The state finance commissions (SFCs) have been considered important institutions in strengthening and financing local governing bodies (LGBs). Yet, even 20 years after the 73rd and 74th amendments to the constitution the SFCs are rudimentary bodies in many states, and some have not even formed them, a new release by New Delhi-based policy think-tank National Social Watch highlights.

Jharkhand, the report points out, has not constituted its first SFC even 14 years after the state was carved out.

"As the SFCs retain primary responsibility to distribute the funds among LGBs, their absence directly affects financial strength of the local bodies," says the citizens' report, titled 'Governance and Development 2013'.

According to the report, each state should have constituted its fourth SFC by this year but only seven have done it so far. Two states – Jammu and Kashmir and Nagaland – have formed their first SFCs, while 11 states have formed their third SFCs.

The report notes that the 13th finance commission came down heavily on SFCs that are functional in these states.

In states where SFCs are functional the report says the commissions delay releasing funds to local bodies. "There is a huge gap between the promises f democratic institution and the real performance," said John Samuel, founding-member, NSW.

According to the report, state governments have failed in devolution of funds: "In terms of the 73rd constitution amendment act, the state governments have to transfer funds, functions and functionaries (3Fs) with respect to 29 subjects. But no state has transferred the 3Fs in all identified subjects."

The study is the seventh citizens’ report and evaluated all four apex institutions of governance: parliament, executive, judiciary and local governing bodies.
Pointing out the government's “neglect” towards allocation to local governing bodies, the report says, "The amount of Rs 5,699 crore in 2010-11 and Rs 9,9963 crore in 2011-12 allocated for about 2.5 lakh LGBs looks peanuts compared to about Rs 4,000 crore per annum allotted to about 800 MPs under the local development programme."

To stem the rot of local governing bodies, the government introduced panchayat empowerment and accountability incentive scheme (PEAIS) in 2005-06 but efforts of different states are not successful on this front, the study says. Under PEAIS, states are ranked on two categories – cumulative devolution index (CDI) and incremental devolution index (IDI). "Only 10 states have initiatives worth considering in the IDI preparation while two states have scored more than 60 percent in CDI," it says.

"The government of India rejected the important recommendations of the Second Administrative Reforms Commission, which are meant for strengthening the LGBs and tilting the power balance from the bureaucracy to the elected representatives," said Amitabh Behar, spokesman of National Social Watch.

The report also mentions that the local bodies suffer due to four factors - elite capture (village elites holding the key posts in local bodies), regressive politics, invisible institutions and sarpanch raj.