26th June 2025 (28 Topics)
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Making Panchayats Financially Empowered
Context
During the 25th meeting of the Central Zonal Council (CZC), States were urged to increase the income of Gram Panchayats and formulate rules to support this goal.
Why it is important to make Panchayats financially empowered?
- Financially empowered Panchayats can better deliver local development and implement Centrally Sponsored Schemes (CSS).
- Strengthening Panchayats supports India’s three-tier democratic governance model under the 73rd Constitutional Amendment Act.
Current Sources of Gram Panchayat Income
- Own?Taxes (Own Source Revenue – OSR): Property/House tax, profession tax, vehicle tax, entertainment/fair fees, advertisement tax, leases or cess on markets or local resources
- Own Non?Tax Fees: Water, sanitation, community halls, market licenses, birth/death registration
- Transfers from Central/State: Tied and untied grants via Central & State Finance Commissions, including 15th FC allocation of Rs 2.36?lakh?cr for 2021–26
- Funds from CSS like MGNREGA, PMAY etc., routed through state budgets
- Borrowing (Limited Usage): Municipal bodies have limited borrowing options; under?utilised by Panchayats
- Challenges with Current Model
- OSR per capita is very low (Rs 59/year)
- Own revenues largely untapped—many Panchayats don’t optimally levy taxes/fees
- Heavy dependence on grants, which may be tied and restrict flexibility.
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