Chapter 3 KERALA PANCHAYAT FINANCE 3 In the second chapter, we discussed the evolution of panchayati raj in India. Panchayat raj and panchayat finance are complementary in nature. This chapter discusses the trends, structure and challenges of Kerala panchayat finance. Kerala has a population of 31.8 millions (2001 census) and an area of 38800 sq. !an. with a density of population 819 per sq. Km. 9.81 per cent of the population belongs to scheduled castes and 1.14 per cent belongs to scheduled tribes. The Hindus ,constitute 58 percent, Christians 20.5 percent and Muslims 21.25 percent. Fotlr-fifth of the population lives in 1364 villages which have been grouped into 152 development blocks and 14 districts. Kerala has the lowest population growth rate of 9.4 per cent during 1991- 2001. The average size of the household is 4.7 persons. Kerala continues to be the only state in India where the sex ratio favours the females with 1058 females per 1000 males. (Census 2001) ' Literacy in the state is the highest in India, 90.92 percent; male literacy being 94.2 percent and women literacy 87.9 percent (2001 census). People are well informed about social and political affairs. The mass media of ' a) Economic and Political Weekly, April 21,2001, p.1275. b) Final population and primary abstract of Census 2001 released on Monday March 1, 2004. The Hindu, March 2,2001, p.4.
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Chapter 3
KERALA PANCHAYAT FINANCE
3 In the second chapter, we discussed the evolution of panchayati raj in
India. Panchayat raj and panchayat finance are complementary in nature. This
chapter discusses the trends, structure and challenges of Kerala panchayat
finance.
Kerala has a population of 31.8 millions (2001 census) and an area of
38800 sq. !an. with a density of population 819 per sq. Km. 9.81 per cent of
the population belongs to scheduled castes and 1.14 per cent belongs to
scheduled tribes. The Hindus ,constitute 58 percent, Christians 20.5 percent
and Muslims 21.25 percent. Fotlr-fifth of the population lives in 1364 villages
which have been grouped into 152 development blocks and 14 districts.
Kerala has the lowest population growth rate of 9.4 per cent during 1991-
2001. The average size of the household is 4.7 persons. Kerala continues to be
the only state in India where the sex ratio favours the females with 1058
females per 1000 males. (Census 2001) '
Literacy in the state is the highest in India, 90.92 percent; male literacy
being 94.2 percent and women literacy 87.9 percent (2001 census). People are
well informed about social and political affairs. The mass media of
' a) Economic and Political Weekly, April 21,2001, p.1275. b) Final population and primary abstract of Census 2001 released on Monday March 1,
2004. The Hindu, March 2,2001, p.4.
communication is well developed. Kerala ranks high in terms of density of
books published and highest in news paper circulation in India.
Kerala's health indicato~s reflect a much higher quality of life in the
state (Isaac & Franke 2000).~ Birth rate per thousand was 17.2. Death rate was
6.4 and infant mortality rate 11 (2001 Census). In respect of education, health
and population control, the state occupies foremost position in the country.
Expectation of life at Birth in Kerala (1996-2000) is 69.1 years. for males and
76.1 for females in 1998.~ Economically, however, progress has been
moderate. In 1977-78 about 4 % percent of rural people were living below
poverty line and by 1987-88 the percentage declined to 16.92. As per National
Sample Survey data (1999-2000) Kerala has poverty figures of 9.38 per cent
in rural areas and 20.27 per cent in Urban areas where as the all India figures
are 27.09 per cent in rural areas and 23.62 per cent in Urban areas4. According
to a survey of Rural i3evelopmc:nt Department 17.23 lakh families live below
poverty line in the state. Out of this 19 per cent are scheduled caste families,
3 per cent Scheduled tribe anti the remaining 78 per cent belong to other
categories. Many marginal farmers, fishermen and landless workers form the
large bulk of the poor. Kerala's development experience shows that even at
low levels of economic devc:lopment, basic needs can be met through
appropriate redistribution strate3ies. The achievements in the social sector has
not resulted in comparable achievements in the material production sectors
and hence Kerala continues to be an economically back ward state.
2 Thomas T.M. Isaac with Richard W Franke, (2000), Local Democracy and Development People's Campaign for Decentra1is:d Planning in Kerala, Left World Books, New Delhi, p.7. Economic Review 2003, Kerala State Planning Board, Thiruvananthapuram, p.28.
4 Ibid., p.302.
In recent years migration of some of the labour force to gulf countries
has tended to contribute towrrds improvement of income of many rural
households on account of remittances from abroad.
