One of the important provisions of the 73rd and 74th Constitutional Amendments was mandating Central Finance Commission to look into the financial needs of rural and urban local bodies and to provide financial assistance to the consolidated funds of the States from the Union Government to help rural and urban local bodies.
All Central Finance Commissions post-constitutional amendment have fulfilled this role in general and particularly 12th Central Finance Commission onward they are playing an increasingly impactful role for local bodies in both financial and reforms terms. For example, in financial terms share of central finance commission grants in total municipal receipts has increased from a mere 1.3 % in 2002-03 to 7.0 % in 2017-18. Similarly, in terms of reforms, Central Finance Commissions were instrumental in -
Conducting various research studies about the finances of municipal bodies.
Incentivizing implementation of 74th constitutional amendment provisions
Bringing municipal account under supervision and guidance of C&AG,
Making State Governments place Annual Report of Local Fund Audit Department on the audit of municipal bodies in State Legislature;
Making State Government add a special supplement to their budget and finance accounts showing the detailed plan- and non-plan-wise classification of transfers separately for all categories of ULBs and all tiers of PRIs, from major head to object head (unfortunately many states have discontinued this practice)
Concept of service level benchmarks
Concept of basic grant and performance grant; etc.
Recently 15 Finance Commission’s award for the period 2021-26 has been accepted by the government. Like other Finance Commissions, the 15th Finance Commission has also made important observations about finances and working of municipal bodies and have suggested various reforms and have recommended various conditionalities for devolution of funds to the urban local bodies.