Local Governance by Panchayats: Delineating the Fiscal Principle of Self Governance

LOCAL GOVERNANCE BY PANCHAYATSDelineating the Fiscal Principle of Self-Governance

P.K. Chaubey

The purpose of this note is to delineate a soundfiscal principle of governance, that a government,irrespective of its level within the country, must havepower to tax its citizens and must exercise it in order tocarry out obligations of governance howsoever mandated.However, before articulating the argument it would pay usto have a little detour of the history of evolution ofpanchayats, their present level and style functioning andthe arguments for empowering them through devolution offunds, functions and functionaries.

I

India had a great ancient tradition of self-managementof public affairs at local level, is well recognized.Villages as well as cities managed their own publicaffairs, within communities and across communities,irrespective of the State they happened to belong to andpaid the tribute on a collective basis, which came to beknown as ‘mahalwari’ system. It was this special feature ofsocial fabric throughout the country, indeed whole ofSouth Asia including Pakistan, Bangladesh and Nepal, whichsurvived the rise and fall of empires, that made manyscholars and thinkers like Henry Maine call India acongeries of village republics, not the fact of coexistenceof State-level republics alongside monarchies in pre-Christera. This was the feature that prompted Charles Metcalfe tocall Indian village communities as ‘little republics’.

There are evidences to suggest that there were self-governing village bodies sabhas during the Rig-Veda period(1200 BC). [Many tribal habitations still run on similarprinciple.] With the passage of time, these sabhas became

elected panchayats (panch= five and ayat=council). Theywere functional institutions of grassroots governance inalmost every village, encompassing at least executive andjudicial functions—and perhaps legislative functions. Inmany cases, even land was distributed by this panchayatwhich also collected taxes out of the produce and paid ashare to the government on behalf of the village. There issome evidence that there also existed the system of maha-panchayat over a number of panchayats to supervise andintervene if necessary in certain matters whichtransgressed the confines of the villages—without invitingState.

It is widely held that casteism and feudalistic systemof governance in the medieval period slowly eroded theself-government in villages, particularly during Moghulrule when intermediary interests were created underzamindari system, which the British continued andsupplemented with ryotwari system of directly dealing withindividuals. Thus began the stagnation and ultimatelydecline of self-government in villages.

The panchayat was destroyed by the East India Companywhen it was granted the office of Diwan in 1765 by theMughal Emperor as part of reparation after his defeat atBuxar. As Diwan the Company took two decisions. The firstwas that it abolished the village land record office andcreated a company official called Patwari. The Patwaribecame the official record keeper for a number of villages.The second was the creation of the office of magistrate andthe abolition of village police. The magistrate carried outpolicing functions through the Darogha who had always beena state functionary under the Faujdar. The primary purposeof these measures was the collection of land revenue byfiat. The depredations of the Patwari and the Darogha arepart of our folklore and it led to the worst famine inBengal. The effects of the famine lingered right to the endof the 18th century. These two measures completelydisempowered the village community and destroyed the

panchayat.During the British rule, the autonomy ofpanchayats further declined with the establishment of localcivil and criminal courts, revenue and policeorganisations, the increase in communications, the growthof individualism and the operation of the individualRyotwari (system of individual landholders) as against theMahalwari or village tenure system. After 1857 the Britishtried to restore the panchayat by giving it powers to tryminor offences and to resolve village disputes. But thesemeasures never restored the lost powers of the villagecommunity

The panchayats were recognized by the Royal Commissionon Decentralisation (1906), under chairmanship of C.E.H.Hobhouse, as associations designed to develop villagecorporate life on the basis of intimacy existing betweeninhabitants, having common civic interest but also ties oftradition and blood. The Commission attached greatimportance to revive them as instrument of self-governmentof villages. The British rulers formally introduced thesystem of local self-governance in a formal way but choseto call these bodies as ‘panchayats’ only. Though anassessment holds that the British were compelled to carryout this reform and they wanted to have ‘controlled’panchayats. Radhakumud Mookerji contrasted 'panchayats'espoused during post-Royal Commission with those in pre-medieval period.

