Syllabus
GS Paper 2 – Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels and challenges therein.
Applications where to apply?
When asked about
– Decentralisation
– Grassroots democracy
– Fiscal Federalism
Context
Despite mandates and frameworks, devolution and fiscal autonomy remain challenging. This underscores the need to explore factors shaping devolution and enhance PRI financial independence.
Source
The Hindu | Editorial dated 21st February 2024
Having panchayats as self-governing institutions
The evolution of local self-government in India, marked by the 73rd and 74th Constitutional Amendments Acts, has been a pivotal step towards decentralization and grassroots governance. Over the past three decades, efforts have been made to empower Panchayati Raj Institutions (PRIs) as effective mechanisms for local governance. However, the journey towards full devolution and financial autonomy has been uneven across states.
Status of Devolution
| Central Finance Commission | Allocation (₹ crore) |
| 10th FC | 4,380 |
| 11th FC | 8,000 |
| 14th FC | 2,00,202 |
| 15th FC | 2,80,733 |
Increase in the allocation of Central Finance Commission (CFC) grants can be seen.
Fund Collection
| Year | Tax Collected (₹ lakh) | Non-Tax Collected (₹ lakh) |
| 2018-19 | 3,12,075 | 2,33,863 |
| 2021-2022 | 2,71,386 | 2,09,864 |
Fiscal Devolution
- Constitutional Mandate: The Constitution mandates fiscal devolution, including revenue generation by local bodies.
- Current Revenue Sources: Panchayats primarily rely on grants from the Centre and States, with only 1% of revenue coming from taxes.
- Dependency Ratio: 80% of revenue is from the Centre, 15% from States, highlighting the dependency on external funding.
Avenues for Own Source of Revenue (OSR)
- Taxation and Collection: State Acts allow for taxation and non-tax revenue collection by panchayats.
- Major OSRs: Property tax, cess on land revenue, tolls, profession tax, advertisement tax, and user charges, etc.
- Non-tax Revenue: Fees, rent, income from investments, CSR funds, donations, and innovative projects contribute to OSR.
Role of Gram Sabhas
- Local Empowerment: Gram sabhas drive self-sufficiency and sustainable development by leveraging local resources.
- Authority and Power: They can impose taxes, fees, and levies, directing funds towards local development.
- Transparency and Accountability: Gram sabhas ensure transparent financial management and inclusive participation.
Challenges
Unequal Tax Collection:
- Mixed Progress: While some States have embraced decentralization, others lag behind.
- Gram panchayats collect the majority of taxes, leaving intermediate and district panchayats with minimal responsibilities.
- Lack of uniformity in tax collection across different tiers of panchayats.
Dependency Syndrome:
- Panchayats exhibit less interest in revenue generation due to significant grants from Central Finance Commissions.
- Reduced motivation to explore own source of revenue (OSR) avenues.
Aversion to Taxation:
- Society’s “freebie culture” fosters resistance to paying taxes.
- Elected representatives fear that imposing taxes could negatively impact their popularity.
Solutions
Equitable Tax Collection:
- Demarcate OSR for all tiers of panchayats to ensure fair sharing and distribution.
- Implement policies that encourage intermediate and district panchayats to actively participate in tax collection.
Minimizing Dependency:
- Educate panchayat members and the public on the importance of revenue generation for local development.
- Encourage panchayats to diversify revenue sources and reduce reliance on grants.
Addressing Aversion to Taxation:
- Launch awareness campaigns to emphasize the role of taxation in building self-governing institutions.
- Provide incentives and support mechanisms to elected representatives to overcome fears of losing popularity.
Promoting Entrepreneurship:
- Foster entrepreneurship at the local level through gram sabhas and panchayats.
- Encourage partnerships with external stakeholders to enhance revenue generation efforts.
Enhancing Financial Management:
- Implement transparent financial management practices to build community trust and accountability.
- Invest in capacity building for panchayat members to effectively manage and utilize revenue
Conclusion
The journey of decentralization in India reflects a mix of progress and challenges. While constitutional provisions and legislative frameworks provide the groundwork for local self-government, the effective implementation and realization of devolution remain uneven. As India moves forward, the continued commitment towards decentralization and empowering PRIs will be crucial in realizing the vision of inclusive and participatory democracy.
Related Topics
People’s Plan Campaign (PPC) for Panchayati Raj Institutions
The People’s Plan Campaign (PPC) is a crucial initiative in India aimed at strengthening participatory planning and development in rural areas through PRIs.
Objectives:
- Encourage grassroots participation in identifying local needs and priorities.
- Prepare inclusive and evidence-based Gram Panchayat Development Plans (GPDPs) for the following year.
- Ensure transparency and accountability in the planning and implementation process.
- Increased focus on evidence-based planning and using data to inform development decisions.
- Emphasis on integrating various sectoral plans into the GPDP for holistic development.
- Special attention to marginalized communities and ensuring their participation in the planning process
References
PIB.
Practice Question
Critically analyze the factors influencing the financial autonomy of Panchayati Raj Institutions (PRIs) and propose measures to overcome the existing challenges towards achieving effective grassroots governance. [250 words]