Network Past Issues

            Financial Devolution To Panchayati Raj Institutions (PRIs): 
                                        Proceedings of A Conference
                                                            H.S.Shylendra

A two-day Conference on ‘Issues Before the Finance Commission: Empowering Panchayat Raj Institutions (PRIs)’ was organised during December 22-23, 2008 at Institute of Rural Management Anand (IRMA). Dr. H.S. Shylendra and Dr Vivek Bhandari were the co-ordinators for the conference. The Conference was attended by the Chairman and members of the 13th Finance Commission, scholars and experts in the field and representatives of the State Finance Commissions.
The Conference deliberated on issues concerning fiscal devolution to PRIs as relevant for addressing the TOR given to the Thirteenth Finance Commission (TFC) namely, the measures needed to augment the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities in the State on the basis of recommendations made by the Finance Commission of the State. The Conference reviewed the past experiences and tried to identify ways and strategies which could help in arriving at an effective financial devolution mechanism to PRIs and municipalities. The major themes covered in the conference included: a) Review of the Approach and Recommendations of the Previous Finance Commissions; b) Financial Devolution to PRIs and Incentivising States; c) Issues Concerning Broader Decentralisation; d) Capacity Building and Accounting and Auditing Practices of PRIs; e) Analysis of the Constitutional Asymmetry in Devolution between Centre and State, and State and Local Bodies; f)Financial and Functional Devolution of Urban Local Bodies; and g) Working of State Finance Commissions (SFCs).
The Conference majorly brought out the issue that approach of the earlier Finance Commissions in dealing with the local governments have been largely adhocist which is based on wrong assumptions treating decentralization as a zero-sum-game. The local bodies find themselves severely constrained by the inadequacy in the devolution leading to poor governance and delivery of services. It was strongly felt that the TFC need to take a more bold approach in restructuring the federal public finance architecture in the country by taking into account the presence of the third tier and its needs. A separate fiscal domain could be worked out for the third tier of government by following an empowerment approach.
It was identified that there has been a varied response from state governments in devolving financial powers to the PRIs. The states have failed in developing a own fiscal domain of PRIs. Much of the transfers to PRIs are also conditional and there are constraints even in internal mobilization of resources by PRIs. It was also argued in the conference that the problem of inadequate financial devolution is also related to the problem of inadequate devolution of functions and functionaries to PRIs. Incentives apart, strengthening the PRIs’ capacity for revenue mobilization and creating a clear cut domain for tax and non-tax revenues are among the measures identified to empower the PRIs. The conference also brought into focus the growing challenges of urban local bodies (ULBs). The states and State Finance Commissions (SFCs) have dealt with ULBs inadequately resulting in continued poor urban governance. The papers called for a more proactive measures to strengthen the financial position of ULBs through alternate and innovative mechanisms.
With increased financial devolution, the need for building the capacities of the PRIs for better financial management and accountability has become more pronounced. The Conference critically examined issues with regard to capacity building of PRIs. It was highlighted that there are inadequate capacities at various levels in PRIs in ensuring effective financial management and accountability. This is reflected in problems like loss of revenues and mounting arrears of accounts and audit. More recent efforts in streamlining accounting and auditing practices and building enabling systems have shown good results. Focused capacity building efforts like in Kerala and providing additional staff were suggested to improve the abilities of the PRIs.
About the possibility of more directly devolving funds to PRIs from the Centre and the need for constitutional amendments to rectify the prevailing constraints, the papers in the conference highlighted the futility and undesirability of such suggested measures. It was felt that local bodies have already been given a clear role and status in the present Constitution which needs to be pursued in strengthening them financially and otherwise.
With regard to the role of State Finance Commissions (SFCs), the deliberations in the conference clearly identified the constraints being faced by the SFCs including varied treatments meted out by the state governments. It was highlighted that the state governments have not shown seriousness required in a constitutional institution like SFC to make them function effectively. Even in cases where SFCs have come up with useful recommendations, states have shown general laxity in accepting and implementing them. The conference made several suggestions to strengthen the SFCs including use of a template for improving quality of reports by SFCs and creation of an SFC cell. 
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Professor, Area Science, Institute of Rural Management, Anand
Email:hss@irma.ac.in