The Government of India Act 1919 paved the way oforderly development of local government by making provisionof separate schedule incorporating functions and powers oflocal governments. Period following 1919 saw establishmentof village panchayats in a number of provinces, which wereno longer mere ad hoc judicial tribunals, butrepresentative institutions symbolising the corporatecharacter of the village and having a wide jurisdiction inrespect of civic matters. Every province in the BritishIndia, whether Bengal (Bengal, including present-dayBangladesh, Bihar, Orissa) or Bombay (Maharashtra and

Gujarat) legislated and constituted village panchayats anddistrict boards and at times middling boards. By 1925,eight provinces had passed Panchayat Acts and by 1926, sixnative states had also made panchayat laws. Due toorganisational and fiscal constraints, it has beensuggested, the reform was unable to make panchayatinstitutions truly democratic and vibrant.

It should however be noted that ancient and medievalpanchayats that dealt with local public affairs—publicworks, public goods and public utilities, were not theextended limbs of the State, nor did they have intimateorganic link with it. Formal links with the State wereestablished by the British whether under Government ofIndia Act, 1919 or Government of India Act, 1935. It isimportant to note that Madras province (consisting ofpresent four States of the South, viz., Andhra Pradesh,Karnataka, Tamil Nadu and Kerala)) had already taken stepsto enact legislation for village courts and local boardseven before the enactment of Government of India Act, 1919,following which it also enacted legislation for villagelevel panchayats.

The Government of India Act 1935, which gave autonomyto provincial governments with Indian ministers, was in away retrograde step from the angle of local governance asit made the matters of local governance part of provinciallegislation. But importantly, the Act created ahierarchical administrative structure based on supervisionand control and the administrator became the focal point ofrural governance. It is clear that the British were notconcerned with decentralised democracy but aimed atcolonial objectives. However, popularly elected governmentsin provinces enacted/modified/ amended their legislationsto further democratise institutions of local self-government. Before much could be carried out the SecondWorld War broke out and the provincial chose to resign asthe national sentiments did not agree with the Britishassertion that they were fighting the fascist forces to

restore people’s right to democracy in Europe. In view ofDwarika Prasad Mishra, the minister for local self-government under the in Central Provinces under Governmentof India Act of 1935, the working of local bodies veryinefficient.

After the War was over, provincial governments wererestored in 1946 and they chose to legislate among othersfor panchayat Acts or remodel their Acts during 1947-49without waiting for the Constitution of India to come intoshape. These village panchayat Acts of the provinces, it issaid, conferred wider powers and enlarged functions onthese bodies in order to render them active units of localself-government. When we actually adopted, enacted and gaveto ourselves the Constitution, with an Article enshrined todeal with the matters of panchayats, neither the UnionGovernment nor any State Government enacted any worthwhilelegislation as the task was already accomplished.

It has to be noted that there was no consensus amongthe top leaders regarding the status and role to beassigned to the institution of rural local self-government;rather there were divergent views on the subject. WhileGandhi endeavoured Gram Swaraj and wanted to strengthen thevillage panchayat to the fullest extent, Ambedkar wasopposed to the idea as he thought that the villagerepresented regressive India, a source of oppression. InAmbedkar’s view a modern State had to build safeguardsagainst such social oppression and the only way it could bedone was through the adoption of the parliamentary model ofpolitics. As a matter of record we find that the draft ofthe Constitution circulated on May 10, 1948, exactly 100days after Gandhi’s assasination, did not have anyprovision for village panchayats and the President of theConstitutent Assembly had to write a letter to the Chairmanof the Drafting Committee Dr. Ambedkar seeking explanationabout the omission. Only three months after, Sir B.N. Rau,the Permanent Secretary to the Law Minister Dr. Ambedkar,wrote back that it was too late to recast the entire draft

and the question of Panchayati Raj could be taken up duringthe discussion of the draft Constitution. Amendments weremoved by two Gandhians Anantasayanam Ayyangar and K.Santhanam which were informally discussed with Dr.Ambedkar. On 25 November 1948, the amendment moved by K.Santhanam, with withdrawal of that by AnantasayanamAyyangar was unanimously adopted in the ConstituentAssembly but as a non-mandatory article was incorporatedunder the Directive Principles of the State Policy.

