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Informist, Monday, Jun. 8, 2026

 

--CEA: Must have gram-panchayat level data to support fin panel fund flow

--CEA: Need systemic audit of fin panel fund flow to local govts

--CEA: Moot CAG audit of local govts to gauge fisc responsibility

--CEA: Need to upgrade information for local govts to ensure fisc visibility

 

NEW DELHI - There is a need to introduce uniform accounting heads for fiscal accountability of states, ensuring homogeneous treatment of all central transfers to local bodies to enable comparability, Chief Economic Adviser to the Government V. Anantha Nageswaran said Monday. He sought the help of the Comptroller and Auditor General of India to audit local bodies and introduce such homogeneous structures. 

 

"Because without a systematic, independent assessment of what has actually been devolved versus what was promised, we are flying blind," Nageswaran said at the launch of the report on datasets for state finance commissions. He argued that the CAG audit will, at a systemic level, disclose, state by state and function by function, data on how the devolved funds have been used. The central government transfers funds to state governments through finance commission transfers and local body grants. 

 

"It (CAG audit) would create an evidence base that does not currently exist and it would create accountability for the gap between constitutional intent and administrative reality," he said. The report, prepared by the Ministry of Panchayati Raj, recommended that the CAG undertake a performance audit of the 73rd Constitutional Amendment, which conferred constitutional status on panchayats. It had also mandated the constitution of state finance commissions every five years.

 

The amendment had listed 29 functions that could be devolved to panchayats. "The honest question we must ask ourselves is how much of the constitutional promise has actually been fulfilled," the government's top economist said.  

 

Under the 16th Finance Commission award period of 2026-31 (Apr-Mar), the Centre is scheduled to release INR 7.915 trillion to states as local body grants. Under this, INR 4.352 trillion is earmarked for rural bodies and INR 3.563 trillion for urban bodies. The 16th Finance Commission, whose report was accepted by the government, recommended 41% vertical tax devolution to states for five years starting FY27. The commission, chaired by economist Arvind Panagariya, kept the vertical devolution share unchanged from the previous commission's level but tweaked the formula for determining the horizontal tax share. 

 

Vertical devolution refers to tax revenue sharing from the central government to state governments, while horizontal devolution pertains to the distribution of states' share among individual states. 

 

According to Nageswaran, a key challenge for finance commissions in determining states' financial conditions is the lack of granular fiscal information. The report suggested that permanent state finance commission cells may be formed within state governments to maintain local government-level data and update it regularly. "Ideally, this cell must be housed in the Department of Finance or Department of Planning," it said.

 

The report said that while the central government earmarks the devolution amount, a lack of structure at the gram panchayat level prevents the effective use of funds. "It is very important, therefore, that both state governments and central government take immediate and active steps to collect and organise these datasets; standardise their format and ensure that these are seamlessly accessible to every state finance commission," it said. "This would enable the SFCs in informed, and evidence-based decision making in the devolution process."  End

 

Reported by Priyasmita Dutta 

Edited by Saji George Titus

 

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