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SECOND STATE FINANCE COMMISION

KERALA

REPORT

PART -1

JANUARY 2001

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Dr.Prabhat Patnaik Chairman

Phone: Off: 337430 518822

State Finance Commission Government of Kerala

6th Floor, Secretariat Annexe Thiruvananthapuram - 695 001

Dated: 8th January 2001

His Excellency the Governor of Kerala, Thiruvananthapuram

Sir,

The State Finance Commission was constituted by Government of Kerala in their

notification dated 23rd June 1999 under clause (1) of Article 243-I read with clause (1) Article

243-Y of the Constitution of India to study the financial position of the Panchayats and the

Urban Local Bodies and to make recommendations to the Governor.

The Commission desires to submit its Report in two parts. The first part deals with

the devolution of funds from the Consolidated Fund of the State and the strengthening of the

tax base of the LSGIs. The second part will focus on the modification of the budgeting,

auditing and accounting procedures and the streamlining of the financial administration of

LSGIs.

The Finance Commission has completed the first part of the Report. I have pleasure in

submitting it herewith.

Yours faithfully,

Dr.Prabhat Patnaik

Chairman

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Contents

SECTION I

Chapter 1 Introduction Chapter 2 Approach of the Commission

SECTION II

Chapter 3 Overview of Local Government Finances Chapter 4 The Decentralisation Process- a Summary

SECTION III

Chapter 5 The First State Finance Commission

SECTION IV

Chapter 6 The Devolution and Inter Sc Distribution of Plan Funds

Chapter 7 The Problem of Maintenance of Assets Chapter 8 Non-Plan, Non-Maintenance Transfers

SECTION V

Chapter 9 Enhancing Own Revenue of Local Self Governments

SECTION VI

Chapter 10 State Finances during the Decade 1990-2000

Chapter 11 Some Issues raised by the Eleventh Finance Commission

SECTION VII

Chapter 12 Procedural Safeguards

SECTION VIII

Summary of Recommendations

Annexures

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ACKNOWLEDGEMENTS

1. The State Finance Commission was appointed by Government of Kerala

in a notification dated 23rd June 1999. The Commission desires to submit

its Report in two parts. This is the first part of the Report of the State

Finance Commission.

2. The State Finance Commission was ably assisted by a Secretariat headed

by Sri.V.Manikantan Nair, as its Secretary. The Commission extends

its thanks to the following officers of the secretariat of the Commission.

I. Shri.V.Manikantan Nair

2.Shri.M.V.Haridas

3. Shri.L.Sanal Kumar

4. Smt.A.K.Sasikala

5. Shri.RI.Raveendran

6. R.S.Rajan Nair

7. Shri.K.G.Sadasivan

8. Shri.M.V.Markose

9. Shri.M.B.Sanu

10.Shri.P.Unnikrishnan Nair

11. Shri.S.Suresh Babu

12. Shri.J.L.Justin Wills

Secretary

Joint secretary

Joint Director (Panchayats)

Joint Director (Municipalities)

Under Secretary

Accounts Officer

Section Officer

Section Officer

Assistant

Assistant

Assistant

Assistant

13. Shri.A.Shibu Assistant

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14. Shri.B.Pratheep Kumar Assistant

15. Shri.B.Mohanan Typist

16. Shri.B.Rajendran Nair Typist

17. Smt.K.Ambika Confidential Assistanat

18. Shri.K.Thankappan Peon

19. Smt.C.Kumari Peon

20. Shri.P.B.Ajithkumar Peon

3. The Commission gratefully acknowledges the support it received from

Sri. S. Parameswaran Nair, Consultant, Municipalities and

Sri.K.Pushparajan , Consultant, Panchayats. The Commission has

greatly benefited from the experience and expertise of the consultants.

4. The Commission is very thankful for the support it received from the

State Government and its various Departments and senior officials by

way of information, suggestions and valuable advice.

5. The Commission likes to offer special thanks to Smt.Shaheena, Assistant

Professor, Kerala Agricultural University and Dr. Vikas Rawal, Centre

for Development Studies, for the support it received from them in the

econometric analysis of a vast volume of data and for the simulation

exercises they have done for the Commission. Dr.K.N.Harilal of

M.G.University, Kottayam, was kind enough to spare time for a number

of very helpful discussion.

6. The Commission also wishes to thank Dr. I.S.Gulati, Dr.T.M..Thomas

Issac and Sri.E.M.Sreedharan Namboothiripad, members of the State

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Planning Board, and Sri.K.N.Kurup, Secretary, Planning Department, for the

valuable suggestions, advice and guidance given by them.

7. The Commission likes to record its appreciation of the commendable work

done by Sri.Vimal and Sri. John Joseph, software programmers and Shri. R.

Ratheesh Kumar, Computer Operator. Sri N.Rajendra Prasad, Assistant Director,

Statistics deserves special commendation for the analysis of data required by the

Commission. The Commission would like to express its thanks to Shri.C.PR.Pillai,

Confidential Assistant working in Kudumbasree for his high quality stenographic

support. The Commission also acknowledges the assistance it received from

Kudumbasree for the prompt and efficient computerisation of the whole data used by

the Commission.

DR. PRABHAT PATNAIK, Chairman,

State Finance Commission.

Thiruvananthapuram, 08.01.2001.

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LIST OF TABLES

NUMBER CONTENTS

3.1 Distribution of population - Village Panchayats 3.2 Distribution of population - Municipalities 3.3 Distribution of population - Corporations 3.4 Geographical area of LSGIs 3.5 Classification of Village Panchayats as per extant income

norms. 3.6 Classification of Municipalities as per extant income norms.

3.7 Property Tax rates in ULBs 3.8 Rate of Building Tax in 1985 and 1995 in Village

Panchayats. 3.9 Rate of Property Tax in 1995 in Urban Local

Governments. 3.10 Rates of Profession Tax in Village Panchayats 3.11 Rates of Profession Tax in ULBs 3.12 Rates of Show Tax 3.13 Receipts from Show Tax & Surcharge on Show Tax. 3.14 Rates of Basic Tax 3.15 Details of Basic Tax Grant 3.16 Rate of Stamp Duty and Surcharge under the 1960 and 1994

Acts 3.17 Distribution of Surcharge on Stamp Duty 3.18 Stamp duty deducted and paid to KWA 3.19 Calculation of Road Units for distribution of VTC 3.20 Collection and distribution of MVT to LSGIs 3.21 Share of important items of Non-Tax Revenue in total Non-Tax

Revenue 3.22 Grants-in-aid from the Rural Pool 3.23 Distribution of General Purpose Grants 3.24 Distribution of Specific Purpose Grant-in-aid 3.25 Grant-in-aid given to local governments for running Schools

3.26 Grant-in-aid given to local governments for running Libraries

3.27 Loans availed by ULBs 3.28 Plan Grant-in aid devolved to LSGIs 3.29 Formula for Devolution of Plan Grants 3.30 Non-Plan Grant-in- Aid to LSGIs 3.31 Receipt and Expenditure of the establishment grants for

District Panchayats / Block Panchayats 3.32 Expenditure pattern in Village Panchayats and ULBs 3.33 & 3.34 Self-sufficiency of LSGIs

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4.1 Total plan grants to LSGIs as part of people's planning campaign (Including sponsored schemes)

8.1 Non-Plan transfers to LSGIs

8.2 Tax-Cum- Grants Transfers (Excluding VTC) 8.3 Proposed Distribution of General Purpose Grant

Between Tiers 8.4 Some Important Items of 191 Non-Plan expenditure 2000-

01 10.1 Salary, Interest and Pension components of the State for

the period 1991-99 10.2 Expenditure component of Revenue Deficit from 1989-

90 to 1999-2000 10.3 Outlay on Capital Expenditure from 1990-91 to 1999-2000

10.4 Loans and Advance from Government of India 1990-91 to 1998-99

10.5 Small Savings and Deposits from 1990-91 to 1998-99 10.6 State Provident Funds 1990-91 to 1998-99 10.7 Internal Debt of the State from 1990-91 to 1998-99 10.8 Total Debt of the State 10.9 Relative shares of the major streams of borrowings 10.10 Debt and Interest payments for the period from 1990-

2000 10.11 Maintenance Expenditure of the State from 1990-91 to

1999-2000 10.12 Gross Fiscal Deficit over of the decade 10.13 Growth Rates of various items of Tax Revenues 10.14 Projected Fiscal Services with CFC recommended

transfers for 200 1-2006 10.15 Behaviour of Revenue Deficit as percentage of SDP

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LIST OF ANNEXURES

NUMBER CONTENTS 1.1 Notification No. 33384/SFC.Al/99/Fin, dated 23,6.99

1.2 Notification No. 48596/Admn.AI/2000/Fin, dated 26.7.2000

1.3 Visit of the commission to LSGIs of each type

1.4 Commission's discussions with Associations

1.5 Commission's discussions with Secretaries and Heads of Departments

3.1 Municipalities having Entertainment Tax and Additional Entertainment Tax Exceeding Property Tax collection

3.2 Use of provisions by ULBs - A Status Report

3.3 Details of Plan provisions to Panchayat Raj / Nagarapalika Institutions

3.4 Details of Non-Plan Specific Programmes 2000-2001

3.5.1 Total receipts (excluding grant-in-aid for peoples' plan campaign) of Village Panchayats 1993-94 to 1998-99

3.5.2 Abstract of total receipts of Village Panchayats under own revenue

3.5.3 Percentage share of taxes to total Direct Tax Re venue- Village Panchayats

3.5.4 Percentage increase of taxes over previous year- Village Panchayats

3.5.5 Percentage increase of own revenue over previous years-Village Panchayats

3.5.6 Share of taxes in total own revenue- Village Panchayats

3.5.7 Share of each item under own revenue- Village Panchayats

3.5.8 Total expenditure of Village Panchayats for the years 1993-94 to 1998-99 (excluding plan grant in aid for peoples' plan campaign)

3.5.9 Per capita expenditure of Village Panchayats

3.6.1 Total receipts (excluding grant-in-aid for peoples' plan campaign) of Municipalities 1993-94 to 1998-99

3.6.2 Abstract of total receipts of Municipalities under own revenue

3.6.3

Percentage share of taxes to total Direct Tax Revenue-Municipalities

3.6.4 Percentage increase of taxes over previous year-Municipalities 3.6.5

Percentage increase of own revenue over previous years-Municipalities

3.6.6

Share of taxes in total own revenue –Municipalities

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3.6.7 Share of each item under own revenue -Municipalities 3.6.8

Total expenditure of Municipalities for the years 1993-94 to 1998-99 (excluding plan grant in aid for peoples' plan campaign)

3.6.9 Per capita expenditure of Municipalities 3.6.10 Total Receipts and Expenditure of Municipalities at a glance 3.7.1 Total receipts (excluding grant-in-aid for peoples' plan

campaign) of Municipal Corporations 1993-94 to J 998-99 3.7.2

Abstract of total receipts of Municipal Corporations under own revenue

3.7.3

Percentage share of taxes to total Direct Tax Revenue-Corporations

3.7.4 Percentage increase of taxes over previous year-Corporations 3.7.5

Percentage increase of own revenue over previous years- Corporations

3.7.6 Share of taxes in total own revenue-Corporations 3.7.7 Share of each item under own revenue -Corporations 3.7.8

Total expenditure of Municipal Corporations for the years 1993-94 to 1998-99 (excluding plan grant in aid for peoples' plan campaign)

3.7.9 Percapita expenditure of Municipal Corporations 3.7.10

Total Receipts and Expenditure of Municipal Corporations at a glance

4.1 Details of transfer of Institutions and Staff to LSGIs 4.2.1

Physical achievement of Peoples Plan Campaign - Panchayats

4.2.2

Physical achievement of Peoples Plan Campaign –Municipalities

4.2.3 Physical achievement of Peoples Plan Campaign - Corporations

4.3 Functions assigned to LSGIs 5.1 Status of implementation of the recommendations of the

First SFC 6.1 Proposed Formula for Infer Se Distribution of Plan Funds 9.1 Presumptive Profession Tax for Traders and self employed

persons 9.2 Proposed Licence fees for Trades and Installation of Plants

or Machinery 9.3 Proposed Licence fees under Kerala Cinema Regulation

Rules 9.4 Proposed Rate of Licence fees for Private Market 9.5 Proposed Licence fees under Kerala Places of Public Resort

Act 9.6 Proposed Rate of Licence fees for keeping animals for

commercial purposes 9.7 Proposed Rates for market fees 9.8 Proposed Rate of fees for using Public Halting and Parking

Places

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9.9 Proposed Rate of Rent and Fee for Slaughtering Animals in Public and Private Slaughterhouse

CHAPTER I

INTRODUCTION

BACKGROUND

1.1 Kerala has been following a unique trajectory of decentralisation

by devolving substantial development funds to Local Self Government

Institutions (LSGIs) for the preparation and implementation of locally

appropriate development projects and programmes. The People's

Planning Campaign has attempted to use planning as the entry point to

achieve a high degree of democratic decentralisation, ultimately moving

towards the realization, in letter and spirit, of the Constitutional goal of

"genuine institutions of local self government" as set forth by the 73rd

and 74th Amendments. The Campaign has succeeded to a large extent in

setting the agenda of decentralisation and pushing its pace. The

decentralisation efforts of Kerala have moved from the experimentation

phase through a corrective phase into the institutionalization phase. This

is the background against which the Second State Finance Commission

(SFC) has been set up. Thus the Second SFC has a critical role to play in

the consolidation of the gains of the decentralisation experience and in

laying a firm foundation for its institutionalization.

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APPOINTMENT OF STATE FINANCE COMMISSION

1.2 The First State Finance Commission for Kerala as envisaged

in Article 243 -I and 243 -Y of the Constitution of India and as provided in Section 186 of the Kerala Panchayat Raj Act 1994 and Section 205 of the Kerala Municipality Act 1994 was appointed on 23rd April 1994. The Commission gave its final report to Government in February 1996. The Second SFC was appointed by Notification No.33384/SFC.Al/99/Fin on the 23rd of June 1999, (Annexure 1.1) initially for a period of one year which was later extended by one more year by Notification No. 48596/Admn/Al/2000/Fin dated 26-7-2000 (Annexure 1.2).

1.3 As in the case of the First Finance Commission this is also a three member Commission whose members are:

Dr. Prabhat Patnaik,

Professor, Jawaharlal Nehru University,

New Delhi.

Chairperson

Dr. K.M. Abraham, Secretary to

Government, Finance (Resources)

Department, Government of Kerala.

Member

Shri S.M.Vijayanand, Member

Secretary to Government,

Local Administration Department,

(Now renamed as Local Self Government Dept.),

Government of Kerala.

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TERMS OF REFERENCE

1.4 The Terms of Reference of the Commission as given in the notification are extracted below:

"The Finance Commission shall review the financial position of the

Panchayats and the Municipalities and make recommendations as to -

(a) The principles which should govern, -

(i) the distribution between the State, Panchayats and Municipalities of

the net proceeds of the taxes, duties, tolls and fees leviable by

the State, which may be divided between them under Part IX and

Part IX-A of the Constitution and the allocation between the

Panchayats at all levels and the Municipalities of their respective

shares of such proceeds;

(ii) the determination of the taxes, duties, tolls and fees which may be

assigned to or appropriated by, the Panchayats and the

Municipalities;

(iii) the grants-in-aid to the Panchayats and the Municipalities from the

Consolidated fund of the State.

(b) The measures needed to improve the financial position of

the Panchayats and the Municipalities with reference to,-

(i) the scope for local bodies to raise institutional

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finance, and suggest a framework for local self-governments to

take recourse to such sources along with procedures to be

followed and limits, if necessary, to raising such resources;

(ii) need for sharing the cost of maintenance of assets and institutions

transferred to local self-governments, and evolving criteria for it,

with due regard to the fiscal position of the State Government

and the local self-governments;

(iii) steps necessary for efficient financial management with particular

reference to efficiency in resource mobilization and economy in

expenditure;

(iv) settlement of claims and dues of Panchayats and Municipalities

vis-a-vis Government and Governmental agencies;

(v) Procedures to be followed for smooth flow of funds to local self-

governments and for ensuring proper financial accountability,"

1.5 Government have gone beyond the Terms of Reference given to the First

SFC, and broadened the scope of the Commission's work by expanding the

second portion of the Terms of Reference dealing with the measures needed

to improve the financial position of LSGIs by clearly stating five specific

items. Thus, the Second SFC, besides suggesting devolution of funds and

their distribution among LSGIs has to go into the question of financial

management including raising of resources, availing

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of loans, economy in spending and settlement of debts and dues. Also the

Second SFC has been given the task of suggesting procedural refinements

to ensure a smooth flow of funds from Government to local governments

and for ensuring proper financial accountability.

METHODOLOGY FOLLOWED BY THE COMMISSION

1.6 The Commission has followed a methodology appropriate to the comprehensive task entrusted to it as per the Terms of Reference. Some

of the salient features of the methodology adopted by the Commission are

outlined below:

(1) The Commission directly studied the functioning of each

of the five types of local government with special

reference to financial matters viz., Village Panchayat,

Block Panchayat, District Panchayat, Municipality and

Corporation by visiting one representative of each type.

(Annexure 1.3)

(2) The Commission held consultations with representatives

of local government associations viz., Panchayat

Association, Block Panchayat Association and the

Municipal Chairmen's Chamber. These consultations

brought to the fore various issues relating to the

finances of these local governments as recognized and

felt by the elected representatives. (Annexure 1.4)

(3) Detailed discussions were held with the Secretaries and

Heads of Department involved in decentralisation.

(Annexure 1.5).

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(4) The Commission had a special meeting with the Finance

Minister and the Finance Secretary.

(5) There was an exchange of views with the State Planning

Board with particular focus on decentralised plan

preparation and implementation.

(6) The Commission conducted a detailed analysis of the

Report of the First Finance Commission and the follow-

up action on it and Annexure IV of the State Budgets

since the year 1996-97.

(7) The services of one Consultant each were utilized by

the Commission in respect of Panchayats and

Municipalities.

(8) The Commission has entrusted the Institute of Public

Auditors of India (IPAI) with the task of doing a

thorough study of the budgeting, accounting and audit

systems in both the rural and urban local governments

so that these can be simplified and modernised. The

IPAI is expected to produce detailed manuals on

budgeting, accounting and auditing, incorporating the

best practices from within and outside the country.

(9) The Commission has collected data from local

governments through a detailed questionnaire. These

questionnaires which were in two parts for the Urban

Local Bodies (ULBs) and Village Panchayats and in one

part for the other local governments were filled up and

returned by all the local governments except 14 Village

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Panchayats which could not fill up the first part of the

questionnaire relating to own income and non plan grants.

1.7 The Commission intends to submit its Report in two parts.

This Report deals with the first part of the Terms of Reference relating

to devolution and a portion of the second part of the Terms of

Reference dealing with maintenance needs and the funds required for

meeting them and with procedures related to the flow of funds. The

second part of the Report which is expected to be submitted in May

2001 would deal with the remaining items of the Terms of Reference.

It would also give further suggestions for increasing local resource

mobilization which would be generated after close interaction with the

newly elected LSGIs whose tenure these Reports would basically

cover.

1.8 The First Report is structured in eight Sections with twelve Chapters

and a summary of the recommendations. The first Section has an

introductory Chapter on the constitution of the Second Finance

Commission, its Terms of Reference and the Methodology adopted by

it and the second Chapter outlines the approach of the Commission to

the major Terms of Reference. The second Section has two descriptive

Chapters -one giving an overview of local government finances and

other summarizing the decentralisation process in Kerala. Section III

has just one Chapter analyzing the recommendations of the First SFC,

with reference to their present status of operationalisation. Those

recommendations, which need to be followed up further are identified

in this Chapter. Section IV deals with devolution of funds from the

State Government to the LSGIs. This theme is presented in three

Chapters - one dealing with devolution of Plan funds, the next dealing

SUBMISSION OF THE REPORT

STRUCTURE OF THE FIRST REPORT

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with devolution of funds exclusively for maintenance and the last one

in the Section dealing with devolution of General Purpose Grant in lieu

of the existing Assigned and Shared Taxes and Non-plan grants-in-aid.

The fifth Section has the Chapter on enhancing the own revenues of

LSGIs.

1.9 Section VI has a Chapter on State Government Finances and another

Chapter giving the observations of this Commission on certain issues

raised by the 11th Finance Commission. Section VII consists of the Chapter

outlining the Procedural Safeguards, including legislative changes, which

are required for a proper implementation of the recommendations of this

Commission. And the last Section summarizes the recommendations.

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CHAPTER 2 OUR APPROACH

FINANCIAL DEVOLUTION

2.1 The State Finance Commission is concerned with the devolution of funds from the state government to the LSGIs in its entirety, and not merely with one particular part of the total devolution. There has unfortunately been a general tendency to treat the jurisdiction of the State Finance Commission as being confined to the devolution of non-plan funds, the matter of Plan funds being considered a prerogative of the state government. Even the Fist State Finance Commission of Kerala had only a few recommendations concerning the Plan, and did not go into the question of devolution of Plan funds. This tendency echoes the practice that has got established at the central level, where successive Central Finance Commissions have adjudicated over the allocation of only one part of the total devolution from the Union to the state governments, leaving the decision regarding the remaining, more substantial, part to the purview of bodies belonging to the central government itself, such as the Planning Commission or the Ministry of Finance. This tendency however cannot be defended on the grounds either of reasonableness or of conformity to the letter and spirit of the 73rd and 74th

Amendments to the Constitution on whose basis State Finance Commissions are formed.

2.2 Such a separation, and corresponding attenuation of the role of the Finance Commission, is unreasonable on two counts.

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First, different categories of devolution are intrinsically interrelated. If more funds are devolved to LSGIs for plan projects, then correspondingly larger provisions have to be made for them for the maintenance and operation of the assets created through such projects. Two separate bodies therefore cannot in any meaningful sense (i.e. without one of them becoming a mere rubber stamp) decide on these two kinds of devolution. The inseparability of the two kinds of devolution necessitates that they fall under the jurisdiction of one body, which can only be the Finance Commission. Secondly, the 73rd and 74th Constitutional Amendments provide for a statutory body to adjudicate on financial matters, namely the State Finance Commission. The spirit of those Amendments therefore requires that the jurisdiction of that statutory body be as comprehensive as possible. The letter of those Amendments too is in conformity with this. The State Finance Commission's task is to "review the financial position" of local bodies. Since any such review can only be in relation to the functional responsibilities of the LSGIs, and these include the responsibilities vested in them for "the preparation of plans for economic development and social justice", it follows that even the letter of those Amendments enjoins upon the SFC a concern with the total financial requirement, both plan and non-plan, of the LSGIs. Our Commission accordingly proposes to take a comprehensive view of financial devolution from the state government to the LSGIs and not confine itself only to non-plan devolution.

2.3 Given this perspective, and the fact of the inseparability of different kinds of devolution, a tempting idea is to earmark a certain fixed proportion, say 20 percent, of the total tax revenue of the state government for devolution to LSGIs for both plan and non-plan use. The inter sc distribution of this amount among the LSGIs could then be determined by some specific criteria, and individual LSGIs could, within limits, be

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left free to allocate the funds at their disposal in any manner they choose. This solution is tempting for a number of reasons. First, it is simple and appears more in keeping with the idea of genuine decentralisation which gives freedom of resource use to LSGIs. Secondly, it has intellectual pedigree, having been mooted by some of the first SFCs (including the SFC of West Bengal headed by Dr.Satyabrata Sen). Thirdly, it is in conformity with the trend being initiated by the Central Finance Commission itself. Fourthly, it apparently entails equitable sharing between the state government and the LSGIs: they evenly partake of affluence and penury, without either one of them squeezing the other in any obvious manner. And finally it would seem to be more appropriate in the Kerala context, where, the upkeep of the good infrastructure facilities being very important, the LSGIs should not be constrained by the plan - non-plan distinction. In these respects it would even appear to have an edge over the current practice in Kerala, following the Peoples' Plan Campaign, of giving a fixed percentage of plan funds (35 to 40 percent) to the LSGIs.

2.4 There are two obvious problems potentially associated with the current practice. The first arises from the fact that the LSGIs' requirement of non-plan funds, as already mentioned, is itself linked to the amount of plan funds made available to them. Ensuring that a certain percentage of plan funds is put at their disposal is therefore not enough; an appropriate amount of non-plan funds must also be made available to them for meeting the current operational costs and the maintenance requirements of the plan assets. A system in which a certain overall share of tax revenue of the state government is passed on to LSGIs, and the latter have a degree of flexibility in deciding how to deploy their share, would be better able to avoid any potential disproportionality between asset creation on the one hand and asset maintenance and operation on the other. The second problem associated with the current practice

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arises from the fact that a relative or even an absolute decline in the size of the state's plan outlay leads ipso facto to a similar decline in the magnitude of devolution of plan funds to LSGIs and hence in the size of the LSGI plans. This means that a sudden draft on the state government's resources on the non-plan side, or plain non-plan profligacy on the part of the state government, or niggardliness on the part of the Planning Commission, or a financial squeeze imposed by the central government, all of these would invariably impinge on the size of the LSGI plans. If we are concerned that the size of these plans, which cater to the basic requirements of the mass of the people, should be kept insulated from such extrinsic developments, then a devolution formula which gives LSGIs a share of the state revenue as opposed to one which gives them a share of the plan outlay appears preferable. (To be sure, even with revenue sharing, LSGI plans would still be vulnerable to the profligacy, on the non-plan side, of the LSGIs themselves; but more directly exerted popular pressure, through institutions such as Grama Sabhas and Ward Sabhas together with the imposition of some pre-determined expenditure "norms", could take care of it).

2.5 The fear that a plan-outlay-sharing system makes LSGI plans vulnerable to a whole range of extrinsic developments including a financial squeeze emanating from the central government via cuts in grants-in-aid, is not an idle one. The additional fiscal burden imposed on the state government on account of the implementation of the recommendations of the Pay Commission, together with the fact that grants-in-aid from the Central government have tended to stagnate, has had an impact on the growth of the state's plan outlay in 1999-2000 (RE) and 2000-01 (BE), and correspondingly on the growth of plan transfers to the LSGIs, even though the absolute amounts of such transfers remain impressive. The total plan

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and non-plan transfers1 to PRIs as a proportion of the total tax revenue of the state government, which amounted to 7.2 percent in 1996-7, increased to 20.8 percent in 1997-8 when the Peoples' Plan Campaign took effect. The ratio was 19.5 percent in 1998-9, but appears to have declined somewhat thereafter: to 16 percent in 1999-2000 (RE) and 14.1 percent in 2000-01 (BE). Since the proportion of non-plan transfers to the total tax revenue of the state government has remained more or less unchanged, amounting during these five years (in percentages) to 2.07, 2.15, 2.61, 2.2, and 2.61 respectively, it is the ratio of plan transfers to total revenue that appears to have been affected. To be sure, these figures do not tell the whole story, since they exclude the transfers by way of salaries to state personnel who have been assigned to LSGIs; besides, the period is too short, and, for the later years, we are not even talking about Actuals but only about Revised and Budget estimates. Nonetheless, the possibility in the coming years, if the fiscal problems of the central government get compounded, of these problems getting "exported" to the state level, and from there further downwards until they impinge on LSGI plans (or of an exactly similar denouement arising from a worsening of the state government's fiscal position for independent reasons), is to be reckoned with.

2.6 Though the above discussion constitutes a strong case for moving to a general revenue sharing arrangement between the state government and the local governments, the Commission feels that there are a number of weighty counter arguments which cannot also be ignored. These are summarized below.

1. The term "non-plan transfers" here refers exclusively to the transfers which figure in the Appendix IV of the Budget, i.e. it does not include the transfer of the proceeds of the shared and assigned taxes, to which the LSGIs are entitled or transfers in the form of payments of salaries and operational expenses on transferred schemes.

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2.7 Any general sharing of revenue implies that there is a clear demarcation of responsibilities between the state government and the local governments. But actually this is an evolutionary process. Though Kerala has gone beyond any other state in sharing responsibilities with local governments there are areas like the productive sector where only over a period of time can the functional domains be defined with reasonable clarity. Indeed, the local governments which have been initiated into the planning process are themselves just coming to grips with the developmental needs and solutions within their functional domain, and would also require more time for working out the financial needs of various aspects of the responsibilities transferred to them.

2.8 Besides, the allocation of 35-40 percent of the Plan funds to the local governments also has a symbolic significance, since it is this move which really gave the big push to decentralisation. Participatory planning has been used as the entry point to make decentralisation genuine. Therefore it is necessary to continue the practice, of sharing Plan funds in this ratio, for some more time, until the institutions of local government have struck firmer roots.

2.9 There is a further consideration of some importance. A blanket revenue-sharing arrangement would even suggest a transfer of all obligations of meeting the current expenditure in LSGI- run institutions to the LSGIs themselves. It could for instance imply a transfer of the obligation to pay salaries to the large number of state employees, currently working in LSGI-run institutions but drawing their salaries from the state government, to the LSGIs themselves. These state government employees would overnight become LSGI employees. A blanket re venue-sharing arrangement would also transfer the task of purchasing supplies for LSGI-run institutions, such as medicines for hospitals, and books and consumables for

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schools, to the LSGIs themselves. All this would entail, first of all, an enormous and unmanageable administrative burden on the LSGIs. They would have to manage the payroll of a large number of personnel who would now constitute their direct employees. They would have to arrange supplies for the day-to-day running of a host of institutions. These tasks are as onerous as they are unnecessary for LSGIs to perform. A distinction must be drawn between decentralisation of administrative burdens and decentralisation of decision-making. The former is not only not a pre-condition of the latter but may even thwart the latter. Proper sequencing is very important in the decentralisation process. An LSGI system which has not stabilised would be put to severe stress if it takes on the burden of administration in full. For example while it must be the LSGIs which should control officers placed under them, assign them tasks, and ensure their proper performance, this does not necessarily imply that they should bear the burden of recruitment, payment of salaries and dealing with service matters. These tasks consume a lot of time and energy and could detract from LSGI efficiency in carrying out their essential responsibilities. To be sure, there is an obvious contradiction in having personnel who are recruited by one agency but are answerable to another, a contradiction referred to by the Committee on Decentralisation of Powers as "dual control". But a forcible resolution of this contradiction by simply eliminating one of its poles, either through centralisation as existed earlier or through complete decentralisation entailing the parcelling out of administration, is no answer to the problem.

2.10 Even from a financial point of view, making LSGIs responsible for meeting the entire current expenditure obligations in LSGI-run institutions would make little sense. The state government has many more financial options than the LSGIs have. It can borrow. It can introduce new, innovative taxes;

26

and so on. In the event of an increase in the cost of administration, for example a rise in salaries, the state government can absorb the increase far more easily than the LSGIs in case they are asked to bear the cost of administration under a new dispensation. It was mentioned above that under the current practice of plan-outlay-devolution a sudden need on the part of the state government to spend more on the non-plan side would squeeze LSGIs' plans, and that this strengthened the case for revenue-sharing between the state government and the LSGIs. This argument clearly lacks general validity. It holds only when the increase in the state government's non-plan expenditure need is of a kind that LSGIs would not face when expenditure obligations are transferred to them along with a share of revenue. But if they have to face the same non-plan expenditure need as the state government, they would be worse off in a regime of revenue-sharing. For example if they had to implement Pay Commission recommendations out of their own funds in a regime of revenue-sharing, they would have ended up being worse off than they have actually been under the current dispensation. Of course it may be argued that additional financial options which the state government has, such as borrowing, should be made available to the LSGIs too. We examine this issue later, but, should this be done indiscriminately, then very sharp inequalities could emerge among LSGIs, forcing the backward ones to go under, which would defeat the whole purpose of decentralisation.

2.11 Enough has been said to show that any simple rule stipulating the transfer of a certain fixed proportion of total tax revenue from the higher to the lower level, would be inappropriate in the present Kerala context. Accordingly, we reject this approach. The approach we do adopt instead on the question of devolution has six main features which are given below.

27

2.12 First, for reasons discussed in Chapter 6, we are of the view that the current practice of making 35-40 percent of the plan outlay available to the LSGIs to spend on plan projects of their choice should be continued: our precise recommendation is that not less than one-third of total plan outlay (excluding state-sponsored schemes from the numerator) should be given to LSGIs, A feeling has been conveyed to us that the transfer of such substantial amounts of plan funds to the LSGIs has been accompanied by a corresponding slackening of revenue effort by the LSGIs themselves. This feeling is pervasive, though the empirical support adduced in its favour is not very persuasive. But irrespective of whether larger devolution has actually caused a slackening of revenue effort, any slackness in such effort is perse unwarranted. Stimulating revenue effort therefore is a must; and we do so by incorporating revenue effort explicitly into the formula determining the inter se distribution of plan resources.

2.13 Secondly, the question of maintenance of the assets newly created by the LSGIs from the enhanced devolution of plan funds under the Peoples' Plan Campaign, not to mention the assets transferred to them under the Government Order of September 1995, is going to become exceedingly important in the coming years. The resources required for the maintenance of both these types of assets would have to be provided by the state government, even though the maintenance work is actually carried out under the aegis of the LSGIs. In other words, in addition to the devolution of plan funds, the state government has to make available to the LSGIs an amount that would cover the maintenance expenditure on both types of assets. The reasoning behind this is obvious: if the transferred assets had not been transferred to the LSGIs, then the state government would have paid for their maintenance; since they have been transferred the requisite sum should be handed over to the LSGIs to whom these assets have been

28

transferred. Likewise, if the increased devolution of plan funds had not taken place, the state government would have used these plan funds through its various departments, and would have paid for the maintenance of the assets created through the use of these plan funds. The fact that this devolution has occurred simply means that these assets are now under the jurisdiction of the LSGIs; the state government's obligation to pay for the maintenance of these newly-created assets (and those continuously being created) is not removed thereby. Of course if the transferred or newly-created assets were run on commercial lines, then the expenditure on maintenance could come from their own revenue, exonerating the government from the obligation to provide for their maintenance. But since the bulk of these assets are not commercially operated, and are not meant to be, the obligation on the state government remains. Finally, there are the assets which are neither transferred under the September 1995 Government Order, nor newly constructed out of the higher devolution of plan funds following the People's Plan Campaign. An important segment of this third category is constituted by assets which the LSGIs already owned prior to September 1995. The maintenance expenditure on these assets has come partly from the LSGIs' own funds, including what comes to them as Vehicle Tax Compensation, and to a limited extent from such non-plan, non-statutory grants of the state government as the Village Road Maintenance Grant (when it existed). But the actual maintenance expenditure on these assets has in practice been rather meagre. Adequate expenditure on the maintenance of these assets, given their non-commercial nature, would necessarily require additional financial support from the state government.

2.14 We suggest that this additional amount, together with the requisite amounts for the first two categories of assets, should be provided by the state government. In other words, the state

29

government should provide the entire maintenance expenditure on the pre-existing assets of the LSGIs, on the assets transferred to them after September 1995 and on assets newly-constructed by them out of plan assistance in the period since 1997-8. It need not, however, make any Vehicles Tax Compensation available to the LSGIs. Our approach is to get the state government to transfer a certain total amount for the maintenance of assets to the LSGIs as a whole, among whom it is to be distributed according to certain criteria reflecting maintenance needs. It is essential of course that the LSGIs in turn should not use the amount, handed to them for the maintenance of assets, for all sorts of other purposes; we wish to put this amount beyond their reach for expenditure other than on approved uses.

2.15 Thirdly, there are a host of payments made by the LSGIs to meet social obligations, such as pension schemes, unemployment allowance, scholorships etc., for which the funds are provided by the state government. These are grouped together under "Non-Plan" expenditures in the Appendix IV of the state government's budget. The state government should continue to make appropriate transfers to the LSGIs under this head for them to meet all such obligations.

2.16 Fourthly, there is the question of operating costs on transferred assets, as distinct from maintenance. These are of two kinds: salaries of personnel and operating costs on account of current inputs, e.g. medicines for hospitals, books and consumables for schools. The state government is already meeting the operating costs of the transferred assets and should, in principle, continue to do so. A reasoning analogous to that in paragraph 2.13 would suggest that even on assets newly created by the LSGIs after the higher devolution of plan funds, the operating costs would have to be met by the state government, unless of course these assets themselves happen to be commercially viable.

30

In practice, however, any system where costs are met by one agency while

decisions regarding their size are taken by another, runs the risk of

profligacy (even if these decisions have to be formally approved by the first

agency). This problem has reportedly become quite acute through pressure

for the creation of new posts, by the LSGI. It would become even more

acute in the coming years unless something is done about it immediately.

2.17 An immediate response to the problem may be to say that all new posts at the LSGI level should have to be financed out of their own funds (even as the state government meets the salary component on account of the transferred posts). This however could well lead to a diversion of funds earmarked for plan or maintenance purposes towards meeting a burgeoning salary bill. Even if safeguards against such diversions are provided, it would not be appropriate to take such a drastic step immediately. This can be considered as a possible long-term measure and deserves further discussion. Meanwhile to curb profligacy under the existing arrangement we make the following specific suggestion. For the creation of any new post at the LSGI level, no matter who is financing it, there has to be a process of consultation between the state government and the LSGI(s) concerned. After such consultations and before the proposal comes before the cabinet, clearance must be obtained from an Expenditure Watchdog body. We do not propose the setting up of a new Watchdog body. We recommend instead that the existing institution of Ombudsman should be used for the purpose. Technical and other help should be made available to the Ombudsman so that they can also take on this additional role.

2.18 Apart from this new arrangement we propose, our recommendations regarding operating costs of LSGI assets have four elements: first, all existing salary commitments on

31

transferred schemes, including wages to temporary employees, must continue to be paid by the state government. Secondly, the current practice of state government funding of medicines and books should be continued exactly as it is, but in all other sectors, the state government should be freed from its obligation of having to meet operating costs. And even in the education and health sectors, all other operating costs, such as rents on buildings, electricity and vehicle running charges, telephone expenses etc. should be met by the LSGIs from their own funds including general purpose grants and upto 10% of maintenance grants. Thirdly, the LSGIs, apart from meeting all these operating costs, should have the freedom to undertake extra expenditure at the margin in the education and health sectors, over and above what the state government provides. And fourthly, to enable them to do so, they should be allowed to spend up to 10 percent of the Maintenance Transfer, which is being made available to them, for meeting operating costs.

2.19 Fifthly, in addition to the devolution under the above-mentioned heads, there are the transfers on account of taxes and certain non-plan grants from the state government to the LSGIs. There are three broad categories within this head: assigned taxes which are collected by the government to be handed over to the LSGIs (which in the case of PRIs include Basic Tax and Surcharge on Duty on Transfer of Property and for Urban Local Bodies (ULBs) only the latter); shared tax (which is the Motor Vehicle Tax); and a few grants. A plethora of grants makes the system cumbersome and opaque. Likewise even the system of earmarking particular tax revenues for distribution to LSGIs has little to recommend it. Our approach is to do away with this entire cumbersome system and to stipulate that a certain fixed proportion of the tax revenue of the state government is to be handed each year to the LSGIs. The state government in turn can retain the proceeds of the

32

taxes, which were either "assigned" or shared till now, for its own use. For

determining the exact share which is to be so distributed among the LSGIs

and also the inter redistribution of the amount among the various tiers of

LSGIs, we make use of the observed historical shares in the recent past.

2.20 We are aware that in recommending a shift away from the

system of assigning and sharing specific taxes, we are making

a radical departure, since local government finances all over

the world have traditionally been based on such a system.

While this departure per se may not cause control, their may

be legitimate grounds for serious misgivings on the following

score: tax assignment conferse a right on LSGIs which a system

of sharing the over all tax revenue appears not to do; it appears

to be in the nature of a grant that is open to withdrawal by

the State Government at its will. We wish to remove these

misgivings by emphasising that the tax share proposed by us

should be deemed a matter of right by the LSGIs, sanctioned by appropriate

legislation.

2.21 Finally, a consideration which we hold to be important and which has informed our entire approach in this report is that the system of transfers from the state government to the LSGIs should be made as simple as possible. Likewise, the formulae for inter se distribution of funds should be made as simple as possible.

2.22 To sum up, our Commission's approach is to take the devolution of funds in its entirety and to make recommendations regarding both plan and non-plan devolutions rather than confining ourselves only to the non- plan side, as has become customary at the Centre and in many states. Though we look at devolution in a comprehensive manner, we reject nonetheless the rather tempting idea of a

33

blanket division of the state government's tax revenue governing devolution. This idea entails fixing a particular share of the total tax revenue of the state government that is made available to the LSGIs as a whole; the amount is distributed among the LSGIs according to some formula and they are then left more or less free to spend their amounts as they like. This idea, notwithstanding its simplicity and appeal, is unworkable in the context of Kerala which has pursued its own unique trajectory of decentralisation, a pursuit that has to be taken by us as a historical datum. Our approach is to stipulate a share of plan outlay that must be handed over to the LSGIs, as is the current practice, and a share of tax revenue to be given as non-plan statutory transfer in lieu of the current complex and cumbersome system of tax-assignments and tax-sharing. In addition to these plan and non-plan transfers, the state government has to keep meeting the salaries of all personnel on the transferred assets, to keep making appropriate transfers to the LSGIs' for meeting a host of social obligations (non-plan payments under Appendix IV of the budget), and to keep defraying the costs of medicines in hospitals and books and consumables in educational institutions under LSGI-jurisdiction. It also has to transfer a certain amount every year for the purpose of meeting the maintenance requirements on LSGI assets. In arriving at the magnitudes of these transfers and their inter se distribution among the LSGIs, our objective has been to simplify the system as far as possible, so that the mystery and opaqueness governing the devolution of funds from the state government to the LSGIs get minimised.

2.23 The increased plan allocation to LSGIs has generated a euphoria among them regarding availability of funds. There is in fact a pervasive feeling that LSGIs are flush with funds. There are however clear parameters within which such funds

RESOURCE MOBILISATION BY LSGIs

34

can be spent; they are meant for new development ventures, and, implicitly, for such development ventures as would give adequate returns, both social and economic. It is important to note that local governments have traditional obligatory functions and are often judged on the quality of their performance of these functions, which relate to public health and sanitation, maintenance of infrastructure, and the exercise of regulatory civic functions to ensure good quality of life for the citizens. Now that a lot of new assets have been transferred to the LSGIs and the flow of maintenance funds from the state government cannot but be limited on any reasonable expectations, the need for mobilizing resources becomes very critical. If LSGIs can raise more funds by themselves they can dramatically improve the upkeep of assets transferred to them. An analysis of the resource inflows of LSGIs shows that in the case of Village Panchayats the proportion was broadly 3:2:11 respectively for own funds, non-plan grant-in-aid from the state government including assigned and share taxes, and plan grant-in-aid. The corresponding proportion for Municipalities as well as Corporations was 3:1:2. Own funds therefore constitute a significant amount. The very fact that LSGIs can raise resources including taxes is a symbolic affirmation of their status as institutions of local self government. The right to fix the rates for taxes and other revenues and collect them gives authority and importance to the LSGIs. On the other hand it also demands a considerable degree of responsibility from them, since the tax payers are not only very close to the collection point but are also witnesses to the mode of utilization of the taxes collected. This opens up the possibility of spontaneous tax-compliance as well as of community pressure to pay dues to LSGIs, provided the services of the local governments are perceived to be useful and relevant.

35

2.24 There are however certain problems with regard to the mobilization of

revenue by LSGIs. The most important problem relates to the tax base,

which is rather inelastic and cannot be widened very easily. Moreover, the

minimum and the maximum rates for the taxes and most of the non-tax

revenues are fixed at present by the state government. In the case of many

of the non-tax sources the amounts are fixed by the government through

rules, and these, for a variety of reasons, do not get revised in tandem with

the rate of inflation. A serious additional problem relating to taxation at the

local level is the fact of gross under-assessment. Our interactions with

representatives of LSGIs suggest that the present demand is only about half

of what can really be collected. The assessment is done in a rather primitive

fashion and the process of assessment often tends to be very subjective. To

compound this problem the collection efficiency is also low. The

traditional mode of collecting from the doorstep is still being resorted to.

The enforcement provisions are rarely used.

2.25 The Commission believes that the tax base can be expanded inter alia through the introduction of Service Tax. Also some non-tax revenue sources can be further tapped. The Commission strongly endorses the view that only the floor rates and amounts need to be fixed by the government. This would allow greater autonomy to the efficient LSGIs to mobilize more local resources. In addition there is urgent need to index the rates to changes in money value. Tax assessment methods can be rationalised essentially by reducing discretion and moving on to a transparent normative basis, like plinth area in the case of buildings, seating capacity in the case of cinemas, presumptive taxes for certain professions and so on. In this respect, some of the recommendations of the first Finance Commission are very pertinent. Collection efficiency is also very crucial, though the drive to collect larger revenues has to come from the LSGIs themselves. To be sure, training and motivating the collecting personnel would help, as would

36

external incentives of the sort we have provided, by incorporating the revenue effort criterion into the inter se distribution of plan funds. But there is no escape from the fact that the LSGIs themselves must internalize the urgency of the need to garner larger revenue.

2.26 Though there are provisions in the Kerala Panchayat Raj Act, the Kerala Municipality Act and the Local Authorities Loans Act for borrowing by LSGIs, these provisions are not fully utilized. The Commission believes that as more and more re sponsibilities get transferred to LSGIs, they have to supple ment their own resources and grants-in-aid with borrowings, mainly for schemes which would generate a revenue stream that can help repayment, and for socially relevant schemes for which local surcharges can help in repayment. The question of borrowing and the safeguards required would be dealt with in the second part of the Report.

2.27 Raising resources alone is not enough. It is equally important to spend them prudently. For this, there has to be proper financial management. This can be achieved to some extent through improved managerial practices, enshrined in rules regarding the assessment of taxes, the preparation of budgets and the regulation of expenditure. There seems to be a tendency on the part of LSGIs to overspend on items like inauguration ceremonies and to be liberal with the distribution of funds. These need to be curbed through mutually agreed guidelines. The Commission would dwell on these issues in its second report.

2.28 With so much of public funds being handled by the LSGIs, the need for

enforcing a degree of accountability upon them increases. Of course, since

they are close to the people there is some control from below, especially

through various

participatory mechanisms, which have already been adopted by the state government. Nevertheless, financial accountability through certain fiscal responsibility provisions as well as through improved maintenance of accounts is very essential. Similarly the presentation of accounts to the public to facilitate social audit also needs special attention. The current procedure by which LSGI accounts are audited leaves much to be desired. There is invariably considerable delay, and the quality of audit too is not particularly good. It is a very routine form of audit and its contribution towards system improvement or towards enabling penal action has been very limited. These need to be totally revamped. The Commission is getting a study done on the maintenance of accounts as well as on the procedures of auditing by the Institute of Public Auditors of India and the second part of the Report would carry detailed recommendations on the subject.

2.29 In order Commission safeguards safeguard devolution, governmentsMunicipalitycategories: Purpose Gruse which sh

2.30 On the paensure a there shoulthese have to

PROCEDURAL SAFEGUARDS

37

to ensure that the recommendations of the are properly implemented, certain procedural

have to be put in place. The most important is to give legislative sanction to the proposed by incorporating the share of taxes due to local

in the Kerala Panchayat Raj Act and the Kerala Act. These devolved funds would be in three

Plan Grant, Maintenance Grant and General ant. Each grant would have clear conditions for ould be issued in the form of Rules.

rt of the state government it is very important to smooth flow of funds. The Commission feels that d be automatic crediting of funds to LSGIs, but be combined with reasonable restrictions on

38

withdrawal, linking such withdrawals to actual expenditure. Similarly, the

funds have to be devolved according to fair and transparent formulae. This

is particularly true of the devolution of the maintenance grant, for which a

scientific assessment of the maintenance needs has to be made and the

results then used for an equitable inter se distribution of the funds.

2.31 At the local government level there is need for a maintenance plan to be prepared. Also the present tendency to divert funds, earmarked for some particular purpose, towards an altogether different use, needs to be curbed, with penal provisions for such diversion. There should be no diversion whatsoever from Plan Grants or Maintenance Grants.

2.32 Simple financial devices can be tried out to improve accountability. For example, by creating a single account to which all the different streams of own income of the LSGIs are credited, one can get a good idea of the actual income for the year. Similarly by limiting the period of validity of cheques to one financial year, the tendency to inflate expenditure through the issue of pre-dated cheques can be contained. The Commission recommends both these procedures, and would be recommending several others of this sort.

2.33 It has been noted that there is a considerable time lag in operationalising the recommendations of the State Finance Commission even after they are accepted by the state government. Several departments have to take follow up action, and since amendment to Acts and Rules are required in many cases, progress naturally tends to slow down. But this defeats the very purpose of the Commission's recommendations. Since Finance Commissions come only once in five years, any delay in implementing the recommendations of the Commission reduces their effectiveness. There is need therefore for quick

39

2.34 Unlike the Central Finance Commissions, there is greater need for continuity in the case of State Finance Commissions. As the local government system is evolving in the country, there is greater need to link up with the recommendations of the previous Finance Commissions. Another factor is that several recommendations are slow to get implemented and in such cases there would be a need for reiteration. This Commission has gone into the recommendations of the First Finance Commission in detail and has studied the status of their implementation. Since it is felt that the implementation without delay of many of those recommendations is of critical importance, they are being reiterated in this Report.

2.35 The recently submitted report of the Eleventh Central Finance Commission raises a number of important issues that call for a reaction from our Commission. At least three issues are pertinent here, two of which relate to principles, while the third relates to practice. These issues and our response to each of them are listed below seriatim. First, the CFC feels the need for introducing Constitutional amendments in at least three areas: for empowering Parliament to revise the rates of Profession Tax without having to introduce a Constitutional amendment on each occasion; for making it possible to bring forward the dates of setting up of the State Finance Commissions, so that these could be appropriately synchronised with the date of institution of the CFC and their reports could genuinely provide the basis for the recommendations of the CFC; and for removing the provision which makes it obligatory for the CFC to take the SFC reports as the basis for making

follow-up action on Finance Commission's recommendations, for which an empowered Committee is necessary.

CERTAIN OTHER ISSUES

40

its own recommendations. We are in agreement with both the spirit and the

letter of the first suggestion. We are in agreement with the spirit, though not

the letter, of the second suggestion, since we feel that a carte blanche to

state governments to set up Finance Commissions when they like may be

open to misuse; our own phrasing of the required Constitutional

amendment (given in Chapter 11) attempts to overcome this potential

problem. On the third of the CFC's Constitutional suggestions however we

have differences of both letter and spirit. Though we understand the

circumstances (relating to delays or non-compliance with SFC

recommendations by state governments) which make the CFC wish to get

rid of this albatross round its neck of having to base its own

recommendations on those of the SFCs, abandoning this clause altogether

would in our view be potentially detrimental to the smooth functioning of

our federal system. Our suggestion on the required Constitutional

amendment attempts to meet the problem without going to such extremes.

2.36 The second issue of principle raised by the CFC is one where we have a basic disagreement, and it relates to their refusal to take any explicit cognisance of the devolution of Plan funds to LSGIs. (Indeed their non-recognition of the worth of the Kerala experiment in democratic decentralisation springs essentially from this fact). We are of the view that Finance Commissions should have comprehensive jurisdiction covering both plan and non-plan devolution. It follows from this that if a particular State Finance Commission has interpreted its jurisdiction narrowly and refrained from making any recommendations covering plan funds, then the fact that the state government goes beyond these recommendations to devolve substantial plan funds to LSGIs should be deserving of appreciation rather than unconcern. The index of decentralisation cannot in other words be confined to criteria that stress only conformity to SFC recommendations (which

41

does not of course mean that such conformity should be given the go by);

they have to be more inclusive.

2.37 The third issue, one of practice, relates to the task given to us by the CFC to suggest criteria for the inter se distribution of Rs.65.92 crores for PRIs, and Rs.15.05 crores for ULBs, which constitute Kerala's share of the total amount (Rs.1600 crores for PRIs and Rs.400 crores for ULBs) made available by it as a special grant for the improvement in civic services. Our recommendation is that these amounts should be distributed on the basis of the population criterion. They should not be counted as a part of plan funds (either in the numerator or in the denominator) in determining the size of the plan grant to LSGIs.

2.38 The present state of monitoring of local government finances is very weak. The required data are not available and the quality of data is also very bad. In a situation where substantial funds are being devolved and spent at the level of LSGIs, it is necessary to have regular feed back about the finances of local governments. Much more is required than the mere collection of data in a routine manner; they have to be appropriately interpreted. For this a permanent system has to be developed utilizing the experience of Finance and Local Self Government Departments as also the expert services of the Statistics Department.

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CHAPTER 3

AN OVERVIEW OF LOCAL GOVERNMENT FINANACES

3.1 INTRODUCTION 3.1.1 Kerala has 990 Village Panchayats, 152 Block Panchayats and

14 District Panchayats; in the urban areas it has 53 Municipalities and 5 Corporations. Since the First SFC, the following charges have taken places.

(1) The former Mattathur Panchayat has been converted into a Municipality with effect from 14-11-1996.

(2) Thiruvananthapuram Corporation has been expanded with the

addition of Nemom, Thiruvallom, Kadakarapally, Ulloor and Attipra

Grama Panchayats.

(3) Two new Corporations viz. Kollam and Thrissur have been created by

adding the following Grama Panchayats.

Kollam Corporation

1. Kilikollur Grama Panchayat

2. Sakthikulangara Grama Panchayat

3. Eravipuram Grama Panchayat

4. Vadakkevila Grama Panchayat

Thrissur Corporation

1. Ollukkara Grama Panchayat

2. Vilvattom Grama Panchayat

3. Ayyanthol Grama Panchayat

4. Koorakanchery Grama Panchayat

5. Ollur Grama Panchayat

6. Nadathara Grama Panchayat

(Part)

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(4) Two municipalities namely Kalpetta and Koyilandi have

been expanded by including wards as shown below from

the adjoining panchayats.

Kalpetta - Ward 11 and 12 of Meppadi panchayat

Koyilandi - 3 wards in Arikkulam panchayat

(10) Five Municipalities viz., Neyyattinkara, Ponnani,

Thalasserry, Taliparamba and Kunnamkulam, have been

expanded by adding panchayats, as shown below:

Neyyattinkara Municipality Perumpazhuthoor Grama Panchayat

Ponnani Muncipality Ezhuvathuruthy Grama Panchayat

Taliparaba Municipality Anthoor Grama Panchayat

Kunnamkulam Municipality Arthat Grama Panchayat (full),

Porkulam grama Panchayat (part) and

Chovannur Grama Panchayat (part)

Thalassery Municipality Kodeyeri (Full)

(6) While 19 Village Panchayats 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 50,000.

3.1.2 Except item No.l, all the changes were brought into effect in September 2000, with the general elections to LSGIs. With this reorganisation of urban and rural local governments, the share of the urban population in the State with reference to 1991 census has gone up to 16.87% from 14.22%. Kerala has fairly big Village Panchayats, the biggest in the country. It has relatively small towns. In fact, other than the five cities it has

44

only three Municipalities having a population of more than one lakh.

3.1.3 The distribution of population among the Village Panchayats is given in Table 3.1

Table 3.1

Village Panchayats. Range of population No.of Village Panchayats

Below 10,000 16

Between 10,000 and 20,000 287

Between 20,000 and 30,000 426

Between 30,000 and 40,000 181

Between 40,000 and 50,000 59

Above 50,000 21

3.1.4 The distribution of population among Municipalities is shown in Table 3.2.

Table 3.2

Municipalities

Range of population No.of Municipalities Below 25,000 6 Between 25,000 and 40,000 18 Between 40,000 and 50,000 10 Between 50,000 and 60,000 6 Between 60,000 and 75,000 9 Between 75,000 and 1,00,000 1 Above 1,00,000 3

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3.1.5 The population of the five Corporations may be seen in Table3.3.

Table 3.3.

Corporations

Thiruvananthapuram 7,04,375

Kollam 3,49,348

Kochi 5,64,589

Thrissur 2,99,042

Kozhikode 4,19,831

3.1.6 It would be interesting to compare the distribution of Village Panchayats

and ULBs according to area as well. As is evident from Table 3.4, there is much similarity in size between Village Panchayats and ULBs.

Table 3.4

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3.1.7 Kerala has a long sea-coast. 89 Village Panchayats, 13 Municipalities and 4 Corporations face the sea.

3.1.8 The Village Panchayats were graded in 1983 based on their annual natural income i.e. income excluding all grants-in-aid, contributions and debt heads. The grading at that point of time may be seen in Table 3.5.

Table 3.5

Classification of Village Panchayats as per extant income norms.

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3.1.9 The grading using the same norms by the First SFC showed 979 Village Panchayats as Special Grade and the remaining four Panchayats as First Grade and Second Grade (two each) on the basis of the data on 987 Village Panchayats available with them.

3.1.10 Similarly Municipal Councils were graded in 1993. The classification of the Municipal Councils may be seen in Table 3.6.

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Table 3.6.

Classification of Municipalities as per extant income norms.

Subsequently Mattannur was constituted as a Municipality in 1996 and Perinthalmanna was upgraded to the status of a Grade II Municipality in 1999,

3.1.11 A few interesting statistical highlights regarding LSGIs are given below:

49

50

FINANCIAL POSITION OF LOCAL GOVERNMENTS

INCOME OF LOCAL GOVERNMENTS

3.2 For the purposes of this Report, income of local governments is discussed in two parts. The first part covering the tradi tional sources of income, which existed before 1994 and the second part covering the grant-in-aid given by Government to cover the expenditure on additional responsibilities transferred to local governments through the legislative changes made in 1994.

TRADITIONAL SOURCES OF INCOME

3.3 These are available only to the Village Panchayats and ULBs. They could be classified into the following categories.

(1) Tax Revenue

(2) Non-tax Revenue

(3) Grants-in-aid

(4) Loans

3.4A Tax Revenue could be further divided into three.

(a) Own Taxes

(b) Assigned Taxes

(c) Shared Taxes

TAX REVENUE

51

3.4A.1

These are taxes directly demanded and collected by Village Panchayats, Municipalities and Corporations.

3.4A.1.1 (i) PROPERTY TAX. Property Tax constitutes the major item of revenue for the Village Panchayats, Municipalities and Corporations, which have a per capita collection of Rs.12.39, Rs.77.62 and Rs. 151.30 respectively. Though amendments have been brought about in the Kerala Panchayat Raj Act and the Kerala Municipality 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 instructions have not yet been issued. Therefore, 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 had any general revision of Property Tax since 1993 and in the case of ULBs where the general revision varies from one Municipality to another there has not been any such revision after 1998. This has prevented the usual periodic increase in Property Tax, which normally works out to be 25% at the time of each general revision.

3.4A.1.2 In the case of Village Panchayats, Property Tax is assessed as per rules issued under Section 203 of the Kerala Panchayat Raj Act. The rate is fixed as between 6 to 10% of the annual rental value in the rules. (This has not been amended in consonance with the Act)

3.4A.1.3 The rates fixed as per the amended Section 233 of the Kerala Municipality Act are given in Table 3.7.

OWN TAXES

52

The maximum rate is 20% for Town Panchayats, 25% for Municipalities and Corporations.

3.4A.1.4 Property Tax constitutes 15 percent of the tax and non-tax revenues of Village Panchayats; the figure for Municipalities is 21.39 and for Corporations, it is 35.32. Property Tax has grown by 40.34% over a period of six years in the case of Village Panchayats. The increase for Municipalities and Corporations is 66,27% and 76.33% respectively.

3.4A.1.5 It is interesting to note that the LSGIs tend to levy lower tax even when they have a range to choose from. The First SFC has given the details relating to Village Panchayats and Municipalities, which can be seen in Tables 3.8 and 3.9.

53

TABLE 3.8.

Rate of Building Tax in 1985 and 1995 in Village Panchayats.

Data from 21 Panchayats have not been received.

TABLE 3.9.

Rate of Property Tax in 1995 in Urban Local Governments.

54

3.4A.2

3.4A.2.1

(ii) PROFESSION TAX. Profession Tax is levied from individuals and companies by virtue of Section 204 of the Kerala Panchayat Raj Act in the case of Village Panchayats and Section 245 of the Kerala Municipality Act in the case of Municipalities and Corporations. All companies and individuals transacting 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 concerned local government subject to the maximum rates prescribed by Government. However, Article 276 (2) of the Indian Constitution has fixed the maximum tax leviable per year at Rs.2500/-. Now the 11th Finance Commission has recommended that this provision be taken out of the Constitution and be made part of a Central Act so that its amendment could be easily made.

Based on the report of the First SFC, Profession Tax has been revised in Village Panchayats. (TABLE 3.10) But in the case of ULBs the revision is yet to be carried out. The old rates are still followed. (TABLE 3.11) However, Dearness Allowance is also now included in the calculation of income for assessment of Profession Tax in ULBs as suggested by First SFC.

TABLE 3.10

RATES OF PROFESSION TAX IN VILLAGE PANCHAYATS

55

TABLE 3.11

RATES OF PROFESSION TAX IN ULBs

56

3.4A.2.2 Profession Tax constitutes the second largest source of own income for the Village Panchayats and has the 5th position for the Urban Local Bodies. During the last six years the tax has grown by 101.6%, 110.49%, and 180.26% in \ Village Panchayats, Municipalities and Corporations respectively. This has been mainly due to the steep increase in salary due to the Pay Commission Recommendations and due to the inclusion of DA in the calculation of income in ULBs.

3.4A.3 (iii) ENTERTAINMENT TAX: Entertainment Tax is the third largest source of income for Village Panchayats and the second largest source of income for Municipalities and Corporations. In fact in the case of 21 Municipalities, Entertainment Tax constitutes the single largest source of own revenue (Annexure 3.1)

3.4A.3.1 Entertainment Tax is an own tax of local governments in Kerala and is collected according to the provisions of Section 3 of the Local Authorities Entertainment Tax Act. Consequent on the recommendations of the first SFC, Additional Tax on Entertainment has been merged with Entertainment Tax and the Kerala Additional Tax on Entertainment and Surcharge on Show Tax Act 1963 has been repealed. Now, as per the unified Act, Entertainment Tax is fixed between 24 to 48% of the price of admission.

3.4A.3.2 Though Entertainment Tax constitutes a significant local government income it is to be noted that there are no theatres either temporary or permanent in 331 Village Panchayats. Although Entertainment Tax has grown by 48.98% in Village Panchayats, 54.95% in Municipalities, and 44.21% in Corporations over the last six years, it is seen that gross collection of Entertainment Tax declined

57

both in Village Panchayats and Municipalities during the year 1998-99 in comparison with the previous year.

3.4A.3.3 There appears to be considerable 'escaped' tax in this item. This issue was considered in detail by the First SEC which recalled that both the earlier Municipal Finance Commissions viz., the Naha Commission 1985 and the Mohandas Commission 1993 had recommended that the collection of the Entertainment Tax be based on gross seating capacity and recommended optional switchover to taxation based on seating capacity. Analysis of figures given to SFC by the LSGIs shows that the average collection in Village Panchayats is equivalent to the average occupancy of 9.5%; the average occupancy for Municipalities and Corporations works out to 33% and 35% respectively. In spite of cinemas facing competition from Cable TV, it is felt that the occupancy would have been much higher.

3.4A.3.4 Though Entertainment Tax Act has been amended and an enabling provision introduced to tax on the basis of seating capacity the rules have not yet been framed. Also certain issues like general exemptions given to dramatic performances and circus shows, provision for blanket exemptions from tax etc, need a relook in the context of decentralisation.

3.4A.4 (iv) ADVERTISEMENT TAX. Advertisement Tax has relatively good potential in a consumerist state like Kerala. But the realization of revenue under this head has been quite low. It is seen that only 121 Village Panchayats are collecting Advertisement Tax. It constitutes only 0.34.% of own revenue in Municipalities and 0.62% in Corporations; in the case of Village Panchayats its share is a paltry 0.04%

Advertisement Tax is collected as per the provisions of Sec-

58

tion 209 of the Kerala Panchayat Raj Act and 271 of the Kerala Municipality Act. The tax is collected based on bye-laws framed by the Village Panchayats and ULBs. There are no rules issued by the Government regarding minimum rates or the mode of collection.

3.4A.5 (v) SERVICE TAX: This tax exists only in Village Panchayats. In ULBs it is an inbuilt component of Property Tax. It is provided for in Section 200 of the Kerala Panchayat Raj Act as per which Government is authorised to fix the minimum rates. The revised rules are under examination by the Subject Committee of the Legislature and are expected to be issued soon. The accepted recommendation of the First SFC to have an independent Service Tax has not yet been operationalised. The total collection of Service Tax in all the 976 Village Panchayats for which the data is available comes to Rs.1.89 crores or 0.7% of the own revenue.

3.4A.6 (vi) SHOW TAX INCLUDING SURCHARGE: This tax is levied as per Section 200 of the Kerala Panchayat Raj Act and Section 269 of the Kerala Municipality Act, which empower the local governments to levy and collect Show Tax on every show which includes any entertainment, exhibition, performance, amusement game, sport or race, that is performed in their territory. The Surcharge was collected as per the Additional Entertainment Act and Surcharge on Show Tax Act 1963. Now with the repeal of this Act, Surcharge cannot be realized. But steps to increase the existing rate by 25% have not yet been taken.

The present rates of Show Tax are indicated in Table 3.12.

59

The rates for Village Panchayats have not yet been revised in accordance with the recommendations of the First SFC.

The collection figures of Show Tax including surcharge for the Village Panchayats and for the Municipalities and Corporations are shown in Table 3,13.

TABLE 3.12.

RATES OF SHOW TAX.

a) Panchayats

b) Municipalities

60

TABLE 3.13.

Receipts from Show Tax & Surcharge on Show Tax.

(Rs. in lakhs)

3.4A.7 (vii) CESS ON CONVERSION OF LAND USE: This is a cess which can be levied by local governments for conversion of land use from paddy field, marshy land, pond or water body into garden or building site subject to the provisions of Kerala Land Utilisation Order 1967 issued under the Essential Commodities Act. Since there are severe restrictions on conversion of land use in Kerala, the collection has been naturally low. In Village Panchayats it was only a meagre sum of Rs.0.64 lakh in 1998-99; in the case of Municipalities and Corporations it was just Rs.5.53 lakh during the same period.

