‘Panchayats will be there in future’
States such as Kerala, Karnataka and Tamil Nadu are among the top five for transferring functions, institutions and finances to PRIs. Lately, the details related to the weightage given to 2011 population in the 15th Finance Commission (FC) has received a backlash from the southern states. Do you think their reservations are relevant? What effect can it have on rural and urban local governance and the process of decentralisation?
The backlash certainly has plenty of substance. They are protesting because the 15th FC will take into account their 2011 populations when suggesting formulae for horizontal and vertical transfers [of central funds] to states.
These states say they are being punished for more effective population control ever since the family planning programme was announced in 1971. That is bound to have a bearing on the actual proportion of allocations these states receive from the central government’s revenues divisible pool, both for their own use and to supplement local governments’ finances.
The 14th FC was of the view that the use of dated population data is unfair and concluded that a weight to the 2011 population would capture the demographic changes since 1971, both in terms of migration and age structure.
However, this is not directly relevant to the issue of whether south Indian states are doing better than northern ones in the devolution of powers and responsibilities to local governments. Arguably, even if they were not, the use of 2011 population data will harm them.
While there are variations across states, the economic survey 2017-18 noted that urban local governments in India generated 44 per cent (in 2015-16) of their total revenue from their own resources compared to panchayats which overwhelmingly (about 95 per cent in 2014-15) depend on devolution of funds from the Centre. What are the challenges and solutions for resolving the challenges to cooperative fiscal federalism? While the urban local governments earn a higher proportion of their revenues on their own as compared to panchayats, both rural and urban local governments are significantly underfunded to perform the tasks that are devolved to them under the law.
This does not mean that there is no scope to raise more revenues at the panchayat and municipality levels. In this regard, it is true that the panchayats have generally failed to utilise the revenue handles that have been given to them by the state governments under the law. While some states, such as the southern states and Maharashtra, have had a generally better track record, and Chattisgarh and West Bengal have been able to undertake effective reforms in this regard, there is tremendous scope for panchayats to increase their own revenues.
Unfortunately, it is quite often the lack of capacity of states that has come in the way of panchayats raising their own revenues. Tax
T R Raghunandan, an expert on decentralisation and a former joint secretary in the Ministry of Panchayati Raj, speaks to Shreehari Paliath in an email interview on the outcomes of the 73rd Amendment to the Constitution, which formalised the decentralisation of governance through panchayat raj institutions (PRI) across the country. Edited excerpts: