New Delhi, Feb 7 (IANS): A portion of the proposed goods and services tax (GST) should be shared with local bodies -- municipalities and village panchayats -- to enable them to address basic services like sanitation and water supply, according to Isher Judge Ahluwalia,

well-known economist and chairperson of think tank ICRIER.
"Panchayats and local urban bodies are required to play very important roles, but they don't have finances. There must be a predictable source of finances for them," Ahluwalia told IANS in an interview.

She suggested that a provision be made in the proposed GST regulation to allow local bodies to have a proportionate share in the indirect taxes. The proposed Goods and Services Tax (GST) is touted as the most comprehensive tax reforms in India. It seeks to make India a "one tax nation" by merging all indirect taxes imposed by the centre, state and local authorities.

A constitution amendment bill is pending in parliament to pave the way for implementation of the ambitious tax reform.

Ahluwalia, who headed a government-appointed high-powered expert committee on urban infrastructure and services during 2008-2011, said even a tiny 0.25 percent share in GST to local bodies would help a lot in improving delivery of basic services.

"In our report, we have recommended that a small portion of GST should go to local bodies. However, we have not specified the number," she said.

Local bodies can be broadly classified into two categories. For rural areas it is called Panchayats or rural local bodies and those constituted for local planning, development and administration in the urban areas are called municipalities or urban local bodies.

"Infrastructure is developed by the central and state governments, but service delivery is largely in the hands of local bodies. Unless you improve their financial condition, service delivery is not going to improve," she said.

Ahluwalia said urban development has been largely neglected in India and a lot needed to be done to improve urban infrastructure and delivery system.

An alumnus of Delhi School of Economics and US-based Massachusetts Institute of Technology (MIT), Ahluwalia said India must focus on urban development to sustain a high rate of economic growth.

"Nearly two-thirds of India's GDP is generated in urban areas. It is projected to go up to 75 percent by 2040. Urban areas are the engine of growth; we must focus on its development," she said.

She said there is need to develop new cities in India and at the same time focus should be on improving infrastructure in existing cities.

Ahluwalia said she had travelled widely across the country to understand the problems and challenges.