3.4A.8 (viii)TAX ON ANIMALS, VESSELS AND VEHICLES: This is applicable only to ULBs and is levied as per Section 260 of the Kerala Municipality Act 1994 which allows the Municipal Council to levy, based on its resolution, tax on domestic animals etc. This is a very insignificant item and the total collection for Municipalities and Corporations during 1998-99 amounted to Rs.2000/- only.

3.4A.9 (ix) TAX ON TIMBER: This again is a tax applicable only to ULBs. It is collected as per Section 277 of the Kerala Mu-

nicipality Act which allows the Council to collect in the manner decided by it a tax on timber brought into the Municipality at the rate of Rs.24/- per tonne. This has also fallen into disuse and only Kozhikode

61

Corporation which has the traditional timber yard of Kallai within its area is realizing this tax which fetched it a revenue of Rs.97,000/- during 19,98-99. This item of revenue has been declining year after year.

3.4A.10 (x) SURCHARGES: Both the Village Panchayats (as per Section 208 of the Kerala Panchayat Raj Act) and ULBs (as per Section 230 of the Kerala Municipality Act) are empowered to levy Surcharges. In the case of Village Panchayats up to 5% Surcharge can be levied on the Property Tax subject to a maximum of two Surcharges and in the case of ULBs a Surcharge not exceeding 10% can be levied on any Tax other than Profession Tax. This Surcharge is to be levied for providing for any specific services or amenity in the case of ULBs and for meeting any extraordinary expenditure by way of implementation of a scheme, plan or project in the case of Village Panchayats. This item has not been tapped in any of the ULBs. For Village Panchayats the total collection during 1998-99 was Rs.5.29 lakh, which works out to just 0.15 % of the Property Tax collected during the same year. It is noteworthy that even with specific quid pro quo, LSGIs have been reluctant to impose Surcharges.

62

3.4B

These taxes are collected by the Government but the entire revenue is assigned to local governments.

3.4B.1 (i) BASIC TAX. Kerala does not have a traditional system of land revenue. Instead it has a general tax on land known as the Basic Tax. The rates of Basic Tax are given in Table 3.14

TABLE 3.14.

3.4B.1.1 The entire collection is given to the rural LSGIs after deducting a collection charge of 3%. 3/8th of the Basic Tax is given to the Village Panchayats, 3/10th to the Block Panchayats, and l/5th to the District Panchayats. The remaining l/8th is credited to the Rural Pool. Except in the case of Rural Pool, the distribution is as per the area of the concerned Panchayat. Though Government had accepted the recommendation of the First SFC to give a share of Basic Tax to the ULBs this has not been operationalised so far.

ASSIGNED TAXES

63

3.4B.1.2 The Basic Tax collected and distributed during the last five years is shown in Table 3.15.

TABLE 3.15.

DETAILS OF BASIC TAX GRANT

(Rs. in crores)

* Includes three instalments of old arrears distributed at Rs.8.41 Crore per instalment

3.4B.2 (ii) SURCHARGE ON STAMP DUTY: Under the provisions of the Kerala Stamp Act 1959, for every transaction relating to land, Stamp Duty and Registration fee are levied. As per Section 206 of the Kerala Panchayat Raj Act and Section 270 of the Kerala Municipality Act, Village Panchayats and ULBs are entitled to levy 5% of the amount of the value of the property transacted. But in practice only the pre 1994 rates of Surcharge i.e. 4% for Village Panchayats and Municipalities and 5% for Corporations is levied.

3.4B.2.1 The earlier and the present rates are given in Table 3.16.

64

TABLE 3.16.

Rate of Stamp Duty and Surcharge under the 1960 and 1994 Acts

* Registration fee is collected by State Government and is not shared with Local Bodies.

** 5% is the maximum rate permitted. At the time of the Report the rate collected remains at 4%

3.4B.2.2 In accordance with the recommendations of the First SFC, Government have introduced a system whereby the receipts are shown in the Budget under the Head of Account "0030-Stamps and Registration - 02 Stamps non-judicial 901 - Deduct payment to Local Bodies of net proceeds of Duty on Transfer of Properties" which enables direct payments to local governments of the amounts collected during the financial year. The amount collected and distrib-uted during the last five years is shown in Table 3.17.

The above rates were introduced from 1-4-1971

65

TABLE 3.17.

DISTRIBUTION OF SURCHARGE ON STAMP DUTY

(Rs. in lakhs)

NOTE:- There are time lags between collection and distribution.

3.4B.2.3 As per G.O. (Ms) 118/94/LAD dated 02.08.1994 the Inspector General of Registration is empowered to deduct dues to Kerala Water Authority from Village Panchayats, Municipalities and Corporations from the Surcharge on

66

Stamp Duty and pay them directly to the Kerala Water Authority (KWA). The amounts thus deducted and given to the Water Authority in the last five years are indicated in Table 3.18.

TABLE 3.18

STAMP DUTY DEDUCTED AND PAID TO KWA

(Rupees in lakhs} Amount deducted

3.4B.2.4 Stamp Duty constitutes an important source of revenue of local governments and it constitutes 13.71% of the total Own revenue of Village Panchayats, 9.37% of Municipalities and 17.5% of Corporations during 1998-1999. The proceeds are distributed to ULBs according to the place of registration of the transaction and to Village Panchayats on population basis (other than the 25% credited to the Rural Pool).

67

3.4C

3.4C.1 MOTOR VEHICLE TAX. This is the only shared tax and it is called Vehicle Tax Compensation (VTC) and is given to local governments as per Section 19 of the Motor Vehicles Taxation Act 1976.

3.4C.1.1 20% of the net collection of Motor Vehicles Tax is distributed among Village Panchayats and ULBs as per road length according to the formula based in unit length of roads given in the Table 3.19.

TABLE 3.19

CALCULATION OF ROAD UNITS FOR DISTRIBUTION OF VTC

Actual collection of Motor Vehicles Tax and the actual distribution during the last five years can be seen in Table 3.20.

SHARED TAX

68

TABLE 3.20

COLLECTION AND DISTRIBUTION OF MVT TO LSGIs

(Rs. in lakhs)

Year Gross Net Amount Percentage Collection Collection Collection distributed

1995-96 21694 21043 2500 11.88 1996-97 22109 21445 4348 20.28

1997-98 27425 26602 5148 19.35

1998-99 29261 28383 4990 17.58

1999-2000 37120 36006 7885 21.90

3.4C.1.2 Over the years there used to be substantial arrears in the payment of Basic Tax, Surcharge on Stamp Duty and Vehicles Tax Compensation. Based on the recommendations of the First SFC, Government released Rs.150 crores in three instalments as a one-time settlement of dues under Basic Tax, Surcharge on Stamp Duty and VTC.

3.5 Non-tax revenue of Village Panchayats, Municipalities and Corporations

could be classified as follows:

(1) Licence fee

(2) Gate fee

(3) Rent from Property

(4) Income from Property other than rent,

NON-TAX REVENUE

69

(5) Permit fee

(6) Registration fee

(7) Service/User charge

(8) Other sources

3.5.1 LICENCE FEE : This constitutes the most important source of non-tax revenue. The following are the important items for which licence fees are collected by local governments.

(i) Trade Licences

(ii) Licences under prevention of Food Adulteration Act.

(iii) Licences under the Kerala Cinemas Regulation Act.

(iv) Licencing of Private Slaughter House.

(v) Licencing of Private Markets

(vi) Licences under the Kerala Places of Public Resorts Act

(vii) Licencing of Private Parking and Halting Places

(viii) Licencing of Private Burial and Burning Grounds

(ix) Licencing of Technical Experts

(x) Licencing of Domestic Animals

(xi) Licencing of Animal Stalls kept for commercial pur poses.

(xii) Licencing of Special Trades like Butchers, Fishmon gers,

Poulterers, Commission Agents and Brokers.

70

3.5.2 GATE FEES : These are fees, which are normally farmed out by auction to the highest bidder who is then given the right to regulate entry based on certain fees. The major sources of gate fees are -

(1) Public Market

(2) Public Parking and Halting places

(3) Public Slaughter Houses

3.5.3 INCOME FROM PROPERTY: Rent. This is an important item of non-tax revenue for urban local bodies and urbanized Village Panchayats. Rents could be classified based on the type of property.

1. Rent from buildings

2. Rent from lands

3. Rent from cloak rooms and comfort stations

3.5.4 INCOME FROM PROPERTY OTHER THAN RENT: This can be classified into three.

(i) Proceeds from sale of right to collect river sand,

(ii) Proceeds from sale of right to fish,

(iii) Proceeds from sale of usufructs.

3.5.5 PERMIT FEES: Permit fees are of two kinds.

(1) Fee for Building permits

71

(2) Fee for permits for the construction, establishment or installation of factories, workshops or work places where electricity is used.

3.5.6 REGISTRATION FEES: This can be grouped as follows:

1. Registration of Hospital and Para medical institutions.

2. Registration of Tutorials.

3. Registration of Births and Deaths.

4. Registration of Contractors (only in ULBs)

5. Registration of lodgings (only in Malabar area - un der the Madras Public Health Act).

3.5.7 SERVICE/USER CHARGES: These relate to charges collected for use of utilities and amenities provided by the LSGIs.

3.5.8 INCOME FROM FERRIES: As per the Kerala Panchayat Raj Act and the Kerala Municipality Act and as per the various Ferries Acts, function of providing ferries has been transferred to the Village Panchayats and ULBs. This income could be either by auctioning of the right to ply ferries or by charging from users.

3.5.9 FINES AND PENALTIES: These are realized by the LSGIs when there is a contravention of regulations or there are be lated payments. A study done in Municipalities shows that there is serious laxity in the enforcement of penal provisions [Annexure 3.2]

3.5.10 SUNDRY ITEMS: These miscellaneous sources of revenue could be listed as follows:

72

(1) Proceeds from auctioning of meat stalls (done in a few Village Panchayats only).

(2) Interest on deposits.

(3) Endowments.

(4) Return on investments like shares.

(5) Contributions/donations.

(6) Hire charges of vehicles/machinery.

(7) Income from cattle pounds.

(8) Income from Libraries.

(9) Sale of Forms.

(10) Sale of unserviceable articles and fallen trees.

(11) Other items which cannot be classified.

3.5.10.1 The details regarding the rates for each of the important sources of non-tax revenue are given in the Annexures in Chapter IX relating to the existing and suggested rates.

The percentage share of important items of non-tax revenue is given in Table 3.21.

73

TABLE 3.21.

SHARE OF IMPORTANT ITEMS OF NON-TAX REVENUE IN TOTAL NON-TAX REVENUE.

3.5.10.2 Diagramatic depiction of shares of major sources of income in respect of Village Panchayats, Municipalities and Corporations can be seen in figures 3.1 to 3.6.

74

75

77

78

79

3.6 In the case of Village Panchayats, now there are only two Non-Plan Grants-in-aid from Government viz., Rural Pool and Level Crossing grant-in-aid. Rural Pool has been created by pooling the 14 specific purpose grants-in-aid, which were in vogue earlier, 25% of the surcharge on Stamp Duty and l/8th of the Basic Tax. The amounts released to Village Panchayats after the constitution of Rural Pool are shown in Table 3.22.

TABLE 3.22.

GRANTS-IN-AID FROM THE RURAL POOL

(Rupees in Crores.)

3.6.2 The grant for Level Crossing is given only to five Village Panchayats to

meet the additional burden on them due to existence of manned Level Crossings whose establishment costs need to be shared with the Railways.

3.6.3 In the case of ULBs there are two grants - General Purpose Grant and Specific Purpose Grant. General Purpose Grant is a per capita grant calculated as follows:

GRANT-IN-AID FROM GOVERNMENT

80

It is governed by the General Purpose Grant-in-aid Rules 1962, The amounts released under this head during the last five years are shown in Table 3.23.

TABLE 3.23

DISTRIBUTION OF GENERAL PURPOSE GRANTS

(Rupees in lakhs)

1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000

Municipalities 71.31 71.31 64.49 64.42 64.51 64.48

Corporations 30.17 30.17 30.17 30.17 30.17 30.17

3.6.4 Specific Purpose Grant is given for identified purposes like running of Maternity and Child Welfare Centres, Nursery Schools, Poor Homes, and carrying out Town Planning and Town Survey operations, And Mosquito operations etc. This is governed by the Specific Purpose Grant-in-aid Rules. Actually it is a commitment by Government to share a portion of the running expenses of the selected services mentioned above, at the rate of half for Corporations and Major Municipalities and 2/3rd for Minor Municipalities. Actually the amount provided for specific purpose grant is far less than what is required as per rules. Originally the Grant-in-aid was given only with the prior approval of the Government. But during the last few years it is given more or less as a general-purpose grant.

The amounts released to Municipalities and Corporations during the last five years are shown in Table 3.24.

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3.6.5 In addition to the above mentioned grants, there are two kinds of special grants given to both Village Panchayats and ULBs. 96 Primary Schools and 21 High Schools are run by Village Panchayats and 3 Primary Schools and 2 High Schools are run by ULBs. The Education Department gives a grant-in-aid for running these schools, which are treated as Aided Schools as per the Kerala Education Rules.

The amounts given during the last three years are summarized in the Table 3.25.

TABLE 3.25.

Grant-in-aid given to local governments for running Schools

(Rs. in lakhs) Year Village Panchayat Municipality Corporation

1996-97 1.36 NIL NIL

1997-98 2.18 NIL 0.63

1998-99 4.16 NIL 0.23

TABLE 3.24.

DISTRIBUTION OF SPECIFIC PURPOSE GRANT-IN-AID

(Rupees in lakhs)

82

Similarly, libraries run by Village Panchayats and affiliated to the Kerala Grandhasala Sangham, which gives grant-in-aid as per the size of the library. The grant –in-aid given during the last three years are noted in Table

TABLE 3.26. Grant-in-aid given to local governments for running Libraries

Year Village Panachayat Municipality Corporation

96-97 5.29 1.94 0.52

97-98 14.99 1.92 0.58

98-99 4.95 2.34 0.73

3.7 In the case of Village Panchayats, loans can be taken with prior

Government permission from the Kerala State Rural Development Board (RDB) or Commercial Banks. With the acceptance of the recommendation of the First SFC, Government decided to restructure RDB. Now it does not give loans and is engaged in completing the construction projects taken up earlier. However, the Village Panchayats owe Rs.7.98 crores to RDB by way of overdues. In addition in the last two years Village Panchayats have been taking Housing Loan from HUDCO and Co-operative Bank, jointly with the Block and District Panchayats. LSGIs in Kollam have borrowed Rs.80 crores from HUDCO in 2000-2001. Similarly LSGIs in Thiruvananthapuram have availed themselves of Rs.89.62 crores from the State Co-operative Bank. These loans are for

LOANS

83

3.7.2

house construction for families Below the Poverty Line. They are guaranteed by the Government and repayment of interest would be from future Plan funds and repayment of the principal amount is taken care of by fixed deposits which would multiply over a period to the amount needed for repayment. ULBs have also taken these special loans.

In the case of urban local governments the major sources of loans are the Kerala Urban Development Finance Corporation (KUDFC), HUDCO and Commercial Banks. In addition there are loans from Government, Institution-wise distribution of loans taken by ULBs during the last five years is given in Table 3.27.

TABLE 3.27.

LOANS AVAILED BY ULBs

Loan released by KUDFC

Loan released by HUDCO

(Rupees in lakhs)

84

Loan Released by Commercial Banks

3.8 Both Village Panchayats and Municipalities 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, Library Cess, Taxes deducted at source, contributions to Provident and Pension funds (for ULBs), Advances etc.

GOVERNMENT SRANTS-IN-AID FOR TRANSFERRED RESPONSIBILITIES

3.9 New forms of grant-in-aid are being given to all local governments since 1995 to discharge the new responsibilities transferred to them. These can be grouped into two.

1. General Plan grant-in-aid for local development projects

2. Specific-purpose grant-in-aid for transferred responsibilities Plan and Non-Plan.

FUNDS NOT USABLE FOR ITS ROUTINE FUNCTIONING BY LOCAL GOVERNMENTS

85

3.9.1 GENERAL PLAN GRANTS-IN-AID. Government have been giving Plan Grants-in-aid for preparing local level development schemes. This is a practically untied grant, with the specification that at least 40% of the grant-in-aid given to Panchayat Raj Institutions should be spent on the productive sector and not more than 30% can be spent on infrastructure; in the case of ULBs, the figures are 30% and 40% respectively. (In addition, for taking up Housing and Water supply Schemes up to 10% can be diverted from the productive sector by any LSGI). The amounts given to various LSGIs during the last four years are shown in Table 3.28.

TABLE 3.28.

PLAN GRANT-IN-AID DEVOLVED TO LSGIs

(Rupees in crores)

* In 1996-97 Plan Grants were called untied Funds

Since 1998-99 the grant-in-aid is devolved as per the formula given in table 3.29.

86

TABLE 3.29.

FORMULA FOR DEVOLUTION OF PLAN GRANTS

Weightage (Percentage)

3.9.2

SPECIFIC PURPOSE GRANTS-IN-AID FOR TRANSFERRED RESPONSIBILITIES: Kerala has followed a unique system of earmarking funds to various LSGIs as part of the budgetary process by introducing a minor Head '191' along with various Heads of Account operated by different departments. Thus a local government entitlement has been created. Once the minor Head 191 is shown, the funds are

87

non-divertible by the departments for other purposes. These funds could be broadly classified as follows: i Grant-in-aid for implementing transferred Plan schemes both State sponsored and Centrally sponsored.

ii. Grant-in-aid for implementing specific programmes under non-plan, particularly welfare pensions.

iii. Non-plan grant-in-aid for running/maintaining institutions/offices transferred to local governments.

iv. Establishment grants for Block Panchayats and District Panchayats.

The State sponsored and Centrally sponsored schemes transferred to various local governments as provided for in the Budget for the year 2000-2001 are summarized in Annexure - 3.3.

3.11

The details of non-plan grant-in-aid for specific programmes as given in the Budget for the year 2000-2001 are summarized in Annexure - 3.4.

3.12

For the assets and institutions transferred to local governments, Government meets the salary component as well as the opera-

GRANTS IN- AID FOR STATE AND CENTRALLY SPONSERED PLAN SCHEMES

3.10

GRANT-IN-AID FOR SPECIFIC PROGRAMMES UNDER NON-PLAN

NON-PLAN GRANT-IN-AID FOR RUNNING/MAINTAINIG THE OFFICERS/INSTITUTIONS TRANSFERRED TO LOCAL

GOVERNMENTS

88

tional expenses like supply of medicines in hospitals. However, office expenses and maintenance costs are given as non-plan grants to LSGIs. The comparative figures for the last four years for Health, Education and Public Works Departments who have transferred most of their assets to LSGIs can be seen in Table 3.30.

TABLE 3.30

NON-PLAN GRANT-IN-AID TO LSGIs

(Rupees in lakhs]

Non-Plan Grant-in-aid for all local governments together

/. Health 2.27 2.59 2.69 3.10 2,78

2. General Education

367.00 481.00 484.00 484.00 536.(

3.PWD 1451.9

7 1597.17

1756.69

1932.16

2317.99

This clearly shows that the funds given to LSGIs are inadequate vis a-vis the maintenance requirements. This underlines the need to rationalize allocation of funds for establishment purposes and mainte nance purposes in respect of the institutions and offices transfers to local governments.

NON-PLAN ESTABLISHMENT GRANT FOR BLOCK AN! DISTRICT PANCHAYATS.

For meeting the establishment costs including salary and related expenses of staff from the Panchayat Department deployed specifically to the

89

Block and District Panchayats, honorarium and travel

90

expenses of elected members and other office expenses, a grant-in-aid is paid to them. This grant-in-aid, which was fixed in 1996, has not been changed since then, even though the salaries of staff have increased considerably after the 1997 Pay Revision and the honorarium of elected members was enhanced based on the recommendation of the Committee on Decentralisation of Powers. As of now each District Panchayat gets an annual grant of Rs. 16.43 lakh and each Block Panchayat gets Rs. 4.01 lakh. Figures collected from District Panchayats and Block Panchayats show that this provision is highly inadequate resulting in diversion of other grants-in-aid for meeting establishment cost. (Table 3.31).

TABLE 3.31 RECEIPT AND EXPENDITURE OF THE ESTABLISHMENT

GRANTS FOR DISTRICT PANCHAYATS/BLOCK PANCHAYATS

District Panchayat

Block Panchayat

91

EXPENDITURE OF LOCAL GOVERNMENTS

EXPENDITURE FROM TRADITIONAL SOURCES

3.14 Expenditure from the traditional sources of revenue can be classified into three.

1. Establishment costs

2. Expenditure on obligatory duties.

3. Expenditure on development works.

The expenditure on these three categories and their sub-categories over the last six years for Village Panchayats, Municipalities and Corporations is summarized in Table 3.32.

TABLE 3.32

EXPENDITURE PATTERNS IN VILLAGE PANCHAYATS AND

ULBs.

92

93

94

3.15

95

3.5 Relating to Village Panchayat

3.5.1 Total receipts (excluding grant-in-aid for peoples' plan campaign) of Village Panchayats 1993-94 to 1998-99

3.5.2 Abstract of Total receipts of Village Panchayats under own revenue

3.5.3 Percentage share of taxes to total Direct Tax Revenue

3.5.4 Percentage increase of taxes over previous year

3.5.5 Percentage increase of own revenue over previous years

3.5.6 Share of taxes in total own revenue

3.5.7 Share of each item under own revenue

3.5.8 Total expenditure of Village Panchayats for the years 1993-94 to 1998-99 (excluding plan grant-in-aid for peoples' plan campaign)

3.5.9 Per capita expenditure of Village Panchayats

3.6 Relating to Municipalities

3.6.1 Total receipts (excluding grant-in-aid for peoples' plan campaign) of Municipalities 1993-94 to 1998-99

3.6.2 Abstract of Total receipts of Municipalities under own revenue

3.6.3 Percentage share of taxes to total own tax revenue

3.6.4 Percentage increase of taxes over previous year

3.6.5 Percentage increase of own revenue over previous years

3.6.6 Share of taxes in total own revenue

96

3.6.7 Share of each item under own revenue

3.6.8 Total Receipts and Expenditure of Municipalities

3.6.9 Per Capita Expenditure of Municipalities

3.6.10 Total Receipts and Expenditure of Municipalities at; glance

3.7 Relating to Municipal Corporations

3.7.1 Total receipts (excluding grant-in-aid for peoples' phi campaign of Municipal Corporations 1993-94 to 1991 99

3.7.2 Abstract of Total receipts of Municipal Corporation under own revenue

3.7.3 Percentage share of taxes to total own tax revenue

3.7.4 Percentage increase of taxes over previous year

3.7.5 Percentage increase of own revenue over previous yeai

3.7.6 Share of taxes in total own revenue

3.7.7 Share of each item under own revenue

3.7.8 Total Receipts and Expenditure of Municipi Corporations

3.7.9 Per Capita Expenditure of Municipal Corporations

3.7.10 Total Receipts and Expenditure of Municipi Corporations at a glance

97

3.15.1 For meeting the establishment costs as well as performing the obligatory duties the Village Panchayats and ULBs can use tax revenue other than shared tax, non-tax revenue, specific purpose and general purpose grants (in the case of ULBs) and Rural Pool (in the case of Village Panchayats). The degree of self sufficiency of various LSGIs can be gauged from Table 3.33.

98

3.15.2 General picture of self sufficiency for establishment as well as obligatory functions as revealed by expenditure percentage for various categories of establishment and obligatory functions is given in Table 3.34

TABLE 3.34

SELF-SUFFICIENCY OF LSGIs

3.15.3 The comparative trend of increase in revenue in relation to increase of expenditure on establishment as well as obligatory duties over the last six years is given in figures 3.7, 3.8 and 3.9 for Village Panchayats, Municipalities and Corporations respectively.

99

100

Own Revenue Expenditure

• Own Revenue • Expenditure

MUNICIPALITIES

101

102

CHAPTER 4

THE DECENTRALISATION PROCESS - A SUMMARY

4.1 Consequent on the 73rd and 74th Amendments to the Constitution, Kerala passed two new legislations in 1994, viz., The Kerala Panchayat Raj Act 1994 and the Kerala Municipality Act 1994. They listed out the functional responsibilities of the three tier Panchayat Raj Institutions and the Urban Local Bodies in the Schedules of the Acts. However, most of the subjects listed were quite general in nature and it cannot be said that there was an attempt to consciously and clearly demarcate the functional domains of LSGIs in the sense of sharing developmental governance responsibilities with the State and Central Governments.

4.2 However, this deficiency was covered to some extent through the Government Order No.GO(P) 189/95/LAD issued in September 1995 which provided for the transfer of a large number of institutions and staff to the different LSGIs. This order indicated the policy framework for defining the functional areas to be assigned to local governments. Also the order brought out the key feature of decentralisation in the State i.e., the strengthening of Village Panchayats and the Urban Local Bodies. Only a limited number of institutions and staff were transferred to the Block Panchayats and District Panchayats. The details of the transfer are summarized in Annexure 4.1

4.3 But due to want of effective operational instructions and due to lack of.sufficient resources, the LSGIs could not realize their entitlements to any significant level.

103

The budget presented in 1996 February, can be considered as the next important milestone in the decentralisation process. It: expanded the concept of untied funds. It was in 1990 that foi the first time a small amount was set apart for Village Panchayafc as a plan scheme for which they could draw up their own schemes according to local priorities. This scheme, which had an allotmen; of Rs. 28.58 crores in 1995-96, was stepped up to Rs.155.71 crores and extended to all LSGIs, both urban and rural. The budget enshrined two important procedural innovations. First the idea of a separate budget document for local governments was brought into effect. To this was added the innovation oi giving the specific Head of Account "191" which indicated gram to LSGIs and which allowed Heads of Department to transfei credit the amount only to the LSGIs. Any other way of drawing the grants was prevented by this procedural device. Thus th; local governments got legislative approval for their resoura allocation and a separate sub system of grants in aid, which couli flow only to LSGIs, was created. The second innovation relate to bringing certain departmental Plan schemes into the sped system and they were the forerunners of the so called "State sponsored schemes" which still constitute about a tenth of Ph grant-in-aid to LSGIs. Such schemes are implemented by LSGIs according to the guidelines issued by the State or Centra Governments.

4.4 The most important landmark in the decentralisation process of the State is of course the momentous decision taken in July 199f to earmark 35 to 40% of the Plan resources to LSGIs and th launch of the People's Plan Campaign in August 1996 to provid a framework for decentralisation, flesh it out and infuse life into it.

104

4.5 Thus considerable resources were handed down to the LSGIs through this policy decision of the Government and proper utilisation of the resources was attempted through the mechanics of People's Plan Campaign. The funds transferred to LSGIs as part of this government decision are indicated in Table 4.1

TABLE 4.1

TOTAL PLAN GRANTS TO LSGIs

Year State Plan Size (inlakhs)

Village Panchayat

Block Panchayat

District Panchayat

Munici-pality

Corpora-tion

Total Percent of Plan Size

1997-98

285500 50686.42 38715.98 18885.64 1525.1 1384.58 111197.7 38.96

1998-99

310000 61460.7 23245.15 17061.74 10174.08 5848.23 117799 38.00

1999-2000

3251010 63925.3 20049.28 16973 8953 4435.72 114335 35.10

2000-2001

353500 63637.38 18459.61 16667.47 9802.56 5673.79 114240.8 32.32

4.6 The availability of resources enabled the local governments to realize their functional responsibilities by formulating and implementing developmental projects in respect of functions assigned to them.

4.7 PEOPLE'S PLAN CAMPAIGN: Decentralised local level planning has been used

as the engine for harnessing public action in favour of decentralisation. In order to shake the system and force the process, a campaign approach has been followed. This campaign has succeeded in setting the agenda for decentralised development.

105

4.8 The People's Plan Campaign has succeeded in providing concrete methodology for participatory plan for local lei development. The salient features of this methodology described below, stage by stage.

4.8.1 Needs identification: Through a meeting of Grama Sabi Ward Sabha (in the case of urban local bodies), the felt ne« of the community are identified. There is a period of environs creation to mobilise maximum participation in the Srama/Wn Sabhas. Statistics reveal that about 10 to!2 percent of population has participated in the 6rama/Ward Sabhas Kelt part of the People's Planning Campaign. The Grama/Ward sab meetings are held in a semistructured manner with pier sessions and sub- group sessions dealing with sped developmental issues. The decisions are minuted and forwarc to the Village Panchayats and ULBs.

4.8.2 Situation analysis. Based on the demands emanating ft the Grama/Ward Sabha and based on developmental data, primary and secondary, exhaustive Development Reports been prepared and printed in the case of every IS&I in State. These reports describe the status in each sector development with reference to available data, analyze problems and potential and point out broad strategies for ft development.

4.8.3 Strategy setting: Based on the Grama/Ward Sabha feed I and the Development Report, a one day seminar is held at I local government level in which participation of experts, elect members, representatives nominated by 6rama/Ward Sato and practitioners from among the public is ensured. Thi Development Seminars decide the broad priorities andf general thrust of developmental projects to be taken particular year.

106

4.8.4 Projectisation: The ideas thrown up by the above three stages are translated into projects by Task Forces at the LSGI level. For each LSGI there are about 12 Task Forces dealing with different sectors of development. Each Task Force is headed by an elected member and is convened by the concerned government official. The Vice Chairman of the Task Force is normally a non-government expert in the sector. The projects are prepared in the suggested format outlining the objectives, explaining the benefits, describing the funding and detailing the mode of execution and the phasing of the project.

4.8.5 Plan finalisation: From among the projects, based on the allocation communicated, the concerned LSGI finalizes its plan for the year and this plan is submitted to the District Planning Committee (DPC) through the Expert Committees.

4.8.6 Plan vetting: The Expert Committees at the Block/Municipal and District level vet the projects for their technical viability and consonance with the government guidelines on planning and costing and forward them to the DPC,

4.8.7 Plan approval: The DPC gives the formal approval to the plans after which the LSGI can start implementation. It is to be noted that the DPC cannot change the priority of an LSGI. It can only ensure that government guidelines are followed. Administrative approval for implementation is given project-wise by the concerned LSGI. Every local government has unlimited powers of Administrative Sanction subject only to the limits of its financial resources.

4.8.7.1 The most noteworthy feature of the decentralised planning process is the freedom to plan and prepare projects according to

107

local priorities using the Plan grant-in-aid, which is devolved the LSGIs in a practically untied form. The only restriction ( the LSGIs is that they have to spend at least 40% (30% in tl case of ULBs) on the productive sector - meaning agricultui and allied activities, industries, self-employment etc., and nc more than 30% (40% in the case of ULBs) on infrastructure.] general stipulation that 10% of the funds have to be spent 01 women's development projects is also there. The Specia Component Plan/Tribal Sub-Plan component for each LSGIii indicated clearly. Also upper-limits of subsidy for beneficial oriented schemes has been fixed by Government after consultation with the LSGIs. Thus one third of development schemes in tit State are conceptualized, formulated and implemented by LSGIs, The physical achievements of LSGIs in the three years starting from 1997-1998 are captured in Annexures 4.2.1, 4.2.2 and 4.2.3.

4.8.7.2 Another important feature of the People's Planning Campaign has been the effective capacity building efforts taken up. In the( first year a cascading system of training was introduced to enable quick outreach to the cutting edge level. About 600 Key Resource Persons (KRPs) were identified at the State level both frou Government and outside, representing various disciplines. Ai the district level about 10,000 District Resource Persons (DRPs) and at the local government level about 100,000 Local Resource Persons (LRPs) were selected. All the DRPs and LRPs and a good number of KRPs were selected by the LSGIs themselves from government officials, professionals and activists. Thel massive training programme ensured that at the level of a Village Panchayat or ULB, there would be nearly 100 persons sensitized on the objectives and methodology of decentralised planning, These Resource Persons have taken an active part in spearheading the campaign as well as intervening in critical stages of the Plan preparation and implementation cycle.

4.8.7.3 In order to fortify and simplify the training system from the second year, handbooks on various development sectors were prepared by expert panels and circulated widely among the LSGIs and Resource persons. These handbooks outline the problems and possibilities of the sector and contain model projects, which can be adapted according to local needs. Thirteen such sector- specific handbooks have been prepared so far; in addition twelve handbooks have been prepared on topics dealing with operational procedure.

4.8.7.4 Now the focus is on strengthening the capacity of the Task Forces on various sectors. Institutions like Medical College, Agricultural University, Centre for Water Resource Development and Management (CWRDM) etc., are being utilised to provide high quality technical training to members of Task Forces in their respective disciplines. In addition, LSGIs, which have evolved successful models, are now utilised to train sister LSGIs by ex lved.

4.8.8

Wtrm

4.8.8.1 AVC

posing them to the models evo

PROCEDURAL REFORMS

ith the objective of promoting people's participation and introducing ansparent and norm - based decision making to reduce prosibilities of alfeasance, certain basic procedural reforms have been introduced. Three

ention.

such reforms deserve special m

(1) EXPERT COMMITTEES

108

major innovation is the setting up of Expert Committees. Originally a olunteer Technical Corps (VTC) was set up as part of the People's Planning ampaign at Block and District levels.

109

This consisted of experts in various fields who responded to tl call of Government to render voluntary professional services i the cause of local level development. These VTCs were converts into Block/Municipal Level Expert Committees (BLEC/MLEC and District Level Expert Committees (DLEC) by adding to it membership professionals from Government. These Exper Committees are given a three-fold role. Firstly they are expectei to provide technical advice to the LSGIs whenever requested. I: this respect they act as Technical Resource Groups for LSGIs t tap. Secondly they are empowered to technically vet the project of the LSGIs before they are sent to the DPCs for approva Here the Expert Committees function as the Technical Advisor Groups of the DPC. However these Expert Committees are m empowered to change the priority of an LSGI; they can on! insist on following of technical standards, adherence t mandatory Government instructions and proper costing an phasing of various programmes. The third function of the Exper Committees is to give Technical Sanction for works, which requir such approval. In this role they function as the Technical Suppor Group of the LSGIs. For technical sanction, sub groups consists of at least three experts are formed in which as far as possibl the Government professional is the Convenor and the non government professional is the Chairperson. This system c technical approval is faster, cheaper and more transparent, I; the case of Village Panchayats without engineers, the engine? members of these Expert Committees are allowed to perforr the role of the engineers on payment of a small fee not exceedini 2.5% of the estimate of a work for the full range of functions,

4.8.8.2 Selection of beneficiaries for various individual and grou: oriented development programmes, particularly relating to ant

(2) SELECTION OF BENEFICIARIES

110

poverty and minimum needs programmes for people below poverty line is an important activity of LSGIs. Without infringing on the basic autonomy of LSGIs, the Government have prescribed a due process for beneficiary selection. The key elements of this process are fixing of definite and transparent eligibility criteria for each scheme as well as prioritisation criteria among those eligible for such scheme. The prioritisation criteria have to be given weightages in the form of points or marks. These criteria have to be published and application forms invited after widespread publicity. In fact, full-page advertisements are issued by Government alerting the people about impending beneficiary selection and exhorting them to approach the LSGIs. Each application received has to be acknowledged. Thereafter it has to be enquired into either through officials or preferably through a committee of officials and non-officials and marks awarded for each criterion and totalled. A draft priority list based on these marks has to be prepared and taken to the Grama/Ward Sabha in which the applicants from that particular ward also participate. The marks have to be justified in the Grama/Ward Sabha and altered if decided by the Grama/Ward Sabha. Once the Grama/ Ward Sabha approves the list, the priority cannot be changed by the LSGIs. In order to ensure equitable distribution of benefits among the different wards of a Village Panchayat/Urban Local Body, ward-wise physical target is prepared in proportion to eligible applicants. Even for selection of beneficiaries to schemes sponsored by Block Panchayats and District Panchayats it is the Grama Panchayat, which is to perform the function through its Grama Sabhas in the manner prescribed above. All records relating to selection of beneficiaries have been declared as public documents. This insistence on due process has considerably reduced patronage and nepotism in the selection of beneficiaries.

4.8.8.3 In a fundamental shift from the existing method a set of rules

(3) EXECUTION OF PUBLIC WORKS

111

for execution of public works by LSGIs was issued. It providt for community contracting of works through committees (I beneficiaries along with stringent provisions to guard again" benami contractors masquerading as conveners or nominees I beneficiary committees. The rules provide for compulsor transparency with all records relating to a public work right fro; preliminary estimates, up to final bills and payment vouchee being declared as public documents for any one to peruse or tat copies. The rules also insist on preparation of a summary of tt estimate in layman's language and exhibition of this summaryi well as details of execution at the work site. In addition th process of technical approval is sought to be demystified so th; government could, through an executive order, bestow powei of technical sanction on institutions as well as committees ( government or non-government professionals. This radic; feature provides for easy access to technical expertise, ll pursuance of these rules the government have decided on programme of preparing a separate public works manual for loci governments with updated specifications and standards and mor accountable and people-friendly methods of preparation c estimates, taking measurements of public works and finalizini bills. This ambitious programme when it is carried to its logic; conclusion is expected to improve the execution of public wort by reducing chances of corruption and facilitating social audit

Even while a comprehensive methodology for local planning am a system of

procedural safeguards have been put in place, theft are issues of concern

which need to be addressed. The settins up of institutions of genuine local

self governance is still in A nascent stage. It is in this phase that a careful

nurturing is needed which includes weeding out undesirable elements and

rectifyiting distortions which creep into the implementation process, despit

the safeguards in place. In this respect, the important issue which are relevant

for the long term sustainability of th

ISSUES TO BE ADDRESSED 4.9

112

decentralisation process, some of them interrelated, are summarised below.

1. There is a need to enhance the quality of peoples' participation. Gram Sabhas and Ward Sabhas have to move away from being primarily 'benefit deciding' mechanisms to institutions for meaningful dialogue on developmental priorities and for channelising public contribution for the common good. All sections of the public have to be attracted to these institutions.

2. The elaborate provisions for transparency are being only minimally utilised. Unless there is a powerful check from below, there is every likelihood of misutilisation of the vast powers conferred on the local governments. Hence there is an urgency for setting up systems of social audit.

3. The persistent malfeasance and corruption is disconcerting. A major threat to decentralisation is the corruption involved in the execution of public works through 'benami' contractors, defeating the very purpose of participatory development. It has to be recognised that while on the one hand, decentralisation increases the number of players involved in governance and thereby deepens democracy, on the other hand, there is a risk of new collusive practices emerging if the procedural safeguards are not strictly enforced.

4. The quality of planning needs to be upgraded to prevent thin spreading

of resources, to reduce beneficiary oriented schemes, to foster productivity increasing schemes, to better inter-tier integration of plans and to mobilise additional resources through credit linkages.

5. Though most of the officials have been transferred to local governments, their active involvement in the planning phase

113

is rather limited. Unless these officials, especially tf professionals take an active interest in the planning proa and assume ownership of the plans and serve as the vita link between the people and the plan, it will not be possibli to consolidate and iteratively refine the quality of the plflfi in their areas of expertise.

6. More than implementation of schemes using Governmen funds, decentralisation implies improved quality of service This would mean that LSGIs are able to manage the staf under their control in such a way that there is a improvement in the quality of services rendered by the to the public. Such a thing has not happened so far. It; on the performance of LSGIs in this area that the publi will ultimately judge the gains of decentralisation.

7. The managerial efficiency of LSGIs leaves much to desired. There is tremendous scope for improving offic management, human resources management and finandi management in LSGIs.

8. Local resource mobilisation by LSGIs is an area wher further improvements are definitely possible.

9. For achieving good governance through LSGIs, the net created institutions like Ombudsman have to live up tot- expectations with which such institutions were design; and put in place. This would require that these institutio acquire greater sensitivity to problems of the peopleo move closer to them.

4.10

4.10.1 As the People's Planning Campaign progressed and empirical evidence flowed in from the field on the areas of strength or

REDEFINITION OF FUNCTIONAL DOMAINS OF LOCAL GOVERNMENTS

114

LSGIs, the Government accepted the recommendations of the Committee on Decentralisation of Powers (popularly known as the 'Sen Committee5 named after its Chairperson late Dr. S.B.Sen) and decided on a rational allotment of functional responsibilities among them. Thus the Kerala Panchayat Raj and Municipality Acts were radically restructured to go beyond the llth and 12th Schedules of the Constitution by attempting to define clearly the functional areas of the different tiers and types of LSGIs as precisely as possible.

4.10.2 The llth and 12th Schedules of the Indian Constitution actually do not carve out the functional domains of LSGIs. They only list developmental areas where, if so decided by the state government, LSGIs could have a role in planning for economic development and social justice and in the implementation of such plans. But Kerala has demarcated the functional domains of LSGIs with a great degree of clarity. The Kerala Acts classify functions as mandatory functions, general functions and sector-wise functions. The functions assigned to the three tier Panchayats and Urban Local Bodies are given in Annexure 4.3. In areas related to infrastructure and management of public institutions, the functional differentiation is sharp and clear, but in productive sectors it is difficult to clearly earmark functions separately for each tier. Only through experience can the natural functional area in such sectors get defined. There is a clear recognition of the existence of a role-range for LSGIs - Agent, Adviser, Manager, Partner and Actor - with the objective being to reduce the agency role and expand the autonomous - actor role.

4.1.1

After the amendments to the Acts the Government decided to

FURTHER TRANSFER OF STAFF TO LOCAL GOVERNMENTS

115

transfer the district level offices to the District Panchayats rationalise the staff structure for better service to other tien local governments. Of particular relevance, is the decision provide additional engineering support as per which, there wot be three Engineering Circles under Superintending Enginet each District Panchayat will get an additional division under Executive Engineer, all the Block Panchayats would get Assistant Executive Engineer each and 573 Assistant Enginet would be deployed among Village Panchayats in such a man; that 203 large Village Panchayats would get one engineer a and others at the rate of one engineer for two Panchayats. i the Urban Local Bodies one Superintending Engineer each woi go to the two new Corporations, one Executive Engineer tod of the 12 Grade I Municipalities and one Assistant Execuc Engineer to each of the remaining 41 Municipalities.

4.12

4.12.1 The quantum of resources transferred and the range of responsibilities assigned to LSGIs and the strength of staff pk under their control give an idea of the extent of responsibilif assigned to LSGIs. As each year progresses there is clear evidej of Government withdrawing from areas allotted to the LSGIs so that the constitutional mandate of setting up institutions off government is realized within a short period of time.

4.12.2 The extent of decentralisation is encapsulated in the statements.

(1) In the Health sector all institutions other than med colleges and big regional speciality hospitals have I) placed under the control of the LSGIs.

(2) In the Education sector, in rural areas the high schools

EXTENT OF DECENTRALISATION –AN ASSESSMENT

116

have been transferred to the District Panchayats and the primary and upper primary schools have been transferred to Village Panchayats; in urban areas, all schools have been transferred to the ULBs.

(3) The entire responsibility of poverty alleviation has gone to the LSGIs; all the centrally sponsored anti-poverty programmes are planned and implemented by them.

(4) As regards Social welfare, barring statutory functions relating to juvenile justice, all the responsibilities have gone to LSGIs. The ICD5 is fully implemented by Village Panchayats and Urban Local Bodies. Care of the disabled, to a substantial degree, has become a local government responsibility.

(5) In the Agriculture and allied sectors, the following have become the de facto and de jure local government functions.

a) Agricultural extension including farmer - oriented support for increasing production and productivity.

b) Watershed management and minor irrigation.

c) Dairy development.

d) Animal Husbandry including veterinary care.

e) Inland fisheries.

(6) Barring highways and major district roads, connectivity has become a local government responsibility.

(7) The whole of sanitation and almost the entire rural water supply have moved over to LSGIs.

117

(8) Promotion of tiny, cottage and small industries is mostly local government task.

(9) All the welfare pensions are administered by the LSfili

Thus it is clear that, in terms of governance, more than halil with the LSGIs.

4.12.3 As of now government pays the salary and meets other operational costs particularly in health institutions. All the other responsibilities of providing new infrastructure and equipments to attain the minimum standards and of maintaining the transferred have become the burden of the LSGIs. For examples 282 Krishi Bhavan offices, 2561 Lower Primary Schools; 962 Upper Primary Schools, and 6911 Anganwadis have transferred to the Village Panchayats alone. In addition the Village Panchayats have to provide new buildings to 2040 fu Welfare Centres, 207 PHCs and 9199 Anganwadis.

4.12.4 Thus, in Kerala, LSGIs now share several responsibilities varying degrees with the state government. And naturally perform these responsibilities, they deserve the proportioinate share of state government resources.

CHAPTER 5

T ATE FINANCECOMMISSION

5.1 ThthmstaonfuelrumanAor

5.2 ElSeGthththclfowth

HE FIRST ST

INTRODUCTION

118

e first State Finance Commission which was set up along with e enactment of the Kerala Panchayat Raj Act 1994 and one onth before the enactment of the Kerala Municipality Act 1994 rted functioning from 23rd April 1994 and submitted its report 29th February 1996. The context in which the First SFC nctioned needs to be noted. Till October 1995 there were no ected bodies. The Village Panchayats and Municipalities were n by Administrative Committees, which consisted of the elected embers who were there before the expiry of the term of office; d in the Corporations, District Collectors were posted as dministrators. And in Kerala there were no District Panchayats Block Panchayats before 1995.

ected local governments assumed office on the 30th of ptember 1995 and powers and functions as envisaged in

.O.(P)89/95/LAD were transferred on 2nd October. The fact at the First SFC had to give its Report within five months of e functioning of the newly elected local governments and before e contours of Government policy on decentralisation became ear notionally placed several constraints on it. It was too early r the Commission to determine the quantum of responsibilities hich actually would move out of the State Government into e hands of the local governments.

119

5.3 In spite of the constraints, the first SFC broke new ground in several ways. They are listed below:

(1) It made a number of suggestions with the objective of increasing the magnitude of financial devolution from the State Government to local governments. A very significant recommendation was the one to earmark one percent of the State Government's current revenue for transfer the rural and urban pools to be set up for the purpose Even though the recommendation as such was not acceptet by the State Government, this idea of a fixed percentage from the State Government revenue being devolved to local governments was a novel one in the Kerala context and it constitutes an important principle informing the Report of the Second State Finance Commission.

(2) Implicit in the suggestion for setting up the rural and urban pools was an attempt to change the inter se distribution of resources among the LSGIs. It attempted to move away, even though in a small manner, from the 'place of collection' to the population criterion, which was a step towards greater equity.

(3) The First SFC highlighted the importance of thei maintenance of assets of LSGIs, both own and transf errec assets. The problem of reduced allocations fo?| maintenance due to the squeeze on non-plan allocationi<| becoming acute day by day. This would be very critical for; local government functioning in future as most of the social infrastructure assets having direct interface with the public have been placed under the control of LSGIs.

SIGNIFICANCE OF THE RECOMMENDATIONS OF THE FIRST STATE FINANCE COMMISSION

120

The Commission had laid down the principle that the maintenance requirements should be calculated on the basis of the current replacement cost and not on historic cost. Though the State Government did not accept the suggestion it has certainly influenced the Second SFC in its assessment of the maintenance needs, to quantify the devolution required for reasonable maintenance of assets transferred to LSSIs as well as of new assets created by them using plan funds.

(4) The First SFC made innovative recommendations for rationalization of tax collection to avoid inefficiency and leakages. Taxing of buildings on plinth area, levying entertainment tax related to seating capacity and occupancy ratio, preparing tax maps etc., are very significant recommendations, which the Second SFC fully endorses.

(5) The First SFC enunciated the principle of moving away from tied non-plan grants to untied non-plan grants, a very essential ingredient of financial autonomy for LSSIs. By virtue of its recommendations 16 tied grants were amalgamated into the Rural Pool and a similar attempt has been initiated for urban areas.

(6) Though the First SFC confined itself largely to non-plan devolution, significantly enough, it suggested transfer of at least 25% of the Centrally Sponsored Anti Poverty Programmes, thus hinting at the principle that local governments could implement plan programmes and the SFC could deal with plan transfers.

(7) A very important contribution of the First SFC was laying down transparent formulae for various kinds of devolution.

121

Thus grants to local governments were brought into ti realm of entitlements and all forms of discretion whi; were used earlier to discriminate among LSGIs, were tate away with the acceptance of the report of the First SFC

(8) The First SFC had rightly stressed the need for continues data gathering on local government finances. The Secor SFC reiterates this need.

(9) The First SFC gave a comprehensive picture of the local government finances by providing an update, which was: very difficult thing to do in the absence of proper datu The analysis of the finance of Village Panchayats ans Municipalities - the distinguishing features and thei rationale, the problems and the potentialities, tJ distortions and their correctives - has proved very useful.

5.4 The recommendations of the First SFC could be classified intt four groups.

(1) Devolution of funds to local governments.

(2) Augmenting resources of local governments.

(3) Rationalisation of fiscal systems of local governments,

(4) Miscellaneous issues.

5.5 Out of the 69 important recommendations, 63 were accepted by the Government. A good number of recommendations involved amending the concerned legislations and rules. Naturally this

STATUS OF IMPLIMENTATION OF THE RECOMMENDATIONS OF THE FIRST SFC

has proved to be time consuming. Also some of the recommendations had to be implemented by departments other than the Local Self Government Department. Therefore at this point of time some of the recommendations of the First SFC including very important ones like rationalization of property tax, tax mapping etc., have not been fully operationalised even though they were accepted by the Government. The status of implementation of the various recommendations of the First SFC can be seen in Annexure 5.1.

5.6 The recomwith nrecompredecfollowfollow

(1)

(2)

OP

RECOMMENDATIONS OF THE SECOND SFC FOR ERATIONALISING THE RECOMMENDATIONS OF THE

FIRST SFC

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Commission strongly feels that the accepted mendations of the First SFC should be operationalised immediately o further delay. It is necessary to implement them in full, as some of the mendations of this Commission are built on the recommendations of the essor Commission. This Commission would therefore reiterate the ing recommendations of the First SFC and call for quick, special -up to carry the implementation process to the logical end.

The rules for levying Property Tax may be notified and the assessment work started in January 2001 itself. Some general suggestions in this regard are given in Chapter 9.

In the case of Profession Tax in respect of self-employed professionals like Doctors, Lawyers, Accountants etc., the First SFC had suggested slab rates. This has not been implemented. Second Finance Commission has separately recommended slab rates for presumptive taxes, which would cover these categories.

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(3) Service Tax may be levied as an independent tax by the urban and rural local governments. Further legislative action is needed.

(4) Operational instructions need to be given in the form of rules and guidelines in respect of collecting Entertainment Tax based on seating capacity. The Second SFC would further elaborate on this in the second part of its Report.

(5) Rules for levy of Advertisement Tax in Village Panchayat and Municipalities may be issued at the earliest along model byelaws. A few guidelines are indicated in Chapter 9.

(6) The First SFC had suggested revision of rates of fees and other similar non-tax sources. This has been partially implemented. The Second Finance Commission recommending thorough revision in Chapter 9.

(7) Steps to finalise the minimum land value for use registering sales may be taken immediately.

(8) Further action may be taken to charge licence fee from Cable TV Operators. As regards the question of collecting Entertainment Tax from Cable Operators the Second Finance Commission's view is that it should be done through necessary legislative amendments.

(9) The suggestion for amending the Building Tax Act to ensure that the tax is paid to the concerned local government would become infructuous once government accepts this Commission's recommendation for a general sharing of tax revenue.

(10) The tax mapping should be done immediately in all local

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governments and the unique premises numbering system followed.

(11) The First SFC had suggested that the Rural Development Board be made into a financing agency and that soft loans should be given both by the Rural Development Board and the Kerala Urban Development Finance Corporation. This matter will be dealt with in detail by the Second Finance Commission in the second part of its Report. However, it is suggested that a single financing agency would do for all LSGIs, both urban and rural.

(12) Though building exemption has been taken away, compounding is still being resorted to in the process of regularization of constructions made on or before 1-1- 2000. 50% of the fee thus realized should go to the concerned Village Panchayat and Municipality.

(13) The question of Village Panchayats and Municipalities levying daily fee for use of poramboke may be examined and decided by Government without further delay,

(14) The rationalization of Revenue Village and Village Panchayat/Municipality boundaries may be done in such a way that each such LS6I has one or more full revenue villages within its boundary i.e., no revenue village would lie within more than one Village Panchayat or Municipality.

(15) As suggested by the First SFC a special Cell has been created in the Finance Department. This Cell should be revamped and assigned the task of regular monitoring of the finances of LSGIs, both income and expenditure.

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(16) The recommendations of the First SFC were accepted! 1997. Strictly speaking they should have been maJ effective from 1-4-1996. However they are legally in fon since 1-4-1997. Therefore any shortfall in devolutioi below the accepted level in respect of assigned and shari taxes should be made good by the government.

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CHAPTER 6

6.1 T he decision to transfer 35-40 percent of plan outlay to LSGIs, who are

then left left free to spend the amount on plan projects formulated by themselves,

has been a historic one. While panchayats as active institutions exist in several

other states in the country, notably in West Bengal which played a pioneering role

in activating them and in Karnataka, the Kerala model of democratic

decentralisation is unique in so far as it has three specific features not found

elsewhere: the first is the quantitative magnitude of devolution; nowhere else is

such a high proportion of plan funds handed over to the LSGIs. The second and

related feature is the freedom accorded to LSGIs to make plans according to their

own priorities. There exists of course a system of vetting of local plans at higher

levels, which is essential for avoiding unnecessary duplication, for ensuring

complementarities, and for enforcing compliance to state government guidelines.

But subject to such general constraints, the priorities informing any local plan are

respected. The third feature has to do with the fact that there is a clear

demarcation of responsibilities between the state Government and the LSGIs

These three features make the Kerala practice the first authentic attempt,

anywhere in the country, at planning from below. Not surprisingly, it has

unleashed, by all accounts, unprecedented enthusiasm among people, attracted

much attention from other states, aroused a great deal of curiosity all over the

world, and earned wide acclaim in intellectual circles as representing a

breakthrough in conception, a breakthrough

THIS DEVOLUTION AND INTER SE DISTRIBUTION OF PLAN FUNDS

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which has even been hailed as "a synthesis of Gandhi and Marx”

6.2 There can be little doubt that Kerala's ability to achieve this breakthrough can be attributed to the fact that it was a part of the Peoples' Plan Campaign. The significance of this Campaign, and the array of measures of democratic decentralisation which followed in its wake (of which the devolution of 35-40 percent of plan outlay to LSGIs is only one), have been described in an earlier chapter. Here we would like to reiterate our belief that minimum share of plan funds of this order of magnitude should continue to be transferred to the LSGIs every year. While we recommend this for the next five years which constitute our jurisdiction, we hope this practice would be carried forwar thereafter too. To be sure, there are several problems associated with the present practice of decentralised planning. Some of these are discussed below. But these in no way negate the worth and legitimacy of the experiment, which should be seen not merely in narrowly economic terms as an alternative, more effects model of planning, but more importantly as a means of deepening democratic structures in our country.

6.3 Any estimate of the actual percentage of devolution of plan funds to the LSGIs is sensitive to the definitions used. In 1999-2000 for instance the plan grant-in-aid as a proportion of state plan outlay was supposed to be 31.4 percent (Rs.1020 cr. compart to Rs. 3250 cr.). But this ratio goes up, if we include stati sponsored schemes, to 35.5 percent (Rs. 1154.4 cr, compared to Rs. 3250 cr.). The term "state-sponsored schemes" came to be used from 1997-98 to denote two categories of schemes. Each of these categories is a part of the state plan but is implemented by LSGIs. The first category consists of certain national and state level schemes especially in health, poverty alleviation etc, These are likely to continue for some time. The second category consists of those schemes which were originally covered under the departmental allocation in the state plan but were transferred

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to LSGIs in the transitional phase. These would decline naturally with the passage of time, and have been doing so. The total outlay on state-sponsored schemes has in fact been declining, from Rs.276 cr. in 1997-8 to Rs.166.50 cr.in 1998-9, to Rs.134.40 cr.in 1999-2000 (RE). As long as state sponsored schemes exist the outlay on such schemes should not be counted as part of total devolution, but should be treated as an additionality: counting them as devolution causes a hiatus between the actual and apparent magnitudes of funds left to the domain of LSGI decision-making. (What appears for instance as 35 percent devolution actually means less, as we have seen for 1999-2000). Our recommendation is that a minimum of one-third of the state's plan outlay in any year should be statutorily transferred to the LSGIs, and that in computing this ratio the transfers on account of state-sponsored schemes should be excluded from the numerator. This is convenient for framing appropriate legislation and corresponds on present reckoning to over 35 percent plan outlay, including state-sponsored schemes in both the numerator and the denominator1

6.4 We now come to the problems associated with transferring such huge amounts of plan funds to LSGIs. Among the many problems that can be identified we would focus on four broad sets of problems here. Two of these will be discussed here only cursorily since they would be taken up in the second part of our report. The first of these is the absence of an adequate permanent institutional framework for decentralised planning, which makes the exercise a "voluntaristic" one, not de-linked from a

1.The figure 35-40 percent was originally arrived at through some studies which showed, on the basis of historical data for the state, that the proportion of plan outlay which could in principle fall within the province of district-level planning (including planning by tiers below) was around this. It has acquired an added legitimacy from practice which induces us to stick to this figure.

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"Campaign mode". An example of this absence of an institutional framework is the fact that the decision to transfer 35 percent or plan funds to LSGIs has itself till now been only an administrative decision, reversible at any point of time. It has been without any statutory basis whatsoever (a lacuna that we hope o recommendation would remove). But more generally, planning of any kind required personnel. A carde of trained personnel appropriate for this kind of planning, has not yet bet fully created. Decentralised planning has had to make do win whatever personnel are available from voluntary organisatloi and the ranks of locally available experts. Some no doubt wouli see a virtue in the present state of affairs: the Campaign mod; arouses popular enthusiasm, while shrouding decentralised planning within an institutional framework would lead n bureaucratisation, ossification, and "routinisation", all of what are inimical to the spirit of popular participation. In short tt: fear may be expressed that the very process of institutionalisinf decentralised planning would rob it of its authentic democrat character, i.e. would make people passive objects all over again. from being, in howsoever limited a fashion, active subjects. Whil this fear is not without justification, it is nonetheless the can that voluntarism is essentially impermanent, that the "Campaign mode" can never be sustained for long, so that eschewicf institutionalisation eventually means throwing the baby out wit the bathwater. The need is to combine active popular participate with an appropriate institutional framework which would mail the existing government staff, both professionals and generalisti fully involved. The process of bringing into being an appropriate institutional framework for decentralised planning is currentli underway in the state. Ensuring that active popular participate in planning is not destroyed as this framework comes into bein will be one of the challenges before decentralised planning i the coming years.

6.5 The second problem relates in a broad sense to the issue of

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corruption. Corruption, without a doubt, exists in several different forms in the decentralised planning system. But then so it did, even earlier, i.e. prior to the increased devolution of plan funds. There is no reason to believe that the scale of corruption in the use of plan funds has increased in any way after devolution; indeed several knowledgeable observers have the impression that it might have decreased. Its continued existence nevertheless is a source of concern. The fact of popular participation, and hence vigilance, should have the effect of reducing at least certain types of corruption. On the other hand however the absence of an appropriate institutional framework for decentralised planning would provide scope for corruption. Putting it differently, a comparison of the earlier planning system with an alternative system of decentralised planning with popular participation would associate a much lower level of corruption with the latter. It follows that if corruption exists on a by-no-means-modest scale in the present dispensation, then this is at least partly due to the fact that the system of decentralised planning, complete with its own institutional framework with its new checks and balances, has not yet been put in place. Once the institutional framework for decentralised planning is erected, the scale of corruption should come down significantly. The recent appointment of an Ombudsmen is an example of an institutional framework gradually coming into place, which should reduce the scope for corruption. A more elaborate discussion of these issues together with specific suggestions will be made in the second part of our report.

6.6 The third problem springs from the type of plan projects which small bodies, such as the panchayats, are intrinsically capable of undertaking on their own. These typically are tiny projects catering to local needs. Transferring substantial plan funds to them would necessarily result in a proliferation of such projects. While this would not be a bad thing at all for a certain period of time (since centralised decision-making typically ignores local

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needs, and has done so in our country), a continuous replication of such projects, with progressively lesser and lesser soc usefulness, can scarcely be justified, especially when resour are being taken away from larger state-level projects which migli be essential for the state's economic health. Putting it different a devolution of 35 percent of plan funds continuing not jir into the immediate, but also into the more distant, future woif be justified only if the composition of projects on which tk amount is spent can be made to keep changing in consonan; with the changing requirements of the people. This in tuJ requires that the LSGIs should be capable of overcoming the narrow, "small bodies'" horizon. Village panchayats, for instant should in the next phase be prepared to collaborate with one another to undertake meso-level projects, or even macro-level projects. In short the transfer of resources to the lower level should not mean a perpetual entrapment in mini-projects a progressively decreasing rationale. One can go further. The LSGI have to break out at some stage not only from their narrow micro project preoccupation, but also from their almost exclusive rol of being purveyors of welfare goods and services to the people. To be sure, the need for such goods and services can hardly bj overemphasised, but the word to note is "exclusive". Even fit providing a larger flow of welfare goods and services to the peopt at a later date, the LSGIs may have to take on a more diversify, role, aimed at augmenting the means at their disposal. Many of them of course provide help at present to deserving private individual producers in their respective areas, but this has nc generally been a source of revenue for them. It has been a: extension of the welfare-purveyor role. They have to pay greatr attention to means augmentation possibilities while renderta such help. In addition, LSGIs can also boost their resources by eliminating the wastes and "leakages" that entrusting public work programmes to middlemen entails, and by undertaking innovate output augmenting local projects which can yield larger revenues as well. Taking up government contracts for civil construction

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for a reasonable centage charge is a possibility work exploring. The third problem for decentralised planning would arise therefore if the LSGIs do not show sufficient flexibility to transform and broaden their nature. If they continue to remain mere conduits for distributing welfare goods and services, then even this role cannot be sustained in the not-unlikely event of a worsening of the fiscal squeeze experienced by the central or the state government, for then, as this squeeze gets "passed downwards", they would find themselves increasingly bereft of resources.

6.7 The fourth problem concerns the inadequacy of the LSGIs' own tax effort. It is often asserted that there has been a slackening of the LSGIs tax effort as larger plan funds have been made available to them. While hitherto- published research attempting to establish this slackening hypothesis is not convincing, the view that such a slackening has actually occurred is widely held in knowledgeable circles. Time-series data do show a lower level of revenue in recent years compared to what a long-term trend fitted to earlier data would project, but this per se does not constitute proof of slackening. Besides, this shortfall relative to trend predates the increase in devolution that came with the Peoples' Plan Campaign. But whether or not there has been an actual slackening on account of the larger devolution, the fact remains that LSGIs5 tax collections are way below potential. This makes them almost entirely dependent on devolution from the state government and hence extremely vulnerable to the fiscal travails afflicting the state, and hence by implication the central, government. In the absence of adequate local-level resource mobilisation the base for decentralised planning remains extremely fragile. We recognise of course that resource mobilisation is not synonymous with raising larger tax revenue: the former can take several forms, such as for instance mobilisation of voluntary labour by LSGI, of which tax effort is only one. It has also been brought to our notice that not an inconsiderable amount of additional resource

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6.8

mobilisation has occurred in LSGIs, even when conventional indices like tax revenue have shown unimpressive increase! Nonetheless, given the indubitable fact that tax collections by LSGIs have been much below potential, our Commission has felt the need to recommend the introduction of a system of rewarl for tax effort through an amendment in the formula for the inter se distribution of plan funds.

The first Finance Commission had suggested the following criteria for the inter se distribution of plan funds.

6.9 The Finance Commission had not explicitly demarcated between the different tiers of the PRIs and ULBs, the presumption being that the above criteria would apply within each tier, while the division between tiers would continue in the same ratios as were prevailing at the time. The Cabinet Subcommittee set up to examine the First SFC report felt that, instead of the formula recommended by the Commission, plan funds may be distributed according to a simple formula giving 90 percent weight to population and 10 percent to area. The distribution of funds in

ULBs

RLBs

Population in 1991 Census 75 70 SC/ST Population in 1991

10 1O

Total Workers Excluding Workers in Manufacturing, Processing, Servicing, and Outside household industry

15

10

Proportion of Agricultural Workers among Workers

Nil 10

Total

100

100

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1997-8, the year when plan grant-in-aid was greatly increased, was however entirely on the basis of population alone. The Planning Board set up a Working group in October 1997 to look into the matter and evolve a fresh formula for the inter se distribution of plan funds. This formula, on the basis of which plan funds are distributed at present is the one set out in Chapter 3 above.

6.10 The total amount of transfers to local bodies is distributed between the General Sector, claiming about 75 percent, the SCP about 21 percent, and the TSP about 4 percent. The distribution of General Sector funds between the PRIs and the ULBs is in the ratio of 85 and 15, and within the former the distribution between the GPs, BPs, and DPs is in the ratio of 70, 15 and 15. SCP and TSP funds are shared between urban and rural LSGIs on the basis of the SC/ST population. The ratio of distribution between tiers however is somewhat different here compared to the General Sector funds: for SCPs it is 60, 20, 20, while for TSPs it is 40, 20, and 40. The inter se distribution of General Sector funds across institutions within each tier is now undertaken, as already mentioned, on the basis of the formula given in Table 3.2.9 of Chapter 3.

