Impact Story
Snapshot from 2025: India
Helping local governments make the most of public finance
Our work focused on a critical question at the heart of sustainable water and sanitation services: how can public finance translate more effectively into local action?
Our work focused on a critical question at the heart of sustainable water and sanitation services: how can public finance translate more effectively into local action? This question was particularly relevant in the context of India’s Finance Commission.
Every five years, the President of India appoints a Finance Commission to decide how public money is shared between national, state and local governments. Recognising water and sanitation as national priorities, the 15th Finance Commission (covering 2021/2 to 2025/6) recommended that 30% of grants to rural local bodies be used for drinking water-related activities, including rainwater harvesting and water recycling; and another 30% for sanitation and maintaining open-defecation-free status.
We analysed how these recommendations translated into practice. Reviewing allocation and expenditure data for rural local bodies, the analysis revealed a persistent challenge: Finance Commission grants were underused. Spending on water and sanitation, in particular, remained below the recommended combined 60% in most states.
However, the picture was notably different in four rural local bodies where we had supported targeted capacity-building activities through the Watershed programme between 2016-2020. These local governments showed significantly higher levels of expenditure, showing that when local institutions have the skills, confidence and systems to plan and spend, public funds are used more effectively.
The findings point to a clear conclusion: the challenge is not the absence of funding, but the capacity to use it well.
“As the cardinal source of funds for local bodies in India, Central Finance Commission grants are of great interest to policy and financing enthusiasts. As someone who has worked with IRC colleagues on WASH financing for over a decade, I am glad to see this analysis of the 15th CFC allocation and utilisation by rural local bodies in India, with a spotlight on Odisha state. The eGramSwaraj portal has major limitations; still, as the only public source of data on the local use of CFC funds, it remains key to leveraging change. Many thanks to Ruchika Shiva, Shiny Saha and others behind this important report.”
V. R. Raman, WASH Policy and Financing Expert