With substantial grants being transferred to local bodies since the 14th Finance Commission award period, the Comptroller and Auditor General of India (CAG) is preparing an action plan to improve accounting and auditing standards in the local bodies to bring in efficiencies in their functioning, CAG Girish Chandra Murmu told FE.
While the CAG has no plan to directly audit these entities, the statutory auditor wants to bolster the mechanism set up by the state governments for examination of fund flows and use. It will also assess how the 74th Constitutional amendment, which mandated states to devolve a portion of tax revenues to local bodies and give them certain taxation powers, have been implemented across states.
“We are working on a plan how to strengthen audit for local bodies. We receive little inputs from these entities although a lot of funds flow to them after 14th Finance Commission award,” Murmu said. Central grants to local bodies (urban and rural) has increased from Rs 26,917 crore in FY16 (first year for 14th FC) to Rs 84,459 crore in FY20 (revised estimate) and is pegged at Rs 99,925 crore for FY21 (First year of 15th FC). Fifteenth Finance Commission has said in its first report that from FY22 onwards, the entry level conditions for rural local bodies getting these grants is the timely submission of audited accounts.
Currently, these entities are audited by state government appointed organisations/local fund examiners.
“A committee has been formed to look into how auditing standards and standard operating procedures can be formed for local bodies. We would like to take the state governments on board, so that, synergy is developed,” Murmu said. CAG will help states in capacity building as well as supplement with manpower whenever annual audit takes place for local bodies, he added.
The CAG will also assess implementation of the 74th Constitutional Amendment to know how urban local bodies are getting devolution from state governments and whether taxation powers have been given to them.
The Constitutional amendment empowered states to devolve the responsibility of 18 functions, including urban planning, regulation of land use, water supply, and slum upgradation to ULBs. However, in most Indian cities, a majority of these functions are carried out by state government agencies. As a result, not much taxation happens at ULBs except a few such as house tax, mela tax, water tax, etc.
Previous Finance Commissions and the Centre had nudged states to take steps to increase ULBs own revenue by tapping other sources like trade licences, taxes on entertainment, mobile towers, solid waste user charges, water charges and parking fees etc. Efficient water-metering systems for residences (which will reduce pilferage that is above 50% in majority of Indian cities/towns) is seen to be a revenue stream that holds great potential.
Currently, roughly 60% of the revenue of municipal bodies in the country — about 8,000 in number — comes from devolution by the Centre and states.
In FY18, the combined annual ‘own revenue’ of urban bodies in the country was about 1% of the country’s gross domestic product. The corresponding figures for comparable countries were much higher — 6% in both Brazil and South Africa.
Improvements in book keeping and tax revenues will help ULBs tap the bond market in a meaningful manner to improve service delivery and quality of lives of residents.