Fiscal devolution in Panchayati Raj systems marks a pivotal step towards empowering local governance structures and fostering grassroots development. This process entails the transfer of financial resources, along with corresponding decision-making powers, from higher levels of government to elected representatives at the village, block, or district levels. By granting Panchayats greater control over their finances, fiscal devolution aims to enhance accountability, encourage participatory decision-making, and ensure the efficient utilization of resources tailored to local needs. However, effective fiscal devolution necessitates not only the transfer of funds but also capacity-building initiatives to equip local authorities with the requisite skills for financial management and planning. Furthermore, it requires a commitment to transparency and accountability mechanisms to prevent misuse of funds and promote equitable distribution across regions. As Panchayats assume greater fiscal autonomy, they become catalysts for inclusive development, driving progress at the grassroots level and empowering communities to address their own socio-economic challenges.
Tag: GS – 2 Local Self Governance, Government Policies & Interventions, Constitutional Amendments
In News:
A recent article highlights the necessity of informing elected representatives and the public about the significance of panchayats attaining self-sufficiency and depending on their own financial resources.
Current Financial Status of Panchayati Raj Institutions (PRIs)
- Revenue Statistics
- In the fiscal year 2022-23, panchayats generated a total revenue of Rs 35,354 crore, with only Rs 737 crore from their own tax revenue.
- Non-tax revenue amounted to Rs 1,494 crore, primarily from interest payments and Panchayati Raj programs.
- Panchayats received Rs 24,699 crore in grants from the Central government and Rs 8,148 crore from State governments.
- Revenue Per Panchayat
- On average, each panchayat earned Rs 21,000 from its own tax revenue and Rs 73,000 from non-tax revenue.
- Grants from the Central government amounted to approximately Rs 17 lakh per panchayat.
- State Revenue Share and Inter-State Disparities
- Panchayats’ share in their respective State’s own revenue remains minimal.
- Wide variations exist among states regarding average revenue earned per panchayat.
Importance of Panchayats Achieving Self-Sufficiency
- Excessive Reliance on Grants
- Panchayats earn only 1% of the revenue through taxes, with 80% from the Centre and 15% from the States.
- Disparities Across States
- Some States have embraced decentralization, while others lag behind, leading to disparities in revenue collection.
- General Aversion Towards Generating Own Income
- Panchayats are showing less interest in collecting Own Source of Revenue (OSR) due to increased allocations from Central Finance Commissions.
- Impediments Due to Freebie Culture
- A ‘freebie culture’ in society hampers resource mobilization, with elected representatives reluctant to impose taxes.
Suggestions for Boosting Financial Resources of PRIs
- Expert Committee Report
- State Acts should detail tax and non-tax revenue that can be collected and utilized by panchayats.
- Establishing Conducive Environment
- Panchayats should implement financial regulations, decide on tax and non-tax bases, and diversify revenue sources.
- Diversifying Sources for Non-Tax Revenues
- Non-tax revenue potential includes fees, rent, income from investment sales, and innovative projects.
- Leveraging Local Resources
- Gram sabhas play a role in leveraging local resources for revenue generation, with the authority to impose taxes.
- Fostering Partnerships
- Gram sabhas need to promote entrepreneurship and forge partnerships for effective revenue generation.
- Recommendations of RBI
- Promote greater decentralization, enhance financial autonomy, and ensure transparent budgeting.
- Educating Elected Representatives and Public
- Raise awareness about the significance of revenue generation to minimize dependency on grants.
Related Initiatives
- SVAMITVA Scheme
- Launched to provide a “Record of Rights” to every rural household owner for economic progress.
- e-Gram Swaraj e-Financial Management System
- A simplified work-based accounting application for Panchayati Raj.
- Geo-Tagging of Assets
- A mobile-based solution for capturing photos with Geo-Tags for works with assets as an output.
- Citizen Charter
- Platform to upload Citizen Charter documents, focusing on PRIs’ commitment to citizens.
- Revamped Rashtriya Gram Swaraj Abhiyan (2022-23 to 2025-26)
- A scheme to reimagine PRIs as vibrant centers of local self-governance with a focus on sustainable development goals.
| UPSC Previous Year Questions Prelims (2017) Q. Local self-government can be best explained as an exercise in (a) Federalism (b) Democratic decentralisation (c) Administrative delegation (d) Direct democracy Ans: (b) Prelims (2015) Q. The fundamental object of Panchayati Raj system is to ensure which among the following? 1. People’s participation in development 2. Political accountability 3. Democratic decentralisation 4. Financial mobilisation Select the correct answer using the code given below (a) 1, 2 and 3 only (b) 2 and 4 only (c) 1 and 3 only (d) 1, 2, 3 and 4 Ans: (c) Mains (2018)Q1. Assess the importance of the Panchayat system in India as a part of local government. Apart from government grants, what sources can the Panchayats look out for financing developmental projects? Mains (2022)Q2. To what extent, in your opinion, has the decentralisation of power in India changed the governance landscape at the grassroots? Mains (2015) Q3. In absence of a well-educated and organised local level government system,`Panchayats’ and ‘Samitis’ have remained mainly political institutions and not effective instruments of governance. Critically discuss. |
Source: TH
Frequently Asked Questions (FAQs)
1. What is fiscal devolution in Panchayati Raj?
- Fiscal devolution in Panchayati Raj refers to the process of transferring financial resources and decision-making powers from higher levels of government to elected local bodies, such as village councils or Panchayats.
2. Why is fiscal devolution important in Panchayati Raj systems?
- Fiscal devolution is important because it empowers local governance structures, allowing them to address local needs more effectively, enhance accountability, and promote participatory decision-making in the allocation of resources.
3. How does fiscal devolution benefit rural communities?
- Fiscal devolution benefits rural communities by ensuring that resources are allocated based on local priorities and needs, leading to more targeted and effective development initiatives. It also encourages community participation in decision-making processes, fostering a sense of ownership and empowerment.
4. What challenges are associated with fiscal devolution in Panchayati Raj?
- Challenges include building the capacity of local authorities for effective financial management, ensuring transparency and accountability in fund utilization, addressing disparities in revenue generation among regions, and mitigating the risk of misuse or misallocation of funds.
5. What measures can be taken to ensure the success of fiscal devolution in Panchayati Raj?
- Measures include providing adequate training and capacity-building programs for Panchayat members, establishing robust monitoring and evaluation mechanisms, promoting fiscal discipline and transparency through stringent audit processes, and fostering partnerships between local governments and civil society organizations to promote accountability and community engagement.
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