Saturday, August 16, 2014

Devolution of powers and finances up to local level and challenges therein

Devolution of powers and finances up to local level and challenges therein
The motivating factor behind the 73rd and 74th Amendments was the need to give a Constitutional status to the panchayat structure, to take it away from the legislative discretion of the States where it lay and to give it a distinct life and composition which could not be attained by ordinary statute. Only by this method could the objective enshrined in Article 40 of the Directive Principles be achieved and units of self-government created. The Statement of Objects and Reasons to the Amendment Bill accordingly said that “there is an imperative need to enshrine in the Constitution certain basic and essential features of Panchayati Raj Institutions to impart certainty, continuity and strength to them.”
The process of conduct of elections and establishment of the three tier structure has been put in place. Reservations have been provided for the Scheduled Castes, the Scheduled Tribes and other Backward Classes (in some of the States). State Election Commissions and State Finance Commissions have been set up in all the States.
What differentiates them from other elected bodies at the Central and State levels are the reservation provided for women. The average of women representation in Panchayats across the country is nearly 37 per cent. The presence of women has positively impacted on the functioning of the Panchayats. This has been brought out by studies conducted under the aegis of the Ministry of Panchayati Raj of the Government of India.
However a disturbing feature is the increasing trend towards politicization of local body elections which are being conducted on party lines. This seriously prevents these institutions from concentrating on local issues. Party loyalties at times override local concerns and force individual local bodies to conform to rather than pursue independent action on local matters or to seek deviations from plans and priorities conceived at higher levels.
Devolution of Powers and Responsibilities
Establishment of self-governance at the local level can only be achieved by meaningful and effective devolution of functions, funds and functionaries (3Fs) to the PRIs. Progress in this direction was in fits and starts. There was unevenness in the devolutions made between States and within States in sectors of development. The transfer of funds and functionaries did not match devolutions. Government of India Ministries did not also reorient their Centrally Sponsored Schemes to provide a distinct role for local bodies. However gradually these shortcomings are being attended to. Concerned with the slow pace and prevalence of wide disparities attempts are being made to build consensus and a series of conferences and round tables with the Centre and States participating have been organized. The objectives are: (a) To ensure that there is role clarity between various levels of Government including local bodies through ‘activity mapping’; (b) To match funds with functions and to show them clearly in the budget; (c) To ensure that plans are prepared at each level which are then consolidated at the district level; (d) To strengthen the capabilities of local bodies to enable them to manage their affairs; and (e) To deepen the accountability of local bodies to citizens and review of their activities by Gram Sabhas.
The conclusion is that even after so many years even in a State which is high up in the index the local bodies must concentrate initially on (a) basic infrastructure (b) provision of basic public goods and increasing efficiency of delivery and (c) poverty alleviation programmes. Taking on responsibility for all development schemes would still be difficult for some time to come.
Fund Position
Self-governance cannot be actualized without adequate funds. This has been one of the weakest links in the system. Article 243H in the case of Rural local bodies (RLBs) and Article 243X in the case of Urban local bodies (ULBs) provide the constitutional basis for State enactments laying down the financial management of the local bodies. Such State legislation could authorize the local bodies to levy, collect and appropriate taxes, duties, tolls and fees; provide for assignment to them of taxes, duties, tolls and fees levied and collected by the States as also to make grants-in-aid from the Consolidated Fund of the State. Article 243-I and Article 243Y provide for the constitution of Finance Commissions by the States every five years to review the financial position of the local bodies and to make recommendations on the principles which should govern the distribution between the States and local bodies of the net proceeds of the taxes etc. leviable by the States and the inter se allocation between the local bodies at different levels, the taxes etc. which may be assigned to or appropriated by the local bodies and the grants-in-aid to the local bodies from the Consolidated Fund of the States. It may also suggest measures to improve the financial position of the local bodies. Article 280(3)(bb) and Article 280(3)(c) requires the Finance Commission set up by the Central Government, to make recommendations on the measures needed to augment the Consolidated Fund of a State to supplement the resources of the local bodies in the State on the basis of recommendations made by the Finance Commission of the State. Article 243G and Article 243W enable States to entrust implementation of schemes of economic development and social justice to local bodies and also to provide the requisite funds.
In spite of these elaborate provisions, in actual fact central funds constitute the bulk of the funding to local bodies through the Centrally Sponsored Schemes and Additional Central Assistance. However, they have sector specific conditionalities and tie the hands of those who receive them.
