The 16th Finance Commission must fund the third tier explicitly

livemint.com:

Arvind Panagariya, the 16th Finance Commission has its work cut out. It has to address these structural imbalances. Also, it has to contend with increased funding needs for the provision of national level public goods, such as meeting net-zero emission targets.

Some states contribute disproportionately to forest cover and biodiversity. How can they be compensated, even as their own revenue-raising capacity remains constrained? This calls for a bigger central pool. But widening inter-state disparities call for more grants-in-aid.

What conditionality will the Commission attach? Is more aid to backward states taking away from the welfare spending needs of advanced states? A key area where the new Commission must focus, and where it can make a historic contribution, is strengthening the third tier. Even after 30 years of Panchayati Raj legislation, and even with increased demand for governance and accountability from local bodies, they remain helplessly hobbled, either without funds and functionaries or at the mercy of their state governments. The recommendations of most state finance commissions are routinely flouted or ignored.

How can a city council or a panchayat have greater say in how the local school system is run? Or how can garbage collection improve? Can a local government levy a small property tax on an airport project in its precincts? The 16th Finance Commission must find a way to carve out resources from the Consolidated Fund of India. For starters, local bodies together must have access to at least 2% of GDP annually, as against 28% kept for the Union government alone. Let this transfer be unconditional, and bypass both the Centre and state machinery.