Are BJP, Congress serious about the fiscal autonomy of gram panchayats?

Transferring items from Concurrent list to State list is not enough to give more powers to the latter

The Bharatiya Janata Party, which leads the ruling coalition at the Centre, has promised steps to facilitate fiscal autonomy for panchayati raj institutions (PRIs) and to ensure their sustainability in its manifesto for the ongoing Lok Sabha elections.

The Congress Party, the principal opposition, in its manifesto pats itself on the back for the 73rd amendment – coming into effect in April 1993, it empowered the state governments to formalise gram panchayats and help them operate as units of 

self-governance – and vows to prevail upon the states to implement those provisions in letter and spirit, and also to devolve funds, functions, and functionaries upon these institutions.

The Congress also promises to build a consensus on transferring some items from the Concurrent List to the State List under the seventh schedule of the Constitution. The Concurrent List has 52 items, such as criminal laws and procedures, education, marriage laws, transfer of property other than agricultural land, trust and trustees, forests, protection of wild animals and birds. Both the Centre and states can make laws on these, but, in case of a clash, the Union government prevails.  

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In a nutshell, both major parties have promised more resources to PRIs, although wording it differently. Both manifestos must be seen in the context of the current scenario. 

Currently, PRIs depend heavily on grants from the Centre and states. The grants come on the recommen­dations of the Union Finance Commission and state finance commissions, under specific schemes. The own tax revenu­es of panchayats are generated by imposing local taxes, such as property tax, land revenue, building tax, and professional and trade taxes. Own non-tax revenues are fees and charges on activities.

Own tax revenues constituted just 1 per cent of their revenue receipts for the three years till 2022-23, according to a report by the Reserve Bank of India on PRI finances; non-tax revenues accounted for a bit more than 3 per cent.

It is grants that bring in an overwhelming portion of PRI resources: More than 95 per cent of their revenue receipts during 2020-21, 2021-22, and 2022-23. Of this, grants from the Centre were 77-80 per cent. State grants contributed 15-18 per cent. During these years, PRIs’ revenue receipts constituted barely 0.13 to 0.21 per cent of the size of India’s economy.

So, the questions arise: How can greater funds be routed to PRIs? How can they be made part of the Central tax devolution? Can they be given more powers to impose taxes?

 

Real power

Deputy chairman of the erstwhile Planning Commission, Montek Singh Ahluwalia, suggests devolving Central taxes to PRIs. He prescribes keeping part of the Central taxes aside for these institutions and sharing the rest between the Union government and states.

"It means giving money down to the panchayat level. But this has to be accompanied by also providing power to spend this money. Panchayats should be able to control the money they spend. The devolution therefore has to be of all the three Fs: Function, function­aries, and finances,” he says.

If a teacher is hired by the Central government but her salary is paid by the panchayat through the amount devolved, Ahluwalia says it may not count as devolution, because the teacher knows the panchayat does not have the power to hire and fire. The ability to hire must be delega­ted to panchayats, so they have some executive power.

“India has the lowest decentralisation of finance among the emerging economies. In China, 50 per cent of what is spent at the district level is at the discretion of the district authority. It has also helped them produce good quality politicians,” Ahluwalia points out.

Govinda Rao, member of the 14th Finance Commission and a fiscal expert, does not think either the BJP or Congress has fully grasped the real issue in their manifestos. Item number five of the State List, he says, lays down that the responsibility of the local self government is with the state.  

The 73rd amendment, carried out by the Congress government, introduced the 11th schedule of the Constitution, which has 29 items, including agriculture, land improvement, minor irrigation, and animal husbandry which the state government may devolve to PRIs. Rao says it is up to the state government to devolve all or none of these functions to PRIs. The state may also devolve some other functions to these institutions.

Pointing out the lack of clarity, he says: "Each state government devolves whatever it likes."

There is no tax power given to PRIs under Schedule 11, even though state governments have traditionally been asking panchayats to levy some taxes and fees. Even there, whatever changes panchayats want to make in these taxes have to be approved by the state government, says Rao.

"When there is no clarity in their (panchayats') tax powers, there is no clarity in their expenditure functions, and there is no linkage between revenue and expenditure decisions, the basic principle of fiscal decentralisation is violated," he says.

If political parties want to give fiscal autonomy to PRIs, they have to amend the Constitution and take it out of the state schedule and create a separate schedule for local bodies, Rao says. The local body that wants to deliver more public services has to raise taxes from its people.

"It is not that the national taxpayer will pay for their problem. I call it a birth defect of the 73rd amendment," Rao asserts.

Concurrent to State

The Congress manifesto says the party, if voted to power, will review the distribution of legislative fields in the Seventh Schedule of the Constitution and build a consensus on transferring some fields from List III (Concurrent List) to List II (State List).

PDT Achary, former secretary general of the Lok Sabha secretariat, says the Congress should have specified which areas would be transferred to the State List from Concurrent. "Without specifying, you are neither here nor there," he says.  

Topicality, he says, suggests that education should be transferred from Concurrent to State. Similarly, family laws, such as those relating to marriage and divorce, adoption, and wills, should be transferred to the State list due to the talk of a uniform civil code, which the BJP manifesto promises.

Any bill to transfer items from one list to the other must be passed by half of the total strength of each House in Parliament and two-thirds of those present and voting. Besides, half of the states need to give their assent.

Rao questions the point of shifting items from Concurrent to State.

“You have functions in the State List. But if you start a centrally-sponsored scheme (CSS) for areas covered in the State list, the Union government intrudes into the state list,” he points out, and recalls that it was found by the 14th Finance Commission that the Union government’s revenue spend on the State List items during 2002-05 and 2005-11 increased from an average of 14 per cent of its total revenue expenditure to 20 per cent and on the Concurrent List subjects from an average of 13 per cent to 17 per cent.  

"What purpose will it serve to transfer more functions to the states when the Centre can start CSS on them and ask states to do what they want?" he wonders. 

More centrally-sponsored schemes would mean more centralisation of power in the hands of the Centre. 

Ahluwalia says moving items from the Concurrent to State List will prevent the Centre from interfering, but it is not enough. “The key issue is that the functional devolution must be followed by the devolution of both finance and control of functionaries to the lower level,” he says.