Finances of Panchayati Raj Institutions

Finances of Panchayati Raj Institutions

News: Recently, the Reserve Bank of India (RBI) released its report titled “Finances of Panchayati Raj Institutions” for the years 2020-21 to 2022-23.

Key Findings:
• Data Coverage: The report analyzed the finances of over 2.58 lakh Panchayats across 26 States/Union Territories.
• Fiscal Position: The average revenue per Panchayat from all sources – taxes, non-taxes, and grants – was Rs 2.12 million in 2020-21, Rs 2.32 million in 2021-22, and Rs 2.12 million in 2022-23. The decline in 2022-23 was due to lesser devolution of grants.
• Panchayats’ Own Sources of Revenue: They are limited, mainly property taxes, fees, and fines.
• Devolution of Power: There are sharp inter-state variations in the devolution of powers and functions to Panchayats.
• Data Reporting: The number of Panchayats reporting data on the eGramSwaraj portal during the last three years has averaged 2.43 lakh and 2.36 lakh for revenue receipts and expenditure, respectively, covering more than 90% of total village Panchayats in the country.

What is the role Role of Panchayati Raj in India’s Socio-Economic Development?
• Grassroots Development: They provide basic infrastructure facilities, empower weaker sections of society, and initiate the development process at the ground level.
• Economic Progress: PRIs assist the economically weaker sections of the community, promote rural industries, and prioritize agricultural production in planning. They also develop local resources, including the utilization of manpower.
• SDG Localisation: The Ministry of Panchayati Raj (MoPR) is advancing the Sustainable Development Goals (SDGs) in collaboration with PRIs across rural India.
• Rural Development: It encompasses various sectors including agriculture, rural industries, and essential social infrastructure, such as schools, clinics, roads, etc.
•  Decentralization of power, Direct Democracy and Women empowerment

What are the challenges associated with Panchayati raj institutions in India?
• Funds: There is a challenge of inadequate financial resources, heavy reliance on grants (around 95%) and discrepancies in revenue generation.
• Unscientific Distribution of Functions: There is often an overlap of responsibilities among the three tiers of PRIs, leading to confusion and inefficiency.
• Functionaries: According to the Standing Committee on Rural Development, there is a severe lack of support staff and personnel, which affects their functioning and delivery of services.
• Casteism, Groupism, and Factionalism: These social issues often result in infighting, allegations, and rivalries, which can impede the effectiveness of PRIs.
• Lack of Skilled Personnel: PRIs often face challenges in finding skilled personnel for local governance.

Way Forward
• State governments should make adequate efforts to devolve funds, functions, and functionaries to panchayats for them to effectively plan economic development and social justice schemes.
• The report recommended that prompt establishment of State Finance Commissions, avoiding the sizable delays that occur currently. SFCs can strengthen the financial position of PRIs and help them in better delivery of their responsibilities.
• PRIs can look to improve local revenue generation and use their limited resources more efficiently and effectively through measures such as transparent budgeting and fiscal discipline, active involvement of the local community etc.