Modernity is gaining increasing ground among the rural people as a
result of wide spread education, comprehensive exposure to media of
communication and good travel opportunities. If all mass organizations and
all the types of civil society o~ganizations are added, more than half of the
population can be said to be actrvely involved in organised civic life, (Issac &
Franke 2000). This is a microscopic picture of the present day state of affairs
existing in Kerala.
3.2 Developments in Kerala'r; Economy
Kerala's economy sh0wc.d a significant growth rate of 5.99 per cent in
the nineties while in the 70's and 80's it was relatively stagnant. The rates of
growth for different sectors as well as the total economy for the last three
years are sunlmarised below.
Table 3.1
Kerala Economy: Structural Growth Rates (in per cent)
Source: Economic Review 2003, State Planning Board, September 2004, Govt. of Kerala, Thirvrananthapuram.
Sectors
Secondary
10.14
200 1-02 -1.03 -6.00
2002-03 4.80
Tertiary
10.48
9.28
9.78
Overall
2.60
4.00
6.10
Structurally it is the service sector which is growing fast. The service sector
has grown from 61.7 per cent to 63.8 per cent. At the same time the
contribution of agriculture sec tx declined from 19.1 per cent in 2001-02 to
17.2 per cent in 2002-03. The per capita income at constant prices (1993-94)
increased from Rs.10832 in 2001-02 to Rs.11388 in 2002-03 recording a 5.1
per cent growth. The per capit3 income at the national level is Rs.10754 in
2001-02 and Rs.11010 in 2002-03. The state income at constant prices (1993-
94) is estimated at Rs.37031.33 crores in 2002-03. It is Rs.83782.01 crores at
current prices. It remittances fram abroad are also included the figure would
go up by around 25 per cent.
Kerala continues to have the highest rate of unemployment at 20.77 per
cent. There is a wide gap ketween the emerging needs and skills and
knowledge of those coming out of the formal educational and training
systems. 'Employability' in new areas is a major challenge facing the youth.
At the same time, employment through micro enterprises, especially in the
non-traditional areas like information technology, biotechnology, service units
etc. has shown an encouraging .rend. Considering the institutional finance, the
credit deposit ratio which was 42.71 in March 2002 has gradually increased to
46.69 in September 2003. The increase in drawal of micro finance by self help
groups is again a positive de~~elopment. It is interesting to notice that the
neighbourhood groups under Kudumbashree alone have attracted bank
finance to the tune of Rs.392.5(1 crores.
Coming to the state finances, after recording a marked improvement in
2001-02 the revenue deficit and fiscal deficit have jumped up as per the latest
estimates for 2002-03. The details are summed up below.
Table 3.2
Majo,. Deficit indicators5
( Fixed deficit 1 Revenue deficit 1 Primary deficit 1 Year % to
Amount Amount % t o Amount 1 I GSDP I I GSDP 1 ZibOP 1 3.52
3.48
3.36
3.47
4.88
5.36
7.25
5.56
4.12
5.49 Source: Economic Review 2003, SPB, January 2004, Government of Kerala, p.8.
The increase is mainly attributable to settlement of several pending
claims. The total debt of the State as per the latest estimate is Rs.3 1060 crores.
In this scenario government has taken very important reform initiatives in
financial management. Two important Acts namely the Kerala Fiscal
Responsibility Act 2003 and the Kerala Ceiling on Government Guarantees
Act 2003 have been brough. into force. Reduction and elimination of
government non plan deficit is essential for stepping up capital expenditure.
In 2002, the overall fisc;~l health of the State witnessed a positive trend
as evident from the level of relevant fiscal indicators given in the table above.
The overall trend reveals that in spite of fiscal reform measures taken by the
State, fiscal deficit remains high. The Kerala Fiscal Responsibility Act 2003
envisages reduction of revenue deficit to 'nil' and the fiscal deficit to 2 per
cent of Gross State Domestic Product, by the end of March 2007.
Prioritisation of expenditures, restructuring of public sector units, growth
oriented sectoral policies, speedy and time-bound completion of long pending
feasible projects, new budget cycle facilitating early budget implementation,
legal authority for financial management and responsibilities, improved asset
management system etc are cr:rtain other measures being taken up by the
government, with which it is expected that the State can achieve fiscal
soundness and sustainability in two to three While these are the state
of affairs, the financial and administrative mechanism of the Kerala state
underwent radical changes since the launching of decentralization and
consequent by the enactment of the new Panchayat Raj Act.
