Funds may triple for rural India

Over the next five years, money to rural local governments (panchayats) will rise nearly three times, from Rs 63,051 crore to Rs 200,292 crore, on the recommendations of the 14th Finance Commission - a constitutional body that recommends sharing of financial resources between the Centre and the States.

Panchayat institutions in Kerala are most effectively decentralised and so best placed to handle this money. The next best are Karnataka, Maharashtra and Tamil Nadu. Gram panchayats, the smallest unit of the panchayat system, get the largest share of finances, 60 percent, from the central government.

Block and district-level panchayats, the second and third tier of the three-tier panchayati raj system, get most of their money from the states. While gram panchayats generate 11 per cent of revenue, block and district-level panchayats generate 0.4 percent and 1.6 percent respectively.

These are some of the key findings of a report titled "A Contemporary Analysis of Fiscal Transfers to Rural Local Governments in India" by Accountability Initiative, a New Delhi-based think tank. While India’s urban population increased 31.8 perent between 2001 and 2011, 69 percent of India is still rural. This fact has not been lost on Delhi.

A major transfer of power was a part of local government reforms in the early 1990s when panchayats were duly empowered. The Indian Government became a three-tiered structure -centre, state and local (rural and urban) - in 1992 under the 73rd and 74th amendments. Local governments are divided into two parts, urban and rural.

Rural government is further divided into three tiers: gram (village) panchayats (0.25 million), block panchayats (6,405) and zila (district-level) panchayats (589). The 14th Finance Commission stressed more devolution of power to states and has recommended Rs.287,436 crore for all local governments, rural and urban, to be distributed across states, based on population and size.

It also suggests that rural local bodies be given more money than urban bodies - the share for rural local governments increased from 0.5 per cent to 2 per cent of the total allocations from the 13th to the 14th Finance Commissions. Rs 2,87,436 crore will be transferred over five years to both rural and urban local bodies.

While allocations for urban areas rose from Rs 23,111 crore to Rs87,144 crore, allowances to rural areas have almost tripled under the 14th Finance Commission. There are more than 0.25 million gram panchayats across the country, and they have likely generated around Rs.3,118 crore as revenue in 2011-12, according to latest figures. That’s less than the estimated state budget for Manipur in 2014-15.

Gram panchayats generate more than 11 percent of their total revenue from own collections. This includes local taxes such as property tax and user charges (taxes on land and houses, customs duty, the toll tax, license fees on transport and communication etc.) The remaining 89 per cent comes from central funds, central Finance Commission funds, and devolved funds and grants in aid from state governments.

We can see a steady increase in gram-panchayat revenues, an indicator of greater autonomy and accountability, mirrored in a drop in transfers from Delhi. From nearly 70 percent in 2009-10, gram-panchayat transfers from the Centre have declined to nearly 61 per cent. This may be because more central grants are going to the states and states are giving more money to block- and district-level panchayat bodies.

The finance dimension in devolution registered a low national average of 32.05 in the Index Score among the states. Thirteen states were placed above the average score for devolution-implying fewer financial powers and resources-at panchayat level in most states of India.

The 0.25 million gram panchayats are the smallest units of government and the closest to the 833 million people living in villages in India. With greater devolution of both finances and functions in these institutions, Indian democracy can be deepened till the grassroots, according to T R Raghunandan, advisor to Accountability Initiative and former joint secretary, Ministry of Panchayati Raj.

By Prachi Salve & Saumya Tewari