Panchayat Finances After Three Decades of Decentralisation

Summary

The 73rd and 74th Amendments to the Constitution, which came into force in 1993, gave panchayats and municipalities a constitutional place in Indian government. Kerala went further than most states. Through the People’s Plan Campaign launched in 1996, it devolved a substantial share of the state’s development budget to local governments, along with responsibility for many institutions and the staff to run them.

Three decades later, this report asks how local government finances have developed, how well local governments use the resources they have, and what reforms would strengthen them.

Main findings

1. Dependence on transfers remains high. Local governments raise only a modest share of their spending from their own taxes and fees. Most of their resources come from the state and from Union grants.
2. Own revenue is under exploited. Property tax assessments are often out of date, and collection efficiency varies widely between local governments of similar size.
3. Spending is constrained by timing. Funds often reach local governments late in the financial year, producing a rush to spend before the year ends.
4. Capacity is uneven. Engineering, accounting and planning staff are thinly spread, especially in smaller panchayats.
5. Accountability works best where citizens are engaged. Ward and grama sabhas that meet regularly and discuss budgets are associated with better reporting.

Recommendations

• Revise property tax assessments on a fixed cycle using simple, transparent methods.
• Release a predictable share of devolved funds at fixed points in the year.
• Create shared pools of technical staff for clusters of smaller panchayats.
• Publish every local government’s budget and accounts online in a standard format.
• Strengthen the role of grama sabhas in reviewing spending, not only in choosing beneficiaries.

Method

The report draws on published budget and accounts data for local governments, documents of the State Finance Commissions, and interviews with elected representatives and officials in a sample of local governments of different sizes and regions.

[Placeholder publication. The findings above illustrate how a report summary is laid out and are not results of actual CRGD research. Replace with real work.]