PSIR Optional (Panchayati Raj and Democratic Decentralisation) by Viraj C. Rane

Model Answer

Question #1. The letter and spirit of the 74th constitutional amendment appears to have been sacrificed at the altar of political practice. Discuss it in the light of Delhi Municipal Corporation (Amendment) Bill 2022. 

Approach: 

• Introduction: The mandate of the 74th CAA and the ground reality.
• Body: The merger of MCDs in Delhi and the criticism. 
• Conclusion: Decentralization in true spirit is required to address the challenges of urbanization

Hints: 

The 74th constitutional amendment act mandated the setting up and devolution of powers to Urban local bodies (ULBs) as the lowest unit of governance in cities and towns. Municipalities are responsible for urban planning, regulation of land use, panning economic and social development, water supply, public amenities etc.

Although it recommended sweeping changes concerning the autonomy of the urban local bodies (ULBs), the promotion of decentralisation of power, and formation of appropriate structures and functions, unfortunately, it failed to see its real implementation at the field level. Local self-government is a state subject and states too were found lacking in taking proactive actions. Issues such as functional devolution to ULBs, strengthening their fiscal health and their comprehensive empowerment as a vibrant democratic unit of self-government are indeed central to the governance of cities.

Financial Situation of ULBs 

• With only a few taxes and fees in the hands of local government, the amount of internal revenues generated remains low.
• RBI in a report, “State Finances, Study of Budgets of 2021- 22” highlights the limited coverage of property tax and its failure in shoring up municipal corporation revenues. OECD) data show that India has the lowest property tax collection rate in the world — i.e., property tax to GDP ratio.
• This creates high level of dependency on fiscal transfers from the State, even for routine functions

Delhi municipal corporation amendment act 2022 

• the merger marks a return to the situation that prevailed before the trifurcation in 2011 when the Delhi Municipal Corporation combined the physical jurisdictions of the three municipal bodies. The new Act undoes the division brought about by the Delhi Municipal Corporation (Amendment) Act, 2011. 
• Disparities in revenues due to difference in income of the residents in the three MCDs. South MCD had more revenue income than the rest. 
• On the ground, what this disparity translated into was a frequent problem of cash flow that led to a lack of resources to carry out assigned tasks and delays in salaries; and generally served to aggravate infrastructure and sanitation problems in Delhi as the frequency of MCD employee strikes increased. 
• The ongoing pandemic has made the financial situation of the three Delhi municipal corporations worse. 
• In recent years, the matter has been further complicated by a tussle between the ruling government in Delhi and the Centre which is currently in charge of the MCD. The latter has frequently accused the former of blocking funds to the three municipal corporations. Besides, many observers have pointed out that New Delhi, has too many municipal corporations that are not really required.

Criticism:

• Although the plan was to decentralise the world’s second-largest municipal corporation in 2012 was done in order to optimise its performance, it is argued that this is a dent to federal architecture. It is pointed that, Part IXA of the Constitution that specifically states that it will be the Legislature of the State that will be empowered to make laws concerning representation to the municipalities.
• Political gains in MCD elections are also cited as a reason. 
• The trifurcation is also said to have not only complicated the functioning of the MCD but also drastically increased costs due to the effective tripling of everything including employees and officials required to run operations.
• Even the unification, according to some is being done for political gains.

Conclusion:

 Although a unified municipal corporation gives certain decided advantages, the challenge is how to weave the advantages of democratic decentralisation into the municipal fabric. It is argued by Ramnath Jha of ORF that “Unfortunately, the 2022 bill stops short of the kind of decentralisation that municipalities must aim at to fulfil the requirements of good democratic governance. The essence of 74th amendment is democratic decentralisation; this means putting up a system whereby decisions are taken at the level of government that is closest to the people it.” The real problem faced by the ULBs is the lack of devolution of powers and finances which limit its ability to address the issues of growing migration and urbanization. If this is addressed, the cities of tomorrow will be better governed and will becomes engines of growth.

Question #2. The third tier of government makes the Indian federal structure “fully federal”. Discuss the role played by the Finance Commission in empowering the third tier.

Approach: 

• Introduction: Decentralization as the role of 73rd and 74th CAA. 
• Body: The financial constraints and the role played by financial commission to augment the finances. 
• Conclusion: Apart from the finance commission, political will is important.