The Kerala Panchayat Act, 1994 came into force on 3oth May, 1994.
The Act provided for the constitution of grama panchayat at the village level,
block panchayat (152) at the i~termediate level and district panchayat (14) at
the district level, for facilitating the process of decentralization of power to
the grass grassroots level. On the basis of this Act, elections to panchayati raj
institutions were held in September 1995 and again in September 2000 and
the new bodies officially started functioning heralding a new era in the
governance of the villages of tk e state.
Financing of panchayti raj institutions has become a matter of great
concern. One of the crucial prc~blems is the procurement of adequate financial
resources to meet their varied requirements. Without finance nothing can be
6 Ibid., p. 19.
done. The capacity of a panchayat to discharge its duties and responsibilities
as well as to chalkout plans for the future depends mainly upon its revenue
resources. In this context it is appropriate to start with the grama panchayat
system.
3.3 Existing Grading of Gran~a Panchayats
Kerala has 991 grama piinchayats divided into special grade, grade I,
grade I1 and grade 111 panchayats. The classification of panchayats in 1983
was based upon their annual inc:ome at that time. This classification made in
1983 has remained unchanged eventhough it has ceased to have any
relevance.
There has been a ma-ginal reduction in the number of village
panchayats from 1001 in 1985 to 991 in 2000. This has taken place due to the
merger of village panchayats to urban local bodies, bifurcation of some of the
panchayats for administrative convenience and the upgradation of some of
them to municipalities.
While 19 village pancha:iats have been merged with urban local bodies
20 new village panchayats have been created due to the bifurcation of 20 large
village panchayats having a population of more than 50000. '
The changes were brought into effect in September 2000, with the
general elections to Local Self Government Institutions. With this
reorganization of urban and rural local Governments, the share of the urban
7 Report of the Second State Finance Commission 2001, Govt. of Kerala, Thiruvananthapuram, p.33
population in the state with respect to 2001 census has gone up to 26 per cent
from 16.87 per cent in 1991.
The average population cf a panchayat in 2001 was 25004. Around this
average, there are wide variations. The least populous panchayat, (Vattavada
in Idukki district) has a population of only 5102 and the most populous
(Munnar in Idukki) has a popul~~tion of 68205.
The average area of a 3anchayat in the state is 37.50 sq. Km. The
biggest panchayat is Kumily ir Idukki district with 816.72 sq. Km. And the
smallest is Valapattanarn in Karlnur district with 2.04 sq. ~ m . '
The distribution of population among the village panchayats is given in
the table below.
Table 3.3
Distribution of p3pulation of village panchayats9.
/ Below 10000 1 15 I
Range of population
/ Between 10000 and 20000 1 297 1
Number of village
panchayats
/ Between 20000 and 30000 1 460 1
( Above 50000 6 1 1 Total 1 99 1 I Source: Economic Review, 2003
8 Op.cit., p.4. 9 Economic Review 2003, State Planning Board, government of Kerala,
Thiruvananthapuram, January 20114, p.411.
Table 3.4
Table of Local Self Governments in Kerala ''
Ernakulam 1 (240813098378)
District (Area in No. of No. of No. of Grama Block District
Panchayids Panchayats Panchayats
78 12 1
69 13 1
54 9 1 (273111231577)
73 12 1
Kottayam 74 11 1 (220411952901)
Thrissur 1: 1: 1 1 (303212975440)
Palakkad (4480126 17072)
Malappuram (354813629640)
Kozhikode (234512878498)
No. of Munici- palities
4
2
3
5
4
Wvnad 2 5 1 3 1 1
No. of Corpo- rations
1
1
-
-
-
Kannur 1 8 1 9 1 1 (2997124 12365)
Kasaragod (196111203342)
Total (3886313 183619)
Source: Kerala panchayat guide 2005, Department of panchayats, government of Kerala.
10 Panchayat Guide (2005), Department of Panchayats, Government of Kerala, p. 12.
It would be interesting to compare the distribution of village
panchayats according to areas a:; well.
Table 3.5
Distribution of Crrama Panchayats - ~rea-wise '
Ares. Number of
village panchayats
Below 5 sq. Km. 2
Between 5 and 10 sq. Km. 48
Between 10 and 15 scl. Km. 133
Between 15 and 20 scl. Km. 188
Between 20 and 30 scl. Km. 290
Between 30 and 40 scl. Km. 125
Between 40 and 50 scl. Km. 46
Between 50 and 75 scl Km.
Between 75 and 100 :;q. Km.
