The Ministry of Finance has recently released a part of grants-in-aid amounting to Rs. 15187.50 crore designated for approximately 2.63 lakh Rural Local Bodies (RLBs) across 28 States. The action was based on the directives of the Ministry of Panchayati Raj and Department of Drinking Water and Sanitation, Ministry of Jal Shakti. This funding is part of the Tied Grant proposed by the 15th Finance Commission for the Financial Year (FY) 2020-2021.
The 15th Finance Commission’s Recommendations
The 15th Finance Commission suggested a grant-in-aid of Rs. 60,750 crore for the RLBs for FY 2020-21. This is the most substantial allocation ever recommended by the Finance Commission in a single year. The allocation is split into two segments referred to as Basic Grant and Tied Grant, each accounting for 50% of the total funds.
Understanding Basic Grants
Basic Grants are flexible and can be used by RLBs according to their location-specific needs, barring salary or other administrative expenditure. These grants are often employed for emergency operations that lie outside the decentralised schemes at the district level.
Purpose of Tied Grants
Tied Grants, meanwhile, serve the core services of sanitation, maintaining Open-Defecation Free (ODF) status, providing drinking water, rainwater harvesting, and water recycling. Ideally, RLBs should allocate half of these grants to these key services. However, if an RLB has fully met the demands of one category, it may repurpose the funds for the other.
Distribution of Grants
State governments will distribute these grants across all tiers of the Panchayati Raj – village, block and district, as well as the traditional bodies of 5th and 6th Schedule areas. This will be done based on the accepted proposals of the latest State Finance Commission and in compliance with the 15th Finance Commission’s recommendations.
Assistance from Ministry of Panchayati Raj
The Ministry of Panchayati Raj is set to support the states ensure maximum utilisation of these grants by providing web/IT-enabled platforms. These platforms are aimed at streamlining planning, monitoring, and accounting/auditing of the projects and funds at each RLB level.
Significance of the Grants
The grants are expected to aid RLBs in providing employment opportunities, particularly benefiting migrant workers who have returned to their native places due to the Covid-19 pandemic. Additionally, these funds will enhance the ability of RLBs to deliver basic services to rural citizens, and improve rural infrastructure, including the construction of roads and provision of water etc.
About the Finance Commission
The Finance Commission, a constitutional body, is tasked with determining the method and formula for distributing tax proceeds between the Centre and states and among states, as per the constitutional arrangement and contemporary requirements. The President of India, under Article 280 of the Constitution, is obligated to establish a Finance Commission every five years or sooner, if needed.
The first FC was constituted in 1951 and there have been fifteen so far. The 15th FC, headed by N.K. Singh, was instituted by the President of India on 27th November 2017, in the wake of the abolition of the Planning Commission and the implementation of Goods and Services Tax (GST). In November 2019, the Union Cabinet approved the 15th FC to submit its first report for the fiscal year 2020-21 and extended its tenure to present the final report covering Financial Years 2021-22 to 2025-26 by 30th October, 2020.