1. Prof. M.Gopinath Reddy and Mr.Bishnu Prasad
Mohapatra
Centre for Economic and Social Studies,
Hyderabad - 500 016
Decentralised Governance and
Devolution of Funds to the Panchayats
in India-A Critical Analysis of Two
States
2. Outline of the Presentation
Introduction
Objectives, Methodology and Database
Panchayats in Andhra Pradesh and Odisha
Status of Fiscal Devolution to Panchayats in AP and
Odisha
Institutionalisation of the SFCs in AP and Odisha
Major Findings-A Critical Comparison between two
States
Conclusion
3. INTRODUCTION
Decentralised Self-Governing Institutions have been playing a
significant role in the matters of poverty alleviation and rural
development in India.
It is believed that decentralisation can help mobilise resources,
introduce locally and regionally diverse solutions and promote
equitable growth by bringing the poor into mainstream
development.
Decentralisation is a complex and multifaceted concept that
involves the shifting of fiscal, political and administrative tasks to
lower level governments(Asfaw et. al,2004)
Decentralisation can have significant repercussions for resource
mobilisation and allocation and ultimately for macroeconomic
stability, service delivery and equality(Litvack et.al, nd)
4. Continuing…..
Decentralised self-governing institutions, otherwise known as
panchayats, are emerged as the key institutions of planning and
programme implementation in many Indian states including AP and
Odisha.
Devolution of powers including fiscal powers have been conceived as
an important sub-set of the process of democratic decentralisation.
It is believed that the issue of devolution of powers and funds is crucial
because without substantial powers and funds, decentralised
institutions are bound to fail.(Manor, 2002).
However, it is observed that in the current pace of development, the
functioning of Panchayats in many states in India, including AP and
Odisha encountered fiscal challenges.
Despite the enactment of the 73rd amendment act and state panchayat
acts, the state of panchayat finances still in nascent stage.
Considering these issues, this paper tries to understand the current
trends of fiscal devolution to Panchayats in AP and Odisha.
5. Objectives, Methodology and Data Base
This Paper tries to understand the status of the fiscal devolution
to Panchayats in Andhra Pradesh(undivided) and Odisha.
The paper also reviews the evolution of the Panchayats and
legal provisions associated with the fiscal devolutions in AP
and Odisha.
It also focuses on the recommendations of the SFCs in these
two states and highlights how the recommendations of the
SFCs have been diluted in various ways.
The paper reviews the secondary data and captured the ground
realities in order to deduce findings and arrive at conclusion.
Particularly state specific data on Panchayat Finance have been
captured to provide a comparative picture between the two
states.
6. Panchayats in Andhra Pradesh and Odisha
Year/Period Status of Panchayats in AP
Pre-
Independenc
e Period
During the British Rule, there were elected district councils with
some significant powers, which was continued till the
independence.
1956 Andhra Pradesh was Created as Separate Province. The state of
Panchayats also received new impetus.
1959 The state panchayati raj act was enacted.
1964 The village panchayats entrusted new powers and responsibilities
including the review of the accounts of the village panchayats.
1980 The Panchayats in AP underwent several structural changes.
1987 The system of Mandal Praja Parishads and Zilla Praja Parishads
were institutionalised.
1994 The AP Panchayati Raj acts were enacted as per 73rd amendment.
Present
Scenario
Latest Round of Elections for the PRIs held in 2013 after a gap of 3
years.
7. Continuing…..
Year/Period Status of Panchayats in Odisha
Pre-
Independence
Period
During the British rule, various provisions were added through the
Government of India Acts. The Government of India Act, 1935 had made
a provision for the creation of Odisha as a separate province on 1st April,
1936.
1948 The Orissa Gram Panchayat Act of 1948 was the first comprehensive
legal framework.
1964 The Orissa Gram Panchayat Act was amended with devolving more
powers to the Gram Panchayats in the state.
1967 The government of Odisha abolished the Zilla Praishards and set up the
District Development Council.
1992 The State Pancahayati Raj Act enacted and elections for the PRIs held.
1997 The State Pancahayati Raj Act further enacted and elections for the PRIs
held as per the 73rd amendment act.
Present
Scenario
Power devolutions to the Panchayats and elections for the Panchayats
are emerged as important features of the democratic decentralisation.
8. The Status of Fiscal Devolution to Panchayats in AP and Odisha
Indicators Andhra Pradesh Odisha
Power Devolution
including Fiscal
Powers
1. Power Devolution to
Panchayats shows the transfer
of 29 subjects.
2. 29 subjects have broken into
activities
1. Power devolution process
initiated but not completed.
2. Out of 29 subjects, only 21
subjects under 11 departments
are transferred.
Fiscal Transfers The process of transfer of funds
from the central and State
Government to the Panchayats is
based on rigid bureaucratic
system.
1. This also true in the case of
Odisha.
2. Emergence of parallel
institutions such as DRDAs
have also diluted the fiscal
decentralisation.
Assignment of
Revenue Powers
1. Revenue powers are
assigned to GPs where as
supervisory powers have
given to the upper tiers.
2. More revenue powers have
transferred to GPs which
shows better per capita
revenue(Rs.83.4 in 2007-08)
1. Assign of revenue powers to the
Panchayats are in the nascent
stage.