Between 100 and 15C sq. Km. 3 1
Between 150 and 20C sq. Km. 6
Above 200 sq. Km. 16
Total 99 1
Kerala has a long sea-coast and 89 village panchayats face the sea.
1 1 Ibid., p.411.
Table 3.6
Density of Population among grama panchayats12
- -
Below 100 - -
Between 100 - 500 - -
Between 500-1000 324
Density of population
(Persons/Sq. Km.)
Number of grama panchayats
Source: Economic Review 2003.
-
Between 1000- 1500
Between 1500-2000
Between 2000-3000
Above 3000 -
Total
As per the extent of income norms the village panchayats were
classified as special grade (annual income of more than Rs.1.75 lakhs), grade
I (Rs.1 Lakh and above and upto Rs.1.75 lakhs), grade I1 (Rs.50000 and
above up to 1 lakh), grade 111 :exceeding Rs.50000). The grading was based
on their annual income excluding all grants - in - aid, contributions and debt
heads. The grading using the same norms showed 976 village panchayats as
special grade and the remainin: four panchayats as first grade (two each) on
the basis of the data on 987 village panchayats available. This shows that the
relevance of the grading has been lost. The regrouping was expected to be
done every three years. But it h a s not done after 1983.
256
128
89
15
99 1
'' Ibid., p.412.
A few interesting statistical highlights regarding village panchayats
are given below.
Largest village panchayat (area) Kumily - 8 16.72 sq. Km.
Largest village panchayat (population) Munnar grama panchayat -
68205
Smallest village panchayat (area) Valapattanam grama panchayat -
2.04 sq. Km.
Smallest village panchayat (population) vattavade grama panchayat
- 5 102 (200 1 census)
The panchayat with the lowest percentage of Scheduled Caste
population is New Mahe in Kannur. 218 panchayats have less than
0.1 percent of Sched~ led Tribe population.
Orumanayoor panchayat in Thrissur tops in sex ratio with 1232
females per 1000 males. Vettavada in Idukki is having the lowest sex ratio
(930). Nedumudi panchayat in Alappuzhe tops in Literacy rate (97.73 per
cent) and Pudur in Palakkad is having the lowest - literacy rate 48.31 per
cent. The panchayat with the highest percentage of Scheduled Caste
population is Munnar with 53 33 per cent. The panchayat with the highest
percentage of Scheduled Tribe population is Pudur in Palakkad with 64.2 1 per
centi3. There are 152 block pmchayats and 14 district panchayats in Kerala.
They have no powers of taxation and they depend on grant-in-aid given by the
government. Our focus of study is on grama panchayats.
'"pcit., p.4., The Hindu, March 2, ,004, p.4
Financial Resources of Panchayats
The existing structure O F financial resources of village panchayats in
Kerala has the following elemelits. The traditional sources of income could be
classified in to the following ca~egories,
• Tax revenue i.e.., taxc:s assigned by statute.
• Non-tax revenue i.e., income from sources such as property, licence
fees etc.
• Grants-in-aid from gcwernment which may be tied or untied
• Loans from governmc:nt and other financial institutions.
The tax revenue could be further divided into,
• Own taxes
• Assigned taxes
• Shared taxes
3.3 Own Taxes
These are taxes assigned by statute to panchayats and which are levied
by them. Mobilisation of resources at the local level assumes added
significance in the context of development from bottom. Tax income
constitutes and plays a vital role in the financial structures of panchayati raj
institutions in Kerala. A sound system of panchayat finance should generally
rest on a sound foundation of panchayat taxation which is the only means to
make these bodies self-governing and self - reliant
Property tax
This is tax levied on res,idential buildings in the panchayat area at a
given percentage (minimum 6 per cent and maximum 10 per cent) of the net
annual rental value of buildings calculated on the basis of the gross annual
value at which they may be reasonably expected to be rented out minus 10 per
cent of such annual rent in lieu of all allowances for repairs. Panchayats have
found by experience during the past several years that the building tax is the
most productive at the level of local Government.
Building tax is the largest single source of tax revenue of panchayats in
the state. It constituted 22 per cent of the total income in 1967-68, 18 per cent
in 1979-80 16 per cent in 1991..92 and 15 per cent in 1998-99. Receipts from
this tax rose from Rs.61.02 lakhs in 1967-68 to Rs.311.77 lakhs in 1979-80
and to Rs.1723 lakhs in 1991-!P2 and to Rs.2249 lakhs in 1993-1994 and to
14 Rs.3443 lakhs in 1998-99. It may be noted that the contribution of
profession tax shows a steady ir~crease. As per a circular the State government
stopped the panchayats from t h ~ quinquennial revision of building tax. That is
why it shows a declining trend.