6.11 While suggesting that the tax effort, or more accurately the revenue effort, criterion should be introduced in addition to the above, we propose not to disturb the current pattern of distribution of plan funds among the various tiers. The revenue effort criterion should be introduced only at the stage of inter se distribution within a tier. It follows that this criterion can be introduced only in the Grama panchayats and ULBs which alone have significant revenue raising capacities. To see how we propose to introduce the revenue effort criterion into this scheme, let us

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first look only at Grama Panchayats. We wish to earmark a maximum of 10 percent out of the plan funds destined for Grama panchayats for distribution on the criterion of revenue effort. This percentage, which is not a fixed one but varies from year to year, has to come out of the 65 percent currently distributed on the (Non-SC/ST) population criterion. This percentage should be arrived at as follows. In any particular year some panchayats will show an increase in their revenue (consisting of all revenue from taxes, fees and other sources1) over the previous year, whilt others will show either a decline in revenue or the same level of revenue. Let the number of panchayats showing an increase it revenue be n, while the total number of panchayats is N. The percentage of plan funds distributed on the revenue effort criterion in the following year (by which time the relevant data regarding revenue collections by the panchayats would haul become available) will then be 10.n /N. If for instance out of 990 village panchayats in a particular year only 371 show at increase in revenue (over the previous year) then the proportion of plan funds distributed on the revenue effort criterion in ths following year will be (10 multiplied by 371) / 990. We recommend that in actual calculation, 990 should be roundeo: off to 1000 for simplicity. Adopting this procedure, the proportion distributed on the revenue effort criterion would be 3.71 percent, and the proportion distributed on the Non-SC/ST population criterion would be 61.29 percent. Once the amount of plan funds to be distributed on the revenue effort criterion in any particular year is so determined, this amount has to be

1There have been instances, where due to some government or Court order revenue has not been collected for some time under some particular head, and the lifting of the ban causes a sudden jump in revenue under that head. Since jumps of this sort would cause a distortion in the application of our proposed criterion, we suggest that in all such cases the increase in revenue under this head in the year of the jump should be ignored. This head should begin to count only from the next year onwards.

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distributed among the panchayats which did raise their revenue, i.e. the 371 panchayats in the above example. For this we recommend the following procedure. For each of the 371 panchayats there is a certain percentage increase in revenue in the year just completed over the preceding year. This percentage for any panchayat multiplied by its population gives a number for that panchayat. The share of that panchayat (in the total amount available for distribution on the revenue effort criterion) is this number divided by the sum of such numbers for all the 371 panchayats. If the share for panchayat i is denoted by q i, the percentage increase in its revenue is given by r . and its population by P i then

q i = ri .Pi / Σ ri .Pi

6.12 A simple example will clarify the proposed procedure. To do so however let us take a smaller number of panchayats showing a revenue increase. Let the number be 10. Then 10 times 10 divided by 1000, i.e. only 0.1 percent of plan funds will be distributed on the revenue effort criterion and 64.9 percent on the non-SC/ ST population criterion. Suppose the plan grant-in-aid earmarked for Grama panchayats is Rs.1000 crores; then Rs.l crore will be distributed on the revenue effort criterion. How will it be distributed? Suppose the percentage increases in the revenue of the 10 panchayats are respectively, 1, 2, 3, 4, 5, 6, 7, 8, 9, and 10. And suppose their populations are respectively 100, 200, 300, 400, 500, 600, 700, 800, 900, and 1000. Then the share of the first panchayat will be (1 times 100) /(1 times 100 + 2 times 200 + 3 times 300 + 4 times 400 +...........).The respective shares of the ten panchayats in the pool of Rs.l crore work out in this fashion to: 1/385, 4/385, 9/385, 16/385, 25/385, 36/ 385, 49/385, 64/385, 81/385, and 100/385. These shares add up to 1.

6.13 In the actual application of the formula however we suggest a modification. Since we are taking percentage increases, a Panchayat with a low base can show a phenomenal increase in a particular year and hence get unduly rewarded by our formula. Likewise a Panchayat which shows a negative increase in year and a large increase in the following year would stand to gain by our formula (since we are not directly penalising negati increases). To avoid such quirky results, we propose to count all percentage increases of 30 or above as 30. The reason for taking 30 as the ceiling is the following. From

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simulations carried out on data for 1998-9 and given in an Annexure, it turns out that the difference made to the big losers from alternative ceiling negligible. This being the case, since the incentive effect for the others would get blunted if we take a very low ceiling, say 10 or percent, we have decided to take 30 percent as the ceiling,

6.14 We recommend an exactly analogous procedure for incorporating revenue effort into the criteria for the distribution of plan funds among the ULBs. Here too a maximum of 10 percent of the plan funds earmarked for ULBs can be set aside for distribution the revenue effort criterion. The actual percentage would be given by this maximum multiplied by the proportion of ULBs showing revenue increases, and this percentage would come out from the 75 percent currently earmarked for distribution on the populatio criterion. Likewise the inter redistribution of this amount among the ULBs would be on the basis of the following formula: the share of any ULB = percentage increase (subject to a maxim of 30 percent) in its revenue during the previous year times its population / the sum of the percentage increase in revenue tim population of all such ULBs (which show revenue increases). Revenue in this entire discussion, we wish to emphasise, includes only taxes, fees and license fees, and other incomes, which are the result of the LSGIs' own effort. It excludes what they get from shared and assigned taxes, the other non-plan grants, and of course the plan grants, from the state government. In short, the term”revenue” used in this context is synonymous with “own colelcted revenue”.

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6.15 Let us now turn to the rationale of the above formula. Ideally, revenue effort should be evaluated by looking at the actual revenue collections in comparison to some notion of potential revenue generating capacity. Unfortunately we simply do not have the data to calculate this potential capacity for each and every LSGL Looking at Increases in revenue as an indicator of effort is only a convenient proxy. Here, introducing explicit penalties for LSGIs showing reductions in revenue would be unfair, and would inevitably result in appeals to discretion on pleas of special circumstances, which would have the effect of undermining the entire system. We have therefore introduced penalties indirectly, not merely through an exclusion from reward for revenue increases, but through consignment to a group that only shares a reduced amount available for distribution on the population criterion. The precise formula of course has been dictated by the need to have "well-behaved" properties (which also constitute a reason for the exclusion of "negative" transfers, i.e. of explicit penalties for reduced revenue collection), and the need to avoid absurd results. For instance, a variable proportion of plan funds is supposed to be distributed on this criterion, as opposed to a fixed proportion on other criteria, because of the need to avoid absurd results. If in a particular year, say, only 10 panchayats happen to show an increase in revenue, then, with a fixed 10 percent distribution on revenue effort basis, they would walk off, in the above example, with nearly Rs.100 crores between them, which would be extremely unreasonable (especially since we are using ordinal terms like "increase" and "decrease"). As for the actual formula for the inter se distribution from the pool earmarked for rewarding revenue effort, it satisfies the property that if all panchayats showing revenue increases showed the same percentage revenue increases, then the pool would be shared among them exactly in the same ratio as their non-SC/ST

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population, which is perfectly reasonable. On the other hand the above formula also says that if all panchayats showed a reduction or constancy in revenue collections, then again the size of the pool would be zero, so that the entire 65 percent of plan funds would be shared among grama panchayats (75 percent for ULBs) on the non-SC/ST population criterion, the same as is the practice now. In such a case in other words, all being delinquent, none would be singled out for punishment, which too is reasonable.

6.16 The real limitation of the above formula arises from the fact that we are taking percentage increases. This gives rise to two different kinds of problems: the first is the "low base" effect. For example if a panchayat had zero (or very low) revenue in one year and some increase in the next year, then its rate of growth would be infinitely large, giving it an enormous, illegitimate advantage. One way of avoiding this problem is to divide the absolute increase in revenue by the total income of the inhabitants of a panchayat (or some similar variable). But we do not have data on the total income of the inhabitants of a panchayat. Taking the expenditure by panchayats as the denominator, while it would get rid of the low base problem, would work against the poorer panchayats. All things considered, therefore, there is no easy alternative to taking percentage increases in revenue as the proxy for revenue effort. And it may not be a bad proxy in practice. Nonetheless, to guard against anomalies, we are suggesting a maximum figure of 30 for the percentage increase in reveue. The second problem with taking percentage increases is the fact that the revenue raising capacity of panchayats and ULBs is subject to a limit that does not move up much from one year the next. It does not even go up in tandem with price increases or real income increases of residents within their jurisdiction since a good part of this revenue is supposed to come from property taxation, and the revenue to be raised from a particular property can be adjusted only at discrete intervals. As a result

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even with the best of intentions some local bodies will find it difficult to raise their revenue beyond a point. Any criterion that looks only at percentage increases in revenue therefore is potentially discriminatory against them. This no doubt is an important consideration, but its practical relevance over the next five years may not be all that much. The current level of revenue mobilisation relative to potential is too low in the case of all Panchayats and ULBs for us to worry about the implicit discrimination against those that have hit or are close to their revenue-raising capacity. What is true however is the fact that this formula, though adequate for the coming five years, should not be continued ad infinitum. True, the low base effect would disappear over time, but the other factor mentioned above would introduce serious biases as some local bodies approach their revenue-raising ceiling.

6.17 Let us now turn to the practical problems of using the above formula. While the mechanics of making the necessary computations are quite simple and non-time consuming once the data on tax and non-tax revenue collections by the local bodies are available, the real problem lies in obtaining reliable revenue collection data. To overcome this, our recommendation is that it should be made mandatory for all local bodies to have a separate account with the treasury where collections from all items constituting their own income, and only such collections, are deposited. Then these data would be easily available to the state government from the treasury, and would be useful for a number of purposes quite apart from the employment of the revenue effort criterion for determining the inter redistribution of plan funds. Of course even if this statutory provision is introduced, local bodies would not necessarily comply with it immediately. To goad them into doing so before more drastic action is taken against the deviants, a particular date should be fixed from which the revenue effort criterion should be introduced into the distribution of plan funds; and all local bodies for whom there

141

is no treasury-authenticated information on revenue collection should Ipso facto be treated as if they have not had any revenue increases and thereby excluded from any distribution under this head. Announcing such a date in advance would also be useful for another reason, namely, any sudden drops in plan funds for particular LSGIs can be avoided if they intensify revenl collection effort owing to prior warning. (And if they do not then they can scarcely claim injured innocence). For an early introduction of the revenue effort criterion, it is essential that the government should bring in this statutory provision as soon as possible. Since the criterion is based on increases, time-laga intrinsic to it.

6.18. A simulation exercise on the basis of the data given to us on PRI and ULB revenues has been carried out to determine what would have been the distribution of plan funds in 1998-9 if the revenue effort criterion had been applied in that year. Some results from a comparison of this distribution with the actual distribution is given in an Annexure 6.1.

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CHAPTER 7

THE PROBLE OF MAINTANANCE OF ASSETS 7.1 A substantial number of assets has been transferred from the state

government to the LSGIs as part of the functional devolution under the Panchayat Raj and Municipal Legislations. A good number of assets were transfered through a Government order in September 1995 and some more assets were transferred in the wake of the Peoples' Planning Campaign. As a sequel to this Campaign, the devolution of plan funds to the LSGIs was substantially increased, and this in turn was used for building up further assets. The LSGIs today have thus become the custodians of a vast array of assets, and the problem of the maintenance of these assets has acquired a degree of urgency. For convenience of discussion, the assets existing under LSGI jurisdiction at present can be divided into three categories: assets which the LSGIs owned and maintained prior to the transfers following the September 1995 Government Order (for the maintenance of some of these assets they had access to specific revenue sources such as VTC, and grants such as VRM); assets which have been transferred to the LSGIs following the Government Order; and assets which have been built since 1997-8, the year in which enlarged devolution began. Within this last category not all assets have been financed out of plan funds alone; surplus from own revenue and public contribution have also gone with in. The maintenance requirements as well as the sources of funds for maintenance for these three different types of assets need to be discussed separately. But let us first see what exactly is being referred to under the concept of maintenance.

7.2

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7.2

7.2.1 "Maintenance" is by no means a simple concept. It gets invariably enmeshed with three other concepts, operational costs, depreciation, and investment, in the sense that it is difficult to demarcate its boundary from those of these three other concepts. The difficulty has a conceptual dimension: we simply cannot tell in many situations how much of an expenditure is maintenance and how much of it is, say, investment. In

addition it has an even more overwhelming practical dimension: we often do not know how to tell what is maintenance expenditure, and what is, say, investment expenditure. Strictly speaking the term maintenance refers to the expenditure required to keep an asset running with unimpaired productive potential during its life-time, Operational expenses refer to the expenditures on all other current inputs that are combined with this asset for producing the final good. The term depreciation refers to the amount that has to be set aside during each period, so that when the asset has reached the end of its life-time, a new asset can be purchased to take its place. Finally, (net) investment refers to any addition to productive capacity, unlike either depreciation or maintenance.

7.2.2 Of course the life-time of an asset is not independent of the maintenance expenditure that is undertaken upon it; or, putting it differently, different levels of maintenance expenditure, while maintaining approximately the same level of productive potential (or quality of service) of an asset, may cause different lengths of life-time. There is in other words a trade-off between depreciation and maintenance Not withstanding this trade off however, there would be some "optimum" level of maintenance expenditure at which the depreciation cum-maintenance expenditure would be the least. The concept of "maintenance norm" is ideally derived from this consideration. To give an example, if an asset costs Rs.100 (we ignore inflation in this example), and can last 10 years with an annual maintenance expenditure of Rs.l0 and 12 years with an annual maintenance expenditure of Rs.15, then clearly the former option is preferable. This is because the expenditure

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on depreciation-cum-maintenance is Rs.20 per year in the former (10 + 10), and Rs.23 1/3 per year in the latter (15 + 8 1/3).

7.2.3 The logic of this argument is not affected even when there are no explicit depreciation provisions, as is the case with LSGI assets. This is because at the end of 12 years in the above example, following the first option (where the asset is replaced after 10 years), we would have spent a cumulative sum of Rs. 120 on maintenance and would be having a 2-year old asset with a depreciated value of Rs.80 (which comes from 100 original value minus 20 loss of value owing to depreciation); on the second option we would have spent a cumulative sum over the 12- year period of Rs.180 on maintenance and would be having a brand new asset worth Rs. 100 at the end of it. By following the second option then we would have, compared to the first option, spent Rs.60 extra as maintenance over the 12 years and ended up with only Rs.20 worth of extra asset value. This being patently irrational, the first option should be adopted. It follows then that the comparison between the two, or several, options is unaffected by whether depreciation provisions are actually made each year or not. There would be some optimum option on the basis of which the maintenance norms can be ideally calculated.

7.2.4 Of course the concept of life-time of an asset is not unambiguous (since an asset does not just drop dead); nor is the proportion of maintenance expenditure to the value of the asset constant through its life-time. This magnitude typically increases with the age of the asset, and at some point quite steeply. The point at which this steep increase occurs can be taken approximately as the end of its life-time corresponding to that particular stream of maintenance expenditure. (The logic of the example discussed in paragraphs 3 and 4 can be restated in terms of such rising streams instead of the constant streams assumed there). Though in practice the maintenance norms we have are given to us by engineers, and their economic underpinnings are not always clear and not necessarily what they should be, the notion of "maintenance norms" is at least conceptually well-founded.

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7.2.5 The conceptual basis of actual estimates of maintenance expenditures however is shaky because it is invariably mixed up with net investment. When the roof of a school building is repaired, this does not occur in pristine purity. Sometimes a boundary wall is added at the same time While the repair constitutes maintenance expenditure, the addition constitutes net investment. But the two are frequently reported together as maintenance expenditure. This is not just due to lack of knowledge about the distinction. Sometimes drawing the distinction is practically impossible, since it entails a separation that is either impossible or tedious. An example of impossibility of separation is when sow maintenance expenditure raises the quality of service of the asset compared even to what it was when the asset was newly installed: here maintenance has got inextricably merged with net investment. A more common case however is where disaggregation is possible but tedious For instance if in the process of adding a new wing to a hospital which has to be whitewashed, some existing walls also get whitewashed, tha keeping track of the latter as maintenance in contrast to the formar which is net investment requires a degree of disaggregation that is too tedious to be practically possible. All this, somewhat abstract discussion has practical implications to which we shall return later.

7.3

7.3.1 It can be argued that of the three categories of assets, clearly the maintenance requirements of those assets which were with the LSGls earlier and for whose maintenance specific revenue sources were assigned, such as VTC, should be maintained by them; the state government should have no responsibility in this regard. As for the assets transferred after the 1995 Government Order, the responsibility of meeting the maintenance expenditure must fall on the state government. This is because if these assets had not been transferred and had remained with government departments, then the responsibility of maintaining these assets would have fallen on the state exchequer Since these are not income-earning assets, so that their transfer to the LSGIs has not been accompanied by any corresponding transfer of

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income, the task of meeting their maintenance expenditure must still fall on the state government1. When it comes to assets constructed by LSGIs from 1997-8 onwards, clearly the responsibility for the maintenance of the assets whose construction has been financed by the larger devolution of plan funds should also be borne by the government. The reasoning again is that if these funds had not been transferred to the LSGIs then the departments would have used them for their plan projects, for which the government would have had to provide maintenance. (Of course a distinction may be drawn between the assets built out of the increased devolution, and assets that would have been constructed out of those plan funds which would have come to the LSGIs anyway, and the government's responsibility for providing maintenance confined only to the former. But, without the increase, the plan funds with LSGIs would have been so meagre that we can ignore this distinction). As for the assets whose construction in the period starting 1997-8 has been financed by sources other than plan funds, clearly the LSGIs would have to look after the maintenance requirements of these assets on their own.

7.3.2 As a matter of fact however even with regard to the assets existing with the LSGIs earlier to the large-scale transfers, the actual maintenance expenditure was woefully small. The first State Finance Commission had noted that with respect to roads, the most important

1 While this principle is perhaps accepted at present, the amount of actual maintenance expenditure undertaken is too minuscule to confirm this acceptance. The total maintenance grant to LSGIs in the budget during the four years 1996-7 to 2000-1 has been, respectively, Rs.3.74 cr., Rs.5.05 cr., Rs.5.77 cr. and Rs.3.53cr.

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asset owned by LSGIs in the pre-1996-7 period, against the maintenance expenditure requirement of Rs. 102.88 crores, on Rs.30 crores were being spent.2 Of these Rs.30 crores, Rs.23 crores came from VTC and VRM. The LSGIs' own resources contributed only about Rs.7 crores. Thus, for the proper maintenance even of these assets, the state government has to meet the bulk of the maintenance requirement, while ensuring that the LSGIs do not spend in other ways what it provides maintenance. In return it need not make any VTC payments to the LSGIs. (The first Finance Commission's recommendation that the VTC and VRM should be merged has been accepted by the government).

7.3.3 Of course it may be argued that with such a large share of plan funds being set aside for the LSGIs, they should now meet their own maintenance requirements. But this argument is wrong for several reasons: first, using plan funds for purposes of meeting non-plan current expenditure, which is what maintenance expenditure amounts to, is wrong in principle and would set an unhealthy precedent. Secondly, it would defeat the very purpose of democratic decentralisation, which is to let people prioritic investments allocation based on local needs. Maintenance expenditure, though essential, does not really involve any choice. If financed out of plan funds it precludes plan projects, and ipso facto any choice in the matter of plan projects. Thirdly, plan,

2 The fact that the "norm" used by the Commission relates to 1996-7 while the actual expenditure figures relate to 1993-4 makes little difference to the arguments Likewise the questions raised in the text below about the accuracy of the estimate of Rs. 102.88 crores do not invalidate the Commission's general point about the inadequacy of the actual maintenance expenditure undertaken

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assistance from the state government to the LSGIs, as a proportion of the state government's total tax revenue, has already shown a decline in the last couple of years: from 19.12 percent in 1997-8 and 19.52 percent in 1998-9 it came down to 15.6 percent (RE) in 1999-2000 and 13.3 percent (BE) in 2000-01. As the state government has faced a somewhat tighter fiscal situation owing to a stagnation in central grants-in-aid and increased expenditure on implementing the Pay Commission recommendations, its plan outlay has suffered, and even though the 35 percent "norm" has been maintained, the devolution of plan funds to LSGIs as a proportion of tax revenue has gone down. If in this situation, maintenance requirements on LSGI assets have to come out of the plan funds, then the size of the LSGI plans would in effect become a sort of residual which would mean an attenuation of local planning. Fourthly, since maintenance requirement on LSGI assets is going to increase in the coming years, relative to other variables, owing to the fact that maintenance expenditure on some of the newly constructed LSGI assets, negligible till now, will have to begin and be sustained on a rising scale, the attenuation of local level planning involved in making LSGIs finance their maintenance needs out of plan funds, would be far greater than appears at first sight. The following paragraphs highlight some of the issues.

7.3.4 If a certain proportion x of the value of an asset has to be spent each year for its maintenance, then the total maintenance expenditure Mt upon this asset in any year t is given by

M, = x. (I1+ I2+ I3+..........................It-1)

where I denotes gross investment, the subscript refers to the year when a particular addition to the asset (represented by the corresponding investment) started functioning, t-1 the previous

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year ( the asset's life-time T is assumed to be not less than t),3 There are however some assets, of which roads are a prime example, for which the pattern of maintenance expenditure has a singular complexity. Roads too require a certain amount of expenditure on repairs every year; but, in addition, surfaced roads require re-topping every three to five years. Since, with such maintenance and re-topping, surfaced roads can last a very long time, both these types of expenditure should be counted as maintenance expenditure. Our perception of maintenance expenditure then has to be modified in the case of surfaced roads

3 With this definition we have two formulae representing simple logical truisms a universe where gross investment grows at a steady rate g. If the asset (assmued for simplicity to be a single homogeneous one), which it creates, has, as before a life of T years and requires x percent of its value as maintenance expenditure each year, then the ratio of total maintenance expenditure to gross investment any year becomes a constant

M1/It=(x/g).{1-1/91+g)T-1} after a minimum period of T years of operating the asset has passed. Before T years have passed, the ratio of maintenance expenditure to gross investment during any year t , such that 1 < t <T, is given by

(x/g).{1-1/(1+g)t-1}

which, for any x and g, keeps increasing until it reaches the value given in the first formula. The first formula therefore gives an upper limit for the ratio. If the ratio of maintenance expenditure to the value of the asset increases over the life of the asset, then x in the first formula has to be interpreted as a weighted average. In the second formula maintenance expenditure as a proportion of gross investment would then rise even faster, both because t rises and because x also rises with time. Now, even if gross investment creates an assortment of assets and not just one single asset, as long as they have similar life-spans and simihi patterns of maintenance requirement (as proportion of value of asset) through life, both formulae remain valid.

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(whose maintenance is of overriding practical importance in Kerala). If a surfaced road needs re-topping every T years, if the expenditure on re-topping per unit of investment (however measured) is given by y, and the expenditure on repair per unit of investment is given by x, then the total maintenance expenditure on surfaced roads in any year t is

Mt= x. (I, + I2 + ...................It-1 ) + (y-x).I t.T

For unsurfaced roads of course the first definition of maintenance givenabove would continue to hold.

7.3.5 Now, on the basis of "norms" mentioned below, the maintenance expenditure at 2000-1 prices for the road length that existed with the LSGIs prior to September 1995, or has been transferred to them after September 1995, comes to about Rs.109 crores (the calculations are given below). In addition, on the basis of assuming that about 5000 kms. of surfaced roads are, on average, newly constructed each year by the LSGIs out of plan funds from 1999-00 onwards (we know that about 8000 kms. were constructed in the two years 1997-8 and 1998-9), and that all such new roads are constructed entirely by converting existing un-surfaced roads into surfaced roads (an assumption that turns out to be not very consequential), the additional maintenance requirement for this road length comes to about Rs.159 crores for the year 2005-64. In that year in other words, Rs.268 crores would be needed for the maintenance of roads alone. The maintenance expenditure on assets, either already with LSGIs

4 The assumption of SOOOkms of extra roads each year is perhaps on ihe high side. Knowledgeable persons we have spoken to believe that 4000 km. is a more plausible figure. On the other hand however Planning Board estimates suggest that 17600 kms of new roads have already been built in the three-year period 1997-8 to 1999-00, as against 13000 assumed by us. If 4000 km is taken to be the average annual addition after 1999-00, the number of extra kms of road-length assumed by us for the terminal year 2005-6 still remains valid (though its distribution over time would be different from what we assume).

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prior to Septemebr 1995 or transferred to them thereafter, comes to about Rs.30 crores at 2000-1 prices. On the assumption that plan assistance to LSGIs in 2001-2 would be raised one percentage point to 14.2 percent of total tax revenue, and would grow (like total tax revenue) at 5 percent per annum in real terms thereafter, the magnitude of maintenance expenditure (at 2 percent of capital cost) on newly created, plan-assistance-financed assets would be a further Rs.88 crores at 2000-1 prices in 2005-6. The total maintenance requirement of the LSGIs for these particular assets in that year would thus be Rs.386 crores which would absorb 25 percent of plan assistance on our assumptions, Moreover if LSGIs are allowed to use plan assistance for maintenance, then they would use such funds even for maintaining those assets which have been constructed in the post-1997-8 period out of funds other than plan assistance. In such a case the share of maintenance in plan assistance would go up to 41 percent. The conclusion is inescapable that if LSGIs are given the freedom to use plan assistance for maintenance, and if they are serious about maintenance, then they will end up using up to two-fifths of such assistance even as early as 2005-6, and still higher and higher proportions beyond that date. This clearly is an untenable situation. On the other hand if they are not serious about maintenance, then that too becomes an untenable situation The object is both to prevent erosion in plan size and to ensure the maintenance of assets. And this can be served only if the state government takes the responsibility of financing the maintenance requirement of the bulk of the LSGI assets. The only exception would be those assets which have been constructed I in the post-Campaign period by LSGIs with funds other than what the government has provided. Even as the government takes I the responsibility of financing the maintenance expenditure onal whole range of LSGI assets, it must be emphasised to the LSGIs that the maintenance of the remaining assets would have to be I financed from their own sources, other than plan assistance. In other words the habit of treating plan funds as a cornucopia that

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can finance all kinds of expenditures should be actively discouraged5. We shall return to this issue in the second part of our report.

7.3.6 According to our perception then, what the government has to meet by way of maintenance expenditure, consists of two components: one component for a fixed stock of assets either possessed by LSGIs earlier or transferred to them after the 1995 GO; this would be a constant component (except to the extent that the maintenance requirement itself might grow with the age of the assets). The other component is for assets constructed out of plan assistance in the period since 1997-8; this would be a growing component since the stock of assets whose maintenance has to be covered would itself be growing.

7.4

7.4.1 There is a serious paucity of reliable data for making a proper estimate of maintenance requirements. Even though a comprehensive list of assets transferred to the LSGIs is now available, the age-structure of the transferred assets is not known. What is more, even on the road length owned by the LSGIs there are vastly differing estimates. Thus, the first Finance Commission had shown a total road length of 112491 kms. with the LSGIs

5. This argument also applies to the view that re-topping of roads should be counted as part of plan, rather than maintenance, expenditure. This view is both conceptually questionable, given the meaning of the term "maintenance" discussed earlier, and practically inadvisable, since it would entail a big drain on plan outlay. To be sure, if the maintenance expenditure undertaken by LSGIs on roads is separately met by the State government, as we suggest, then this would only encourage still more extravagant road building. But this problem has to be addressed separately, by placing tighter constraints, if need be, on road-building. If LSGIs are both left free (within the 30/40 percent ceiling) to go on building roads and have to re-top these roads from plan outlay, then the problem of unwise use of plan funds would only get compounded.

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as on 31.3.1996 (including 3437 kms. of PWD roads transferred), of which 105553 kms. were with Grama Panchayats. On the other hand data given to us by the Directorate or Panchayats show that Grama Panchayats own only 77359.49 kms. of road length as on 31.3.1999. This decline of 28000-odd kms, in four years is wholly inexplicable. Under the cirucumstances we have assumed in our estimates that the total road-length shown by the first Finance Commission is correct and that the increase in the road-length of surfaced roads that has occurred since 31.3.1996 has been through the surfacingi hitherto un-surfaced roads6.

7.4.2 The first Finance Commission had estimated the maintenance expenditure required on the 112491 kms. of roads with LSGIs at Rs.102.88 crores on the basis of maintenance norms for different road surfaces which were derived from figures given by the Ministry of Surface Transport of the Government of lndia There are however two problems with the estimate of the first Finance Commission. First, it does not take into account the question of re-topping at all. Its estimate relates exclusively annual repairs in the sense of patchwork. Secondly, the norm takes for the maintenance of un-surfaced roads, which is Rs7500 per km. per year at the prevailing prices, is extremely high.We have been told by several knowledgeable persons that even today's price a sum of Rs.2000 would be quite adequate for the annual maintenance expenditure per km. of earthen and gravelled road. We attempt to rectify the estimates on both these coun For re-topping, the PWD rates are Rs.6.5 lakhs per km. of Blac Topped road, and Rs.7.25 lakhs per km. of WBM road when the road width is 15 metres. Since village roads are 3.8 metres wide, we have, with proportionate adjustment, Rs.1.65 lakh

6. Dropping this last assumption and taking the entire increase since 31.3. as a net increase (consisting of surfaced roads) would not make much diffem to our estimates

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per km. of B-T road and Rs. 1.84 lakhs per km. of WBM roads as the re-topping expenditure. As for costs of repair, we take the first Finance Commission's figures for B-T and WBM roads adjusted for a 30 percent price increase7, and Rs.2000 per km. for un-surfaced roads at today's prevailing prices. Applying these norms to the figures given by the first Finance Commission's data on road lengths, taking four years as the interval for re-topping (and making allowance for the fact that if a road is being re-topped in a given year, it does not need repairs in addition in the same year), we get a total annual maintenance requirement of Rs. 108.6 crores at 2000-1 prices on the road-length existing with LSGIs on 31.3.1996, i.e. prior to the 1997-8 plan assistance increase.

7.4.3 As regards the assets transferred, the first Finance Commission had quite rightly suggested that the basis for calculating maintenance expenditure should be, not the original cost of the building but its current replacement cost. We have accordingly tried to calculate the current replacement cost of this list of buildings on the basis of certain assumptions: an LP School has seven rooms (20' by 20') and a veranda 5' wide running its entire length; a UP School has 8 such rooms with a corresponding veranda; a High School has 2 labs (40' by 40') in addition to what a UP School has; and PHCs, Dispensaries, Veterinary Centres and Krishi Bhavans have 4 rooms each (20' by 20'). We have assumed Rs.400 per sq.ft. as the current construction cost, 2 percent of capital cost as maintenance expenditure for schools and hospitals and 3 percent for other buildings. What our

7 This is not too far from an alternative estimate we can make. That is as follows. For annual repairs we can take the PWD norms of Rs.150 per sg.metre as the cost of patchwork, and 4 2/3 percent of surface area as the necessary extent of patchwork per annum. This gives us an estimate for repairs on B-T roads which is Rs.26619 per km. of road length. Our estimates based on adding 30 percent for price increase to the first FC's figure assume Rs.2509Q per km.

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illustrative calculations indicate is that the total amount of maintenance requirement on this part of the asset stock of the LSGIs is very small compared to that on roads. We surmise in the basis of our calculations that a sum of about Rs.30 crores would perhaps be adequate for the maintenance needs of the transferred assets (i.e. more accurate information on the age structure would not add all that much to the total). This sun (of Rs. 140 crores approximately) is unlikely to increase much in real terms in the coming years. True, there would be soni increase in the maintenance requirement with the ageing of the assets. But it is only for schools and hospitals that we have assumed a 2 percent maintenance cost; for the others we havt taken 3 percent which is the government's norm for ordinary old buildings. The increase in maintenance requirement owing to asset aging will add only a small sum.

7.4.4 What would increase is the maintenance requirement of asse newly constructed after 1997-8 out of the increased plan assistance. Let us take the State Planning Board figure of about 8000 km. of new roads in the first two years of the increased devolution8, and assume 5000 km. of extra roads each year thereafter. If we take a re-topping interval of four years for thesi roads (taking cognisance of the view held by many that they are of slightly inferior quality compared to the old PWD-built roads then the extra amounts needed for the maintenance of these newly constructed roads (after deducting the saving in expenditun arising from the fact that the un-surfaced roads, now converted to surfaced roads, would no longer need to be maintained), come to as follows.

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2001-2 2002-3 2003-4 2004-5 2005-6

Rs. 69.95 crores Rs. 129.97 crores Rs. 134.91 crores Rs. 147.25 crores Rs. 158.70 crores

7.4.5 On the assumption that approximately 40 percent of the total plan assistance has taken the form of assets whose maintenance would require about 2 percent of capital cost per annum we get a figure for the maintenance of such assets at around Rs.35 crores in 2001-2 and Rs.88 crores in 2005-6 at 2000-1 prices (the latter on the assumption, already stated, that plan assistance as percentage of total tax revenue goes up by one point from its current level to 14.2 percent in 2001-2 and remains there, while total tax revenue grows at 5 percent per annum from 2000-1 onwards). It follows then that the extra maintenance requirement on account of the newly-constructed assets goes up from Rs. 105 crores in 2001-2 to about Rs.247 crores in 2005-6.

7.4.6 Taking the two components together we can say that the total maintenance requirement on account of all the LSGI assets whose maintenance should in our view be the responsibility of the state government, goes up from Rs.245 crores in 2001-2 to Rs. 387 crores in 2005-6 at 2000-1 prices. If we assume the state government's total tax revenue at 2000-1 prices to grow at about 5 percent per annum from 2000-1 onwards, which is roughly equivalent to the SDP growth rate, then the maintenance requirement on account of all these assets, new as well as old, as a proportion of the tax revenue of the state, would increase from 2.72 percent in 2001-2 to 3.55 percent in 2005-6. The former figure is more firmly based than the latter. In arriving at the latter figure we have had to make assumptions about the size of

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plan assistance in the years to come which may not materialise. On the other hand, the assumption that the ratio of plan assistance to total tax revenue can be raised by at least one percentage point during the next year and kept at that level until 2005 appears to be an eminently reasonable one, in view of the fact that this ratio was as high as 19.1 percent in 1997-98 and 19.5 percent in 1998-99. Likewise the assumption that real revenue would grow at 5 percent per annum is by no means a far-fetched one. If this happens then the government’s maintenance commitments as visualised by us would increase from an estimated 2.72 percent of the total tax revenue in 2001-2 to 3.55 percent in 2005-6.

7.5

7.5.1 To keep the procedure simple, we are of the view that each year the government should set aside an amount equivalent to 3 percent of its total tax revenue for distribution among LSGIs for meeting their maintenance requirements8. Since it was felt

8. This would mean a slight surplus relative to requirements in the first couple of years but a deficit in the later years. And if it is felt that the correct re-toppimg interval on newly-constructed LSGI roads should be five rather than four years (so that the re-topping exercise in effect gets postponed by a year), then the surplus would be larger for the first couple of years. On the other hand however it should be remembered that our estimate of Rs.140 crores as maintenance expenditure on transferred assets assumes a steady state of maintenance, i.e the absence of any backlog with regard to maintenance. Given the fact that there is actually likely to be a backlog, the surplus may be only illusory. Moreover,if there is any surplus, as long as it is spent on the assets for which it is meannt, even if it entails some capacity addition (which, as mentioned earlier, is often indistinguishable from maintenance), there can be no possible harm in it. It is the diversion of funds, destined to be spent on assets, towards sundry curm expenditures that is questionable, not diversion of the reverse kind (after current expenditures are met). Besides we are also allowing the expenditure of up to 10 percent of the Maintenance Transfer for meeting operational costs. See paragraphs 7.5.13 and 7.5.14 below.

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by the Commission that earmarking a share of total tax revenue including the share in central taxes might not be appropriate, we would like to present our recommendation in terms a share in the tax revenue raised by the state. On average an approximate ratio of 3:1 has been maintained in recent years between the state's own tax revenue mobilisation and its share of central taxes. Given this fact we would like to recommend that the state government should put aside 4 percent of the tax revenue raised by itself each year over the next five year period for distribution among the LSGIs for meeting their maintenance requirement. LSGIs should not accordingly have the option, that they now enjoy of spending 10 percent of their plan funds for purposes of maintenance.

7.5.2 We would however like to present our final recommendation in yet another way. Since it is important that LSGIs know at the beginning of the financial year the exact amount of maintenance funds they are going to get, it would be more appropriate if we relate these to the latest audited Actuals. These, at the time of preparing the budget for the year t-2 , are known only for the year t-2 . On the basis of the projected trends it turns out that 4 percent of the current year's revenue of the state government amounts to about 5.5 percent of the own revenue two years back. Our precise recommendation therefore is that the state government should make available to the LSGIs each year an amount of maintenance grant amounting to 5.5 percent of the latest audited Actuals of own tax revenue.

7.5.3 This amount consisting of two parts, one constant and the other changing, must also be distributed according to two distinct criteria. Of the total amount so earmarked, Rs. 140 crores at 2000-1 prices should be distributed in accordance with the distribution of old and transferred assets among the LSGIs, for whose maintenance it is meant. The remainder has to be distributed in accordance with the distribution of newly created

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assets out of plan assistance among the LSGIs. Since the latter would correspond roughly to the distribution of plan assistance itself, the distribution of this part of the maintenance transfer should mirror exactly the distribution of plan assistance.Or course we are introducing a break in the pattern of distribution of plan assistance, by bringing in the revenue effort criterion in addition to those being used earlier. As a result, the distribution henceforth would be somewhat different from what it has been till now, so that if this part of the maintenance fund is distributed according to our criterion then it may diverge from the maintenance requirement on newly constructed assets whic would have been determined till now by the way plan assistance has been distributed so far. But this divergence is unlikely to be very significant and may in fact provide further inducement for undertaking a revenue effort. Besides, simplicity has to be an important consideration. Our recommendation for the inter se distribution of the maintenance fund then is as follows: an amount equivalent to Rs.140 crores at 2000-1 prices has to be distributed keeping in mind the distribution of a stock of assets The remainder is to be distributed in exactly the same way as plan assistance. The adoption of this dual criterion would ensure that neither the Block and District Panchayats whose share in the stock of assets is larger than their share in plan assistance nor Grama Panchayats for whom the opposite is true, would have any cause for complaint.

7.5.4 At present 3437 kms. of roads which have been handed overt to the District Panchayats are being maintained by the PWD. If the entire maintenance of the transferred assets is going to be the responsibility of the LSGIs themselves, then the District Panchayats should get the amount equivalent to the maintenance expenditure on these 3437 kms of roads. Likewise at present while assets have been handed over to the LSGIs, the maintenance of these assets often remains with the respective Departments. The responsibility for the maintenance of all such transferred

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assets should from now on be transferred to the LSGIs, since we are asking for funds to be made available to them for this purpose.

7.5.5 While the distribution of a part of the maintenance fund in accordance with that of plan assistance is easy to arrange, the distribution of the other part, the Rs.140 crores at 2000-1 prices, in accordance with the maintenance requirements of old and transferred assets, would be more difficult to effect. We would therefore suggest the following procedure only for the fixed component of the maintenance transfer. Out of the total of Rs.140 crores at 2000-1 prices (which has to be translated to current prices every year), one-seventh should be kept aside for the District Panchayats and Block Panchayats. Five percent of this amount (i.e. 1 /140 th of the total amount) should be given to the Block Panchayats for equal division among them. The other 95 percent should go to the District Panchayats which would now have the responsibility of maintaining 3437 kms of surfaced road-length (including re-topping at four year intervals). The remainder of the Rs.140 crores (at 2000-1 prices) should be distributed among the Grama Panchayats and the Municipalities. The mode of distribution of the respective amounts among the District Panchayats and among the Grama Panchayats and Municipalities will be initially according to the following formula. The maintenance amount for District Panchayats should be split between road and non-road assets on a 50:50 basis. The former should be distributed on the basis of road length and the latter on the basis of certain "norms" (given below) applied to the value of non-road assets. For Grama Panchyats and Municipalities, exactly the same formula should hold except that the distribution of the maintenance amount between road and non-road assets should be in the ratio 7:1 (correspondingly roughly to their estimated requirements). For the distribution of the maintenance amount on roads the existing criteria based on Babu Paul Committee report should be followed. For the other part, the "norms" mentioned below could be applied to the data on the

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magnitude of transferred assets to get an inter se distribution To be sure, what any particular LSGI would get out of Rs.140 crores (at 2000-1 prices), distributed in this manner, may be very different from what it objectively needs for the maintenance of the old and transferred assets at its command in accordant with the given "norms". Ideally, to get at a genuin correspondence between the two vectors, namely, what the LSGIs get for the maintenance of these assets and what they objectively need, there should be an iterative procedure of the following kind.

7.5.6 In the first year, as the total maintenance expenditure amounting to Rs.140 crores (at 2000-1 prices) is distributed according to the above criteria, the government can simultaneously announting these maintenance expenditure "norms" (e.g. rupees per sq.ft of buildings and per km. of road length etc.) on the basis of which those LSGIs which feel that they have got less than theij due would put in claims for more. At that point, the validity of their claims will have to be verified by the government (and in the process a proper inventory of their pre-existing an transferred assets built up). Now, suppose the sum of valid exte claims comes to Rs.10 crores. Then, in the second year, since tk total maintenance transfer would increase to a larger figure owini to price increase (say to Rs.154 crores, if prices rise by 10 percent), these extra claims can be met out of this increase. In the second year then Rs.10 crores would be given to thos: particular LSGIs which had got less in the first year, and Rs.144 crores (154 - 10), distributed among all the LSGIs (including those who have been given the extra Rs.10 crores) in a new ratio (where the Rs.10 crores get added to the weights of those wb have been given this sum). If on the other hand the sum of extra claims exceeds the increase in the provision in the second yea. say the valid extra claims come to Rs. 20 crores against an increase in provision of Rs.14 crores, then the Rs.14 crores would have to be rationed out among the claimants, with each getting 70

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percent of the extra claims, and being asked to put in fresh claims for the remainder next year. When the available funds exceed the claims at the old norms, this excess can be distributed in accordance with the latest prevailing weights. And at this point the norms can be revised to take account of price increases in the interim, on the basis of which fresh claims would be put forward.

7.5.7 When a situation arises where all LSGIs put in valid extra claims, we have reached the end of the iterations. Once these claims have been accommodated in the manner described above, the pattern of weights prevailing at that point can be used for all subsequent distribution of the fixed amount (of Rs.140 crores at 2000-1 prices). In this manner we start with incomplete information, and hence only a rough and ready index of weights for inter sc distribution, but we keep revising the index as we go along on the basis of information provided by the LSGIs themselves (and verified as authentic by the government), and simultaneously building up the information base. This way eventually we should get at the “true" index of weights (i.e. the iterations will converge to the "true” index), provided we start in the neighbourhood of the "true" index.

7.5.8 In case this procedure, which relies heavily on the assumption that a posteriori verification would be authentic, is found to be administratively infeasible, the more simple and obvious alternative is to cut out iterations, and take the initial inter sc distribution as the final one as well. In this case a careful a priori calculation, based on the available data on transferred assets, supplemented by further verification through visits and the eliciting of additional information through questionnaires, may be made of the maintenance requirements, especially of the transferred non-road assets. Rs.30 crores can be distributed on the basis of these calculations and the Rs.110 crores (both figures at 2000-1 prices) can be distributed on the basis of the Babu Paul Committee recommendations, and the matter can be left at that.

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7.5.9 The scheme of iterations has several additional advantages: first, it is flexible in the sense that it can be stopped after any round if we are not too finicky. For instance when the very first round of excess claims have been accommodated, and available funds have shown an excess over claims (and hence distributed according to the latest prevailing weights), the iterations may be stopped. The latest prevailing weights can then be taken as final, for the safe of convenience. Secondly, it is flexible in yet another sense: the upward revision in the maintenance norms (to reflect price increases) can be calibrated in accordance with the capacity of the administration. Since all claims have to be verified by the administration, a sharp increase in the norms would put a greatcj burden on the administration than a small increase in the norms Thirdly, the scheme works even if the original estimate of Rs.140 crores (at 2000-1 prices) as maintenance expenditure requirement on old and transferred assets is inaccurate. What the schemt achieves is the following: if the amount is "too little" or "too much", this "too little-ness" or "too much-ness" is evenly distributed across LSGIs. Notwithstanding the advantages of the scheme of iterations however, it was felt by us that on practical considerations a once-for-all formula of inter se distribution would be better. We would therefore recommend the latter.

7.5.10 A possible criticism of our proposal is that it requires an identification of pre-existing or transferred assets separate froir those newly constructed. But even though by looking at a house one cannot say whether it is newly-constructed or whether it has been transferred, or looking at a road-length one cannot be sure whether it was pre-existing with the LSGI or has been

constructed out of the plan assistance (especially since such assistance might have been used to re-top an old road), nonetheless records are available on the basis of which the authenticity of maintenance claims on pre-existing or transferred assets can be verified. Besides, this whole system of dual criterion that we are suggesting is a transitional arrangement anyway: in

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the future when the weight of the maintenance expenditure on pre-existing or transferred assets in the total would have gone down (it being a fixed part of a growing amount), this dual criterion can be replaced by a single one, viz. distributing maintenance assistance entirely in the same proportion as plan assistance.

7.5.11 It remains to identify the verifying authority and to fix the initial norms. This authority should vest with the Ministry of Local Self Government of the state administration. The initial norms can be as follows

i. Maintenance on Buildings

Constructed Before 1.4.67

3% of capital cost

ii. Maintanace on Buildings Constructed After 1.4.67

2% of capital cost Rs.400 per sq.ft

iii. Current Construction Cost Rs.400 per sq.ft

iv. Frequency of Re-topping of Surface Roads

Once in Five Years

v. Repair Expenditure: B-T Roads Annually

Rs.25090 per Km

vi. Repair expenditure:(WBM) Raods Annually

Rs.23140 Km

vii. Reapir Expentiure: Un-surface Raods Annually

Rs.2000/Km

viii. Cost of Re-topping B-T Roads(3.8 m.width)

Rs.1.65 lakhs/km

ix. Cost of Re-Topping WBM Roads (3.8m width)

Rs.1.84 lakhs/km

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These figures would have to be updated from time to timet to take account of inflation.

7.5.12 The procedure we are suggesting can be summed up forconvenience as follows:

(i) Set aside, in each year's budget, 5.5 percent of the tax revenue raised by the state government during the latest year for which audited accounts are available, for transfer to LSGIs as a maintenance fund.

(ii) On the basis of a price-index work out what Rs.140 crores at 2000-1 prices amount to for the coming year for whichthe provision is being made in the budget. (The deflator for the construction sector employed in SDP calculations can be used for the purpose and the Department of Economics and Statistics can be asked to give a quick estimate of its increase during the preceding 12-montr period at the time of the formulation of the state budget, and this increase can be assumed to hold over the next twelve months).

(iii) Of this sum, one-seventh is to be kept aside for District and Block Panchayats, and divided between them in the ratio of 19:1. The Block Panchayats should have the amount equally divided among them. The District Panchayats shout have half the amount divided among them in exactly the same ratio as the 3437 km. road length is distributed, and the other half on the basis of "norms" applied to estimated non-road asset values.

(iv) The remaining six-sevenths of this sum is to be distributee among the 6rama Panchayats and the Municipalities ano Corporations; seven-eighths of this is to be distributee on the basis of the Babu Paul Committee recommendations

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and the remaining one-eighth on the basis of "norms" applied to estimated asset values.

(v) The remaining part of the maintenance fund, i.e. the excess of 5.5 percent of the state's own tax revenue two years ago over Rs.140 crores at 2000-1 prices, is to be distributed exactly in the same ratio as the plan assistance.

7.5.13 The LSGIs should not in general be allowed to spend the amount they receive as maintenance transfer for any other purpose. There is however a problem here. Since, as argued earlier, the expenditure on maintenance cannot be distinguished from net investment in many cases, the LSGIs would perforce get embroiled in tedious, almost theological, hair-splitting if they seek scrupulously to follow this injunction. The only practical way of avoiding this and yet ensuring that the maintenance transfer is not illegitimately used, is to insist that the total amount of such transfer should be spent exclusively (subject to one qualification mentioned below) on the assets for which they are meant. Ideally, the amount meant for the maintenance of transferred and old assets should be spent on these assets alone and on nothing else, and the amount meant for the maintenance of newly constructed assets should be spent on only these assets and on nothing else. But, ensuring that maintenance transfers within each category are spent exclusively on assets belonging to that category, would be practically impossible. What can however be ensured is that the total amount transferred for maintenance is spent only on assets that require maintenance. (Of course, in the process, some of the maintenance transfer would be used for the maintenance of assets newly-constructed from sources other than plan funds. But this is a problem which can be ignored for the time being). What is most important is that maintenance transfers to LSGIs should not be diverted either towards entirely new projects or for arbitrary current expenditures. If this much is assured through proper audit, then it can be left to the peoples'

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intervention to ensure that the maintenance amounts are spa as far as possible on maintenance. Once it is known that adequa amounts are available for the maintenance of assets, thenal observed poverty in the quality of these assets would aroJ popular anger which is the best means of ensuring that the LSfl follow the straight and narrow path of rectitude.

7.5.14 We now come to the qualification mentioned in para 7.5.11 There is a widespread feeling that the present practice of making LSGIs rely exclusively on the supplies of medicines and books and consumables made available by the state government is an inefficient one; likewise the practice of making the state government meet a host of current costs such as rent, telephone bills, the repair and fuel consumption bills on vehicles, electricity and water charges etc. is both cumbersome and inefficient. I this context we propose in Chapter 8 that the state governmel should be freed from the obligation of having to meet any operational expenses other than on medicines and books and consumables. To meet these other costs, the LSGIs should make their own provisions; and even in the matter of medicines an books and consumables where we recommend a continuation of the present system, the LSGIs should be allowed to make their own additions! purchases at the margin. For all this, howevei the LSGIs need some funds. We recommend that they shouldm allowed to spend up to a ceiling of 10 percent of the Maintence Transfer for meeting current expenses. While we strongly oppose the practice of diverting maintenance transfers for current uses we make this exception only as a transitional arrangement, to provide a bridge from the existing system to a new one. By thj time the next Finance Commission conies into being, how the proposed system works would have become clear, and appropriate rectifications can be made so that operational expenditure and maintenance expenditure are kept strictly separate, and the former does not lay claim to what is earmarked for the latter.

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7.5.15 To recapitulate, we are allowing LSGIs to use maintenance funds for operational expenses up to a ceiling of 10 percent; in addition we are allowing them some leeway in selecting the assets for maintanance expenditure in a particular year. This is because maintenance too is undertaken in practice in a bunched manner. It is not as if little bits are spent regularly on the repair and maintenance of particular assets; rather, sizeable sums are spent every once in a while for the maintenance of particular assets. The candidates on whom such sums are spent differ from year to year.

7.5.16 Earmarking a part of the state's own tax revenue for transfer to LSGIs for the maintenance of their assets would no doubt entail a certain additional strain on the state's finances. The whole purpose of the exercise however would be lost if this strain is sought to be met by cutting back on plan outlay. If we disapprove of the use of plan funds for maintenance at the LSGIs' level, then we are equally opposed to the use of what in effect would have been the state's plan outlay for the purpose of maintaining LSGI assets. Any such reduction in the state's plan outlay would also entail a reduction in plan assistance to the LSGIs (under the one-third formula suggested by us), so that a part of what the latter would gain through maintenance transfers would be lost through reduced plan assistance. The funds for the maintenance transfers therefore have to be found independently. One way of ensuring that plan assistance to LSGIs is not adversely affected by the maintenance transfers, is to suggest that a certain minimum proportion of tax revenue should go as plan assistance, in the same way as we have done for maintenance assistance. But if we do so, then, together with our stipulation of one-third transfer of plan outlay to LSGIs, it would amount to fixing the minimum size of the state's plan outlay itself (as a proportion of its tax revenue) which is outside our terms of reference. Our expectation is that plan assistance to LSGIs which has fallen to 13.3 percent of total tax revenue in 2000-01 (BE) would be raised

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by at least one percentage point and whould be kept at least! that level for the next quinquennium.

7.5.17 That still leaves the question: how is the state government to find the resources to make this extra transfer to the LSGIs? The amount is not much, since against payments to be made as maintenance transfer we have to offset the savings the government would be making by not paying VTC, by not paying the PWD for the maintenance of 3437 km. of road-length, by not paying the (very small amount of) maintenance grants currently used by Departments for maintaining assets falling within the jurisdiction of LSGIs, and by not paying the operational expenses except for the purchase of medicines, books and consumables. Even so, funds have to be found for this. How the government can do so, is an issue that falls outside our terms of reference. It seems to us nonetheless that that if the service sector in Kerala, which has been the fastest-growing sector, could be brought under the ambit of taxation to a greater extent than has been the case till not then the state which has a good record of revenue mobilisatioin would do still better.

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CHAPTER 8

NON-PLAN, NON MAINTANANCE TRANSFERS

8.1 Traditionally, transfers from the state government to the LSGIs have been grouped under two separate heads: plan transfers and non-plan transfers. We have discussed plan transfers in Chapter 6. In Chapter 7 we have introduced a new category, namely transfers for the maintenance of certain LSGI assets, or "maintenance transfers" for short. In the current chapter we shall discuss what was traditionally referred to as "non-plan transfers" and what we shall call "non-plan, non-maintenance transfers" to emphasise that we are no longer discussing "maintenance transfers" (which logically must also fall under the general rubric of "non-plan"). At the time of the first Finance Commission Report, the bulk of the "non-plan transfers" referred exclusively to the transfers of shared and assigned taxes and a host of specific and general purpose grants to LSGIs. And these "non-plan" transfers were divided into two parts: statutory transfers and non-statutory transfers. The former referred to the transfers on account of the assigned taxes (Basic Tax, and Surcharge on Duty on Transfer of Property) and shared taxes (Motor Vehicle Tax), while the non-statutory transfers included a host of grants (a possible 18 in the case of panchayats and a possible 10 in the case of municipalities). Now, on account of the shifting of a whole array of assets and responsibilities to the LSGIs whose operational costs have to be financed by the state government, there is an additional and significant element of transfers whose magnitude even exceeds what conies to LSGIs through shared and assigned taxes and sundry grants. An entirely new category,

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which had appeared only in an embryonic form at the time the first Finance Commission has now grown to an extent when it even dwarfs what traditionally constituted "non-plat transfers". This category in turn has two distinct parts: one is listed in the budget under the Minor Head "191: Assistance Local Bodies and Municipalities/ Municipal Corporations". We shall refer to this part as the "191 Non-Plan Transfers" (since Plan Transfers are also listed under 191). The other part consists of the amounts that are made available to the LSGIs on account of meeting the operational costs, i.e. the salaries and material input costs, on transferred assets. We shall refer to these transfers as "Operational Cost Transfers". Finally, we shall refer to thtl transfers on account of tax devolution and minor grants as "Tai-Cum-Minor Grants Transfers". It follows then that we are talking! of four distinct kinds of "non-plan transfers": the "Tax-Cum- Minor Grants Transfers" (which were the predominant element! until 1995-6), "191 Non-Plan Transfers" (which are a resulto! the shifting of several responsibilities to the LSGIs), "Operational Cost Transfers" (which are a result of shifting assets to LSGIs), and "Maintenance Transfers" (which we wish to bring into being).

8.2 At the time of the first Finance Commission, the transfers through these minor grants, or what the Commission had called "the non-plan, non-statutory transfers", were many in number, minuscule in amount, and divided, in addition, into general and specific purpose grants. The Commission had therefore made a number of suggestions for simplifying the system and making it more meaningful. One was to make all of them general purpose grants. The other was to ensure that the total of such transfers should constitute 1 percent of total state revenue (appropriately defined for the purpose), and should go into two pools, the rural and the urban, according to the weights of the rural and urban populations in the total population of the state. In addition, the rural pool was to have 25 percent of the Basic Tax from panchayat

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areas, and 25 percent of the Surcharge on Stamp Duty from panchayat areas, while the urban pool was to have 100 percent of the (newly-proposed) Basic Tax and 25 percent of the Surcharge on Stamp Duty collected from urban non-Corporation areas (the Corporations were to be simply given the taxes collected from their areas). In the event the government accepted the other suggestions but not the one relating to 1 percent of total state revenue, which essentially meant retaining the tail without the sting. It accepted the idea of the rural and urban pools, but these pools could not be nourished by 1 percent of state revenue.

8.3 Today we once again have a complex and intricate system of "Tax- Cum-Minor Grants" transfers whose complexity and intricacy is entirely unnecessary. There is a rural pool, which undoubtedly had a rationale at the time of the first Finance Commission's report, but whose rationale is much reduced after the ushering in of democratic decentralisation. It represents, besides, a rather meagre sum. To make up this meagre sum, even more meagre streams from various tax transfers have to be joined together; and their respective sizes too are determined by elaborate formulae.

8.4 This is not all. Quite apart from the question of complexity and intricacy, the whole conception of assigned taxes and shared taxes is open to question. If the financial relationship between the state government and the LSGIs is to be characterised by sharing, then it is not clear why this sharing should take the form of some particular taxes being destined for LSGIs and others for the state government, and why the revenue of only some particular taxes should be shared between the two in certain ratios. This conception, apart from its complexity and lack of rationale, is also foreign to the underlying philosophy of democratic decentralisation. This visualises not a tussle between the state government and the LSGIs, not an antagonistic relationship, but a relationship aimed at constituting a total

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democratic structure more meaningful than what exists now. We are talking after all of two entities, each of which has ai administration headed by elected representatives of the people The conception of success of the overall structure must be defind in terms of the degree of empowerment of the people. An important component of the index of success of institutions at one level therefore must be the degree to which they strengths the institutions at the other level. We have to get over the mindset of visualising the problem of resource sharing between the tw levels as if two self-centred, self-absorbed, hedonistic entities an squabbling over shares in a piece of cake (with the role of the Finance Commission being that of an arbitrator reconciling thestl conflicting claims). In short the old formulae for sharing, which meant assigning particular tax revenues to particular levels, haw to be replaced.

8.5 There is an additional reason for our suggesting this. If we look into the fiscal future of Kerala, there can scarcely be any doubil that the state will have no option but to rely increasingly on taxation of the service sector. It is more than likely that such shift would give a greater buoyancy to the tax-revenue ofthJ state government, compared to the tax revenue of the LSGIs, ii the latter continue to depend exclusively on a certain limitcil number of assigned taxes. An overcoming of this dichotomy will inevitably come on to the agenda. Sooner or later in other words we have to move away from the system of basing LSGI financal on a set of assigned taxes, towards one where the LSGIs and the state government share the proceeds of the entire tax revenue raised by the latter. If this be so, then we may as well move toi system of tax-sharing right from now. We are basing on: recommendations on the existing set of taxes. We hope that future State Finance Commissions would take into account new taxes which may get imposed, so that the principle of total tax sharing is continued.

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8.6 The magnitudes of non-plan transfers to LSGIs which have occurred under

two of the several heads, viz.191-Transfers and Tax-Minor Grant Transfers, are given in table 8.1.

Table 8.1

Non-Plan transfers to LSGIs (Rs.Crores)

1995-6

1996-7

1997-8 1998-9 1999-00 RE

2000-1 BE

(i)Under 191 17.1 151.2 178.0 229 236.0* 245.2*

(ii) Others 87.4 148.8 160.4 155.8 199.3 179.7

Ofwhich

a. Basic Tax 5.25 14.2 11.6 16.0 7.0 7.7

b. V.T.C. 20.8 32.8 50.9 50.2 78.9 58.6

c. Surcharge on Duty on Property Transfer

54.3 83.5 77.9 75.9 100.0 100.0

* See footnote 1. Source: Budget Documents

Note: Comparison across the years is problematical because of systemic changes over the period and also because figures for the last two years represent only estimates.

8.7 The category "others" in Table 8.1 comprises what we have referred to as "Tax-Cum-Minor Grants Transfers". For the last three years, when the VRM grant was discontinued, this category consists of the following items:

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(i) the three main tax sources

(ii) a grant of Rs. 8.4 crores (in 1999-00 and also in 2000-01) to District Panchayats (who got Rs. 2.3 crores) and Block Panchayats (who got Rs.6.1 crores) for meeting their revenue expenditures1

(iii) Rs. 3.5 crores as "Grant-in-Aid Assistance to Panchayats", and several minor grants for the maintenance of minor irrigation, water supply, railway crossing etc. whichl together came to Rs. 1.49 crores in 1999-00 and Rs.1.54 crores in 2000-01.

8.8 These figures exclude, as they rightly should, the expenditure on account of the state government's Panchayat administration at the state and district levels, and the expenditure on Panchayat publication and training programmes undertaken by the state government.

8.9 In view of what has been said above, we recommend that in lieu of the present arrangement of specifically assigned and shared taxes and of sundry grants, a certain proportion of the state government's own tax revenue (excluding its share in central taxes) should be set aside for transfer to the LSGIs. In the preceding chapter we have already provided for "Maintenance Transfers", i.e. non-plan assistance from the state government to the LSGIs for the maintenance of transferred assets, of old assets which were with them, and of newly constructed assets from 1997-8. While doing so the state government need not pay any VTC to the LSGIs, since the purpose of VTC and VRM was to finance maintenance expenditure for roads under the jurisdiction of the LSGIs. Now, if the state government did not have to pay VTC, then the amount of "Tax-Cum-Minor Grant

1. Since this particular item also appears under the non-plan expenditure listed in Appendix 4, in order to avoid double counting we have removes it from our total of "191 Non-Plan Expenditure". For 1999-2000 and 2000-1 therefore the totals of "191 Non-plan expenditure" do not correspond to the figures available in published official statistics.

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Transfers" that it would have made available to the LSGIs during the last six years is given in Table 8.2

Table 8.2

Tax-Cum-Grants Transfers (Excluding VTC)

8.10 The average figure for the percentage of the state's own tax revenue

transferred each year on account of taxes and minor grants comes to 2.29 percent for the entire six-year period. In fact if we leave out 2000-1, for which we have only budget estimates anyway, then the figure for the preceding two years is remarkably close to this average. It would appear then that an amount approximately equivalent to 2 ¼ percent of the state government's own tax revenue (excluding its share in central taxes) has been handed over each year, in recent years, to the LSGIs on account of tax assignments, tax sharing and the minor

Year Tax-Cum-Grants Transfers(Rs.Cr)

Sate’s Tax-Revenue(excluding share in Central taxes)Re.Cr

(ii)/(iii) %

(i) (ii) (iii) (iv)

1995-96 66.6 3383 1.97

1996-97 116.0 3899 2.98 1997-98 109.5 4501 2.43

1998-99 105.6 4650 2.27

1999-00(RE) 120.4 5472 2.20

2000-01(BE) 121.1 6440 1.88

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grants (other than through the VTC). We recommend that 2,51 percent, of the total tax revenue of the state government (excluding its share in central taxes), should henceforth be sell aside for distribution to the LSGIs. On the other hand the government should retain the entire tax proceeds from those taxes which it either collects on behalf of the LSGIs or shares with them currently. The reason for our suggesting a slightly higher percentage (2.5 as opposed to 2.25 ) of own tax revenue for devolution to LSGIs under the head "Tax-Cum-Minor Grants! Transfers" (which we wish to re-christen as "General Purpose Transfers" or "General Purpose Grant") will become clear later, But the increase is marginal. Our main concern is simply a rationalisation and simplification of the existing system.

8.11 It is more convenient however if the transfer on this score is expressed as a percentage not of the current year's tax revenue of the state government, but of the tax revenue of the latest year for which the Actuals are available (which in effect means the tax revenue two years ago), so that a precise figure appears in the current year's budget of the state government. Assuming a 16.8 percent growth rate of own tax revenue (which happens to be the "norm" prescribed by the CFC for the state), 2,5 percent of the current year's own tax revenue would amount to 3.5 percent of the own tax revenue two years ago. Our precise recommendation therefore is that an amount equivalent to 3.5 percent of the state's tax revenue (excluding its share in centrA taxes) of the latest year for which certified accounts by the Accountant General are available should be transferred each yean by the state government to the LSGIs in lieu of the current system of transfers of taxes and grants to them.

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8.12 The Commission's recommendations amount to a radical departure from assigning and sharing of specific taxes to sharing of revenue from all the own taxes of the State Government. Of course assigned taxes and specific shared taxes have a certain sanctity coming out of their long history and universal practice. And more importantly they are legal entitlements, which over a period of time have come to be seen as a matter of right for LSGIs enshrined as legislation and protected by it. The LSGIs have a historic as well as legal right over these sources of revenue. They have been used to it for so long that it has become an integral part not only of their fiscal system but also of their expectations of revenue. Thus any move away from this system has to be done with caution and care. Not even in the slightest way should there be any erosion in the legal entitlement of LSGIs. In fact there should be a strengthening of them. In deciding the quantum as well as in the precedure of sharing the state taxes there cannot be any discretion whatsoever; it cannot be in the nature of a grant left to the executive to decide nor can it be left even to the annual Finance Act. It has to become an unambiguous part of the Panchayat Raj and Municipal legislation, additionally safeguarded by policy commitment to allay all misgivings. There fore, when the commission recommends a shift away from the present system of specific taxes assigned or shared to a general sharing of all taxes, there need not be any doubt or fear about the potency of the new entitlement. In fact by suggesting a general share of all taxes, the entitlements are broadened and deepened. It has the added symbolic significance suggestive of LSGIs standing shoulder to shoulder with the State Government in sharing responsibilities and revenue. It is as if the local governments have grown in importance to claim a general share of all taxes rather than just three specific taxes.

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8.13 We recommend the following principle of Inter se distribution of this amount between the different tiers of the LSGIs. The I District Panchayats and the Block Panchayats, which have no sources of income as yet, rely exclusively on state government grant for their house-keeping expenditure. Since the size of the household to be kept is not uniform their share should be I determined on a normative basis. The total amount earmarked for them should be set apart and distributed among them according to their genuine requirments which should be determined on the basis of prescribed norms. The share of Municipalities, Corporations, and Village Panchayats, each taken as a group, should in principle be fixed at the levels which have been observed in recent years. There is however an important additional consideration, namely, the significant boundary changes that have taken place of late. Two new Corporations, Kollam and Thrissur, have been created out of Municipalities, with the addition of certain Panchayats. Likewise the Thiruvananthapuram Corporation has been expanded with the addition of certain Panchayats. And there have been other changes involving the incorporation of Panchayat areas into Municipalities. In view of these changes, the distribution of the General Purpose Grant across tiers can no longer conform to the historically observed shares; suitable adjustments have to be made. Taking this fact into account we recommend the following

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distribution of the General Purpose Grant across tiers2, after setting apart the share of District and Block Panchayats.

