Questioning Panchayat Finance in India

Abstract

The Government of India had decentralized political, administrative and fiscal powers to urban and rural local self-governing bodies. Fiscal decentralization leads to the empowerment of local governments but the decision power on expenditure is highly dependent on the source and nature of revenue that flows to the local govt. Low own revenue and poor accountability related to expenditure decisions form a vicious cycle in low-level equilibrium. What has been the overall progress in the devolution of powers to Panchayats? It has been found that the fiscal devolution is hampered due to the unpredictability of fund flows to PRIs and mobilization of own-source revenue is the only option to continue the implementation at the local level. There is a need to ensure transparency and accountability in respect of collection and expenditure of own source revenue of the Panchayat. Till now exercising expenditure control through budget mechanism is very weak at the Panchayat level. Thus, a separate budget volume (department wise and Panchayat wise) is required, which gives a complete picture of devolution of the fund for PRIs to prepare their budget. The revenue of PRIs has to improve to a decent level, through more tax assignment/ piggybacking central/state taxes or formula based transfer which encourages local revenue collection.