Before proceeding further it is good to remember thatvillage panchayats of the yore were stand-alone outfits totake care of local public affairs. Gandhi thought in thesimilar vein but extended the idea upward in terms ofconcentric circles from village at the base to the nationat the top. It was a very difficult proposition for anybodywho was geared towards western democracy—whetherparliamentary or presidential. The present dispensationmakes them quite a bit subordinate to other levels ofgovernments. Those who talk of coordinate relationshipbetween the Union and the States (units constituting theUnion) also do not consider it proper to afford the samekind of coordinate relationship between a State and itsunits. It was articulated by Justice Dillon that the localgovernments are derivatives of the State governments. As aresult, we know that our local governments, panchayats andmunicipalities, are deliberative bodies, executive bodies,but not legislative bodies. They are subordinate to theirrespective State governments. But that is the scenepractically everywhere else in the world.

II

The Constitution of India did pretty little in thisregard except inserting Art 40, as an afterthought, in thePart IV, dealing with organization with village panchayatsand writing item 5 in the State List of the SeventhSchedule under Art 246. With a view to providing ready

reference to the readers, the three provisions are speltout below:

Art. 40: Organisation of village panchayats.—The Stateshall take steps to organize village panchayats and endowthem with such powers and authority as may be necessary toenable them to function as units of self-Government.

Art 246: List II—State List, Item 5: Local government,that is to say, the constitution and powers of municipalcorporations, improvement trusts, district boards, miningsettlement authorities and other local authorities for thepurpose of local self-government or village administration.

Art 246: List I—Union List, Item 3: Delimitation ofcantonment areas, local self-government in such areas, theconstitution and powers within such areas of cantonmentauthorities and the regulation of the house accommodation(including control of rents) in such areas.

However, the State itself in the Part IV of theConstitution, as in Part III, is defined to include theGovernment of Parliament of India and the Government andthe Legislature of each of the States and all local orother authorities within the territory of India or underthe control of the Government of India. But reading thesethree provisions together, it is clear that the StateLegislatures were suppose to enact Acts and amend them, ifnecessary, to constitute local authorities for the purposeof local self-government or village administration. Andthey did not do much with the understanding that whateverwas supposed to be done under the Constitution, was alreadydone.

However, some of the States did bring in legislationsin the wake of Balvantray Mehta Study Team Report (1957),replacing old order of rural local governments.Inaugurating the Panchayat at Degana village in Nagaurdistrict of Rajasthan on 2 October 1959, Nehru said: ‘To

uplift lakhs of villages is not an ordinary task…The reasonfor the slow progress is our dependence on officialmachinery. An officer is probably necessary because he isan expert. But this work can be done only if the peopletake up the responsibility in their own hands…The peopleare not merely to be consulted. Effective power has to beentrusted to them…Real change comes, of course, from withinthe village, from the very people living in the village,and is not imposed from outside.’ It is pointed by GeorgeMathew (1994) that by the end of 1959, all States hadpassed Panchayat Acts and by mid-1960s, Panchayats wereconstituted in all parts of the country. More than 217300village panchayats, covering 96 percent of 57900 inhabitedvillages and 92 percent of rural population of 35 crore,were established. It meant on an average a Panchayatcovered 1600 population spread over 2.7 villages.

Days after 1967, with defeat of Indian NationalCongress in many States were not good for Panchayats.Elections might not take place for years together orelected Panchayats may not take office or dismissed soonafter they took office, thanks to whimsical attitude ofmost State governments. In a way, they did not survive forcontinuous five years in some of the States.

