11th Finance Commission : Transforming Panchayats

The 11th Finance Commission (EFC) was constituted by the presi-dent of India on July 3, 1998 to make its recommendations, among others, on measures needed to augment the resources of the panchayats on the basis of recommendations of the State Finance Commissions (SFCs). In this context we may also note the provision of Article 280(bb) which was added in the Constitution vide 73rd Amendment Act. Para 6 of the presidential order has also assigned additional responsibility to the EFC relating in that where the SFCs have not been constituted as yet, or have not submitted their reports, the EFC will make its own assessment about the manner and extent of augmentation of consolidated funds of the state to supplement the resources of the panchayats in the state keeping in view the provisions required to be made for the emoluments and terminal benefits of the employees of the local bodies including those of teachers, existing powers of the panchayats to raise financial resources including those by way of raising additional taxes by the panchayats; and power, authority and responsibility transferred to panchayats under Article 243G of the Constitution read with 11th Schedule. Thus, the EFC has been given the important responsibility of suggesting measures to make panchayats functionally, financially and administratively viable institutions.

The major recommendations of the Commission pertaining to the panchayats are: (i) Amending Article 243I in order to synchronise the availability of the SFCs reports to the EFC. Focusing on specific chapters in the SFCs reports keeping in view the terms listed in Article 243I and 243Y of the Constitution so as to make findings of the SFCs more useful to the EFC. Tabling of SFCs findings and ATR on the floor of the state legislature within six months. (ii) Giving freedom to state to adopt three or two tiers system of panchayati raj with greater efficiency and economy. Extension of 73rd Amendment to non Sixth Scheduled areas. (iii) Delation of words “on the basis of the recommendations made by the Finance Commission of the state appearing sub-clauses (bb) of the Article 280(3) of the Constitution in order to provide freedom for Finance Commission to recommend financial devolution to those states where either SFCs have not been constituted or have not submitted their reports. (iv) Imposition of taxes on land/farm income in suitable form to strengthen the resource base of the local bodies; levy/cess on land-based taxes and other taxes/duties and devolution of the same to local bodies for augmentation of specific civic services; and imposition of professional tax either by state government or local bodies. Exploitation of full potential of property tax/house tax. (v) Periodical revision of the rate structure of the user charges levied by the panchayats. (vi) Reviewing the existing accounting heads, etc, preferably in consultation with comptroller and auditor general (C&AG) of accounts for ensuing uniformity among the states, vesting control and supervision over the maintenance of accounts in C&AG and contracting out the upkeep of accounts to outside agencies/persons where the panchayats do not have trained staff. (vii) Earmarking an amount of half per cent of total expenditure incurred by the panchayats for C&AG for audit purpose and earmarking of Rs 4,000 per panchayat per annum on an average to meet the expenditure on maintenance of accounts on contract basis. (viii) Building data base on the finances of the panchayats with the help of V SAT at district, state and central levels and involvement of C&AG at all stages. (ix) A total grant of Rs 1,600 crore for the panchayats for each of the year starting from the financial year 2000-01, inter se distribution of grants among the states for the panchayats based on the rural/urban population of the state (40 per cent), index of decentralisation (20 per cent), distance from the highest per capita income (20 per cent), revenue efforts of the local bodies (10 per cent) and geographical area (10 per cent). (x) Transfer of functions and power in accordance with 243G read with 11th Schedule specifically mentioning in the state panchayat acts as well as clear-cut demarcation of the functions of all tiers of the panchayats legislatively instead of executive order. In order to award panchayats functional, financial and administrative freedom in their operations and ministry of rural development should remove all impediments and take initiatives for transferring the schemes to the panchayats. (xi) Administratively rearranging the boundaries of the panchayats to make them viable institutions. (xii) Constitutions and functioning of the district planning committee. (xiii) Bringing out suitable legislations in order to improve user charges for government properties of the central as well as state governments.