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Day 6 – Q 4.Can you suggest few measures that would help local governing bodies mobilise finances to supplement the grants received by the state governments?

4. Can you suggest few measures that would help local governing bodies mobilise finances to supplement the grants received by the state governments?   

क्या आप कुछ उपायों का सुझाव दे सकते हैं जो स्थानीय निकायों को राज्य सरकारों द्वारा प्राप्त अनुदान के पूरक के लिए वित्त जुटाने में मदद करेंगे?


73rd and 74th constitutional amendments acts gave constitutional status to Panchayat Raj Institutions (PRI’s) and Urban Local Bodies (ULB’s). Aim of these acts was to devolve powers and responsibilities to PRIs with respect to preparation and implementation of plans and schemes for socio-economic development and social justice.


Financial resources play vital role in steering local government activities. Local bodies in our country receive funds in the following ways:

  • Grants from the Union Government based on the recommendations of the Central Finance Commission as per Article 280 of the Constitution.
  • Devolution from the State Government based on the recommendations of the State Finance Commission as per Article 243I.
  • Loans/grants from the State Government.
  • Programme-specific allocation under Centrally Sponsored Schemes and Additional Central Assistance.
  • Internal Resource Generation (tax and non-tax).

Across the country, States have not given adequate attention to fiscal empowerment of the Panchayats.

  • Panchayats are heavily dependent on government grants. Economic survey 2018 points out that rural local government reliance on their own resources is just 6%.
  • Internal resource generation at the Panchayat level is weak. This is partly due to a thin tax domain, low capacity for mobilization of existing resources and partly due to Panchayat’s own reluctance in collecting revenue.
  • A major portion of the grants both from Union as well as the State Governments is scheme specific hence, in the nature of ‘tied’ resources.
  • States not even constituting state finance commission at the end of 5years.

Following are few of the measures to help local bodies mobilise additional financial resources.

  • Devolving more taxation powers.
  • Encouraging municipal bonds. Credit rating of cities and towns is a step in the right direction for issuing Municipal Bonds for mobilization of resources.
  • Review of property tax system which suffers from undervaluation; non-availability of database of properties; low rates; low collection efficiency and lack of indexation of property values. Use of Geographic Information System (GIS).
  • Improve efficiency and transparency in collection and mobilization of resources. Use of ICT system.
  • There is also a need to explore alternative sources of revenue generation by the municipalities such as entertainment tax, mobile towers, user charges for solid waste, water, parking, value capture financing and monetization of infrastructural facilities like parks, roads.
  • Laying down rules for sharing GST revenue between states and local bodies.
  • Public-Private Partnership (PPP) model in infrastructural projects.


It is necessary to reduce local bodies from being at the mercy of the upper two tiers for finances to effectively discharge their responsibilities to achieve socio-economic development at the grass root level.

Best answer: Abhiroop

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