Chief Source of Revenue for Panchayats

Context:

The main source of revenue for panchayats come from the Centre and the states as grants. The Revenue from taxes form a negligible share.

Relevance:

GS-II: Polity and Governance (Constitutional Provisions, Government Policies and Interventions for Transparency and Good Governance)

Dimensions of the Article:

1. Key points
2. Overdependence on the centre and states for funds
3. Historical Background of (Panchayat Raj Institutions) PRIs:
4. PRIs progress after independence under Five-year plans:
5. Issues and Concerns
6. Way forward

Key points:

• As the data from the Reserve Bank of India(RBI) report titled ‘Finances of Panchayati Raj Institutions’, The Panchayats earn only 1% of their revenue through taxes.
• A major part of its revenue comes from the State and the Centre as grants.
  • 80% of the revenue was from Central government grants.
  • 15% was from State government grants.
• Panchayats act on three different levels namely, gram sabhas, panchayat samithis, and zila parishads. They are responsible for a variety of tasks including agriculture, rural housing, water management, rural electrification, healthcare, and sanitation. In some cases, zila parishads are also responsible for maintaining schools, hospitals, dispensaries, and minor irrigation projects.

Overdependence on the centre and states for funds:

• As an impact of overdependence on the Centre and the State for their funds, most panchayats suffer from interference from the top two tiers of the system.
• The Standing Committee on Rural Development and Panchayati Raj said in March last year that 19 out of 34 State/Union Territories did not receive any funds under the Rashtriya Gram Swaraj Abhiyan scheme in FY23.
  • The Rashtriya Gram Swaraj Abhiyan scheme was started fobuilding capacity and training elected representatives.
• Due to meagre revenue raising potential, panchayats’ share in the respective State’s own revenue was poor. For instance, in Andhra Pradesh, revenue receipts of panchayats formed just 0.1% of the State’s own revenue. The revenue of panchayats in Uttar Pradesh formed 2.5% of the State’s own revenue, the highest among States. 
• Recent incidences:
  • Protest by several panchayats heads in Chennai last year asking for independence of the Panchayati Raj.
  • A news report from Telangana last year stated that the failure of the State government in releasing funds on time forced sarpanches to use private funds.

Historical Background of (Panchayat Raj Institutions) PRIs:

• Although historically in India there was a prevalence practice of the panchayat system under various dynasties and kingdoms such as Cholas (very popular for its local self-Government system), Pandyas, Mauryan etc. for efficient administration of kingdoms and dynasties in order to provide maximum satisfaction and services on behalf of king to the entire kingdom. but in later stages under the British/modern Era, gradually the importance of this efficient system robustly declined as was the progress in economy and societal development declined due to such horrendous policies neglecting the progress of state was observed. It’s because of this fact the constitution drafters keeping such issues in mind made a place for village panchayats in the constitution under Article 40 of the Indian constitution which was then a mere suggestion for a state for good governance under Directive Principles of State Policy, various states in order to provide good governance started drafting separate legislations and creating PRIs but this didn’t happen in all the states of India which was the need of an hour for bringing-in remarkable changes for an under-developed India due to such halt in the performance, Panchayat raj essentially got the constitutional status in order to decentralize the democratic government and governance for effective welfare of the states.

Post-Independence India:

• Panchayat Raj Institutions are a local level institution comprising of elected representatives entrusted with the responsibility of identifying, formulating, implementing and monitoring the local level developmental and welfare programmes, the constitutional provisions expect the state government to enact state legislation not only to create PRIs but also to endow them with such financial powers and functional responsibilities.

PRIs progress after independence under Five-year plans:

• During the first five year plan the government felt the need of PRIs or disaggregated planning exercise for efficient governance and introduced idea of village plans and district development councils. (DDC)
• Balwant Rai Mehta committee recommended block as the unit of planning with panchayat samitis as the executive body for planning and also suggested setting up of village panchayats, Talukas, Zilla parishads etc.
• But due to non-binding nature and absence of mandatory constitutional legislations, various suggestions wouldn’t work for all the states.
• In third and fourth five-year plans too, same thing re-emerged due to lack of planning machinery and poor planning. The concept of “Integrated area approach” and district planning and various schemes such as lead bank scheme for district credit plans to farmers were introduced which made a little progress and contribution to the idea and implementation of PRIs under fourth and fifth five-year plan. Ashok Mehta Committee in 1977 was set up to examine the functioning of PRIs to improve efficiency of decentralized planning. During the sixth and seventh five year plan a multi-level planning frame work within districts was emphasized but the same various different fallacies took place such as administrative, financial and others. It was during the ninth five-year plan that the Indian government introduced the decentralization reform depicting its seriousness towards village levels through making PRI a constitutional right by making 73rd and 74th amendment in the year 1993 for efficient governance so that the development process could even reach the doors of villages.

Issues and Concerns

• The first failure of the 73rd Amendment was that the transfer of various governance functions—like the provision of education, health, sanitation, and water was not mandated. Instead, the amendment listed the functions that could be transferred, and left it to the state legislature to actually devolve functions. There has been very little devolution of authority and functions in the last 25 years. PRIs cannot govern unless they are given the authority to actually perform functions related to governance.
• To make matters worse, because these functions were never devolved, state executive authorities have proliferated to carry out these functions. The most common example is the terrible state water boards, performing tasks that should have been left to elected representatives of local governments who best understand local water problems and can be disciplined through the democratic process.
• The second failure of the 73rd Amendment is the lack of finances for PRIs. Local governments can either raise their own revenue through local taxes or receive intergovernmental transfers. The 73th Amendment recognized both forms of public finance, but did not mandate either. The power to tax, even for subjects falling within the purview of PRIs, has to be specifically authorized by the state legislature. The 73rd Amendment let this be a choice open to the state legislatures—a choice that most states have not exercised.
• A second avenue of revenue generation is intergovernmental transfers, where state governments devolve a certain percentage of their revenue to PRIs. The constitutional amendment created provisions for State Finance Commissions to recommend the revenue share between state and local governments. However, these are merely recommendations and the state governments are not bound by them. Though finance commissions, at every level, have advocated for greater devolution of funds, there has been little action by states to devolve funds.

Way forward:

• The only long-term solution is to foster genuine fiscal federalism where PRIs raise a large portion of their own revenue and face hard budget constraints, i.e., fiscal autonomy accompanied by fiscal responsibility.
• As per the report released by the Reserve Bank of India on the finances of Panchayati Raj Institutions for 2022-23 argues that one of the ways forward is to promote greater decentralisation and empower local leaders and officials.
• Now that there are millions of elected representatives giving voice to Indians at the grass-roots level, these representatives need clear mandates of local functions, and the ability to raise their own revenue, to foster better local governance. Without the functions and finances, PRIs will only be an expensive failure.

-Source: The Hindu