chapter 3 kerala panchayat finance -...

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 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

Finance Commission.

Table 3.9

Receipts from show tax2'

Rs.In lakhs

1993-1094

Source: Second State Finance Commission, 200 1.

Diagram 3.1

Receipts from show tax - - -

OC- -- I 1993-1994 1994-1995 1995-1996 1996-1997 1997-1998 1998-1 999 ~

I I ~ ~ ~ .. -

*' Ibid., p.49.

Optimal Tax

In addition to building tax, panchayats are empowered to levy services

tax for sanitation, water supply, street lighting and drainage at such

percentage of annual rental v ~ l u e not exceeding the maximum rate, viz,

sanitary tax (1 per cent), water tax (2 per cent), lighting tax (2 per cent), and

drainage tax (1 per cent).

Advertisement Tax

Advertisement tax is a new tax originally introduced through an

ordinance in 1988 by the Gove~nment of Kerala. This tax is collected as per

the provisions of section 209 of the Kerala panchayat raj act. The tax is

collected based on byelaws framed by the panchayat. Rules are not issued by

the Government regarding minimum rates or the mode of collection. This tax

has a good potential in a consumerist state like Kerala. But the realization of

revenue under this head has been very low. Only 121 village panchayats are

collecting advertisement tax anti its share is only 0.04 per cent.

Service Tax

Service tax is provided tor in section 200 of the Kerala Panchayat Raj

Act 1994 as per which Government is authorized to fix the minimum rates.

The recommendation of the first State Finance Commission to have an

independent service tax has no1 yet been operationalised. The total collection

of service tax in all the 976 village panchayats for which the data are available

comes to Rs.1.89 crores or 0.7 per cent of the own r e ~ e n u e . ~ '

21 Ibid., p.47.

Cess on Conversion of Land L se

This is a cess levied by local Government for conversion of land use

from paddy field, marshy land, pond or water body in to garden or building

site subject to the provisions af Kerala land utilization order 1967 issued

under the essential commodities act. The collection was only a meager sum of

Rs 0.64 lakh in 1998-99.

Surcharges

As per section 208 of' the Kerala Panchayat Raj Act 1994 the

panchayats are empowered to levy surcharges. Up to 5 per cent surcharge can

be levied on the property tax s~bject to a maximum of two surcharges. This

surcharge is to be levied for meeting any extraordinary expenditure by way of

implementation of a scheme, pl;in or project. The total collection during 1998-

99 was Rs.5.29 lakhs which is .ust 0.15 per cent of the property tax collected

during the same year. It is not(: worthy that even with specific provisions in

the act panchayats have been reluctant to impose surcharges.

3.4 Assigned Taxes

These taxes are collectetl by the Government but the entire revenue is

assigned to local Governments.

Basic tax

Kerala has a general tm on land known as the basic tax. The rate of

basic tax for panchayat area is i s . 11- if the aggregate extent of land held by a

land holder does not exceed 20 ares and paise SO per are. If it exceeds 20 ares

the entire collection is given to panchayats after deducting a collection charge

of 3 per cent. 318'~ of the basic tax is given to the village panchayats, 3110'~ to

the block panchayats and 115'~ to the district panchayats. The remaining 118'~

is credited to the rural pool. The distribution is as per the area of the

panchayat concerned.

The basic tax collected and distributed during period 1995-96 to 1999-

2000 is given in table 3.10.

Table 3.10

Source: Second State Finance Commission, 2001

Details of basic tax grant (Rs.in c r o r e ~ ) ~ ~

Diagram 3.2

r Year

1995-1996

1996- 1997

1997-1998

1998-1999

1999-2000

Details of bmic tax grant (Rs.in crores) - - - -- - -- --

0 1 1995-1996 1996-'1997 1997-1998 1998-1999 1999-2000

Year

Amount collected

13.27

13.57

13.52

21.41

22.46

-. -

[ ~ ~ m o u ~ l ~ o ~ t e d +Amount distributed I ..~ -~ ~ -

Amount distributed

5.25

14.18

11.64

15.39

6.98

22 Ibid., p.52

Surcharge on Stamp Duty

Under the provision of the Kerala Stamp Act 1959, for every

transaction relating to land, starnp duty and registration fee are levied. As per

section 206 of the Kerala Panchayat Raj Act, panchayats are entitled to levy 5

per cent of the amount of the vi~lue of the property transacted. But in practice

only the pre 1994 rates of surcnarge, i.e. 4 per cent for village panchayats is

levied.

The rates are given in the table.

Table 3.1 1

Note: Registration fee is collected by state Government and is not shared with local bodies.

