16th Finance Commission’s imperative: Sustainable livelihoods for inclusive growth

16th finance commission
As India strives for global leadership, ensuring equity must start at the grassroots, and the 16th Finance Commission holds the key to this.

16th Finance Commission: India’s villages and cities face important issues related to basic facilities, social welfare, rights, and community participation. The 73rd and 74th amendments to the constitution have given Gram Sabhas the authority to identify the needs of the panchayats and carry out social audits. These changes also allow the three-tier panchayat system (village, block, and district levels) to make decisions about how to spend money and what to prioritise. The 74th amendment has empowered municipalities to take local-level decisions.

Since the time of the 10th Finance Commission, there have been provisions to directly allocate untied funds for infrastructure to local bodies as annual grants, a practice that continues. This initiative ensures decision-making at the grassroots level, enabling panchayats and municipal bodies to identify their needs and execute plans accordingly. The funds are sufficient to develop top-tier internal infrastructure, ensure universal access to social security, health, and education, and explore better livelihood opportunities.

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However, decisions made by assemblies or parliament often follow a one-size-fits-all approach which is not always effective, leading to underutilisation or misuse of funds. The 15th Finance Commission partially addressed this by tying some funds, transferring decision-making to higher levels. With the commencement of the 16th Finance Commission, there is a need to ensure funds are untied and directly accessible to local bodies. The Finance Commission, while advising the President of India on the distribution of net tax proceeds between the Centre and states, also allocates significant resources to local bodies. States that have devolved power tend to exhibit superior execution and quality of work, providing infrastructure that meets the specific needs of each village.

Empowering local bodies with untied funds is crucial, but effective utilisation presents its own set of challenges. Bureaucratic hurdles, corruption, and limited technical expertise at the grassroots level can often hinder smooth implementation. Strengthening capacity building programs for local officials, establishing transparent monitoring mechanisms, and actively involving communities in project execution can bridge these gaps. By equipping local bodies with the knowledge, resources, and accountability they need, we can ensure untied funds translate into tangible improvements for all.

In both developed and underdeveloped states, transformation at the grassroots level is evident in the form of high-quality internal roads, drainage systems, sewage management, housing, schools, and hospitals. There is a need for targeted infrastructure and household-specific benefits to effectively support communities. As India moves towards becoming a developed nation and a bright spot in the global economy, it faces the increased responsibility of ensuring equity, particularly as it is home to a large number of impoverished individuals.

While investments in traditional infrastructure like roads and sanitation are essential, it is equally important to consider the needs of the digital age. Enabling villages and urban areas with affordable internet access, digital literacy training, and e-governance initiatives can bridge the digital divide. This empowers communities to access information and services, connect with markets, and create new economic opportunities. By closing the digital gap, we pave the way for inclusive participation in India’s rapidly evolving landscape.

Addressing a plethora of issues is a formidable challenge, and there is often confusion about where to begin. It is crucial to ensure that each unit of the constituency is treated with visible equity. Therefore, it is important for local bodies to take centre stage in planning, executing, and resolving issues.

Sustainable development is unattainable in societies where the gap between rich and poor widens; such disparities hinder lasting peace and security. A primary responsibility of every government is to improve the quality of life for its poorest citizens. The Millennium Development Goals (MDG) and the Sustainable Development Goals (SDG), which succeeded them in 2015, are commitments to ensure that no one suffers from hunger or misses opportunities due to poverty. This can only be achieved through concerted efforts by each elected representative.

Beyond social protection and community involvement, building a lasting impact requires a focus on sustainable livelihoods. Encouraging local entrepreneurship, aligning skill development programs with local needs, and creating market linkages for rural produce can empower communities to become self-sufficient and break the cycle of poverty. When individuals have the capacity to generate their own income and thrive economically, it contributes not only to their well-being but also to the overall prosperity of the nation. Investing in sustainable livelihoods is an investment in a future where no one is left behind.

There is a need to strengthen local bodies in rural and urban areas by allocating untied funds and establishing benchmarks to ensure top-quality infrastructure, efficient delivery of welfare schemes (like Direct Benefit Transfer or ration distribution), grievance redressal, and the development of safer, more inclusive communities. The Constitution provides the framework, and the Finance Commission is the tool to facilitate this. The 16th Finance Commission must ensure the flow of untied funds to local bodies and oversee their effective utilisation.

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Dr Aruna Sharma is a New Delhi-based development economist. She is a 1982-batch Indian Administrative Service officer. She retired as steel secretary in 2018.