Property tax constitutes the major item of revenue for the village
panchayats, which have a percapita collection of Rs.12.39. Though
amendments have been brought about in the Kerala Panchayat Raj Act in
1999 to introduce plinth area based assessment of property tax for both
residential and non-residential buildings including commercial buildings,
rules and operational instruc..ions have not yet been issued. Therefore,
-
I4 Second finance commission, Kerala Report, January 2001, p.40. Sukumaran, V.P. ( 1 996), MBA dissertation, University of Calicut, p.34.
property tax continues to be assessed as per the old system based on rental
value. In anticipation of switching over to the new method of assessment
village panchayats have not done any general revision of property tax since
1993, resulting in colossal 10:;s of revenue to the panchayats. The usual
periodic increase in property tax, which normally works out to be 25 per cent
at the time of each general quinquennial revision.
The property tax is assessed as per rules issued under section 203 of
the Kerala Panchayat Raj Act. 7'he rate is fixed as between 6 to 10 per cent of
the annual rental value in the rL les. Property tax constitutes 15 per cent of the
tax and non tax revenues of village panchayats. Property tax has grown by
40.34 per cent over a period of six years. It is interesting to note that
panchayats tend to levy lower tax even when they have a range to choose
from.
Profession tax
Article 276 of the constitution authorizes a state or other local authority
in a state to levy tax on profession. Panchayats in Kerala have been
empowered to levy profession lax under section 204 of the Kerala Panchayat
Raj Act, 1994. It is levied ever) half year. It constituted 10 percent of the total
income in 1991-92. Receipts fkom this tax was Rs.1076 lakhs in 1991-92,
Rs.1225 lakhs in 1993-94 and Rs 25911akhs in 1998-99, average percentage
of increase being 15 .415
Profession tax is lev ed from individuals and companies. All
companies and individuals tran iacting business or engaged in a profession for
at least 60 days in a half year are bound to pay the tax at such rates as are
fixed by the panchayat concerned subject to the maximum rates prescribed by
Government. However, artcle 2 76 (2) of the Indian Constitution has fixed the
maximum tax leviable per :fear at Rs.25001- Now the 1lth Finance
Commission has recommended that this provision be taken out of the
constitution and be made part o:~. a Central Act so that its amendment could be
easily made.
Based on the report of the first State Finance Commission, profession
tax has been revised in village panchayats.
Table 3.7
Source: Second State Finance Commission 200 1
Rates of profession tax in village panchayats16
16 Pushparajan K. (2002), Panchayatk u Bharanam - Yanthravum, Thanthravum, Thunchan Smaraka Samathi, thiruvananthapi ram, p.390.
Class
1
I1
I11
IV
V
VI
VIII
VIII
Half yearly income -- -
Maximum half yearly tax
Between Rs.12000 and 17999 --
Between Rs. 18000 and 29999 --
Between Rs.30000 and 44999 --
Between Rs.45000 and 59999
Between Rs.60000 and 74999 -
Between Rs.75000 and 99999
Between Rs. 100001) and 124999 --
Above 125000
Rs. 180
Rs.300
Rs.450
Rs.600
Rs.750
Rs.1000
Rs. 1250
Profession tax constitute:; the second largest source of own income for
the panchayats. During the six year period from 1993-94 to 1998-99 the tax
has grown by 101.6 per cent. Tl-is has been mainly due to the steep increase in
salary due to the pay commissio? recommendations.
Entertainment Tax
Entry 62 of the list I1 of the Seventh Schedule to the constitution
empowers the state Governments to levy a tax on entertainment. Among the
southern states, Kerala alone hiis delegated the powers to levy entertainment
tax to the local bodies.
Panchayat raj institutions in Kerala derive their power of taxation on
entertainments from the Kera a local authorities Entertainments Tax Act,
1961 which came into forcc in April 1962. In May 1963, the state
Government imposed an additional tax on entertainments, the proceeds of
which, after allowing a margin to the local bodies towards collection charges
were appropriated by the Govc:rnment. This arrangement continued till July
1975 and afterwards, the entire receipts from additional entertainment tax
were assigned to the local bodies. Now Entertainment Tax and Additional
Entertainment Tax are the income due to local bodies. Under section 3 of the
Kerala local authorities enter( ainment tax act, 196 1, local authorities are
empowered to levy a tax at a r ~ t e not less than 15 percent and not more than
30 percent each on price of admission to any entertainment. In the case of
dramatic or circus performanc; in panchayat areas, the rates are Rs.25 and
Rs. 15 respectively, on each per 'ormance as per section 6 A of the act.
