Devolution of powers and finances up to local levels

Devolution of Powers and Finances to Local Levels in India is accompanied by its share of Challenges and Opportunities. Read further to know more.

India, as a federal republic, has undertaken a significant journey in devolving powers and finances to local levels, recognizing the importance of grassroots governance. The process of decentralization aims to empower local bodies, enhance participatory democracy, and address the diverse needs of communities.

While progress has been made, challenges persist in effectively implementing devolution, posing hurdles to achieving true local self-governance.

Devolution of Powers

The devolution of powers and finances to local levels in India represents a crucial step toward inclusive and responsive governance. While there have been commendable achievements, persistent challenges require strategic interventions.

Strengthening fiscal decentralization, enhancing local capacities, ensuring uniform devolution, and mitigating political interference are imperative for the success of this transformative process.

The journey towards effective devolution is an ongoing one, demanding sustained commitment, innovation, and collaboration to realize the vision of empowered local self-governance.

• Constitutional Provisions: The 73rd and 74th Amendments to the Constitution of India in 1992 mandated the establishment of Panchayats and Municipalities, outlining their powers and functions. This constitutional backing provided a strong foundation for devolution.
• Participatory Governance: Devolution of power encourages citizen participation in decision-making processes. Local bodies are better positioned to understand the unique needs of their communities, leading to more responsive and accountable governance.
• Capacity Building: Devolution of power promotes the building of local leadership and administrative capacities. It allows local representatives to gain valuable experience and skills in governance, fostering a culture of self-reliance.
• Tailored Development: Local bodies can design and implement development programs tailored to their specific requirements. This flexibility enables targeted interventions, especially in areas with unique challenges.

The 73rd Constitutional Amendment Act

The Constitution (73^rd Amendment) Act was passed in 1992 and came into effect on 24 April 1993. The evolution of the Devolution of Powers and Finances Act empowered state governments to take the necessary steps that would lead to the formalization of the gram panchayats and help them operate as units of self-governance

Long before the act was implemented in 1992, village panchayats were already in use in India, but the system had several flaws that prevented it from serving as the people’s government or responding to their demands. This was caused by several things, including a lack of funding, the absence of regular elections, and the underrepresentation of weaker groups, such as women and scheduled castes and tribes.

According to Article 40 of the Directive Principles of State Policy in the Indian Constitution, the government must make it easier for gram panchayats to get started and run efficiently.

The 73rd Amendment Act was introduced by the central government of India in 1992 to solve these problems and enhance local self-government.

Part IX: The Panchayats is a new chapter that was added to the Constitution as a result of this Act.

• The following are some of the main characteristics of the act:
• The Panchayati Raj institutions in the nation are now constitutional bodies thanks to this Act.
• Every state is now required, by Article 243-B, to create panchayats within its borders.
• Article 243-G requires the state governments to give the panchayats power, responsibility, and authority.
• The term of office for gram panchayats is set at 5 years.
• Village panchayat elections can be held independently thanks to a system made available to state election authorities.
• For the proper representation of women and SC/STs, see Article 243-D.

Also read: Panchayati Raj (73rd Constitutional Amendment Act) – ClearIAS

74th Constitutional Amendment Act

Municipalities or Urban Local Bodies were made constitutionally recognized by the 74th Amendment Act. The 74th Amendment Act sought to establish an institutional framework for democratic decentralization or grassroots democracy through autonomous local governments in the nation’s cities. Additionally, it granted the ULBs the authority to carry out the 18 tasks stated in the Indian Constitution’s 12th Schedule.

74th Constitutional Amendment Act’s goals

• Municipalities now have constitutional status thanks to the statute. They now fall under the protection of the Constitution’s justiciable provisions as a result.
• In other words, state governments must implement the new municipal system in compliance with the act’s requirements within the terms of their constitutions.
• For municipal governments to properly serve as local government units, the legislation aims to improve and reinvigorate them.

The 74th Constitutional Amendment Act’s key features

• Three Different Types of Municipalities
• The act stipulates that the following three categories of municipalities must be established in each state.
• For a transitory area, a Nagar Panchayat (by whatever name called).
• a municipal government for a smaller city.
• a municipal body serving a more significant urban region.
• There is, however, one exception: the governor may designate a municipality as an industrial township if it contains an urban area where an industrial facility provides municipal services. A municipality may not be established in such a situation.

Also read: Evolution of Local Self-Government (Panchayati Raj System) in India – Clear IAS

Challenges

• Resource Constraints: Many local bodies face financial constraints, limiting their ability to execute development projects effectively. Over-reliance on state and central grants pose a challenge to financial autonomy.
• Political Interference: Despite constitutional provisions, political interference from higher levels of government remains a challenge. Local bodies may find their decisions subject to external influences, undermining true autonomy.
• Capacity Gaps: Some local bodies may lack the requisite administrative and technical capabilities. Insufficient training and support hinder their capacity to plan and implement projects efficiently.
• Unequal Devolution: Devolution is not uniform across states and regions, leading to disparities in local governance structures. Some areas may enjoy greater autonomy and resources than others, exacerbating existing socio-economic imbalances.