Rates of stamp duty and surchnge under the 1960 and 1994 acts for village panchayats23

In accordance with the recommendations of the first State Finance

Commission Government have introduced a system whereby the receipts are

shown in the budget which enaAes direct payments to local Government. The

amounts collected and distribuled during the period 1995-96 to 1999-2000 is

shown in the table.

Stamp ciuty

Under 1960 acts

Under 1994 acts

2 3 Ibid., p.53


Surcharge

4%

5%

Registration fee

2%

2%

Total

12%

13%

88

Table 3.12

Distribution of surcharge on stamp duty (Rs.in lakhs) to grama panchayats24

1 Year / Collected I Distributed I Percentage /

Source: Second State Finance Commission, 200 1

Stamp duty constitutes an important source of revenue of local

Governments and it constitute:; 13.7 per cent of the total own revenue of

village panchayats during 1598-1999. The proceeds are distributed to

panchayats on population basis, other than 25 per cent credited to the rural

pool.

Shared tax

Only motor vehicle tax collected by Government is shared with the

local bodies. It is called vehicle tax compensation (VTC) and is given as per

section 19 of the motor Vehicles Taxation Act 1976. 20 per cent of the net

collection of motor vehicles tax is distributed among village panchayats as per

road length according to a form ila based in unit length of roads.

Actual collection of Mt~tor Vehicle Tax and the actual distribution

during the period 1995-96 to 1999-2000 is shown in the table.

Table 3.13

Collection and distributian of Motor Vehicle Tax to panchayats (Rs.in lakhslZ5

Year Gross collection

Amount collection distributed

2 1043

1998-99

1999-2000 37 120 36006

Source: Second State Finance Commission. 2001.

Percentage

Diagram 3.3

Collection and distribution of Motor Vehicle Tax to panchayats

Year

OGross collect~on II Net collection [IIArnount distr ibute4 L I Z : - - ~~ ~~

-- ~-

There used to be substantial arrears in the payment of basis tax,

surcharge on stamp duty and \i ehicle Tax Compensation. However, based on

2 1 Ibid., 11.57

the recommendations of the first State Finance Commission Government

released Rs. 150 crores in three installments as a one-time settlement of dues

under the three items.

3.5 Non-tax Revenue

Non -tax revenue of village pai~chayats could be classified in to,

1. Licence fee,

2. Ciate fee,

3. Rent from property,

4. Income from propeny other than rent,

5. Permit fee,

6. Registration fee ,

7. Serviceluser charges and

8. Other sources

Licence fee

This is the most imporkmt source of non-tax revenue. The following

are the important items for which licence fees are collected.

I. Trade licence,

11. Licence under preventior~ of food adulteration act,.

111. Licence under the Kerala cinemas regulation act,

1V.Licencing of private slaughter house,

V. Licencing of private markets,

VI.Licence under the Kerala places of public resorts act,

VII. Licencing of private pafking and halting places,

VIII. Licencing of private burial and burning grounds,

1X.Licencing of technical experts,

X. Licencing of domestic animals,

XI.Licencing of animal stall; kept for commercial purposes and

XII. Licencing of special trades like butchers, fish mongers, poulterers,

commission agents and brokers.

Gate Fees

These are fees which arc: normally given out by auction to the highest

bidder who is then given the right to regulate entry based on certain fees. The

major sources are,

1) Public market

2) Public parking and haltir g places and

3) Public slaughter houses

Income from Property

This is an important itein of non-tax revenue especially for urbanized

village panchayats. The different types are,

1) Rent from buildings

2) Rent from lands and

3) Rent from cloak rooms and comfort stations.

Income from Property other than rent

I. Proceeds from sale of right to collect river sand

11. Proceeds from sale of right tc fish and

111. Proceeds from sale of usufncts of trees

Permit Fees

These are of two types,

(1) Fee for building permits and

(2) Fee for permits for the construction, establishment or installation of

factories, workshops or work pl;ices where electricity is used.

Registration Fees

These can be grouped as,

(1) Registration of hospital and para medical institutions,

(2) Registration of tutorials,

(3) Registration of births ant1 deaths,

(4) Registration of contractors and

(5) Registration of lodging:; (only in Malabar area - under the Madras

public health act)

Service / user charges

These relate to charges collected for use of utilities and amenities

provided by the panchayats

Income from Ferries

As per the Kerala Panchayat Raj Act and as per the various ferries

acts, function of providing lerries has been transferred to the village

panchayats. This income coulcl be either by auctioning of the right to ply

ferries or by charging from users.

Fines and Penalties

Fines and penalties arc realized by the panchayats when there is

violation of regulations or there are belated payments.

Sundry Items

These are miscellaneo~is sources of revenue from proceeds from

auctioning of meat stalls (in a few village panchayats only), interest on

deposits, endowments, return on investments like shares, contributions 1

donations, hire charges of vehicles I machinery, income from cattle pounds,

income from libraries, sale of jorms, sale of unserviceable articles and fallen

trees, and other items which cannot be classified.

