment the Consolidated funds of the states to supplement the finances of local bodies based on the recommendations of the State Finance Commissions.
    • The Union Finance Commission cannot directly transfer funds to local bodies; its job is only to augment the consolidated funds of the States to supplement the resources of local bodies.
    • Again, the role is supplemental and the main responsibility of financing lies at the door of the state governments based on the recommendations of respective State Finance Commissions.
  • 15th Finance Commission: There is some speculation that the Fifteenth Finance Commission will advance the cause of decentralisation and include performance-based incentives in their recommendations.
    • The package of performance-based grants recommended by the Thirteenth Finance Commission (TFC) was discontinued by the Fourteenth Finance Commission (FFC) mainly because it considered that the Constitution gives discretion to the states in choosing the extent and form, and does not suggest a particular model of decentralisation.
    • It also considered that the role of the Union Finance Commission is only supplemental, as stated above.
    • Moreover, according to the performance grants recommended by the TFC, the local governments were to get the performance grants only when the state governments fulfilled the 13 conditions listed. Not surprisingly, states had no incentive to comply.

Way ahead

  • Separate list: In terms of a legal framework, it is important to specify a separate list of functions and sources of revenue to local bodies to create clarity of functions and independent sources of finance.
  • Mechanisms: There should be clear mechanisms to ensure that the states comply with the Constitutional provisions, particularly in the appointment and implementation of the recommendations of the SFCs.
  • Bottom-up effort: The top-down process must be supplemented with the bottom-up effort.
  • Sustainable decentralisation comes from people’s demand for decentralisation.
  • Participatory democracy: Unfortunately, there is very little objective intellectual discussion or advocacy based on serious research on the subject which is important for a participatory democracy and responsive local public service delivery.

Mains question

  • Why states are failing decentralisation? How can we move forward on the decentralisation process?