The government has signed an agreement with the International Development Association (IDA), a concessionary lending arm of the World Bank, for $ 200 million (around Rs 900 crore) to be used for capacity building of gram panchayats and municipalities in Kerala for delivery of services.
The interest-free loan comes with a 35-year maturity and a 10-year grace period, and also carries a service charge on the withdrawn credit balance at 0.75 per cent per annum.
The Kerala local government and service delivery project will fund improvements in local infrastructure to help the state usher in second-generation reforms towards greater decentralisation at the local level.
“Kerala has been a pioneer in the development of Panchayati Raj institutions. This project seeks to strengthen gram panchayats and municipalities so that they can better deliver essential services such as drinking water supply, roads, sanitation, health and education,” said Venu Rajamony, joint secretary (department of economic affairs), Ministry of Finance.
"Improving access to such services as well as their efficiency will help improve the quality of life of people across the state."
The 73rd and 74th Constitutional Amendments, passed in 1994, mandate the creation of local governments in both urban and rural areas. Since the 1990s, Kerala has devolved more responsibilities and resources to local governments – and within the local government system, to the lowest levels of local government – than any other Indian state.
In addition to their responsibilities for typical local services such as water, roads and sanitation, local governments in Kerala are also responsible for providing services in the areas of health and education. On the fiscal side, the State has also been implementing recommendations of successive State Finance Commissions on transferring increased funding to local governments.
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While gram panchayats and municipalities in Kerala have benefitted from the increased resources flowing to them, use of these funds is still not fully under their discretion. The capacity of these local bodies – particularly in an environment where their mandate is increasing rapidly – is still limited in areas such as budgeting, planning, financial management, asset management, and in upgrading the skills of its staff.
About 978 gram panchayats and 60 municipalities in the state are expected to directly benefit from the project. It would help the Kerala government implement key reforms aimed at deepening its decentralisation agenda with increased accountability, said Roland Lomme, governance advisor, World Bank.