The percentage share of important items of non-tax revenue is shown in

table 3.14.

Table 3.14

Share of important items ol'non-tax revenue in total non-tax revenue (1998-99y6

I Items I Village panchayats. / Dangerous and Offensive trade licence

I Public Food Adulteratio:~ licence I 0.20

1 Public halting place fee 1 1.09 1

I Cinematographic licenct:

Places of Public Resorts licence

Building permit fee

Market fee for public market

Public slaughter house gate fee

I Rent on building 1 1 1.03 I

-

0.08

0.03

1.48

3.44

0.20

I Fines I penalties I 0.26 1 / Ferry service 1 0.49 1 River sand

Fisheries


Grant-in-aid from Governmelit

In the case of village panchayats, there are only two non-plan grants-

in-aid from Government viz., rural pool and level crossing grant-in-aid.

Pooling the 14 specific purpose grants-in-aid, which were in vogue earlier, 25

per cent of the surcharge on stamp duty and 118" of the basis tax, has created

rural pool. The amounts releassd to village panchayats after the constitution

of rural pool are shown in table 3.15.

26 Ibid., p.62.

Table 3.15

AmOun' 1 6 . 3 29.66 1 25.54 (Rs.in crores)

Source: Second State Finance Commission, 2001.

Grants-in-aid from the rural pool27

The grant for level crossing is given only to five village panchayats to

1998-1999

meet the additional burden on them due to existence of manned level

crossings whose establishment costs need to be shared with the railways.

1999-2000

There are two kinds of special ,:rants given to village panchayats. 96 primary

2000-2001

schools and 21 high schools ere run by village panchayats. The education

department gives a grant-in-aid for running these schools, which are treated as

aided schools as per the Kerala 3ducation Rules.

The amounts given duri>~g the last three years are summarized in the

table.

Table 3.16

Grants-in-aid given to local Governments for running schools28

Source: Second State Finance Commission, 200 1

27 Ibid., p.66 28 Ibd., p.68.

Libraries run by village panchayats are affiliated to the Kerala

grandhasala sangham, which gi-fes grant-in-aid as per the size of the library.

The grant-in-aid given during the last three years are given in the table.

Consolidated data are available only up to 1998-99

Table 3.17

Grant-in-aid given to village panchayats for running libraries29

e a r a g e _hayats (Rs.In Lakhs)

1996-97

1997-98 14.99

I 1998-95

Source: Second 5,tate Finance Commission, 2001.

Loans

Village panchayats can take loans with prior Govemment permission

from the Kerala State Rural Development Board (RDB) or commercial banks.

Now rural development board does not give loans and is engaged in

completing the construction of projects taken up earlier. The village

panchayats owe Rs.7.98 crores to rural development board by way of

overdues. Village panchayats have also been taking loans from HUDCO and

cooperative bank, jointly with the block and district panchayats.

Local Self Govemment Institutions in Kollam district have borrowed

Rs.80 crores from HUDCC, in 2000-01. Local Self Governments in

29 Ibid., p.69

Thiruvananthapuram have av.iiled of Rs.89.62 crores from the state

cooperative bank. These loans are for house construction for below poverty

line families. These loans are guaranteed by the government and repayment of

interest would be from future plan funds and repayment of the principal

amount is from fixed deposits which would multiply over a period to the

amount needed for repayment.

Local bodies have certain items of funds, which cannot be used by

them and are kept normally in the debt heads. The major items are earnest

money deposit, the securities, li?rary cess, taxes deducted at source, advances,

etc.

Grants-in-aid for Transferred Responsibilities

Grants-in-aid are being given to panchayats since 1995 to cany out the

new responsibilities transferred to them. These are:

1) General plan grant-in-aic for local development projects and

2) Specific-purpose grant-i1-aid for transferred responsibilities-plan and

non-plan.

General Plan Grants-in Aid

This is given for preparing local level development schemes. This is

untied grant with guidelines that at least 40 per cent should be spent on the

productive sector and not rnore than 30 per cent can be spent on

infrastructure. The amounts g ven to village panchayats is shown in table

3.18.

Table 3.18

Distribution of Plan qant-in-aid to village panchayats30

1 Year 1 Rs.In crores. 1 1996-9"*

1999-2000 595.01

2000-0 1 608.91

Source: Ilconomic Review 2000. * In 1996-97 plan grants were called untied funds.

In 1998-99 the grant-in-aid is devolved as per the formula as shown in

the table.

