Context:
• The article analyzes the need for a decentralised response to tackle the crisis brought forth by the COVID pandemic.
Background:
• COVID-19 has brought to light four major challenges: economic, health, welfare/livelihood and resource mobilisation. These challenges have to be addressed by all tiers of government in the federal polity, jointly and independently. Significance of decentralized
approach:
• The novel coronavirus pandemic has brought to light the critical role of local governments and decentralised responses.
• In terms of information, monitoring and immediate action, local governments are at an advantage, and hence are better equipped to meet the challenges posed by disasters such as COVID-19.
• The critical role of local governments will have to be recognised by all. Concerns: Governance
concerns:
• The parallel bodies that have come up after the 73rd/74th Constitutional Amendments have considerably distorted the functions-fund flow matrix at the lower level of governance.
• There is lack of clarity in the assignment of functions, functionaries and financial responsibilities to local governments. Weak local
finances:
• The Economic Survey 2017-18 points out that urban local governments, or ULGs, generate about 44% of their revenue from own sources as against only 5% by rural local governments, or RLGs.
• Per capita own revenue collected by ULGs is about 3% of urban per capita income while the corresponding figure is only 0.1% for RLGs. There is a yawning gap between tax potential and actual collection, resulting in gross underperformance of these institutions.
• In States such as Uttar Pradesh, Bihar and Jharkhand, local tax collection at the panchayat level is next to nil.
• A recent study shows that the share of property tax in GDP has been declining since 2002-03. This portends a wrong signal. The share of property tax in India in 2017-18 is only 0.14% of GDP as against 2.1% in the Organisation for Economic Co-operation and Development (OECD) countries. Inadequate grants from Finance
Commission:
• The local government grant of Rs. 90,000 crore for 2020-2021 by the 15th FC is only 3% higher than that recommended by the Fourteenth Finance Commission.
• For panchayats there is only an increase of Rs. 63 crore. Recent measures:
• The suspension of MPLADS by the Union government for two years is a welcome measure. The annual budget was around Rs. 4,000 crore. The Union Government has appropriated the entire allocation along with the huge non-lapseable arrears which would hamper the resources available at the local levels.
• The imposition of restrictive conditionalities on States availing themselves of the enhanced borrowing limits (3.5% to 5% of Gross State Domestic Product, or GSDP) for 2020-21 would impair state’s abilities to finance their plans.
• Strategies in tackling the COVID-19 crisis must include local governments being equipped and fiscally empowered.
1. Resource mobilization:
• The local governments should be fiscally empowered to ensure the effectiveness of local governance.
• A few suggestions for resource mobilisation are given under three heads: local finance, Members of Parliament Local Area Development Scheme, or MPLADs, and the Fifteenth Finance Commission (FFC). Local resource mobilization:
• Own revenue is the critical lever of local government empowerment. Property tax:
• Property tax forms the major source of local revenue throughout the world.
• Indian States should take necessary steps to enhance and rationalise property tax regime.
• Property tax collection with appropriate exemptions should be a compulsory levy and preferably must cover land. If property tax covers land that will hugely enhance the yield from this source even without any increase in rates. Innovative policies:
• Land monetisation and betterment levy may be tried in the context of COVID-19 in India. Bonds:
• There is a need to incentivize and also appeal to the patriotic sentiments of non-resident Indians and rich citizens to mobilize resources.
* The Resurgent India Bond of 1998 could mobilise over $4 billion in a few days from NRIs.
• Municipalities and even suburban panchayats can issue a corona containment bond for a period of say 10 years, on a coupon rate below market rate but significantly above the reverse repo rate to attract banks. MPLADS scheme:
• MPLADs scheme funds which was specifically earmarked for local area development, must be assigned to local governments, preferably to panchayats on the basis of well-defined criteria. Finance Commission:
• A special COVID-19 containment grant to the local governments by the FFC to be distributed on the basis of FFC-laid criteria is the need of the hour.
• Currently, the ratio of basic to tied grant is fixed at 50:50 by the commission. In the context of the crisis under way, all grants must be untied for freely evolving proper COVID-19 containment strategies locally.
• Further, the 13th Finance Commission’s recommendation to tie local grants to the union divisible pool of taxes to ensure a buoyant and predictable source of revenue to LGs must be restored by the commission. 2. Focus on basic infrastructure:
• Building health infrastructure and disease control strategies at the local level need to be focused on. 3. Addressing governance concerns:
• There is a need for better functional mapping among the different organs of governance.
• Flood, drought, and earthquakes are taken care of by the Disaster Management Act 2005 which does not recognize epidemics. The new pandemic is a public health challenge of an unprecedented nature along with livelihood and welfare challenges. The 2005 Act may have to be modified to accommodate the emerging situation.