Speed up decentralisation: Finance Commission to State

Speed up decentralisation: Finance Commission to State

The 15th Finance Commission has raised concerns over Maharashtra’s reluctance to devolve greater power as part of its constitutional responsibility to strengthen local governance.

The Commission, under the chairmanship of N.K. Singh, will begin a two-day visit to the State next week, likely raising issues of inter-regional disparity, slow pace of decentralisation, rigidity in revenue expenditure and debt sustainability among other financial and socio-economic concerns.

Special status for city

Sources close to State Finance Minister Sudhir Mungantiwar said the Maharashtra government will in turn likely raise a demand of ₹50,000 crore from the Centre for the development of backward regions, including Vidarbha and Marathwada, while demanding a special status for Mumbai.

The Finance Commission’s report card on the State urges speeding up the decentralisation process, which has moved at a slow pace until March 2015. Only 14 of the indicated 29 functions have been fully transferred to local bodies, even as the State government allocates about 20% of its revenue to them, says the Commission in its assessment.

It further notes that within the allocations, there is a heavy bias towards Panchayat Raj Institutions (PRIs), which receive 78% of the allocated funds. The ratio of funds allocated to Urban Local Bodies (ULBs) is far lower compared to the ratio of population residing in urban areas.

This is not the first time the State’s patchy progress on decentralisation has attracted the Centre’s attention. The 14th Finance Commission had also pointed out the government’s failure to own up its responsibility to push local bodies towards the growth roadmap laid out by the Centre. It criticised the poor progress on submissions of annual accounts by ULBs and PRIs, increase in their ‘own’ revenue, and publication of benchmarks of urban services.

During its visit, the Commission will hold consultations with leaders of political parties, representatives of trade and industry, ULBs and PRIs to understand their issues. It held a consultation with economists in Pune in August to understand the issues in the region. The Commission noted: “High inter- regional disparity has been a characteristic feature of the State since its inception in 1960. The State seems to have faltered in translating its high economic growth into commensurate human development.”

Revenue generation

The Commission has already notified the government that it must address debt sustainability through higher revenue generation rather than through expenditure contraction. “Revenue expenditures show rigidities due to the presence of high levels of salary and interest payments. More stringent steps would be required to achieve complete sustainability. Complete sustainability would require a huge increment in the revenue generation capacity of the State,” the Commission said.

The State is ahead in terms of fiscal management in the country since the enactment of the Fiscal Responsibility and Budget Management (FRBM) Act, 2006. Its fiscal deficit continues to be well within the limit of 3% of Gross State Domestic Product (GSDP). And while the debt stock to GSDP ratio is well within the 17.5% limit set by the FRBM Rules, 2011, the State still records a revenue deficit of 0.5% of GSDP. This continues to be a worrisome factor for Maharashtra, the Commission said.