After emergency imposed during 1975-77, interest inPanchayati Raj again evoked. Asoka Mehta Committee wasconstituted in March 1977 just after the Janata Party cameto power. The Committee recommended a two-tier structurebut before much could be done the government headed byMorarji Desai fell through and a little after Indira Gandhicame to power. A few states like West Bengal, Karnataka andAndhra Pradesh, which remained outside the ambit of theCongress did organize Panchayats on the lines ofrecommendation made by this Committee. But moreimportantly, the Committee recognized the need forConstitutional provision, protection and promotion ofPanchayati Raj and it was this portion of the Report which

substantially influenced draft constitutional amendment byL.M. Singhvi (1986) in Rajiv Gandhi's time.

However, the fact remained that the government inStates started being short-lived from mid-sixties of thecentury just gone by and whenever the State governmentchanged, they superceded the local governments. There werelong delays in elections and towards the end of the life ofa State government if local government were constituted,the next government would dissolve them. Many State levelleaders started feeling that unless there is a Unionlegislation, still better a Constitutional provision, thelocal governments will not take roots.

Though  the  Panchayati Raj Institutions have been inexistence for  a long  time, observed the Statement ofObjects and Reasons for introducing 73rd ConstitutionalAmendment, these institutions have not been able  to acquire  the  status and dignity of  viable and responsivepeople’s  bodies. It mentions among others five facts, trueabout many States, (1) failure to holdregular  elections, (2)   prolonged   supercessions, (3)insufficient representation  of  weaker sections likeScheduled  Castes,  Scheduled Tribes  and  women, (4)inadequate  devolution  of  powers and (5) lack offinancial resources. Finding it imperative need to enshrinein the Constitution certain basic and essential features ofPanchayati Raj Institutions to impart certainty, continuityand strength to them, the Statement highlights the basicfeatures of the new dispensation.

Adding a  new  Part  in the Constitution, the 73rd

Amendment provided for Gram Sabha  in a village or groupof villages; Panchayats at  village and other level orlevels;  direct elections to all  seats in  Panchayats  atthe village and intermediate level, if any, and  to theoffices of Chairpersons of Panchayats at such levels; reservation of  seats for the Scheduled Castes andScheduled Tribes in  proportion to  their  population  for 

membership of  Panchayats  and   office  of Chairpersons in  Panchayats at each level;  reservation of  not   lessthan  one-third of the seats for women;  fixing tenure offive years  for Panchayats  and  holding elections within aperiod of six months in  theevent  of  supercession  of   any  Panchayat;disqualifications  for membership  of Panchayats;  devolution by the State   Legislature  of powers  and responsibilities upon the Panchayats with respect to  thepreparation  of plans for economic developments and socialjustice and for  the implementation of developmentschemes;  sound finance of  the Panchayats  by  securing authorization from  State  Legislatures   for grants-in-aid  to  the  Panchayats from the Consolidated Fund  of  the State,  as also assignment to, or appropriation by, thePanchayats  of the  revenues of designated taxes, duties,tolls and fees;  setting up of  a Finance Commission withinone year of the proposed amendment and thereafter  every five years  to   review  the   financial  position  ofPanchayats; auditing of accounts of the Panchayats; powers of State Legislatures  to  make  provisions  with  respect  to   elections   to Panchayats  under  thesuperintendence, direction and control  of  the chief electoral officer of the State;  application of the provisions of  the said Part to Union territories; andbarring  interference  bycourts in electoral matters relating to Panchayats.

The Statement of Objects and Reasons noted fivereasons, first three of which have been taken due care inthe provisions but the last two on inadequate devolution ofpower and lack of finances were not as fully addressed.States were left to do that part. Not only that theStatement itself talks of only grants-in-aid from theConsolidated Fund of State and assignment to, orappropriation by the Panchayats, of the revenues ofdesignated taxes, duties, tolls and fees. It does not evenindicate about the power to levy designated taxes, duties,

tolls and fees while in the text it is left to the sweetwill of the States.

In the next session, we narrate in short the evolutionprocess of panchayats in post-Independence period throughrecommendations made by a few important committees/ studygroups which had significant bearing as also the genesis ofthose bodies.

