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FINANCES OF PANCHAYATI RAJ INSTITUTIONS

FINANCES OF PANCHAYATI RAJ INSTITUTIONS

12-02-2024
  1. In Jan 2024, the Reserve Bank of India (RBI) released a report titled 'Finances of Panchayati Raj Institutions' for the fiscal year 2022-23, revealing insights into the financial aspects of Panchayati Raj Institutions (PRIs) in India.

  2. What is a Panchayati Raj Institution?

    1. The 73rd Constitutional Amendment Act, 1992 conferred constitutional status to the Panchayati Raj Institutions (PRIs) and established a uniform structure with three tiers.
    2. PRIs operate at three levels: gram sabhas (village or group of small villages), panchayat samithis (block council), and zila parishads (district).
    3. Article 243G of the Indian Constitution grants state legislatures the authority to empower Panchayats to function as self-government institutions.
    4. Provisions for the financial empowerment of Panchayats are outlined in Article 243H, Article 280(3)(bb), and Article 243-I of the Constitution.

  3. Financial Empowerment of Panchayats:

    1. Article 243H empowers state legislatures to authorize Panchayats to levy, collect, and appropriate (assign) taxes, duties, tolls, and fees, subject to conditions and limits.
    2. Article 280(3)(bb) mandates Central Finance Commission to recommend measures to increase Consolidated Fund of a State to support Panchayat resources based on State Finance Commission recommendations.
    3. Article 243-I mandates the formation of State Finance Commissions every five years to review the financial status of Panchayats.
      • They advise the Governor on distribution principles of taxes, duties, tolls, and fees, measures to improve financial position, and other finance-related matters.
  4. Role of the Ministry of Panchayati Raj: The Ministry of Panchayati Raj oversees all matters related to the Panchayati Raj and Panchayati Raj Institutions, established in May 2004.

  1. Key Highlights of the Report:

    1. Revenue Composition:

    • Panchayats derive only 1% of their revenue from taxes.
    • The majority of their revenue comes from grants provided by the Centre and the States.
    • Data shows that 80% of the revenue is from Central government grants, while 15% is from State government grants.

    1. Revenue Statistics:

    • In the fiscal year 2022-23, panchayats recorded a total revenue of nearly Rs 35,350 crore.
    • Only Rs 740 crore was generated through their own tax revenue, which includes taxes on profession and trades, land revenue, stamps and registration fees, taxes on property, and service tax.
    • Non-tax revenue amounted to nearly Rs 1,500 crore, mainly from interest payments and Panchayati Raj programs.
    • Notably, panchayats received Rs 24,700 crore in grants from the Central government and Rs 8,150 crore from State governments.

    1. Revenue Per Panchayat:

    • On average, each panchayat earned just Rs 21,000 from its own tax revenue and Rs 73,000 from non-tax revenue.
    • In contrast, grants from the Central government amounted to approximately Rs 17 lakh per panchayat, with State government grants totalling over Rs 3.25 lakh per panchayat.

    1. State Revenue Share and Inter-State Disparities (inequality):

    • Panchayats' share in their respective State's own revenue remains minimal.
    • For instance, in Andhra Pradesh, revenue receipts of panchayats constitute just 0.1% of the State’s own revenue, while in Uttar Pradesh, it forms 2.5%, the highest among states.
    • There are significant variations among states regarding average revenue earned per panchayat.
    • Kerala and West Bengal lead with average revenues of over Rs 60 lakh and Rs 57 lakh per panchayat, respectively.
    • The revenue was over Rs 30 lakh per panchayat in Assam, Bihar, Karnataka, Odisha, Sikkim, and Tamil Nadu.
    • States like Andhra Pradesh, Haryana, Mizoram, Punjab, and Uttarakhand have significantly lower average revenues, less than Rs 6 lakh per panchayat.

    1. Recommendations of RBI:

    • The RBI proposes greater decentralization and empowerment of local leaders and officials, along with measures to enhance financial autonomy and sustainability of Panchayati Raj.
    • The report suggests PRIs to improve resource utilization through transparent budgeting, fiscal discipline, community involvement, staff training, and monitoring.

  1. Reasons for Panchayats Facing Funding Related Issues

    1. Limited Taxation:

    • PRIs have limited powers to impose taxes and often receive insufficient funds from the State Government.
    • They hesitate to raise funds fearing loss of popularity.

    1. Low Capacity and Utilization:

    • PRIs may lack the skills to generate revenue from fees, tolls, etc.
    • Challenges in efficient fund utilization due to poor planning and monitoring.

    1. Fiscal Decentralisation Issues:

    • Insufficient devolution (distribution) of financial powers hampers (hinder/obstruct) their ability to mobilize resources independently.
    • Limited fiscal decentralization weakens local governance and community empowerment.

  2. Repercussions (consequence) of Panchayats’ Financial Dependence

    1. Dependence on external funding leads to interference from higher government levels.
    2. Delayed release of funds by State governments forces panchayats to seek private funds.
    3. Some regions face non-receipt of funds under key schemes, affecting their functioning.
    4. The Standing Committee on Rural Development and Panchayati Raj reported that 19 out of 34 State/UTs did not receive funds under the Rashtriya Gram Swaraj Abhiyan scheme in FY23.
    • The Standing Committee on Rural Development and Panchayati Raj is responsible for examining demands for grants for each financial year from the Ministry/Department under its purview (scope).
    • The Rashtriya Gram Swaraj Abhiyan (RGSA) is a scheme launched by the Ministry of Panchayati Raj in 2018 to strengthen the Panchayati Raj system in rural areas.

  2. Government Initiatives to Strengthen Panchayati Raj Institutions (PRIs)

    1. e-Gram Swaraj e-Financial Management System: It's a Simplified Work Based Accounting Application for Panchayati Raj that enhances the credibility of Panchayat by devolving funds to PRIs.
    2. Saansad Adarsh Gram Yojana: It focuses holistic development of villages, transforming them into Adarsh Grams.
    • Each Member of Parliament (MP) is tasked with promoting development of three Gram Panchayats (GPs) by 2019 and another 5 GPs by 2024.
    1. LSDGs through PRIs: The Ministry adopts a thematic approach for Local Sustainable Development Goals (LSDGs) leveraging (use to maximum advantage) third tier of Government, with goals to be attained by 2030.
    2. Panchayat Development Index (PDI): MoPR constituted a committee to prepare mechanisms for computation of PDI to measure progress on LSDGs and carry out evidence-based policy assessment.
    3. Gram Urja Swaraj Abhiyaan: MoPR collaborates with the Ministry of New and Renewable Energy to include Gram Panchayats under all its schemes, focusing on renewable energy adoption for self-sufficiency.
    4. National Panchayati Raj Day (NPRD): Celebrated annually on April 24th by MoPR to commemorate the 73rd Constitutional Amendment Act of 1992.
  • Theme for 2023: "Panchayaton ke Sankalpon ki Siddhi ka Utsav" celebrates adopting a "whole-of-society" and "whole-of-government" approach.

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