Table 8.3

Proposed Distribution of General Purpose Grant Between Tiers

Tier Share in Total (%)

Grama Panchayats 75.5

Municipalities 8.5

Corporations 13.0

2. The basis of these calculations should be clarified. Since each of these tiers would be getting a separate grant for the maintenance of their old assets and transferred assets, there would be no need to transfer VTC to them any longer. As far as the Municipalities and Corporations are concerned, they get very little government (non-tax) grants of the sort that Panchayats get. The first Finance Commission had recommended that urban local bodies too should be eligible for Basic Tax Grants which should then be put into the urban pool. Though this suggestion was accepted by the government, appropriate legislation is in the process of being enacted, so that no actual Basic Tax has yet accrued to the urban LSGIs either directly or indirectly (via the urban pool). Likewise since the urban pool has not yet taken shape, the deduction of 25 percent of the Surcharge on Stamp Duty in urban areas, which is supposed to go into this pool, has not yet taken place. It follows that for the urban LSGIs, once VTC is excluded, the surcharge on stamp duty coming their way is the sole form of "Tax-Cum-Minor Grants Transfer", The budgetary allocations on this score, as a proportion of the total "Tax-Cum-Minor Grants Transfers" excluding VTC, were on average about 18 percent over the period since 1997-8, and these were approximately evenly divided between Municipalities and Corporations. The observed shares of the different tiers obtained on this basis are then adjusted to take account of the boundary changes to give us the figures of table 8.3.

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8.14 As regards the inter sc distribution among tiers, GPs, Municipalities, and Corporations, our recommendation is the following. For Municipalities and Corporations the inter se distribution should be entirely on the basis of population. As regards Grama Panchayats, out of the total amount earmarked, Rs.10 crores should go towards filling the deficits of certain poor GPs in meeting establishment expenses (as is the practice now). The remainder should be distributed on the basis of population. For District and Block Panchayats, they may be grouped. based on requirements, and allocations made on normative basis. including expenditure ceilings for certain categories like telephon; charges, P.O.L, travelling allowance and extraordinary items.

8.15 The really novel element in our recommendations in this chapter is the proposal that the inter se distribution, within the group of Grama Panchayats, to the individual Panchayats should be on the basis of population; and the same principle should be adopted for Municipalities and Corporations. At present, 75 percent of the basic tax collected in the Panchayat areas is distributed according to where it is collected from, and only 25 percent goes into the rural pool from which the criteria of distribution are in keeping with certain specified norms. The entire surcharge on stamp duty collected from urban areas is distributed according to where it is collected from (since the urban pool into which 25 percent of it should go, has not yet come into existence). And the distribution of VTC is supposed in principle to be in keeping with maintenance needs. The tax revenues transferred for non- maintenance purposes at present are therefore distributed, toil significant extent, on the criterion of place of collection. The shift to population as the basis of distribution marks a radical departure. This shift can be justified as follows. Once we move away from the notion of "assigned taxes", the criterion of place of collection ceases to be relevant. True we could still mimic that criterion (as we have implicitly done in fixing the share of

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Corporations and Municipalities), but the only justification for doing so would to avoid any sudden financial hardships to any particular local bodies, such as a sudden shift to a different criterion of distribution would entail. But this is an argument of pragmatism not of principle. If the pragmatic concerns could be taken care of in some other way, then we could move to some alternative criterion which is more reasonable in principle. Since plan assistance which constitutes the bulk of the transfers is already being distributed according to a set of complex and carefully-worked out norms, population is the obvious simple basis for distributing the "General Purpose Transfers".

8.16 But the move to this simple criterion may create hardships for particular LSGIs in the transitional period. They may suddenly find themselves with reduced incomes. True, they are getting substantial plan assistance and would be getting, on our recommendations, a significant amount of funds for the maintenance of assets. It may therefore be thought that a certain transitional reduction in incomes should not be a cause for concern. But precisely because we are of the view that maintenance grants should not be used indiscriminately for other purposes, and that plan funds should not be used for current expenditure needs, we feel it necessary to ensure that no income fall occurs in the period of transition; otherwise we would be condoning, indeed encouraging, financial impropriety. It is for obviating any such hardships that we have recommended a small rise in the proportion of "Tax-Cum-Minor Grant Transfers" (excluding VTC), now christened "General Purpose Transfers", from its current figure of about 2 ¼ percent of the state's own tax revenue to 2 l/2 percent. This extra ¼ percent would come to about Rs.15 crores (out of a total own tax revenue estimate of Rs.6440 crores) in 2000-1, but it would result in a streamlining and simplification of the system in a relatively painless manner,

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in the sense that no individual LSGI would experience an absolute shortfall in its receipts on account of these transfers.

8.17 One consequence of our recommendations is that the rural and the urban pools would have to go. In fact they would no longei be necessary. The rationale of having the rural and the urban pools was precisely to provide some relief from the relentless logic of the "place of collection" criterion in distributing these tax transfers. Many LSGIs, from whose territorial jurisdiction not much tax could be collected, required succour, and the pools were meant to provide such succour. By providing for these pools. the first Finance Commission had already taken a few steps awan from the "place of collection" criterion which in turn derives from the logic of "assigned taxes". We have only taken that movement to its logical conclusion. Of course, a certain practical awkwardness is introduced in the process. Several legislations to give effect to the recommendations of the first Finance Commission have already been enacted or are in the process of being enacted. Our recommendations being introduced at this stage would make many of these legislations irrelevant, unnecessary or infructuous. But the awkwardness here is in parti an inevitable product of the inordinately long time-lags witlj which Finance Commission's recommendations are implemented, and in part a result of the peculiarity of any period of transition, such as what characterises the process of decentralisation ill Kerala. Many things have happened between the first Finance Commission and the second, and in taking cognisance of these our report necessarily has to differ qualitatively in many spheres from that of the first Commission. But once this remarkable period of transition is over, subsequent Finance Commissions can build on their predecessors' reports to a greater extent (and thus provide greater continuity) than we have been able to do.

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8.18 We now come to the question of "191 Non-Plan Transfers" which is yet another component of "Non-Plan, Non-Maintenance Transfers". An idea of what this component covers can be had from Table 8.4 which gives information on the budgeted expenditure for 2000-1 on some important items under this head.

Table 8.4

Some Important items of 191 Non-Plan expenditure 2000-1

Item Expenditure (Rs.Crores) 1. Special Pension Scheme for

Physically and Mentally handicapped

13.97

2. Destitute Pension 19.78

3. Agricultural Workers Pension 37.20

4. Old Age Pension 3..07 5. Mid- day Meals 29.50 6. Unemployment Allowance 70.00 7. Flood Damage Repairs,

Renewal of Communications etc

23.25

8. Medical materials and Supplies

8.40

9. Production Incentive to Paddy Growers

10.00

10. Assistance to BP’s and DP’s 8.40 Total of these items 223.57 Total 191 Non-Plan 253.63

8.19 Clearly the bulk of the 191 non-plan transfers consists of social expenditure of different kinds, for which the responsibility has now been shifted to the LSGIs. These, with the sole exception of the "Assistance to BPs and DPs" (for whom we have made alternative provisions), should continue exactly as before. We refrain from making any recommendations regarding the

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minimum provisions on these heads, though the stipulation of such a minimum is essential to take account of both inflation and the inevitable increase in the number of intended beneficiaries, in the belief that the pressure of public opinion would automatically enforce such a minimum.

8.20 The "Operating Cost Transfers", as mentioned earlier, have two components: the payment of salaries to the staff employed on assets transferred to LSGIs, and the provision of current input e.g. medicines, books and consumables in schools, electricity and water charges, rent, telephone charges etc., for the transferred assets. The salaries, for reasons discussed in paras 2.9 and 2.10 must continue to be paid by the state government; we do noil wish to change the current system in any way. As regards til transfers for current inputs there are at least three separate problems with the present system: first, in the health anil education sectors, the transfers to a significant extent are man in kind rather than in cash, which introduces inflexibility intt the system (and hence irrationality of the sort where there m; be too much of one kind of medicine and too little of another ). Secondly, even apart from such micro-level disproportion the very fact of having to depend on a distant entity, namely tbl state government department, for supplies, introduce inflexibility into the system which is undesirable. Thirdly, sine in a whole range of other sectors, the transfers, though the may not be in kind, are many but minuscule, the system has, cumbersomeness which is avoidable. Having said all this however we also recognise that messing about with a system which m already in place and working with some degree of success, is always a risky affair. Besides, the transfers in kind, in the health sector at least, have some rationale in terms of the advantages ofl bulk purchase, and of providing a centralised direction and thrust to the public healthcare system. There is also a danger in allowing the state government to wash its hands completely of vital socid sectors like education and health by entrusting the task of

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purchasing current inputs entirely to the LSGIs. Taking all these considerations into account, we recommend the following with regard to "Operating Cost Transfers": first, the state government should continue to provide for medicines and books and consumables in schools exactly the way it has been doing till now; secondly, the LSGIs should be permitted to make extra purchases of medicines and books and consumables which they may consider necessary at any point of time; thirdly, the state government should be absolved from the responsibility of meeting all other current costs such as telephone, electricity and water charges, vehicle operating costs and rents in these two sectors as well as and in other sectors, and for these costs the LSGIs should make their own provisions; fourthly, these provisions and the extra expenditure on health and education materials, can be financed, upto a ceiling of 10 percent, from the "Maintenance Transfers" made available to the LSGIs.

8.21 These recommendations have the virtue of introducing a degree of flexibility into the system at the margin while retaining its basic existing structure. They also reduce its cumbersomeness by absolving the state government from the responsibility of having to meet current costs in a whole range of sectors, a move which has the additional merit of providing it slight fiscal relief. Above all however our recommendations are designed to anticipate a problem that is likely to arise in the future, which has to do with the operational expenditure on assets that the LSGIs would be constructing out of their enhanced plan assistance. Until now the newly-constructed assets of the LSGIs have generally not been of a kind that requires any large-scale operational expenditure. But this is going to change in the coming years. At that point not only would some provision have to be made for such expenditures, but steps taken to ensure that the LSGIs' demand on this score does not become too heavy: this would require some constraints on their choice of assets and some fixing of norms to avoid profligacy in operational expenses for any given

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choice of assets. An alternative course, more in tune with democratic decentralisation, might be to have a certain sum, earmarked for operational expenditures and arrived at according to certain macro norms, distributed among the LSGIs in the samt ratio as plan assistance. The LSGIs can then be left free to choo« their assets, i.e. make their plans, keeping two budget constraints (in the sense of state government assistance) in mind, one relating to plan assistance, and the other relating to operational assistance, (Needless to say, they can use their own funds to spend in excess of these constraints). These issues of course are not of great immediate concern: in the next five years, which constitute time-horizon, the LSGIs are likely to continue emphasising the construction of those assets, e.g. roads, bridges, houses etc, which do not require any significant operational expenditure (as distinct from maintenance for which we have mad provisions); it is only future Finance Commissions that woul be exercised over such issues. Nonetheless we have opened window towards a possible "two-constraints" solution b allowing LSGIs (for the time being) to spend up to 10 percen of the Maintenance Transfers for meeting operational costs. Sine Maintenance Transfers are to constitute approximately 4 percen of the state government's own tax revenue in any year (which have translated as 5.5 percent of the state government's ownta revenue two years ago), we are implicitly putting in place a syste where a certain percentage of the state government's current ow tax revenue (0.4 in this case) is transferred to LSGIs for meetiti their operational costs. Future Finance Commissions may we consider building on this foundation while changing the ratios in question.

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CHAPTER 9

ENHANCING OWN REVENUES OF LSGIs

9.1 As of now, only the Village Panchayats and the ULBs have the power to levy taxes, fees and fines. Though, theoretically Block and District Panchayats can realize user charges, donations and contributions, the scope for raising any significant amount from these sources is rather limited now. The Commission is not recommending any additional sources of revenue for these LSGIs now.

9.2 However there is every reason to improve the revenue-raising capacity of the Village Panchayats and ULBs, for own income gives full freedom of use. In order to improve civic services, an obligatory function of these LSGIs, own funds are essential. Also own funds could be used to take up innovative programmes, which may not be possible under Plan guidelines.

9.3 A peculiar feature of the local government legislation of Kerala is that there is a striking similarity between the Kerala Panchayat Raj Act 1994 and the Kerala Municipality Act 1994. In fact after the fundamental amendments made in 1999, there is hardly any difference between the two Acts. This is true of financial matters relating to the urban and rural local governments. Therefore the State Finance Commission would be making recommendations common to both urban and rural LSGIs, and in those special cases, which relate only to urban or rural LSGIs, they will be suitably denoted. The recommendations are arranged in the same order as the description of the sources of own revenue in Chapter3.

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9.4

9.4.1 (1) Property Tax: With the change over of Property Tax assessment from rental value calculation to plinth aret based assessment, it is expected that instances of underassessment and corruption in assessment would be reduced considerably. Empirical studies are being done to determiiu the rates, factor values and suitable methodology assessment; which would then be issued in the form rules. The Commission would recommend a transparent system of self-assessment with a proviso that for concealing or under-reporting of plinth area, there shouk be a penal provision to collect tax at ten times the normt rate. This penal provision should be equally applicablelt any misreporting by verifying or inspecting authorities even if detected later by a supervisory or vigilance authority.

9.4.1.1 The Commission would urge the Government to complete tin switch over to the new system latest by 1st June 2001. Early action is warranted because of the fact that new LSGIs have jus assumed office and at this point of time they would have th moral authority to take difficult decisions regarding tax assess ment. The Commission would suggest the following schemefo classifying buildings and fixing the tax.

(a) Zone - Four zones based on location.

(b) Type of Building

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190

(1) Ordinary Building.

(2) Medium Type Building.

(3) Luxury Building

(c) Type of use

(1) Commercial

(2) Non-commercial

(d) The relative weights for Zones could be 1, 1.5, 2,2.5

(e) The relative weights for the types of building could be 1:1.5:2

(f) Relative weights between non-commercial and commercial use could be in the ratio 1: 3.

(g) The deductions for age and owner occupation may be as provided for in the Kerala Municipality Act.

9.4.1.2 It is possible that when the changeover happens some of the existing under-assessed buildings would have to pay taxes several times the existing amounts. It is also possible that a few of the buildings would have to pay much less tax than at present. The Commission would strongly recommend that on no account should there be a cap on increases or limit to decreases in respect of any building, for what is due as per law has to be paid. Past failures in assessment cannot be legitimatized when a new system is designed. In order to avoid unnecessary and ill-informed criticism, it is suggested that massive publicity campaign be initiated immediately, pointing out the virtues of a simplified taxation system, which would free the citizen from dependence on the mercies of the taxing and appellate authorities.

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9.4.3 (3)Entertainment Tax. Here again, the Commission would

reiterate the recommendation of the First SFC to go in for tax assessment on the basis of seating capacity and occupancy ratio. Detailed suggestions on the assessment procedure would be given in the second part of the Report after conducting a quick field study and after evaluating the systems prevalent in Tamil Nadu and Andhra Pradesh.

9.4.3.1 In the meanwhile the Commission would suggest implementation of the recommendation of the First SFC to make Cable TV liable for Entertainment Tax and also to bring Internet Services within the definition of entertainment.

9.4.4 (4) Advertisement Tax. The Commission feels that there is much scope for collection of Advertisement Tax in a state like Kerala where marketing of consumer goods is quite widespread even in rural areas. But the collection figures show that this source of tax is not even partially tapped by the LSGIs. The Commission recommends the following:

(I) Government may fix the minimum rate of taxation for different types of advertisement for different locations.

(ii) Advertisement Tax Rules may be issued by Government setting out the guidelines for the LSGIs to assess the tax,

(iii) Penal provisions for 'escaped tax' should be at least five times the normal tax.

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The unified Show Tax may be revised as follows Minimum Tax (in Rupees)

Panchayat ULB

(1) Regular cinematograph exhibitions at licenced theatres

15/- 25/-

2) Other cinematograph exhibitions

30/- 40/-

3) Regular shows other than cinemas.

30/- 40/-

4) Other exhibitions 75/- 100/-

There should be a system of authenticating advertisement by the LSGIs so that unauthorised advertisements can easily be detected.

9.4.5 (5) Land Conversion Tax. Conversion of land use imposed additional burden on LSGIs, which have to provided civic services and other basic amenities. Therefore the Commission recommends expansion of the existing Conversion Cess into a Land Conversion Tax. For the purposes of this tax conversion may be defined as change of land use from agriculture to non-agriculture, which would include conversion for the purpose of house plots, building construction etc.

9.4.5.1 It is recommended that Conversion Tax, which is essentially a one-time charge, may be collected on the capital value of the land converted as indicated by the minimum value to be fixed by the Government. (Till such time the minimum value is notified, the valuation may be got done by the Tahsildars). In the case of

Show Tax

194

authorised conversion of paddy fields as per provisions of the Kerala Land Utilisation Order five percent of the capital value may be realized as Conversion Tax. However, exemption from the Land Conversion Tax may be given if the extent of paddy land converted is five cents or less and the building put up is less than 50 sq. metres in area. If no building is put up within six months of the conversion, then no exemption need be given.

9.4.5.2 In respect of other kinds of conversion the tax may be fixed as two and a half percent of the capital value with the same kind of exemption as suggested for conversion of paddy land.

9.4.6 (6) Service Tax. At present the tax is optional for Village Panchayats and it is an integral part of the Property Tax in the case of ULBs. In the context of decentralisation, which enjoins LSGIs to perform certain functions declared as mandatory. Service Tax should be made compulsory and made an independent tax. It could be assessed as a percentage of the Property Tax linked to the recurring cost of performing the mandatory functions.

9.4.7 (7) Surcharges. As per Section 208 of the Kerala Panchayat Raj Act and as per Section 230 of the Kerala Municipality Act, Village Panchayats and ULBs are permitted to levy surcharges on Property Tax. Now the upper limit is statuto-rily fixed as 5% for Village Panchayats and 10 % for ULBs. Since the surcharge is to be specifically used for taking up new development projects, it is felt that the ceiling may be removed and the LSGIs be given the freedom to decide tne percentage which can be varied every year as decided by them to meet the cost of the selected new projects.

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9.5

9.5.1 The major items of non-tax revenue in the case of Village Panchayats and ULBs have been described in Chapter 3.

9.5.2 Non-tax Revenue constitutes 51 percentage of the total own collected revenue of Village Panchayats, 42.62 percentage, in the case of Municipalities 24.39 percentage, in the case of Corporation. (Own revenue here, means own revenue less assigned and shared taxes and grants-in-aid) It is an important source and it needs to be enhanced.

9.5.3 The main issues related to the collection of Non-tax Revenn are:

(1) In the case of ULBs, most of the Non-tax Revenue rote have to be determined by themselves. This is as Section 492 of the Kerala Municipality Act. Due to inexperience, lack of awareness and weak political wl these rates do not often get fixed and even if they fixed they are pegged at very low levels, f or the Municipality Act or Rules do not fix a minimum or maximum Another problem is that once fixed these items are rarek revised.

(2) The problem in the case of Village Panchayats is the reverse one. Here in most cases the rates are fixed in Rules either as minimum or maximum or by giving a range between the minimum and maximum. Since Rules are not fied after receiving proposals from the Director Panchayats, examining them in the Local Self Government Department and Law Department and sending them for the views of the Subject Committee and finally gazetting them, amendment to rules is a cumbersome process and

NON-TAX REVENUE

196

most of the rates do not get revised. This issue was pointed out by the First SFC, but solutions have not been fully found.

(3) As regards auctions, which fetch good amounts, particularly in the case of river sand, gate fees in public markets and usufructs from local government properties, the auctioning process is often not very transparent, resulting in poor competition. In most of the cases the same person bids during successive years and develops a permanent interest which is difficult to dislodge due to practical and humanitarian considerations like efficiency of operation, labour security, etc. Thus a kind of monopoly develops.

(4) As far as rent is concerned, in spite of Government in structions, the fixing of rent amount is not very rational and does not appear to have any relation to the market rent or the investment made. A Government circular cap ping annual increase of rent at 5 percentage has further compounded the problem. Similarly, fixing of rent for tem porary occupation is also found to be unreaiistically low.

(5) There is a general unwillingness on the part of LSGIs to collect user charges or service charges even to the ex tent of the amount required for routine operation and maintenance. This affects the sustainability of various services.

(6) Since LSGIs are very close to the people, there is a natu ral limitation in imposing penalties and fines. Even if, for the sake of deterrence, prosecution is to be resorted to, it is not done due to the cumbersome litigation process,

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which would take away a lot of valuable time from senior officials of the LSGIs. This causes laxity in collection of dues.

9.5.4 Against this background the general recommendations of Second SFC are spelt out as follows:

(i) In the case of ULBs, the Government should take the responsibility of fixing the minimum fees for various kinds of licences. This could be done through notifications. Similarly, in the case of Village Panchayat the Rules may be amended to ensure that only minimum is fixed; but the minimum should be fixed in such a way that it is a reasonable one because it noted that LSCIs tend to take the minimum as the general rate.

(ii) As far as possible the fees, rents etc., are to be to dexed to take care of inflation. Necessary enabling provisions have to be made in the Kerala Panchayt Raj Act and the Kerala Municipality Act to allow for automatic two-yearly increases based on a genm government notification.

(iii) In the case of Licences and Permits, which need to be renewed deterrent penal provisions have to be /ncor porated for delayed renewal. It is suggested that after a period of grace of ten days, 25 percentages the Licence Fee may be collected as fine for delayed payment. This has to be increased by 25% for every further fortnight of delay.

(iv) Wherever auctions are held there should be transparent procedures. The Panchayats and the Municipal

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ties should disclose the various items which are given by auction, the likely time of auction and the amount received during the previous years, during Grama Sabha, Ward Sabha and Ward Committee meetings. There must be a compulsory display by all LSGls indicating the various items, which are auctioned, the name of the successful bidder and the amount. This should be permanently exhibited at the site like the sand mining place, market, slaughterhouse, shop building etc. This transparency provision should be enshrined in the Kerala Panchayat Raj Act and the Kerala Municipality Act and detailed rules issued.

(v) It is recommended that every year before the end of December all the Village Panchayats should inform the Deputy Director of Panchayats the auctions, which they have to conduct in the coming three months. This should be advertised in at least three newspapers having largest circulation in the district as a general advertisement. As far as ULBs are concerned this advertisement could be given for a group of ULBs in every district. The Joint Director of Municipalities could facilitate this.

9.5.5 In addition to these general recommendations, the Commission recommends enhancement and modifications in the following categories of non-tax revenue.

9.6

9.6.1 Trade Licences. In the case of Village Panchayats licensing of trades is done as per the Kerala Panchayat Raj D & O Trades Rules. These rules as of now fix the maximum fees related to turnover. It is suggested that instead of this, minimum fees alone

LICENCE FEES

199

be fixed by Government. This may be converted into flat rate! based on the size of the trade as in the case of ULBs, with septl rate rates for large, medium and small sizes.

9.6.1.1 In urban areas it is the local government, which set the retes under Section 492 (5) of the Kerala Municipality Act. The analysis made by the Commission shows that most of the ULBs have fixed relatively low rates and have been tardy in revising them Since revision does not take place for very long periods of tin it acts as an inhibitor when a Municipality wants a change, as these revisions after long intervals would invite protest due to the inevitable steep increases. The Commission would recomend that the minimum rates alone should be fixed by the Government through notification. In ULBs, since milk trade can be licensed under Section 447 there is no need to retain Section 456.

9.6.1.2 The rationale for shifting to trade-wise notification in the case of Village Panchayats is the difficulties encountered in assessing turnover of trades, which have resulted in gross under assessment. A three-fold broad classification conforming manufacturers, wholesalers and big retailers as Group A, medium sized trades as Group B and small retailers as Group C is suggested. This classification has to be made by LSGIs themselve based on transparent criteria relating to nature of activity, siz/ volume of activity, location, investment, etc.

9.6.1.3 Under Section 448 of the Kerala Municipality Act, rules were issued in 1966 viz. 'Construction or Establishment of Factorie and Installation of Plants or Machinery Rules'. But the rates have not been revised for nearly three and a half decades.

9.6.1.4 The existing rates and the suggested rates for each kind of trade including factories, plants and machinery are given separately for Village Panchayats and ULB’s in Annexure 9.2.

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9.6.1.5 In order to get a clear idea of the trade establishments functioning within a local government area, to keep track of renewal of licences, to serve as a guide for assessment of profession tax and to help in the discharge of other local government obligatory functions it is suggested that a separate numbering system should be adopted for trade establishments. This would be in addition to the building number assigned for Property Tax assessment. Every year the new establishments should be given supplementary numbers before the first of March.

9.6.2 Theatre Licence. Theatre construction and installation of machinery are governed by the Kerala Cinema Regulation Rules. It is recommended that the rates be brought on a par with those given in Kerala Building Rules 1996. The existing and revised rates are shown in Annexure 9.3.

9.6.3 Private Market licence. Licence fees for private markets may be revised as indicated in Annexure 9.4 Departing from past practice it is recommended that the minimum rates be set and for renewal of licence either the license fee or one-third the gate collection of the previous year whichever is higher could be fixed.

9.6.4 Licences under Kerala Places of Public Resort Act.The fees for these licences issued under Rule 28 may be revised and the minimum rates be fixed as indicated in Annexure9.5.

9.6.5 Private Slaughterhouse. These are regulated under Section 230 of the Kerala Panchayat Raj Act and Section 453 of the Kerala Municipality Act. The licence fees may be enhanced from the existing rate of Rs.300/- to Rs.1,000/- per year and for renewal it can be based on one-third the gate collection of the previous year or Rs.1,000/- whichever is higher.

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9.6.6 Licence fee for Brokers, Commission Agents, Weigtmen, Measurers etc. Licence fee is fixed as per the provisions of Rule 13 of the Kerala Panchayat Raj Public and Private Market Rules issued under Section 221 and Section 222 of the Kerala Panchayat Raj Act and Section 458 (2)(e) of the Kerala Municipality Act. It is suggested that the minimum licence fee should be fixed as Rs.lOO/-per year.

9.6.7 Licensing of premises where animals are kept for commercial purposes. These licences are issued as per Section 444 of the Kerala Municipality Act. The minimum suggested rates are given in Annexure 9.6 Similar provision for licensing may be made in the Kerala Panchayat Raj Act and the same rates may be made applicable.

9.6.8 Licensing of Butchers, Fishmongers, Poulterers etc, This is done under Section 469 of the Kerala Municipality Act. It is suggested that the minimum license fee for butchers may be fixed at Rs.100/- per year, Fishmongers at Rs.50/- per year and Poulterers at Rs.30/- per year. The same rates may be made applicable to Village Panchayats also by including them in the D & O Trade Rules.

9.7

9.7.1 Market Fee. The various fees for using public markets may be increased as given in Annexure 9.7.

9.7.2 Public Halting and Parking Places. Fess for the use a public halting and parking places is levied as per Section 227 d the Kerala Panchayat Raj Act and Section 472(1) of the Keral Municipality Act. Minimum rates may be fixed both for Munici palities and Panchayats as given in Annexure 9.8.

9.7.3 Slaughterhouses. Entry fees to slaughter houses are col- lected as per Section 229 of the Kerala Panchayat Raj act and

GATE FEES

Section 452 of the Kerala Municipality Act. The rates may be revised as suggested in Annexure 9.9.

9.8 These may be auctioned every year by the concerned LSGIs after giving adequate publicity.

9.9

LSGIs must broaden and deepen their collection of service/user charges. A list needs to be made of all services provided and utilities maintained by LSGIs with the cost of providing/running them. A policy decision may be taken by each Village Panchayat or ULB on the proportion of the cost to be realized from the users. Thereafter the users may be classified, and the rates for each class of users determined. As a rule of thumb full cost may be realized from commercial concerns and exemption need be given only to the families below the poverty line. It is suggested that service charges should be collected compulsorily from users of burial grounds, burning ghats and electric crema-toria, which are maintained by the LSGIs. In the case of electric crematoria the fee should be fixed to meet the operation and maintenance cost of the machinery.

9.10 T Commission show that realization by way of fines awHwsp

AUCTIONING OF MEAT STALLS/RIGHT TO FISH IN WATER BODIES etc.

SERVICE AND USER CHARGES

he data available with theFINES AND PENALITIES

202

nd penalties is extremely low. Of course at the local government level it ould be rather difficult to exercise regulatory powers with an iron hand. owever in certain cases of public nuisance like pollution, strewing of solid aste, occupation of public land etc., in the larger public interest, it is neces-

ary to be as strict as possible through realization of fines and even rosecution.

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9.10.1

It is seen that there is a discrepancy between the Compounding of Offences Rules applicable in Village Panchayats and those applicable in Municipal bodies. It is suggested that the same provisions applicable to the ULBs could be included in Villagt Panchayat Rules also. This will bring larger number of offences within the compounding powers of the Secretary enabling ii mediate punitive action to be taken.

9.11

Now there is a practice in ULBs to auction right to set up temporary shops etc. in porambokes as per Section 376 of the Kerali Municipality Act. It is suggested that a similar practice be followed in Village Panchayats also.

GROUP RENT FOR FAIRS AND FESTIVELS

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CHAPTER 10

STATE FINANCES DURING THE DECADE 1990-2000

10.1 Our Commission has been guided by two major considerations while analysing the State Finances. Firstly, the issue that we have addressed is whether the state finances are in a position to accommodate the scale of transfers that we have suggested in our recommendations. Secondly, we have also examined whether there are significant pointers that we need to highlight on the evolving trends in the overall financial position. This becomes necessary because such movements accumulate to impinge on delivery of services to the people of the State and thus affect the LSGIs directly. In this process we would also like to capture broadly what the current trends reflected by the figures mean for the future development of the State, with reference particularly to the expenditure on maintenance services on assets, whose benefits directly accrue to the poor. A snapshot of expenditure and receipts figures, be it on the revenue or capital side, at the end of a particular year, will not serve the requirements of such an examination. To facilitate this discussion on the finances of the State Government, an analysis of the trends of a reasonably long period becomes necessary.

10.2 We feel that for three reasons, the decade of the nineties would afford a sufficiently long enough spectrum for the analysis. Firstly, data from this decade can be expected to capture the years when the world saw liberalisation and globalisation characterising international economies in general. Secondly, given the fact that trends in the nineties continue to firm up in various economies of the world as is reflected by subsequent developments, data from the nineties may broadly reflect the shape of things at least in the short term, and expectedly, for the

205

period that will be covered by the Second State Finance Commission, Finally in the limited arena of the State public finances too, this period has witnessed a good mix of alternative socio-economic policies and approaches.

10.3 This Commission has been asked to suggest the measures needed to improve the financial position of the local governments. However, it is not in our charter to delve into aspects of financial management of the State Government itself. Our Commission would, as is required, strictly choose to stay within the confines of our Terms of Reference, Hence we do not intend to make this assessment of the State's finances a prescriptive exercise. Where we may be perceived to trespass this rule would be only to make an occasional remark on aspects of the State finances that clearly impinge on the services rendered by the local bodies. Here we would think that we have a role to play as a linesman overseeing the interplay of forces and factors having an influence on the financial relations between the State and the local governments.

10.4 There is perhaps no one 'locus classicus' on the subject of contemporary State Finances. Every year some light is thrown on the subject in the Report on Currency and Finance published by the Reserve Bank of India. The report for the year 1998-99 (Chapter V-7), in this genre, would serve as a useful reference. Public finance experts, in general, have been pointing out the inadequacy of receipts of State Governments in meeting expenditure requirements. This structural imbalance has been particularly a phenomenon since the mid-eighties. Huge revenue deficits have become a persistent feature since 1987-88. The resultant gaps between receipts and expenditure have worsened since the mid- nineties. States have resorted to financing non-plan expenditure through cutbacks in their outlay on development. Faced with these constraints, State Governments have diverted high cost borrowing towards current expenditure. Hence capital investment programmes of States in general have suffered from a very acute resource scarcity. This in turn has two direct and deleterious consequences. Firstly, it prevents potential gains in output and productivity from being realised. Secondly, it leads to

206

starkly rising internal debt and interest payment liabilities on the borrowing State. The resource base of States is far too limited to meet growing expenditure commitments. State Governments account for a third of the combined receipts of the Union and the States, while they incur three quarters of the entire social service expenditure and half the economic service expenditure. Tax receipts in the States have exhibited a certain degree of rigidity during the nineties as compared to the eighties. States' tax base has remained narrow with greater dependence on sales tax in particular. States' own tax revenue receipts finance only 32-34 per cent of the total expenditure. Losses of the State Public Sector Undertakings (particularly the Electricity Boards and the Road Transport Corporations) have also contributed to the pressure on State Finances. Resource gaps are financed by vertical resource devolution from the Centre apart from direct borrowings by the State Government and its Public Sector Undertakings. The fiscal consolidation measures initiated by the Union Government since the early nineties have also had their effect on state finances. There has been a definite falling trend in the resource transfer from Central Governments particularly in the form of loans and advances to States. In the last two decades, debt-SDP ratio of States rose from an average level of 17.6 per cent in the eighties to 19.4 per cent hi the nineties. Gross Fiscal Deficit and Revenue Deficit of States have recorded all time high levels of 4.3 per cent and 2.3 per cent of their State Domestic Product respectively. The additional expenditure arising out of implementation of the revised pay scales of the State Government Employees in 1996-97 continues to affect the deficit levels of most State Governments. The gross expenditure of the States in 1998-99 peaked at an annual growth rate of 22.4 per cent while the average decadal growth rates for the eighties and nineties have been of the order of 15 per cent only. Development expenditure accounted for 70.7 per cent of the total expenditure in the eighties. This fell to 65.4 per cent during the nineties. The high level of debt of all the State Governments put together raises questions about its sustainability, especially since its utilisation for capital investment is declining.

207

10.5 It is in the general background of the finances of State Governments that our assessment of the State finances for Kerala is conducted. We first look at trends in Revenue Receipts and Expenditure, the debt burden of the State, the Gross Fiscal Deficit, the growth of standard overheads like Salaries, Pension, Debt Servicing. Finally we trace the patterns of actual maintenance expenditure in specific services like Health, Education, and Public Works to help our own understanding of the problem that Local Bodies would face on maintenance expenditure.

10.6 Revenue receipts of the State Government consist mainly of tax and non-tax revenue of Government and receipts from Government of India. Revenue receipts have registered a growth rate of 14.18 per cent over the nineties. There has however been a marked decline in the growth of revenue receipts in the latter half of the nineties. The growth rate of revenue receipts touched an unprecedented low of 1.12 per cent in 1998-99. Overall, tax revenues of the State registered a healthy growth of 16.24 per cent per annum in this period. However for the years after 1995-96 the growth rate is only 11.4 per cent, with a very sharp drop to 3.3 per cent in 1998-99. Sales tax is the main source of tax revenue for the State accounting for 70 per cent of the total tax receipts, Non tax revenue registered an annual average growth rate of 12.36 per cent from!990-91 to 1999-2000. But here too the growth rate has shown a downward trend, with a negative figure of (-) 4.05 per cent for 1996-97. The growth rate has shown an extremely significant decline over the years 1996-97 to 1999-2000.

10.7 Total transfers from the Central Government consist of transfers under the Finance Commission award, the Plan grants and the Non Plan grants. The total transfers have shown an annual growth of around 11.12 per cent alone during the nineties. It is relevant to mention here that this is much lower than the rate of growth of revenue receipts of the Government of India. In 1998-99, there was a sharp downward

REVENUE RECEIPTS

208

trend of (-) 14.00 per cent in total transfers. This is explained by the fact that the increase in 1997-98 was on account of the share of proceeds to the State from the earnings of Government of India under the Voluntary Disclosure Scheme (VDIS) - which was an isolated and one time revenue enhancing measure.

10.8 Overall, the own tax revenue of the State (OTR), reckoned as the sum of the tax and non-tax revenues of the State Government excluding all transfers from Government of India have grown annually at 15.78 per cent over the decade. The sharp dip in both tax revenue and non-tax revenue in 1998-99, mentioned earlier, is reflected in the low growth rate of 3.05 per cent in OTR for that year.

10.9 Revenue expenditure has been growing at a steep rate of 16.82 per cent per annum over the nineties. The Pay Revision granted by Government for its employees in 1997-98 led to a sharp spurt with expenditure registering a sudden jump of 21.4 per cent. Revenue expenditure in the year 1999-2000 increased by 24 per cent. Increase in the salary bill accounted for the major share of the increase in 1997-98. In 1999-2000, the increases in non-plan expenditure on account of interest payment (34.99 per cent), pension (56.65 per cent), police (38.35 per cent) and education (33.51 per cent) accounted for the high increase in revenue expenditure.

10.10 Table 10.1 below shows the salary, interest and pension components of the State for the period 1991-1999. An average of 60-65 per cent of the Revenue Expenditure of the State is devoted to meeting interest payments and paying the employees both serving and retired. Here, we would like to sound a note of caution. The State's bill on salary, interest and pension has assumed a level, which does not bode well for the future spending plans of Government. We have in detailing our approach observed that the State, as demanded by prudent fiscal

REVENUE EXPENDITURE

209

considerations, should, as far as possible, refrain from creating in LSGIs for which it would have to meet the salary commitments. We have recommended in our award, that future additions to st the LSGIs should be subjected to a careful scrutiny by the Ombudsman whose role should be expanded to perform the function of a financial steward and appraiser. However, it will not be inappropriate for us to remark that Government might have to seriously curtail the share of its expenditure on employees, if it is to free resources for development. As far as salaries and pensions go, this can be done only if the State Government temporarily suspends its role as a provider of additional employment till it can nurse the public finances back to health, On interest payment, the only remedy is to be selective in taking recourse to debt, and progressively limit the use of debt for capital expenditure alone.

210

10.11 The excess of revenue expenditure over revenue receipts, which is the revenue deficit, is a good first measure of how well a Government is able to manage its finances. It is instructive to appreciate the behaviour of the revenue deficit of a State from year to year. For any given year, let the revenue expenditure, revenue receipts and revenue deficit be denoted by Et, Rt and Dt respectively. Let the growth in revenue receipts and revenue expenditure for the next year be denoted by gr

t+1 and get+1 respectively. The

Revenue Deficit in the next year Dt+1 will be given by

Revenue Deficit = Revenue Expenditure - Revenue Receipts D t+1 = Et+1 –R t+1 Hence D+1 = (Et) (1 + ge

t+1) - Rt (1 + grt+1)

=(Rt+Dt)(1+get+1)-Rt(1+gr

t+1) = Rt(ge

t+1-grt+1) + Dt (1+ge

t+1) 10.12 The first component Rt(gTt+1 - gr

t+i) shows the effect of the revenue mobilisation relative to growth in expenditure. If the growth in revenue gr

t+1 equals the growth in expenditure get+1 then this component would

become zero and hence there is no contribution to the revenue deficit. If the growth in revenue gr

t+1, exceeds the growth in expenditure get+1,

this would contribute towards decreasing the revenue deficit. Thus an improvement in this component can result from either a reduction in expenditure or a growth in revenue. Hence this may be referred to as the relative efficiency component.

10.13 Given the deficit Dt in any year, the second component Dt(l + get+1)

solely depends on the growth hi expenditure. If the growth rate gf can be controlled then this component of revenue deficit can be managed. Hence this component may be referred to as the expenditure component of revenue deficit. Reductions in expenditure growth ge

t+1’ directly result in reductions of this component. Table 10.2 shows these components for the ten years 1990-2000.

REVENUE DEFICIT

211

TABLE 10.2

(in Rs. Lakhs) Year Deficit Revenue

Receipts

Expendit

ure

Compon

ent

Relative

Efficiency

Relative

Efficiency

Componen

t/

Revenue

Deficit

get gr

t get-gr

t

1 2 3 4 5 6 7 8 9

1989-90 25045 204764 - - - - - -

1990-91 42204 240294 30787.14 11416.86 27.05% 22.3% 17.35% 5.58%

1991-92 36435 285212 48052.69 -11617.69 -31.89 % 13.86 % 18.69% -4.83 %

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

33744

37160

39988

40282

64303

112290

202996

351561

331870

392176

455542

542356

614507

711819

719812

792668

41415.42

39625.16

43849.97

45987.27

46931.07

78067.03

125738.36

251703.40

-7671.42

-2465.16

-3861.97

-5705.27

17371.93

34222.97

77257.64

99857.60

-22.75%

-6.63%

-9.66%

-14.14%

27.05%

30.48%

38.06%

28.40%

13.67%

17.42%

18.00%

15.00%

16.51%

21.40%

11.98%

23.99%

16.36%

18.17%

18.99%

16.23%

13.30%

15.84%

1.12%

10.12%

-2.69%

-0.74%

-0.98%

-1.22%

3.20%

5.57%

10.85%

13.87%

10.14 The analysis of the revenue deficit figures shows that the relative efficiency component helped stabilise the revenue deficit in as many as five out the first six years in the nineties (as indicated by negative signs in columns 5 and 9). However, thereafter, in the last four years, the excess of expenditure growth over revenue growth has adversely affected the revenue deficit.

10.15 We had observed earlier, the very significant dip in OTR, (on both tax and non tax revenues) of the State in the year 1998-99. It would be pertinent to remark here, that this is the only year in the decade in which own tax revenue has declined in real terms, allowing for inflation

212

during the corresponding period. But, what is surprising at the same time is that there has been no noticeable decline in the growth of SDP

213

during this period. There seems to be an incongruity in this and we fail to understand how revenue mobilisation and economic growth could exhibit this kind of a divergence in their growth trends. But, suffice it for us to say, that if there has been any let up in the efficiency of tax and revenue administration in the State during the period, then unless such trends are guarded against in future, these would have very debilitating effects on the State finances.

10.16 It is pertinent to remark here that the data reveal that high revenue deficit in Kerala in the recent years, is primarily a result of fall in efficiency of resource mobilisation, and only secondarily because of the growth in expenditure. It is not the growth rate of expenditure that has shown a marked increase; it is the growth rate of revenue that has fallen noticeably. This interpretation of the State's deficit affords fair ground for optimism about the future of the State finances. Growth in revenue has historically been 18-20 per cent in the past. Many reasons are ascribed for the general fall in revenue collection in the second half of the nineties. Several analysts hold the view that revenue mobilisation has fallen partly on account of the general economic recession in the country and the slump in prices of agricultural commodities. The general prices of agricultural commodities grown in the State remain far from satisfactory and do not yield a reasonable margin to the farmer for sustaining production. Both Governments, at the State and the Centre, are seized of this crisis in the agricultural sector. If there is a recovery in the agricultural sector, then this fact, coupled with some improvements in the tax and non-tax administration, will push up revenue collections. There already are positive indications, which suggest a recovery in revenue collections. From figures available in the Finance Department, the half yearly tax collections show a growth rate near the 18 per cent mark in 2000-01. Of course, the absolute figures this year will not be impressive since there has been considerable erosion in revenue receipts in the years 1997-1999; but signs of a recovery are there. Even so, the task ahead for the Government in the next few years is quite formidable.

10.17 T

CAPITAL EXPENDITURE

214

he outlay on capital expenditure is presented in Table 10.3. The percentage of capital expenditure as a ratio of total expenditure has been less than 9 per cent. The figures show a marked decline in the capital expenditure from 1998-99. However while the capital outlay on the State Budget has declined, as mentioned elsewhere in this chapter, this could be, to a great extent, because the capital expenditure from devolved plan funds by the LSGS get accounted as revenue expenditure. Therefore we would not like to postulate any inference on the basis of the data. When a clearer accounting mechanism to classify expenditure by the LSGIs is evolved, more informed analysis of these figures would be possible.

TABLE 10.3 CAPITAL EXPENDITURE (in Rs. cr.)

Year Capital

Expenditure

Growth Revenue

Expenditure

(RE)

CE (RE+CE)

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

255.97

286.12

277.90

363.33

446.01

563.47

622.52

738.87

651.63

661.20

11.78%

-2,87%

30.74%

22,76%

26.34%

10.48%

18.69%

-11.81%

1.47%

2824.98

3216.47

3656.14

4293.36

5066.30

5826.38

6788.10

8241.09

9228.08

11442.29

8.31%

8.17%

7.06%

7.80%

8.09%

8.82%

8.40%

8.23%

6.60%

5.46%

215

10.18 In this section we have attempted to present a summary of the debt situation of the State and the annual interest payments incurred by the State. Given the high gross fiscal deficit of the State, the entire extra devolution to the local bodies too would have to be financed by borrowing. It is in this connection that the picture of the State's debt and its growing interest payment has to be borne in mind.

10.19 Tables 10.4 to 10.10 show the growth of various components in the overall debt of the State in the years 1990-1999. Debt of the State arises from borrowings on account of Internal Debt, Savings and Loans from Government of India. Internal debt of the state consists of Market Loans borrowed by Government and Ways and Means Advances received from the Reserve Bank of India. Debt liabilities on Savings arise from the deposits received in the Savings Accounts in the Treasuries, the remittances retained in the State Provident Fund, Money in Insurance and Pension Funds and in trusts and endowments. Loans received from Government of India include those received under Central Plan, Non Plan Loans, State Plan Loans and Centrally Sponsored Schemes. Each of these three streams of the State's debt (viz. Internal debt, Savings and Loans from Government of India) was subjected to a detailed analysis. The interest payment on accumulated liabilities in each of these streams was also examined. We looked at gross retention (defined as the excess of receipts over disbursements) and net retention (defined as gross retention less interest payments for that stream of borrowing). This approach has its limitations: interest payments in a particular year used for reckoning net retention, would relate wholly or largely to accumulated balances on that stream of borrowing in the past. Likewise the disbursements in any year would correspond to the repayment on the principal borrowed in the past. A rigorous analysis would therefore include an analysis of the lag in the receipts, disbursements and interest payments over a longer time horizon.

DEPT AND INTEREST BURDEN OF THE STATE

216

10.20 As the detailed accounts on debt for the year 1999-2000 have not yet been published by the Comptroller and Auditor General, the analysis has been restricted to the period 1990-1999. Receipts on account of Loans from Government of India, do not seem to conform to affi definite pattern of growth (Table 10.4). The fluctuation is explained by the variability of schemes included in the Government of Indii budget as well as the utilisation and drawal of funds by the State. Itis significant that in two years towards the latter half of the period considered, net retention has been negative from this stream even though the gross retention has been positive.

TABLE 10.4

Loans and Advances from Government of India (in Rs. Cr.) Year Recipts Disburse

ments Interest Gross

Retention Growth Rate

Net Retention

Growth Rate

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

408.42

575.03

529.55

595.85

749.42

655.45

539.94

567.15

869.59

138.58

305.91

243.29

202.67

137.59

143.25

165.65

189.18

211.96

138.33

231.15

237.62

278.16

330.70

418.07

494.16

550.71

606.54

269.84

269.12

286.26

393.18

611.83

512.20

374.29

377.97

657.63

-0.27%

6.37%

37.35%

55.61%

-16.28%

-26.93%

0.98%

73.99%

131.51

37.97

48.64

115.05

281.13

94-13

-119.87

-172.74

51.09

-71.13%

28.10%

136.47%

144.42%

-66.52%

-227.35%

44.11%

-129.58%

10.21 Deposits into the savings accounts in the treasury have been a pillar of support for the finances of the State. The stream has yielded a positive gross contribution to financing the State. The State is becoming more dependent on this source to finance its deficit. This stream has in one year 1995-96 shown a negative net figure during this period. But borrowing from the savings accounts in the Treasury has been particularly large in the year 1998-99 and 1994-95, withal unprecedented jump of 468% in 1998-99. (Table 10.5)

217

TABLE 10.5

Small Savings and Deposits (in Rs. Cr.)

10.22 Net accretions from the State Provident Fund have steadily tapered off, and in some years show negative balances (Table 10.6). Insurance and Pension funds account only for a very small amount of the total borrowing and hence separate data for this stream of borrowings are not presented here.

Year Recipts Disbursements

Interest Gross Rentention

Growth Rate

Net Retemtion

Growth Rate

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

786.85

995.95

1268.78

1629.29

1880.90

1887.17

1988.28

1396.71

3875.61

709.16

905.35

1142.05

1504.39

1581.54

1824.76

1809.58

2168.57

2935.66

23.14

27.37

40.19

45.79

103.26

64.62

62.46

76.70

78.92

77.69

91.60

126.73

124.90

299.36

62.41

178.70

228.14

939.95

17.90%

35.34%-

1.44%

139.68%

-79.15%

186.33%

27.67%

312.01%

54.55

64.23

86.54

79.11

196.10

-2.21

116.24

151.44

861.03

17.75%

34.73%

-8.59%

147.88%

-101.13%

-5359.73%

30.28%

468.56%

218

TABLE 10.6

State Provident Funds (in Rs. Cr.) Year Recipts Disburse

ment Interest Gross

Retention Growth Rate

Net Retention

Growth Rate

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

382.04

369.22

405.27

692.15

773.16

800.90

880.10

972.17

1128.11

180.41

226.38

337.98

368.82

428.20

513.36

363.32

779.95

770.01

77.73

89.97

101.92

174.13

159.33

176.04

214.66

253.69

276.32

201.63

142.84

67.09

323.32

344.96

287.54

243.78

192.22

358.10

-29.16%

-53.03%

381.92%

6.69%

-16.65%

-15.22%

-21.15%

86.30%

123.90

52.87

-34.83

149.19

185.63

111.50

29.12

-61.47

81.78

-57.33%

-165.88%

-258.34%

24.43%

-39.93%

-73.88%

-311.09%

-233.04%

10.23 Internal debt of the State has been rising markedly to finance the State budget (Table 10.7). This is largely on account of the steady growth in the annual market borrowing of the State Government, approved b Government of India as part of its overall credit policy.

219

TABLE 10.7

Internal Debt (in RS. Cr.) Year Reciept Disbur

sement Interest Gross

Retention Growth Rate

Net Retention

Growth Rate

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1355.50

1859.13

2162.62

1143.35

509.32

427.64

623.01

947.81

3101.91

1143.87

1635.48

1831.94

1102.81

164.68

20.68

138.44

333.54

2265.67

97.56

124.61

154.98

180.90

216.41

253.63

318.08

388.50

465.38

211.63

223.65

330.68

40.54

344.64

406.96

484.57

614.27

839.24

5.68%

47.86%

-87.74%

750.15%

18.08%

19.07%

26.77%

36.62%

114.07

99.04

175.70

-140.36

128.23

153.33

166.49

225.77

373.86

-13.18%

77.40%

-179.89%

-191.36%

19.57%

8.58%

35.61%

65.59%

10.24 For the limited purpose of this analysis, a discussion on each line of debt financing in detail may not be called for. But, the stark reality that confronts us is that with respect to many of the sources of debt financing, outflows exceed the inflows. The overall picture that emerges is given in Table 10.8.

220

TABLE 10.8

Total debt (L&A from GOI, Small savings and deposits, State Provident Funds and Internal debt)

(inRs.Cr)

Year Receipts Disburse

ment Interest Gross

Retention Growth Rate

Net Retention

Growth Rate

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

2952.93

3830.24

4393.24

4089.67

3944.30

3805.79

4070.17

4930.51

9027.21

2178.00

3080.46

3562.68

3188.13

2322.09

2513.13

2762.81

3483.29

6195.06

340.59

483.36

542.45

687.08

819.59

924.05

1103.30

1285.97

1446.12

774.93

749.78

830.56

901.54

1622.21

1292.66

1307.36

1447.22

2832.15

-3.25%

10.77%

8.55%

79.94%

-20.31%

1.14%

10.70%

95.70%

434.34

266.42

288.11

214.47

802.62

368.61

204.06

161.25

1386.03

-38.66%

8.14%

-25.56%

274.23%

-54.07%

-44.64%

-20.98%

759.55%

10.25 Table 10.9 also shows the relative shares of the major streams of borrowing viz. Internal Debt, L&A from GOI and Small Savings in the total gross retention, net retention and interest payments. As seen in the table, the shares accounted for by Internal debt (which comprises mainly market borrowings) and deposits received in the Treasuries through savings schemes account for an increasing percentage of the total. It is pertinent to note that in two years viz. 1994-95 and 1998- 99, the State has leaned more pronouncedly on amounts mobilised into the treasuries through the savings scheme. It is understood during this period that the State did face considerable difficulty in its liquidity management. The share of the State Provident Fund shows a decreasing trend.

221

TABLE 10.9

GR = Gross Retention, NR = Total Retention, INT = Interest. All figures in %.

Year Internal Debt

L&A from GOI Small Savings etc. State Provident Fund

GR/

Total

GR

NR/

Total

NR

INT/

Total

INT

GR/

Total

GR

NR/

Total

NR

INT/

Total

INT

GR/

Total

GR

NR/

Total

NR

INT

Total

INT

GR/

Total

GR

NR/

Total

NR

INT

Total

INT

9-91

91-92

92-93

93-94

94-95

95-96

96-97

97-98

98-99

27.36

29.83

39.81

4.50

21.25

31.48

37.06

42.44

29.63

26.26

37.17

60.98

-65.45

15.98

41.60

81.50

140.01

26.97

28.64

25.78

28.57

26.33

26.40

27.45

28.83

30.21

32.18

34.82

35.89

34.47

43.61

37.72

39.62

28.63

26.12

23.22

3028

14.25

16.88

53.63

35.03

25.54

-58.74

-107.13

3.69

40.61

47.82

43.80

40.48

40.35

45.24

44.79

42.82

41.94

10.03

12.22

15.26

13.85

18.45

4.83

13.67

15.76

33.19

12.56

24.11

30.04

36.89

24.43

-0.60

56.96

93.92

62.12

6.79

5.66

7.41

6.66

12.60

6.99

5.66

5.69

5.46

26.06

19.05

8.08

35.86

21.26

22.24

18.65

13.28

12.64

28.53

19.84

-12.09

69.56

23.13

30.25

14.27

-38.02

5.90

22.82

18.60

18.79

25.34

19.44

19.05

19.46

19.73

19.11

10.26 Table 10.10 shows the growth of the Debt of the State along with the interest payments over the period 31.3.1990 to 31.3.2000.

222

TABLE 10.10 DEBT AND INTEREST PAYMENTS FOR THE PERIOD

31.3.1990 TO 31.3.2000 Debt Interest

Growth Rate (90-99) 17.74% 20.88%

Growth Rate (90-95) 17.48% 22.84%

Growth Rate (95-00) 18.00% 18.95%

Annual

Growth

Rate in %

Period Annual

Growth

Rate in %

As on 31st March 1990

As on 31st March 1991

As on 31st March 1992

As on 31st March 1993

As on 31st March 1994

As on 31st March 1995

As on 31st March 1996

As on 31st March 1997

As on 31st March 1998

As on 31st March 1999

As on 31st March 2000

3941.87

4716.79

5466.56

6297.14

7198.67

8820.87

10113.54

11420.91

12868.13

15700.28

20176.06

19.66

15.90

15.19

14.32

22.53

14.65

12.93

12.67

22.011

28.51

1989-90

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

293.00

340.64

483.42

542.51

687.16

819.67

924.15

1103.41

1286.09

1446.26

1952.27

16.26

41.92

12.22

16.66

19.28

12.75

19.40

16.56

12.45

34.99

223

10.27 The picture of the year-to-year borrowing of the State that emerges is not encouraging. The data in Tables 10.4 to 10.10 above warrant a critical look at the advisability of the State's taking increasing recourse to debt. We feel that drawing up a comprehensive debt strategy for a reasonably long period ahead, with the assistance of experts would be eminently desirable for the State at this juncture. We leave this suggestion for the consideration of Government.

10.28 In the preceding chapters, it was argued that the maintenance of assets created should be a focal point for action for LSGIs. Given the scale of transfer of resources to the LSGIs, through Plan devolution from 1995- 96, the State is witnessing an unprecedented surge of activity, which has led to creation of wealth at the community level, in the form of buildings, roads and irrigation structures. Besides, institutions that were hitherto managed by Departments of the State have been transferred on a large scale to LSGIs. These aspects have been discussed elsewhere in this report.

10.29 It has been a general experience that the first casualty of a shortage of funds is the outlay earmarked for maintenance expenditure. This is not confined to LSGIs or State Governments alone, but seems to be a universal phenomenon. Successive Finance Commissions have been seized of this problem and have in their assessment made provisions for maintenance requirements of the States. The Eleventh Central Finance Commission in its report (Chapter V Para 5.38) observed as follows: "It is a matter of concern that our capital assets are languishing because of poor maintenance". Despite affirmations about the importance of earmarking adequate provisions for maintenance, expenditure for this has not been commensurate with the requirements. The Report of the Eleventh Central Finance Commission further notes: " This has happened in spite of the fact that successive Finance Commission in the past have made liberal provisions for maintanance of capital assets in their assessment of revenue expenditure”.

224

10.30 Table 10.11 gives approximate expenditure on maintenance requirements in the selected sectors of Health, Education and PubEc Works for the period 1990-2000. These figures are only approximations. There would be always some expenditure under various heads of account, which, at least partly, would fall under the categon of maintenance expenditure. Thus maintenance outlays are not explicitl] identifiable in the budget or the Government accounts. As the Table reveals, the total maintenance expenditure as a percentage of Revenue Expenditure of the State has been just over 3 per cent. During the three years 1997-2000, which correspond to a difficult financial peritx for the State Government, maintenance expenditure, as a percentage o total revenue expenditure, has shown a decrease. This again confirms the general assertion made in the last paragraph. Thi finding has been a prime consideration behind ou recommendation that funds should be adequately earmarks for maintenance.

TABLE 10.11

MAINTENANCE EXPENDITURE

Year Medical Education Buildings Roads and Bridges

Total Revenue Expen- diture

Total/ Revenue

Expenditure 1990-91 39.16 11.57 6.10 40.76 97.60 2824.95 3.45%

1991-92 11.02 12.28 6.94 40.94 71.19 3216.46 2.21%

1992-93 38.89 29.35 7.79 45.22 121.25 3656. 13 3.32%

1993-94 48.30 32.43 9.01 61,07 150.80 4293.36 3.51%

1994-95 60.01 34.27 9.46 60.37 164.11 5066.30 3.24%

1995-96 67.09 37.72 12.71 104.17 221.68 5826.38 3.80%

1996-97 85.57 54.02 12.17 116.02 267.78 6788.11 3.94%

1997-98 73.21 28.87 1J.29 136.26 249.64 8241.12 3.03%

1998-99 79.68 36.16 13.41 156.74 285.99 9228.08 3.10%

1999-00 89.66 34.78 25.46 197.18 347.08 11565.96 3.00%

225

10.31 Data on the growth of the gross fiscal deficit (GFD) of the State and its components are shown in the Table below. The growth in revenue deficit accounts for a growing share of the gross fiscal deficit. There has been a decline in net capital expenditure on the State account, particularly from 1997-98. This watershed line coincides with the 35- 40 per cent devolution of the total plan to the local bodies in the wake of decentralised planning. The revenue deficit has grown inordinately in the second half of the decade, particularly since 1997-98, the first year in which decentralised planning was introduced. Revenue deficit accounted for 74 per cent, 82 per cent and 73 per cent of the gross fiscal deficit in the years 1997-98, 1998-99 and 1999-2000. A partial explanation for this disproportionate growth in revenue deficit, is that the entire devolution under Plan to local bodies, is, for accounting reasons prescribed by the Comptroller and Auditor General, classified as revenue expenditure. However, the stiff rise in revenue expenditure on account of the pay revision has also contributed significantly to the problem.

10.32 There are two ways of assessing the high revenue expenditure. Government has held the view that as much as 60-70 per cent of the transfer to local bodies is on capital works, and that there is not much cause for alarm in the figures of revenue deficit. While it is not possible to confirm the actual percentage of capital expenditure out of the plan devolution to local bodies, in the absence of data, it should be conceded there is a great deal of merit in this argument. Even when final figures are available, classifying micro-level infrastructure works into two neat categories of 'revenue' and 'capital' expenditure would pose problems. By Government's argument thus, the percentage of revenue deficit in the gross fiscal deficit for the three years would reduce to 25 per cent, 45 per cent and 65 per cent respectively.

GROSS FISCAL DEFICIT OVER THE DECADE 1990-2000

226

10.33 10.34

On the other hand, if one were to extrapolate the growth rate in capital expenditure of the first half of the decade i.e. 14.89 per cent over the three years in question, and apply this to the funds transferred to LSGIs, then the percentage of revenue deficit in the gross fiscal deficit for the three years would reduce to only 47 per cent, 62 per cent and 73 per cent respectively.

Gross fiscal deficit has risen at 21 per cent per annum over the decade, and at a higher rate of 36 per cent in the second half of the decade, But what is worrisome is that this gross fiscal deficit has been increasingly used for financing revenue deficit of the State. In such a situation, these alternative views on revenue deficit of the State Government would afford little comfort to any State Government, These figures would point to the inherent weakness of the financial position of the State, and give an idea of the level of borrowing that the State Government has to do each year to sustain spending levels, particularly on account of the revenue expenditure envisaged in the budget. Table 10.12 gives the picture of the gross fiscal deficit of the State over the decade 1990-2000.

TABLE 10.12

ROSS FISCAL DEFICIT OVER THE DECADE 1990-2000

(inRs.Cr) REVENUE DEFICIT CAPITAL EXPENDITURE

LOANS AND ADVANCES OF STATE GOVERNMENT(NET)

GROSS FISCAL DEFICIT

GR(90-95) GR(95-00) GR(90-00)

-1.34 71.88 26.56

% of Growth GFD Rate

14.89 4.08 11.12 % of Growth GFD Rate

21.50 -5.89 9.11 % of Growth GFD Rate(%)

8.55 35.88 21.00 Growth Rate

1990-91

1991-92

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

422.02

364.34

337.41

371.31

399.88

402.81

643.03

1122.90

2029.96

52.85

45.35

46.09

39.71

36.07

30.92

41.69

46.52

67.39

-13.67

-7.39

10.05

7.69

0.73

59.64

74.63

80.78

255.97

286.12

277.9

363.33

446.01

563.47

622.52

738.87

651.63

32.05

35.61

37.96

38.85

40.23

43.26

40.36

30.61

21.63

11.78

-2.87

30.74

22.76

26.34

10.48

18.69

-11.81

120.56

125.98

116.68

200.52

262.76

336.37

276.93

552.08

330.61

15.10

19.04

15.94

21.44

23.70

25.82

17.95

22.87

10.98

26.89

-23.73

71.85

31.04

28.01

-17.67

99.36

-40.12

798.55

803.44

731.99

935.16

1108.65

1302.65

1542.48

2413.85

3012.20

0.61

-8.89

27.76

18.55

17.50

18.41

56.49

24.79

227

1999-00 3515.61 79.16 73.19 661.20 14.89 1.47 264.21 5.95 -20.08 4441.02 47.43

228

10.35 In this section, we attempt a fairly simple forecast of State Finances over the period covered by the award of our Finance Commission. This forecast is aimed at presenting a picture of how the finances are affected by the aggregate transfer of nine per cent of the Own Tax Revenue that we have recommended as general and maintenance grants. We have, while keeping the number of assumptions as few as possible, looked at the major components of revenue receipts. But we do not propose to analyse individual components of revenue expenditure. We have adopted this ground rule, which stems from the observation that revenue expenditure, as stated earlier, has been far more stable than revenue receipts in the State. Of course this approach also uses a major premise, that Government may find it difficult in the medium term, in the absence of an explicit strategy, to make reductions in expenditure, beyond the range of 1-2 per cent. At the same time we note that it can ill-afford to step up expenditure beyond what is being incurred now. Hence we believe that fine-tuning our efforts to forecast individual components of the revenue expenditure will not yield commensurate improvements in the quality of our forecast. The only disaggregation we use is to look at the interest burden and the rest of the revenue expenditure separately. For the year 2000-01 we have used the revised estimates used by Finance Department for its annual projections. This is justified as these projections are generally fairly close to those presented in the budget. For the year 2001-02, we employ the estimates of revenue receipts used for the assessment of the resources for the annual plan 2001-02. For revenue expenditure, we use the revised estimate for the year 2000-01 and the forecast for the year 2001-02; we do the same for interest payments.

10.36 The allocations to local bodies are a part of the revenue expenditure of the State. As stated earlier, since it is not our intention to prescribe remedies or measures to improve the State's finances, we have not attempted to project the capital side of the state finances or the gross fiscal deficit.

FORECAST OF STATE FINANCES 2001-2005

10.37 With this background, we attempt a forecast of the revenue account of the State Government. For this we use the year 2000-01 as the base year. The accounts are yet to be published by the Accountant General At this point in time, Finance Department has completed a review of the half yearly status of revenue collection. We use the buoyancy figures for the various streams of tax revenue available at the close of the half year 2000-01.

10.38 The ba re discussed below:

(1) Fop

(2) Filni

(3) Tga

(4) Alwissp

sic assumptions a

TAX REVENUE

229

or any revenue stream, we use the half yearly growth rate for ur forecast, provided there has been a positive growth in the revious year.

or Sales Tax, we assume that buoyancy will pick up to the leve n the first half of the nineties. We assume that it will touch the evel of 22 per cent, which was roughly the figure for the early ineties, before its growth loses momentum to reach 20 percent n 2008-09.

axes on vehicles are expected to touch the average historical rowth rate for the period 1993-99 i.e. 16 per cent by 2003-04 nd then stabilise at 14 per cent from 2005-06 to 2008-09.

proposal to adopt minimum fair value fixation as the basis for evying stamp duty is under implementation. We expect that it ill take the next financial year for the system to be fully

mplemented. Hence we expect the buoyancy to record a ubstantial increase in 2002-03 and touch 23 per cent and ubsequently to attain a stable rate of 18 per cent viz. the rojected SDP growth rate by 2008-09

230

(5) However where there has been a decrease or negative growth in either of the two previous years (i.e. 1998-2000), we take the minimum of the half yearly buoyancy for 2000-01 and the positive growth rates registered in 1993-1999.

(1) The major components of this non-tax revenue in the State are Forests, Miscellaneous Departments and Interest receipts. Collection from Forests is largely dependent on the revenues that come out of felling of trees and disposal of timber. With felling of trees having been brought under more rigorous guidelines in the recent years, the growth of this line of revenue has not been as significant as it used to be in the past. For Forests, we use the half yearly growth rate.

(2) Non Tax Revenues from other departments come largely through collection of fees and user charges. The Non Tax Revenue Wing of the Finance Department has submitted proposals for approval of Government. Decisions are yet to be taken in many of these. Hence for the years 2001-02 and 2002-03, we assume that there will be a quicker growth in such revenue and assume this to be 17 per cent per annum. Subsequently we have assumed this to stabilise at the same rate as the non-interest component of revenue expenditure viz., at 13 per cent.

