A report on the finances of Panchayati Raj institutions has been released by RBI shedding light on the financial subtleties of the Panchayati Raj institutions in India. Read here to learn more about it.
Only 1% of the revenue of panchayats was earned by them, with the rest being raised as grants from the State and the Centre, show data. Specifically, 80% of the revenue was from Central government grants; only 15% was from State government grants. Consequently, the revenue raised by panchayats formed a minuscule share of the States’ revenue.
Panchayats act on three levels 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.
Finances of Panchayati Raj Institutions: A History
Since Vedic times, villages in India have served as fundamental administrative units. References to Panchayats can be found in ancient texts like Manusmriti, Arthashastra, and Mahabharata.
- The role of Panchayats, however, waned due to factors such as the failure of kingdoms to adhere to decentralization principles.
- The Panchayati Raj system was dismantled during British rule, with the establishment of the district collectorate, primarily for revenue collection.
- In 1870, the Bengal Chowkidar Act granted district magistrates the authority to establish Panchayats in villages comprising of appointed members for tax collection.
- In 1882, the British government passed a resolution, envisioning the formation of local boards with elected non-official members in substantial majority.
- This resolution also proposed the creation of rural local boards, with two-thirds of their members elected by the populace.
- Despite these early intentions, the progress in the formation of rural local self-governments remained stagnant until 1947.
The modern concept of Panchayati Raj received a boost from Mahatma Gandhi, who saw it as a means of promoting democracy at the grassroots level. He advocated Gram Swaraj or village self-governance – a decentralized form of governance in which villages would be responsible for their affairs, serving as cornerstones of India’s political system.
Following independence, Gram Panchayats were revitalized by entrusting them with essential functions of local government.
- Under the Directive Principles in Article 40 of the Constitution, it is stipulated that “the State shall take measures to organize Gram Panchayats and empower them with the necessary authority and powers to function as self-governing units.”
- In 1957, the Balwant Rai Mehta Committee, the first committee to address issues related to democratic decentralization in the post-independence period, proposed a three-tier Panchayati Raj system consisting of Gram Panchayats, Panchayat Samitis, and Zila Parishads, with Gram Panchayats consisting of directly elected representatives, and Panchayat Samitis and Zila Parishads comprising indirectly elected representatives.
- In 1977, the Ashok Mehta Committee suggested a two-tier system consisting of Zila Parishads at the district level and Mandal Panchayats that would be responsible for a group of villages.
- In 1986, the L.M. Singhvi Committee recommended the constitutional recognition of the Panchayati Raj system, emphasizing their significance and role in India’s governance structure.
In 1992, the 73rd Amendment to the Indian Constitution institutionalized the Panchayati Raj Institutions (PRIs) at three levels in rural India: Gram Panchayats at the village level, Mandal Panchayats at the intermediate/block level, and Zila Parishad at the district level.
- The 73rd Amendment introduced a significant change, specifying 29 subjects for which Panchayats were entrusted with the responsibility of devising and executing plans aimed at fostering local economic development and social justice.
- These subjects are outlined in the Eleventh Schedule of the Constitution and encompass a wide range of areas, including agriculture, animal husbandry, water management, rural housing, road infrastructure, rural electrification, healthcare, sanitation, poverty alleviation programs, family welfare, women and child development, public distribution systems, social welfare, and more
Finances of Panchayati Raj Institutions
The revenue receipts are dominated by grants-in-aid, with a share of more than 95 percent of the total receipts.
The Panchayats receive grants from both the Central and State governments. These grants may be distributed under specific schemes or based on the Central Finance Commission’s (CFC) and State Finance Commissions’ (SFC) recommendations.
The grants come in various forms:
- United Grants: also known as general purpose grants, these are provided without specific conditions or restrictions and they can be utilized by PRIs based on local priorities and needs.
- Tied Grants: earmarked for specific purposes or sectors, such as sanitation, education, healthcare, or infrastructure development, these grants ensure that funds are directed towards the targeted areas of development as determined by higher levels of government.
- Performance-based Grants: based on the recommendations of some CFCs to link grants to specific performance criteria, PRIs that demonstrate effective governance, financial management, and successful implementation of development projects may receive additional funds as incentives for their performance.
- Special Category Grants: these grants are designed to address unique challenges or particular needs of PRIs in specific regions or contexts and provide additional financial support to regions facing particular socioeconomic or geographical constraints.
The own revenues of the Panchayats – generated by imposing local taxes, fees, and charges on various activities, including land revenue, professional and trade taxes, and miscellaneous fees – were only 1.1 percent of their total revenue during the 2020-2023 period.
Non-tax revenue – primarily from Panchayati Raj programs and interest earnings – was only 3.3 percent of their total revenue receipts.
The ratio of revenue expenditure of Panchayats to nominal GSDP is less than 0.6 percent for all the States.
Investment in capital projects constituted 29.6 percent of the total expenditure of Panchayats in 2022-23, on average, across States.