2. The per capita revenue during
2007-08 was Rs.3.1 against the
national average of Rs. 34.1.
9. Institutionalisation of the SFCs in AP and Odisha
Institutionalisation
of SFCs
Andhra Pradesh Odisha
Fist State Finance
Commission
1. The Commission was
constituted in 1995.
2. The Commission
recommended for the
devolution of 39.24% of the
state revenue to the local
bodies with 70% to the PRIs.
3. The recommendations were not
accepted by the State Govt.
1. The Commission was
constituted in 1996 as per
the State Finance
Commission Act, 1993.
2. The Commission was
submitted its report in 1998.
3. No concrete decisions were
taken up on the
recommendations.
Second State
Finance Commission
1. The Commission was
recommended the devolution
of Rs. 1793.94 crores which is
10.39% of state revenue.
2. It was suggested the devolution
of 50% to GPs, 30% to the
MPs and 20% to ZPs.
3. Additional revenue for
Panchayats also suggested
1. It was constituted in 2003
for the period of 2005-10.
2. The State Govt. partially
accepted the
recommendations.
3. The State Govt. also placed
the demand before the 12th
Finance Commission(India)
for consideration.
10. Continuing….
Third State Finance
Commission
1. The Commission Constituted
in 2003 but could not submit
its report.
2. The commission was
reconstituted .
3. The Govt. of AP had
constituted a committee to
examine the recommendations
of the commission’s report.
1. It was constituted in 2008
for the period of 2010-15.
2. The Commission in its
report enphasised
assignment of more taxes
and duties to the
Panchayats.
3. The commission had
suggested the devolution
of Rs. 3360.64 crore for
PRIs out of which
Rs.907.45 crores
provided by the State and
Rs. 2756.02 crores was
provided by the 13th
FC(India).
Fourth State Finance
Commission
Still not done both for AP and
Telengana.
1. Constituted in 2013 and
the commission is
functioning.
11. A Critical Comparison between AP and Odisha
Own Source of Revenue: It is observed that both the States have not
devolved the necessary tax and non-tax revenue to the Panchayats.
However, in the case of AP the percentage of own revenue of
Panchayats is quite improved than Odisha which shows that the
Panchayats own revenue was 1.38%(2005-08) of the State’s own
revenue while in Odisha it was just 0.12%.
Revenue Spending: In terms of their total per capita spending, both
the states have showed steady progress, though the case of AP is quite
different than Odisha. During 2007-08, it is observed that the per
capita expenditure of the Panchayats in Odisha rising sharply from
Rs.37(2000-01) to Rs.544.1 in 2007-08 while in the case of AP it has
been declined from Rs.792.9 to Rs.345.6.
Mismatches in devolution agenda: Mismatches between the
different indicators of devolution such as Funds, Functions and
Functionaries have created challenge for the Panchayats in both the
states. Particularly in the case of Odisha, the mismatches are quite
wide than AP.
12. Continuing……
Same institutions with different functioning: The Functioning
of the SFCs in both the States has provided two different picture.
While in the case of Odisha, the constitution of the SFCs since
the second finance commission has become a regular affair, but
it is not found in the case of AP. The Govt. of Odisha has partly
accepted the recommendations of the SFCs, which is also
observed in the case of AP.
Control over Expenditure Decision making: Control over
expenditure decision making in both the cases are managed by
the bureaucrats. The so called fiscal reforms to strengthen the
finances of the Panchayats have encountered challenges. The
emergence of the CSSs have enhanced the per capita spending
of Panchayats but also created hurdle on expenditure decision
making.
13. Continuing….
Tapping of Local Resources: Panchayats in both the
states have failed to utilise the available natural
resources such as common lands and common water
bodies for raising revenue despite the available of
such resources. Such situation has also affected the
finances of the Panchayats.
14. Conclusion
The case of the functioning of the decentralised
governance in both the states are quite rich and there is a
need of further policy reforms on this initiative.
The unfinished power devolution agenda should be taken
up seriously particularly in the case of Odisha. There is a
need of making balance among the three indicators of
devolution.
The recommendations of the SFCs should taken up
seriously and instead of counting the success of the SFCs
through mere fiscal allocation, there is a need of
considering all the policy recommendations of the SFCs.
In the case of Andhra Pradesh, the state Govt. should take
the recommendations of the SFCs in letter and spirit.
Appropriate steps should be taken up to raise the own
revenue of the PRIs.
The recommendations of the SFCs also to be made
mandatory on the respective State Governments as in the
15. Continuing…..
In the context of own revenue, tax decentralisation and sharing of
the state taxes as per the recommendations of the SFCs should be
given priority.
Allocation of funds from the state and central governments
sources should not be based on rigid bureaucratic procedure.
The Panchayats should have upper hand in deciding own plan
and expenditure of funds. The implementation pattern should not
be based on any guideline or government order.
Ownership on CPRs such as Common Lands, Grazing Lands,
Forests, Orchards and ponds should be transferred to the
Panchayats and legal matters/disputes on the issues of
encroachment should be decided by the Panchayats at the Gram
Sabhas.
The legal frameworks of the PRIs should focus the finances of
the Panchayats adequately.
