The State government wants local bodies to park their own funds in Special Treasury Savings Bank (STSB) accounts rather than in banks.
The Finance Department, in a September 18 circular, has directed local self-governments to park the funds in STSB accounts, revising an earlier decision of the Local Self Government Department allowing them to keep the money in the banks.
Local bodies have been directed to open new STSB accounts for the purpose. The decision will come into force from April 1, 2022.
The circular issued by the Finance Department says that the local bodies will not be hampered by ways-and-means restrictions for withdrawal of the funds from the STSB accounts. At the same time, the government has made it clear that, henceforth in this matter, instructions will be given only by the Finance Department. Other government departments have been asked to desist from issuing any orders or instructions in this regard.
The decision, coming amidst the current COVID-19-induced financial scenario, has sparked apprehension among local bodies and raised questions regarding fiscal decentralisation. The Finance Department had, in fact, revised a circular issued by the Local Self Government Department on May 26, 2011, allowing local bodies to park their funds in the banks.
B.A. Prakash, who was chairman of the Fifth State Finance Commission, pointed out that the new decision went against the spirit of fiscal decentralisation.
“In effect, it could seriously affect the functioning of local governments and result in fund shortages. Treasury transactions are always subject to government controls, regulations and restrictions. For instance, in 2019, the government had imposed stringent curbs on the treasury during a fiscal crisis in 2019,” Mr. Prakash said.