- A significant share of the capital expenditure by PRIs is allocated to Panchayati Raj Programmes, transportation, water supply and sanitation, rural electrification, and rural housing.
Role of Panchayats in Economic Development
Finances of Panchayati Raj institutions play a central role in planning and executing diverse rural development projects and schemes.
Rural development encompasses various sectors, from agriculture to rural industries, and essential social infrastructure, such as schools, clinics, roads, communication networks, water supply systems, markets, welfare facilities, improved nutrition, literacy programs, and adult education initiatives.
- PRIs have helped in identifying actual beneficiaries to target benefits from the government schemes.
- Further, the PRI system is crucial in promoting social mobilization, broad community participation in local development, and representation of weaker sections in decision-making processes for inclusive and equitable development.
- The PRIs have also empowered rural women through one-third reservation in Panchayati Raj bodies, promoting gender inclusivity and fostering their active involvement in shaping community development initiatives.
- PRIs prepare Village Development Plans (VDPs) and implement development projects by allocating resources based on local needs to align development initiatives with the priorities of the rural population.
- Panchayats also serve as implementing agencies for various Central and State government programs and schemes to help in the targeted delivery of these programs at the grassroots level.
- PRIs implement and oversee initiatives that boost agricultural productivity, support sustainable farming practices, and enhance the overall economic resilience of rural areas.
- PRIs collaborate with agricultural extension services, facilitate access to modern farming techniques, and promote the adoption of innovative technologies to empower local farmers.
- Panchayats also contribute to the implementation of the soil health card scheme, execution of infrastructure projects, and promotion of animal husbandry and the fisheries sector.
- Cooperative endeavors like Amul have originated at the Panchayat level.
- Panchayats have supported sustainable practices such as social forestry and agro-forestry, emphasizing their crucial role in shaping and advancing agricultural practices at the grassroots level.
Localization of Sustainable Development Goals
The Localisation of SDGs (LSDGs) is being actively pursued through 9 themes aligned with the aspirations of rural communities. These themes are:
- Poverty-free and enhanced livelihoods Panchayat;
- Healthy Panchayat;
- Child-Friendly Panchayat;
- Water-Sufficient Panchayat;
- Clean and Green Panchayat;
- Panchayat with Self-sufficient Infrastructure;
- Socially Just and Socially Secured Panchayat;
- Panchayat with Good Governance;
- Women-Friendly Panchayat.
LSDGs involve a commitment to achieving the targets outlined in the SDGs by 2030.
Panchayats play a significant role in providing basic healthcare facilities to rural residents in collaboration with government health departments through establishing and maintaining health centers, clinics, and dispensaries.
- GPs contribute to improving maternal and child health by promoting institutional deliveries, encouraging prenatal and postnatal care, and reducing maternal and infant mortality rates.
- Panchayats engage and train local community health workers to disseminate health-related information, provide primary care, and connect individuals to appropriate medical services.
- Providing access to clean drinking water and proper sanitation facilities is also an integral role of GPs, to maintain good health and prevent waterborne diseases.
Rural India still faces around 29 percent shortfall in rural health facilities in several States.
The Fifteenth Central Finance Commission (CFC-XV) recommended a total grant of `4.3 lakh crore for local governments covering the period from 2021-22 to 2025-26.
In rural areas, village Panchayats are responsible for constructing, maintaining, and enhancing educational institutions, primary schools, and community learning centers.
- Panchayats collaborate with schools and parents to encourage enrolment, minimize drop-out rates, and actively monitor school operations, teacher attendance, and educational quality.
Nonetheless, rural primary schooling in India faces hurdles due to a variety of factors:
- poorly equipped buildings;
- limited connectivity;
- scarcity of qualified teachers; and
- low enrolment and high drop-out rates exacerbated by gender disparities and limited community engagement.
Studies have shown that when women are involved in local governance, policy areas such as education, health, and child welfare often improve. Women leaders in local bodies have been instrumental in initiating and implementing policies that benefit children, families, and the underprivileged.
- Article 243D (3) of the amended Constitution guarantees women’s involvement in Panchayati Raj Institutions by stipulating a minimum one-third reservation for women in both the total seats filled by direct election and the positions of Panchayat Chairpersons.
- Furthermore, the positions of Chairpersons within the Panchayats, whether at the village level or any other tier, are to be reserved for SCs, STs, and women in a manner determined by the State Legislature.
- It is mandated that no less than one-third of all Chairperson positions at each Panchayat level must be reserved for women.
The Finances of Panchayati Raj institutions are critical to providing local governance and stepping up rural development in India.
Numerous challenges – inadequate financial resources; heavy reliance on grants from upper tiers of government; under-provision of basic human resources; and weak infrastructure – impede their optimal functioning.
Panchayats can leverage upon digital tools for a more people-centric administration, communication, and data management to boost efficiency.
Effectively addressing these challenges necessitates committed efforts from policymakers, local leaders, and citizens to fortify the functioning of Panchayats and expand inclusive and sustainable grassroots development.
-Article by Swathi Satish