Context:

This editorial is based on the news “Having panchayats as self-governing institutions” which was published in the Hindu. This article highlights decentralisation and its effectiveness and challenges in India and emphasises the need for greater efforts towards further self-sufficiency and a more positive outlook for decentralisation.

Panchayati Raj System In India: Historical Background

• In 1992: Three decades ago the 73rd and 74th Constitutional Amendments Acts came into effect.
• In 2004: The Ministry of Panchayati Raj was constituted to strengthen rural local governments.
• Envisaged: Local bodies in India would function as institutions of local self government. 
• Role of State Government: The commitment of State governments towards decentralisation has been vital in making Panchayati Raj Institutions an effective local governance mechanism.

The Role of Gram Sabhas

• In fostering self-sufficiency and sustainable development at the grass-roots level. 
• Engagement in planning, decision-making, and implementation of revenue-generating initiatives that range from agriculture and tourism to small-scale industries. 
• The authority to impose taxes, fees, and levies, directing the funds towards local development projects, public services, and social welfare programmes. 
  • Empowering Grass-root Level: Through transparent financial management and inclusive participation, they ensure accountability and foster community trust, ultimately empowering villages to become economically independent and resilient. 

Fiscal & Revenue Powers 

• The constitutional amendment has set forth specific details on fiscal devolution which includes the generation of own revenues. 
• Emanating from the Central Act, various States Panchayati Raj Acts have made provisions for taxation and collection. 
• Based on the provisions of these Acts, panchayats have made efforts to generate their own resources to the maximum extent. 

Avenues for the Own Source of Revenue (OSR)

• The Report of the Expert Committee: Constituted by the Ministry of Panchayati Raj on own source of revenue (OSR) of rural local bodies elaborates on the details of State Acts that have incorporated tax and non-tax revenue that can be collected and utilised by panchayats. 
• Major OSRs: Property tax, cess on land revenue, surcharge on additional stamp duty, tolls, tax on profession, advertisement, user charges for water and sanitation and lighting. 

Challenges Faced By Panchayati Raj System In India

• Less Earning through Tax Collection: Panchayats earn only 1% of the revenue through taxes and the rest being raised as grants from the State and Centre. 
  • 80% of the revenue is from the Centre and 15% from the States. 
• Dependency Syndrome: The ‘freebie culture’ is the cause for the antipathy in paying taxes. 
  • Elected representatives feel that imposing taxes would alter their popularity adversely. 
• General Aversion in Generating Own Income: With the increase in the allocation of Central Finance Commission (CFC) grants, panchayats are evincing less interest in the collection of OSR. 
  • Example: In the 14th and 15th CFCs there was a huge increase by way of allocating ₹2,00,202 and ₹2,80,733 crore, respectively. This has now given dependency on grants. 

Way Forward To Strengthening Panchayati Raj System In India

• To Educate: There is a need to educate elected representatives and the public on the significance of raising revenue to develop panchayats as self-governing institutions. 
• Promote Effectiveness: Gram Sabhas need to promote entrepreneurship and foster partnerships with external stakeholders to enhance the effectiveness of revenue generation efforts
• Clear Demarcation: There is a need to demarcate OSR for the entire three-tier panchayats to ensure equitable sharing.
• Minimising the Dependency Syndrome for Grants: It has to be minimised and in due course, panchayats will be able to survive on their own resources. Panchayats need to take dedicated efforts in all tiers of governance, which includes even the State and central level.
• Establish a Conducive Environment for Taxation: By implementing appropriate financial regulations for both tax and non-tax revenue. 
• Implement Innovative Projects: There are also innovative projects that can generate OSR, such as income from rural business hubs, innovative commercial ventures, renewable energy projects, carbon credits, tourism tax (in Bali and in Meghalaya), etc.
• Punish Defaulters: Panchayats need to penalise defaulters for OSR.