Real financial and administrative autonomy is essential for effective decentralization and grassroots governance

Incomplete Decentralisation

• Illusion of Autonomy: Decentralisation, when incomplete, gives the appearance of local governance but lacks real authority. 
  • Local bodies remain dependent on higher authorities for financial and administrative decisions.
• Requirement: True decentralisation requires more than delegating tasks—it must involve shifting authority, responsibility, and legitimacy to local bodies.
• Inadequate Control: States often delegate responsibilities to local bodies without granting them control over resources.

73rd & 74th Constitutional Amendments

73rd Amendment (Panchayati Raj System)

• Three-tier system:
  • Gram Panchayat (Village level)
  • Block Samiti (Intermediate level)
  • Zila Parishad (District level)
• 11th Schedule: Covers 29 subjects, including Health, Education, Agriculture, Rural Development, etc.

74th Amendment (Urban Local Bodies)

• Municipal governance for urban areas
• 12th Schedule: Covers 18 subjects, including Town Planning, Sanitation, Water Supply, Urban Development, etc.

Issues Associated with Panchayats

• Low Own Revenue (Only 5-10%): Panchayats collect Property Tax, Professional Tax, and other local taxes. 
  • However, revenue generation is minimal due to inconsistent rules across states and weak enforcement.
• Dependence on Central Grants: Majority of funds come from government schemes like MGNREGA, Jal Jeevan Mission, etc. This limits financial autonomy, as funds are tied to specific projects, reducing flexibility in local planning.
• Weak Financial Institutions: State Finance Commissions (SFCs), responsible for fund allocation, often face delays in formation and implementation. This results in irregular fund transfers, affecting the smooth functioning of Panchayats.
• Bureaucratic Control: Many state agencies still oversee key Panchayat functions. This reduces local accountability and limits Panchayats’ decision-making power.
• Lack of Transparency: Financial reports are not publicly available in many states, leading to reduced accountability. 
  • Example: Kerala & Maharashtra regularly publish financial reports, while Bihar & UP lag behind in transparency.
• Governance Gap: Many villages are urbanizing but continue to be classified as rural areas.
  • Urban areas also struggle with governance issues—a name change alone doesn’t guarantee better administration.

Way Forward

• Fiscal Devolution: States must effectively transfer financial powers to local bodies.
• Increase Revenue: Panchayats should focus on better tax collection and revenue generation.
• Grant Borrowing Powers:  Local bodies should have controlled borrowing capacity to fund development.
• Enhance Transparency:  Regular financial disclosures and audits must be enforced.

Conclusion

Empowering local bodies with real financial and administrative authority is crucial for effective governance. Reducing bureaucratic control and ensuring transparency will enhance their efficiency.