Raghuram Rajan Advocates for Greater Fund Devolution to Local Bodies in India

In a compelling call for enhanced financial decentralization, former Reserve Bank of India Governor Raghuram Rajan has urged the 16th Finance Commission to focus on allocating more funds to local bodies such as municipalities and panchayats. He cited a comparative analysis with countries like China and the US to emphasize the need for more local government autonomy.

Rajan stressed the importance of this third tier in fiscal devolution, a move he believes can address issues more effectively at the grassroots level. Currently, 41% of the divisible tax pool is allocated to states, and Rajan highlights the need to shift more funds from states to local bodies. Additionally, he called for strategic investments in India's industries, particularly in rare earth materials and the Production Linked Incentive scheme.

The discussion also focused on India's response to global strategic shifts, such as China's rare earth export curbs, urging India to create domestic buffers and explore untapped resources within the country. Rajan pointed out significant reserves in Kashmir, promoting them as a potential boon for both regional employment and national economic stability.

(With inputs from agencies.)