Answer: 

Introduction:

The 13th Finance Commission, chaired by Dr. Vijay Kelkar, covered the period from 2010 to 2015. It made several significant recommendations, marking a shift from its predecessors, to strengthen the financial status of local governments – both rural (Panchayats) and urban (Municipalities).

Body:

• Performance-Based Grants: For the first time, the 13th Finance Commission introduced the concept of performance-based grants, wherein a certain portion of the grants was tied to the achievement of specific performance criteria by the local bodies. This incentivised local bodies to improve their performance.
• General Basic Grants: The Commission recommended the allocation of general basic grants that could be used by local bodies at their discretion. This was an important departure from earmarked grants and enhanced the financial autonomy of local bodies.
• State-Level Property Tax Reforms: Recognizing that property tax is a significant source of revenue for local bodies, the Commission incentivised states to conduct property tax reforms by linking a portion of the grants to such reforms.
• Maintenance of Capital Assets: The Commission recommended a portion of the grants to be used for the maintenance of capital assets created by local bodies. This was a crucial recommendation to ensure the sustainability of assets created by local bodies.
• Strengthening of State Finance Commissions: The 13th Finance Commission laid stress on strengthening the State Finance Commissions (SFCs) by providing funds for setting up of SFC cells and conducting studies related to local body finances.

For instance, in Kerala, the 13th Finance Commission’s recommendations helped in augmenting the resources of local bodies through performance-based grants, leading to better provision of services like water supply and sanitation. The grants were also used for the maintenance of assets, improving their sustainability. Similarly, in Rajasthan, the recommendation to strengthen the SFCs led to a more effective functioning of the SFC and better financial management at the local level.

Conclusion:

The 13th Finance Commission’s recommendations marked a significant departure from the previous commissions, emphasizing the need to strengthen local body finances. While these recommendations have made significant strides, more needs to be done to strengthen the financial autonomy of local bodies, making them self-reliant and capable of providing quality public services.

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