The clear and precise provisions of the Constitution relating to transfer of funds to the local bodies as a result of the recommendations of the State Finance Commissions (SFCs) and the Central Finance Commissions have not taken effect, owing to a number of operational and synchronizational problems. The intent of Article 243-I was to ensure that State Government transfers to local bodies should be on the basis of the recommendations of the SFC which is currently in position. However, in actual practice the reports of the SFCs for a particular five year period are available practically at the end of the period. The State Governments therefore utilize the recommendations of the previous SFC. The Central Finance Commission is required to take into consideration the recommendations of the SFCs. However they have been unable to come up with an all India picture of recommendations of SFCs for a period of five years for which its mandate exists. The ad-hocism of the SFCs therefore gets translated into adhoc grants recommended by the Central Finance Commisison also. The FC-X had been constituted before the 73 rd and 74 th Amendments took effect. However before the expiry of its term the position had changed. Feeling obliged to deal with the issue of local body finances owing to the amendment of Article 280, the Commission recommended ad-hoc grants. There were no reports of SFCs for that period. The position however had changed by the time the FC-XI had been constituted and its terms of reference included specific reference to local bodies. However, FC-XI noted the lack of synchronization in the periods covered by the reports of the SFCs and the Central Finance Commission; diversity in the reports of the SFCs as regards their approach and content; and the mismatch between periods for which the SFC reports were available. There was delay on the part of the State Governments in finalizing the Action Taken Reports (ATRs). FC-XI hence also had to content itself with ad-hoc grants on the basis of five parameters. The FC-XII continued with the same handicap and noted that the data furnished by the States as well as by the SFC reports did not provide it with a sound basis for estimation of the requirements of local bodies. Ad-hoc grants therefore continued with FC-XII also which used more or less the same parameters. The Thirteenth Finance Commission continues to lament the fact that SFCs are not appointed on time and that the period covered by the SFCs does not synchronise with the period covered by the Central Finance Commission. ATRs by the State Governments are still not available on time. FC-XIII also notes that the SFC reports continue to be patchy and that they do not follow a uniform pattern.
SFCs have recommended sharing of both tax and non-tax revenues (Andhra Pradesh), and only tax revenues (Assam). The inter-se distribution between tiers have been recommended on the basis of criteria recommended from very simple ones to those which are quite complicated. Panchayati Raj rural institutions have been categorized as advanced, ordinary and backward and weightages assigned. Special grants have been recommended for weak PRIs and incentive grants to those performing well. SFCs have also not clearly identified the issues requiring action by the Central Government to augment the Consolidated Fund of the State. The lack of quality of SFC reports has been ascribed to lack of data and limited capacity of the Commissions. State Governments also have been lax in accepting the reports and this has led to a vicious circle as the SFCs are also not enthused to produce good reports.
The Thirteenth Finance Commission (FC-XIII) observed that there is an undisputed need to bolster the finances of the rural as well as urban local bodies considering the present deficiencies in the provision of basic services. Taking into account the demand of the local bodies that they be allowed to benefit from the buoyancy of Central taxes FC-XIII recommended that local bodies be transferred a percentage share of the divisible pool of taxes over and above the share of the States. The Commission recommended that the divisible pool of Central taxes of the previous year may be used as a base for computing the grant eligibility of local bodies in the following year. The Commission suggested suitable adjustments in the grants after the actual figures of divisible pool of the previous year are available. The grant recommended by FC-XIII has two components. The basic grant effective from 2010-11 will be equivalent to 1.50 per cent of the divisible pool of Central taxes of the previous year after converting this share into grants-in-aid under article 275. This basic grant will be released to all States without any conditionalities. The performance grant effective from 2011-12 will be equivalent to 0.50 of the divisible pool for the year 2011-12 and 1 per cent thereafter. Only those States which meet the prescribed stipulations will have access to the performance grant. The main stipulations are that the state must put in place a supplement to the budget documents for local bodies furnishing transfers under plan and non-plan to urban and rural local bodies separately and an audit system for the local bodies. The other stipulations are appointment of an independent local body ombudsman, electronic transfer of local body grants received from the Central Government enabling all local bodies to levy property tax, prescription through an Act of the qualifications of persons to be appointed as members of the State Finance Commission and laying down standards for delivery of all essential services by local bodies. FC-XIII recommended grants aggregating to Rs.87519 crore to local bodies during the five-year period 2010-15. This works out to 2.28 per cent of the divisible pool of Central taxes for the years 2009-14 and 1.93 of the estimated divisible pool for the period 2010-15.
