Discuss the recommendations of the 13th Finance Commission which have been a departure from the previous commissions for strengthening the local government finances. (UPSC 2013)

The 13th Finance Commission marked a clear shift from treating local bodies as recipients of fixed grants to recognising them as a stronger fiscal tier. It linked central transfers to local performance, transparency and revenue effort.

• Buoyant devolution: It recommended 2.5% of the Union’s divisible pool for local bodies, replacing the earlier ad hoc lump-sum grants. This made transfers more predictable and growth-linked.
• Two-part grant system: It split support into basic grants for core functions and performance grants to reward reforms and better management.
• Reform conditions: Access to performance grants was tied to measures such as timely audits, better accounts, electronic transfer of funds, local ombudsman, and service-level benchmarks.
• Own revenue focus: It pushed states to strengthen property tax systems, improve SFC quality, and compensate local bodies for tax loss on government properties.

By combining assured transfers with incentives for accountability and resource mobilisation, the Commission strengthened local government finances in a more durable and decentralised manner.