Why in the news?

Recently, the Standing Committee on Rural Development and Panchayati Raj presented a report about the Devolution of funds under the Panchayati Raj system.

More on the news

• The report flagged the Partial Devolution of the 3Fs (Functions, Funds, Functionaries) are still plaguing the PRIs despite 3 decades of 73rd Constitutional Amendment.
• Further, it focused on financial issues still being faced by PRIs.

Issues of the Finance of PRI

• Declining Budgetary Allocations to PRIs: Successive Union Budgets have reduced funds allocated to PRI allocations, threatening fiscal decentralisation
• Imbalance in Tied and Untied Grants: 15th FC grants to PRIs were 40% untied (flexible use), 60% tied (specific purposes like sanitation; unused if work is done).
  • This leads to underutilization of funds.
• Delays in Panchayat Elections: Due to Legal or administrative hurdles, e.g., Telangana's implementation of OBC reservation has led to delays.
  • This is a major impediment to the effective utilisation of funds 
• Issues in the functioning of the District Planning Committee (DPC): This has resulted in fragmented planning, and underutilisation of funds
  • DPC are established at by state at district levels to consolidate plans prepared by municipalities and panchayats.
• Irregular Constitution of State Finance Commissions (SFCs): Despite constitutional mandates, only nine States have constituted the 6th SFC. 
  • This has resulted in delayed financial devolution to PRIs.
• Poor Compliance in Uploading Gram Panchayat Development Plans(GPDP) on eGram Swaraj portal: This has affected the release of 15^th Finance Commission (FC) grants to PRIs.
• Weak Own-Source Revenue (OSR) Generation: According to the RBI, the OSR of Panchayats was only 1.1 per cent of their total revenue.
  • This has resulted in reduced financial autonomy.

Importance of Finance for PRI

• Rural development: PRIs implement centre and state schemes at the grassroots levels by identifying actual beneficiaries and aligning them to local needs.
• Agricultural development:  PRIs support cooperative agricultural development, eg Amul originated at the panchayat level, support sustainable practices, eg social forestry, etc.
• Sustainable Development Goals (SDGs): PRIs help in achieving the 2030 targets by localisation of SDGs
• Health: PRIs contribute to health by maintaining and establishing health centres, clinics, and dispensaries, training local health community workers, etc
  • According to the RBI, States where Panchayats got high scores in health, nutrition, and sanitation had lower rural infant mortality
• Education: PRIs are responsible for constructing and maintaining educational institutions, encouraging enrolment, minimising drop-out rates, monitoring educational quality, etc
• Women's Empowerment: They enhance women's participation in governance by stipulating a one-third reservation for women.
  • Studies show that when women are involved in local governance, policy areas such as education, health, and child welfare often improve with a special focus on the needs of women.

Recommendations given in the report

• Reallocation Flexibility: Allow tied funds to be used for other than stipulated purposes to optimise fund use.
  • Further timely and adequate untied funds through a formula-based mechanism  based on objective criteria such as backwardness, area, etc 
• Continuity in Case of Election Delays: Elections must be held in a timely way; however, in case of unavoidable delay, a clear mechanism should be established to ensure continuity.
  • E.g. appointment of a nominated representative with clearly defined responsibilities.
• Regular Constitution of SFCs: Engage states at the highest level to ensure timely SFC constitution and submission of reports, with uniform and simple formats.
• Ensure Timely GPDP Uploads: Train Panchayat members for proper preparation and submission of GPDPs, and align them with Block/District plans
• Adequate devolution: Each state must prepare a time-bound roadmap for devolution of powers to PRIs, e.g., Administrative control over local functionaries such as health workers must be transferred to the Panchayats
  • Also, the Ministry of Panchayati Raj to prepare  "State of Devolution Report" measuring progress on the 3Fs in each state.
• Strengthen OSR Generation: Provide financial and technical support for revenue generation, devolve more powers to Panchayats, and incentivise high performers