Finance Commissions and Grants to Rural Local Bodies (RLBs)

Trends and Achievements

• Rising Funding Trends: Rural local bodies are increasingly receiving more funds, with a historic high release of 94.98% under the last Finance Commission.
• Performance of the Fifteenth Finance Commission:
  1. The Commission recommended a total grant of Rs 2,97,555 crore for RLBs from 2020-26.
  2. Rs 2,82,632 crore, constituting 94.94%, was released, marking the highest since the 10th Finance Commission.
  3. Five states, including Assam, Kerala, and Uttar Pradesh, received 100% of their allocated grants.
• Historical Context: The practice of awarding grants started with the 10th Finance Commission, with releases being 91% and 90.5% in the 14th and 13th Commissions, respectively.

Impacts on Governance

• Decentralised Governance: Enhanced grants have strengthened Panchayati Raj institutions under Article 243G of the Constitution.
• Fiscal Space: Improved fiscal capacity enables gram panchayats to conduct development works and improve civic services delivery.

Sixteenth Finance Commission Projections

• Total Grant: Rs 4.35 lakh crore for RLBs during 2026-31.
• Grant Breakdown:
  1. Rs 3.48 lakh crore as the basic grant.
  2. Rs 43,524 crore each as performance grants for rural local bodies and states.
  3. Distribution: 90% to gram panchayats, and 10% each to block and district panchayats.
• Yearly Allocation:
  1. Rs 55,909 crore in 2026-27
  2. Rs 71,300 crore in 2027-28
  3. Rs 92,166 crore in 2028-29
  4. Rs 102,303 crore in 2029-30
  5. Rs 113,558 crore in 2030-31
• Criteria for Distribution: Based on each state's projected rural population for 2026 and total area.