In January 2024, the Reserve Bank of India (RBI) released its Report titled “Finances of Panchayati Raj Institutions”.
- Drawing upon data on 2.58 lakh Panchayats for the years 2020-21 to 2022-23, it presents an assessment of their finances and their role in India’s socio-economic development.
Key points of report
- Around 95 per cent of their revenues take the form of grants from higher levels of government, restricting their spending ability that is already hampered by delays in the constitution of State Finance Commissions
- The own revenues of the Panchayats — generated by imposing local taxes, fees, and charges on various activities, including land revenue, professional and trade taxes, and miscellaneous fees — were only 1.1 per cent of their total revenue during the study period
- Non-tax revenue, primarily from Panchayati Raj programmes and interest earnings, constituted 3.3 per cent of the total revenue receipts.
- The average revenue per Panchayat, encompassing taxes, non-taxes, and grants, was at 21.2 lakh in 2020-21, 23.2 lakh in 2021-22, and experienced a slight dip to 21.23 lakh in 2022-23.
- The ratio of Panchayats’ revenue receipts to the states’ revenues ranges from 0.1 per cent in Andhra Pradesh to 2.5 per cent in Uttar Pradesh, suggesting that Panchayat revenues, relative to those of the states, are moderate.
- The average revenue per Panchayat ranged from 2.7 lakh in Andhra Pradesh to a substantial 64 lakh in West Bengal.
- The average revenue per Panchayat ranged from 2.7 lakh in Andhra Pradesh to a substantial 64 lakh in West Bengal.
Suggestions:
- Prompt establishment of State Finance Commissions (SFCs), eschewing the sizeable delays that occur currently, assumes importance.
- SFCs can fortify the financial position of Panchayati Raj Institutions (PRIs) and help them in the better delivery of their responsibilities for the upliftment of the rural economy.
- PRIs can use their limited resources more efficiently and effectively through measures such as transparent budgeting and fiscal discipline, active involvement of the local community to prioritise development needs, staff training, robust monitoring and evaluation processes, prudent asset management, raising public awareness, and adopting digital tools.
- Reporting their finances in standardised formats would strengthen fiscal transparency and accountability at the panchayat level, thereby contributing to the empowerment of panchayats.
- PRIs can also facilitate the adoption of climate-resilient farming methods and promote renewable energy sources like solar panels and biogas plants, thus reducing reliance on fossil fuels and mitigating climate change.
- There is also a need to raise citizens’ awareness about the functions and significance of PRIs by encouraging their increased participation in local governance processes and by enhancing people-centric administration and communication.
Panchayats
- In 1992, the 73rd Amendment to the Indian Constitution institutionalised the PRIs at three levels in rural India: Gram Panchayats at the village level, Mandal Panchayats at the intermediate/block level, and Zila Parishad at the district level.
- There are a total of 2.62 lakh PRIs in India, with 2.55 lakh Gram Panchayats, 6,707 Mandal Panchayats, and 665 Zila Parishads as of October 2023.