In addition to entertainnent tax, additional entertainment tax at the
rate of 60 percent of the entefiainment tax is also collected. Thus for every
one rupee ticket of admission 24 paise is towards entertainment and additional
entertainment tax (15 paise and 9 paise) respectively and the balance of 76
paise is the exhibitor's share. E~tertainment tax has come to prevail as one of
the major sources of tax revenues of panchayats. In 1991-92 there were 1133
cinema theatres spread over 725 panchayats in the state. The remaining 266
panchayats did not have cinema theatres. Entertainment tax and Additional
entertainment tax together constituted 7 percent of the total income in 1991-
92, the receipts being Rs.526 lakhs. It was Rs.653 lakhs in 1993-94 and
Rs.971 lakhs in 1998-99, the av:rage percentage of increase being 10.8
Entertainment tax is the third largest source of income for village
panchayats. Consequent on the recommendations of the first State Finance
Commission, additional tax on mtertainment and surcharge on Show Tax Act
1963 has been repealed. Now, as per the unified act, Entertainment Tax is
fixed between 24 to 48 percent q~f the price of admission.
Though Entertainment l'ax constitutes a significant local government
income it is to be noted that there are no theatres either temporary or
permanent in 33 per cent villag- panchayats. Although Entertainment Tax has
grown by 48.98 per cent in village panchayats, it is seen that gross collection
of Entertainment Tax declined during the year 1998-99 in comparison with
the previous year. There appears to be considerable 'escaped' tax in this item.
This issue was considered in detail by the first State Finance Commission
which recalled that both the earlier finance commissions viz, the Naha
commission 1985" and the Mohandas commission 1993" had recommended
that the collection of Entertainment Tax be based on gross seating capacity
and recommended optional swi~ ch over to taxation based on seating capacity.
The average collection in villige panchayats is equivalent to the average
occupancy of 9.5 per cent, it is felt that the occupancy would have been much
better. Though Entertainment Tax act has been amended and an enabling
provision introduced to tax on t ~ e basis of seating capacity, the rules have not
yet been franied.
Show Tax
Show tax was levied under section 66(5) Kerala Panchayat Act 1960
and rules 1962. Show tax is levied by panchayats under authority conferred by
the section 200 of the Kerala Plnchayat Act, 1994, show tax rules 1995. Tax
on every show for cinematograph exhibition, dance, dramatic, circus
performance and other shows. The present rates of show tax are as follows
Table 3.8
2. 1 Other cinematographic exhibitions 1 Rs.10 1
~s tes of show tax19
Regular shows other than cinemas
Other exhibitions
-
Regular cinematographic exhibitions at licenced theatres
Source: Second State Finance Commission, 200 1 .
Rs.2
" Report of the Panchayat Finance (:ommission (Naha Commission) 1985, Government of Kerala, Thiruvananthapuram, p.7.
l8 Mohandas Commission 1993, www.localgovkerala.net, Government of Kerala, Thimvananthapuram.
l 9 Second State Finance Commission. Kerala, Report, January (2001), p.48.
The rates have not yet been revised as recommended by the first State
In the state of Kerala tht: following might be the core responsibilities
1) Provision of street taps 2) Provision of street lighting 3) Collection
and disposal of solid waste 4) Surface drainage and 5) Upgradation of roads.
etc.
All these items have been included in the 29 subjects of the Eleventh
Schedule of the constitution (Article 2436) added by the Constitution (731d
Amendment) Act, 1992, Sec. 4 l ~ i t h effect from April 24, 1993.
Drinking Water
The average population of a panchayat was 25000. As per Naha
Commission norm of one strect tap for 200 population, a panchayat would
need to have I25 street taps on the average. Fifty percent of the panchayats
had less than 125 street taps and additional street taps required is estimated to
be about 40000. The provision of street taps involves capital expenditure by
way of extending the water line and the estimated cost will come to about
Rs. 100 crores.
Street Lighting
It has been estimated by the first State Finance Commission that in
order to cover the more frequented areas there would be need for nearly 1.97
lakhs additional street lights in the panchayats. The estimated cost of
installation comes to approximately Rs.45 crores.
Removal of Solid Waste
The arrangement for collection, transportation and treatment of
garbage, as it exists today is highly insufficient, inefficient and primitive.