(3) Interest receipts are assumed to grow at the average historical rate observed for the period 1993-1999.

Grants in aid received from Government of India are for Non Plan, State Plan, Central Plan, Centrally Sponsored Schemes and Special Plan schemes. The major share is accounted for by Grants in aid for

NON-TAX REVENUE

GRANTS IN AID

231

State Plan and for Centrally Sponsored Schemes. The average historial growth rate for the period 1993-1999 is used for making the projections.

On Fiscal Commission Transfers, the projections made by the Eleventh Central Finance Commission are used.

10.39 The growth rate assumed for each tax is presented in the table below We have shown the rates for the years 2002-2009 for the reason that it will be instructive to look at a slightly longer-term period than that covered by our award. We have not included the year 2001-02 in the table below as we have based our projections of revenue receipts for 2001-02 on what has been adopted in the Finance Department for id assessment as in November 2000. The maximum annual growth ratt in the decade 1990-2000 for selected taxes are also shown in the last column of Table 10.13

TABLE 10.13

GROWTH RATES OF VARIOUS ITEMS

STATE TAX REVENUES

2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Maximum Growth Rate for selsected Items in 1990-2000

Agricultutal Income

Land Revenue

Stamps and Registration

State Excise

Sales Tax

Taxes on Vehicles

Taxes on duties on electricity

Building Tax

Other taxes and duties

10.00%

10.52%

23.00%

15.00%

19.00%

15.00%

1.00%

12.00%

1.00%

10.00%

10.52%

22.00%

1600%

20.00%

16.00%

1.00%

12.00%

1.00%

10.00%

10.52%

20.00%

16.00%

21.00%

15.00%

1.00%

12.00%

1.00%

10.00%

10.52%

18.00%

16.00%

22.00%

15.00%

1.00%

12.00%

1.00%

10.00%

10.52%

18.00%

16.00%

21.00%

14.00%

1.00%

12.00%

1.00%

10.00%

10.52%

18.00%

16.00%

21.00%

14.00%

1.00%

12.00%

1.00%

10.00%

10.52%

18.00%

16.00%

20.00%

14.00%

1.00%

12.00%

1.00%

37.81%

28.52%

29.84%

22.58%

21.83%

44.31%

FISCAL COMMISSION TRANSFERS

232

10.40 The figures for own revenue, revenue receipts, revenue expenditure and

revenue deficit for the years 2001-02 to 2005-06 arrived in the forecast exercise are shown in Table 10.14. We have analysed the figures for three years beyond the period 2005-06. However the general results for the award period hold also for this extra period. We see a decline in the percentage of revenue deficit as a share of State Domestic Product from the current level of 3.5 per cent to under 2 per cent, even assuming a comparatively low nominal growth rate of SDP at 15.94 per cent (the average historical value).

10.41 The State has seen a comparatively steep decline in tax collection over the last few years. However, if the cycles of economic growth, as reflected in the eighties and nineties repeat over the next five years, the State is poised for a faster financial recovery than what we have given in Table 10.14. We have taken care to recommend a scale of transfers, which therefore would not impose an unduly difficult target for the financial managers of the State.

233

TABLE 10.14

Projected fiscal scenario with the Commission's recommended transfers for the Award Period 2001 -02 to 2005-06

10.42 What is important here is the fact that the transfers lie in a narrow band between 0.18 and 0.22 per cent of estimated State Domestic Product. The average value for the award period being 0.20 per cent, Given our assumptions, we feel that there is considerable scope for the finances to improve over the years, albeit slowly. We do not endeavour to guess the State Government's response to the Fiscal Responsibility Act under enactment by Government of India or the ingredients of the financial reforms under discussion with the Asian Development Bank, We have not taken into account any deep cuts in expenditure as a part of the financial reforms of public expenditure that the State Government may undertake.

234

10.43 In our exercise, we have also looked at the behaviour of this difference under

various growth rates of the State Domestic Product for the forecast period. With our recommended scale of transfers, the average value of transfers as a percentage of State Domestic Product stabilises with improved economic growth at around a peak value of 0.2184, as is shown in Chart 10.1. As mentioned elsewhere earlier, we have assumed that the State Domestic Product will grow at the average historical value. For alternative growth rates, Own Tax Revenue has to be correspondingly adjusted for the forecast period. This has been done by using a simple proportionality factor. It is clear that with faster growth the transfers that have been recommended by this Commission will be accommodated better in the fiscal balance of the State: this is so because revenue deficit as a percentage of SDP declines for increasing growth rates of SDP (Table 10.15)

10.44 Table 10.15 shows the behaviour of Revenue Deficit, post transfers, over the forecast period for a few alternative rates of economic growth. The transfers that have been recommended will not upset fiscal management, since they do not, by themselves, introduce any spurts in Revenue Deficit as a percentage of the State Domestic Product.

235

TABLE 10.15

BEHAVIOUR OF REVENUE DEFICIT AS % OF SDP AFTER TRANSFERS FOR DIFFERENT GROWTH RATES

10.45 Here, we look at the relevant projections arrived at by the Eleventh Central Finance Commission and compare these with our own. We also show the projections of the State Government presented in its Memorandum submitted to the Eleventh Central Finance Commission, The CFC has in Annexure V3 assumed a prescriptive growth rate of 16.8 per cent for tax revenue and a growth rate of 14 per cent for the State Domestic Product. As mentioned earlier, for our projections of the SDP, we have assumed the average historical growth for the period 1993-94 to 1998-99. We have looked at the buoyancy of the various components of the Tax and Non Tax Revenue income of the State separately.

PROJECTIONS OF THE ELEVENTH CENTRAL FINANCE COMMISSION

236

10.46 We have taken the non plan revenue surplus projected by the Eleventh Central Finance Commission in Table 10.2. We have also assumed that the Annual Plan will grow at a rate of 13 per cent per annum over the award period (at the rate of growth of non-interest component of revenue expenditure). Given that the revenue component in the Plan continues to be 70 per cent of the total plan outlay then the revenue deficit computed is shown in Table 10.16.

10.47 The figures arrived at in our forecast lie between those given in the report of the CFC and those presented in the State's Memorandum to the CFC. Generally, memoranda presented by State Governments tend to overestimate the Expenditure figures. This is largely to prevent the possibility of the State losing out on non plan assistance in the Award. The Memorandum's estimate of revenue deficit for the year 1999-2000 for example is Rs.5680 cr. while the audited figures show a revenue deficit of Rs.3625 cr. Likewise, the Finance Commissions use normative measures of 'prescriptive' rates for various items particularly on the expenditure side. As a result the final audited figures at the end of the award period of the various Finance Commission and the projections that these commissions have made in their awards differ by a very large margin. This detracts considerably from the reliability of the projections, particularly of revenue expenditure by the Finance Commission.

10.48 In our own forecast, we have adopted figures, which are suggested by the trends in the past, specifically the period 1993-94 to 1999-2000. At the same time we neither anticipate any runaway expenditure nor any unusual momentum in the growth of any revenue stream. At the end, it is relevant to mention that we have avoided taking into account the implications of a further pay revision for the employees of the State Government through the next Pay Commission. We have done this for two reasons. Firstly there is a recommendation of the last Pay Commission that pay revisions should be made once in ten years as against the existing practice of once in five years. As of now, the State

237

Government does not seem to be in favour of adopting this recommendation of the Pay Commission. But the scales of pay, barring a few instances, are at present fairly identical with Central Pay scale With DA announcements reflecting the entire increase in prices, pay revisions after every five years may cease to be a prevalent practice. Secondly, even if a pay revision were to be implemented in the award period covered by our report, the effect will be reflected in the last year of the award period, which would not alter the forecasts much. In any case, the impact of transfers suggested by us would remain at an approximately constant level through the award period.

238

CHAPTER 11

SOME ISSUES RAISED BY THE ELEVENTH CENTRAL FINANCE COMMISSION

1.1 Our report is being prepared at a time when the Eleventh Central Finance Commission has just submitted its report to the President. The Eleventh Central Finance Commission's report has given rise to a lively controversy on the appropriate criteria for the inter sc distribution of resources between the different states. These issues are outside the sphere of our concern; but the CEC has made a number of important suggestions regarding the setting up and functioning of State Finance Commissions, and has expressed its views on a number of questions relating to decentralisation, on which we feel we must give our opinion.

The CFC has pointed to an anomaly which has been exercising us as well. This consists in the following. Article 280(3)(bb) and (c) of the Constitution states that the CFC must make recommendations as to the measures needed to augment the Consolidated Fund of a State to supplement the resources of Panchayats and Municipalities in the State "on the basis of the recommendations made by the Finance Commission of the Stattf* (emphasis added). But the timing of the setting up of the crop of First State Finance Commissions happened to be such that their reports could not be made available to the Tenth Central Finance Commission and appeared almost immediately afterwards. The only SFC reports available to the Eleventh CFC therefore are almost five years old and hence at the end of their time-frame of reference, they cannot conceivably be of any use

239

to the CFC in formulating its recommendations. Besides, since both CFCs and SFCs are constituted once every five years, this problem will recur with every CFC. In the case of Kerala for instance the first SFC's report was submitted in February 1996 and was supposed to cover the period 1996-7 to 2000-1. This can hardly form the basis of the recommendation of the Eleventh CFC whose report is supposed to cover the period 2000-1 to 2004-5. Thus the only SFC report available to the CFC is one whose time-frame of reference has nearly ended; it can not possibly form the basis of the CFC's recommendations.

11.3 The first SFC of Kerala had drawn attention to this problem.lt

had suggested that the SFCs should be constituted on a date early enough, such that their reports could be made available six to nine months before the CFC submits its report. It had also drawn attention to the discrepancy that while Article 280 of the Constitution empowered the President to appoint a CFC after five years or "at such earlier times as the President considers necessary" there was no such leeway provided in Article 243 (I) dealing with the appointment of the SFCs; clearly a removal of this discrepancy allowing for the appointment of SFCs earlier than at the "expiration of the fifth year" can resolve the problem,

11.4 The Eleventh CFC has suggested precisely this, namely Constitutional Amendment which merely adds "or earlier" to "the expiration of the fifth year" in Article 243(1), making it exactly analogous to the provision regarding the appointment of CFCs. While we agree with the spirit of this suggestion, there is a practical problem here, namely that such an amendment would open up the possibility of a state government appointing a Finance Commission whenever it fancies. This danger already exists in the wording of the provision governing the appointment of tht CFC; it would now get generalised to the case of the SFCs as well. A more suitable amendment therefore would be to say that SFCs have to be appointed "two years before the expiry of the

240

total picture regarding state finances, including what the states themselves are being called upon to devolve to LSGIs. (Since the latter is governed by the recommendations of the SFCs, the Constitution talks of the CFC’s making its own recommendations "on the basis of the recommendations made by the Finance Commission of the State"). This is an eminently reasonable provision. What is more, it constitutes an anti-thesis of the "top-down" approach and an expression of commitment to the primacy of LSGIs: instead of SFCs taking the devolution from the Centre as a datum in their decision-making it is the CFC that is supposed to take the devolution to LSGIs as the datum in its decision-making. The needs of LSGIs, as reflected in the SEC recommendations, have a primacy and constitute a constrain within which the CFC must operate, rather than having to adjust to what the CFC decides to devolve. An amendment deletinj this provision therefore is not just unwarranted; it amounts to an overturning of a basic principle.

11.6 Indeed it seems to us that the two Constitutional amendment suggested by the CFC would undermine each other's rationale i.e. the second Constitutional amendment suggested by the CF would undermine the rationale of its first Constitutions amendment, and vice versa. If CFC recommendations are a longer to be linked constitutionally to those of the SFCs the the need for synchronising the two, so that the latter comes befor the former, disappears. On the other hand if the Constitution to be amended to ensure synchronisation, then the exercise t doing so would be futile if at the end of it the CFC is no long required to take SFC recommendations as the basis on which it makes its own awards. To be sure, it may be argued that SK recommendations, if available to the CFC, would be useful for it, even though the latter may not recommend on the basis of them. But the case for synchronisation would lose much of its compelling power if convenience alone is invoked in support of it. And in any case the argument that the second proposed

241

amendment would remove some of the Constitutional shackles on the CFC would still remain. There may be a case for adding "and other relevant factors" to "on the basis of the recommendations made by the Finance Commission of the State", but none in our view for deleting the latter.

11.7 There is however an implication of Article 280(3)(bb) and (c) which has gone generally unnoticed. In stating that the CFC should make recommendations regarding augmenting the Consolidated Fund of a State to supplement the resources of the Panchayats and Municipalities on the basis of the SFC recommendations, the Constitution implicitly suggests that the recommendations of the SFC would be more or less binding on the state government. There would be no point in the CFC taking the SFC recommendations as the basis of its own award, if the latter recommendations amounted to no more than mere pious wishes which the state government could accept or reject at will, or, in the case of those it accepts, could give effect to at a time of its own choice. In short, in enjoining on the CFC the need to heed the SFC recommendations, the Constitution accords the latter a degree of sanctity. Unfortunately, state governments have been quite cavalier in their treatment of SFC recommendations. The CFC itself quotes instances of Action Taken Reports on SFC recommendations not being presented to state legislatures even two to three years after the submission of the SFC report. In Kerala too some of the recommendations of the First SFC were rejected by the government (e.g. the provision regarding 1 percent of State revenue, appropriately defined, going towards the Rural and Urban Pools); and, even with regard to the others, the necessary legislation has taken an inordinately long time. Of course the total devolution from the state government to the LSGIs in Kerala has been impressive and unprecedented, and has in fact gone beyond the prevailing conception at the time of the first Finance Commission report. This fact however was never advanced as the reason for the partial acceptance of the SFC

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report. We welcome the CFC's suggestion that the Action Taken Report on the SFC's recommendations should be placed before the state legislatures within six months of the submission of the SFC report, and urge greater regard on the part of the state government for the spirit of the Constitutional provision in I dealing with the recommendations of the SFC.

11.8 The CFC's suggestions for augmenting the Consolidated Funds of the States are welcome, and in particular the suggestion that Parliament should be empowered to raise the ceiling on the Profession tax without going in for a Constitutional Amendment each time. This is a matter that has also exercised us, especially since in Kerala LSGIs have been empowered to levy Profession tax, and it constitutes an important source of their revenue. The scope for raising revenue from Profession tax is very large, given the weight of the service sector in Kerala's economy, provided its rate as well as coverage could be increased. Specific suggestions regarding ways of extending its coverage (as well as garnering revenue through other means) have been made in Chapter 9, which also highlight the constraint placed by the Constitutional ceiling. We welcome the addition of the CFC's voice to ours for overcoming this constraint.

11.9 Of the annual amounts of Rs.1600 crores for Panchayats and Rs.400 crores for Municipalities which the CFC would be transferring for an improvement in civic services, Kerala's share would be Rs.65.92 crores for distribution among Panchayats, and Rs.15.05 crores for distribution among Municipalities. The criteria for inter se distribution within each of these categories have been left to the SFCs. We recommend that these sums be distributed entirely on the basis of the population criterion among the Panchayats and among the Municipalities. Since this sum according to the CFC "should be over and above the normal flow of funds to the local bodies from the States, and the amounts that would flow from the implementation of SK

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recommendations", its availability makes no difference to the rest of our report. These funds, it must be emphasised too, should not be included in the Plan funds which have a completely distinct existence. It is suggested that these grants should be devolved in one instalment.

11.10 A perusal of the CFC report however makes it clear that the process of decentralisation in Kerala has gone way beyond what the CFC, looking perhaps at the average picture among states, visualises. The CFC had commissioned a study by the NIRD on rural local bodies and by NIPFP on urban local bodies. According to the CFC, "The Study done by the NIRD reveals that the 73rd amendment has not significantly altered the functional domain of the panchayats at various tiers. Few states have been serious in vesting the panchayats with the necessary powers, funds and staff to enable them to perform the functions assigned to them under the statutes. The Centre as well as the States have sponsored schemes for rural people without associating panchayats in planning and implementation." The picture in Kerala is vastly different: not only were a whole array of assets transferred to the LSGIs in 1995 together with staff and funds to meet operating costs, but, under the stimulus of the Peoples' Plan Campaign, over 35 percent of plan outlay has been given to LSGIs to spend on projects of their choice. Precisely because of this unique status of Kerala, the index of decentralisation prepared by the CFC (which has to do with criteria such as when the SFCs were set up and the extent of action on their report, matters that have become secondary in a context where over Rs.1000 crores are handed over every year as plan grants to LSGIs) does not do justice to Kerala.

11.11 The use of such criteria in the preparation of an index of decentralisation is in any case questionable, since it elevates form over substance. Any such index has to be based on substantive criteria such as the proportion of actual devolution from the state

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government to LSGIs, or the magnitude of assets actually transferred to LSGIs, since this is the essence of the process of decentralisation, as envisaged in the Constitutional Amendments, Looking only at the SFC recommended devolution, which has in most states, for no convincing reason (and certainly not for any Constitutionally-specified reason), excluded plan funds from its purview, is inadequate to start with. But not taking into account the actual devolution even with regard to the non-plan part, but concentrating only on the state government's formal' response to the SFC recommendations, increases further the inadequacy of the index. It is in fact a symptom of the inadequacy of the index that a state like Kerala, with its unique record of decentralisation, performs so poorly according to it.

11.12 There is however a more basic sense in which Kerala's remarkable essay in democratic decentralisation which is qualitatively different, conceptually, from the average picture among the States in India, has not elicited the response it deserved from the CFC. The CFC does "not find adequate justification in the demand that a certain percentage of the funds transferred by the States to the panchayats and municipalities be provided by the Finance Commission". The reason is the following. On the one hand, the mere transfer of plan schemes to LSGIs should not lead to any additional expenditure liability on the States; on the other hand the additional financial burden falling on the State for implementing the SFC recommendations has to be built into the expenditure stream of the State which the CFC is already cognisant of. (And any transfer to LSGIs over and above SFC recommendations is outside its purview anyway). It follows then that the CFC has to take no special note of the devolution to LSGIs by the State government. This argument might have some cogency in the "normal" situation, but not in the context of the democratic decentralisation experiment in Kerala. The reasons are obvious, and are as follows.

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11.13 With the devolution of plan funds to LSGIs, there has been a significant change in the composition of plan investment. In particular there has been a massive increase in road length. This change in composition is nothing to frown upon; on the contrary, if decentralised planning is really meaningful, then it must be reflected in some change in the composition of plan investment, for otherwise the need to shift away from paternalistic planning would appear correspondingly weaker. Roads in particular, and similar investments in local infrastructure in general, require, as discussed in an earlier chapter, high levels of maintenance expenditure. If plan funds are not to be frittered away on maintenance expenditure (and the whole effort in Kerala at the present juncture must be to educate the people not to fritter away plan outlays for current uses, for which the temptation would be almost irresistibly high), then adequate provision must be made for maintenance. The argument can be advanced, and our Commission in fact has advanced it and accepted it in an earlier chapter, that the State government which has transferred the plan outlay should also meet the maintenance expenditure, since if the same outlay had been spent through departments, it would have provided for the maintenance of the assets anyway. Now, the CFC's argument amounts to saying that if the state government transfers plan schemes to LSGIs and meets their maintenance requirements, then its overall expenditure obligations do not increase. But this presumption is incorrect since the change in the composition of plan investment also raises the maintenance expenditure, and hence the overall expenditure obligation of the state government. It is certainly true that in so far as this additional obligation gets reflected in the SFC report, it would be taken cognisance of by the CFC. But that would be almost five years from now. Meanwhile, maintenance expenditure needs have to be met immediately, since the roads constructed in 1997-8, the first year of enhanced plan devolution, would be already due for re-topping (a very expensive operation) in the coming fiscal year itself; and subsequent fiscal years would only

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see an escalation in such expenditure. By the time the Twelfth CFC makes some arrangement to help the state, it would already have carried a big fiscal burden. The Eleventh CFC regrettably, in concentrating on the average picture, has provided little succour to a state like Kerala (the amount coming to the state from the CFC's provision for civic services is too meagre relative to the state's requirement, which, to repeat, is highly specific). Our Commission nonetheless has enjoined upon the state government the task of meeting the maintenance expenditure in full. This is an obligation which cannot be shirked merely because the Eleventh Central Finance Commission chose not to recognise its existence.

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CHAPTER 12

PROCEDURAL SAFEGUARDS

12.1 In the context of the considerable devolution of funds both Plan and non-Plan

suggested by this Commission, it is felt that strong procedural safeguards are necessary both ways to ensure that the Government and the LSGIs perform their fiscal responsibilities fair and straight. The Government has to accept the financial entitlements of LSGIs and honour their due claim promptly. The LSGIs have to show utmost diligence and care in utilizing public money. The Commission would be dwelling at length on issues related to fiscal responsibility and financial management of LSGIs in the second part of the Report. However the Commission feels that certain procedural safeguards be adopted immediately and would recommend the following.

12.2

12.2.1 There should be new sections introduced in the Kerala Panchayat Raj Act, 1994 and the Kerala Municipality Act, 1994, to the effect that LSGIs are entitled to nine percent of State's own tax revenue defined as the sum of the amounts received by way of Sales Tax, Excise, Motor Vehicles Tax, Stamp Duty, Basic Tax, Building Tax and other taxes and surcharge imposed by the State and reckoned on the basis of the latest accounts certified by the Accountant General.

12.2.2 Once this principle of general sharing of taxes is accepted and implemented, simultaneously the existing assigned taxes of Basic Tax, and Surcharge on Stamp Duty and the shared Motor

LEGISLATIVE PROVISIONS

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Vehicles Tax would move out of the financial domain of LSGIs and become state taxes. For this, appropriate amendments to the Kerala Panchayat Raj Act, Kerala Municipality Act and Kerala j Motor Vehicles Taxation Act and the relevant rules are needed.

12.2.3 This nine percent has to be split up into two groups viz., the General Purpose Grant and Maintenance Grant, getting 3.5 percent and 5.5 percent shares respectively. LSGIs should be free to spend the General Purpose Grant for establishment expenses as well as for performing the obligatory and other functions; the Maintenance Grant should be used exclusively for maintenance and well-defined related requirements only. It should be made non-divertible. Similarly the Plan funds should be used exclusively for development purposes and again should be totally non-divertible. While General Purpose Grant would be released fully as per entitlement and would be allowed to be transferred to PD Accounts permitting unlimited carry over; for the other two grants, unspent funds would lapse.

12.3

12.3.1 (1) Flow of Funds. Now Plan Funds flow to LSGIs in four quarterly instalments. For claiming each instalment the concerned LSGI has to make an application, to the Deputy Director in the case of Village Panchayats, to the Heads of Department in the case of Block Panchayats and Municipalities and to the Government in the case of District Panchayats and Corporations, Every time an instalment is to be released prior general approval of the Finance Department is required. This system has been found to be cumbersome and slow since there is considerable time lag between the preferring of a claim and the actual crediting of funds to the LSGI account. It often happens that funds cannot be accessed when most needed.

SAFEGUARD AT GOVERNMENT LEVEL

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12.3.1.1 In respect of sponsored schemes, both Plan and Non-plan, the funds flow to LSGI from the Heads of Department either directly or through district level officers. Normally it is given in one instalment; but sometimes the release is made rather late in the financial year. Also, there is some communication gap between the department and the LSGI on how exactly some of the funds can be spent, with the result that there are substantial unspent funds lying with LSGIs from sponsored schemes.

12.3.1.2 As per the existing system, LSGIs are permitted to carry over 25 percent of their allotted Plan funds to the next financial year. This is justified on two counts:- Firstly due to delayed releases the last quarter get credited only towards the end of the financial year with the result that it is not possible to spend it and carryover becomes inevitable; secondly, the first instalment of the succeeding year also gets delayed as various procedures are to be followed and this necessitates LSGIs to have carry over funds so that their expenses during the early months of the financial year could be met. This system of carryover has not been very efficient.

12.3.1.3 The Finance Department has a letter of credit system in vogue for regulating expenditure by cheque drawing departments like the Public Works, Irrigation and Forest Departments. Also there is a practice of issuing monthly and quarterly ceilings for regulating the expenditure of major departments. These were put in place for regulating outflows from the treasury. Drawing elements from these systems, in order to get over the problems outlined above, the Commission recommends an entitlement approach in the case of Plan Grants, Maintenance Grants and General Purpose Grants by the LSGIs. This would mean that the instalments would be automatically credited to the LSGIs. For the release of Plan Grants and Maintenance Grants, giving due consideration to the need of the Government to manage the ways and means position and to the right of LSGIs to get a free flow of funds, the following procedure is recommended.

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(1) The Director of Panchayats (in the case of Village Panchayats), the Commissioner of Rural Development (in the case of Block Panchayats and District Panchayats) and the Director of Municipalities in the case of Municipalities and Corporations) would be declared as the Controlling Officers of these grants for the LSGIs serviced by them.

(2) These Controlling Officers would, as soon as the Budget is passed, issue annual allotment letters giving LSGI-wise allocation to the District Collectors. (Normally in the state only the Vote on Account is passed. However, since the withdrawals would be allowed only on a quarterly basis, the question of exceeding the Vote on Account does not arise.)

(3) At the district level, the District Collector would issue allotment letters to individual LS&Is. This is to be done in four quarterly instalments. This would mean that on the first day of April, July, October and January, the LSGIs would get as their entitlement in the treasuries one-fourth of the annual allotment. This system would negate the need for claims, allotments and transfer crediting. Based on the allotment order of the District Collector funds would automatically move into the account of the LSGIs. For discharging this function, District Collector would be supported by the Deputy Director of Panchayats, Assistant Development Commissioner (General) and the Joint Director of Municipal Administration.

(4) In the interest of free flow of funds, even while facilitat- ing liquidity management and avoiding the possibility of ex- cessive lumping of expenditure, LSGIs would be authorized to carry over a fixed percentage of funds from the quar- terly allotment as follows:

Evqu

Thfin

(5

(6

From the first quarter

From the second quarter

From the third quarter

From the fourth quarter

en if the LSGIs were to usarterly p endi

is arrangement would restrict rancial year.

) In this system sinceGrants would be drtreasuries the questionthe end of the financwords, unspent funds wou

) The District Collector to each LSGI. The fallotment" to be issuyear immediately after the

50 percent 40 percent of the quarterly allotment plus the carried over amount 30 percent of the quarterly allotment and the carried over amount Nil

e this flexibility to the maximum the tu exceed the following:

ercentage of exp

First quarter

Second quarter

Third quarter

Fourth quarter

u

a ild

ied B

re would not

25 percent

37.5 percent

40.0 percent

37.0 percent

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naway expenditure towards the end of the

the Plan Grants and Maintenance wn against bills presented in the

of carrying over any amount at al year does not arise. In other lapse on the 31st of March.

would issue two sets of allotments rst set can be called "regular just before the beginning of the udget is approved. Against

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this 'regular allotment' expenditure can be permitted subject only to the condition that the maximum permissible amount should not exceed one-third of the quarterly allotment in the first month and two-third of the quarterly allotment in the first two months together. This is to regulate too much of outflow from the treasury in any given month.

(7) The second allotment can be called "authorization to use carryover funds". This is also to be done quarterly, However this would not be automatic and a system of certification by the LSGI Secretary and elected head with counter signature from the Treasury Officer would be insisted on. This authorization could be given within a fortnight of LSGI submitting their utilization certificates.

In order to curb the possibility of false claims, invariably, false certification should be treated as a crime resulting in prosecution and loss of job for the persons certifying.

(8) For the Treasury to monitor drawal of funds against allotments a kind of appropriation account needs to be maintained.

12.3.1.4 For devolution of the General Purpose Grant, a monthly allotment is suggested; i.e. 12 equal monthly instalments would be automatically credited on the first of each month. The above procedure may be followed mutatis mutandis, with the only difference being that there will be no requirement to spend a prescribed minimum of funds and there would be no lapsing of funds. Also the LSGI would be able to transfer credit its allotment to its Personal Deposit account in the treasuries as soon as it is received.

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The Eleventh Finance Commission grant could be given in one instalment in the first quarter of the year in the same manner as above. LSGIs can transfer-credit the amount. Releases in subsequent years could be linked to expenditure.

The elaborate procedures explained above would ensure that the objective of liquidity management of government is fully met even while simplifying the mechanism of flow of funds.

12.3.2 (2) Calculation of entitlements: For the purpose of calculating the share of taxes due to the local governments, the accounts of the year previous to the last one should be taken so that the accounts certified by the Accountant General can be used.

12.3.3 (3) Assessment of maintenance requirement:Government should carry out a proper survey of assets transferred to LSGIs as well as assets owned by them. And using this data it should calculate Standard Spending Assessment for maintenance purposes for each LSGI as per existing norms. Thereafter allotments of maintenance grants can be made in proportion to the assessed amount, according to the availability of funds.

12.3.4 (4) Separate Budget Document. Through an appropriate entry in the Kerala Panchayat Raj Act and the Kerala Municipality Act, it should be ensured that Grants-in-Aid to LSGIs are shown in a separate budget document. It should show LSGI-wise distribution of funds in respect of three streams of Grants-in-Aid - Plan, Maintenance and General Purposes. In the case of other kinds of Grants-in-Aid, for pensions, as well as noon feeding in schools, the allocations may be shown indicating the entitlements of different types of LSGIs and formulae for devolving funds to individual LSGIs.

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12.4

12.4.1 In the context of transfer of responsibilities it is only natural that LSGIs would be demanding creation of more posts both for institutions/offices transferred to them as well as for expanding their traditional staff strength. The Government may also want to create new staff for the institutions/offices transferred to LSGIs either on normative considerations or in response to pressures from employees or LSGIs. The Commission would like to reiterate the principle enunciated by the Committee on Decentralisation of Powers that there should not be any net addition to the staff due to decentralisation of functions and powers.

12.4.2 An analysis of the State finances shows that there is need for utmost care and caution in expanding the staff strength in view of the severe financial crunch. For practical reasons, salaries and pensions end up as the first charge on government revenues and when the revenues are not enough, borrowing is resorted to meet these commitments. This has dangerous implications; for, it fully eats away the allocations for maintenance, which is so essential for the optimum use of the good social infrastructure, which Kerala has built up over the years. Therefore there is every reason to economize on creation of staff and allot more resources for the upgradation and upkeep of the assets created.

12.4.3 Of course the transferred staff are paid for by the Government; but if the staff costs increase the first squeeze will be on funds recommended to be earmarked to LSGIs for maintenance and probably even for Plan purposes. Also, in the not too distant future, LSGIs would have to take on the full responsibility of meeting the establishment costs. So too much of staff can later prove to be a burden for the LSGIs themselves. In this context the Commission would put forward certain basic suggestions to contain the salary and related commitments.

REISTRATION ON CREATION OF NEW STAFF

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12.4.4 Firstly any proposal by Government to create staff in institutions/ offices transferred to LSGIs should be formulated in consultation with the concerned LSGIs. Secondly it would be advisable to let the LSGI bear the additional cost due to the staff creation. Thirdly it is necessary to have an independent institutional mechanism to thoroughly analyse proposals for staff creation either from LSGIs or Government, relating to both own staff as well as transferred staff. What is required is a kind of Expenditure Ombudsman. Since Kerala already has an excellent organisation in the form of a multi-member Ombudsman created with the primary responsibility of controlling maladministration in LSGIs, it is felt that this body could take on the responsibility of vetting all proposals for staff creation. Since unnecessary expenditure on staff is a kind of maladministration there is logical justification for the Ombudsman to handle this task. Therefore the Commission would recommend that Ombudsman for LSGIs be authorised to approve every proposal for creation of staff either from LSGIs or from Government, in institutions/offices transferred to LSGIs or in the original offices/institutions of LSGIs. The approval could be based on the reasonableness of the request with reference to need and existing norms, sustained affordability of the proposal on the part of the State Government as well as LSGIs, implications for future, possibility for redeployment from other local governments or from Government, possibility of out-sourcing, potential for streamlining existing work etc. The Council of Ministers could then take an informed decision based on the recommendations of the Ombudsman. This institutional mechanism would ensure that while absolutely unavoidable posts get created, there would be an effective check on uncontrolled, ad-hoc expansion of bureaucracy. It could bring reliability in staff creation and over a period of time give push to efficiency and economy in the administration of LSGI responsibilities.

12.4.5 Alongside, Government may set up a one-time Local Government Staff Commission, which could go into the question of scientific reallocation of staff among LSGIs and redeployment from government to LSGIs subject to the condition that no creation of staff would be recommended. In the latter report it could take off from where the Committee on Decentralisation of Powers has stopped and fully operationalise the principle of "work and worker going together". It could also suggest measures for improving office management through the use of modern techniques and technologies as well as through retraining the existing staff. It could explore the possibility of outsourcing certain kinds of work as also pooling of human resources for access by a group of LSGIs. This Staff Commission could give its recommendations in about a year.

12.5

1

2

3

4

L

SAFEGUARDS AT LEVE

256

. All LSGIs should have a maintenance plan, which will spell out both the maintenance needs and the intended expenditure for each item.

. In order to prevent inflating of expenditure by writing out cheques which are cashed after the end of the financial year it is suggested that all cheques issued by local government after 31st December should carry a stamped statement to the effect that the cheques would be valid only up to 31st of March of that financial year.

. Unpermitted diversion of funds should invite automatic penalty by way of interest at 2 percent per month for the fund diverted and should be recovered from the persons responsible.

. All LSGIs should have a single account for crediting all their

entire collected income other than grants-in-aid from State or Central Government or other agencies.

5. In respect of Maintenance Grants and Plan Grants, the existing PD Account system where funds are drawn by cheques may be replaced by a system where Bills are prepared and presented with appropriate certification regarding the bonafides and admissibility of the Bill. For the sake of convenience, to help easy distinguishing of Bills presented by various LSGIs it is suggested that separate colours could be used for Village Panchayats, Block Panchayats, District Panchayats, Municipalities and Corporations.

12.6

12.6.1

12.6.2

S

COMMITTEE TO FOLLOW-UP ACCEPTED RECOMMENDATION

257

Once the recommendation of the Commission are accepted by Government, there has to be a system of quickly operationalising them, at any rate within three months. There would be need for amending Acts and Rules and issue of orders by Local Self Government Department, Finance Department and other Departments. This process takes a lot of time. As has been pointed out, many of the accepted recommendations of the First State Finance Commission are yet to be operationalised.

Therefore the Commission would recommend the setting up of an Empowered Committee under the Chief Secretary consisting of the following members:

1. Secretary (Finance)

2. Secretary (Law)

3. Director of Panchayats

4. Director of Municipal Administration

5. Secretaries of Departments which have to carry out the recommendations

6. Secretary (LSGD)_ - Convener.

12.6.3 This Committee would have the task of preparing amendments to Acts and Rules and monitoring the issue of notifications and general orders. It should prepare the Action Taken Report to be submitted to the Legislature. This Committee could be serviced by the SFC Cell of the Finance Department.

12.7

12.7.1

12.7.2

L

SFC CEL

258

The first SFC had recommended setting up of a Special Cell and accordingly as per G.O.(MS)564/97/Fin dated 4-6-1997 a Cell has been set up in the Finance Department. Unfortunately this Cell has not been able to discharge its functions very effectively with the result that there have been delays in operationalising the recommendations of the first SFC. The fact that the second SFC had really to struggle and spend a lot of time to get the data and details, which could have been gathered and analysed regularly by the SFC Cell without much difficulty, further reinforces the need to have a small but efficient regular set up.

Accordingly the Commission recommends the setting up of a cell under the joint control of Secretary (Finance) and Secretary (LSGD) consisting essentially of an officer from the Finance Department and an officer from the Panchayat and Municipal Wings of LSG Department, an officer from the Statistical Department competent in use of Computers and analysis of data. This could be supported by a small team consisting of two ministerial staff, two Data Entry Operators, one Stenographer

259

and the required class IV staff, driver etc. The Commission would like to underline the fact that it is not suggesting any level for the posts. It is felt that the accent should be on the quality of the person rather than his rank in the official hierarchy.

12.7.3 The mandate of this Cell would be -

(i) Follow up the accepted recommendations of the First Finance Commission and co-ordinate them to their logical conclusions.

(ii) Process the recommendations of the Second Finance Commission for decision at appropriate levels and operationalise them fully.

(iii) Design formats for monitoring resource mobilization at the local level and resource flow from Government to the LSGIs, obtain periodical reports in the formats, collate them, analyse them and prepare monthly statements and annual reports. This monitoring system could be used by LSGD for taking necessary remedial action wherever required.

(iv) Play the nodal role in organizing training programmes for LSGIs in respect of recommendations of this Commission relating to new systems of Budgeting, Accounting, Auditing etc.

(v) Serve as a resource center on local government finances.

(vi) Search, collect and store information on local government finances from both within the State and outside the State.

(vii) Create a data bank for the use of future State and Central Finance Commissions.

SUMMARY OF RECOMMENDATIOS 1. The important recommendations of the Second SFC are summarised below: 2.

(1) GttfsG

(2) FtGoptfesccfivo

S

DEVOLUTION OF FUND

260

overnment may devolve to the LSGIs, Plan funds not less han one-third the annual size of the State Plan as fixed by he Planning Commission. This Fund is to be used by LSGIs or planning and implementing locally relevant projects. The ecotral ceilings if any within this grant may be fixed by overnment from time to time.

ive and a half percent of the annual own tax revenue of he State Government may be devolved to the LSGIs as rant-in-aid for maintenance of assets under the control f the LSGIs including the transferred assets. This ercentage may be determined on the figures certified by he Accountant General, which normally relates to the inancial year two years before the Budget year. All xpenses related to running of institutions except wages, upply of medicines to health institutions, educational oncessions / scholarships to students, supply of books and onsumables to schools, equipments, conducting noon- eeding in schools, shall be borne by the LSGIs. This should nclude payment of rents, repair of equipment including ehicles, and meeting of telephone charges and vehicle perating expenses.

261

(3) Three and a half percent of the own tax revenue of the State Government based on the figures certified by the Accountant General could be devolved to LSGIs as Genera Purpose Grant in lieu of assigned taxes, shared taxes and various statutory and non-statutory grants-in-aid, both specific purpose and general purpose. This grant-in-aid would subsume under it Basic Tax Grant, Surcharge on Stamp Duty, Vehicle Tax Compensation, Rural Pool Grants, the specific purpose and general purpose grants to Urban Local Bodies and all other non-plan grants-in-aid devolved to LSGIs from the Local Self Government Department.

3. It has to be noted that Kerala has become highly vulnerable in the context of liberalization and globalisation. How the poor get affected by this process needs to be specially studied.

4. The Eleventh Finance Commission grants to LSGIs should be passed down as such over and above the grants suggested above.

5 For the above three streams of grants-in-aid the devolution formula and the distribution formula are as suggested below:

(a) Plan Grant-in-Aid. The existing devolution formula as well as the distribution formula may continue. However up to ten percent of the non-SCP/TSP Funds may be distributed as an incentive for increased own revenue mobilization by the Village Panchayats and the Urban Local Bodies. The actual percentage to be distributed as incentive grant-in-aid should be the same as the percentage of Village Panchayats and Urban Local Bodies showing an increase in own revenue. And this amount could be shared as per the formula given below:

qi = ri Pi / a ri Pi

qi - share for LSG1 i

ri - percentage increase in its revenue

Pi - Population of the LSGI i

The date of effect of the incentive system may be indicated to LSGIs well in advance.

(b) Maintenance Grant. The maintenance grants should be based on the current cost of replacement and the initial norms (which has to be updated periodically) may be as follows:

3% of capital cost

2% of capital cost

Rs.400/-per Sq.ft.

Once in five years

Rs.25,000/-per K.M

Rs.23,000/-per K.M.

Rs.2,000/-per KM.

Rs. 1.65 lakhs per K.M.

Rs. 1.84 lakhs per K.M

i. Maintenance of buildings constructed before 1-4-

1967

ii. Maintenance of buildings constructed after 1-4-1967

iii. Current construction cost.

iv. Frequency of resurfacing ofblack-top/WBM Roads

v. Annual repair expenditure of Blacktop roads.

vi. Annual repair expenditure ofWBM roads

vii. Annual repair expenditure ofunsurfaced roads

viii.Cost of re-surfacing black-top roads(3.8 Metre

width)

ix. Cost of resurfacing WBM roads (3.8 Metre width)

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263

6 The distribution of the maintenance grant could be as follows:

(1) On the basis of a price index work out what Rs.140 crores at 2000-2001 prices would amount to for the year for which the provision is being made. The deflator for the construc tion sector can be utilized for this purpose.

(2) One-seventh of this amount may be kept aside for the Dis trict and Block Panchayats and divided between them in the ratio 19 : 1. The share of the Block Panchayat should be divided equally among them. As regards District Panchayats, half the share should be divided according to the ratio of distribution of the transferred village roads and other dis trict roads and the other half based on norms for repair of non-road assets in their control (other than those created after 1995)..

(3) Seven-eighth of the share of the Village Panchayats and Municipalities is to be distributed among the Village Panchayats, Municipalities and Corporations in the same ra tio as VTC is currently divided; one-eighth of the share of the Village Panchayats and Municipalities should be distrib- uted according to the maintenance needs of non-road as sets, own and transferred, (other than those created after 1995) - as determined by norms.

(4) The division formula mentioned above needs to be corrected by a series of iterations.

(5) The remaining portion of the maintenance grant i.e. the ex- cess over Rs.140 crores at 2000-01 prices may be distrib- uted exactly in the same manner as Plan 6rant-in-aid.

264

c) General Purpose Grant. The Government may determine as a one-time exercise, the share of District Panchayats and Block Panchayats in the General Purpose Grant, based on normative assessment of their establishment cost and office expense requirements. The remaining amount may be distributed as follows:

Village Panchayats 78.5 percentage

Municipalities 8.5 percentage

Corporations 13.0 percentage

7. The inter se distribution among the Municipalities and Corporations should be entirely on the basis of population. As regards Village Panchayats, a corpus of Rs.10 crore may be set apart and be used as per a gap filling formula - to fill the gap between obligatory expenditure (reckoned as establishment expenses, street light and water supply charges) and the revenue usable for these purposes (calculated as the sum of own collected revenue and the share of the Village Panchayat from the General Purpose Grant). The entire gap could be filled up in the case of Second and Third Grade Village Panchayats, 50 percentage of the gap in the case of First Grade Village Panchayats and 25 percentage of the gap in the case of Special Grade Panchayats. The remaining portion may be distributed according to the population criterion.

8 In order to avoid hardships during transition period, it is recommended that no Village Panchayat or ULB should experience a real shortfall in its receipts on account of these transfers compared to the previous year.

265

d) Eleventh Finance Commission grants may be devolved on the basis of the population criterion in one instalment.

9 (1) For Property Tax the recommendations of the First SFC may be

operationalised and the following scheme is suggested for classifying buildings and fixing the tax.

(i) Location Zone - Four Zones.

(ii) Type of building - (a) Ordinary Building.

(b) Medium type building.

( c) Luxury building.

(iii) Type of use: - (a) Commercial use.

(b) Non-commercial use.

(iv) The relative weights for the Zone could

b - 1 : 1.5 : 2 : 2.5

(v) The relative weights for the type of building

could be - 1 : 1.5 : 2

(vi) The relative weights between non-commercial and commercial use could be - 1 : 3

(vii) Deduction for age and owner occupation may be as provided for in the Kerala Municipality Act.

OWN RESOURCES MOBILISATION BY LSGIs

266

(2) On no account should there be a cap on increase or a limit to decrease when the new system is introduced.

(3) A dual system of numbering is suggested so that incomplete buildings can get a provisional number and their completion tracked properly.

(4) Presumptive Profession Tax may be introduced to bring certain self employed occupational groups into the tax net.

(5) Entertainment Tax may be introduced for Cable and Internet.

(6) In the case of Advertisement Tax the Government may fix the minimum rates for taxation for different kinds of advertisement for different types of locations by issuing Advertisement Tax Rules, which could set out the guide lines for LS6Is to assess the tax.

(7) There should be a system of authenticating advertisements to avoid unauthorized advertisements. Penal provisions for unauthorized advertisement should be at least five times the normal tax.

(8) Conversion Tax may be realized at the rate of five per cent of the capital value in the case of conversion of paddy lands. Half this rate may be made applicable for other kinds of conversions. In the case of conversions without prior permission a severe penalty of ten times the Conversion Tax should be realized in the case of conversion of paddy land and an amount equivalent to the Conversion Tax could be realized in other cases.

267

(9) The Service Tax should be made compulsory and be linked to the cost of performing obligatory functions and calculated as a percentage of Property Tax.

(10) The ceiling on Surcharges may be removed.

(11) In the case of Non-tax Revenue the Government should fix the minimum fees for various kinds of licences in the case of Municipalities and Corporations through notification. In the case of Village Panchayats only the minimum amount may be fixed in the rules.

(12) In the case of licences and permits, which are renewed periodically, 25% of the licence fee may be collected as fine for delay beyond a grace period of ten days; this pen alty may be increased by 25% for every additional fort night of delay.

(13) There must be compulsory display by LSGIs on the spot for various items of revenue and in the case of auctions a district level public notice should be given in December about to all the forthcoming auctions.

(14) For trade licences the present practice in Village Panchayats of calculation based on turnover may be done away with and for both Village Panchayats and Urban Local Bodies, Government could notify the minimum rates for each trade with separate rates in each category for small, medium and large establishments.

(15) A separate numbering system should be adopted for trade establishments.

(16) The following fees may be enhanced.

(i) Building fee for Theatres.

268

(ii) Licence fee under the Kerala Places of Public Resort Act.

(iii)Licence fee for Private Markets.

(iv) Licence fee for Private Slaughter Houses.

(v) Licence fee for Brokers, Commission Agents, Weigh men and Measurers.

(vi) Licence fee for Butchers, Fishmongers, Poulterers.

(vii)Licence fee for premises where animals are kept for commercial purposes.

(viii)Market fee.

(ix) Cate fee for public halting and parking places, (x) Cate fee for

slaughterhouses.

(xi) User charges for burial grounds, burning ghats and electric crematoria.

(17) The meat stalls and the right to fish in water bodies may be auctioned every year by the concerned LSGIs after giving due publicity.

(18) Village Panchayats may auction the right to set up temporary shops in public land just as Urban Local Governments are doing so under Section 376 of the Kerala Municipality Act.

10

(1) Rules for levy of Advertisement Tax in Village Panchayats and ULBs may be issued immediately.

(2) Steps to finalise minimum land value for use in registering sales may be completed at the earliest,

(3) Tax mapping may be done immediately and unique premises numbering system introduced.

(4) A single financing agency for LSGIs may be set up by merging KUDFC and the Rural Development Board..

(5) 50% of building exemption fees and regularization fees may be given to the concerned Village Panchayats and ULBs.

(6) The question of Village Panchayats and ULBs levying daily fee for use of poramboke may be examined and decided by Gov ernment without further delay.

(7) Rationalisation of revenue village and Village Panchayat/ULB boundaries may be done in such a way that no revenue village would lie within more than one Village Panchayat or ULB.

(8) Shortfall in devolution of assigned and shared taxes vis-a-vis the accepted level may be made good by Government.

11

(1) N

FOLLOW UP OF FIRST SFC RECOMMENDATIONS

S

PROCEDURAL SAFEGUARD

269

ecessary amendments to the Kerala Panchayat Raj Act and the Kerala

270

Municipality Act may be made to specify the minimum shares of LSGIs, of the Plan Grant, Maintenance Grant and General Purpose Grant.

271

(2) LSGIs should get automatic allocations at the beginning of every month.

(3) A survey of assets transferred to LSGIs as well as assets owned by them may be carried out to calculate the standard spending assessment for maintenance purposes and the re sult of the study should be utilized for devolution of mainte nance funds.

(4) A separate Budget document indicating LSGI-wise distribu tion of the three streams of grants-in-aid, grants-in-aid for pensions and for noon feeding. For other grants-in-aid, dis trict-wise figures may be indicated along with formula for de volving them to individual LSGIs.

(5) A legislative provision may be introduced for indexing non tax revenue items, and taxes like Property Tax, Advertise ment Tax and Service Tax. Two-yearly revisions are recom mended for non-tax licence items and Advertisement Tax based on Consumer Price Index for non-manual workers for Thiruvananthapuram in the case of Urban Local Bodies and Consumer Price Index for agricultural labourers for the state in the case of Village Panchayats; four-yearly revision may be done for Professional Tax and Service Tax.

(6) All proposals for staff creation should be cleared by the Ombudsman.

(7) A Local Government Staff Commission may be set up to sug gest redistribution of staff among LSGIs as well as from Gov ernment to LSGIs.

272

(8) All LSGIs should prepare annual maintenance Plans.

(9) Unpermitted diversion of funds should be penalized by charg ing a penalty of two percent per month from the persons re sponsible.

(10) Village Panchayats, Municipalities and Corporations should have a single account for crediting all their own collected revenues

(11) In the case of Plan 6rant-in-aid and Maintenance 6rant-in- aid, bill system of drawing from treasuries should be intro duced in the place of PD Accounts.

(12) An Empowered Committee under the Chief Secretary may be set up to follow-up the accepted recommendations and imple ment them fully.

12 A Cell under the joint control of Finance and Local Self Government Departments may be created for concurrent monitoring of all financial matters of LSGIs

PRABHAT PATNAIK Chairman

K.M. ABRAHAM S.M. VIJAYANAND Member Member

Thiruvananthapuram 8th January, 2001

273

Annexure I.I

GOVERNMENT OF KERALA

Finance (State Finance Commission Cell) Department

NOTIFICATION

No.33384/SFC.Al/99/Fin. Dated, Thiruvananthapuram, 23rd June 1999

S.R.O.No.543/99.— Under clause (1) of Article 243-1 of the Constitution of India and

section 186 of the Kerala Panchayt Raj Act, 1994 (13 of 94), read with clause (1) of

Article 243-—Y of the Constitution of India, and section 205 of the Kerala

Municipalities Act, 1994 (20 of 1994), the Governor of Kerala is pleased to constitute a

Finance Commission consisting of Sri.Prabhat Patnaik, Professor, Jawaharlal Nehru

University, New Delhi as the Chairman and the following two other persons as

members, namely.—(1) Dr.K.M.Abraham, Secretary to Government, Finance

(Resources) Department

(2) Sri.S.M.Vijayanand, Secretary to Government, Local Administration Department.

2. The Chairman and other members of the Commission shall hold office for a

period of one year from the date of this notification.

3. The Finance Commission shall review the financial position of the Panchayat

and the Municipalities and make recommendations as to -

(a) the principles which should govern, -

(i) the distribution between the State, Panchayats and the

Municipalities of the net proceeds of the taxes, duties, tolls and

fees leviable by the State, which may be divided between

them, under Part IX and part IX - A of the Constitution and the

allocation between the Panchayat at all levels and

Municipalities of their respective shares of such proceeds;

(ii) the determination of the taxes, duties, tolls and fees which may

be assigned to or appropriated by, the Panchayats and the

Municipalities;

274

(iii) the grants-in-aid to the Panchayats and the Municipalities from

the Consolidated fund of the State.

(b) the measures needed to improve the financial position of the Panchayats

and the Municipalities with reference to, -

(i) the scope for local bodies to raise institutional finance, and

suggest a framework for local self governments to take

recourse to such sources along with procedures to be followed

and limits, if necessary, to raising such resources;

(ii) need for sharing the cost of maintenance of assets and

institutions transferred to local self governments, and evolving

criteria for it, with due regard to the fiscal position of the State

Government and the local self- governments;

(iii) steps necessary for efficient financial management with

particular reference to efficiency in resource mobilization and

economy in expenditure;

(iv) settlement of claims and dues of Panchayats and Municipalities

vis-a-vis Government and Governmental agencies;

(v) procedures to be followed for smooth flow of funds to local self

Governments and ensuring proper financial accountability,

Orders regarding the terms and conditions of appointment of the Chairman and

other members of the Commission will be issued separately.

By Order of the Governor

VINOD RAI,

PRINCIPAL SECRETARY(Financc)

275

Annexure 1.2

GOVERNMENT OF KERALA

Finance (Administration - A) Department

NOTIFICATION

No.48596/Admn.Al/2000/Fin. Dated, Thiruvananthapuram, 26'" July 2000

S.R.O.No.766/2000.— Under clause (1) of Article 243-1 of the Constitution of India

and section 186 of the Kerala Panchayt Raj Act, 1994 (13 of 1994), read with clause (1)

of Article 243—Y of the Constitution of India, and section 205 of the Kerala

Municipalities Act, 1994 (20 of 1994), the Governor of Kerala is pleased to extend the

term of the Finance Commission constituted as per Notification

No.33384/SFC.Al/99/Fin , dated 23"' June, 1999, published as S.R.O.No.543/99 in the

Kerala Ga/ette Extraordinary No.1239 dated 23rd June, 1999, up to 22nd June 2001 and

consequently the following amendment to the said Notification, namely:-

AMENDMENT

In the said Notification, for the 2nd paragraph, the following paragraph shall be

substituted, namely:-

"2. The Chairman and other members of the Commission shall hold office up to

the 22nd day of June 2001."

By Order of the Governor

VINOD RAI,

PRINCIPAL SECRETARY (Finance)

276

Annexure 1.3

VISIT OF THE COMMISSION TO LOCAL SELF GOVERNMENT INSTITUTIONS OF EACH TYPE

As part of the study the Commission visited the following LSGIs and had detailed discussions with the elected representatives and officials. Grama Panehayat, Karakulam

Block Panchayat, Anchalummood

District Panchayat, Kollam

Punalur Municipality

Corporation of Thiruvananthapuram

Annexure 1.4

COMMISSION'S DISCUSSION WITH ASSOCIATIONS

22nd November,A.N, 1999 Discussion with the office bearers of Association representing Village Panchayats.

24th November, AN 1999 Meeting with Block Panchayats Presidents. Hon'ble Minister for Local Self Government Institutions was present

25th November, AN, 1999 Meeting with the Chamber of Municipal Chairmen.

Annexure 1.5

COMMISSION'S DISCUSSIONS WITH SECRETARIES AND HEADS OF DEPARTMENTS

24th November, AN, 1999 Discussion of the Commission with the Chief Engineer (Building &Local Works) and Deputy Chief Engineer (Roads).

25th November, AN, 1999 Discussion of the Commission with Secretaries, LSGD Rural and Urban, Director of Municipalities and Director of Panchayats.

277

Annexure 3.1

Municipalities having Entertainment Tax and Additional Entertainment Tax Exceeding Property Tax Collection - 1998-99

Rupees in Thousands SI. No. Name of Municipality Property Tax Entertainment

Tax 1 Kollam 12580 16087

2 Perinthalmanna 2504 3275 3 Thodupuzha 3822 4503 4 Palakkad 10934 19597 5 Alappuzha 7016 10405 6 Kunnamkulam 3510 5113 7 Kodungallur 2098 7065 8 Guruvayoor 3988 4488 9 Kottayam 12206 14297 10 Chalakudy 2304 5637 1 1 Shornur 1952 3839 12 Pala 3334 6644 13 Changanassery 5762 7621 14 Thalassery 7688 10471 15 Mavelikara 2386 2596 16 Aluva 4484 6712 17 Pathanamthitta 3034 3388 18 Vadakara 7924 8052 19 Cherthala 2315 2399 20 Tirur 3054 8794 21 Thrissur 9588 20144

Source SFC Survey 2000

278

Annexure 3.2

USE OF PENAL PROVISIONS BY ULBS - A STATUS REPORT

The Kerala Municipality Act gives ample powers to the various authorities in

the administrative hierarchy to regulate private behaviour in public places for

common good. The Commission made a study to find out whether the Municipalities

are making full use of their authority. It was found that of the 55 Municipalities and

three Corporations only a very few have utilised the provisions sampled out. The

details are presented below:-

l). Section 335: Improper disposal of carcasses, rubbish and filth. According to

the existing provisions, the Municipality can charge a fine of Rs.500/- for this. The

details of enforcement are given below: -

Name of the Municipality Amount Collected 1998-1999 1999-2000

1. Thiruvalla Rs. 70007- Rs.80007-

2. Mavelikara Rs. 46007- Rs. 170007-

For 42 Municipalities the collection was 'Nil'. Fourteen of them did not give

any reply.

2). Section 336: Allowing rubbish or filth to accumulate on premises for more

than 24 hours. The Municipality can charge up to Rs.10007-. The details of

penalties collection arc given below: -

Name of the Municipality Amount Collected 1998-1999 1999-2000

1. Thiruvalla Rs. 100007- Rs.80007-

279

2. Mavelikara Rs. 124007- Rs. 170007-

280

For 42 Municipalities the collection was 'Nil'. Fourteen of them including

Thiruvanathapuram and Cochin Corporations did not give any reply

3) Section 337: Allowing filth to flow in streets. The Municipality can

charge up to Rs.2500/-. The details of collections are shown below: -

Name of the Municipality Amount Collected 1998-1999 1999-2000

1. Kollum Rs.1750/- Rs.1000/-

2. Thiruvalla Rs.2000/- Rs.2000/-

3. Palai Rs.135/- —

4. Vadakara Rs.500/- —

5. Kozhikode Corporation — Rs.500/-

For 39 Municipalities the collection was 'Nil'. Fourteen of them did

not give any reply.

4).Section 340: Throwing rubbish or filth into public places. The Municipality

can charge up to Rs.2000/-. The details are given below: - Name of the Municipality Amount Collected

1998-1999 999-2000

1. Kollam Rs.10250/- Rs.l 5250/-

2. Thiruvalla Rs.1000/- Rs.2000/-

3. Palai Rs.500/- —

4. Changanassery Rs.250/- —

5. Tirur RS.1500A Rs.750/-

6. Quilandy Rs.500/- --

7. Mattannur Rs.250/-

281

8. Kannur Rs. 1750/- Rs. 1250/-

9. Kozhikode Corporation Rs.500/- Rs.3250/-

10.Palakkad — Rs. 1850/-

1 l.Manjeri — Rs.250/-

12.Vadakara — Rs.5750/-

The collection is 'Nil' for 32 Municipalities. Fourteen Municipalities

did not give any reply.

5). Section 357: Protection of appurtenances and materials of street. The

Municipality can charge up to Rs.5000/-. The collection details are as follows: -

Name of the Municipality Amount Collected 1998-1999 1999-2000

1 Kollam Rs.5250/- Rs.7500/-

2. Thiruvalla Rs.1000/- Rs.1000/-

3. Pathanamthitta Rs.610/- Rs. 1350/-

The collection is 'Nil' for 41 Municipalities. Fourteen Municipalities did not give

any reply,

6).Section 369: Erecting of structures or fixtures causing obstruction in public

streets. The Municipality can charge up to Rs. 10, 0007-. The fines collected are as

given below: Name of the Municipality. Amoun Collected

1998-1999 1999-2000

1. Thiruvalla Rs. 10007- Rs. 1000/-

2. North Parur Rs.185/- Rs.170/-

282

3. Vadakara Rs.40250/- Rs.48275/-

4. Mattannur Rs.250/- --

5. Changanaserry — Rs.100/-

6 Guruvayoor — Rs.510/-

7. Kannur — Rs.3380/-

In respect of 37 Municipalities the collection is 'Nil'. Fourteen Municipalities did not

give any reply.

7). Section 370: Deposits etc. of things on Public Street. The Municipality can

charge up to Rs. 1000/-. The details of penalties collection are noted below: -

Name of the Municipality Amount Collected 1998-1999 1999-2000

1 . Varkala Rs. 1375/- Rs.2250/-

2. Mavelikara Rs.78000/- Rs.90000/-

3. Kayamkulam Rs.3250/- Rs.7450/-

4. Changanaserry Rs.750/- —

5. Guruvayoor Rs.3755/- Rs.22225/-

6. Chalakudy Rs.5270/- Rs.7350/-

7. Manjeri Rs.5495/- Rs.8756/-

8. Tirur Rs.6500/- Rs.7250/-

9. Kanhangad Rs.500/- —

10.Kozhikode Corporation Rs.7320/- Rs.5735/-

1 l.Paravoor -- Rs.380/-

12.Kalamassery — Rs.100/-

13. Kannur — Rs. 1670/-

14.Kasargod — Rs.4800/-

15. Palai Rs.1065/- —

283

1 6.Thiruvalla Rs.1000/- Rs.1000/-

284

The collection is 'Nil' in respect 28 Municipalities. Fourteen did not respond.

8). Section 41 1(1) Structures in ruinous State dangerous to passers-by or to the

occupiers of neighbouring structures. The Municipality can charge up to

Rs.5000/-The details are noted below: -

Name of the Municipality Amount Collected 1998-1999 1999-2000

1 . Thiruvalla Rs.12000/- Rs.21000/-

2. Mavelikara Rs.22000/- Rs.34000/-

3. Guruvayoor Rs.3987/- —

4. Palakkad Rs.10000/- Rs.15000/-

5. Kottayam — Rs.815/-

6. Changanssery Rs.765/- —

The Municipalities in which the collection is 'Nil' are 38 in number. No reply was

received from fourteen municipalities.

9).Section 412 (1) Tree or branch of a tree likely to fall and cause danger to

persons or any structure. The Municipality can charge up to Rs.2()()0/-. The

details arc noted below: -

Name of the Municipality Amount Collected 1998-1999 1999-2000

1. Kollam Rs.1500/- Rs.2000/-

2. Thiruvalla Rs.7000/- Rs.7000/-

3. Irinjalakuda Rs.300/- —

The collection is 'Nil' in respect of 40 Municipalities. Fourteen of them did not give

285

any reply.

286

10).Section 414: Dangerous quarrying. The Municipality can charge up to

Rs.5000/-.

Out of the 58 Municipalities, Thriuvalla Municipality alone has collected an amount

of Rs.4000/- during 1998-99 and Rs.5000/- during 1999-2000.

11). Seel ion 426: Untenanted building or land, which becomes a resort of idle and

disorderly persons. The details are noted below: -

Name of the Municipality Amount Collected 1998-1999 1999-2000 1 . Thiruvalla Rs.1000/- Rs.7000/-

2. Mavclikara Rs.4500/- Rs.l0300/-

For 42 Municipalities the collection was 'Nil'. Fourteen of them did not give

any reply.

12).Section 427: Non-removal of filth or noxious or wild vegetation. The

Municipality can charge up to Rs.500/-. The details of amounts collected are noted

below:-

Name of the Municipality Amount Collected 1998-1999 1999-2000 1, Thiruvalla Rs.2000/- Rs.3000/-

2. Mavclikara Rs.31000/- Rs.38000/-

For 42 Municipalities the collection was 'Nil'. Fourteen of them did not give

any reply. 13).Section 428: Non-securing of trees adjacent to house or well.

The Municipality can charge up to Rs.1000/-. The details are noted below: -

287

Name of the Municipality Amount Collected 1998-1999 1 999-2000

1 . Thiruvalla Rs.1000/- Rs.18000/-

2. Mavelikara Rs.1500/- Rs.4000/-

For 42 Municipalities the collection was 'Nil'. Fourteen of them did not give

any reply.

14.Section 436: Keeping of animals causing nuisance or danger. The

Municipality can charge up to Rs.500/-. The details are given below: -

Name of the Municipality Amoun t Collected 1998-1999 1999-2000

1 . Thiruvalla Rs. 170007- Rs.2000/-

2. Changanssery Rs.250/- —

3. Kottayam Rs.l9300/- Rs.8500/-

4. Kothamangalam Rs.3630/- Rs.5580/-

In respect of 40 Municipalities the collection is 'Nil'

The following are Municipalities / Corporations which did not furnish the

details.

(!) Neyyattinkara, (2)Punalur, (3)Adoor, (4) Chegannur, (5) Cherlhala,

(6)Thodupuzha, (7)AIuva, (8)Kodungallur, (9)Kunnamkulam, (10)Ponnani.

(11) Piiyyannur, (12)Thalassery, (13)Thiruvananthapuram Corporation and

(l4)Kochi Corporation.

288

Annexure 3.3

Details of Plan Provisions to Panchayat_Raj /Nagarapalika Institutions

STATE SPONSORED SCHEMES - 2000-01 (Rs.in lakhs)

implementingLSGIs

Aariculture & Other Services1 Strengthening of Veterinary Services 490.00 VP

10.00 MuniciTotal 500.00

2 Expansion of cross-breeding facilities 2.00 VP 3 Doultry farms & expansion of poultry production 2.00 DP 4 ntensive Pig Development Schemes 1.00 DP 5 Strengthening of goat farms 1.00 DP 6 Special Livestock Breeding Programme 95.00 VP

310.00 DP Total 405.00

Fisheries7 Setting up of Matsyabhavans 80.00 VP 8 Social Fishery 40.00 DP 9 Janakeeya Matsyaknshi 50.00 VP 10 Assistance for Fish Marketing and

Fish selling booths 130.00 VP 11 Education and Training 50.00 DP 12 Sanitation in Fishermen houses 80.00 VP 13 Theerajyothi in Fishermen houses 80.00 VP 14 Supply & service scheme, Alternate

Ornamental Fish Culture 20.00 VP Total 530.00

Forestry & Wild Life15 Enhanced Contribution of Forest to Community

Welfare

Community Development and Panchavat Rai 50.00 VP 16 Strengthening of Block Administration 100.00 BP 17 Solid Waste Disposal problem in Panchayats 215.00 VP 18 Kudumbasree 350.00 VP

Total 665.00Irriqation and Flood Manaqement

19 Minor Irrigation Class - II 300.00 VP 200.00 DP

Total 500.00

289

(Rupees in Lakhs)

implementing LSGIs

Drainaae & Flood Manaqement

20 Contingency Plan for flood Management Welfare of 50,51 & OBC

500.00 DP

Development of Scheduled Castes

21 Boarding Grants 21.01 8.00 1.00

BP Munici. Corpn.

Total 30.01

22 Tuition system in pre-metric hostels 31.63 7.62 0.75

BP Munici. Corpn.

Total 40.00 23 Development Programme for the

Vulnerable Groups 1 1 1 .00

13.80 BP

Munici.

Total 124.8024

Better Education facilities to SC Students 32.00 7.00 1.00

DP Munici. Corpn.

Total 40.0025

Pre-prirnary Education to SC children 26.10 3.20 0.70

VP Munici. Corpn.