III

Development was the top priority after Independence.Planning, a subject under Concurrent List, was consideredthe most efficacious way. Planning Commission wasconstituted by a Cabinet Resolution a little after theConstitution came into operation. Five Year Plans came tobe prepared. [We had structure of administration forrevenue, police, justice but not development.] Structure ofdevelopment administration was created alongside populargovernance structure—the former being totally bureaucraticand the latter being essentially democratic. Developmentblocks were created throughout the country at sub-district,rather at sub-tehsil/taluka level, with a number ofofficials like Block Development Officer, AssistantDevelopment Officer and Village Level workers. Developmentprojects, called as community development projects andnational extension service in the first two five-yearplans, failed to yield expected results. During the SecondFive Year Plan while members of village panchayats andcooperative societies were co-opted with a view to seekingcooperation, participation and involvement of people inimplementation of development projects but results werelukewarm. Committees and Study Groups were constituted tounderstand how better results could be obtained. One suchStudy Group was constituted in January 1957 to be headed byBalvantray Mehta, a Member of Parliament and GeneralSecretary of Indian National Congress, later to become aChief Minister of Gujarat. He has duly been called theFather of Panchayati Raj Institution and his birthday (19February) is celebrated as Panchayati Raj Day.

The Committee, in its Report submitted in December1957, found that community development programmes wouldonly be deep and enduring when the community was involvedin the planning, decision-making and implementation processand suggested a three-tier structure of which the fulcrumhad to the panchayat at block level. It seems it was a kindof alignment with development administration withdecentralized governance structure. However, the Committeejustified the proposal on the ground that the block waslarge enough for efficiency and economy of administrationand small enough for sustaining a sense of involvement inthe citizens. Such a body must not be constrained by toomuch control of the government or government agencies andits functions should cover the development of agriculturein all its aspects, the promotion of local industries andother services such as drinking water, road building, etc.The body must be constituted for five years by indirectelections from the village panchayats and must be devolvednecessary resources, power and authority. The higher levelbody, Zilla Parishad, would play an advisory role.

Several State governments enacted new Panchayat Actsbringing in a three-tier panchayat system. Jawaharlal Nehruinaugurates the first generation panchayat, under newdispensation, at a sleepy hamlet Degana, a gram panchayatconsisting of 19 small villages/hamlets spread over a largegeographical expanse, in Nagaur district in Rajasthan on 2October in 1959. Kerala District Council Bill is introducedin Kerala Assembly but it lapses as the Assembly isdissolved. However, it is assessed that Panchayati Rajstructure did not develop the requisite democratic momentumand failed to cater to the needs of rural development.There were various reasons for such an outcome whichinclude political and bureaucratic resistance at the statelevel to share power and resources with local levelinstitutions, domination of local elites over the majorshare of the benefits of welfare schemes, lack ofcapability at the local level and lack of political will.

When the Janata Party came into power at the Centre in1977, after emergency, a serious view was taken of theweaknesses in the functioning of Panchayati Raj. It wasdecided to appoint a high-level committee under thechairmanship of Asoka Mehta. [Asoka Mehta was a socialistthinker and co-worker with Jaya Prakash Narain and once aMayor of Bombay. Since he became Deputy Chairman of thePlanning Commission on invitation by Nehru in 1963, he wasexpelled by his Praja Socialist Party and then he chose tojoin Congress.] The Committee was asked to examine theworking of Panchayati Raj Institutions and suggest measuresto strengthen them. The Committee had to evolve aneffective decentralised system of development for PRIs.

The Committee submitted it Report in recommended atwo-tier system, with Mandal Panchayat at the base (with15000-20000 population) and Zilla Parishad at the top, withno panchayat at village level. They thought that districtis a viable administrative unit for which planning, co-ordination and resource allocation are feasible andtechnical expertise available. The Committee furtherthought that the PRIs are capable of planning forthemselves with the resources available to them anddistrict planning can take care of the urban-ruralcontinuum. Thus there was reversion of Balvantray MehtaCommittee. The recommendation which was later incorporatedin the 73rd and 74th Constitutional Amendments, was aboutrepresentation of SCs and STs in the election to PRIs onthe basis of their population. It permitted participationof political parties in elections and recommended a four-year term. Another recommendation important from thepresent perspective was that the State government shouldnot supersede the Panchayat Raj institutions. In case of animperative supersession, election should be held within sixmonths from the date of supersession.