Each panchayat will have tc work out the cost of equipment and the
arrangements required for an efficient and safe handling of garbage and its
disposal in an environment friendly way
(foot note: Municipal Corporation of Cochin has estimated that the capital
cost involved in the physical in:-kastructure by way of vehicles and associated
facilitates for collection and disposal of solid waste capable of 400 M' per day
comes to about Rs.81 lakhs)
Surface Drainage
Panchayats have the res~~onsibility of maintaining drains on the sides
of the roads vested in them ant1 also for providing adequate drainage system
for removing liquid waste generated by establishments like hotels and
buildings. It is essential that 1o';al bodies improve the condition of drains by
lining them with rubble or bric,ks as well as covering the open drains. First
State Finance Commission has estimated that the cost of covering the open
drains by concrete slabs will work out to be Rs.375 per metre and the total
costs would be about Rs.200 crores. The cost of lining the open drains with
stones or bricks will require ancther huge dose of investment.
Improvements of Roads
A major portion of wide net work of roads under the control of
panchayats are earthen (53.78 per cent) and gravelled (31.3 per cent). They
are poorly maintained. The er.timated cost for black-topping the existing
metalled roads with a 3 metre ,carriage way including gross drainage work is
estimated at Rs.385000 per Kilometre road length. The cost of upgrading the
existing gravelled road to black topped ones with a 3 metre carriage way is
estimated at Rs.602000 per Kill~metere. For upgrading even 10 per cent of the
roads require an investment of Rs.210 crores. This indicates that enormous
additional funds are needed to spend on selected civic services, to reach
minimum level of satisfaction.
Minus Fund Panchayats
A significant factor noticed was the diversion of grants by panchayats
for purposes not envisaged by the grants. A panchayat is said to be the minus
fund panchayat when its balance of funds is less than its liabilities. The term
liabilities include funds received for specific purposes which are intended for
use only for specified purposes. But some panchayats utilize these tied funds
for purposes which are not authorized and most of such unauthorized
diversion is to meet the cost of establishment, public works and debt-
servicing. For example, in the Edavilangu panchayat in Thrissur district, the
percentage of establishment expenditure to total expenditure is over 50 per
cent and that of public works to total expenditure is 34.42 per cent. There are
many minus fund panchayats where establishment expenditure constitutes
more than 40 per cent of the total expenditure and expenditure on public
works also constitute more th.m 40 per cent and upwards in most of these
panchayats.
For meeting the establishment cost as well as performing the
obligatory duties the village panchayats can use tax revenue other than shared
tax, non-tax revenue, specific purpose grant and rural pool. The degree of self
sufficiency of village panchayats can be seen from the table.
Table 3.23
Self-sufficiency of village Fanchayats35 number of panchayats having
sufficient funds
Expenditure categories
Salaries & office Expenses -
charges, street light charges, sanitation services
Salaries, office expenses, water charges, street light charges. i
Source: Report of the Second State Finance Commission.
No. of village panchayats
964 --
Table 3.24
Expenditure percentage
37.75%
862
The comparative trends of increase in revenue in relation to increase of
40.26%
expenditure on establishment .is well as obligatory duties over six years for
village panchayats
Source: Second State Finance Commission, 2001.
Period
Revenue
Correlation is also work:d out and the correlation coefficient between
revenue and expenditure is found to be 0.99. Hence, they are highly
correlated.
1995-96
1385650
669400
j5 Ibid., p.83.
1996-97
2099477
845360
1997-98
2413635
943309
1998-99
2597877
11 13131
Devolution of funds
In 1990 a small amount was set apart for village panchayats as a plan
scheme. This had an allotmen: of Rs.28.58 crores in 1995-96, which was
stepped up to Rs.155.72 crol.es. A separate budget document for local
governments was brought into effect and added a specific head of account
"191" which indicated grants to Local Self Government Institutions. Certain
departmental plan schemes which are now called as "state sponsored
schemes" constitute about a tenth of plan grant- in-aid. Plan schemes are
implemented according to the glidelines issued by central/state government.
In July 1996 the government decided to earmark 35 to 40 per cent of
the plan funds to Local Self Government Institutions. The funds transferred to
village panchayats is indicated in the table.
Table 3.25
Total plan grants to village panchayats36
1997-98 2855 506.86
3 100 614.60
3250.1 639.25
2000-200 1 3535 636.37
2002-2003 4026 760.84
Source: Annual f'lan (2002-03), State Planning Board.
