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Rejection of Kerala’s Fifth State Finance Commission Recommendations
The recent large-scale rejection of the devolution recommendations of the Fifth State Finance Commission by the Kerala government reflects a reversal of past progress, and a move towards fiscal centralisation.
This article is based on the “Report of the Fifth State Finance Commission” of Kerala (Parts I and II), and on the “Action Taken Report on the Part I and Part II of the Reports of Fifth State Finance Commission.”
he author would like to thank an anonymous referee for comments on an earlier draft of this article.
Since the enactment of the Kerala Panchayat Raj Act (KPRA), 1994 and the Kerala Municipality Act (KMA), 1994, Kerala has transferred a number of powers and functions previously exercised by the state government; devolved more state resources to local governments (LGs); and promoted decentralised governance. Besides the traditional functions of the local bodies, they have also been assigned new functions, such as the transfer of local level government institutions like hospitals, schools, and krishi bhavans; maintenance of assets of transferred institutions; assignment of more development functions; formulation and implementation of annual plans; delivery of welfare and pension schemes; and implementation of centrally sponsored schemes like the Mahatma Gandhi National Rural Employment Guarantee Scheme.
Kerala has 1,200 LGs, comprising 941 gram panchayats, 152 block panchayats, 14 district panchayats, 87 municipalities and six municipal corporations. Kerala has evolved a sound and effective fiscal decentralisation system, and a share of state taxes and grants are transferred to the LGs to meet their expenditure based on the recommendations of successive State Finance Commissions (SFCs). In the past, Kerala also had a history of timely constitution of SFCs and implementation of their recommendations on devolution. Regarding the transfer of powers and functions, decentralised governance, fiscal decentralisation and implementation of decentralised planning, Kerala achieved substantial progress compared to other states in India. But, an unfortunate and disturbing development that has occurred recently is the delay in the implementation of the Fifth State Finance Commission (Fifth SFC) report by two years, and rejection of most of the devolution recommendations.
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