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5th February 2024 (9 Topics)

Financial Dynamics of Panchayats

Context

Local governments, especially Panchayats suffer from issues of funds, functions, functionaries. All this primarily zeros down on their fiscal conditions.

Background

Background: Reserve Bank of India's Insights on Panchayats' Revenue Structure

  • A recent report by the Reserve Bank of India sheds light on the fiscal health of Panchayati Raj Institutions, particularly emphasizing the contributions of local taxes and fees to their total revenue.
  • The report delves into the varying financial landscapes across states, highlighting disparities in non-tax revenue and shedding light on expenditure patterns.

Local Taxes and Fees: A Modest Contributor to Panchayats' Revenue

  • The report reveals that local taxes and fees constitute a mere 1.1 per cent of Panchayats' total revenue.
  • This nominal contribution points to a heavy reliance on other sources, primarily grants and non-tax revenue, which together make up a significant portion of their financial inflows.

Regional Disparities: Contrasting Non-Tax Revenue Across States

  • States such as Tamil Nadu, Himachal Pradesh, Maharashtra, and Telangana stand out with higher non-tax revenue, emphasizing the varied financial landscapes within the country.
  • The disparities underscore the need for a nuanced approach in understanding and addressing the financial challenges faced by Panchayats.

Revenue Trends: Average Per Panchayat and Influencing Factors

  • Examining the average revenue per Panchayat over the years, the report notes a dip in 2022-23 attributed to reduced grants during that fiscal period.
  • The limited sources of revenue, dominated by property taxes, fees, and fines, highlight the financial constraints faced by Panchayats, further exacerbated by delays in the constitution of State Finance Commissions.

Expenditure Patterns: A Closer Look at Spending Trends

  • Despite fluctuations, the ratio of revenue expenditure of Panchayats to nominal Gross State Domestic Product (GSDP) remains below 0.6 per cent for all states.
  • The report highlights a decline in average expenditure per Panchayat from 2020-21 to 2022-23, influenced by heightened spending during the pandemic year.

Strategic Investments: Capital Projects and Focus Areas

  • A significant portion of Panchayats' total expenditure, 6 per cent in 2022-23, is directed towards capital projects.
  • Investments in Panchayati Raj programmes, transportation, water supply and sanitation, rural electrification, and rural housing indicate a concerted effort towards addressing critical infrastructure needs.

Technological Integration: eGramSwaraj and Financial Management

  • The report underlines the growing integration of technology in Panchayats' financial management.
  • Over 2.5 lakh Panchayati Raj Institutions (PRIs) use the eGramSwaraj platform for accounting purposes, while more than 2.4 lakh PRIs have seamlessly integrated the eGramSwaraj-PFMS Interface for online transactions, showcasing a shift towards digitization in financial operations.

Strengthening Financial Management and Transparency

  • As Panchayats navigate the complex financial landscape, the report emphasizes the importance of technology-driven solutions like eGramSwaraj and the Audit Online application introduced by the Ministry of Panchayati Raj.
  • These initiatives aim to enhance financial management, transparency, and accountability, offering a potential roadmap for the sustainable fiscal growth of Panchayati Raj Institutions.

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