The availability of plan grants enabled the panchayats to realize their
functional responsibilities by implementation of projects in respect of the
functions assigned to them by the constitutional amendments and subsequent
36 Annual Pl;m (2002-03), Plan Assistance to Local Governments, State Planning Board, Thiruvananthapuram, p. 17.
state legislations. Well- functioning local governments are expected to
accelerate economic growth and create a new model of growth with equity.
Broad Trends in Panchayat Finance
Based on the discussion:; made, the broad trends may be summarised
as follows:
In 1995 only 32 per cent of the expenditure for functions assigned to
grama panchayats took place at the discretion of the panchayats. Now the
allocations has increased considerably and the grama panchayats now have
control over 68 per cent of erpenditures. The expenditure assignments are
now clear, functions have been divided according to various tiers and each
function has been broken up int3 activities in most cases to avoid overlapping.
The level of grama panchayat spending is significantly higher. In 1999, grama
panchayat spent on an average 11s.328 per capita equivalent about 1.4 per cent
of SDP and 8 per cent of the Stste government spending3'.
Within own source revenues non-tax revenues have been more buoyant
than tax revenues where per capita amounts have increased from Rs.7 in 1994
to Rs.29 in 1999~'. Panchayitts are unwilling to push for higher taxes
especially property tax. It is estimated that only about 40 per cent of the
revenue potential has been exploited. Fiscal pressure in panchayats are
growing due to the increase of expenditure responsibilities.
37 Economic Review 2003, State Plar ning Board, Government of Kerala, Thiruvananthapuram, p.4 17.
38 India: Fiscal Decenttalisation to rural Governments, January 7,2004, Rural Development Unit South Asia Region, The Wor'd Bank, p.16.
Table 3.26 Transfer of Resources to Grarna Panchayats Based on State Finance
~omrnission~' recommendations (Rs.lakh)
1998-99 11270.49 10797.22
1999-00 10997.34 10290.86
2002-03 10501.66 9479.42
2003-04 10501.66 9479.42
Source: Economic Review 2003.
* - Collection from assigned tcsres, i.e., Basic tax - total basic tax collected minus 6per cent shared by the village panchayat, block panchayt and district panchayat in the ratio of 4/8, jYI0 and I/5 respectively upto 2003-04 on the basis of Is' SFC recommendation and share of surcharge on stamp duty.
** - Amount actually passed o~z i.e., Basic tax and surcharge on stamp duty distributed.
@ -Devolution i.e., share of Motor Vehicle Tax.
# - Grant-in-aid i.e., Establishinent grant and other grants, rural pool grant etc. and plan assistance for rocal area plan programmes and grants for transferred schemes.
$ - Others i.e., Centrally sponscred schemes
Note: On the basis of the znd State Finance Commission Report Government have decided to devolve 9 per cent of the State own tax revenue (i.e., 5.5 per cent as Maintenance Grant and 3.5 per cent as General Purpose Grant) to the Local Bodies. The distribution among various tiers is based on the norms recommended by the 2"d SFC.
j 9 Economic Review 2003, State Plarning Board, Thiruvananthapuram, January 2004, p.S.334.
Emerging Issues
The Cirarna Panchayats have a viable population size which make them
ideal units of governance. The density of population is very high in almost all
panchayats. This semi-urban character has implications for service delivery
and creation of infrastructure. The large population and size of grama
panchayats niakes it difficult to have general assembly of voters in the form of
grama sabhas.
The iural-urban continuum implies that there can hardly be any
difference in the quality and quantity of civic services provided by
municipalities and by panchayats.
The decentralisation has helped improving accountability. These are
also the features of good governance40.
1. Committee system of decisicn making.
2. Right to information.
3. Participatory budgeting.
4. Due process in selection of beneficiaries.
5. Audit systems.
6. Social audit and
7. Citizen's charter.
The quality of people's participation has to be enhaned. Grama sabha is
expected to be an institution for meaningful dialogue on development
priorities. It will help chanellirg public contribution for common good. The
40 Economic Review 2003, State Planning Board, Thiruvananthapuram, January 2004, pp.412-416.
main inadequancy is that mainly potential beneficiaries are participating. To
make grama sabha effective all sections of society should participate.
Another issue is that the systems developed for transparency and social
audit are not fully functional. Decentrlisation increases the number of players
involved in governance thereby deepens democracy. But there is risk of new
collusive practices emerging if procedural safeguards are not strictly enforced.
Decentralised local plan~ling caused thin spread of available resources
because of the tendency for ward wise division in order to satisfy every
elected representative. Therefore, quality of planning has to be upgraded. This
is possible by reducing individual beneficiary oriented schemes and also by