In Kerala, the State Finance Commission (SFC) submitted four reports so far and the government took some reasonable actions on them. The SFC is a state level body consisting of experts on public finance and public administration appointed at regular intervals of five years under the article 243I of the Constitution. Its purpose is to study the local finance and submit its report with suggestions on strengthening its health.
The first SFC integrated 17 specific purpose grants into a broader general-purpose grant and determined a formula based, non-discretionary sharing of state taxes to the local bodies. The second SFC moved from the sharing of specific taxes to the global sharing of taxes and suggested for devolution of 3.5 per cent of the state taxes as general-purpose grant and 5.5 per cent of the state taxes as maintenance grant. The third SFC moved on to a regime of fixed grants. It fixed the base year’s grant as equivalent to the grant recommended by the second SFC and suggested a ten per cent increase every year. The fourth SFC recommended for devolution of 25-30 per cent or more of state plan funds to local governments and fixed 3.5 per cent as general-purpose grant and 4.5 per cent as maintenance grant.
Nevertheless, the inability to revise the property tax which constitutes the most important item of own revenue for the village panchayats and urban local bodies in the state since 1993 is a serious flaw that questions the very foundation of the state’s efforts towards decentralizing governance.