The states of Karnataka, Andhra Pradesh and WestBengal passed new legislation based on this report.However, the flux in politics at the state level did not

allow these institutions to develop their own politicaldynamics.

Then there were several committees like Hanumantha RaoCommittee (1984), GVK Rao Committee (1985) and L M SinghviCommittee (1986). While Hanumantha Rao Committee (1984)brought out the fact that planning from below wasundermined by different streams of funding the districtplan and recommended decentralization of function, powersand finances, setting up of district planning bodies anddistrict planning cells, G. V. K. Rao Committee (1985)reviewed the administrative arrangements for ruraldevelopment and recommended district Panchayat to manageall development programmes. G. V. K. Rao Committee alsosuggested that PRIs have to be activated and provided withall the required support to become effective organisationsand those at the district level and below should beassigned the work of planning, implementation andmonitoring of rural development programmes while the blockdevelopment office should be the spinal cord of the ruraldevelopment process. It may be noted while one Rao waslooking from the scene of planning and the other Rao waslooking at it from the angle of rural development. The viewof local governance was missing. The other two earliercommittees were also trying to mutually embed developmentand governance but Asoka Mehta Committee did not not ignorethe political angle while fousing on development.

L.M. Singhvi Committee studied panchayatiraj system inall ramifications. This committee looked from the angle ofgrassroot democracy. Considering Gram Sabha as the base ofa decentralised democracy, and Panchayati Raj as theinstitutions of self-governance to facilitate theparticipation of the people in the process of planning anddevelopment, the Committee recommended that the local self-government should be constitutionally recognised, protectedand preserved by the inclusion of a new chapter in theConstitution. Though the Committee forbade the involvementof political parties in Panchayat elections, it was to

establish the democracy. Panchayats in the view of thisCommittee, it seems, did not only have instrumental valuebut also intrinsic value.

It may be recalled that the suggestion of givingpanchayats constitutional status was opposed by theSarkaria Commission, but the idea, however, gained momentumin the late 1980s especially because of the endorsement bythe late Prime Minister Rajiv Gandhi, who introduced the64th Constitutional Amendment Bill in 1989. The 64thAmendment Bill was prepared and introduced in the lowerhouse of Parliament. But it got defeated in the Rajya Sabhaas non-convincing. Rajiv Gandhi lost the general electionstoo. In 1989, the National Front introduced the 74thConstitutional Amendment Bill, which could not become anAct because of the dissolution of the Ninth Lok Sabha.Finally, it goes to the credit of Narasimha Rao governmentthat the two bills, amending the Constitution, viz., 73rd

and 74th were passed in 1992.

At present, there are about 30 lakh electedrepresentatives at all levels of the panchayat one-third ofwhich are women, numbering 10 lakh. These members representaround 2.4 lakh gram panchayats, over 6,700 intermediatelevel tiers and more than 530 district panchayats. Spreadover the length and breadth of the country, the newpanchayats cover about 96 per cent of India’s villages,counting more than 5.8 lakh, and having nearly 99.6 percent of rural population. No doubt, this is the largestexperiment in decentralisation of governance in the historyof humanity anywhere anytime. The constitutional provisionscombine representative and direct democracy into a synergyand are expected to result in an extension and deepening ofdemocracy in India.

IV

There has been a debate, not very often, about themeaning of self-governance. In the times of alien rule athigher level, local governance, if carried out by local

people, could well be called self-government. According todictionaries, self-government is a government under thecontrol and direction of the inhabitants of a politicalunit rather than by an outside authority. But a governmentmust have resources to the tasks devolved to it by thepeople and the people must part with enough resourcesneeded for executing the tasks. While visualisingpanchayats as institutions of self-governance, theConstitution did not empower them with financial authority.May be due to considerations of the federal structure ofour polity or tactical reasons, most of the financialpowers and authorities to be devolved to the panchayatshave been left at the discretion of concerned Statelegislatures, which effectively means State governments.