Total 30.00 Development of Scheduled Tribes 12.00

26 27

Better Education facilities to ST Students Assistance for marriage of ST Girls

Note: Provisions for Special Component Plan and Tribal Sub Plan are shown under Rural Development Sector

28 29

Urban Environmental Improvements Solid waste

290

Annexure 3.4 DETAILS OF NON-PLAN SPECIFIC PROGRAMMES 2000-2001

implementing LSGIs

1 2 3 4 5

Renewal of Transport Ordinary Repairs of Roads and Bridges Special repairs to roadside bridges Flood damage repairs Mid-day meals

1159.00 347.70 579.50 231.79

2500.00 150.00 150.00 150 00

DP DP DP DP VP DP MP Corpn

Total 2950.00 6 Free supply of writing aids and text books to Primary Students 20.00

7.00 2.50 VP MP Corpn.

Total 29.50

7Unemployment allowance

6277.00 506.00 217.00

VP MP

Coprn. Total 7000.00 8

Pension Scheme for Physically handicapped, disabled and mentally retarded persons-

1193.59 137.50

66.00

VP MP Corpn.

Total 1397.09 9

Orphanage grant-in-aid

155.59 17.00 21.00

DP MP Corpn.

Total 193.59 10

Financial help to widows towards marriage expenses of daughters

77.00 22.00 11.00

VP MP Corpn.

Total 110.00 11

Destitute pension

1675.47 208.15 94.07

VP MP Corpn.

Total 1977.69 12

Agricultural Workers' Pension

3437.13 260.40 22.47

VP MP Corpn.

Total 3720.00 13

National old age pension scheme

268.70 28.00 10.28

VP MP Corpn.

Total 306.98 14

Production incentive to Paddy Growers

1014.20

47.60

VP MP Corpn.

Total 1061.80

291

15 16

Maintenance of Village roads by Community Development Department Grant -in- aid to TVPM Corporation Towards Addl. Expenditure on lighting the Highways in the City

202.00

12.00

VP Corpn.

294

Annexure 3.5 -2 ABSTRACT OF TOTAL RECEIPTS OF VILLAGE PANCHAVATS UNDER OWN REVENUE

ITEM 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

Amount PTR Amount PTR Amount PTR Amount PTR Amount PTR Amount PTR

1. Direct Tax 424833 36.01 508497 41.00 514801 37.15 598555 28.51 640555 26.54 725875 27.94

2. Assigned Tax 312397 26.48 290215 23.40 273655 19.75 524871 25.00 443871 1839 445450 17.15

3.Shared tax 90790 7.70 25040 2.02 216874 15.65 329101 15.68 382328 15.84 364809 14.04

4. Non Tax Revenue 206235 17.48 235087 22.99 310105 22.38 464567 22.13 605721 25.10 749003 20.83

5.General purpose grant 26785 2.27 29438 2.37 23475 206 28714 1.37 0 0.00 0 0.00

6.Specific Purpose grant 118370 10.03 101567 8.19 41436 2-99 153001 7.29 175162 7.26 15200 0-59

Total 1179411 99.98 1239845 99.98 1385347 9998 2098810 99.97 2247636 93.12 2300337 88.55

Amount - In Rupees PTR Percentage to Total Revenue

Annexure 3.5 - 3 PERCENTAGE SHARE OF TAXES TO DIRECT TAXES ( VILLAGE PANCHAYATS)

ITEM 1993-94 1994-95 1996-97 1997-98 1998-99 Amount PDT Amount PDT Amount PDT Amount PDT Amount PDT Amount PDT

i. Property Tax 222671 52.41 265503 52.21 256590 49.84 293864 49.10 296160 46.23 344370 47.44 ii. Prolession tax 27.98 148522 29.21 159679 31.02 190383 31.81 220324 34.40 259089 35.69iii. Ent & Add. Ent. Tax 65186 15.34 73027 14.36 79458 15.43 89976 15.03 99585 15.55 97114 13-38 iv. Advertisement Tax 1134 0.27 810 0.16 395 0.03 876 0.15 1960 0.31 939 0.13v. Service tax 10987 259 14368 2.83 12647 2.46 14428 2.41 16546 2.58 18192 2.51 vi. Show tax & surcharge on 2661 0.63 3376 0.66 3142 0-61 4653 0.78 3409 0.53 3832 0.53vii. Land conversion 695 0.16 418 0.08 262 0-05 80 0.01 155 0.02 64 0.01 viii. Surcharges 541 0.13 622 0.12 543 0.11 555 009 559 0.09 530 0.07 ix Land cess 2089 0.49 1850 0.36 2085 0.41 3741 0.63 1857 0.29 1746 0.24

Total 424833 100 508497 100 514801 100 598555 100 640555 100 725875 100 Amount - In Rupees PDT -Percentage of direct tax

PERCENTAGE INCREASE OF TAXES OVER PREVIOUS YEAR (VILLAGE PANCHAYATS)

Annexure 3.5 -4

ITEM 1993-94 1994-95

1995-96 1996-97 1997-96 1998-99

% Over 93-94

Amount Amount % Amount % Amount % Amount % Amount %

i.Property Tax 222671 265503 19.24 256590 -3.36 293864 14.53 296160 0.78 344370 16.28 54.65ii.Profession tax 118869 148522 24.95 159679 7.51 190383 19.23 220324 15.73 259089 1759 11.96iii.Ent: & Add' Ent. 65186 73027 12.03 79458 8.81 89976 13.24 99585 10.68 97114 -2.48 48.98iv.Advertisement Tax 1134 810 395 -51.29 876 122.05 1960 12370 939 -52.11 -17.20v.Service tax 10987 14368 30.77 12647 -11.98 14428 14.09 16546 14.68 18192 9.94 65.58vi. Show tax & surcharge on ST

2661 3376 26.87 3142 -6-95 4653 48.10 3409 -26.74 3832 12.42 44.01

vii. Land conversion 695 418 -39.85 262 -37.31 80 -69.65 155 94.68 64 -58.39 -90.73viii.Surcharges 541 622 15.02 543 -12.68 555 2.17 559 0.78 530 -2,02ix. Land cess 2089 1850 2085 12.71 3741 79.39 1857 -50.36 1746 -5.98 -16,44

Total 424833 509497 1969 514801 1 .24 598555 16.27 640555 7.02 725875 13.32 70.86

295

Annexure 3.5-5 PERCENTAGE INCREASE OF OWN REVENUE OVER PREVIOUS YEARS (VILLAGE PANCHAYATS)

ITEM 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

Amount Amount % Amount % Amount % Amount % Amount % % Over 93-94

1 Direct Tax 42483 508497 19.69 514801 1.24 598555 16.27 640555 7.02 725875 13.32 70.80 2. Assigned Tax 312397 290215 -7.10 273655 -5.71 524871 91.80 443871 -15.43 445450 0.36 42.59 3. Shared tax 90790 25040 -72.42 216874 766.10 329101 51.75 382328 16.17 364809 4.58 301.82

4. Non Tax Revenue 20623 285087 38.23 310105 8.78 46456 49.81 605721 30.38 749003 23.65 263.18

5. General Purpose grant 26785 29438 9.91 28475 -3.27 28714 0.84 0 0

6. SpecificPurpose grant 118370 101567 -14.20 41436 -5920 153001 269.25 175162 14.48 15200 -91.32 -87.16

Total 1179411 1239845 5.12 1385347 11.74 2098810 51.50 2247636 7.09 2300337 234 95.04

SHARE OF DIRECT TAXES IN TOTAL OWN REVENUE (VILLAGE PANCHAYATS) ITEM 1993-94 193-1-95 1995-96 1996-97 1997-98 1998-99

Amount PTOR Amount PTO Amount PTOR Amount PTOR Amount PTOR Amount PTOR(1) Properly Tax 222671 18.88 265503 21.41 256590 18.52 293864 14.00 296160 13.18 344370 14.97(ii) Profession tax 118869 10.08 148522 11.98 159679 11.53 190383 9.07 220324 9.80 259089 11.26(iii) Ent: & Add Enl: Tax 65186 5.53 73027 5.89 79458 5.74 89976 4.29 99585 4.43 97114 4.22(iv| Advertisement Tax 1134 0.10 810 0.07 395 0.03 876 0.04 1960 0.09 939 0.04(v) Service tax 10987 0.93 14368 1.16 12647 0.91 14428 0.69 16546 0.74 18192 0.79(vi ) Show tax 8 surcharge 2661 0.23 3376 0.27 0.23 4653 0.22 3409 0.15 3832 0.17(vii) Land conversion 695 0.06 418 0.03 262 0.02 80 0.00 155 0.01 64 0.00(viii) Surcharges 541 0.05 622 0.05 543 0.04 555 0.03 559 0.02 530 0.02(ix) Land cess 1089 0.18 1850 0.15 2085 0.15 3741 0.18 1857 0.08 1746 0.08

Total (Direct taxes) 425 0.04 508 0.04 515 0.04 599 0.03 641 0.03 726 0.03Total 1179411 100.00 1239845 100.00 1385347 100.00 20988110 100.00 2247636 100.00 2300337 100.00

Amount - In Rupees PTOR - Percentage of Total Own Revenue

SHARE OF ITEMS UNDER OWN REVENUE (VILLAGE PANCHAYATS)

ITEM 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 Amount POR Amount POR Amount POR Amount POR Amount POR Amount POR 1. Direct Tax 424833 36.02 508497 41.01 514801 37 .16 598555 28.52 640555 28.50 725875 31.56

2. Assigned Tax 312397 2649 290215 23.41 273655 19.75 524871 25.01 443871 19.75 445450 19.36 3. Shared tax 90790 7.70 25040 2.02 216874 15.65 329101 15.68 382328 17.01 364809 15.86 4. Non Tax Revenue 206235 17.49 285087 22.99 310105 22.38 464567 22.13 605721 26.95 749003 32.56 5. General Purpose grant 26785 2.27 29438 2.37 28475 2.06 28714 1.37 0 0.00 0 0.00 6. Specitic Purpose grant 118370 10.04 101567 8.19 41436 299 153001 7.29 175162 7.79 15200 0.66

Total 1179411 100.00 1239845 100.00 1385347 100.00 2098810 100.00 2247636 100.00 2300337 100.00

Amount - In Rupees POR - Percentage on Own Revenue

296

Annexure 3.5 -8

TOTAL EXPENDITURE OF VILLAGE PANCHAYATS - YEAR WISE (Excluding expenditure under People's Plan Campaign)

ITEM 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 AM PTE AM PTE AM PTE AM PTE AM PTE AM PTE 1.GENERAL ACCOUNT

870709 983411 1070639 1461619 1837705 1880212

1.Management & Collection

i. Salary / Honararium etc. of Office bearers

32442 2.52 31216 2.11 57160 3.55 108938 5.16 109589 3.78 163645 6.01

ii. Establishment of cost of secretaries & staff

329140 25.59 365379 24.73 408694 25.40 462937 21.91 513570 17.72 604873 22.21

iii. Other Office expense 46793 3.64 73448 4.97 63586 3.95 84656 4.01 112838 3.89 132814 4.88 2. Education & Culture

i. Salary and other expenses

6539 0.51 7113 0.48 8302 0.52 10773 0.51 12004 0.41 14307 0.53

ii. Other charges 21924 1.70 23151 1.57 24254 1.51 26252 1.24 36591 1.26 36540 1.34 3. Public Works i. Establishment Cost 6914 0.54 7617 0.52 8648 0.54 9843 0.47 13471 0.46 17493 0.64 ii. Maintanance 217762 16.93 248689 16.83 262953 16.34 388736 18.40 496238 17.12 381123 13.99 4. Irrigation i.Maintanance 8904 0.69 10518 0.71 8404 0.52 12800 0.61 14477 0.50 10306 0.38 5.Core Function (a).Sanitation & drainage

i.Establishment Charge 20364 1.58 21061 1.43 27266 1.69 35521 1.68 37541 1.30 35775 1.31 ii.Maintanance 7260 0.56 7095 0.48 7905 0.49 16617 0.79 17515 0.60 16737 0.61 (b) Water Supply i.Maintanance 13451 1.05 19627 1.33 25695 1.60 64588 3.06 68397 2.36 55819 2.05 ii.Other petty works 4201 0.33 4413 0.30 5216 0.32 9346 0.44 10962 0.38 8953 0.33 (c) Street Lighting i.Current Charge 77290 6.01 79930 5.41 80874 5.03 92422 4.37 109083 3.76 106777 3.92 ii.Other Charge 2769 0.22 2591 0.18 3326 0.21 6558 0.31 10657 0.37 8708 0.32 6.Medical Service i.Establishment Charge 766 0.06 798 0.05 798 0.05 815 0.04 889 0.03 1039 0.04 ii. Operational Cost 316 0.02 207 0.01 504 0.03 502 0.02 802 0.03 1192 0.04 iii. Maintanance Charge 733 0.06 1187 0.08 1041 0.06 1155 0.05 1063 0.04 1084 0.04 iii. Other Charges 1865 0.14 1649 0.11 2320 0.14 3711 0.18 4802 0.17 8319 0.31 7. Ferry Service i. Establishment 2079 0.16 2150 0.15 2627 0.16 3357 0.16 3820 0.13 3940 0.14 ii. Other Charges 1140 0.09 1007 0.07 1115 0.07 1650 0.08 2768 0.10 11562 0.42 8. Remunarative Enterprises

i. Establishment Charge

159 0.01 163 0.01 415 0.03 2062 0.10 1572 0.05 1973 0.07

ii.Maintanance` 502 0.04 584 0.04 50 0.00 366 0.02 1137 0.04 1782 0.07 iii.Other Charges 1422 0.11 835 0.06 958 0.06 939 0.04 2562 0.09 13840 0.51 9. Social welfare i.Family welfare etc 4918 0.38 4644 0.31 4340 0.27 11641 0.55 12488 0.43 13377 0.49 ii. Housing 22240 1.73 28941 1.96 28912 1.80 40969 1.94 76356 2.63 39168 1.44 iii. Other Charges 5168 0.40 5989 0.41 6685 0.42 12884 0.61 29660 0.93 26375 0.97 10. Town Planning i. Establishment Charges

184 0.01 289 0.02 41 0.03 2062 0.10 3820 0.13 3940 0.14

ii. Maintanance 1406 0.11 1155 0.08 1851 0.12 213 0.01 2349 0.08 609 0.02 iii.Other Charges 1658 0.13 1509 0.10 1319 0.08 1466 0.07 3518 0.12 2762 0.10 11.Land Development i. Land Development 1324 0.10 847 0.16 1877 0.12 2103 0.10 6686 0.23 997 0.04 ii. Other Charges 29069 2.26 29611 2.00 23499 1.46 47618 2.25 26718 4.37 158027 5.80 II CAPITAL ACCOUNT

345501 26.86 396272 26.82 431665 26.83 558158 26.41 854837 29.50 522240 19.17

1.Management 36913 2.87 43267 2.93 40343 2.51 42441 2.01 63918 2.21 71183 2.61 2. Public Works 262142 20.8 296495 20.05 327224 20..34 437309 20.70 703454 24.57 366445 13.45 3.Remurative Asset 7042 0.55 8463 0.5 11486 0.71 13694 0.65 14924 0.51 12468 0.46

297

4. Creation of asssets to govt dept

1834 0.14 1315 0.09 2456 0.15 5940 0.28 7834 .027 9079 0.33

5. Others 4079` 0.32 8446 0.57 6551 0.41 9575 0.45 11448 0.40 13475 0.49 6. Loan refund 33491 2.60 38586 2.61 43605 2.71 49198 2.33 53260 1.84 49593 1.82 III. DEBT HEADS 70172 5045 97624 6.61 106673 6.63 93299 4.42 205624 7.09 321382 11.80 1. Refund of Deposit i Shop Rooms 39951 3.07 40129 2.72 2176 2.62 51814 2.45 61987 2.14 65084 2.39 ii. Buildings 1979 0.15 1391 0.09 1639 0.10 1972 0.09 1572 0.05 4128 0.15 iii. Others 6742 0.52 8191 0.55 9111 0.57 9526 0.45 18807 0.65 33794 1.24 2. Library Cess 2428 0.19 2868 0.19 2260 0.14 8975 0.42 11348 0.39 8258 0.30 3. Surcharge to block/district

69 0.01 113 0.1 33 0.00 123 0.01 172 0.01 1185 0.04

4. Sales tac etc 6985 0.54 6634 0.45 6001 .0.37 7805 0.37 9951 0.34 11681 0.43 5. Others 12417 0.97 38299 2.5* 75452 2.82 13085 0.62 101788 3.51 197253 7.24 Total 1286376 100.00 1477307 100.00 1608975 100.00 2113076 100.00 2898166 100.00 2723834 100.00

NB:- date of 976 Village Panchayats AM:- Rupees in Thousand PTE:- Percentage to Total Expenditure

PERCAPITA EXPENDITURE OF VILLAGE PANCHAYATS-YEAR WISE (Excluding expenditure under People’s Plan Campaign) Annexure 3.5-9

ITEM 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 I.GENERAL ACCOUNT AM PC AM PC AM PC AM PC AM PC AM PC

1. Management & Collection 870703 33.97 983411 37.77 1070638 40.47 1461619 54.36 1837705 67.22 1880212 67.63 (i) Salary /Honararium etc of Office beares 32442 1.27 31216 1.20 57160 2.15 108938 4.05 109589 4.01 163645 5.89 (ii) Establishment of cost of secretaries & staff 329140 12.84 365379 14.03 408694 15.45 462937 17.22 513570 18.79 604873 21.76 (iii) Other office expenses 46793 1.83 73448 2.82 63586 2.4 84656 3.15 112838 4.13 132814 4.78 2. Education & Culture (i) Salary and other expenses 6539 0.26 7113 0.27 8302 0.31 10773 0.4 12004 0.44 14307 0.51 (ii) Other Charges 21924 0.86 23151 0.89 24254 0.92 26252 0.98 36591 1.34 36540 1.31 3. Public Works (i) Establishment Cost 6914 0.27 7617 0.29 8648 0.66 9843 0.37 13471 0.49 17493 0.63 (ii) Maintanance 217762 8.5 248389 9.55 262953 9.94 388736 14.46 496238 18.15 381123 13.71 4. Irrigation (i) Maintanance 8904 0.35 10518 0.4 8408 0.32 12800 0.48 14477 0.53 10306 0.37 5. Core Function (a) Sanitation & drainage (i) Establishment Charges 20364 0.79 21061 0.81 27266 1.03 35521 1.32 37541 1.37 35775 1.29 (ii) Maintanance 7260 0.28 7095 0.27 7905 0.3 16617 0.62 17515 0.64 16737 0.6 (b) Water Supply (i) Maintanance 13451 0.52 19627 0.75 25695 0.97 64588 2.4 68397 2.5 55819 2.01 (ii) Other petty works 4201 0.16 4413 0.17 52156 0.2 9346 0.35 10962 0.4 8953 0.32 (c) Street lighthing (i) Current Charge 77290 3.02 79930 3.04 8074 3.06 92422 3.44 109083 3.99 106777 3.84 (ii) Other Charges 2769 0.11 2591 0.1 3326 0.13 6558 0.24 10657 0.39 8708 0.31 6. Medical Service (i) Establishment Charges 766 0.03 798 0.03 798 0.03 815 0.03 889 0.03 1039 0.04 (ii) Operational Cost 316 0.01 207 0.01 504 0.02 502 0.02 802 0.03 1192 0.04 (iii) Maintanace Charge 733 0.03 1187 0.05 1041 0.04 1155 0.04 1063 0.04 1084 0.04 (iv) Other Charges 1865 0.07 1649 0.06 2320 0.09 3711 0.14 4802 0.18 8319 0.3 7. Ferry Service (i) Establishment Charges 2079 0.08 2150 0.08 2627 0.1 3357 0.12 3820 0.14 3940 0.14 (ii) Other Charges 1140 0.04 1007 0.04 1115 0.04 1650 0.13 2768 0.1 11562 0.42 8. Remunarative Enterprises

298

(i) Establishment Charges 159 0.01 163 0.01 415 0.02 2062 0.08 1572 0.06 1973 0.07 (ii) Maintanance 502 0.02 584 0.02 50 0.00 366 0.01 1137 0.04 1782 0.06 (iii) Other Charges 1422 0.06 835 0.03 958 0.04 939 0.03 2562 0.09 13840 0.5 9. Social Welfare (i) Family Welfare etc 4918 0.19 4644 0.18 4340 0.16 11641 0.43 12488 0.46 13377 0.48 (ii) Housing 22240 0.87 28941 1.11 28915 1.09 40969 1.52 76356 2.79 39168 1.41 (iii) Other Charges 5168 0.2 5989 0.23 6685 0.25 12885 0.48 26990 0.99 26375 0.95 10. Town Planning (i) Establishment Charges 184 0.01 289 0.01 41 0.11 183 0.04 254 0.01 296 0.01 (ii) Maintanance 1406 0.05 1155 0.04 1851 0.07 213 0.04 2349 0.09 609 0.02 (iii) Other Charges 1658 0.06 1509 0.06 1319 0.05 1466 0.05 3518 0.13 2762 0.1 11. Land Development (i) Land development 1324 0.05 847 0.03 1877 0.07 2103 0.08 6686 0.24 997 0.04 (ii) Other cahrges 29069 1.13 29611 1.14 23499 0.89 47618 1.77 126718 4.64 158027 5.68 II. CAPITAL ACCOUNT 345501 13.48 396272 15.22 431665 16.32 558158 20.76 854837 31.27 522240 18.78 1. Management 36913 1.44 43267 1.66 40343 1.52 42441 1.58 36918 2.34 71183 2.56 2. Public Works 262142 10.23 296195 11.38 327224 12.37 437309 16.26 703454 25.73 366442 13.18 3. Remunarative Assets 7042 0.27 8463 0.33 11486 0.43 13694 0.51 14925 0.55 12468 0.45 4. Creation of assets to govt dept 1834 0.07 1315 0.05 2546 0.09 5940 0.22 7834 0.29 90790 0.33 5. Others 4079 0.16 8446 0.32 6551 0.25 9575 0.36 11448 0.472 13475 0.48 6. Loan Refund 70172 2.74 97624 3.75 106673 4.03 93299 3.47 205624 7.52 321382 11.56 III. DEBT AHEADS 1 Refund of Deposits (i) Shop rooms 39551 1.54 40129 1.54 42176 159 51814 1.93 61987 2.27 65084 2.34 (ii) Buildings 1979 0.28 1391 0.05 1639 0.06 1972 0.07 1475 0.06 4128 0.15 (iii) Others 6742 0.26 8191 0.31 9111 0.347 9526 0.35 18807 0.69 33794 1.22 2. Librarary cess 2428 0.29 2868 0.11 2260 0.09 8975 0.33 11348 0.42 8258 0.3 3. Surcharge to block /district 69 0.00 113 0.00 33 0.00 123 0 172 0.01 1185 0.04 4.Sales Tax etc 6985 0.00 6634 0.00 6001 0.00 7805 0 9951 0.00 11681 0.00 5. Others 12417 0.00 38299 0.00 45450 0.00 13085 0 101788 0.00 197253 0.01 TOTAL 1286376 50.19 1477307 56.74 1608975 60.82 2113076 78.58 2898166 106.02 2723834 97.98 NB :- data 976 Village Panchayat Am:- Rupees in Thousand PC :- Percapita Annexure 3.6-1

TOTAL RECEIPTS OF MUNICIPALITIES 1993-94 TO 1998-99 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 Item AM PTR AM PTR AM PTR AM PTR AM PTR AM PTR I. TAX REVENUE 385328 43.45 432978 44.97 539012 48.1 599103 33.72 624836 40.42 680383 41.62 A. DIRECT TAX 308939 34.84 335818 34.88 381514 34.04 433350 24.39 479749 31.03 503622 30.97 (i) Propety & serivce Tax 134679 15.19 144739 15.03 158677 14.16 182536 10.27 202952 13.13 223292 13.66 (ii) Profession tax 22663 2.56 27326 2.84 29704 2.65 36828 2.07 39588 2.56 47704 2.92 (iii) Advertisement Tax 1854 0.21 2002 0.21 2499 0.22 2922 0.16 3034 0.2 3641 0.22 (iv) Ent& Add Ent.Tax 148690 16.77 160865 16.71 189353 16.9 209251 11.78 233000 15.07 230395 14.09 (v) Show Tax & SC on ST 822 0.09 837 0.09 961 0.09 962 0.05 975 0.06 915 0.06 (vi) Land Conversion 215 0.02 49 0.01 293 0.03 850 0.05 200 0.01 373 0.02 (vii)Timber Tax 0.00 0 0 0 0 0 (viii) Tax on animals & vehicles 16 0 0 27 0 1 0 0 2 0 B.ASSIGNED TAX . (i) Duty on transfer of property 47789 5.39 89498 9.3 69998 6.25 101774 5.73 96439 6.24 100452 6.15 C. SHARED TAX Vahicle Tax Compensation 28600 3.23 7662 0.8 87500 7.81 63979 3.6 48648 3.15 73609 4.5 II. NON-TAX REVENUE 186008 20.98 190354 19.77 223789 19.97 270592 15.23 341315 22.08 376156 23.01

299

A.LICENCE FEES 16486 1.86 20884 2.17 25049 2.24 29167 1.64 30401 1.97 37579 2.3 (i) D&O Licence 5517 0.62 5805 0.6 6224 0.56 6610 0.37 9183 0.59 12222 0.75 (ii) P F A 309 0.03 363 0.04 355 0.03 347 0.02 386 0.02 374 0.02 (iii) Cinematograph 102 0.01 113 0.01 955 0.01 98 0.01 100 0.01 136 0.01 (iv) Place of public resort 71 0.01 100 0.01 93 0.01 126 0.01 134 0.01 110 0.01 (v) Private slaughter house 20 0 200 0.02 79 0.01 745 0.04 189 0.01 590 0.04 (vi)Private market 28 0 29 0 25 0 25 0 434 0.03 779 0.05 (vii) Ocupation of purampoke 248 0.03 695 0.07 472 0.04 475 0.03 833 0.05 470 0.03 (viii) Cart stand/halting places 508 0.06 811 0.08 979 0.09 470 0.03 783 0.05 799 0.05 (ix) Dogs & Pigs 7 0 39 0 1 0 3 0 10 0 724 0.04 (x) Building permits 9676 1.09 12729 1.32 16725 1.49 20268 1.14 18349 1.19 21375 1.31 B. RAGISTRATION FEES 286 0.03 262 0.03 417 0.04 390 0.02 620 0.04 612 0.04 (i) Private hospital 2 0 4 0 5 0 5 0 29 0 54 0 (ii) Private paramedical Intn 0 4 0 4 0 6 0 29 0 46 0 (iii) Tutorial & parallel colleges 0 0 0 0 0 3 0 (iv) Contractors regn 149 0.02 90 0.01 145 0.01 101 0.01 112 0.01 184 0.01 (v) Births & death regn 84 0.01 86 0.01 97 0.01 112 0.01 120 0.01 200 0.01 (vi) Arch:/ engineers regn 51 0.01 78 0.01 166 0.01 166 0.01 330 0.02 125 0.01 C.GATE FEES 24160 2.72 28505 2.96 32316 2.88 47554 2.68 42008 2.72 46517 2.85 (i) Private market 10361 1.17 11180 1.16 13638 1.22 14856 0.84 16448 1.06 16544 1.01 (ii) Public slaughter houses 1298 0.15 1672 0.17 1645 0.15 1865 0.1 1787 0.12 2092 0.13 (iii) Cart stand bus stand 8267 0.93 9712 0.01 10035 0.9 12357 0.7 13320 0.86 15362 0.94 (iv) Comfort station 1307 0.15 2212 0.23 2635 0.24 3333 0.19 3645 0.24 3960 0.24 (v) Cloak room 165 0.93 4 0 0 63 0 93 0.01 163 0.01 (vi) River sand 2762 0.15 3725 0.39 4363 0.39 15080 0.85 6717 0.43 8396 0.51 D.USER CHARGES 82610 0.02 82756 8.6 94165 8.4 107035 6.02 126105 8.16 140513 8.6 (i) Search fee 118 0.31 204 0.02 135 0.01 230 0.01 163 0.01 211 0.01 (ii) Extract fee 282 8.19 280 0.03 291 0.03 333 0.02 361 0.02 416 0.03 (iii) Service cahrges 4522 0.01 4998 0.52 5540 0.49 6718 0.38 8249 0.53 9294 0.57 (iv) Municipal property 67587 0.03 76172 7.91 87073 7.77 97466 5.49 113828 7.36 125519 7.68 (v) Water charge 91 0.51 1053 0.11 1126 0.1 2288 0.13 3504 0.23 5073 0.31 (vi) Connetion Charge 10 7.62 49 0.01 0 0 0 0 E.OTHER SOURCES 72466 0.01 57947 6.02 71842 6.41 86446 4.86 142181 9.2 150735 9.23 (i) Conrtib & donation 74 0 0.46 953 0.09 6102 0.34 31843 2.06 46136 2.82 (ii) Endowment & Interest on End. 13068 8.17 4406 0.8 5611 0.5 7936 0.45 7159 0.46 4691 0.29 (iii) Fine & Penalitite 3466 0.01 7726 0.02 7557 0.67 5163 0.29 7724 0.5 9099 0.56 (iv) Cattle Pound 83 1.47 145 0 184 0.03 129 0.01 100 0.01 129 0.01 (v) Fishing 0.39 0.04 0 159 0.01 74 0 3 0 (vi) Usufructs 434 0.01 425 0.25 424 0.04 201 0.01 178 0.01 80 0 (vii) Lease of land 2243 0 2426 0.03 3378 0.3 4539 0.26 4338 0.28 5933 0.36 (viii) Library 229 0.05 244 0.01 377 0.03 339 0.02 341 0.02 338 0.02 (ix) Ferry service 126 0.25 91 4.41 77 0.01 100 0.01 133 0.01 119 .0.01 (x) Others 52743 0.03 42484 9.38 53281 4.75 61778 3.48 90291 5.84 84407 5.61 III. GRANT IN AID* 105014 0.01 90322 0.74 121428 10.83 676410 38.07 274702 17.77 206479 12.63 (i) General purpose grant 7138 5.95 7131 0.75 7131 0.64 6449 0.36 6442 0.42 6451 0.39 (ii) Specific purpose grant 6585 11.84 7175 1.14 6453 0.58 7827 0.44 10985 0.71 9880 0.6 (iii) Other grants 16243 0.8 10971 2.15 7483 0.67 20757 1.17 19440 1.26 17702 1.08 (iv) State sponsered schemes 26006 0.74 20661 4.61 30386 2.71 547804 30.83 58650 3.79 21041 1.29 (v) Centrally sponsered schemes 49042 1.83 44384 9.79 69975 6.24 93573 5.27 179185 11.59 151405 9.26 IV. LOANS 88955 2.93 94301 2.17 65144 5.81 49877 2.81 72845 4.71 94255 5.77 (i) Government 27825 5.53 20865 7.62 36722 3.28 29015 1.63 33182 2.15 7494 0.46 (ii) Others 61130 10.03 73406 16.08 28422 2.54 20865 1.17 39663 2.57 86761 5.31 V. DEBT 120940 3.14 154832 9.15 171788 15.33 181804 10.22 233413 15.1 278121 17.01 (i) Deposit 66177 7.46 88122 1.99 94556 8.44 89276 5.02 119039 7.7 161974 9.91 (ii) Advance 17017 1.92 19121 0.15 17573 1.57 17102 0.96 21825 1.41 24266 1.48 (i) LIbrary Cess 1264 0.14 1453 3.14 5929 0.53 7485 0.42 8651 0.56 9830 0.6

300

(ii) Provident fund/ pension fund 25774 2.91 30248 1.65 38431 3.43 45809 2.58 52583 3.4 61336 375 (iii) Sales tax/Income tax etc 10708 1.21 15888 100 15299 1.37 21932 123 31315 2.03 20715 1.27 TOTAL 886245 100 962787 1121161 100 1777586 100 1547111 100 1635394 100 AM:-Amount PTR:- Percentage to total revenue * Excluding gratn in aid for people’s campaign

301

Annexure3.6- 2 ABSTRACT OF TOTAL RECEIPTS OF MUNICIPALITIES UNDER OWN REVENUE Itern 1393-94 1994-95 1995-96 1996-97 1997-98 1998-99 AM PTR AM PTR AM PTR AM PTR AM PTR AM PTR 1. DirectTax 308939 34.84 335818 34.88 381514 34.04 433350 24.39 479749 31.03 506322 30.97 2. Assigned Tax 47789 5.39 89498 9.30 59998 6.25 101744 5.73 96439 6.24 100452 6.15 3. Shared Tax 29600 3.23 7662 0.80 87500 7.81 63979 3.60 48648 3.15 73609 4.50

4. Licence Fees 16486 1.86 20884 2.17 25043 2.24 29167 1.64 30401 1.97 37579 2.30 5. Registration Fees 286 0.03 262 0.03 417 0.04 390 0.02 620 0.04 612 0.04 6. Gate Fees 24160 2.72 28505 2.96 32316 2.88 47554 2.68 42008 2.72 46517 2.85 7. User Charges 72610 8.19 82756 8.60 94165 8.40 107035 6.02 126105 8.16 140513 8.60

8. Other Sources 72466 8.17 57946.5 602 71842 6.41 86446 4.86 142181 9.20 10935 9.23 9. General Purpose Grant 7133 0.80 7131 0.74 7131 0.64 6449 0.36 6442 0.42 6451 0.39 10. Specific Purpose Grant 6585 0.74 7175 0.75 5453 0.58 7827 044 10985 0.71 9880 0.60 Total 585059 66.02 637638 66.23 776385 G9.25 883971 45.73 983578 63.58 1072870 65.60

AM:- Amount in Rs. Thousand PTR - Percentaae to total revenue

Annexure3.6-3 PERCENTAGE SHARE OF TAXES TO DIRECT TAX (MUNICIPALITIES) Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 Amount PDT Amount PDT Amount PDT Amount PDT Amount P DT Amount A. DIRECT TAX (I) Property & service Tax 134679 43.59 144739 43,10 158677 41 59 182536 42.12 202952 42.30 223292 44 .10 (M) Prolesslon tax 22663 7.34 27326 8.14 29704 7.79 36828 8.50 39588 8.25 47704 9.42

(IN) Advertisement Tax 1854 0.60 2002 0.60 2499 0.66 2922 0 67 3034 0.63 3641 0.72 (iv) Ent: 8 Add: Ent: Tax 148690 48.13 160865 47.90 189353 49 63 209251 46.29 233000 48.57 230395 45.50 (v) Show tax & S C on ST 822 0.27 837 0.25 961 0.25 962 0 22 975 0.20 915 0.18 (vi) Land conversion 215 0.07 49 0,01 293 0.08 850 0.20 200 0.04 373 0.07 (vii) Timbertax 0.00 0.00 0.00 0.00 0 00 0.00 (viii) Tax on animals & vehicles 16 0.01 0,00 27 0.01 1 0.00 0.00 2 0.00

Total 308939 100.00 335818 100.00 381514 100.00 433350 100.00 479749 100.00 506322 100.00 AM -Amount In Rs.Thousand

Anncxure 3.6-4 PERCENTAGE INCREASE OF TAXES OVER PREVIOUS YEAR (MUNICIPLITIES) Items 1993-

94 1994- 95

% 1995- 96

% 1996- 97

% 1997-98

% 1998-99

% % Over 93-94

(I) Property & service Tax 134679 144739 7.47 158677 9.63 182536 15.04 202952 11.18 223292 10.022 65.80 (II) Profession tax 22663 27326 20.58 29704 C.70 36828 23.98 39588 7.49 47704 20.50 110.49 (III) Advertisement Tax 1854 2002 7.98 2499 24.83 2922 16.93 3034 3.83 3641 20.01 96.39 (iv) Ent: & Add: Ent: Tax 148690 160865 8.19 189353 17.71 209251 10.51 233000 11.35 230395 -1.12 54.95 (vi)l Show tax & surcharge on ST

822 837 1.82 961 14.81 962 0.10 975 1.35 915 -6.15 11.31

(vi) Land conversion 215 49 293 497.96 850 190.10 200 -76.47 373 96.50 73.49 (vii)Timbertax

(viii)Tax on animals & vehlcles

16 -100.00 27 1 -96.30 -100.00 2 -87.50

Total 308939 335818 8. 70 381514 13.61 433350 13.59 479749 10.71 506322 5.54 63.89

302

Annexure 3.6-5 PERCENTAGE INCREASE OF OWN REVENUE OVER PREVIOUS YEAR (MUNICIPALITIES) Item 1993-

94 1994-95

% 1995-96

% 1996-97

% 1997-98

% 1198-99

% °° over 93-94

1. Direct Tax 308939 335818 8.70 38154 13.61 433350 13.59 479749 10.71 506322 5.54 63.89 2. Assigned Tax 47789 89498 87.28 69998 -21.79 101774 45.40 96439 -5.24 100452 4.16 10.20 3. Shared Tax 28600 7662 -73.21 87500 1042.00 63979 -26.88 48648 -23.96 73609 51 31 157.37 4. Licence Fee 16486 20884 26.68 25049 19.94 29167 16.44 30401 4.23 37579 23,61 127.94 5. Registration Fee 286 262 -8 39 417 59.16 390 -6.47 620 58.97 612 -1.29 113.99 6. Gate Fees 24160 28505 17.98 32316 13.37 47554 47.15 42008 -11.66 46517 10.73 92.54 7. User Charges 72610 82756 13.97 94165 13.79 107035 13.67 126105 17. 82 140513 1 43 93.52 8. Other Sources 72466 57946.

5-20.04 71842 23.98 86446 20.33 142181 64.47 150935 6. 6 108.28

9. General Purpose Grant 7138 7131 -0.10 7131 0.00 6449 -9.56 6442 -0.11 6451 0.14 -9.62 11. Specific Purpose Grant 6585 7175 8.96 6453 -10.06 7827 21.29 10985 40.35 9880 - 0.06 50.04 Total 585059 637638 89S 776385 21.76 883971 13.86 983S78 11.27 1072870 9.08 83.38

Annexure 3.6- 6 SHARE OF DIRECT TAXES IN TOTAL OWN REVENUE (MUNICIPALITIES)

Items 1993-94 1994-95 1995-96 1996-97 1997-96 1998-99 AM PTOR AM PTOR AM PTOR AM PTOR AM PTOR AM PTOR 1.Property & Service 134679 2302 144739 22.70 158677 20.44 182536 20.65 202952 20.63 223292 20.81 2.Professional Tax 22663 3.87 27326 4.29 29704 3.63 36828 4.17 39588 4.02 47704 4.45 3.Advertisement Tax 1854 032 2002 0.31 2499 0.32 2922 0.33 3034 0.31 3641 0.34 4. Ent & Add.Ent tax 148690 25.41 160865 25.23 189353 24.39 209251 23.67 233000 23.69 230395 21.47 5. Show Tac & SC on ST 822 0.14 837 0.13 961 0.12 962 0.11 975 0 10 915 0.09 6. Land Conservation 215 004 49 001 293 0.04 850 0.10 200 0,02 373 0.03 7. Timber Tax 000 000 0.00 0.00 0 00 0.00 8. Tax on Animals & Vehicles

16 0.00 000 27 0.00 1 0.00 0.00 2 0,00

9.(Direct Taxes) 308939 5280 335818 52.67 381514 49.14 4333SC 4902 479749 48.78 506322 47.19 Own Revenue 535053 10000 63763? 100.0C 776385 100.0C 883971 100.0C 983570 100.00 1072870 100.00

AM:- Amount in Rs Thousand PTOR:- Percantege of Total Own Revenue

Annexure 3.6-7 SHARE OF ITEMS UNDER OWN REVENUE (MUNICIPALITIES) Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 AM POR AM POR AM POR AM POR AM POR AM POR 1. Direct Tax 308939 52.8 335818 52.67 381514 49.14 43350 49.02 479749 48.78 506322 47.19 2. Assigned Tax 47789 8.17 89498 14.04 69998 9.02 101774 11.51 96439 9.8 100452 9.36 3. Shared Tax 28600 4.89 7662 1.2 87500 11.27 63979 7.24 48648 4.95 73609 6.86 4. Licence Fees 16486 2.82 20884 3.28 25049 3.23 29167 3.3 30401 3..09 37579 3.5 5. Registration Fees 286 0.05 262 0.04 417 0.05 390 0.04 620 0.06 612 0.06 6.Gate Fees 24160 4.13 28505 4.47 32316 4.16 47554 5.38 42008 4.27 46517 4.34 7. User Charges 72610 12.41 82756 12.98 94165 12.13 107035 12.11 126105 12.82 140513 13.1 8. Other Sources 72466 12.39 57947 9.09 71842 9.25 86446 9.78 142181 14.46 150935 14.07 9. General Purpose Grant 7138 1.22 7131 1.12 7131 0.92 6449 0.73 6442 0.65 6451 0.6 10. Specific Purpose Grant 6585 1.13 7175 1.13 6453 0.83 7827 0.89 10985 1.12 9880 0.92 Total 585059 100 637638 100 776385 100 883971 100 983578 100 1072870 100 AM:- Amount in Rs Thousand POR:- Percantege on Own Revenue

303

Annexure 3.6-8 TOTAL EXPENDITURE OF MUNICIPALITIES 1993-94 TO 1998-99

(Excluding expenditure under People’s Plan Campaign) Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 Amount PTE Amount PTE Amount PTE Amount PTE Amount PTE Amount PTE I. GENERAL ACCOUNT 387917 51.17 446416 51.16 508447 52.85 606807 48.26 671257 45.52 729958 48.68 1. Management & Collection 100838 13.3 114656 13.14 128047 13.31 160074 12.73 186863 13.67 196871 13.13 (1) Salary /Honararium etc Office 6608 0.87 6491 0.74 9675 1001 15574 1.24 16229 1.1 23157 1.54 (2) Establilshment Cost of Secretaries & Staff 75241 9.92 86791 9.95 92776 9.64 111423 8.86 128501 .8.71 137448 9.17 (3) Other expenses 18989 2.5 21374 2.45 25596 2.66 33077 2.63 42133 2.86 36266 2.42 2. Public Work 81951 10.81 96520 11.06 112849 11.73 127719 10.16 135121 9.16 142749 9.52 (1) Establishment charge 31960 4.11 34572 3.96 39077 4.06 45200 3.59 51721 3.51 53934 3.6 (2) Maintanance of Roads.Bridges,Park& Gardens 37255 4.91 49280 5.65 58773 6.11 66094 5.26 67379 4.57 75097 5.01 (3) Contigenies 12736 1.68 12668 1.45 14999 1.56 16425 1.31 16021 0.09 13720 0.91 3.(a) Town Planning 5878 0.78 7200 0.83 16800 1.75 8347 0.66 10273 0.7 12580 0.84 (1) Establishment charge 5818 0.77 6866 0.79 9041 0.94 8043 0.64 9688 0.66 11692 0.78 (2) Other Charges 60 0.01 334 0.04 7759 0.81 304 0.02 585 0.04 888 0.06 3.(b) Land Development 1236 0.16 2411 0.28 1062 0.11 6872 0.55 3723 0.25 18634 1.24 (1)Town survey establishment cost 302 0.04 1495 0.17 743 0.08 1069 0.09 784 0.05 449 0.03 (2) Other Charges 934 0.12 916 0.1 319 0.03 5803 0.46 2939 0.2 18185 1.21 4. Education & Culture 4355 0.57 5255 0.6 5857 0.61 6864 0.55 7739 0.52 8393 0.56 (1) Establishment charge 2446 0.32 2975 0.34 3594 0.34 4021 0.32 4240 0.29 4906 0.33 (2) Other Charges 1909 0.25 2298 0.26 2563 0.27 2843 0.23 3399 0.23 3487 0.23 5. Water Supply 4923 0.65 24955 2.86 27958 2.91 38863 3.09 30966 2.1 36738 2.45 (1) Establishment cost 1254 0.17 1210 0.14 1379 0.14 1555 0.12 2134 0.14 1131 0.08 (2) Maintanace 2738 0.36 22210 2.55 23258 2.42 33667 2.68 23583 1.6 31998 2.13 (3) Other Petty Works 931 0.12 1535 0.18 3321 0.35 3641 0.29 5249 0.36 3609 0.24 6. Public Health 139900 18.45 140857 16.14 159736 16.6 192105 15.28 216960 14.71 226853 15.13 (1) Establishment charge 123167 16.25 128181 14.69 143611 14.93 165653 13.17 197407 13.39 205074 13.68 (2) Operational Cost 12556 1.66 9673 1.11 12975 1.35 22508 1.79 15774 1.07 16580 1.11 (3) Maintanance Charge 34 0 215 0.02 323 0.03 366 0.03 124 0.01 271 0.02 (4) Other Charges 4143 0.55 2877 0.32 2827 0.29 3578 0.28 3655 0.25 4928 0.33 7. Street Lighthing 27930 3.68 31270 3.58 31911 3.32 37085 2.95 42409 2.94 45721 3.05 (1) Establishment charge 156 0.02 122 0.01 292 0.03 1134 0.09 1470 0.1 1080 0.07 (2) Current Charge 25415 3.35 28421 3.26 29862 3.1 31316 2.49 34742 2.36 35883 2.39 (3) Other Charges 2359 0.31 2727 0.31 1757 0.18 4635 0.37 7197 0.49 8758 0.58 8. Municipal Properties 4023 0.53 4416 0.51 3894 0.4 3889 0.55 8151 0.55 9408 0.63 (1) Establishment charge 1743 0.23 1602 .0.18 1684 0.18 1950 0.16 3365 0.23 3368 0.22 (2) Maintanance 2280 0.3 2814 0.32 2210 0.23 4939 0.39 4786 0.32 6040 0.4 9. Other Expenditure 9347 1.23 11986 1.37 11900 1.24 10037 0.8 17110 1.16 15168 1.01 (1) Audit Fee 619 0.08 409 0.05 1726 0.18 461 0.04 1316 0.09 2354 0.16 (2) Interest on borrowings' 8728 1.15 11577 1.33 10174 1.06 9576 0.76 15794 1.07 12814 0.85 10 . Extra Ordinray Items 7536 0.99 6890 0.79 8433 0.88 11952 0.95 10942 0.74 16843 1.12 (1) Reception to important 622 0.08 1556 0.18 1145 0.12 2687 0.21 2245 0.15 2949 0.2 (2) Grants, Awards etc 6914 0.91 5334 0.61 7288 0.76 9254 0.74 8697 0.59 13894 0.93 II CAPITAL ACCOUNT 268270 35.38 291591 33.41 317510 33.01 470273 37.4 565250 38.33 493510 32.91 1. Management 24299 3.21 19772 2.27 22392 2.33 25510 2.03 37730 2.56 30519 2.04 2. Loan Repayment 37057 4.89 41106 4.71 44864 4.66 55774 4.44 52692 3.57 51437 3.43 3. Plan Schemes 185452 24.46 201361 23.07 228505 23.75 355479 28.27 429708 29.14 369832 24.66 (a) Communication 81486 10.75 87739 10.05 108802 11.31 178455 14.19 221366 15.01 177216 11.82 (b) Town Improvement 65510 8.64 63901 7.32 58672 6.1 85398 6.79 88243 5.98 73303 4.89 Govt.Sponsered Programmes 0 0 0 0 0 0 (a) Town Improvement Scheme 19027 2.51 22582 2.59 41219 4.28 51323 4.08 68126 4.19 63368 4.23

304

(b) Poverty Allevation 19429 2.56 27139 3.11 19812 2.06 40303 3.21 58273 3.95 55945 3.73 4. Education 1230 0.16. 2149 0.25 1505 0.16 1407 0.11 4521 0.31 1189 0.08 5. Water Supply &drainage 12054 1.59 13422 1.24 8079 0.84 14271 1.13 23856 1.62 20638 1.38

(a) New water supply schemes 1559 0.21 863 0.1 2028 0.21 4491 0.36 8052 0.55 4137 0.28 (b) Deposits to water authority 456 0.06 3440 0.39 1648 0.17 1433 0.11 3182 0.22 2114 0.14 (c) Surface Darinage 10039 1.32 9119 1.04 4403 0.46 8347 0.66 12622 0.86 14387 0.96 6. Public Health 1760 0.23 4895 0.56 3600 0.37 6509 0.52 7553 0.51 5727 0.38 (a) Building &Vehicles, equipment 1302 0.17 4081 0.47 3111 0.32 6440 0.51 7440 0.5 5107 0.34 (b) Solid Waste Management 458 0.06 811 0.09 489 0.05 69 0.01 113 0.1 620 0.04 7. Street Lighthing 4865 0.64 4053 0.46 6946 0.72 8513 0.68 7328 0.5 12001 0.8 8. Endowment and Investments 1553 0.2 4833 0.55 1619 0.17 2810 0.22 1862 0.13 2167 0.14 III. DEBT HEADS 101962 13.45 134656 15.43 136033 14.14 180290 14.34 238199 16.15 276128 18.41 (1) Refund of Deposit 33848 4.46 47102 5.4 42408 4.41 47539 3.78 65832 4.46 104204 6.95 (2) Advance Recoverd 16605 2.19 18742 2.15 20809 2.16 23001 1.83 25406 1.72 20052 1.34 (3) PF/Pension fund 34591 4.56 41457 4.75 44812 4.66 72242 5.75 73475 4.98 90184 6.01 (4) Sinking Fund 3103 0.41 3829 0.44 3608 0.38 5310 0.42 10689 0.72 5953 0.4 (5) Library Cess 1497 0.2 12794 1.47 8248 0.86 5582 0.44 6858 0.47 6967 0.46 (6) Sales Tax 6569 0.87 6135 0.7 8300 0.86 15402 1.22 30649 2.08 32240 2.15 (7) Others 5749 0.76 4597 0.53 7848 0.82 11214 0.89 25300 1.72 16528 1.1 TOTAL 758149 100 872663 100 961990 100 1257370 100 1474706 100 1499596 100

Annexure 3.6-9 PERCAPITA EXPENDITURE OF MUNICIPALITIES

Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 Amount PC Amount PC Amount PC Amount PC Amount PC Amount PC I. GENERAL ACCOUNT 387917 141.1 446416 160..59 508447 180..85 606807 213.39 671257 233.34 729958 250.8 1. Management & Collection 100838 36.68 114656 41.25 128047 45.55 160074 56.29 186863 64.96 196871 67.64 (1) Salary /Honararium etc Office 6608 2.4 6491 2.34 9675 3.44 15574 5.48 16229 5.64 23157 7.96 (2) Establilshment Cost of Secretaries & Staff 75241 27.37 86791 31.22. 92776 33 111423 39.18 128501 44.67 137448 47.22 (3) Other expenses 18989 6.91 21374 7.69 25596 9.1 33077 11.63 42133 14.65 36266 12.46 2. Public Work 81951 29.81 96520 34.72 112849 40.14 127719 44.91 135121 46.97 142749 49.05 (1) Establishment charge 31960 11.63 34572 12.44 39077 13.9 45200 15.89 51721 17.98 53934 18.53 (2) Maintanance of Roads.Bridges,Park& Gardens 37255 13.55 49280 17.73 58773 2.91 66094 23.24 67379 23.42 75097 25.8 (3) Contigenies 12736 4.63 12668 4.56 14999 5.34 16425 5.78 16021 5.57 13720 4.71 3.(a) Town Planning 5878 2.14 7200 2.59 16800 5.98 8347 2.94 10273 3.57 12580 4.32 (1) Establishment charge 5818 2.12 6866 2.47 9041 3.22 8043 2.83 9688 3.37 11692 4.02 (2) Other Charges 60 0.02 334 0.12 7759 2.76 304 0.11 585 0.2 888 0.31 3.(b) Land Development 1236 0.45 2411 0.87 1062 0.38 6872 2.42 3723 1.29 18634 6.4 (1)Town survey establishment cost 302 0.11 1495 0.54 743 0.26 1069 0.38 784 0.27 449 0.15 (2) Other Charges 934 0.34 916 0.33 319 0.11 5803 2.04 2939 1.02 18185 6.25 4. Education & Culture 4355 1.58 5255 1.89 5857 2.08 6864 2.41 7739 2.69 8393 2.88 (1) Establishment charge 2446 0.89 2975 0.06. 3594 1.17 4021 1.41 4240 1.51 4906 1.69 (2) Other Charges 1909 0.69 2298 0.83 2563 0.91 2843 1..00 3399 1.18 3487 1.2 5. Water Supply 4923 1.79 24955 8.98 27958 9.94 38863 13.67 30966 10.76 36738 12.62 (1) Establishment cost 1254 0.46 1210 0.44 1379 0.49 1555 0.55 2134 0.74 1131 0.39 (2) Maintanace 2738 1..00 22210 7.99 23258 8.27 33667 11.84 23583 8.2 31998 10.99 (3) Other Petty Works 931 0.34 1535 0.55 3321 1.18 3641 1.28 5249 1.82 3609 1.24 6. Public Health 139900 50.89 140857 50.67 159736 56.82 192105 67.55 216960 75.42 226853 77.94

305

(1) Establishment charge 123167 44.81 128181 46.11 143611 51.08 165653 58.25 197407 68.62 205074 70.46 (2) Operational Cost 12556 4.57 9673 3.48 12975 4.62 22508 7.92 15774 5.48 16580 5.7 (3) Maintanance Charge 34 0.01 215 0.08 323 0.11 366 0.13 124 0.04 271 0.09 (4) Other Charges 4143 1.51 2877 1..00 2827 1.01 3578 1.26 3655 1.27 4928 1.69 7. Street Lighthing 27930 10.16 31270 11.25 31911 11.35 37085 13.04 42409 15.09 45721 15.71 (1) Establishment charge 156 0.06 122 0.04 292 0.1 1134 0.4 1470 0.51 1080 0.37 (2) Current Charge 25415 9.25 28421 10.22 29862 10.62 31316 11.01 34742 12.08 35883 12.33 (3) Other Charges 2359 0.86 2727 0.98 1757 0.62 4635 1.63 7197 2.5 8758 3.01 8. Municipal Properties 4023 1.46 4416 1.59 3894 1.39 3889 2.42 8151 2.83 9408 3.23 (1) Establishment charge 1743 0.63 1602 0.58 1684 0.6 1950 0.69 3365 1.73 3368 1.16 (2) Maintanance 2280 0.83 2814 1.01 2210 0.79 4939 1.74 4786 1.66 6040 2.08 9. Other Expenditure 9347 3.4 11986 4.31 11900 4.23 10037 3.53 17110 5.95 15168 5.21 (1) Audit Fee 619 0.23 409 0.15 1726 0.61 461 0.16 1316 0.46 2354 0.81 (2) Interest on borrowings' 8728 3.18 11577 4.16 10174 3.62 9576 3.37 15794 5.49 12814 4.4 10 . Extra Ordinray Items 7536 2.74 6890 2.48 8433 3..00 11952 4.2 10942 3.8 16843 5.79 (1) Reception to important 622 0.23 1556 0.56 1145 0.41 2687 0.94 2245 0.78 2949 1.01 (2) Grants, Awards etc 6914 2.52 5334 1.92 7288 2.59 9254 3.26 8697 3.02 13894 4.77 II CAPITAL ACCOUNT 268270 97.59 291591 104.9 317510 112.9 470273 165.37 565250 196.49 493510 169.6 1. Management 24299 8.84 19772 7.11 22392 7.96 25510 8.97 37730 13.12 30519 10.49 2. Loan Repayment 37057 13.48 41106 14.79 44864 15.96 55774 19.61 52692 18.32 51437 17.67 3. Plan Schemes 185452 67.47 201361 72.44 228505 81.28 355479 125.01 429708 149.37 369832 127.1 (a) Communication 81486 29.64 87739 31.56 108802 38.7 178455 62.75 221366 76.95 177216 60.89 (b) Town Improvement 65510 23.83 63901 22.99 58672 20.87 85398 .30.03 88243 30.67 73303 25.19 Govt.Sponsered Programmes 0..00 0..00 0..00 0..00 0..00 0..00 (a) Town Improvement Scheme 19027 6.92 22582 8.12 41219 14.66 51323 18.05 68126 21.49 63368 21.77 (b) Poverty Allevation 19429 7.07 27139 9.76 19812 7.05 40303 14.17 58273 20.26 55945 19.22 4. Education 1230 0.45 2149 0.77 1505 0.54 1407 0.49 4521 1.57 1189 0.41 5. Water Supply &drainage 12054 4.39 13422 4.83 8079 2.87 14271 5.02 23856 8.29 20638 7.09 (a) New water supply schemes 1559 0.57 863 0.31 2028 0.72 4491 1.58 8052 2.8 4137 1.42 (b) Deposits to water authority 456 0.17 3440 1.24 1648 0.59 1433 0.5 3182 1.11 2114 0.73 (c) Surface Darinage 10039 3.65 9119 3.28 4403 1.57 8347 2.94 12622 4.39 14387 4.94 6. Public Health 1760 0.64 4895 1.76 3600 1.28 6509 2.29 7553 2.63 5727 1.97 (a) Building &Vehicles,equipment 1302 0.47 4081 1.47 3111 1.11 6440 2.26 7440 2.59 5107 1.75 (b) Solid Waste Management 458 0.17 811 0.29 489 0.17 69 0.02 113 0.04 620 0.21 7. Street Lighthing 4865 1.77 4053 1.46 6946 2.47 8513 2.99 7328 2.55 12001 4.12 8. Endowment and Investments 1553 0.56 4833 1.74 1619 0.58 2810 0.99 1862 0.65 2167 0.74 III. DEBT HEADS 101962 37.09 134656 48.44 136033 48.39. 180290 63.4 238199 82.8 276128 94.87 (1) Refund of Deposit 33848 12.31 47102 16.94 42408 15.08 47539 16.72 65832 22.83 104204 35.8 (2) Advance Recoverd 16605 6.04 18742 6.74 20809 7.4 23001 8.09 25406 8.83 20052 6.89 (3) PF/Pension fund 34591 12.58 41457 14.91 44812 15.94 72242 25.4 73475 25.54 90184 30.99 (4) Sinking Fund 3103 1.13 3829 1.38 3608 1.28 5310 1.87 10689 3.71 5953 2.05 (5) Library Cess 1497 0.54 12794 4.6 8248 2.93 5582 1.96 6858 2.38 6967 2.39 (6) Sales Tax 6569 2.39 6135 2.21 8300 2.95 15402 5.42 30649 16.65 32240 11.08 (7) Others 5749 2.09 4597 1.65 7848 2.79 11214 3.94 25300 8.79 16528 5.68 TOTAL 758149 275.8 872663 313.9 961990 342.2 1257370 442.16 1474706 512.63 1499596 515.2

306

Annexure 3.6-10

Total receipts and expenditure of Municipalities at a glance (Rs in lakhs)

Receipt 1993-94: 1994-95 1995-96 1996-97 1997-98 1.998-99 A. General Account 6013.26 6488.42 7840.69 9043.58 10028.89 10897.9 B. Capital Account 1640.03 1593.46 1655.05 6912.54 3106.80 2667.01

Total (A+B ) 7653.29 8081.88 9495.74 15956.12 13135.69 13564.91 C. Debt Head 1209.40 1548.32 1717.88 1816.04 2334.13 2781.21 Total (A + B + C) 8862.69 9630.20 11213.62 17772.16 15469.82 16346.12 Expenditure A. General Account 3879.17 4464.16 5084.47 6068.07 6712.57 7299.58 B. Capital Account 2682.70 2915.91 3175.10 4702.73 5652.50 4935.10

Total ( A+B ) 6561.87 7380.07 8259.57 10770.80 12365.07 12234.68 C. Debt Head 1019.62 1346.56 1360.33 1802.90 2381.99 2761.28 Total (A + B + C) 7581.49 8726.63 9619.90 12573.70 14747.06 14995.96

Closing balance 1281.20 903.58 1593.72 5198.47 722.76 1350.16

Annexure 3.7-1 TOTAL RECEIPTS OF MUNICIPAL CORPORATIONS 1993-94 to 1998-99

(Rupees in Tthousands) 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 Item AM PTR AM PTR AM PTR AM PTR AM PTR AM PTR I. TAX REVENUE 312021 67.55 357217 62.04 460147 66..30 413807 48.82 461215 55.16 555297 61.41 A. DIRECT TAX 232958 50.44 249079 43.26 294470 42.43 310926 36.68 340361 40.71 397340 43.94 (i) Propety & serivce Tax 137017 29.66 147600 25.63 182092 26.24 189803 22.39 197693 23.64 241597 26.72 (ii) Profession tax 11756 2.55 18017 3.13 19471 2.81 20413 2.41 23483 2.81 32947 3.64 (iii) Advertisement Tax 1527 0.33 1885 0.33 2216 0.32 2889 0.34 4265 0.52 4242 0.47 (iv) Ent& Add Ent.Tax 81746 17.1 81059 14.08 90033 12.97 97357 11.49 114014 13.64 117888 13.04 (v) Show Tax & SC on ST 521 0.11 341 0.06 377 0.05 337 0.04 509 0.06 389 0.04 (vi) Land Conversion 202 0.02 180 0.02 (vii)Timber Tax 391 0.08 177 0.03 281 0.04 126 0.01 93 0.01 97 0.01 (viii) Tax on animals & vehicles 1 2 B.ASSIGNED TAX (i) Duty on transfer of property 69063 14.95 58138 10.1 125677 18.11 72881 8.6 94554 11.31 120457 13.32 C. SHARED TAX Vahicle Tax Compensation 10000 2.17 50000 8.68 40000 5.76 30000 3.54 26300 3.15 37500 4.15 II. NON-TAX REVENUE 76691 16.6 93751 16.28 100026 14.41 116111 13.7 149774 17.91 128229 14.18 A.LICENCE FEES 16003 3.46 16431 2.85 30364 4.37 34817 4.11 35097 4.2 38783 4.29 (i) D&O Licence 2863 0.62 3021 0.52 5848 0.84 6343 0.75 8351 1..00 9272 1.03 (ii) P F A 123 0.03 119 0.02 242 0.03 250 0.03 284 0.03 332 0.04 (iii) Cinematograph 20 22 48 21 21 21 (iv) Place of public resort 63 0.01 62 0.01 76 0.01 83 90 0.01 96 0.01

307

(v) Private slaughter house 1 9 6 2 1 (vi)Private market 1365 0.3 9 (vii) Ocupation of purampoke 9 16 28 35 46 59 (viii) Cart stand/halting places 5 (ix) Dogs & Pigs 2 (x) Building permits 11556 2.5 13181 2.29 24113 3.47 28079 3.31 26303 3.15 29000 3.21 B. RAGISTRATION FEES 67 0.01 220 0.04 217 0.03 263 0.03 373 0.04 339 0.04 (i) Private hospital 10 4 (ii) Private paramedical Intn 1 5 (iii) Tutorial & parallel colleges (iv) Contractors regn 19 29 27 25 27 70 (v) Births & death regn 40 155 0.03 139 0.02 113 0.01 260 0.03 172 0.02 (vi) Arch:/ engineers regn 8 36 51 125 0.01 75 88 C.GATE FEES 4542 0.98 7454 1.31 7446 1.07 9436 1.11 12911 1.54 11898 1.32 (i) Private market 2333 0.51 4086 0.71 3848 0.55 5185 0.61 6984 0.84. 5818 0.64 (ii) Public slaughter houses 1125 0.02 419 0.07 790 0.11 629 0.07 770 0.09 978 0.11 (iii) Cart stand bus stand 1652 0.36 1710 0.3 1220 0.18 1962 0.23 3309 0.4 2973 0.33 (iv) Comfort station 139 0.03 1046 0.18 1344 0.19 1400 0.17 1541 0.18 1722 0.19 (v) Cloak room 306 0.07 284 0.05 244 0.04 260 0.03 307 0.04 407 0.05 (vi) River sand D.USER CHARGES 21881 4.74 27740 4.82 30447 4.39 32981 3.89 37229 4.45 39065 4.32 (i) Search fee 43 34 35 34 36 50 (ii) Extract fee 114 0.02 74 0.01 106 0.02 77 222 0.03 107 0.01 (iii) Service cahrges 188 0.04 386 0.07 571 0.08 561 0.07 746 0..09 932 0.1 (iv) Municipal property 21529 4.66 23109 4.01 29726 4.28 32308 3.81 36225 4.33 37976 4.2 (v) Water charge 7 6 9 1 (vi) Connetion Charge 4131 0.72 E.OTHER SOURCES 34198 7..40 41815 7.26 31552 4.55 38614 4.56 64164 7.67 38144 4.22 (i) Conrtib & donation 18 30 58 0.16 15591 1.86 5144 0.57 (ii) Endowment & Interest on End. 1 1340 1 (iii) Fine & Penalitite 761 0.16 2489 0.43 2437 0.35 15 0.16 2195 0.26 2260 0.25 (iv) Cattle Pound 26 34 15 15 16 (v) Fishing (vi) Usufructs 45 67 0.01 100 0.01 60 93 0.01 143 0.02 (vii) Lease of land 2025 0.44 4008 0.7 5088 0.73 4873 0.57 5344 0.64 5286 0.58 (viii) Library 488 0.07 968 0.11 1126 0.13 1158 0.13 (ix) Ferry service 1935 0.42 2114 0.37 2117 0.31 2524 0.3 2761 0.33 2632 0.29 (x) Others 29388 6.36 33073 5.74 21248 3.06 27466 3.24 37038 4.43 21535 2.38 III. GRANT IN AID* 17416 3.77 46857 8.14 51676 7.45 250167 29.51 62733 7.5 63332 7..00 (i) General purpose grant 3181 0.69 3017 0.52 3017 0.43 3017 0.36 3017 0.36 3017 0.33 (ii) Specific purpose grant 4710 1.02 7082 1.23 6799 0.98 8842 1.04 5104 0.61 1350 0.15 (iii) Other grants 8678 1.88 2400 0.42 14810 2.13 23752 2.8 3028 0.36 7032 0.78 (iv) State sponsered schemes 847 0.18 29856 5.18 5758 0.83 175786 20.74 4482 0.54 3000 0.33 (v) Centrally sponsered schemes 4502 0.78 21292 3.07 38770 4.57 47102 5.63 48933 5.41 IV. LOANS 5845 1.27 9337 1.62 7694 1.11 9997 1.18 58261 6.97 22461 2.48 (i) Government 714 0.15 1333 0.16 253 0.03 126 0.01 (ii) Others 5131 1.11 9337 1.62 7694 1.11 8664 1.02 58008 6.94 22335 2.47 V. DEBT 49848 10.79 68916 11.97 77922 11.23 77405 9.13 103891 12.42 134679 14.89 (i) Deposit 6651 1.44 7731 1.34 4277 0.62 3989 0.47 5387 0.64 8400 0.93 (ii) Advance 10285 2.23 8603 1.49 16399 2.36 18683 .2.20 13963 1.67 12267 1.36 (i) LIbrary Cess 953 0.21 863 0.15 5608 0.81 5976 0.7 7099 0.85 15008 1.66 (ii) Provident fund/ pension fund 18063 3.91 34459 5.98 37795 5.45 28055 3..31 46487 5.56 55306 6.12 (iii) Sales tax/Income tax etc 13896 3.01 17260 3 13843 1.99 20702 2.44 30955 3.7 43698 4.83 TOTAL 461821 100 576078 100 697465 100 867487 102 835874 100 903998 100

