Overview of Finance Commission Allocations
The 16th Finance Commission has allocated nearly ₹8 trillion to rural and urban local bodies over five years, with 41% specifically for cities. Key conditionalities include:
- Constitution of State Finance Commissions
- Timely completion of audited accounts of local bodies
- Presence of elected local bodies
The Union Budget has also allocated ₹1 trillion to the Urban Challenge Fund to catalyze fund flows to urban local bodies (ULBs), with conditions that require:
- 25% of the allocation released only if state governments contribute similarly
- Rest mobilized from market sources like bonds, loans, and public-private partnerships
Challenges in Urban Governance
While these measures improve fund flow, they do not address the root issues of urban governance, which include:
- Rural areas resist urban classification due to a power shift from politicians to bureaucrats.
- City governance is hampered by a mismatch between accountability and authority.
- Local elected authorities like mayors have limited power, as city CEOs report to the state government.
Institutional Control Issues
State governments have never delegated powers to city-level politicians, maintaining control through state-appointed bureaucrats. This causes:
- Urban governance and resource failures
- A need for intervention by the Union government and Finance Commission
Proposed Solutions
To resolve governance issues, potential solutions include:
- Empowering local politicians through conditional schemes that grant hiring and firing powers over city CEOs to mayors.
- Opening city CEO positions to managers outside the bureaucracy, possibly even internationally.
- Implementing an accountable-CEO model with annual performance monitoring and well-defined key responsibility areas (KRAs).
Accountable-CEO Model
This model would involve:
- Objective monitoring of city performance
- Clear KRAs for CEOs, with reward mechanisms
- Accountability to civil society, resident welfare associations, and market associations
Unlike China, Indian city CEOs lack structures for success assessment or public accountability. Improved monitoring and incentives can result in better governance, resource allocation, and outcomes.
The author, heading CSEP Research Foundation, emphasizes personal views not necessarily reflecting Business Standard's opinion.