A panchayat is a government and it is a directgovernment of the people by the people for the people.Everybody participates in the gram sabha. Everyrepresentative is known to the members of the electorate. Agovernment, even if less than fully soveiegn, must havepower to tax the properties possessed and economicactivities carried on by the people in its jurisdiction.Even if under the Constitution they are construed asderivative governments, they are obligated to carry outeconomic activities of public nature—in terms of provisionof local public goods, building of public works andoperation of public utilities, they must be endowed withthe power to tax the local bases at the minimum. Publicutilities could be run by levying user charges.

A Committee headed by Kasturirangan Santhanam wasconstituted in 1963 to especially look into the matter thematter of panchayati raj finance in terms of taxationpower, the grants by the State and the financialrelationship between different tiers of the panchayats. Itmade the first observation that their fiscal capacity tendsto be limited, as rich resources of revenue are pre-emptedby higher levels of government. It suggested that PanchayatRaj institutions should have compulsory powers of taxation

to mobilise their own financial resources while observingthat people should not be over-burdened. Specificrecommendation was that panchayats should have specialpowers to levy special tax on land revenues and home taxes,etc. While recommending that a good financial devolutionshould be committed by the State government as much of thedevelopmental functions at the district level would beplayed by the panchayats, it said that all grants andsubventions at the State level should be mobilised and sentin a consolidated form to various PRIs. In addition, itwas suggested that a Panchayat Raj Finance Corporationshould be set up to look into the financial resource ofPRIs at all levels, provide loans and financial assistanceto these grassroots level governments and also provide non-financial requirements of villages.

These issues have been debated over the last threedecades and have been taken up by the State FinanceCommissions which are required to select taxes forassignment and sharing, identifying the principles for suchsharing and assignment, determine the level of grants andrecommend the final distribution of state’s transfers tolocal governments.

Does it matter which authority collects the tax solong the equivalent sums are passed on? It does. It is notthe product but the process which matters. We foughtindependence arguing that let us burn our fingers whilebaking our bread. Dictatorship may be more efficient and itmay be benevalent but we love democracy for its instrinsicvalue not only for its instrumental value.

NO REPRESENTATION WITHOUT TAXATION

The sole object of all government is ensuring equalrights of man and happiness of all individuals. Thatgovernment to be the strongest of which every man feelshimself a part. These were words of Thomas Jefferson, thewriter of the Declaration of (American) Independcence, whodeclared that the American republic as the strongest

government on earth where every man at the call of the lawmeets invasions of public order as his own personalconcern. He had argued that no government has a right totax the people who are not represented on it. One caninvoke another principle with equal force that arepresentative government must have a power to tax, must beable to tax and must tax the people in order to carry outthe public affairs devolved to it. People may have a choiceover private lawns and public parks and they may havechoice of private wells over public wells but the set ofpublic affairs would not be a void one and therefore agovernment would be needed. In fact, the State itself comesinto being when society develops a certain level ofproductivity and it can afford a ‘sterile’ class to carryout functrions which we call public affairs.

Local government is doubly blessed as they are boundto disclose the activities they are going to carry out andonce that anonimity is broken the government is most likelyto get the resources it needs and principle of paying forpublic goods, which is according to ability, gets almostautomatically invoked. Even equity concerns are betteraddressed at local level. For I would like my money to goto the most deserving. However, if money is coming as grantfrom outside, it is treated as manna from heaven. Even Iwould like to be a beneficiary of grant.

Several reasons may be cited for taxation at locallevel and better compliance of taxation. It is unfoundedfear that local governments are too close to the peoplethat they cannot tax. [That way no parents will ever getanything from their earnng children.] On the other handthere are many postive fallouts from local taxation. Tostate a few, when it is known that a gram panchayat is notuitilising well the money it has collected from thevillage, the panchayats members are likely to beostracised, boycotted, ridiculed and finally defeated.Panchayat members know full well whose money they aresitting at and will have a sense of guilt if they do not

utilise for the purposes mandated by the local people orpromised to local people. They feel accountable to thepeople in physical terms, not only financially accountableto the auditors of the authority giving grant, which ititself collects from the people only.

