Gujarat State Finance Commission working on formula for financial devolution

AHMEDABAD: Gujarat State Finance Commission will prepare a formula for devolution of almost Rs 1,00,000 crore to 400 local bodies over five years. It will rope in academic institutions to conduct studies for strengthening these bodies. Gujarat will be the first state to have initiated such an exercise, claimed a senior office bearer of commission.

Local taxes like professional tax, entertainment tax, education cess, water tax and surcharge on stamp duty constitute 25-45% of the revenues of respective bodies. The rest, roughly 65%, comes from central and state grants. The Constitution of India provides for 29 subjects to be governed by the local bodies. However, there is no structured formula for devolution of central and state grants to local bodies.

""This is for the first time that any state is preparing a formula for allocation of grants to the local bodies,"" Bharat Gariwala, chairman of Gujarat's Third Finance Commission told ET. Under the Constitution, each state is supposed to have a Finance Commission for financial and operational strengthening of the panchayati raj institutes.

The Central Finance Commission prepares a formula for devolution of funds from the Centre to the states. However, State Finance Commissions have, till now, not evolved any formula for devolution of funds to the local bodies. ""So it is a big challenge for us. Even at the Centre, the formula for devolution of grants was first prepared by Tenth Finance Commission. The formula of the central commission is now based on parameters like poverty, population, area of the state and efforts made to collect taxes,"" said Gariwala. State Finance Commission has roped in academic institutes like Institute of Rural Management and Administration (Anand) and Gujarat Vidyapeeth (Ahmedabad) to study urban and rural local bodies respectively.

"We have also asked local universities like Gujarat University (Ahmedabad), M S University (Vadodara) and Kutch University (Kutch) to give inputs on local aspects as well as measures to raise local revenue and levy user charges,"" Gariwala added.