16th Finance Commission may recommend on harmonisation of urban local body accounts: Panagariya

16th Finance Commission Chairperson Arvind Panagariya

The 16th Finance Commission is expected to propose the harmonisation of accounting standards between urban local bodies (ULBs) and the central government, using a common chart of accounts, Arvind Panagariya, Chairman of the 16th Finance Commission said on March 1. This move aims to improve financial transparency, accountability, and efficient resource allocation across different levels of government.

"To incentivise local bodies to adopt harmonised accounts, we need a common chart of accounts for urban local bodies and the Centre. Some progress was made by the 15th Finance Commission, and hopefully, we will try and make more progress. It is a recognised problem," Panagariya said at the 49th Civil Accounts Day celebrations in New Delhi.

A common chart of accounts would standardise financial reporting and budget classification for ULBs, ensuring consistency in recording transactions. This will facilitate better integration of financial data across government levels, improving decision-making and fund allocation while enhancing fiscal discipline.

Panagariya also highlighted the role of financial governance in optimising fund utilisation. He pointed to the Public Financial Management System (PFMS) as a crucial tool in this process and suggested that it should be directly connected to rural and urban local bodies to ensure effective fund allocation.

"The Finance Commission is visiting different states and local bodies. In the long run, it can be done that money goes directly to the local bodies instead of through the states," Panagariya stated.

The Sixteenth Finance Commission has been requested to make its recommendations available by October, 31, 2025, covering an award period of 5 years commencing April 1, 2026.
The recommendations of the 16th Finance Commission are expected to influence resource-sharing and fiscal management practices between the Centre, states, and local bodies.