People are not entitled for representation in agovernment if they refuse to pay tax to the government.Government by the people does not only mean that they votefor representatives but should mean that they pay for thegovernance. That is the way people control theirgovernment. Government for people means it works for thepeople, not for representatives. Here it is not a questionof each and every individual. Children and old are notsupposed to contribute yet they have entitlement within thefamily. Likewise they would always be sections in thesociety which may have to be taken care of. Such aprinciple may take time to evolve and we do not expect anyimmediate revolution. What can be the immediate principlein terms of resources for self-reliance?

TRANSFER OF FNCTIONS, FUNDS AND FUNCTIONARIES

Eversince the Tenth Finance Commission saw reasons in thetransfer of funds and functionaries alongwith functions,everybody and every body is suggesting a transfer. The caseof the Finance Commission was simple that most of functionscarried out under Centrally Sponsored Schemes or CentrallyFunded Schemes are in the local domain and if functions aregenuinely devolved, that funds and functionaries should goto them as concomitant elements. There is no dearth offunds and no shortage of functionaries. However, it is amechanical approach and arithmetical exercise. Rather thandevolving the power to tax at mobilisation level, what isbeing suggested at allocation/disbursement level. Itcreates cleavage between mobilising authority and spendingauthority and that is not within the same government butbetween two governments at two different levels, making thelower one dependent on the higher one—in other words,subordinate.

Now let us take simple example. There is simple function ofplumbing. I give you the task, I give you the money forplumbing and I give the plumber. What are you then doing?You are getting the task executed. You are an electedrepresentative but working like a paid official selectedfor the purpose. The difference between ‘elected’ and‘selected’ has been blurred.

People have gone wholehog to create a devolution index atState level whether it has devolved the three F’s:functions, funds and functionaries as if they are threeindependent dimensions. Food, education and shelter may bethree independent elements but functions, funds andfunctionaries are not. However, in most functions have beengiven back. To some extent, funds are being transferred.Functionaries like teachers, health workers, villageworkers, etc. are still Sate government employees andtheefore paid by the State government though panchayats indifferent States have been given varying amount of controlover them. In ideal situation they ought to be paid by thepanchayats from their own resources. And panchayats shouldhave funds of their own to a large extent. A panchayat with5% of its own resources to spend on its functions cannot becalled a self-government.

IN CONCLUSION

In the long run, a government must meet from its ownresources its expenditure, capital and revenue, developmentand welfare, public safety and public amenities. It shouldnot matter whether it is local or national. In a federalsystem there will remain scope for inter-governmentaltransfers and in the present system of dispensationthroughout the world it is from wider jurisdictions tosmaller jurisdictions. In local context we can say that thegovernment of one jursdiction (L1) by the government ofanother jurisdiction (L2) at the same level via a higherone (S). All governments will admittedly not have the samecapacity to raise resources and federal principle, asagainst confederal one, does suggest broadly similar level

of consumption of certain goods, public and private, to allcitizens of the country irrespective of the domicile. Inorder to take care of the discrepancy, called horizontalimbalance, a vertical imbalance may have to be caused.However, if one unit contributes only one percent towardsexpenditure within its jurisdiction and does soperpetually, fissures are likely to be created in thestructure itself. Additionally, perpetutal dependence ofany given unit means perpetual subordinate status and lossof self-esteem of self-governance.

That most of the public utilities must be run on no-profit-no-loss basis through user charges (rates, tolls and fees)may be a sound principle. Some cross-subsidy acrosssections (poor and rich) and sectors (industry andagriculture) may be built in. But public goods (like streetlighting or scavenging) have to be provided for by generaltaxation.

We can invoke a simple priciple of self-reliance for theshort run and that is that the panchayats should meet theirrevenue expenditure, including maintenance, while forcapital expenditure they can still depend on theState/Union governments. A self-government must be able toassert, though not necessarily have to assert, to run itsaffairs on its own. Let them prove they are capable ofgoverning theselves in secular domain. This should beapplicable to all levels of government—national, state andlocal!