FC-XIII recommended distribution of local body grants across PRIs and Ulocal bodies in proportion to their respective population as per 2001 census
FC-XIII has carved out a small portion of the basic grant equivalent to Rs.20 per capita per annum and allocated it exclusively to Schedules-V and VI and excluded areas. In addition a special performance grant of Rs. 10 per capita per annum from 2011-15 has been recommended for these areas. Stipulations have been laid down on the fulfillment of which only the States will be entitled to draw the special performance grant for these areas. Rs.1357 crores have thus been earmarked for these areas which the Commission has termed “special areas”.
FC-XIII has also stressed on the need for proper audit and has included this as one of the criteria for the performance portion of the grants it has recommended.
Own Resources
When it comes to raising own resources the picture is very dismal. Having untied funds locally raised would not only have imparted fiscal strength but also independence of action. It would also have provided funds to meet administrative expenditure and for basic services.
Various opinions have been voiced. There are those who believe that local bodies are disinterested in tax collection as it is politically inadvisable. Others hold firm that people would pay if they observe that money is well spent and commensurate services are provided.
The potential remains large as under various State legislations nearly 66 different types of taxes, fees and other charges have been listed out. Property tax, Octroi, Professional tax and Entertainment Tax remain the major sources. But here again States are hobbling the local bodies by prescribing ceilings and laying down conditions. In a few States the house tax has even been abolished. Ideas for raising own resources are becoming scarce.
Devolution of Powers and Responsibilities
a.  There  should  be  clear  delineation  of  functions  for  each  level  of  local  government in the case of each subject matter law. This is not a one-time  exercise and has to be done continuously while working out locally relevant  socio-economic  programmes,  restructuring  organisations  and  framing  subject-matter laws.
b.  Each  subject-matter  law,  which  has  functional  elements  that  are  best  attended to at local levels, should have provision for appropriate devolution  to  such  levels  –  either  in  the  law  or  in  subordinate  legislation.  All  the  relevant Union and State laws have to be reviewed urgently and suitably  amended.
c.  In the case of new laws, it will be advisable to add a ‘local government  memorandum’ (on the analogy of financial memorandum and memorandum  of subordinate legislation) indicating whether any functions to be attended  to  by  local  governments  are  involved  and  if  so,  whether  this  has  been  provided for in the law.
d.  In  case  of  urban  local  bodies,  in  addition  to  the  functions  listed  in  the Twelfth  Schedule,  the  following  should  be  devolved  to  urban  local  bodies:
Ø  School education; 
Ø  Public health, including community health centres/area hospitals;
Ø  Traffic management and civic policing activities;
Ø  Urban environment management and heritage; and
Ø  Land management, including registration.
These, however, are only illustrative additional functions and more such functions  could be devolved to urban local bodies by the respective States.
Transfer of Funds to the Panchayats
a.  Except for the specifically tied, major Centrally Sponsored Schemes and  special  purpose  programmes  of  the  States,  all  other  allocations  to  the  Panchayati Raj Institutions should be in the form of untied funds. The  allocation order should contain only a brief description of broad objectives  and expected outcomes.
b.  State  Governments  should  modify  their  rules  of  financial  business  to  incorporate the system of separate State and District sector budgets, the  later indicating district-wise allocations.
c.  There should be a separate Panchayat sector line in the State budget.
d.  State Governments should make use of the software on “fund transfer to  Panchayats” prepared by the Union Panchayati Raj Ministry for speedy  transfer of funds.
e.  State Governments should release funds to the Panchayats in such a manner  that  these  institutions  get  adequate  time  to  use  the  allocation  during  the year itself. The fund release could be in the form of equally spaced  instalments. It could be done in two instalments; one at the beginning of  the financial year and the other by the end of September of that year.
PRIs and Access to Credit
For their infrastructure needs, the Panchayats should be encouraged to  borrow from banks/financial institutions. The role of the State Government  should remain confined only to fixing the limits of borrowing.
Local Area Development Schemes
a.       The flow of funds for all public development schemes in rural areas should  be  exclusively  routed  through  Panchayats.  Local  Area  Development  Authorities, Regional Development Boards and other organization having  similar functions should immediately be wound up and their functions  and assets transferred to the appropriate level of the Panchayat.

b.      the schemes of MPLAD and MLALAD  should be abolished.