Plans afoot to add local bodies to TSA mechanism by FY27

The Centre is working on the next version of the Public Financial Management System 2.0 to ensure efficient and transparent utilisation of funds of urban and rural local bodies, harnessing the Treasury Single Account (TSA) mechanism.

The Controller General of Accounts (CGA) is working on a standard accounting process for the urban and rural local bodies and the target is to add at least all large local bodies ahead of FY27, officials said.

The move is part of the next set of policy reforms that aim to make local bodies accountable for transparent usage of public money and to prevent fund diversion and delay in allocation of money.


"The department (of expenditure) is working with CGA on a standard accounting process and strict timeline for municipal bodies adding them to the treasury single account by 2027," a senior official told ET.

The official pointed out that many urban and rural local bodies suffer from inefficient fund utilisation, lack of detailed expenditure data, poor accounts and record keeping. Some municipal bodies were not even returning unspent funds, officials said.

"Municipal finance is a pain point for us, as many large municipal bodies have not updated their accounts for the last 3-4 years...We also have reports of funds being diverted for other purposes leaving insufficient funds for improvement of civil amenities," another official told ET.

Once they are on the TSA, it will be easy to track the full utilisation of municipal body funding, starting from the release to where the money is going, he added.

The total size of the central grant to local governments is estimated to be ₹4.36 lakh crore for the period of FY2021-26. This includes ₹2.36 lakh crore earmarked for rural local bodies, ₹1.21 lakh crore for urban local bodies and ₹70,051 crore for health grants through local governments.

Annual budgets of some municipal corporations such as the Brihanmumbai Municipal Corporation (BMC) are quite large.

The sixteenth finance commission is also examining these issues. Reform of urban and rural local bodies is part of the terms of reference given to the sixteenth finance commission.

The process of harmonising the accounts of central government, state government and the urban and rural local bodies was first recommended by the fifteenth finance commission.

"It is a recognised problem. We need a common chart of accounts for urban local bodies and the Centre first," Arvind Panagariya, the Chairman of sixteenth finance commission, said last week at an event.