Table 3.19

Formula for devolution of plan grants3'

Village panchayats Indicators

Weightage (percentage)

excluding sclst)

Geographical area 5

excluding area under forests)

E € ! ! d y yi / ( Labourers, persons engaged I I

(grama panchayats)

index of agriculture

/ / In live stock, fisheries e ~ c . and 1 1

15

30 Economic Review 2000, State Planning Board, Govt. of Kerala, Thiruvananthapuram. p.219.

3 ' Op.cit., p.73.

marginal workers

Total 100

Source: Second State Finance C'ommission, 2001.

Specific Purpose Grants-in-Aid for Transformed Responsibilities

These funds could be broadly classified as,

1) Grant-in-aid for implementing transferred plan schemes both

state sponsored a id centrally sponsored.

2) Grant-in-aid for implementing specific programs under non-

plan, particularly welfare pensions.

3) Non-plan grant-in-aid for managing institutions/officers

transferred to loci11 governments.

For assets and institutio!ls transferred to local governments, the state

government meets the salary components as well as the operational expenses

like supply of medicines in hospitals. However, office expenses and

maintenance costs are given as non-plan grants to local governments. The

funds given are inadequate vis a vis the maintenance requirements.

Expenditure Pattern of Panchayats

Expenditure occupies a !>ride of place in local finance. Expenditure is

to be according to requirements. Resources have to be mobilized and

augmented fbr performing the obligatory functions of the local bodies. Local

bodies suffer from chronic paucity of financial resources. The major items on

which panchayats in Kerala are depending for their resources are:

1. Establishment costs

2. Expenditure on obligatoly duties.

3. Expenditure on development works.

The expenditure on these categories over the last six years for

panchayats in summarized in thc: table.

Table 3.20

Est;iblishment costs3'

1 Village pinchayats (Rs.in Lakhs) 1 96 97 98 99

6597 8124

468 513 718 1002 1165 expenses

Source: Second State Finance Commission. 200 1.

Table 3.2 1

Oi~ligatory duties33

1 llupees in lakhs i 1 Period

Public health/

Sanitation

2. Water supply/

Drainage

lighting 1 I Street

Source: Second State Finance C'ommission, 200 1.

32 lbid., pp.77-78 33 Ibid., p78.

Table 3.22

Development works34

95-96 96-97 97-98 98-99

2854 3814 6138 3104 --


Establishment Expenditure

This includes expenditure on salaries, wages, honorarium, pension

contributions etc. The cost of e:;tablishment is already high and because of its

linkage with state government pay and dearness allowance pattern, has an in

built upward momentum. The tverage annual rate of growth of establishment

expenditure was 9.36 per cent in 1998-99. Reduction in staff is not a realistic

proposition. When additional responsibilities as a result of panchayat raj

legislation requires additional staff, the staff and the funds for them should be

provided by the agency trans'erring the responsibilities to the panchayats.

There are arrears of obligatory payments. The income and expenditure

statements do not reflect the arrears that some panchayats owe by way of

obligatory payments towards xovident fund, pension contribution, decretal

amounts, payment to contributors, arrears to Kerala Water Authority etc.

More than 90 per cent of the Panchayats owe arrears to Kerala Water

Authority. In 30 per cent of the panchayats remittance of Provident Fund

Contribution collected from the employees was pending. Arrears of pension

" Ibid., p.79.

was pending in 17 per cent, decretal payment in 1.2 per cent and payment to

contractors in 13 per cent of panchayats Payments to Kerala Water Authority

made voluntarily is insignifican~ and payment is made by way of government

adjusting a part of the grant-in-aid.

Normative Level of Civic Services

Panchayats are expected to provide a range of civic services. The

general perception about the 1c:vel and quality of civic services provided is

that they are neither adequate nor satisfactory. To provide a satisfactory level

of services, substantial investments would be needed.

The major areas of service which panchayats have been providing are

1. Maintenance and construction of roads,

2. Collection and disposal of solid waste,

3. Street lighting,

4. Water supply through public taps and

5. Health care

Working group on expenditure norms under the chairmanship of Dr.

Raja J. Chelliah had studied the norms and standards for provision of basic

infrastructure services by pimchayats. It concluded that the following

functions should be regarded a:, the core function of panchayats.

1) Water supply 2) SanitationISewage 3) Solid waste collection 4) Primary

education 5 ) Primary health.

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


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

fostering productivity increasing schemes. Additional resource mobilization

through credit linkages has to bs obtained.

Though professionals like doctors, engineers, agriculture officers are

available in the panchayat their active involvment in the planning process for

the improvement of quality 01' the project has yet to be fully ensured. The

improvement of office mansgement, human resources management and

financial management has to be made for the improvement in the quality of

delivery of services. The inst tution of Ombudsman should acquire greater

sensitivity to problems of pe0p.e and move closer to them.

chapter 3 kerala panchayat finance -...

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