Having panchayats as self governing institutions (GS Paper 2, Polity and Constitution)
Context:
- Three decades have passed since the 73rd and 74th Constitutional Amendments Acts came into effect, which envisaged that local bodies in India would function as institutions of local self-government.
- As a follow up, the Ministry of Panchayati Raj was constituted in 2004 to strengthen rural local governments.
- When it comes to analysing the status of devolution, it is evident that some States have forged ahead while many lag behind. The commitment of State governments towards decentralisation has been vital in making panchayati raj institutions an effective local governance mechanism at the grass-roots level.
Fiscal devolution:
- The constitutional amendment has set forth specific details on fiscal devolution which includes the generation of own revenues. Emanating from the Central Act, various States Panchayati Raj Acts have made provisions for taxation and collection.
- Based on the provisions of these Acts, panchayats have made efforts to generate their own resources to the maximum extent. Participatory planning and budgeting were the end result of such interventions by the Ministry.
Challenges:
- That “Panchayats earn only 1% of the revenue through taxes”, with the rest being raised as grants from the State and Centre was highlighted in a ‘Datapoint’.
- It specifically points out that 80% of the revenue is from the Centre and 15 % from the States. This is an eye-opener for the proponents of decentralisation as the net result is that the revenue raised by panchayats is meagre even after 30 years of devolution initiatives.
Avenues for own source of revenue:
- The report of the expert committee constituted by the Ministry of Panchayati Raj on own source of revenue (OSR) of rural local bodies elaborates on the details of State Acts that have incorporated tax and non-tax revenue that can be collected and utilised by panchayats.
- Property tax, cess on land revenue, surcharge on additional stamp duty, tolls, tax on profession, advertisement, user charges for water and sanitation and lighting are the major OSRs where panchayats can earn maximum income.
- Panchayats are expected to establish a conducive environment for taxation by implementing appropriate financial regulations. This includes making decisions regarding the tax and non-tax bases, determining their rates, establishing provisions for periodic revisions, defining exemption areas, and enacting effective tax management and enforcement laws for collection
- The huge potential for non-tax revenue includes fees, rent, and income from investment sales and hires charges and receipts.
- There are also innovative projects that can generate OSR. This covers income from rural business hubs, innovative commercial ventures, renewable energy projects, carbon credits. Corporate Social Responsibility (CSR) funds and donations.
Role of gram sabhas:
- Gram sabhas have a significant role in fostering self-sufficiency and sustainable development at the grass-roots level by leveraging local resources for revenue generation.
- They can be engaged in planning, decision-making, and implementation of revenue-generating initiatives that range from agriculture and tourism to small-scale industries. They have the authority to impose taxes, fees, and levies, directing the funds towards local development projects, public services, and social welfare programmes.
- Through transparent financial management and inclusive participation, gram sabhas ensure accountability and foster community trust, ultimately empowering villages to become economically independent and resilient.
- Thus, gram sabhas need to promote entrepreneurship, and foster partnerships with external stakeholders to enhance the effectiveness of revenue generation efforts.
Demarcation of OSR:
- In several States, gram panchayats lack the authority to collect taxes, while in numerous others, intermediate and district panchayats are not delegated the responsibility of tax collection.
- When gram panchayats collect 89% of own taxes, the intermediate panchayats collect 7% and the district panchayats a nominal amount of 5%.
- There is a need to demarcate OSR for the entire three-tier panchayats to ensure equitable sharing.
Factors behind the general aversion towards generating own income:
- With the increase in the allocation of Central Finance Commission (CFC) grants, panchayats are evincing less interest in the collection of OSR.
- The allocation for rural local bodies from the 10th and 11th CFC was ₹4,380 crore and ₹8,000 crore, respectively. But in the 14th and 15th CFCs there was a huge increase by way of allocating ₹2,00,202 and ₹2,80,733 crore, respectively.
- The tax collected in 2018-19 was ₹3,12,075 lakh which diminished in 2021-2022 to ₹2,71,386 lakh. The non-tax collected for the same period was ₹2,33,863 lakh and ₹2,09,864 lakh.
- At one time, panchayats were in competition to raise OSR for their commitment to fulfil basic needs. This has now given place to dependency on grants allocated through central and State finance commissions.
- Some States have the policy of incentivisation by providing matching grants but which were sparingly implemented.
- Panchayats also have no need of penalising defaulters as they believe that OSR has not been regarded as an income that is linked with panchayat finance.
Freebie culture:
- Despite every enabling factor to raise revenue, panchayats confront several impediments in resource mobilisation: the ‘freebie culture’ rampant in society is the cause for the antipathy in paying taxes.
- Elected representatives feel that imposing taxes would alter their popularity adversely. Here, the answer is clear. There is a need to educate elected representatives and the public on the significance of raising revenue to develop panchayats as self-governing institutions.
- Ultimately, the dependency syndrome for grants has to be minimised and in due course, panchayats will be able to survive on their own resources.
Way Forward:
- Panchayats can only achieve such a state of affairs when there are dedicated efforts in all tiers of governance, which includes even the State and central level.
