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As India prepares to become an advanced economy in the next 25 years, a key ingredient to making the leap will be devolving governance functions to lower levels of government. A distinguishing feature of advanced economies is their significant allocation of revenues and responsibilities at the local government level. These include primary education, health care, basic law and order, and civic infrastructure — sewage, water supply, road maintenance and local zoning and regulations. The 16th Finance Commission, which is being set up, can be used to lay out the road map for this transformation and, thereby, also implement the 73rd and 74th amendments to the Constitution, which were intended to empower local government.
India’s share of sub-national (state plus local) spending at 60 per cent of total spend is quite high at its level of development. The 14th Finance Commission shifted about 10 per cent of the divisible pool share of resources to the state
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