Weak Local Data Weakening SFC Reports, Indicts 16th Finance Commission: CEA

NEW DELHI: Expressing concern over the recommendations of the state finance commission, chief economic advisor (CEA) V Anantha Nageswaran said on Monday that weak and fragmented data systems at the gram-panchayat level have left state finance commission (SFC) reports too weak to guide recommendations and the 16th Finance Commission cannot rely on them while framing its recommendations.

Nageswaran also said there was a need to introduce uniform heads of accounting for fiscal accountability of states by ensuring that all central transfers to local bodies are handled in a homogeneous manner to ensure comparability. “Audit of the flow of funds to Panchayati Raj Institutions (PRIs) by the Comptroller General of Panchayati Raj Institutions and the Comptroller General of India (CAG) will improve their functioning and increase ease of living at the rural level,” Nageswaran said while releasing a report on datasets for state finance commissions here.

The CEA also said local government and rural service delivery depend less on macroeconomic variables and more on how effectively panchayats function. “Essentially, ease of living at the ground level is determined by how well-equipped and capable the panchayats are, and not by macro factors that influence them with a lag and somehow indirectly. Because without a systematic, independent assessment of what has actually been handed over and what has been promised, we are flying blind,” Nageswaran said.

Overall, finance commission transfers to rural local institutions form an important part of India’s fiscal decentralization framework and help finance basic services such as drinking water, roads, sanitation and Anganwadi in villages. “This data is often not available in a usable format. Financial records are incomplete. Different departments keep information in silos that don’t talk to each other. Accounting standards vary across states, making comparisons difficult,” Nageswaran said.

Nageswaran also pointed out that some concerns have been expressed by successive finance commissions about the poor quality of SFC reports, especially the last panel.

“The 16th Finance Commission makes this very clear: it could not use the State Finance Commission reports to frame its recommendations because these reports were too heterogeneous in approach and too weak in analytical rigor,” he said, adding that this was a very serious indictment and reflected a failure of data more than anything else.