“Municipal finances is next on the reform agenda and bringing it to TSA will help in transparency in utilisation of funds,” a senior official said.
This could also figure as part of the terms of reference (ToR) for the 16th Finance Commission, which will be constituted later this year, officials aware of the proposal told ET.
The TSA system seeks to enhance the efficiency in fund flows through a just-in-time release to ministries and departments. This reduces floating funds in the system, lowering borrowing and yielding interest savings.
The finance ministry has already begun internal discussions on the matter, after inefficient fund utilisation by some municipal bodies and poor accounts and record keeping were flagged in several quarters.
The issue was also flagged by the Reserve Bank of India in its latest report on municipal finances, showing considerable data gaps and missing entries.
“The data for central and state transfers to municipal corporations were not reported by many corporations and amongst those that have reported, the respective share of central and state transfers were not reported,” the RBI said in the report published in November 2022.It said the budget documents for most of the corporations were either not available online and where they were available, only in their respective regional languages, making cross checking from their budget online “untenable”.
Multiple state finance commissions have also in the past highlighted issues with accounts of municipal bodies. Accounts of many municipal bodies have not been updated for the past 3-4 years and there were several instances of funds being diverted for other purposes leaving insufficient for the mandatory activities.