AM -Amount PTR - Percentage to total revenue * Excluding grant in aid for peoples' plan campaign

308

Annexure 3.7-2 ABSTRACT OF TOTAL RECEIPTS OF MUNICIPAL CORPORATIONS UNDER OWN REVENUE

Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

AM PTR AM PTR AM PTR AM PTR AM PTR AM PTR

1. Direct Tax 232958 50.44 249079 43.26 294470 42.43 310926 36.68 340361 40.71 397340 43.94

2. Assigned Tax 69063 14.95 58138 10.1 125677 18.11 72881 8.6 94554 11.31 120457 13.32

3. Shared Tax 10000 2.17 50000 8.68 40000 5.76 30000 3.54 26300 3.15 37500 4.15

4. Licence Fees 16003 3.46 16431 2.85 30364 4.37 34817 4.11 35097 4..20 38783 4.29

5. Registration Fees 67 0.01 220 0.04 217 0.03 263 0.03 373 0.04 339 0..04

6.Gate Fees 4542 0.98 7545 1.31 7446 1.07 9436 1.11 12911 1.54 11898 1.32

7. User Charges 21881 4.74 27740 4.82 30447 4.39 32981 3.89 38229 4.45 39065 4.32

8. Other Sources 34198 7.4 41815 7.26 31552 4.55 38614 4.56 64164 7.67 38144 4.22

9. General Purpose Grant 3181 0.69 3017 0.52 3014 0.43 3017 0.36 3017 0.36 3017 0..33

10. Specific Purpose Grant 4710 1.02 7082 1.23 6799 0.98 8842 1.04 5104 0.31 1350 0.15

Total 396603 85.88 461067 80.04 569989 81.72 541777 62.45 619110 74.07 687893 76.09

AM :- Amount in Rs.Thousand PTR:- Percentage to Total revenue

PERCENTAGE SHARE OF TAXES TO DIRECT TAX (MUN CORPORATIONS) Annexure 3.7-3

Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

AM PDT AM PDT AM PDT AM PDT AM PDT AM PDT

A. DIRECT TAX

(I) Property & service Tax 137017 58.82 174600 59.26 182092 61.84 189803 61.04 197693 58.08 241597 60..80 (M) Prolesslon tax 11756 5..05 18017 7.23 19471 6.61 20413 6.57 23483 6.9 32947 8.29 (IN) Advertisement Tax 1527 0.66 1885 0.76 2216 0.75 2889 0.93 4365 1.28 4242 1.07 (iv) Ent: 8 Add: Ent: Tax 81746 35.09 81059 32.54 90033 30.57 97357 31.31 114014 33.5 117888 29.67 (v) Show tax & S C on ST 521 0.22 341 0.14 377 0.13 337 0.11 509 0.15 389 0.1 (vi) Land conversion 0..00 0..00 0..00 0..00 202 0.06 180 0.05 (vii) Timbertax 391 0.17 177 0.07 281 0.1 126 0.04 93 0.03 97 0.02 (viii) Tax on animals & vehicles 0..00 0..00 0..00 1 0..00 2 0..00 0..00 Total 232958 100 249079 100 294470 100 310926 100 340361 100 397340 100 AM :- Amount in Rs.Thousand PDT:- Percentage of direct tax

PERCENTAGE INCREASE OF TAXES OVER PREVIOUS YEAR (MUN CORPORATIONS) Annexure 3.7-4

(Rs. in Thousand)

Items

1993-94 1994-95 %

1995-

96 %

1996-

97 %

1997-

98 %

1998-

99 % & Over

(I) Property & service Tax 137017 147600 7.72 182.92 23.37 18980 4.23 19769 4.16 24159 22.21 76.33 (II) Profession tax 11756 18017 53.26 19471 8.07 20413 4.84 23483 14.04 32947 40.3 180.3 (III) Advertisement Tax 1527 1885 23.44 2216 17.56 2889 30.37 4365 51.09 4242 -2.82 177.8 (iv) Ent: & Add: Ent: Tax 81746 81059 -0.84 90033 11.07 97357 8.13 11401 17.11 11788 3.4 44.21 (vi)l Show tax & surcharge on ST 521 341 -34.55 377 10.56 337 -10.61 509 51.04 389 -23.58 -25.34 (vi) Land conversion 202 180 -10.89 (vii)Timbertax 391 177 -54.73 281 58.76 126 -55.16 93 -26.19 97 4.3 -75.19

(viii)Tax on animals & vehlcles 1 2 100.00 Total 232958 249079 6.92 294470 18.22 31092 5.59 34036 9.47 39734 16.74 70.56

309

Annexure 3.7 -5 PERCENTAGE INCREASE OF OWN REVENUE OVER PREVIOUS YEAR (MUN CORPORATIONS)

(Rs in Thousands)

Item 1993-94 1994-95 % 1995-96 % 1996-97 % 1997-98 % 1998-99 % % Over 1. Direct Tax 232958 249079 6.92 294470 18.22 310926 5.59 340361 9.47 397340 16.74 70.6 2. Assigned Tax 69063 58138 -15.82 125677 116.17 72881 -42.01 94554 29.74 120457 27.39 74.4 3. Shared Tax 10000 50000 400 40000 -20 30000 -25 26300 -12.33 37500 42.59 275 4. Licence Fees 16003 16431 2.67 30364 84.8 34817 14.67 35097 0.8 38783 10.5 142.3 5. Registration Fees 67 220 228.36 217 -1.36 263 21.2 373 41.83 339 -9.12 406 6.Gate Fees 4542 7545 66.12 7446 -1.31 9436 26.73 12911 36.83 11898 -7.85 162 7. User Charges 21881 27740 26.78 30447 9.76 32981 8.32 38229 12.88 39065 4.93 78.5 8. Other Sources 34198 41815 22.27 31552 -24.54 38614 22.38 64164 66.17 38144 -40.55 11.5 9. General Purpose Grant 3181 3017 -5.16 3014 0..00 3017 0..00 3017 0..00 3017 0..00 -5.2 10. Specific Purpose Grant 4710 7082 50.36 6799 -4 8842 30.05 5104 -42.28 1350 -73.55 -71.3 Total 396603 461067 16.25 569989 23.62 541777 -4.95 619110 14.27 687893 11.11 73.4

Annexure 3.7 -6

SHARE OF TAXES IN TOTAL OWN REVENUE (MUN CORPORATIONS)

Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 AM PTOR AM PTOR AM PTOR AM PTOR AM PTOR AM PTOR (I) Property & service Tax 137017 34.55 174600 32.01 182092 31.95 189803 35.03 197693 31.93 241597 35.12 (M) Prolesslon tax 11756 2.96 18017 3.91 19471 3.42 20413 3.77 23483 3.79 32947 4.79 (IN) Advertisement Tax 1527 0.39 1885 0.41 2216 0.39 2889 0.53 4365 0.71 4242 0.62 (iv) Ent: 8 Add: Ent: Tax 81746 20.61 81059 17.58 90033 15.8 97357 17.97 114014 18.42 117888 17.14 (v) Show tax & S C on ST 521 0.13 341 0.07 377 0.07 337 0.06 509 0.08 389 0.06 (vi) Land conversion 0..00 0..00 0..00 0..00 202 0.03 180 0.03 (vii) Timbertax 391 0.1 177 0.04 281 0.05 126 0.02 93 0.02 97 0.01 (viii) Tax on animals & vehicles 0..00 0 0..00 1 0..00 2 0..00 0..00 Total (Direct Tax) 232958 58.74 249079 54.02 294470 51.66 310926 57.39 340361 54.98 397340 57.76 OWN REVENUE 396603 100 461067 100 569989 100 541777 100 619110 100 687893 100

AM - Amount in Rs Thousand PTOH - Percentage of Total Own Hevenue

Annexure 3.7 -7 SHARE OF ITEMS UNDER OWN REVENUE (MUN. CORPORATIONS)

Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 AM POR AM POR AM POR AM POR AM POR AM POR 1. Direct Tax 232958 58.74 249079 54.02 294470 51.66 310926 57.39 340361 54.98 397340 57.76 2. Assigned Tax 69063 17.41 58138 12.61 125677 22.05 72881 13.45 94554 15.27 120457 17.51 3. Shared Tax 10000 2.52 50000 10.84 40000 7.02 30000 5.54 26300 4.25 37500 5.45 4. Licence Fees 16003 4.04 16431 3.56 30364 5.33 34817 6.43 35097 5.67 38783 5.64 5. Registration Fees 67 0.02 220 0.05 217 0.04 263 0.05 373 0.06 339 0.05 6.Gate Fees 4542 1.15 7545 1.64 7446 1.31 9436 1.74 12911 2.09 11898 1.73 7. User Charges 21881 5.52 27740 6.02 30447 5.34 32981 6.09 38229 6.01 39065 5.68 8. Other Sources 34198 8.62 41815 9.07 31552 5.54 38614 7.13 64164 10.36 38144 5.55

310

9. General Purpose Grant 3181 0.8 3017 0.65 3014 0.53 3017 0.56 3017 0.49 3017 0.44 10. Specific Purpose Grant 4710 1.09. 7082 1.54 6799 1.19 8842 1.63 5104 0.82 1350 0.2 Total 396603 100 461067 100 569989 100 541777 100 619110 100 687893 100

AM - Amount in Rs Thousand POR - Percentage on Own Revenue

Annexure 3.7-8 TOTAL EXPENDITURE OF MUNICIPAL CORPORATIONS 1993-94 TO 1998-99

(Excluding expenditure under People’s Plan Campaign) Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 Amount PTE Amount PTE Amount PTE Amount PTE Amount PTE Amount PTE I. GENERAL ACCOUNT 260.85 62.13 265454 47.58 328938 52.38 376970 52.93 412640 53.05 435910 48.82 1. Management & Collection 42447 10.13 50363 9.03 604593 9.63 67554 9.48 73394 9.44 83731 9.38 (1) Salary /Honararium etc Office 1290 0.31 580 0.1 1210 0.19 2507 0.35 2471 0.32 3235 0.36 (2) Establilshment Cost of Secretaries & Staff 32213 7.69 39428 7.07 45628 7.27 49428 6.94 55124 7.09 64526 7.23 (3) Other expenses 8944 2.13 10355 1.86 13621 2.17 15619 2.19 15799 2.03 15970 1.79 2. Public Work 61604 14..70 53078 9.51 56747 9.04 77498 10.88 83569 10.74 91439 10.24 (1) Establishment charge 16398 3.91 19130 3.43 20804 3.31. 26168 3.67 34238 4.4 33514 3.75 (2) Maintanance of Roads.Bridges ,Park& Gardens 38313 9.14 29820 58.34 33320 5.31 48184 6.76 45177 5.81 49096 5.5 (3) Contigenies 6893 1.64 4128 0.74 2623 0.42 31146 0.44 4154 0.53 8829 0.99 3.(a) Town Planning 2986 0.71 2830 0.51 5452 0.87 4262 0.6 5446 0.7 6892 0.77 (1) Establishment charge 2657 0.63 2663 0.48 3414 0.54 3882 0.55 5000 0.64 5231 0.59 (2) Other Charges 329 0.08 167 0.03 2037 0.32 377 0.05 446 0.06 1661 0.19 3.(b) Land Development 315 0.08 32 0.01 667 0.11 692 0.1 174 0.02 1457 0.16 (1)Town survey establishment cost 30 0.01 7 0..00 644 0.1 657 0.09 17 0..00 22 0..00 (2) Other Charges 258 0.07 25 0..00 23 0..00 35 0..00 157 0.02 1435 0.16 4. Education & Culture 930 0.22 1084 0.19 1426 0.23 1260 0.18 1732 0.22 2728 0.31 (1) Establishment charge 701 0.17. 851 0.15 807 0.13 787 0.11 1082 0.14 1026 0.11 (2) Other Charges 229 0.05 230 0.04 619 0..10 473 0.07 650 0.08 1702 0.19 5. Water Supply 5759 1.37 19708 3.53 43660 6.95 26293 3.69 37688 4.85 42883 4.8 (1) Establishment cost 188 0.04 0 0 745 0.12 744 0.1 555 0.07 705 0.08 (2) Maintanace 50 0.01 15007 2.69 31666 5.04 18401 2.58 29593 3.8 31410 3.52 (3) Other Petty Works 5521 1.32 4701 0.84 11249 1.79 7148 1 7540 0.97 10768 1.21 6. Public Health 120689 28.8 112549 20.17 126053 20.07 166633 23.39 164081 21..10 160925 18.02 (1) Establishment charge 99588 23.76 87559 15.69 99805 15.89 114214 16.04 133906 17.22 128665 14.41 (2) Operational Cost 18275 4.36 24465 4.38 25219 4.02 27624 3.88 29203 3.75 30851 3.45 (3) Maintanance Charge 210 0.05 109 0.02 95 0.02 151 0.02 158 0.02 503 0.06 (4) Other Charges 2616 0.62 419 0.08 934 0.15 24644 3.46 814 0.1 906 0.1 7. Street Lighthing 16997 4.06 16388 2.94 26645 4.24 15718 2.21 28190 3.62 17162 1.92 (1) Establishment charge 84 0.02 50 0.01 128 0.02 71 0.01 73 0.01 49 0.01 (2) Current Charge 16685 3.98 15243 2.73 18621 2.96 15282 2.15 17872 2.3 15363 1.72 (3) Other Charges 228 0.05 1095 0.2 7896 1.26 365 0.05 10245 1.32 1750 0..20 8. Municipal Properties 2930 0.7 5281 0.95 3996 0.64 4464 0.63 11261 1.45 7902 0.88 (1) Establishment charge 68 0.02 546 0.1 369 0.1 274 0.04 119 0.02 99 0.01 (2) Maintanance 2862 0.68 4735 0.85 3357 0.53 4190 0.59 11142 1.43 7803 0.87 9. Other Expenditure 5728 1.37 2013 0.36 1502 0.24 2047 0.29 5784 0.74 19401 2.17 (1) Audit Fee 0 0..00 397 0.07 490 0.08 0 0..00 4322 0.56 506 0.06 (2) Interest on borrowings' 5728 1.37 1616 0.29 1012 0.16 2047 0.29 1462 0.19 18895 2.12 10 . Extra Ordinray Items 0 0..00 2131 0.38 2332 0.37 10549 1.48 1321 0.17 1390 0.16 (1) Reception to important 0 0..00 20 0..00 0 0..00 412 0.06 0 0..00 349 0.04 (2) Grants, Awards etc 0 0..00 2111 0.38 2332 0.37 10137 1.42 1321 0.17 1041 0.12 II CAPITAL ACCOUNT 100146 23.89 177281 31.77 177936 28.33 216179 30.35 249533 32.08 320731 35.92 1. Management 18371 4.38 20322 3.64 27556 4.39 39694 5.57 36987 4.76 25176 2.82 2. Loan Repayment 3916 0.93 6187 1.11 5352 0..85 5664 0.80. 5272 0.68 2697 0.3 3. Plan Schemes 45458 10.85 205817 18.97 78676 12.53 84068 11.8 117402 15.09 223492 25.03

311

(a) Communication 30222 7.21 78514 14.02 41993 6.69 63038 8.85 89749 11.54 92667 10.38 (b) Town Improvement 8778 2.09 19334 3.47 26585 4.23 12371 1.74 20412 2.62 94302 10.56 Govt.Sponsered Programmes 0..00 0..00 0..00 0..00 0..00 0..00 (a) Town Improvement Scheme 0 0..00 0 0..000 7900 1.26 3693 0.52 4267 0.55 33403 3.74 (b) Poverty Allevation 6458 1.54 2869 1.48 2198 0.35 4966 0.7 2974 0.38 3120 0.35 4. Education 2674 0.64 1353 0.24 4970 0.79 1313 0.18 2653 0.34 5338 0.6 5. Water Supply &drainage 19319 4.61 26795 4..80 41341 6.58 45121 6.33 49970 6.42 43516 4.87

(a) New water supply schemes 0 0..00 724 0.13 478 0.08 439 0.06 1610 0.21 1738 0.19 (b) Deposits to water authority 160 0.05 118 0.02 9387 1.49 97 0.01 119 0.02 0 0..00 (c) Surface Darinage 19129 4.56 25953 4.65 31476 5.01 44585 6.26 48241 6.2 41778 4.68 6. Public Health 835 0.2 7729 1.39 10068 1.6 16075 2.26 19203 2.47 3895 0.44 (a) Building &Vehicles,equipment 835 0.2 5538 0.99 9538 1.52 7711 1.08 13073 1.68 3160 0.35 (b) Solid Waste Management 0 0..00 2191 0.39 530 0.08 8364 1.07 6130 0.79 735 0.08 7. Street Lighthing 9573 2.28 9075 1.63 8828 1.41 24244 3.4 18045 2.32 16617 1.86 8. Endowment and Investments 0 0..00 3 0..00 1145 0.18 0 0..00 1 0..00 0 0..00 III. DEBT HEADS 58583 13.98 115224 20.65 121162 19.29 119119 16.72 115590 14.86 136337 15.27 (1) Refund of Deposit 5301 1.26 14146 3.08 6120 0.97 3197 0.45 1945 0.25 18105 2.03 (2) Advance Recoverd 13027 3.11 28687 4.96 24010 3.82 31906 4.48 23396 3.01 21475 2.4 (3) PF/Pension fund 28034 6.69 51459 9.22 62853 10.01 54256 7.62 616642 7.93 72086 8.07 (4) Sinking Fund 561 0.13 2652 0.48 72 0.01 0 0..00 43 0.01 128 0.01 (5) Library Cess 382 0.09 500 0.09 800 0.13 700 0.1 1000 0.13 0 0..00 (6) Sales Tax 653 0.16 1274 0.23 2315 0.37 4410 0.62 5189 0.67 4322 0.48 (7) Others 10625 2.54 14476 2.59 24992 3.98. 24650 3.46 22355 2.87 20221 2.26 TOTAL 419114 100 557959 100 628036 100 712268 100 777763 100 892978 100

Annexure 3.7-9

PERCAPITA EXPENDITURE OF MUNICIPAL CORPORATIONS

Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

Amount PC Amount PC Amount PC Amount PC Amount PC Amount PC

I. GENERAL ACCOUNT 260.85 168.46 265454 170.35 328938 209.38 376970 238.01 412640 258.41 435910 270.77

1. Management & Collection 42447 27.46 50363 32.32 604593 38.48 67554 42.65 73394 45.96 83731 25.01

(1) Salary /Honararium etc Office 1290 0.83 580 0.37 1210 0.77 2507 1.58 2471 1.55 3235 2.01

(2) Establilshment Cost of

Secretaries & Staff 32213 20.84 39428 25.3 45628 29.04 49428 31.21 55124 34.52 64526 40.08

(3) Other expenses 8944 5.79 10355 6.65 13621 8.67 15619 9.86 15799 9.89 15970 9.92

2. Public Work 61604 39.86 53078 34.06 56747 36.12 77498 48.93 83569 52.33 91439 56.8

(1) Establishment charge 16398 10.61 19130 12.28 20804 13.24 26168 16.52 34238 21.44 33514 20.82

(2) Maintanance of

Roads.Bridges,Park& Gardens 38313 24.76 29820 19.14 33320 21.21 48184 30.42 45177 28.29 49096 30.5

(3) Contigenies 6893 4.46 4128 2.65 2623 1.67 31146 1.99 4154 2.6 8829 5.48

3.(a) Town Planning 2986 1.93 2830 1.82 5452 3.47 4262 2.69 5446 3.41 6892 4.28

(1) Establishment charge 2657 1.72 2663 1.71 3414 2.17 3882 2.45 5000 3.13 5231 3.25

(2) Other Charges 329 0.21 167 0.11 2037 1.3 377 0.24 446 0.28 1661 1.03

3.(b) Land Development 315 0.2 32 0.02 667 0.42 692 0.44 174 0.11 1457 0.91

(1)Town survey establishment cost 30 0.02 7 0..00 644 0.41 657 0.41 17 0.01 22 0.01

(2) Other Charges 258 0.18 25 0.02 23 0.01 35 0.02 157 0.1 1435 0.89

4. Education & Culture 930 0.6 1084 0.69 1426 0.91 1260 0..80 1732 1.08 2728 1.69

(1) Establishment charge 701 0.45 851 0.55 807 0.51 787 0..50 1082 0.68 1026 0.64

(2) Other Charges 229 0.15 230 0.15 619 0.39 473 0..30 650 0.41 1702 1.06

5. Water Supply 5759 3.73 19708 12.65 43660 27.79 26293 16.6 37688 23.6 42883 26.64

312

(1) Establishment cost 188 0.12 0 0..00 745 0.47 744 0.47 555 0.35 705 0.44

(2) Maintanace 50 0.03 15007 9.63 31666 20.16 18401 11.62 29593 18.53 31410 19.51

(3) Other Petty Works 5521 3.57 4701 3.02 11249 7.16 7148 4.51 7540 4.72 10768 6.69

6. Public Health 120689 78.08 112549 72.23 126053 80.24 166633 105.21 164081 102.76 160925 99.96

(1) Establishment charge 99588 64.43 87559 56.19 99805 63.53 114214 72.11 133906 83.86 128665 79.92

(2) Operational Cost 18275 11.82 24465 15.7 25219 16.05 27624 17.44 29203 18.29 30851 19.16

(3) Maintanance Charge 210 0.14 109 0.07 95 0.06 151 0.1 158 0..10 503 0.31

(4) Other Charges 2616 1.69 419 0.27 934 0.59 24644 15.56 814 0.51 906 0.56

7. Street Lighthing 16997 11..00 16388 10.52 26645 16.96 15718 9.92 28190 17.65 17162 10.66

(1) Establishment charge 84 0.05 50 0.03 128 0.08 71 0.04 73 0.05 49 0.03

(2) Current Charge 16685 10.79 15243 9.78 18621 11.85 15282 9.65 17872 11.19 15363 9.54

(3) Other Charges 228 0.15 1095 0.7 7896 5.03 365 0.23 10245 6.42 1750 1.09

8. Municipal Properties 2930 1.9 5281 3.39 3996 2.54 4464 2.82 11261 7.05 7902 4.91

(1) Establishment charge 68 0.04 546 0.35 369 0.41 274 0.17 119 0.07 99 0.06

(2) Maintanance 2862 1.85 4735 3.04 3357 2.14 4190 2.65 11142 6.98 7803 4.85

9. Other Expenditure 5728 3.71 2013 1.29 1502 0.96 2047 1.29 5784 3.62 19401 12.05

(1) Audit Fee 0 0..00 397 0.25 490 0.31 0 0..00 4322 2.71 506 0.31

(2) Interest on borrowings' 5728 3.71 1616 1.04 1012 0.64 2047 1.29 1462 0.92 18895 11.74

10 . Extra Ordinray Items 0 0..00 2131 1.37 2332 1.48 10549 6.66 1321 0.83 1390 0.86

(1) Reception to important 0 0..00 20 0.01 0 0..00 412 0.26 0 0..00 349 0.22

(2) Grants, Awards etc 0 0..00 2111 1.35 2332 1.48 10137 6.4 1321 0.83 1041 0.65

II CAPITAL ACCOUNT 100146 64.79 177281 113.77 177936 113.26 216179 136.49 249533 156.27 320731 199.23

1. Management 18371 11.89 20322 13.04 27556 17.54 39694 25.06 36987 23.16 25176 15.64

2. Loan Repayment 3916 2.53 6187 3.97 5352 3.41 5664 3.58 5272 3.3 2697 1.68

3. Plan Schemes 45458 29.41 205817 67.91 78676 50.08 84068 53.08 117402 73.52 223492 138.83

(a) Communication 30222 19.55 78514 50.19 41993 26.73 63038 39.8 89749 56.21 92667 57.56

(b) Town Improvement 8778 5.68 19334 12.41 26585 16.92 12371 7.81 20412 12.78 94302 58.58

Govt.Sponsered Programmes 0..00 0..00 0..00 0..00 0..00 0..00

(a) Town Improvement Scheme 0 0..00 0 0..000 7900 5.03 3693 2.33 4267 2.67 33403 20.75

(b) Poverty Allevation 6458 4.18 2869 5.31 2198 1..40 4966 3.14 2974 1.86 3120 1.94

4. Education 2674 1.73 1353 0.87 4970 3.16 1313 0.83 2653 1.66 5338 3.32

5. Water Supply &drainage 19319 12.5 26795 17.2 41341 26.31 45121 28.49 49970 31.29 43516 27.03

(a) New water supply schemes 0 0..00 724 0.46 478 0.3 439 0.28 1610 1.01 1738 1.08

(b) Deposits to water authority 160 0.12 118 0.08 9387 5.98 97 0.06 119 0.07 0 0..00

(c) Surface Darinage 19129 12.38 25953 16.65 31476 20.04 44585 28.15 48241 30.21 41778 25.95

6. Public Health 835 0.54 7729 4.96 10068 6.41 16075 10.15 19203 12.03 3895 2.42

(a) Building &Vehicles,equipment 835 0.54 5538 3.55 9538 6.07 7711 4.87 13073 8.19 3160 1.96

(b) Solid Waste Management 0 0..00 2191 1.41 530 0.34 8364 5.28 6130 3.84 735 0.46

7. Street Lighthing 9573 6.19 9075 5.82 8828 5.62 24244 15.31 18045 11.3 16617 10.23

8. Endowment and Investments 0 0..00 3 0..00 1145 0.73 0 0..00 1 0..00 0 0..00

III. DEBT HEADS 58583 37.9 115224 73.94 121162 77.12 119119 75.21 115590 72.39 136337 84.69

(1) Refund of Deposit 5301 3.43 14146 11.02 6120 3.9 3197 2.02 1945 1.22 18105 11.25

(2) Advance Recoverd 13027 8.43 28687 17.77 24010 15.28 31906 20.14 23396 14.65 21475 13.34

(3) PF/Pension fund 28034 18.14 51459 33.02 62853 40.01 54256 34.26 616642 38.62 72086 44.78

(4) Sinking Fund 561 0.36 2652 1.7 72 0.05 0 0..00 43 0.03 128 0.08

313

(5) Library Cess 382 0.25 500 0.32 800 0.51 700 0.44 1000 0.63 0 0..00

(6) Sales Tax 653 0.42 1274 0.82 2315 1.47 4410 2.78 5189 3.25 4322 2.68

(7) Others 10625 6.87 14476 9.29 24992 15.91 24650 15.56 22355 14..00 20221 12.56

TOTAL 419114 271.15 557959 358.06 628036 399.76 712268 449.7 777763 487.07 892978 554.69

Annexure 3.7 -10

Total receipts and expenditure of Municipal Corporations at a glance

(Rs in lakhs) Receipt 1993-94 1 994- 1995-96 1996-97 1997-98 1998-99 A. General Account 4053.46 4635.89 5851.88 5659.36 6224.25 6952.31 B. Capital Account 66.92 436.95 347.44 2245.53 1098.45 743.94

Total (A+B ) 4120.38 5072.84 6199.32 7904.89 7322.70 7696.25 C. Debt Head 498.48 689.16 779.22 774.05 1038.91 1346.79

Total (A + B + C) 4618.86 5762.00 6978.54 8678.94 8361.61 9043.04 Expenditure A. General Account 2603.85 2654.54 3289.38 3769.70 4126.40 4359.10 B. Capital Account 1001.46 1772.81 1779.36 2161.79 2495.33 3207.31

Total (A+B ) 3605.31 4427.35 5068.74 5931.49 6621.73 7566.41 C. Debt Head 585.83 1152.24 1211.62 1191.19 1155.90 1363.37

Total (A + B + C) 4191.14 5579.59 6280.36 7122.68 7777.63 8929.78

Closing balance 427.72 182.41 698.18 1556.26 583.98 113.26

314

Annexure 4. I

DETAILS OF TRANSFER OF INSTITUTIONS AND STAFF TO LSGIs

A. Institutions and posts transferred to Grama Panchavats

1. Agriculture Department

Krishi Bhavans of the respective places.

2. Animal Husbandry Department Veterinary sub-centre, Veterinary Dispensary/Hospitals of respective places

3. Dairy Development Department One Dairy Extension Officer and Auxiliary posts (this unit should be transferred to one of the Grama Panchayats in the Block and this should cover all the Grama Panchayats in the block).

4. Fisheries Department One Fisheries Sub Inspector (in the Grama Panchayat wherever necessary)

5. Rural Development Department Two Village Extension Officer posts (including lady V.E.O) (if it is not possible to deploy two posts for a Grama Panchayat from a Rural Development Block one post can be deployed for the present and additional post can be deployed as and when necessary subject to availability)

6. Social Welfare Department Day care centres and Anganwadis of the respective places.

7. S.C. Development Department Balawadies, Balawady-cum-feeding centre, seasonal day care centre and dormitories of the respective places.

8. Tribal Development Department Balawadies, Medical unit, Nursery schools, Midwifery centres & Ayurvedic dispensaries of the respective places.

9. Health Services Department (Allopathy) Primary Health Centres and Government Dispensaries

10.Health Department (Indian System of Medicine)

Government Ayurvedic Dispansaries and Hospitals of the respective places.

11.Health Department (Homoeo) Government Homoeo Dispensaries and Hospitals of the respective places.

12.General Education Department Government Lower Primary Schools of the respective places.

13.Public Works Department One Public Works Overseer post (this post should be given to a Grama Panchayat in which there are no engineering posts and the incumbent should work in three similar Grama Panchayats.

315

B. Institutions and Posts transferred to Block Panchavats.

1. Agriculture Department

One post of Assistant Director and

Auxiliary posts

2. Industries Department One post of Industries Extension Officer.

3. Rural Development Department

The post of Block Development Officer

and other posts of Block Development

Office.

4. Social Welfare Department Care Homes, Old-age Homes and similar

respective places.

5. S.C. Development Department (1) Pre-matric Hostels of the respective

places.

(2) The post of Block Extension Officer

(his services should be made available to

all Grama Pnchayats in the Block

6. ST Development Department Tribal Extension Officer (his services

should be made available to all Grama

Panchayats in the Block)

7. Health Services Department(Allopathy) Block level Primary Health

Centre/Community Health Centre,

Taluk Hospitals/Government Hospitals.

8. Health Department (Indian System of

Medicine)

Taluk Hospitals of the respective

places.

9. Health Department (Homoeo) Taluk Hospitals of the respective places

316

C. Institutions and posts transferred to District Panchavats

1. Agriculture Department

(i) Two posts of Deputy Director and auxiliary posts. (ii) The post of District Soil Conservation officer and auxiliary posts. (iii)One Assistant Executive Engineer and connected posts. (iv) Soil Testing Laboratory of the respective places. (v) Mobile Soil Testing Laboratory. (vi)District Sales Counter (vii) District Agriculture Farm/Coconut nursery (These institutions which are transferred to District Panchayat should serve other districts also where such institutions do not exist).

2. Animal Husbandry Department

Veterinary Polyclinic, ICDP area office, Mobile Veterinary Dispensary, Mobile Farm Unit, Clinical Laboratories not attached to District Veterinary Centres, (the services of mobile units and clinical laboratories should be extended to urban areas also)

3. Fisheries Department

The fisheries Schools of respective places.

4. Minor Irrigation Department

One section consisting of one Assistant Engineer and connected staff.

5. Industries Department From the District Industries Centre, one Manager post and connected staff

6. Rural Development Department

One post of Assistant Development Commissioner and the District Women's Welfare Officer and Auxiliary staff.

7. General Education Department

(i) The Upper Primary Schools and High Schools of the respective places. (ii) One Section from the Deputy Director's Office.

8. Technical Education Department

(i) Tailoring and Garment making Training Centre of the respective places. (ii) Tailoring Trade Centres of the respective places.

9.Co-operation Department

One post of Assistant Registrar and one post of Clerk.

10. Public WorksDepartment

One division consisting of Executive Engineer and auxiliary staff, (from among Local Works Division, Special Division, Building Division)

Now all the District level officers have been transferred to the District Panchayats along with staff. District Hospitals arealso with the District Panchayats

NB. Through follow-up government orders, majority of beneficiary oriented welfare and development schemes were transferred to the PRIs. Of special interest is the fact all the centrally-sponsored anti-poverty programmes including SGSY, IAY, and EAS have been fully transferred to them. Likewise all the pension/social assistance Schemes - for the Destitutes and Old aged, Handicapped, Widows, Agriculture Labourers, Unemployed are implemented by the Village Panchayats.

317

D. Institutions and posts transferred to Municipal Councils/Municipal Corporations

1. Agriculture Department

(i) Krishi Bhavans of respective places. (ii) One post of Deputy Director of Agriculture, (this post should be under the Municipality of District headquarters but his services should be extended to all Municipalities of the District).

2. Animal Husbandry Department

The Veterinary Polyclinie, Sub-centre. Dispensary of the respective places

3. Fisheries Department

One post of Fisheries Sub Inspector, (to the Municipalities wherever necessary)

4. Industries Department

One post of Industries Extension Officer.

5. Health Services Department (Allopathy)

Community Health Centres, Government Hospitals, Taluk Hospitals of the respective places.

6. Health Department (Indian System of Medicine)

Taluk Hospitals of the respective places.

7. Health Department (Homoeo)

Taluk Hospitals of the respective places.

8. General Educalion Department

Government Primary Schools and High Schools of the respective places.

9. Co-operative Department

One post of Senior Co-operative Inspector (this post should be under the Municipal Council of District Head Quarters and the concered officer will attend to tha works in all the Municipalities of the District.)

318

Annexure 4.2.1 PHYSICAL ACHIEVEMENT OF THE PROJECTS EXECUTED BY THE

PANCHAYATS UNDER PEOPLE'S PLAN CAMPAIGN

ltem Village Panchyat Block Panchayat District Panchayat 1997-98 1998-99 1999-2000 1997-98 1998-99 1999- 1997-98 1998-99 1999-2000 Fallow land made cultivable(in

hectres)

1500214.738 91948.859 70324 12045.9 15956.76 18093.35 2725 9320.277 5239.53

No.of new tractors in agriculture 1166 539 732 10 91 5 6 20 2 No. of new trillers for agnculture 209 25 S 822 74 64 48 11 32 3 No. of calves distributed 48414 27017 16217 3 1 60 835 463 1622 0 No.of lambs distributed 1053 84 27550. 178 1 1892 6408 441 840 188 119 0 No. of chiks distributed 1064028 228223 175715 12269 1600 280f 15467 804. I 5500 No. of cattle sheds constructed 19657.99 22477 27879 2052 361 153 284 1201 600 No.of tailoring machines distributed 26728 13031 2959 4323 516 209.7 575 74 1 No of industrial units stalled 2464.85 3529 2018 724.4047 720 348 69 349 99 No. of persons newly employed in

industrial

9774 16193 12321 3481 4073 3859 610 340 421

No. of house-sites provided Tor

weaker sections

3273 3458 4406 92S 1338.27 1436 114 1 165 497

No. of houses constructed for

weaker sections

3495 1 37017 904 1 3 8834 13408 34068 7987 7970 62197

No. of houses of weaker sections

repaired

31189.96 20201 3 1 555 4860 1729 1879 2008 120 822

No.of toilets constructed 114294.3 89179 100217 11849.62 9865 8659 3052 294 340 No. of houses electrified 31232 25825 -24516 4774 1133 2459 626 46 0 No.of wells newly constructed 21636 22366 25097 2546 1585 1868 694 0 91 No. of new street taps installed 6673 7252 7931 1165 715 1719 607 210 843 No.of private taps installed 4034 1658 2375 308 107 175 16 0 15 No.of street lights installed 19670 1 35 81 42471 386 1515 211 693 23 39 No.of tanks renovated 4796 2309 1660 109.73 176 16 36 4 No.of pump sets installed 15261 16541 16573.00 2082 558 216 96 16 20 Length of new roads constructed (a) Earthern Roads

319

(I) 8 metres wide 47890.15 37696.963 52332 6739.85 8608.52 4230.76 3085.31 61 104.55

(ii) 6 to 8 metres wide 71738.903 101178.16 63095 1482.17 5314.91 5509.68 2657.83 895.715 2117.8 (iii) less than 6 metres wide 155221.205 120720.36 2812661.00 5799.02 3123.08 3198.92 8587.8 102.691 5.6

(b) Metalled Road (I) 8 metres wide 50899 55317.432 32075 848.19 3729.76 1335.39 3124.2 2753.2 17472 (ii) 6 to 8 metres wide 80481.94 86742.408 72607 52.35.27 6546.53 1861.48 995.69 143.61 1.01 (iii) less than 6 metres wide 88568.971 74H43.774 11105.83 5563 577.64 371.8 23218 30.02 5910

(c) Tarred Roads (I) 8 metres wide 43059.41 140131.49 63 1 73 12645.2 13353 14747.71 872.79 14515.7 345.48 (ii) 6 to 8 metres wide 104653.612 121529.54 172892 5876.51 10534.65 7821.1 534.9 289.98 41.6 (iii) Less than 6 metres wide 124699.883 139311.75 141308 6669.56 2833.88 1549.31 213151 287.755 18974.24 No. of new culverts constructed 5921.415 1355.928 1279 255 432 355 61 31200.5 48 No. of bridges constructed 339 601.05 416 27 57 7 89 26 No. of Institutions registered under

charitable

249.25 52 186 23 73 22 0 52 0

Plinth Area of School Building

constructed 13755.13 24395.06 26761 7328.55 14183.17 17870.69 22137.51 0 7812.08

No. of Annanavadi Buildings

constructed

2091 729 1830 115 325 134 23 77198.81 54

Plinth Area of Hospital Building

constructed

28985.06 66067.53 38113 106868.87 7200.04 19416.39 339.49 58 2846

Plinth Area of Office Building

constructed

10642.21 36039.02 225419 6005.42 13429.7 20668.5 4986 917 2951.8

Plinth Area of Marketting Complex

constructed

92135.52 11417.95 44558 149.5 3252.52 1450.52 0 12187 600

Area of land acquired (in Hectres) 6992.5711 2322.7751 10412 .666 199.43 23470.54 79.85 3.23 2189.61 3.2

320

Details of physical achievements under Peoples' Plan Compaign (Municipalities) 1997-98 Total 1998-99 Total 1999-2000 Total SI

No Items GS SCP TSP Total GS SCP TSP Total GS SCP TSP Total I Fallow land made cultivable (in hectres) 1860 252 0 2112 109 4 0 1141 154 49 0 1592 Distribution of Seedings (Number of beneficiaries) 137874 7203 50 14512 59750 438 10 64140 3445 1 105 10 35566

3 Distribution of Fertilizers/Insecticides (Numberof beneficiaries) 43558 2803 62 46423 15327 474 15 15816 34818 677 2 35516

4 No of new tractors for agriculture 11 0 0 11 4 0 0 4 4 0 0 4 5 No. of new trillers for agriculture 7 1 0 8 9 0 0 9 18 1 0 19 6 No. of coconut trees cut and removed due lo

disease (Financial assistance given only) 35823 1757 30 37610 17064 1921 43 19028 16593 572 14 17179 7 No. of calves distributed 2624 1068 1 3693 787 690 6 1483 631 195 0 826 8 No of lambs distributed 7347 1664 12 9023 458 245 0 703 296 90 0 386 9 No. of chiks distributed 100581 14177 6 114764 31888 2546 24 34458 11105 485 0 11590

10 No. of cattle pound constructed 1204 245 0 1449 1744 239 0 1983 1069 65 0 1134 11 No. of tailoring machines distributed 1071 1205 0 2276 217 30 0 247 155 10 0 165 12 No. of industrial units started 6461 39 0 6500 301 32 334 245 29 0 274 13 No of persons newly employed in industrial units 777 202 12 991 1746 315 14 2075 842 63 1 906 14 No.of house-sites provided for weaker sections 119 138 8 265 248 151 59 453 355 295 35 685 15 No. of houses constructed for weaker sections 2006 1905 91 4002 4150 1995 14 6159 9218 2795 23 12036 16 No.of houses of weaker sections repaired 1760 1710 27 3497 3386 771 34 4191 5279 1597 10 6886 17 No. of toilets constructed 3853 4288 42 8183 4556 956 27 5539 5878 1112 25 7015 18 No. of houses electrified 968 2355 14 3337 2227 819 13 3059 1898 760 6 2664 19 No of smokeless chulas distributed 5808 601 0 6409 493 75 0 568 409 52 0 461 20 No. of wells newly constructed 705 200 1 906 1249 203 14 1466 1847 327 0 2174 21 No of new street taps installed 595 111 4 710 793 47 2 842 1876 2Q 0 1914 22 No. of private taps installed 122 31 0 153 342 167 0 509 610 55 0 665 23 No. of street lights installed 1563 90 0 1653 2614 125 0 2739 3801 220 10 4031 24 No. of tanks renovated 39 11 0 48 133 3 1 137 94 33 1 128 25 No.of pump sets installed 572 51 0 623 693 56 0 749 1022 42 1 1065 26 (ii) 6 to 8 metres wide 3702 7 1 3710 1084 17 1 1102 3107 2 1 3110 27 (I) 8 metres wide 42 9 1 52 37 6 1 44 350 14 0 364 28 (iii) less than 6 metres wide 4135 5 0 4140 262 0 0 262 1852 741 0 2593 29 (I) 8 metres wide 31 9 0 40 23 5 0 28 884 10 0 894 30 (ii) 6 to 8 metres wide 37 17 0 54 170 3 0 173 20 1 0 21 31 (iii) less than 6 metres wide 25397 669 0 26066 2883 1189 0 4072 3804 507 0 4311

321

32 (I) 8 metres wide 26 3 0 29 31 6 0 37 33 4 0 37 33 (ii) 6 to 8 metres wide 213 1 0 214 25 3 0 28 168 0 0 168 34 (iii) less than 6 metres wide 2720 144 0 2864 4327 1106 1 5434 4409 142 0 4551 35 No. of new culverts constructed 62 2 0 64 38 3 0 41 41 2 0 43 36 No of bridges constructed 2 0 0 2 3 1 0 4 5 1 0 6 37 No. of Co-operative Societies for which

financial assistance rendered 24 3 1 28 24 6 1 31 18 5 1 24 38 No. of Institutions registered under charitable 7 3 0 10 5 3 0 8 9 1 0 10 39 Plinth Area of School Building constructed (plinth 3898 0 2 3900 6705 0 0 6705 5671 0 0 5671 40 No. of Anganavadi Buildings constructed 60 3 0 63 43 4 0 47 195 2 0 197 41 Plinth Area of Hospital Building constructed

including extension (in sq.m.) 2984 0 0 2984 4096 0 0 4096 9645 0 0 9645 42 Plinth Area of Office Building constructed including 200 0 0 200 3274 0 0 3274 5220 8000 0 13220 43 Plinth Area of Marketting Complex

constructed in sq m) 0 0 0 0 5382 0 0 5382 9225 0 0 9225 44 Area of land acquired (in Hectres) 81 48 0 129 185 0 0 185 122 72 0 194

Details of Physical achivements under People’s Plan Campaign (Corporations) Annexure 4.2.3

1997-98 Total 1998-99 Total 1999-00 Total Sl.No Items GS SCP TSP Total GS SCP TSP Total GS SCP TSP Total

1 Fallow land made cultivable (in hectres) 0 0 0 0 0 0 0 0 0 0 0 0

2 Distribution of Seedings (Number of beneficiaries) 38042 1600 0 39642 4822 1650 0 6472 10580 3350 1650 15580

3 Distribution of Fertilizers/Insecticides (Numberof beneficiaries) 0 0 0 0 0 0 0 0 0 0 0 0

4 No of new tractors for agriculture 0 0 0 0 0 0 0 0 0 0 0 0 5 No. of new trillers for agriculture 0 0 0 0 0 0 0 0 0 0 0 0

6 No. of coconut trees cut and removed due to disease (Financial assistance given only) 0 0 0 0 0 0 0 0 0 0 0 0

7 No. of calves distributed 129 0 0 129 144 0 0 144 149 35 0 184 8 No of lambs distributed 983 0 0 983 1230 0 0 1230 5830 2360 0 8190 9 No. of chiks distributed 44835 0 0 44835 31570 0 0 31570 8080 0 0 8080

10 No. of cattle pound constructed 90 0 0 90 298 0 0 598 166 0 0 169 11 No. of tailoring machines distributed 590 0 0 785 0 0 0 0 209 0 0 209 12 No. of industrial units started 0 180 15 0 1 0 0 1 78 0 0 78 13 No of persons newly employed in industrial 0 0 0 0 90 17 1 90 267 0 0 267

322

units

14 No.of house-sites provided for weaker sections 0 0 0 51 0 454 0 18 0 22 0 27

15 No. of houses constructed for weaker sections 413 51 0 886 2041 393 2 2495 1776 251 0 2028

16 No.of houses of weaker sections repaired 228 468 5 411 2100 428 3 2495 2340 435 0 2780 17 No. of toilets constructed 1485 173 10 2188 1307 48 1 1738 1198 350 0 1550 18 No. of houses electrified 540 683 20 611 183 0 0 232 0 41 0 41 19 No of smokeless chulas distributed 1375 71 0 1397 0 33 0 0 0 0 0 0 20 No. of wells newly constructed 19 20 2 19 40 0 0 73 15 5 0 20 21 No of new street taps installed 0 0 0 0 27 150 20 27 0 0 0 0 22 No. of private taps installed 968 0 0 1200 810 0 0 980 40 0 0 40 23 No. of street lights installed 750 230 2 750 744 0 0 744 131 0 0 131 24 No. of tanks renovated 0 0 0 0 0 0 0 0 0 0 0 0 25 No.of pump sets installed 340 0 0 340 0 0 0 0 0 0 0 0 26 (ii) 6 to 8 metres wide 0 0 0 0 0 0 0 0 1800 0 0 1800 27 (I) 8 metres wide 0 0 0 0 0 0 0 0 0 0 0 0 28 (iii) less than 6 metres wide 6 0 0 6 0 0 0 0 0 0 0 0 29 (I) 8 metres wide 0 0 0 0 0 0 0 0 800 0 0 800 30 (ii) 6 to 8 metres wide 0 0 0 0 0 0 0 0 0 0 0 0 31 (iii) less than 6 metres wide 4824 0 0 4824 4643 0 0 4643 976 0 0 976 32 (I) 8 metres wide 0 0 0 0 265 0 0 265 7462 0 0 7462 33 (ii) 6 to 8 metres wide 7260 0 0 7260 5385 0 0 5385 2775 0 0 2775 34 (iii) less than 6 metres wide 33198 0 0 33198 22873 0 0 22873 5219 0 0 5219 35 No. of new culverts constructed 12 0 0 12 10 0 0 10 11 0 0 11 36 No of bridges constructed 0 0 0 0 0 0 0 0 0 0 0 0

37 No. of Co-operative Societies for which financial assistance rendered 14 1 0 15 3 0 0 3 38 0 4 42

38 No. of Institutions registered under charitable societies act 0 0 0 0 0 0 0 0 0 0 0 0

39

Plinth Area of School Building constructed (plinth area in sq.m.)

816 0 0 816 546 0 0 546 4380 0 0 4380 40 No. of Anganavadi Buildings constructed 37 0 0 37 6 0 0 6 4 0 0 4

41 Plinth Area of Hospital Building constructed including extension (in sq.m.) 300 0 0 300 0 0 0 0 200 0 0 200

42 Plinth Area of Office Building constructed including extension (in sq.m) 1000 0 0 1000 0 0 0 0 0 0 0 0

43 Plinth Area of Marketing Complex constructed in sq.m) 0 0 0 0 520 0 0 520 287 0 0 287

323

44 Area of land acquired (in Hectres) 4 0 0 4 5 0 0 5 3 0 0 3

324

Annexure 4.3

FUNCTIONS OF LOCAL SELF GOVERNMENT INSTITUTIONS

1. VILLAGE PANCHAYAIS

A. Mandatory functions of Village Panchayats

1. Regulation of building construction. 2.Protection of public land from encroachment 3.Protection of traditional drinking water sources. 4. Preservation of ponds and other water bodies 5. Maintenance of water-ways and canals under their charge 6. Collection and disposal of solid waste and control of liquid waste disposal. 7. Storm water drainage 8. Maintenance of environmental hygiene 9. Management of markets 10. Vector control 11. Regulation of slaughtering of animals and sale of meat, fish and other

perishable food items. 12. Regulation of eating establishments 13. Prevention oj food adulteration, 14. Maintenance of roads and other public assets 15. Street lighting and their maintenance. 16. Immunization 17. Carrying into effect national and State level strategies and

programmes for disease prevention and control. 18. Opening and maintenance of burial and burning grounds. 19. Licensing of dangerous and offensive trades 20. Registration of births and deaths. 21. Provide bathing and washing ghats 22. Providing ferries, 23. Provide parking space for vehicles 24. Provide waiting-sheds for travelers 25. Provide toilet facilities in public places 26. Regulate conduct of fairs and festivals. 27. Licensing of pet dogs and destroying strav dogs.

B. General functions

1. Collection and updating of essential statistics. 2. Organising voluntary labour and contribution for community works. 3. Carrying out campaigns for thrift. 4. A warencss building on control of social evils like drinking, consumption of

narcotics, dowry and abuse of women and children. 5. Ensuring maximum people's participation in all stages of development. 6. Organising relief during natural calamities. 7. Inculcating environmental awareness and motivating local action

for environmental npgradalion. 8. Promoting co-operatives. 9. Enhancing communal harmony. 10. Mobilizing local resources in cash and in kind, including free surrender of

land for development purposes. 11. Spreading legal awareness among the weaker sections. 12. Campaigning against economic crimes 13. Organising neighbourhood groups and self-help groups with focus on the

poor. 14. Awareness building on civic duties

325

Sector-wise distribution o responsibilities

I. AGRICULTURE 1. Bring into cultivation waste lands and marginal lands 2. Bring ahoiit an optimum utilisation of land 3. Soil conservation 4. Production of organic manure. 5. Establishment of nurseries. 6. Promotion of co-operative and group farming. 7. Organising self-help groups among cultivators 8. Promotion of horticulture and vegetable cultivation, 9. Fodder development 10. Plant protection. 11. Seed production 12. Farm mechanisation. 13. Management of Krishi Bhavans.

II. ANIMAL HUSBANDRY AND DAIRY

1. Cattle improvement programmes. 2. Dairy farming. 3. Poultry farming, bee keeping, piggery development, goat rearing,

rabbit rearing. 4. Running or veterinary dispensaries. 5. Running of 1C DP suh-centres. 6. Preventive health programmes for animals 7. Prevention of cruelty to animals. 8. Fertility improvement programmes. 9. Control of diseases of animal origin.

III. MINOR IRRIGATION All minor irrigation schemes within the area of a Village Panchayal.

1. All micro irrigation schemes. 2. Water conservation.

IV. FISHERIES

1. Development of fisheries in ponds and fresh water and brackish water fish culture, mari culure.

2. Fish seed production and distribution. 3. Distribution of fishing implements. 4. Fish marketing assistance. 5. Provision of basic minimum services for the families of fishermen 6. Welfare schemes for fishermen.

V. SOCIAL FORESTRY /. Raising of fodder, fuel and fruit trees 2. Organising campaigns for tree planting and environmental awareness. 3. Afforestation of waste lands.

VI. SMALL SCALE INDUSTRIES /. Promotion of cottage and village industries 2. Promotion of handicrafts

326

3. Promotion of traditional and mini industries

VII. HOUSING 1. Identification of homeless people and poramboke dwellers and

provide house sites and houses. 2. Implementation of rural housing programmes. 3. Implementation of shelter upgradation programmes.

VIII. WATER SUPPLY 1. Running oj water supply schemes covering one village panchayat. 2. Setting iiji of water supply schemes covering one village

panchnyat.

IX. ELECTRICITY AND ENERGY

/. Street lighting 2. Promotion of bio-gas.

X. EDUCATION /. Management of Government pre-primary schools and Government primary schools. 2. Literacy programme's.

XL PUBLIC WORKS /. Construction and maintenance of village roads within the village panchayat, 2. Construction of buildings for institutions transferred.

XII. PUBLIC HEALTH AND SANITATION /. Management oj dispensaries and primary health centres and sub-centres (in all systems ofmedicine). 2. Management of child welfare centres and maternity homes. 3. Immttnisation and other preventive measures. 4. Family Welfare 5. Sanitation.

XIII. SOCIAL WELFARE /. Running of anganwadies. 2. Sanctioning and distribution of pensions to destitute, widows, handicapped and agricultural labourers. 3. Sanctioning and distribution of unemployment assistance, 4. Sanctioning of assistance for marriage of the daughters of widows. 5. Management of group insurance scheme for the poor.

XIV. POVERTY ALLEVIATION /. Identification of the poor. 2. Self employment and group employment schemes for the poor especially women. 3. Providing community assets of continuing benefit to the poor.

XV. SCHEDULED CASTES AND SCHEDULED TRIBES DEVELOPMENT

1. Beneficiarv oriented schemes under SCP and TSP. 2. Management oj nursery school for Scheduled Castes and

Scheduled Tribes. 3. Provision of basic amenities in Scheduled Castes and Scheduled

Tribes habitats. 4. Assistance to Scheduled Castes and Scheduled Tribes students.

327

5. Discretionary assistance to Scheduled Castes and Scheduled Tribes in need.

XVI. SPORTS AND CULTURAL AFFAIRS Construction of play grounds.

XVII. PUBLIC DISTRIBUTION SYSTEM /. Examination of complaints against the public distribution

system and taking oj remedial measures. 2. Organisation of campaigns against weights and measures offences. 3. General supervision and guidance of ration shops and maveli

stores and other public distribution centres and if necessary starting new public distribution centres.

XVIII. NATURAL CALAMITIES RELIEF /. Management of relief centres 2. Organisation of relief works 3. (Repair works to assets will he divided and carried out by the Panchayat in charge of the assets)

XIX. CO-OPERATIVES /. Organisation of co-operatives within the jurisdiction of the Panchayat. 2. Payment oj Government grams and subsidies within the jurisdiction.

II. BLOCK PANCHAYA IS

A. General functions of Block Panchayats 1. Pool technical expertise both Government and non-government at

the Block level. 2. Provide technical services to Village Panchavats. 3. Prepare plans after taking into account the plans of Village

Panchayat to avoid duplication and provide the backward and forward linkages.

B. Sector-wise distribution of responsibilities.

1 AGRICULTURE 1. Faemers' training for the programmes implemented at the village

level. 2. Arrangements of agricultural inputs required for schemes at the

village level. 3. Condiict of agricultural exhibitions. 4. Integrated watershed management in watersheds falling within

Block Panchayat area. 5. Mobilize agricultural credit. 6. Sericulture.

II. ANIMAL HUSBANDRY AND DAIRY

/. Running of Veterinary Polyclinics and Regional Artificial Insemination Centres. 2. Provide specialily services in Animal Husbandry.

328

3. Conduct cattle and poultry shows.

III. MINOR IRRIGATION

All lift irrigation schemes and minor irrigation schemes covering more than one village Panchayat.

IV. FISHERIES Development of traditional landing centres.

V. SMALL SCALE INDUSTRIES 1. Selling up of mini industrial estates. 2. Promotion of industries with investment limit of one-third of SSI. 3. Self employment schemes in industrial sector.

VI. HOUSING 1. Popularisation of low cost housing. 2. Promotion of housing co-operative soeielies.

VII. ELECTRICITY AND ENERGY Promotion of non-conventional energy sources.

VIII. EDUCATION Management of Industrial Training Institutes.

IX. PUBLIC WORKS 1. Construction and maintenance of all village roads

connecting more than one Village Panchayal and other District Roads within the block Panehayat.

2. Construction of buildings for institutions transferred.

X. PUBLIC HEALTH AND SANITATION Management of community health centres and taluk hospitals within the Bloek Panehayat area in all systems ol medicine.

XI. SOCIAL WELFARE Management of ICDS.

XII. POVERTY ALLEVIATION 1. Planning and implementation of Employment

Assurance Schemes in eo-ordination with the Village Panehayats.

2. Skill upgradalion of the poor for self employment and wage employment for people below poverty line.

XIII. SCHEDULED CASTES AND SCHEDULED TRIBES DEVELOPMENT

1. Management of pre-matric hostels. 2. Promoting Scheduled Castes and Scheduled Tribes Co-operatives.

XIV. CO-OPERATIVES 1. Organisation of co-operatives within

the jurisdiction of Block Panchayat. 2. Payment of Government grants and subsidies within the jurisdiction.

III. DISTRICT PANCHAYATS

329

A. General functions of District Panchayats

1. Mobile the technical expertise available from government and non-government institutions.

2. Provide technical service to the Block Panehayats and Village Panchayats and the Municipalities, 3. Prepare plans after taking into account the plans of (he Village Panehayats and Block Panehayats lo avoid duplication and to provide backward and forward linkage.

B. Sector-wise distribution of responsibilities

AGRICULTURE 1. Running of agricultural farms other than regional farms and

research centres and establishment of new farms. 2. Integrated watershed management in watersheds covering more

than one Block Panehayat area. 3. Provision of agricultural inputs. 4. Soil lesting. 5. Pest control. 6. Marketing of agricultural produce. 7. Cultivation of ornamental plants. 8. Promotion of agricultural co-operatives. 9. Promotion of commercial crops. 10. Biotechnology applications. 11. Field trials and pilot projects to popularise innovation. 12. Locally appropriate research and development.

ANIMAL HUSHANDRY AND DAIRY 1. Management of district level veterinary hospitals and laboratories. 2. Management of dairy extension service units. 3. Promotion of milk co-operatives. 4. Management of farms oilier than regional farms, breeding farms and research centres. 5. District level training. 6. Implementation of disease prevention programmes.

7. Field trials and pilot projects on innovative practces. 8. Locally relevant research and development.

MINOR IRRIGATION 1. Development of ground water resources. 2. Construction and maintenance of minor irrigation schemes

covering more than one Block Panchayat 3. Command area development.

FISHERIES 1. Arrangements for marketing offish. 2. Management of Fish Farm Development Agency. 3. Management of district level hatcheries, net making units, lish

markets, feed mills, ice plants and cold storages. 4. Management of fisheries schools. 5. Introduction of new technologies. 6. Provide inputs required for fishermen. 7. Promotion of fishermen's co-operatives.

330

SMALL SCALE INDUSTRIES

1. Management of District Industries Centre. 2. Promotion of small scale industries. 3. Selling up of industrial estates. 4. Arranging exhibitions for sale of products. 5. Entrepreneur development programmes. 6. Marketing of products. 7. Training. 8. Input service and common facility centres. 9. Industrial development credit planning.

I. HOUSING 1. Housing complex and infrastructure development. 2. Mobilizing housing finance.

II. WATER SUPPLY 1. Running of water supply schemes covering more than one Village Panchayat. 2. Taking up of water supply schemes covering more than one Village Panchayat.

III. ELECTRICITY AND ENERGY 1. Taking up of micro-hydcl projects. 2, Determining priority areas for extension of electricity.

[V. EDUCATION 1. Management of Government high schools (including LP section and

UP section attached to high schools)

2. Management of Government higher secondary schools. 3. Management of Government technical schools. 4. Management of vocational training centres and polytechnics. 5. Management of vocational Higher Secondary schools. 6. Management of District Institute for Education and Training. 7. Co-ordinate centrally and Stale sponsored programmes related to education.

V. PUBLIC WORKS

1. Construction and maintenance of all district roads other than State Highways, National Highways and Major District Roads.

2. Construction of buildings for institutions transferred.

VI PUBLIC HEALTH AND SANITATION !. Management of district hospital in all systems of medicine. 2. Selling up of centres lor care of special categories of disabled and mentally ill people. 3. Co-ordination of centrally and State Sponsored programme at the district level.

VII. SOCIAL WELFARE

I' Payment of grants to orphanages.

331

2. Shilling of welfare institutions for the disabled, destitutes etc.

VIII POVERTY ALLEVIATION Providing infrastructure for self-employment programmes.

IX. SCHEDULED CASTES AND SCHEDULED TRIBES

DEVELOPMENT

1. Management of post matric hostels. 2. Management of vocational training centres for Scheduled Castes and Scheduled Tribes.

X. SPORTS AND CULTURAL AFFAIRS

Construction of stadiums.

XI. CO-OPERATIVES

1. Organisation of co-operatives within the jurisdiction of District

Panchayats.

2. Payment of Government grants and subsidies toco-operatives within

the jurisdiction."

IV. MUNICIPALITIES AND MUNICPAL CORPORATIONS

A. Mandatory functions of Municipalities

1. Regulation of building construction 2. Protection of public land from encroachment 3. Protection of traditional drinking water sources 4. Preservation of ponds and other water

bodies 5. Maintenance of water-ways and canals under their charge 6. Collection and disposal of solid waste and control of liquid waste

disposal 7. Storm water drainage 8. Maintenance of environmental hygiene 9. Management of markets 10. Vector control 11. Regulation of slaughtering of animals and sale of meat, fish and

other perishable food items 12. Regulation of eating establishments 13. Prevention of food adulteration 14. Maintenance of roads and other public assets 15. Street lighting and their maintenance 16. Immunisation 17. Carrying into effect national and State-level strategies and

programmes for disease prevention and control 18. Opening and maintenance of burial and burning grounds 19. Licensing of dangerous and offensive trades and industries 20. Registration of births and deaths 21. Provide bathing and washing ghats 22. Provision of ferries 23. Provide parking space for vehicles 24. Provide waiting-sheds for travellers

332

25. Provide toilel facilities in public places 26. Regulate conduct of fairs and festivals 27. Licensing of pet dogs and destroying stray dogs 28. Provision of basic minimum service in slums 29. Amenities for pedestrians including foot path and road crossing

facilities 30. Preparation of detailed town plans and action,plan for,phased

implementation

B. GENERAL FUNCTIONS

1. Collection and updating of essential statistics 2. Organising voluntary labour and contribution for community works 3. Carrying out campaigns for thrift 4. Awareness building on control of social evils like drinking,

consumption of narcotics, dowry and abuse of women and children

5. Ensuring maximum people's participation in all

stages of development 6. Organising relief during natural calamities 7. Including environmental awareness and motivating local action

for environmental upgradation . 8. Promoting co-operatives 9. Enhancing communal harmony 10. Mobilising local resources in cash and in kind, including free

surrender of land for development purposes 11. Spreading legal awareness among the weaker sections 12. Campaigning against economic crimes 13. Organising neighborhood groups and self-help groups with focus

on the poor. 14. Awareness building on civic duties

XV. C . SECTOR-WISE DISTRIBUTION OF RESPONSIBILITIES

XII AGRICULTURE 1. Bring into cultivation wastelands and marginal lands 2. Bring about an optimum utilisation of land 3. Soil conservation 4. Production of organic manure 5. Establishment of nurseries 6. Promotion of co-operative and group farming 7. Organising self-help groups among cultivators 8. Promotion of horticulture and vegetable cultivation 9. Fodder development 10. Plant protection 11. Seed production 12. Farm mechanisation 13. Management of Krishi Bhavans. 14. Conduct of agricultural exhibitions

XIII. ANIMAL HUSBANDRY AND DAIRY 1. Cattle improvement programmes 2. Dairy farming 3. Poultry farming, bee keeping, piggery development, goat rearing, rabbit rearing, 4. Running or veterinary dispensaries 5. Running of ICDP sub-centres 6. Preventive health programmes for animals 7. Prevention of cruelty to animals 8. Fertility improvement programmes

333

9. Control of diseases of animal origin 10. Running of veterinary poly clinics and Regional Artificial Insemination Centres 11. Provide speciality services in animal husbandry 12. Conduct cattle and poultry shows

XIV MINOR IRRIGATION I. All minor irrigation and lit't schemes within the area of a Municipality 2. All micro irrigation schemes 3. Water conservation 4.Development of ground waster resources IV. FISHERIES

334

1. Development of fisheries in ponds and fresh waster and brackish waster fish culture

2. Fish seed production and distribution 3. Distribution of fishing implements 4. Fish marketing assistance 5. Provision of basic minimum services for the families of fishermen 6. Welfare schemes for fishermen 7. Development of traditional landing centres 8. Management of fisheries schools

V.SOCIAL FORESTRY 1. Raising of fodder, fuel and fruit trees 2. Organising campaigns for tree planting and environmental awareness 3. Afforestation of waste lands

VI. SMALL SCALE INDUSTRIES

1. Promotion of cottage and village industries 2. Promotion of handicrafts 3. Promotion of traditional and mini industries 4. Setting up of mini industrial estates 5. Promotion of industries with investment limit of one-third of SSI 6. Self employment schemes in industrial sector 7. Promotion of small scale industries 8. Entrepreneur development programmes

VII. HOUSING 1. Identification of homeless people and porambokc dwellers and provide

house sites and houses

2. Implementation of rural housing programmes

3. Implementation of shelter upgradation programmes

4. Popularisation of low cost housing

5. Promotion of housing co-operative societies

6. Housing complex and infrastructure development

7. Mobilising housing finance

VIII. WATER SUPPLY 1. Running of water supply schemes covering one Municipality 2. Setting up of water supply schemes covering one Municipality

IX. ELECTRICITY AND ENERGY 1. Street lighting 2. Promotion of bio-gas 3. Promotion of nonconventional energy sources

335

V. EDUCATION

1. Management of Government pre-primary schools. Government primary

schools and Government High Schools.