Finance Commission (Devolution of Power)

A constitutional authority known as the Finance Commission is responsible for allocating specific revenue resources between the Union Government and the State Governments. It was created by the Indian President by Article 280 of the Indian Constitution. It was developed to lay forth the terms of the Center’s and the States’ financial dealings. It began in 1951.

Concerning the Finance Commission’s recommendations, the President must present each house of Parliament with the recommendation and the explanatory letter( Article 281.).

The Finance Commission is established by the President of India every five years or whenever he deems it essential.

Composition of the Indian Finance Commission

• Chairman and Members of the Finance Commission
• The chairman is in charge of the Commission and oversees its operations. He ought to have some background in public affairs.
• 4 Members.
• The qualifications of the Commission’s members and the procedures used in choosing them are legally determined by the Parliament.

The Finance Commission’s functions

On the following matters, the Finance Commission advises the President of India:

• The division of net tax proceeds between the federal government and the states, as well as the distribution of those proceeds among the states.
• The guidelines by which the Center distributes grants in help to the states from the Consolidated Fund of India.
• The actions necessary to expand a state’s consolidated fund to increase the resources of its municipalities and panchayats are based on suggestions provided by the state finance commission.
• Any other issue that the president refers to is in the interest of solid financial management.
• Every five years, the Commission determines the rules governing grants-in-aid to the states as well as the basis for dividing taxes between the federal government and the states.
• The President may refer to the Commission any subject that is in the interest of prudent financial management.
• The recommendations of the Commission are presented to the Houses of Parliament together with a note explaining the government’s response to them.
• To allocate resources to the state’s Panchayats and Municipalities, the FC assesses the growth in the Consolidated Fund of the state.
• The FC has enough authority to carry out its duties within its area of responsibility.
• The FC has all the authority of a Civil Court by the Code of Civil Procedure from 1908. It has the authority to call witnesses and request the production of any public record or document from a court or office.

Also read: Finance Commission of India – ClearIAS

Parastatals (Autonomous/semi-autonomous institutions)

Institutions or organizations that are entirely or partially owned and run by the government are known as parastatals (either autonomous or quasi-governmental).

• They may be established by the Societies Registration Act or particular State laws. These organizations are typically created to supply certain services or carry out particular plans or initiatives supported by national or international donor organizations.
• The District Rural Development Agency (DRDA), the District Health Society (DHS), the District Water and Sanitation Committee (DWSC), and the Fish Farmers Development Agency are some of the significant parastatals (FFDA).
• The DRDA is the most significant parastatal at the district level. The majority of the centrally sponsored schemes, including the Indira Awaas Yojana (IAY), Swarnjayanti Gram Swarozgar Yojana (SGSY), and Sampoorna Grameen Rozgar Yojana (SGRY), currently receive funding through the DRDA, which then distributes it to implementing organizations at the block level.
• Gram Panchayats in particular have implementation and monitoring responsibilities for several of these initiatives.

Urban Local Finance

As allowed by the relevant municipal regulations, Municipal Corporations and Municipalities raise their funds from a variety of sources.

Their sources of income originate from

•  Taxes; (ii) Fees and Penalties; and (iii) Income from Municipal Enterprises, such as Land, Tanks, Markets, Shops, etc
• Additionally, the State provides grants to these organizations.
• The primary source of revenue for the majority of urban municipal governments is the property tax on land and structures.
• They also levy taxes on professionals, advertisements, and other things. In Western India, octroi is still a significant source of revenue for local governments.
• The current trend is to abolish this charge because it interferes with the smooth flow of traffic on highways.
• For violations of local laws and ordinances, municipalities also impose fines. Municipalities frequently make substantial money through their stores, marketplaces, and rest areas.
• States frequently give grants to their municipal organizations to boost their financial situation. State grants-in-aid may be given on an as-needed basis or by specified criteria, such as population size, the concentration of slums in an area, the location of the town, etc.
• Urban bodies collect a variety of taxes and fees, including property tax, sewerage tax, fire tax, animal and vehicle tax, theatre tax, duty on property transfers, octroi duty on some commodities transported into the city, education cess (tax), and professional tax.

Panchayats (Extension to Scheduled Areas) Act, 1996

The Government of India passed PESA as a law to protect “Scheduled Areas,” which are not protected by the 73rd Constitutional Amendment. The provisions of Part IX are expanded to the nation’s Scheduled Areas by this specific act. The Gram Sabha level was further lowered under PESA. The Panchayat Act gave the Gram Sabha a wide range of powers, including the ability to consult on land purchase, possess small forest products, and lease minor minerals.PESA went into effect as the Indian economy began to open all of its borders to foreign direct investment.

