Grants for Rural Local Bodies

The Union Government has released the first instalment of XV Finance Commission (XV-FC) United Grants for Rural Local Bodies in Sikkim for the financial year 2025–26

About Grants

• A grant is a financial transfer provided by a government authority for a specified public purpose. 
• It is a non-repayable transfer payment, distinct from loans or guarantees, and must be utilised strictly for the intended objective that serves a broader public interest
• Types of Grants:
  • Statutory Grants (Article 275): Provided to states in need and charged on the Consolidated Fund of India. These include grants for the welfare of Scheduled Tribes and administration of Scheduled Areas.
  • Discretionary Grants (Article 282): Enable the Union or States to provide grants for any public purpose, even beyond their legislative competence
• Based on usage flexibility, grants are classified into Tied Grants and Untied Grants.
  • Tied Grants are grants that are earmarked for a specific purpose or sector, and the recipient authority must use the funds strictly for the prescribed objective.
  • Untied Grants are grants that are not linked to any specific purpose, allowing recipient governments or local bodies to use the funds according to their own priorities.

Finance Commission

• The Finance Commission is a constitutional body constituted by the President under Article 280, every five years or earlier if required.
• Legal Backing: Its functioning is governed by the Finance Commission (Miscellaneous Provisions) Act, 1951.
• It consists of a chairman and 4 other members to be appointed by the President. They are eligible for re-appointment.

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15th Finance Commission

• The 15th Finance Commission was constituted in November 2017, with N. K. Singh as Chairperson. 
• Award period from 2021–22 to 2025–26
• Key Recommendations of XVth FC:
  • Vertical Devolution:
    • Recommended that 41% of the divisible pool of Union taxes be devolved to the States. 
  • Horizontal Devolution:  It rescribed horizontal devolution criteria based on 
    • Income Distance: 45%, 
    • Population (2011 Census): 15%, 
    • Area: 15%, 
    • Demographic Performance: 12.5%, 
    • Forest and Ecology: 10%,
    • Tax and Fiscal Efforts: 2.5%
  • Tied and Untied Grants to Rural Local Bodies:
    • Tied Grants (60%): Earmarked for national priorities—drinking water supply, sanitation, rainwater harvesting, water recycling, and maintenance of ODF status.
    • Untied Grants (40%): Flexible funds for location-specific needs, released on the recommendation of the Ministry of Panchayati Raj
  • Other Grants: It also recommended performance-based sectoral grants for health, education, agriculture, PMGSY roads, judiciary, statistics, and aspirational districts and blocks, reinforcing local governance and accountability.

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