Hints:

 The spirit of federalism lies in democratic decentralisation of powers. The basic idea behind decentralisation is putting up a system whereby decisions are taken at the level of government that is closest to the people, as they have better knowledge of the problems. In India, the passing of 73rdand 74th amendment in 1992, that gave constitutional status to third tier of govt, was a crucial step in institutionalising democratic decentralisation and making the federal structure “fully federal”. But devolution has not been fully successful. According to Prof.Raja Chelliah, everyone wants decentralisation, but only until their level

Local Bodies and financial constraints: 

• They provide critical civic amenities such as roads, water and sanitation, and primary education and health. 
• According to NITI Aayog report, the transformation of Indian cities faces several structural constraints: weak or outdated urban management practices, including planning systems and service delivery models.
• It is also pertinent to mention that lack of adequate finances has been a critical problem. This was due to lack of devolution of finances, lack of mobilization of finances by the ULBs.
• The success of schemes like JNNURM and AMRUT can be attributed to the dedicated financial allocation for those schemes.

Allocation of finances:

• The allocation of resources by the state and central finance commissions has been the main source of funds. The rest of the required funds would have to come from local resource: property taxes, user fee and issuance of municipal bonds. But raising sufficient resources has not proved easy.
• The 73rd and 74th Constitutional Amendment Acts leaves it to the discretion of state legislatures to devolve finances. 
• The Economic Survey 2017-18 point out that Some states have not even allowed the municipalities to levy property taxes. Moreover, even when powers have been devolved, exercising them has proved difficult. It is difficult for the gram panchayat to collect taxes due to close relation with the residents.

According to Ashok Kumar Lahiri, member, Fifteenth Finance Commission and a former Chief Economic Advisor, the efficiency, smooth functioning and accountability of local bodies have been plagued by lack of readily accessible and timely audited accounts, absence of timely recommendations of State Finance Commissions Finance Commissions have drawn pointed attention to these issues and have created certain pre-conditions for devolution of funds in an attempt to reform the local governance.

• FC-XI listed the core civic services: primary education, health, drinking water, street lighting and sanitation. It indicated that the funds released should be earmarked for operation and maintenance of these functions. 
• The XIV FC incentivised increase forest cover with higher devolution. 
• Concept of tied/untied grants was used by XV FC. Untied grants can be utilised for location specific needs except for payment of salary and incurring other establishment expenditure. And tied funds for strengthening the delivery of basic services; sanitation and solid waste management.
• Publication of audited annual accounts and notification of floor rates for property tax was taken as a parameter by XV FC. These two entry conditions lay strong foundations for financial accountability of municipalities and own revenue enhancement respectively. 

Conclusion:

 Constitutional bodies such as the finance commission cannot be seen as principal actors in driving transformational change in our cities. They can, at best, prepare the ground and provide incentives and disincentives. According to Prof Raja Chelliah the Finance Commissions faces a dilemma whether to take cognizance and allocate even more resources to local bodies or whether to respect the sovereignty of states and hope that they will themselves be forthcoming in decentralizing down – fiscally and governance wise – commensurate with the needs of urbanisation. It ultimately boils down to the political will of the central and state governments.

Supplementary information:

• The Finance Commission is required to make recommendations on the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State. 
• There has been considerable progress in the empowerment of Panchayati Raj Institutions (PRIs) and municipalities since the Tenth Finance Commission (FC-X) first made a provision for explicitly supporting local bodies through grants. 
• FC-XI recommended a grant of Rs. 8000 crores for PRIs and Rs. 2000 crore for ULBs for the fiveyear period starting 2000-01.
• The Fourteenth Finance Commission (FFC) grant to ULBs for 2015-2020 is Rs 2,87,436 crore almost 277 per cent higher than the grant recommended by its predecessor. 
• The Fifteenth Finance Commission (FFC) has recommended grants of Rs 4,36,361 crore from the Union government to local governments for 2021-26. This is an increase of 52 per cent over the corresponding grant of by its predecessor.

 Urbanisation will define the trajectory of Indian development. The migration into the cities over the coming decades will pose tremendous challenges for government, particularly the municipalities who will be primarily responsible for providing the services that the new migrants – and established residents – will need. Competition between states is becoming a powerful dynamic of change and progress, and that dynamic must extend to competition between states and cities and between cities. Cities that are entrusted with responsibilities, empowered with resources, and encumbered by accountability can become effective vehicles for competitive federalism and, indeed, competitive sub-federalism to be unleashed.