Local body grants
Topic: Fiscal Federalism: Finance Commission, Devolution and Centre-State Finances · NCERT: Beyond NCERT
Meaning
Local body grants are Finance Commission grants to panchayats and municipalities, which make up the third tier of government. Part of the money is tied to sanitation and water. They matter because local bodies have very weak own revenue: municipal revenues are only about 0.6% of GDP. Local bodies can tax only what the state legislature allows.
Example
The totals have grown with each Commission:
- 14th FC (2015-20): ₹2.87 lakh crore.
- 15th FC (2021-26): ₹4.36 lakh crore.
- 16th FC (2026-31): ₹7.91 lakh crore, of which ₹4.35 lakh crore is rural and ₹3.56 lakh crore is urban.
Under the 16th FC, 80% are basic grants and 20% are performance grants. Basic grants are half untied and half tied. To get any grant, local bodies must be duly constituted and publish their accounts, and the state must set up its State Finance Commission on time.
Don't confuse with
- State Finance Commission: set up by each state under Art. 243I, it recommends transfers from the state to its local bodies. The Union Finance Commission recommends grants from the Centre.