The mining industry, which is primarily found in the country’s scheduled regions where PESA operates, was made available to MNCs and the Indian corporate sector for the cheap exploitation of mineral resources. One of the standout aspects of PESA is its idea that every Gram Sabha should be capable of defending and preserving the people’s traditions and customs, their cultural identity, local resources, and the traditional means of resolving disputes.

The Gram Sabha or Panchayats at the appropriate level shall have the following powers:

• To be consulted for land acquisition and relocation issues.
• Concessions and prospecting licenses should be granted for the extraction of minor minerals.
• Planning and managing small bodies of water.
• The authority to impose prohibitions, regulate, or place restrictions on the sale and use of any intoxicants.
• Ownership of small-scale forest products.
• The ability to stop land alienation and restore any illegally alienated land belonging to a scheduled tribe.
• The ability to control local markets.
• The ability to exercise control over the lending of money to certain tribes.
• While granting Gram Sabhas or Panchayats such extensive powers, PESA has additionally mandated that States grant Panchayats the requisite powers and authority to enable them to function as institutions of self-government.

Urban local government

Urban local government alludes to the populace governing an urban region through their elected officials. Local urban bodies now have constitutional status thanks to the 74th Constitutional Amendment Act of 1992.

74th Amendment to the Constitution added  “The Municipalities” part IX-A and a new Twelfth Schedule with 18 useful elements for municipalities were added by this measure.

The main elements of this Act can be divided into two categories: mandatory and optional. Some of the mandatory clauses that apply to all States include:

• The establishment of Nagar Panchayats, Municipal Councils, and Municipal Corporations in Transitional Areas, Smaller Urban Areas, and Larger Urban Areas, correspondingly;
• Reservation of seats for Scheduled Castes and Scheduled Tribes in urban local bodies, usually according to their population;
• Reserving up to one-third of the seats for women;
• Elections for urban local self-governing units will be held by the State Election Commission, which was established to oversee elections for Panchayati raj bodies (see 73rd Amendment);
• The local urban self-governing bodies’ financial affairs will be investigated by the State Finance Commission, which was established to handle the finances of the Panchayati Raj organizations;
• Urban municipal self-governing entities have a five-year term limit, and if dissolved early, new elections must be held within six months;

Rural local finance

Panchayats mostly rely on subsidies from the State Government for funding. Additionally, they can tax and receive some income from their own or vested assets. They might get a portion of the state government’s levied and collected taxes, charges, tolls, and other fees.

Let’s examine the financial resources Panchayats have at their disposal to carry out their duties.

• Gram Panchayat: In the majority of States, Gram Panchayats have the authority to impose taxes. Some of the taxes and fees charged by the village include a house tax, a tax on livestock, an immovable property tax, a tax on commercial crops, a drainage tax, a sanitation fee, a tax on products sold in the village, a cost for providing water to households, and a tax on lights. Additionally, panchayats have the authority to impose amusement taxes on animals, non-mechanically driven vehicles, and temporarily erected theatres. Additionally, Gram Panchayats earn money as income from land they possess such as common areas, jungles, cow pastures, etc. Gram Panchayats also keep the sales revenue from carcasses (killed animals) and manure refuse. Additionally, the State pays them their fair share of land revenue.
• Panchayat Samiti: Panchayat Samitis has the authority to levy taxes on services they offer, such as water for drinking or irrigation, lighting systems, and tolls for bridges they manage. Public roads built or maintained with their funding, as well as all land or other property granted to them by the Panchayats, are included in the property owned by Panchayat Samitis. Additionally, the State Governments give them grants. State governments or Zila Panchayats provide money along with plans for Panchayati Raj’s intermediary entities to carry out.
• Zila Parishad: Zila Parishads have the power to levy taxes. They have the authority to impose taxes on individuals who have operated a business in rural areas for six months, brokers, commission agents, and the sale of goods in their established marketplaces. Zila Parishads may also impose a tax on land revenue. The necessary funds are also provided when development plans are committed to them. Additionally, they get donations from philanthropic organizations, grants from the government, and maybe even loans.

Special Provisions for some states

The Part XXI of the constitution’s Article 371 to 371-J has particular provisions for eleven states. The purpose of these provisions is to address the needs of the residents of underdeveloped areas of the states, to safeguard the cultural and economic interests of the tribes living in the states, to deal with the erratic law and order situation in some areas of the states, or to advance the local population’s interests. The original constitution did not include these constitutions. They have since been included in numerous modifications.

Read: States Borrowing Power; Fiscal Federalism

Article Written By: Atheena Fathima Riyas