2. Literacy programmes

3. Management of Industrial Training Institutes in the municipal area

4. Management of Government higher secondary schools in the municipal area

5. Management of Government technical schools in the municipal area

6. Management of vocational training centres and poly technics in the municipal

area

7. Management of vocational higher secondary schools in the municipal area

XL PUBLIC WORKS

I. Construction and maintenance of roads within the Municipality other

than National Highways. State Highways and Major Districts Roads

2. Construction of buildings for institutions including those got

transferred from Government

XII.PUBLIC HEALTH AND SANITATION 1. Management of dispensaries and .primary health centres and sub-centres

in all systems of medicine)

2. Management of child welfare centres and maternity homes

3. Immunisation and other preventive measures

4. Family welfare

5. Sanitation

6 Management of community health centres and taluk hospitals within the

municipal area in all systems of medicine

XIII. SOCIAL WELFARE 1. Running of anganwadies

2. Sanctioning and distribution of pensions to destitutes, widows,

handicapped and agricultural

labourers

3. Sanctioning and distribution of unemployment assistance

4. Sanctioning of assistance for marriage of the daughters of widows

5. Management of group insurance scheme for the poor

336

6. Payment of grants to orphanages

7. Staring of welfare institutions for the disabled,.destitutes, clc. XIV. POVERTY ALLEVIATION 1. Identification of the poor 2. Self employment and group employment schemes for the poor especially women 3. Providing community assets of continuing benefit to the poor 4. Sill upgradation of the poor for self employment and wage employment

for people below poverty line 5. Providing infrastructure for self-employment programmes XV. SCHEDULED CASES AND SCHEDULED TRIBES DEVELOPMENT

1. Beneficiary oriented schemes under SCP and TSP

2. Management of nursery school for Scheduled Castes and Scheduled

Tribes

3. Provision of basic amenities in Scheduled Castes and Scheduled Tribes

4. Assistant to Scheduled castes and Scheduled Tribes Students

5. Discretionary assistance to Scheduled Castes and Scheduled

Tribes in need

6. Management or pre-matric hostels in the municipal area

7. Promoting Scheduled Castes and Scheduled Tribes co-opcralives

8. Management of post matrie hostels in the municipal area

9. Management of vocational training centres for Scheduled Castes and

Scheduled Tribes in the municipal area

XVI. SPORTS AND CULTURAL AFFAIRS I Construction of play grounds and stadiums

XVII. PUBLIC DISTRIBUTION SYSTEM 1 Examination of complaints against the public distribution system

and taking of remedial measures 2 Organisation of campaigns against weights and measures offences 3 General supervision and guidance of rational shops and maveli

stores and other public distribution centres and if necessary starting new public distribution centres

XVIII. NATURAL CALAMITIES RELIEF 1. Management of relief centres 2. Organisation of relief works (Repair works to assets will be divided and

carried out by the Municipality in charge of the assets)

XIX.CO-OPERA TIVES 1. Organisation of co-operatives within the jurisdiction of the Municipality 2. Payment of Government grants and subsidies within the jurisdiction.

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Annexure 5.1

Status of implementation of the recommendations of the First SFC

1) Relating to Devolution of Funds

RECOMMENDATION STATUS OF IMPLEMENTATION I . Basic Tax rates to be doubled and the

additional amount distributed among the District Panchayats and Block Panchayats in the ratio 3:2. The Urban Local Bodies (ULBs) to be eligible for Basic Tax grant. Also minimum land tax to be fixed at Rs.5/- in Rural areas, Rs.7.50 in Municipalities and Rs.10/- in Corporations.

All these recommendations accepted and implemented except the one on minimum rates. Urban Local Bodies have not yet been-given their share of the Basic Tax grant.

Village Road Maintenance Grant to be merged with Vehicle Tax Compensation and 25% of the net collection of Motor Vehicle Tax to be fixed as share of Village Panchayats and ULBs.

Reduced amount of 20% of net collection of Motor Vehicles Tax accepted and implemented in full.

2 3 Building exemption fee to be shared

equally with local governments.

Though accepted, the recommendation has become infructuous with Government doing away with giving exemptions from Building Rules.

4 Building Tax to be assigned to Village Panchayats and Municipalities.

Accepted but not yet operationalised. Amendment to the Building Tax Act is necessary.

5 25% of income from sale of Court Fee Stamps to be earmarked to the LSGIs.

Accepted but not yet operationalised.

6 25% of funds for centrally sponsored anti-poverty programmes to be at the disposal of LSGIs.

Accepted. The entire funds are given to the LSGIs.

7 One per cent of State Revenues to be distributed among urban and rural pools.

Not accepted.

8 Maintenance grants calculated at current replacement cost and suitably scaled up for price escalation to be given to LSGIs.

Not accepted.

9 50% of trie maintenance cost to be sought from Government of India.

The II11 Finance Commission'has not agreed to it.

10. 5% (if the Central revenues to go to LSGIs.

The 1llh Finance Commission has not agreed to it. Share of LSGIs has been fixed at about 3 % of Central revenues.

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2) Relating to augmentation of resource mobilization by LSGIs

1 . Cable TV Operators to be liable for annual licence fee as well as Entertainment Tax Accepted - not operationalised.

2. Central Government buildings to be -brought under Property Tax with Government of India's consent.

This has been rejected by the 11th Finance Commission.

3. District Panchayat to levy one per cent of tax on sale price of immovable properties where the sale price is more than Rs.25,000/-

First accepted, then rejected.

4 The Library Cess collected by local governments to be used for improving infrastructure of educational institutions.

Not accepted.

5 Service Tax to become an independent tax.

Accepted. The modified rules for Village Panchayats yet to be issued. (Under consideration gf the Subject Committee). For ULBs no change has been initiated.

6 Two per cent penal interest to be charged on delayed payment.

Implemented.

7 Profession Tax to be uniform for urban and rural areas to be unified and new slabs to be notified.

Implemented. New slabs notified only for Village Panchayats but not for ULBs.

8 Slab rates of Profession Tax to be notified for self employed professionals like Doctors, Lawyers, Accountants etc.

Accepted - not yet operationalised. Amendment to the Rules required.

9 Government to fix minimum Advertisement Tax rates.

Accepted - Amendments to the Acts brought about. Rules and byelaws yet t be issued.

10 Licence Fees to be enhanced. Only minimum licence fee to be specified.

Implemented for most of the items. Bu the principle of fixing the minimum alone has not been

11 . Municipalities and Village Panchayats to collect daily fee from persons using road poromboke without conferring any right on these persons.

The matter is being examined by Government,

12 Local Development Fund to be created. Accepted - but not operationalised. (More or less infructuous now.)

13 Power of attorneys to be registered and this Stamp Duty given to local governments

Examined by Government and rejectee

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3) Relating to rationalization of fiscal systems of LSGIs.

a) General points.

I . Government to revert to the old system of automatic credit of surcharge of Stamp duty to local governments.

Implemented.

2. LSGI to decide on utilization of non-plan grants. Implemented.

3. Formula based allocation for CFC grant and Rural and Urban Pool. K5% of CFC grant to be earmarked for Village Panchayats and the remaining 15% distributed among Block & District Panchayats in the ratio 3:2. Plan funds and other grants to be distributed with 90% wcightage for population and 10% for area.

Implemented with a simplified formula.

4. Additional Entertainment Tax and Entertainment Tax to be merged into a single tax.

Implemented.

5. Show tax and surcharge on Show tax to be merged into one. Implemented.

.6. Enabling provision for levying Entertainment Tax based on seating capacity.

Enabling provision introduced in the Entertainment Tax Act but Rules not yet framed.

7. Heads of office to furnish details of employees to Village Panehayats and ULBs.

Implemented.

. 8. Land Cess to be abolished if tax on sale of property is introduced.

Land Cess has been abolished but tax on sale of property has not been introduced.

. 9. Minimum land value to be fixed in consultation with local governments. Accepted - but not yet finalised.

10. Urban Pool and Rural Pool to be created. Rural pool created;

11. Increase in ceiling rate of surcharge to be brought down from 5 to 4%

Accepted- not implemented.

12. All local governments to do tax mapping and go in for unique premises numbering.

Accepted. But operational instructions not issued.

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b) Rationalisation of Property Tax. 1. Unauthorised buildings to be

brought under the Property Tax net.

Legal provision brought into the Panchayat Raj Act. Rules not prepared.

2. Minimum Property Tax to be fixed.

Necessary modifications have been made in the Kerala Municipality Act 1994. Enabling provision brought into the KPR Act but Rules not yet amended.

3. Prescribe time limit for revisions and appeals.

4. Round off annual and half yearly payment of tax to nearest rupee.

Introduced into the Panchayat Raj Act and enabling provision is there in the Municipality Act for which rules are to be framed.

Implemented.

5. Residential buildings to be

charged property tax based on plinth area with rebates of 10% for buildings below 25 years and 20% for those above 25 years and with a surcharge of 25% for rented buildings.

Buildings less than 20 sq. metres with mud walls and thatched roof to be exempted from payment of tax.

For commercial properties the system of assessment based on rental value to continue with rebate of 10% for owner occupied commercial building.

The Acts have been amended to introduce plinth area based assessment for all buildings both residential and non-residential, But the Rules have not been framed.

6. Revision of Property Tax to be made

every four years. Necessary provisions made in the Kerala Municipality Act. In the case of Village Panchayats, Rules are to be amended.

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4) Miscellaneous Issues.

I. Creation of a special Cell in Finance Department.

Implemented.

2. Untied funds to taper off.

Implemented.

Expert Group to go into format of budget and /elated matters auditing and

including accounting. 4. LSGIs to be empowered to

execute Civil works without intervention of Government agency.

5. The Rural Development Board should only be a funding agency.

6. Rural Development Board and KUDFC to have soft loan windows.

The task has been entrusted to Institution-of Public Auditors of India.

Implemented as part of People's Planning Campaign.

Necessary amendments to the Act made.

Accepted - but not operationalised.

7. Kerala Water Authority to write

off arrears before 1.4.1984 and to recover arrears for the remaining period by adjustment.

Accepted. Being operationalised. Write off has not been done. Part of the arrears has been adjusted.

8.Village Panchayats and ULBs to

be empowered for fixing special kinds of lamps in streets and the responsibility for maintenance and replacement be given to willing local governments. Also energy charges to be collected on metercd basis.

Accepted. Maintenance responsibility handed over to local governments. Metering of energy consumption is to be implemented.

1. Reorganise Revenue Villages in such a way that no village falls in more than one Panchavat/ULB.

This is under examination.

2. Statutory authority to give

Annual Report to the Governor on the quantum of devolution to LSGIs.

Chief Secretary has been made the Statutory Authority.

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Annexure 6.1

Proposed Formula for Inter Se Distribution of Plan Funds

In 1998-99 the Government of Kerala transferred a total sum of Rs. 950 crores to the local bodies as plan grants. Of the total plan grants, 75.37 per cent was allocated to the general sector, 20.53 per cent as the special grants for scheduled castes and 4.10 per cent as special grants for the scheduled tribes. In the general sector, the rural local bodies were given Rs. 426 crores and urban local bodies were given Rs. 107 crores. The general sector component of grant was distributed on the basis of the following five criteria suggested by the Working Group on Evolving Formula for Inter-se Distribution of Plan Grants to Local Bodies (also see Table 3.29, Chapter 3).

1. 65 per cent of the grant was divided in proportion of the Non-SC/ST population.

2. 15 per cent of the grant was divided in proportion of the population of agricultural workers, and people engaged in livestock, fishing and forestry.

3. 5 per cent of the grant was divided in proportion of the geographical area of trie panchayat.

4. 5 per cent of the grant was divided in proportion of the area under paddy field.

5. 10 per cent of the grant was divided in the inverse proportion of the difference between own income and the highest income of any panchayat.

We have proposed inclusion of an additional criterion in the calculation of inter se distribution of plan funds. It is recommended that a part of the grant that is given on the basis of population, up to a maximum of 10 per cent of the total grant, be divided only among the panchayats that increase their own revenue over the previous year. The fund distributed by the revenue effort criterion is distributed among local bodies of a particular tier by the following formula:

ARj = (Pj.rj/Σ(Pj.rj))R where ARj is the allocation by the resource effort criterion for j local body, R is the total amount allocated by the revenue effort criterion, PJ is the population of 11th panchayat and rj is the percentage increase in own revenue of the jth panchayat with an upper limit. Set j includes only those local bodies that increased their own revenue in the previous year.

This exercise calculates the inter se distribution of plan funds for year 1998-99 for gram panchayats, municipalities and municipal corporations using the proposed formula and compares the pattern of allocation with the allocations based on the existing formula.

The concept of the revenue effort criterion and the method of computation are explained in detail in Chapter 6. It has been recommended that an upper limit be applied in the calculation of increase in own revenue (rj); all local bodies with an increase higher than the upper limit must be considered to have had an increase equal to the upper limit. This upper limit is required to avoid a skewed distribution of this grant in favour of a few local bodies that might be able to make a large increase in own revenue because of certain

343

specific circumstances.

344

As mentioned before, a lower limit of zero per cent increase is applied to the local bodies that show a reduction in their own revenue over the previous year.

It is noteworthy that the allocation by the proposed formula requires that a local body with non-SC/ST population pi must at least increase its own revenue by Σ (pi.ri)/ Σ pi (ri being the percentage increase in the own revenue with an upper and lower limit) so as to maintain its plan grant at the level of the allocation by the existing formula. This implies that not only the local bodies that do not increase their own revenue but also the local bodies that increase their own revenue by an extent lower than Σ (pi.ri)/ Σ pi would get a lower plan grant under ihe proposed arrangement. It must however be clarified that this reduction is not because these local bodies are being penalised for not increasing their revenue by the desired extent but merely because of a smaller amount of funds being allocated by the population criterion. In case of the local bodies for which the increase in Own revenue is positive but less than Σ (pi.ri)/ Σ pi the reward for increasing the own revenue is outweighed by an overall decline in the grant distributed on the basis of population. The local bodies that show a reduction in own revenue are considered to have a zero increase (and not a negative increase! in the calculation of allocation by revenue effort criterion.

The simulations in this exercise use data on 973 panchayats (out of a total of 990). 55 municipalities and 3 municipal corporations. Seventeen panchayats thai did not furnish complete data on sources of revenue and resource mobilisation had to be excluded from this exercise. It may also be noted that these simulations use data on the increase in own revenue between 1998-99 and '1997-98 for calculation of the grants given by the revenue effort criterion for 1998-99. In practice; however, the grants would be estimated using the increase in the previous year over the year before that. That is, for example, the estimation of grants for 2001-02 will be based on the increase in own revenue between 2000-01 and 1999-2000.

Gram Panchayats:

In this exercise the proposed formula was applied for estimating the allocations for 973 panchayats for which data are available for 1998-99. Table I shows the amount of plan grant for the gram panchayats for 1998-99 divided on the basis of the existing formula and on the basis of the proposed formula. In comparison with the own revenues in 1997-98, 896 panchayats registered an increase in their own revenues. Therefore, as per the proposed revenue effort criterion, 8.96 percent of the plan funds (Rs. 3582 lakhs) would have been divided only among the 896 panchayats that increased their revenue. Correspondingly, 56.04 per cent of the plan grant (Rs. 22403 lakhs) would have been divided on the basis of population criterion.

For the purpose of this exercise, we tried three levels of upper limits 011 the extent of increase in own revenue (r,): 20 per cent. 25 per cent and 30 per cent. Table 2 compares the estimated plan grants with the grants as per the existing formula. When the upper limit on increase in own revenue was assumed to be 30 per cent, a total of 835 panchayats were rewarded for

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increasing their n\\n revenue. Given the non-SC/ST populations and extent of increase of own ivu'nue of different panchayats in 1998-99. a panchayat needed to increase its

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revenue hy at least 18.1 percent Σ (pi.ri)/ Σ pi) to maintain its level of plan grants. There were 138 panchayats that did not increase their own revenues in 1998-99 hy ihis extent. This includes 77 panchayats showing a decline in the own revenue and 61 panchayats that increased the revenue hut hy less than 26.76 percent. The revision of formula lor inler-se distribution led to an increase in plan granl for S3 5 oin of 973 panchayats. The median change in the plan grants because of the revision in the formula was an increase of 0.39 lakhs. The highest increase in the plan grants was 1.21 lakhs and the highest reduction was 7.68 lakhs. In proportional terms, the highest increase in plan grants was 1.40 per cent and the highest reduction was I 1.54 per cent.

Table I Plan grants for gram panchayats distributed by the Working Group formula and the proposed formula

(Rs.Lakhs) Items Working

Group Weightage

Formula Amount

Proposed Weightage

formula Amount

Total Grant Distributed for 973 panchayats takenup for the estimation* Amount divided on the basis of: Population

65

25985.8

56.04

22403.8

Population of agricultural labour and persons engaged in forestry, livestock, Fisheries

15 5996.7 15.00 5996.7

Geographical area 5 1998.9 5.00 1998.9

Area under paddy cultivation 5 1998.9 5.00 1998.9

Panchayat's own income (inverse)

10 3997.8 10.00 3997.8

Revenue effort -- -- 8.96 3582.0 Sources: GoK 1998-99 Appendix IV. Budget for 1998-9 Notes: The lotal amount of grants used here was computed by adding the

actual grants of these 973 panchayats. From this amount Rs. 25 lakhs corresponding to the special grants given to the pilgrim centers was deducted.

The upper limits of increase in own revenue at 20 per cent and 25 per cent gave similar results. When the upper limit was kept at 20 per cent, a panchayal needed to increase its revenue by 18.1 percent to maintain its level of plan grants. As a result, plan allocations increased for 857 panchayats. When the upper limit was kept at 25 per cent, a panchayat needed to increase its revenue hy at leasi 22.45 percent to maintain its level of plan grants. In this case, plan allocations increased for 842 panchayats

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because of inclusion of a revenue effort criterion.

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Table 3. Comparison of plan grants to gram panchayats allocated by the proposed formula with the allocations by the Working Group formula lor the year 1998-99 (10 per cent allocation by revenue effort criterion)

Upper limit of increase in own revenue

Difference in plan grants

20 per cent

25 per cent

30 per-cent

Median (Rs. lakhs) 0.34 0.37 0.39 Maximum increase (Rs. lakhs) 1 .05 1.14 1.21 Maximum proportional increase (percent) 1.25 1.31 1.40 Maximum decline (Rs. lakhs) 7.68 7.68 7.68 Minimum proportional decline (percent) 11.54 1 1 .54 1 1 Coefficient of variation of per capita grants (cov for allocations by existing formula = 0.189144)

.190697 .19075 .190861

No. of panchayats with lower grants 116 131 138 Number of panchayats with increase in revenue but lower grants

39 54 61

Minimum percentage increase in own revenue for a panchayat to maintain the level of its plan grant in comparison with the existing criterion

18.10 22.45 26.76

Number of panchayats with an increase in revenue greater than the upper limit

851 838 822

It would be important to look at the characteristics of the panchayats that would have faced reduced plan grants to ensure that the resource constrained panchayats do not suffer because of the inclusion of revenue effort criterion. Table 4 gives the summary statistics for per capita own revenue of all the panchayats and the panchayats that face reduction in plan grants as a result of inclusion of the revenue effort criterion. It is clear from the table that the average own revenue of the panchayats for which the grants would have been reduced is in fact more than the average own revenue of all the panchayats. Figure I shows ihc distribution of panchayats by extent of increase in plan allocation due to inclusion of a revenue effort criterion and per capita own revenue of the panchayats. It is clear that the panchayats that face reduced grants are scattered across the spectrum of the per capita own revenue of the panchayats and do not primarily constitute the low-income panchayats.

Table 4. Per capita own revenue of the panchayats Panchayats with reduced grants when upper limit of increase in own revenue is fixed at

All panchayats

30 per cent 25 per cent 20 per cent Mean 191.85 208.48 207.66 195.05 Median 1 60.40 169.78 167.95 164.16 COV 0.66 0.73 0.75 0.63

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-9.00 -8.OO -7.00 -6.00 -5.00 -4.00 -.3.OO -2.00 -1.00 Increase in plan allocations (Rs. laklis)

Note: Based on 30 per cent upper limit on the extent of increase in own

revenue.

Urban Local Bodies:

A revenue effort criterion similar to the panehayats has also been proposed for the formula for inter se distribution of plan funds among the urban local bodies. A maximum of 10 percent of the total plan grant is to be distributed only among the municipalities and municipal corporations that show an increase in ihe own revenue over the previous year. The actual amount to be distributed by !he revenue effort criterion will he calculated as:

R= (0. l())p.n/N, where P is the total plan grant for a particular tier, n is the number of municipalities/municipal corporations showing an increase in the own revenue over the previous year, and N is the total number of municipalities/municipal corporations.

A similar exercise as done for the panehayats was also carried out for the urban local bodies to see the pattern of plan allocations for municipalities and municipal corporations for the year 1998-99.

Municipalities:

Table 5 gives the amount of grants for municipalities in year 1998-99 divided on the basis of Ihe existing formula and the proposed formula. Of the 55 municipalities, 45 municipalities increased their own revenue during

Figure I. Distribution of panchayats by extent of inerease in plan allocations and per capita own revenue

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1998-99. As a ivsnll. 8.18 per cent (-10x45/55 per cent) of the total plan grant (Rs. 581.43 lakhs) would be allocated by the revenue effort criterion.

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Table 5: Plan grants for municipalities distributed by the Working Group formula and the proposed formula

Working Group Formula Proposed Formula Weightage ' Amount

(Rupees lakhs)

Weightage Amount (Rupees lakhs)

Population( non SC/ST) 75 5340.96 66.82 4759.53 Area 5 353.40 5.00 355.40 Houses without latrines and houses without electricity

20 1421.59 20.00 14421.59

Revenue effort - 8.I8 581.43 Total 1 00 7117.9? 100.00 7 1 1 7.95

The plan grants for the municipalities were estimated with upper limit on the increase in own revenue at 10 per cent, 20 per cent, 25 per cent and 30 per cent. When the upper limit on the increase in own revenues was assumed to be at 30 per cent, the municipalities that increased their revenues more than 9.74 per cent were rewarded on account of the revenue effort criterion. This benefited a total of 30 municipalities. The plan allocations of the rest of the 25 municipalities decreased correspondingly. The municipalities that faced a reduction in plan allocation include 18 municipalities whose own revenues declined in 1Q98-99 over the previous year and 7 municipalities that increased their revenue by less than 9.74 per cent. The highest reward in plan grant of a municipality was about Rs. 29.9 lakhs. Among the municipalities that did not increase their revenue, the highest decline in plan grants was Rs. 9.98 lakhs. In proportional terms, the highest increase was 27.66 per cent and highest reduction was 9.98 per cent.

Lowering the upper limit on increase in own revenue to 25. 20 or 10 per cent reduces the reward given for increasing own revenue, and therefore the incentive to do so. The minimum increase in own revenue required to maintain the level of the plan allocation was 8.86 percent when the upper limit \\as kept at 20 percent and 9,37 percent when the upper limit vvas kept at 25 per cent. There were 15 municipalities that showed a positive increase that was smaller than the minimum required and therefore faced a reduction in plan allocation,

Table 7 shows the summary statistics of per capita own "revenue of the municipalities that would have faced a reduction in plan grant on account of the revenue effort criterion. It is clear that the municipalities whose grants were reduced had higher-than-average per capita own revenue. Figure 2 shows the diMnbution of municipalities by the extent of increase in plan allocations and per capita own revenue of the municipalities. The graph shows that the municipalities thai iaeed reduction in the plan allocations \\ere not the most resource constrained of the municipalities.

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Table 6. Comparison of plan grants to municipalities allocated by the proposed formula with the allocations by the Working Group formula for the year 1998-99 (10 per eenl allocation hy revenue effort criterion)

Upper limit of increase in own revenue

30 per cent

25 pei-cent

20 pei-cent

10 pei-cent

Difference In plan grants Median (Rs. lakhs) 1.07 1.37 1.82 3.16

Maximum increase (Rs. lakhs) 29.9 25.60 20.75 15.08

Maximum proportional increase (percent)

27.66 1 3.67 1 1.08 6.24

Maximum decline (Rs, lakhs) 39.73 39.73 39.73 39.73

Maximum proportional decline (percent) 9.98 9.98 9.98 9.98

Coefficient of variation of per capita plan grants (cov for allocations by existing formula = 0.10188}

.14014 . 1 3502 . 1 3042 . 1 1 762

No, of Municipalities with lower grants 25 25 25 17

Number of Municipalities with increase in revenue but lower grants

15 15 15 7

Minimum percentage increase in own revenue for a municipality to maintain the level of its plan grant in comparison with

9.74 9.37 8.86 6.12

Number of municipalities with an increase in revenue greater than the

0 4 9 29

Table 7. Per capita own revenue of the municipalities

Municipalities with reduced grants when upper limit of increase in own revenue is

All Municipalities

25 per cent 20 per cent 10 percent Mean 36 1 .4 369.54 369.54 411.31

Median 309.0 329.58 329.58 35 1 .95

COV .793 0.598 0.598 0.502

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Figure 2. Distribution of municipalities by extent of increase in plan allocations and per capita own revenue

Municipal Corporations: Of the three municipal corporations in the state, two corporations increased their

revenue in 1998-99 over the previous year. Therefore, allocation by the proposed formula would require that 6.67 per cent of the total plan grant (-10x2/3 per cent, 241.59 lakhs) be distributed by the revenue effort criterion onlv to these two corporations.

Table 8. Plan grants for municipal corporations distributed by the Working Group formula and the proposed formula

Working Group Formula Proposed Formula Weightage Amount (Rupees

lakhs) Weightage Amount

(Rupees lakhs)

Population(non SC/ST) 75 2716.54 68.33 2474.95 Area 5 181.10 5.00 181.10 Houses without latrines' and houses without electricity

20 724.41 20.00 724.41

Revenue effort -- - 6.67 241.59 Total 3622.05 3622.05

The increase in the own revenue of both of these corporations was about 13 per cent. Therefore, for an upper limit higher than 10 per cent, r, would have been equal to the actual increase in the own revenue of these corporations. In that case, the plan grants of these corporations would have increased by Rs. 31.1 lakhs and Rs. 39.3 lakhs. The municipal corporation showing a decline in the own revenue would have faced a decline of 70 lakhs in the plan grant. Fixing the upper limit of r, at 10 per cent changes this pattern only marginally.

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Annexure 9.1 PROPOSED RATE OF PRESUMPTIVE PROFESSION TAX IN RESPECT OF SELF EMPLOYED PERSONS EXCERSING

PROFESSION/ TRADE/ ART/CALLING

Class of Profession/Trade/Art/Callings Half yearly Tax(Rs) Panchayat/Municipality /Corporation

1 Legal practitioner(below 5 years practices) 120 2 Legal practitioner (above 5 years and Notaries) 1000 3 Private Medical practitioner of Allopathy(below 5years practices) 120 4 Private Medical practitioner of Ayurvedha (above 5years practices) 1000 5 Private Medical practitioner of Allopathy(below 5years practices) 120 6 Private Medical practitioner of Allopathy(above 5years practices) 1000 7 Private Medical practitioner of Homeothy (below 5years practices) 120 8 Private Medical practitioner of Homeothy (above 5years practices) 1000 9 Private Medical practitioner of Sidha / Unani 60

10 Person engaged in other similar Medical Professions or calling of a paramedical 120 nature (below 5 years practice) 11 Person engaged in other similar Medical Professions or Calling of a paramedical 1000 12 Private Engineer/Private Architect/Private Engineering Supervisors(below 5years 120 13 Private Engineer/Private Architect/Private Engineering Supervisors(above 5years 1000 14 Charterd Accountant (below 5 years practice) 120 15 Charterd Accountant (above 5 years practice) 1000 16 Owner/Lessess Film Producer 1250 17 Film Distributor 1000 18 Performing Artist (a) Leading Cine Artist who have at least one film in a year 1250 (b) Dramaartist/Circus performer/Magician/Dancer etc 120 19 Music Troupers 300 20 Writer/Artist who does not come under any of the categories mentioned above 300 21 Owners of Professional Drama Truopes/Dance Truopes 600 22 Holder of permit for Transport Vehicles (a) Taxi car 300 (i) Upto 2 Vehicles 60 (ii) For each Vehicle exceeding 2 Vehicles (b) Lorry truck/Bus 480 (i) Upto 2 Vehicles 100 (ii) For each Vehicle exceeding 2 Vehicles (c) Three wheelers passenger/Godds Vehicle 300 (i) Upto 2 Vehicles 60 (ii) For each Vehicle exceeding 2 Vehicles 23 Contractor (a) Taking work of Rs.10 lakhs and above in a year 1250 (b) Taking work of Rs.5 lakhs but less than Rs.10 lakhs in a year 600 (c) Taking work of 2 lakhs and above but less than 5 lakhs in a year 300 (d) Others 120 24 Tution Master (a) Professional course 240 (b) Other Academic courses 120 25 Owner of Tutorial/Parallel college/Coaching Centre 300 26 Person consducting Real Estate business 1250 27 Planter (a) Agriculturist holding land below 2 acres 120 (b) Agriculturist holding land above 2 acres 300 28 Catere/Supplier 60 29 Cable T.V Operator 300 30 Persons conducting video/audio cassette centre/photo studio/Xerox centre/DTP 300 centre/Typewriting institute/STD booth

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31 Document Writter 60 32 LIC Agent 120 33 Unit trust agent 120 34 Stock and share agent 120 35 Other Professionals not specified above 60 36 Trader/Dealer/Firm coming under the dangerous and offensive trades and factories rules Category A 1250 Category B 300 Category C 60 37 Campaies registred under Indian Companies Act engaged in Profession or Trade 1250 (those not coming undet item 35 above) 38 Banking Companies as defined in the Banking Regulation Act (Scheduled banks, 1250 their branches and other bankers, their branches) 39 (a) State level and District level Co-Operative Societies registred undet the Co-operative 1250 Socities Act and engaged in any provision trade or calling (including State Co-operative Bank, District Co-operative Banks,Urban Banks etc, and their branches (b) Other Co-operative Societies (below State and Distirct Levels) 600

PROPOSED LICENCE FEE FOR TRADERS Annexure9.2 S.232 of Kerala Panchayat Raj Act 1994 and S.447 of the Kerala Municipality Act 1994

Proposed minimum rate in panchyat

Proposed minimum rate in municipality

Proposed minimum rate in Corporation

Category Category Category Items to be classified A B C A B C A B C Areted waters-Manufactering 100 75 50 200 150 75 300 200 100 Aloe fibre and yearn-Storing,Packaging,Pressing,Cleansing, Preparing or manufacturing by any process whatsover

100 75 50 120 100 60 200 150 100

Aluminium -Manufacturing Storing, Selling 150 100 50 200 150 100 500 300 175 Ammunition- storing,Packaging,Pressing,Cleansing ,Preparing or manufacturing by any process whatsover

1000 750 500 3000 2000 1000 5000 3000 2000

Arecanuts-Soaking of 100 50 25 100 75 50 300 150 75 Articles made of flour-Baking,Preparing,Keeping, Storing for human consumption 100 75 50 200 150 100 300 200 150 (for other than domestic or sifting) Ahses storing,packing,pressing,cleaning,preparing or manufacturing by any process 75 50 25 100 75 50 150 100 75 whatever dumping or sifting Audio Cassette- Recording,storing.selling 300 200 150 300 200 150 500 300 200 Automobile oil and lubricants-Mixing ,storing,selling 300 200 150 300 200 150 500 300 200 Automobile Spare parts-Manufacturing,storing, selling 300 225 175 500 300 200 750 500 250 Automoblie tyre and tube-Manufacturing,storing,selling 400 300 200 400 300 200 600 400 250 Bamboos-Storing for sale,hire or manufacture 75 50 25 100 75 50 150 100 75 Bathis-Manufacture,storing,selling 100 75 50 125 100 75 200 150 100 Bettals-Storing,.selling 75 50 25 75 50 25 100 75 50 Battery- Manufacturing,storing,selling 300 200 100 500 300 150 600 400 200 Biscuts-Baking,preparing,keeping,or storing for human consumption(other than for domesticuse 150 100 50 450 300 150 600 400 200 Blood-Storing,packing,pressing,cleaning,preparing,or manufacturing by any process whatsoever 75 50 25 100 75 50 125 100 75 Bones-Storing,crushing,selling 350 250 150 400 300 200 600 350 250 Book- Manufacturing,storing,selling 500 300 150 500 300 150 600 400 200 Bread-Baking,preapring,keeping,storing for human consumption (other than domestic use) 150 100 50 150 100 50 150 100 50 Bricks- Manufacturing, atoring for sale 300 200 100 300 200 100 500 300 150 Beuty Parlour- Management 500 450 400 600 500 450 750 600 500 Building meterial-Manufacturing, storing,selling 300 200 100 400 250 150 750 500 200

356

Camphor -Storing,packing,pressing,cleaning,preapring or manufacturing by any process 35 25 15 75 50 24 150 100 50 whatsover or bolling Candles-Packing,pressing,cleaning,manufacturing, by any process whatsoever 75 50 25 100 70 40 150 100 50 Carpets-Manufacturing, storing for sale 150 100 75 300 200 100 500 300 150 Cashewnuts and its Kernel-Storing,packing,preparing or manufacturing by any process whatsoever 1000 500 200 1000 500 200 1500 750 300 Cattle feeds-Manufacturing,mixing,packing,storing selling 150 100 50 300 200 100 500 300 150 Cat gut-Storing, packing,pressing, cleansing,preapring 125 100 75 150 125 100 200 150 125 Cable TV Opreation 500 300 150 750 500 250 1000 750 500 Cement-Manufacturing,packing,storing 500 250 150 500 250 150 750 500 250 Charcoa-Dumping, sifting,selling or storing 150 100 50 250 150 75 300 200 100 Chemicals- Storing,packing,pressing,cleansing,preapring or manufacturing for processwhatsoever 200 125 75 250 175 100 500 200 150 Chillies,Corriamdum,Turmeric, etc-Granting by mechinary 300 250 200 300 250 200 500 300 250 Chillies,Corriamdum,Turmeric, etc-(dried)-Storing,packing,sellling (tried) 300 250 200 300 250 200 500 300 250 Clorite mixture-Storing,paking,pressing,cleansing,preparing or manufacturing by any process whatsoever 150 100 75 300 200 100 500 250 150 Cinders-Storing,packing,pressing,cleansing,preapring or manufacturing by any process whatsoever 100 75 50 100 75 50 125 100 75 Cloths- Dyeing,storing,selling 400 300 200 500 350 250 1500 1000 50 Coal-Dumping,sifting,selling or storing 150 100 50 250 125 75 300 200 100 Cocont fibre-Storing,packing,pressing,cleansing preparing or manufacturing by any process whatsoever 200 125 75 300 150 100 500 300 150 Cocont husks and cadjan leaves-soaking of 200 125 75 300 150 100 500 300 150 Coconut shells-Storing 200 150 75 300 200 100 500 300 150 Coffee- Processing, grinding,packing,storing, selling 175 150 125 200 175 150 500 300 200 Coir yarn-Storing,packing, pressing, cleansing, preparing or manufacturing by any process whatsoever 125 100 75 300 200 100 500 300 150 Combusite meterials- Storing 500 400 200 750 500 250 1000 750 500 Comsumables-Baking,Preapring,keeping ,or storing for human consumption(othet than for doemsticuse) 150 125 75 300 150 100 500 250 150 Condiments- Manufacturing 150 100 50 150 100 50 300 150 100 Confectionary-Baking,preparing,keeping, or storing for human consumption(otherthan domestic use) 300 200 100 500 300 150 750 400 200 Copra-Preparing,or storing or selling wholesale 200 125 75 300 150 100 500 300 150 Cotton,cotton refuse,cotton seed-Storing,packing,pressing,cleaning, prearing or manufacturing by any process whatsoever 400 225 125 500 300 150 750 500 200 Cow-dung cakes-Storing,packing,pressing,cleansing,prearing or manifacturing by any proces whatsoever 75 50 25 150 100 50 150 100 50

Proposed minimum rate in panchyat

Proposed minimum rate in municipality

Proposed minimum rate in Corporation

Category Category Category Items to be classified A B C A B C A B C Crockery-Manufacturing,storing,selling 300 150 100 500 300 150 750 500 250 Cutlery-Manufacturing,storing,selling 200 150 100 500 300 150 750 500 250 Cycle-Manufacturing,Assembling,storing,selllung,reparing 400 200 100 400 200 100 500 300 150 DTP Centre(including typewriting,xerox copies, institute managament)Running and Management 200 150 100 500 300 150 750 2000 250 Dry cleaning-Management 250 200 150 300 250 200 400 400 250 Dyes-Packing,pressing, cleansing,preparing or manufacturing by any process whatsoever 400 200 100 500 300 150 750 500 250 Egg-Storing,selling 400 200 100 500 300 150 750 500 250 Electrical appliances-Manufacturing, storing,selling 500 300 150 600 400 200 1000 750 250 Explosives-Storing,selling 1000 500 250 1500 1000 500 3000 2000 1000 Fast food-Preaparing or selling 300 200 100 500 300 150 600 400 200 Fibre-Selling or storing 150 125 75 200 150 100 500 300 150

357

Fat-Storing,packing,pressing,cleansing,preparing or manufacturing by any process whatsoever 200 125 75 250 150 100 300 200 150 Fire wood-Selling or storing 150 100 75 300 200 100 750 500 250 Fire works-Storing ,packing,pressing,cleansing,preparing or manufacturing by any process whatsoever 1000 500 250 1500 1000 500 3000 2000 1000 Fish-Storing ,packing,pressing,cleansing,preparing or manufacturing by any process whatsoever 150 125 75 300 200 100 500 300 150 Fish oil -Storing ,packing,pressing,cleansing,preparing or manufacturing by any process whatsoever 150 125 75 200 150 100 500 300 200 Flax-Storing ,packing,pressing,cleansing,preparing or manufacturing by any process whatsoever 150 125 75 200 150 100 500 300 200 Fileshing-Storing ,packing,pressing,cleansing,preparing or manufacturing by any process whatsoever 150 125 75 200 150 100 500 300 200 Flour -Storing ,packing,pressing,cleansing,preparing or manufacturing by any process whatsoever 250 150 100 300 200 150 500 300 200 Flowers-Storing,processing,selkling 250 150 75 300 200 100 400 250 150 Frozen food- Storing or sellling 250 1775 125 500 250 150 600 400 200 Fuel-Using for any industrial purpose 350 200 125 500 250 150 600 400 200 Fulminate of mercury- Storing,packing,cleansing,preparing or manufacturing by any process whatsoever 500 250 150 600 400 200 750 500 250 Fruits- Using for any industrial purpose 300 200 100 500 300 150 600 350 250 Furniture-Making or storing for sale or lending 300 200 100 600 400 200 750 500 250 Gas- Storing ,packing,pressing,cleansing,preparing or manufacturing by any process whatsoever 500 300 150 500 300 150 600 400 200 Ghee- Storing ,packing,pressing,cleansing,preparing or manufacturing by any process whatsoever 200 125 75 300 150 100 350 250 150 Gold-Refining,storing,selling 2000 1000 500 4000 2500 1000 5000 3000 1500 Grain- Storing,selling 300 150 100 500 300 150 600 400 200 Grass-Storing 150 100 50 200 150 100 250 200 150 Gram-Husking by mechinary 125 100 75 200 150 100 250 200 150 Grioundbut-Selling or storing 100 75 50 150 100 75 200 150 100 Gum Ctotton- Storing ,packing,pressing,cleansing,preparing or manufacturing by any process whatsoever 125 100 75 200 150 100 250 200 150 Gunny bag- Storing ,packing,pressing,cleansing,preparing or manufacturing by any process whatsoever 100 75 50 150 100 75 200 150 100 Gum powde keeping ,packing,pressing,cleansing,preparing or manufacturing by any process whatsoever 3000 2000 1000 3000 2000 1000 5000 3000 1500 Hair-Storing,packing,cleaning, preparing or manufacturing ybbbb6 sny process whatsoceevee 125 100 75 250 150 100 300 175 124 Hard ware- manufcaturing. storing.selling 600 400 200 750 500 250 1000 600 300 Hay-Selloing or storing 125 100 50 150 125 100 175 150 124 Haides- Manufacturing,storing.packing.pressing,cleansing 300 200 100 400 300 150 500 350 200 Hemp- Storing,packing,pressing, cleansing,preparing or manufacturing by any process whatsoever 200 150 100 250 200 150 400 300 200 Hoops-Storing,packing,pressing, cleansing,preparing or manufacturing by any process whatsoever 500 300 150 750 500 250 1000 600 300 Honey-Storing,selling 100 75 50 100 75 50 125 100 75 Horns-Storing,packing,pressing, cleansing,preparing or manufacturing by any process whatsoever 300 200 100 400 300 150 500 350 200 Hospitals-Running,storing,tincture,phrarmacutical items 2500 1500 750 3000 2000 100 5000 3000 1500 Ice-Manufacturing 400 200 125 500 300 150 750 400 200 Imation gold-Manufacturing, storing,selling 400 250 150 600 400 200 750 500 250 Jaggery-Storing,packing,pressing, cleansing,preparing or manufacturing by any process whatsoever 300 200 100 400 300 150 500 400 200 Jewels-Manufacturing,storing,selling 1500 1000 500 1500 1000 500 3000 2000 1000 Jute-Storing,packing,pressing, cleansing,preparing or manufacturing by any process whatsoever 150 125 75 200 150 100 250 300 150 Kakhi- Preparing 150 125 75 200 150 100 250 200 150 Lac-Storing,packing,pressing, cleansing,preparing or manufacturing by any process whatsoever 150 125 75 200 150 100 250 200 150 Lead- Melting 150 125 75 200 150 100 250 200 150 Leather-Storing,packing,pressing, cleansing,preparing or manufacturing by any process whatsoever 500 300 200 750 500 250 1000 600 300

358

Proposed minimum rate in panchyat

Proposed minimum rate in municipality

Proposed minimum rate in Corporation

Category Category Category

Items to be classified A B C A B C A B C

LIme-Storing,selling,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 75 50 25 75 50 25 100 75 50

Lime Shells-

Storing,selling,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 100 75 50 150 100 75 250 150 100

Manure-Storing,selling,packing,pressing,cleaning,preapring

or manufacturing by any process whatsoever 125 100 75 250 150 100 500 300 150

Machinary-Using for any industrial purpose 600 400 200 750 500 250 1000 750 500

Marbles-Manufacturing,storing,selling 750 500 250 800 600 300 1200 800 600

Matches-Storing,selling,packing,pressing,cleaning,preapring

or manufacturing by any process whatsoever 200 150 75 300 200 100 500 300 150

Meat-Storing,selling,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 400 200 100 500 300 150 600 400 200

Metals- Including precious metals-

beating,breaking,hammering,castig 250 150 75 350 200 150 500 400 200

Medicine- Manufacturing, storing,selling 350 250 150 400 300 200 500 350 250

Metal Crushing- Crushing,storing, selling 3000 2000 1000 3000 2000 1000 5000 3000 1500

Milk and milk product-Storing,manufacturing,selling 400 200 100 500 300 150 750 500 250

Molases-Storing,selling,packing,pressing,cleaning,preapring

,manufacturing 200 150 100 250 200 150 400 300 200

Mosaic-Manufacturing,polishing,storing,selling 750 500 200 800 600 300 1200 800 600

Motor car-Storing,selling,servicing,reapiring,paintinf 750 500 200 900 600 300 1000 800 400

Motor car electrical appliances-Manufacturing,storing,selling 300 200 100 400 300 200 500 350 250

Motor car paint and accessaries-Manufacturing,storing,

selling 300 200 100 400 300 200 500 350 250

Microphone and loud speaker-Manufacturing,storing,selling 400 300 200 500 400 300 600 450 350

Musical Instruments- Manufacturing,selling,storing 200 150 100 300 200 150 500 300 200

Notrocompund-Storing

,selling,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 400 300 200 500 400 300 600 450 350

Notro-glycrine-

Storing,selling,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 400 300 200 500 400 300 600 450 350

Nitro-mixture-

Storing,selling,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 400 300 200 500 400 300 600 450 350

Offal-Storing,selling,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 150 125 75 200 150 100 250 200 150

Oil-Storing,selling,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 600 400 200 750 500 250 1000 600 300

Office equippments-Manufacturing,packing,storing,selling 400 251 150 500 350 250 600 400 300

Optical-Manufacturing,storing , polishing,selling 500 300 200 600 400 300 750 450 350

Paddy-Boiling or husking by machinery 300 200 150 400 300 200 500 350 250

359

Paper-,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 300 200 150 400 300 200 500 350 250

Paints-Manufacturing,storing,selling 600 400 200 750 500 250 1000 600 300

Plantain leaves- Storing, selling 75 50 25 100 75 50 125 100 75

Pesticides-Manufaturing,mixing, storing,selling 400 250 150 500 350 250 750 600 300

Petrolium products-

Storing,selling,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 1250 750 300 1500 1000 500 2000 1500 1000

Pitch-Storing,selling,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 350 250 150 400 300 200 500 350 250

Pottery-Storing,selling,packing,pressing,cleaning,preapring

or manufacturing by any process whatsoever 300 200 100 400 300 150 750 400 200

Photoghraph meterial-Manufacturing,precessing,storing 400 250 150 500 350 250 600 400 300

Photo frame and laminating-

Manufacturing,preapairing,storing,selling 400 300 200 500 350 250 600 400 300

Plastic meterials-Manufcaturing,. storing,selling 600 400 150 800 500 250 1000 750 300

Private hospitals/Paramedical Institutions&Lab-Management 800 600 400 1000 750 500 1500 1000 750

Radio- Manufacturing, Assembling,servicing,and repairing 600 400 200 750 500 250 1000 750 500

reddy made Garments- Manufacturing, storing ,selling 250 150 75 400 250 100 500 300 150

Resin(including rosin)-

Storing,selling,packing,pressing,cleaning

,preapring or manufacturing by any process whatsoever 200 100 75 300 150 100 400 250 150

Refrigerator-Storing,repairing,selling 750 500 300 1000 750 500 1500 1000 750

restorant,Canteen,Coffee,hotel,Tea shop(including cool bar) 750 500 250 1000 750 500 2000 1500 1000

Rose water-manufacturing,storing,selling 75 50 25 100 75 50 150 100 75

Rubber goods-Manufacturing, storign,selling 300 250 150 400 300 200 50 350 250

Rubber stamp- Manufacturing,storing,selling 200 100 75 250 150 100 300 200 150

Rugs-Storing,selling,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 200 100 75 250 150 100 300 200 150

Sago-Manufacturing, or distilling 150 125 75 250 150 100 400 250 150

saltpeter- toring,selling,packing,pressing,cleaning,preapring

or manufacturing by any process whatsoever 400 250 150 500 300 200 750 500 250

Sandal-Processing,storing,selling 600 4000 200 750 500 250 1000 750 500

Sanitary and plumbing meterials-

Manufacturing,storing,selling 600 4000 200 750 500 250 800 600 300

Seekai-Powedering,storing,selling 300 200 100 500 300 150 600 400 200

Shellac-Storing,selling,packing,pressing,cleaning,preapring

or manufacturing by any process whatsoever 400 300 200 500 350 250 650 450 300

Silks-Storing,selling,packing,pressing,cleaning,preapring or

manufacturing by any process whatsoever 600 400 200 750 500 250 1000 600 300

Items to be classified A B C A B C A B C

Skins-Storing,selling,packing,pressing or manufacturing by

any process whatsoever 200 150 100 250 200 150 300 250 200

Soap-,packing,pressing or manufacturing by any process

whatsoever 400 250 150 600 400 250 750 500 300

Soft drink- Manufacturing, Storing,selling 150 100 75 200 150 100 250 175 125

Spirit/Foriegn liquid-Storing,selling,packing,pressing or 1500 1000 750 2000 1500 1000 5000 3000 1500

360

manufacturing by any process whatsoever

Stainless steel- manufacturing,.storing,selling 400 300 200 500 350 250 600 400 300

Steel-Manufacturign,storing,selling 600 400 250 750 550 460 1000 750 600

Stiching-Tailoring,manufacturing 125 100 75 150 125 100 250 200 150

Stiching meterials-Manufacturing,storing,selling 125 100 75 150 125 100 750 200 150

Sugar-Storing,selling,packing,pressing or manufacturing by

any process whatsoever 400 300 200 500 400 0.3 500 500 400

Sugar-candy-Packing,pressing ,cleansing,prepairing or 350 250 150 400 300 200 750 350 250

Sulphur-Storing,selling,packing,pressing or manufacturing

by any process whatsoever 400 300 200 500 400 300 750 500 400

Surki-Storing,selling,packing,pressing or manufacturing by

any process whatsoever 400 300 200 500 400 300 500 500 400

Sweet-meats-Baking,preparing,keeping or storing, for

human consumption (other than domestic use) 300 200 150 350 300 250 400 400 300

Tallow-Storing,selling,packing,pressing or manufacturing by

any process whatsoever 250 200 150 300 250 200 3000 350 250

Tar-Storing,selling,packing,pressing or manufacturing by

any process whatsoever 2000 1000 500 2000 1000 500 500 200 1000

Tea- Processioning.packing,storing,selling 300 200 150 400 300 200 2000 350 250

Television set,VCP,VCR-Storing,selling.lending

reapiring,Tatching meterials storing or selling 1500 1000 750 1500 1000 750 800 1500 1000

Textile-Manufacturing,storing.selling 600 400 200 750 500 250 500 600 300

Tachting meterial 250 200 150 300 250 200 2500 300 250

Three Wheelers and two wheelers-

Manufacturing,storing,selling,serving ,repairing 2000 1500 1000 2000 1500 1000 8000 2000 1500

Tiles-Manufacturing 5000 3000 2000 5000 3000 2000 2000 5000 3000

Timber-Selling or storing 1000 750 500 1000 750 500 500 1500 1000

Tobao(including snuff,cigerates,ciggerates and beedies)-

Storing,selling,packing,pressing or manufacturing by any

process whatsoever 400 300 200 400 300 200 150 3530 250

Tuber crops-Storing,selling,preparing 100 75 50 125 100 75 250 125 100

Trupentine-Storing,selling,packing,pressing or

manufacturing by any process whatsoever 150 125 100 150 125 100 1000 200 150

Tyre-Manufacturing,storing,sellingretreadings,vuclanizing 600 500 400 700 600 500 600 750 600

Umberlla-Manufacturign,storing,selling 350 200 100 500 250 150 500 300 200

Upholstery meterials- Manufacturing,storing,selling 300 250 150 400 300 200 600 350 250

Vegetables-Storing,selling 400 250 100 500 300 150 600 350 200

Vedio Cassette-Recording,storing,selling 400 300 200 500 350 250 600 400 300

Watch-manufacturing,storing,selling,lending 400 250 150 500 300 200 500 400 250

Wooden Carvings-Manufacturing,polishing,storing,selling 300 250 150 400 300 200 500 350 250

Wool 300 250 150 400 300 200 500 350 250

Yarn-Dyeing 100 150 100 250 200 150 500 300 200

Guiding or electro-plating 150 100 50 200 150 75 300 200 100

Keeping a shaving or hair dressing saloon 75 50 25 75 50 25 100 75 50

Keeping and maintaning Kalyanamandapam or Auditorium

or hall where marriages are conducted with provision for

catering 5000 4000 3000 6000 5000 4000 7500 6000 5000

361

Keepign together pigs,or ten or more sheep or goats ro two

or more buffalloes or ten or more head of cattle 150 100 50 150 100 50 200 150 100

Manufacturing articles from which offensive or unwhole-

some smells,fume,dust or noise arise 400 350 250 500 400 300 600 450 350

Washing soiled cloths and keeping soiled cloths for purpose

of washing them and keeping washed clothes 125 100 75 150 125 100 250 200 150

EXISTING AND PROPOSED FEE FOR PERMISSION FOR THE INSTALLATION OF MACHINERY OR MANUFACTURING PLANT

S. 233 of Kerala Panchayat Raj Act 1994 S. 448 Kerala Municipality Act 1994

Minumum rate Proposed

Item Existing Rate in panchayat

Existing Rate in Municipality/Corporation

Panchyat Municipality/Corporation

(A) Installation ot Marlimerv Controlled hv Electric Power

Installation of rectifier and transformer in all places including Cinema theatres irrespective of HP

25 15 35 50

Installation not exceeding one HP 10 3 15 25 Installalion not exceeding five HP 50 15 75 100

Installalion exceeding live HP hut not exceeding ten HP 100 50 150 200

Inslallation exceeding ten HP hut not exceeding iwenty HP 200 75 300 350

Inslallatkin exceeding twenty HP hut not exceeding fifty HP existing in Municipality)

- 100 - -

Installalion exceeding twenty HP hut not exceeding thirty HP 300 - 500 750

Installation exceeding thirty HP hut not exceeding forty HP 400 - 600 900

Inslallalinn exceeding forty HP hut not exceeding fifty HP 500 - 750 1 250

retaliation exceeding fifty HP hut not exceeding hundred HP 1000 150 1 500 2250

Installation exceeding hundred HP (existing in Municipality - 200 - -

Installation exceeding hundred HP hut not exceeding two hundred HP 2000 - 3000 4500

Installation exceeding two hundred HP hut not exceeding five hundred HP - - 4500 6000

For each HP exceeding five hundred HP - 25 30

(B Installation of Machinery Controlled by Power other than Electric Power

Installation for Domestic purposes Nil Installation for Domestic purposes exceeding two HP - 3 5 Installation for not exceeding one HP 5 5 10 15

Installation exceeding one HP but not exceeding five HP 25 25 50 75 Installation exceeding live HP hut not exceeding ten HP 50 50 75 100

Installation exceeding len HP hut not exceeding twenty HP 100 75 125 150

Installation exceeding twenty HP hut not exceeding thirty HP 150 100 200 250

Installation exceeding thirty HP hut not exceeding forty HP 200 125 250 300

Installation exceeding forty HP hut not exceeding hundred HP 500 - - -

Installation exceeding forty HP hut not exceeding fifty HP - 150 400 600 Installation exceeding fifty HP hut not exceeding hundred HP - 200 750 1000

Installation exceeding hundred HP hut not exceeding Iwo hundred HP 250 1000 1500

362

Installation exceeding two hundred HP hut not exceeding five hundred HP

2000 4000

For each HP exceeding five hundred HP 15 20

363

Annexure 9.3

EXISTING AND PROPOSED FEE FOR PERMISSION FOR CONSTRUCTION AND RECONSTRUCTION OF BUILDINGS, INSTALLATION OF MACHINERY

etc. FOR CINEMATOGRAPHIC EXHIBITIONS

S. 6 of the Kerala Cinemas (Regualtion) Act, 1958 read with Rule 1901 of The Kerala Cinemas (Regulation) Rules, 1988

Item Existing Rate Rs

Proposed Rate Rs

Type of Construction

Municipality/ Village Panchayat

Corporation

Temporary Theatre Rs. 5007- Thatched / Tiled Re. 1 / M2 Re. 1 /M2

Permanent Theatre Rs. 10007-

A. Single storied concreate buildings upto 150 M2

i) Cellar or basement loor and ground floor Rs. 1.50/M2 Rs. 2.50/M2

ii) First floor Rs. 2 / M2 Rs. 2.50/M2

Iii) Second floor Rs. 3/M2 Rs. 4 / M2

B. Buildings of area exceeding 150 M2 of any number of floors

1) Cellar or basement floor and ground floor

Rs. 6/M2 Rs. 7/M2

(ii) First floor Rs. 8/M2 Rs. 10 /M2

(iii) Second floor Rs. 12 /M2 Rs. 15 /M2

(iv) Third floor and upto and inclusive of Sixth floor

Rs. 40 / M2 Rs. 50 / M2

(v) Above sixth floor Rs. 75 / M2 Rs. 100/M2

C Accessory Building Rs. 15 /M2 Rs. 25 / M2

D Well Rs. 75 / Unit Rs. 100 /Unit E Bath Room Rs. 75 /Unit Rs. 100 /Unit

F Compound Wall or Fense including gate and grill

Re. 1 /1 Meter. length

Re. 2/1 Meter. length

364

G Conversion of Poof Rs. 30 /M2 Rs. 50 / M2

365

Annexure 9.4

EXISTING AND PROPOSED LICENCE FEE FOR PRIVATE MARKETS

S.222(4) Kerala Panchayat Raj Act 1994 S. 460 of the Kerala Municipality Act 1 994

Item Existing Rate in Panchyat

Existing Rate in Mun icipality / Corporation

Minimum Rate Proposed for Panchayat / Municipality / Corporation

(1) For openig new Market Area not exceeding 0.1 hectare Minimum of Rs. 200 Minimum of Rs. 50 Rs. 2000 Area not exceeding 0.2 hectare

Minimum of Rs. 400 Minimum of Rs. 100 Rs. 4000

Area exceeding 0.2 hectare Minimum of Rs. 500 Minimum of Rs. 150 Rs. 5000

(II) Renewal of existing licence

Not exceeding one third of the income that the licensee has earned from the market during the previous year

Not exceeding one third of the income that the licensee has eamec from the market during the previous year

Not exceeding one thirc of the income that the licensee has earnec from the market during the previous year subject to the minimum of Rs. 2000 in the case of market area not exceeding 0.1 hectare, Rs. 4000 in case of market area not exceeding 0.2 hectare and Rs. 5000 in the case of market exceeding 0.2 hectare

366

Annexure9.5

EXISTING AND PROPOSED LICENCE FEE UNDER THE PLACES OF PUBLIC RESORT ACT

Kerala Places of Public Resort Act 1963 read with Rule 28 of Kerala Places of Public Resort Rules 1965

: Item Existing Rate Rs Proposed Minimum Rate Rs

Township/ Municipality/Corporation

Panchayst Municipality/ Corporation Panchayat

1. For the grant or renewal of licence for one year in respect of Perrnanent building

a) For an area of 100 Sq. meters or less 75 20 2000 1500 b) For every additional 50 Sq. meters or fraction there of 37.50 10 1000 750

2. For the grant or renewal of temporary licence in respect of permanent building Rs. 850 per 3s 900 per mensem or mensem or

a) For an area of 100 Sq. meters or less Rs. 20 per mensem or Rs. 21- per day mensem or Re. Rs. 30 per day

subject o a minimum 29 per day ubject to a

00 minimum of 00

b) For every additional 50 Sq. meters or fraction there of

Rs. 7.50 per mensem or Re. 1 per day

Rs. 3 per mensem or Ps. 50 per day

3s. 450 per mensem or Is. 15 per day

Rs. 425 or Rs 4 per day

3. For the grant or renewal of a temporary licence in a temporary building Rs. 750 per 3s. 800 per mensem mensem or

a) For an area of 100 Sq. meters or less Rs. 75 per mensem or Rs. 2 per day mensem or Re. Rs. 27 per day

subject o a minimum 25 per day subject to a

100 minimum of 100

b) For every additional 50 Sq. meters or fraction thereof

Rs. 37. 50 per mensem or Re 1 per day

Rs. 10 per mensem or Ps. 50 per day

Rs. 400 per mensem or 3s. 14 per day

Rs. 375 per mensem or Rs. 13 per

4. For the grant or renewal of a licence for one year in t

of an enclosure without any roof or superstructure

a) For an area of 100 Sq. meters or less 75.00 750 600 500

b) For every additional 50 Sq. meters or fraction thereo

7.50 3.75 300 250

5. For the grant or renewal of a temporary licence for an enclosure without any roof or superstructure Rs. 300 per

a) For an area of 100 Sq. meters or less Rs. 7.50 per mensem or Rs. 2 per day

Rs. 3.50 per mensem or Re 1 per day

Rs. 400 per mensem o Rs. 14 per day

1 0 per day subject to a minimum of R 1 00 per day

b) For every additional 50 Sq meters or fraction thereof

Rs. 3.75 per mensem or Re. 1 pe day

Rs. 1.75 per mensem or Ps. 50 per day

Rs. 200 per mensem o Rs. 7 per day

Rs. 150 per mensem or Rs. 5 per day

367

Annexure 9.6 RATE OF LICENCE FEES FOR KEEPING ANIMALS FOR COMMERCIAL PURPOSES

S. 444 of Kerala Municipality Act

Similar provision proposed in the Kerala Panchayat Raj Act

Item Existing Rate in Municipality/ Corporation

Proposed Minimum Rate for Panchayat / Municipality/ Corporation

1. Stable, veterinary, infirmary, stand, shed, yard or other place for keeping goats, sheep, pigs and dogs

Between 2 and 10 numbers

Above 10 numbers

2. Stable, veterinary, infirmary, stand, shed, yard or other place for keeping cattle and other animals

Between 2 and 10 numbers

Above 10 numbers

Council fixes the rate as it is not prescribed in the Act

Rs. 25

Rs. 50

Rs. 35

Rs. 70

368

Annexure 9.7 EXISTING AND PROPOSED RATE OF GATE FEE FOR PUBLIC AND PRIVATE MARKETS

S. 221 and 223 of the Kerala Panchayat Raj Act 1994 S. 452 of the Kerala Municipality Act 1994

Item Existing Rate in

Panchayat Existing Rate in Municipality/ Corporation

Minimum Rate Proposed for Panchayat / Municipality/

1. Fee for entry on Vehicles or pack animals or on persons.

Hand load Nil Nil Head load 1 3

Cycle load Cart load / Goods Auto Moped Motor Vehicle load (Lorry)

3 15 Nil 40

Council fixes the rate as is not prescribed in the Act

10 25 15 100

Jeep / Car / Van / Mini lorry load Nil 50

Load or goods in valloms of one meter or less girth 15

25

Loads of goods in Valloms of more than one meter of girth 20

50

Cattle, Horse or Ass load 5 10

2. Fee for Space Occupied

Occupying space-having area of 1 Sqm. 2 5

Occupying space-having area of more than 1 Sqm. but not more than 5 Sqm. 8

15

Occupying space-having area of more than 5 Sqm. but not more than 10 Sqm.

10

25

Occupying space-having area of more than 1 0 Sqm. but not more than 20 Sqm. 25

50

Occupying space having an area of more than 20 Sqm., for every additional 1 Sqm. 1

5

3. For use of Shops, Stalls, Pens or Stands on Market days (excluding the rent for permanent use)

Having plinth area of 10 Sqm. or less 10 20

Having a plinth area of above 1 0 Sqm. but upto 20 Sqm.

15

30

Having a plinth area of above 20 Sqm. but upto 30 Sqm.

30

50

For every additional plinth area of 1 Sqm. Exceeding 30 Sqm.

1

5

4. Fee on Animals brought for sale into or sold

Sheep, Goat 2 5

Ass, Pig 3 5

Cow bull, buffalo 5 25

369

Poultry (grown up fowls) 1 1

370

Annexure 9.8

EXISTING AND PROPOSED RATE FOR PUBLIC HALTING AND PARKING PLACES

S. 227 and 228 Kerala Panchayat Raj Act 1994 S. 472 of Kerala Municipalities Act 1994

Item Existing Rate in Panchayat Existing Rate in Municipali ty/ Corporation

Minimum Rate Proposed for Panchayat / Municipality / Corporation

Maximum fee for a period not exceeding 24 hrs

Maximum fee for a period nut exceeding 24 hrs

(a) Fee for use of Halting place/Cart stand if no amenities are provided

if amenities, are provided

if amenities are provided or not

(i) For Every hand - drawn Cart rickshaws, Cycle or Cycle rickshaws 1 2

Council fixes the rate as it is not prescribed in the Act

5

(ii) Auto rickshaws 2 3 10

(iii) For every Cart or Vehicle drawn by one or more animals 2 4

5

(iv) For every Mini bus. Tempo, Trucker, Mini lorry

4 8 15

(v) For every Bus. Lorry 6 10 25

(vi) For every horse, mule, bull, bullock, cow or buffalo 1 2 3

b) Fee for a single halt Minifnum Rate

Motor boat or steam launch 3 6 Council fixes the rate as it is no prescribed in the Act

10

Steam or motor tug 4 10 15

Cabin boat 1 2 15

Valloms of capacity or one lone or less 1 2 2

Valloms of above 1 tones upto 5 tones 1 2 5

Valloms of above 5 tones upto 10 tones 4 6 10

Valloms of above 1 0 tones 8 12 12

Changadom (Thangara) 1 2 3

Timber heaps upto 20 tones 8 12 15

Timber heaps above 20 tones for every additional

1 2 2

(c) Fee for Storing any Goods Rate fixed

Charges per day for storing goods in open space per 100 Sqft

5 10 Rental charges per day

A) Single Room 25 35

371

b) Double Room 40 50

(d) Fee for stay per day 5 15

Annexure 9.9

EXISTING AND PROPOSED RATE OF RENT AND FEE FOR SLAUGHTERING ANIMALS IN PUBLIC AND PRIVATE SLAUGHTER HOUSES

S.229 and 230 of Kerala Panchayt Raj Act 1994

S.452 of Kerala Municiapality Act 1994 Item Existing Rate

in Panchayat Existing Rate in Municipality/Corporation

Minimum Rate Proposed for Panchayt/Municipality/Corporation

Bullock, Cow, Buffalo 10 20

Sheep, Goat, Pig 5

Council fixes the rate as it is

not precribed in the Act 10

ACTION TAKEN REPORT ON THE FIRST

PART OF THE REPORT OF THE SECOND

STATE FINANCE COMMISSION.

ACTION TAKEN REPORT ON THE FIRST PART OF THE

REPORT OF THE SECOND STATE FINANCE COMMISSION.

Recommendation No.2:

Devolution of Funds: Recommendation No.2(1)

"Government may devolve to the LSGls, Plan funds (excluding State Sponsored Schemes)

not less than one-third the annual size of the State Plan as fixed by the Planning Commission. This fund

is to be used by LSGIs for planning and implementing locally relevant projects. The sectoral ceilings,

if any, within this grant may be fixed by Government from time to time"

Action Taken:

The State Government has decided that the question of transferring one third of the State's plan funds to LSGIs may be deferred for further examination. Nevertheless the State Government has been making substantial allocations. For example, out of the State plan outlay for the current year (2OO4-O5) ofRs.480O crore (including loan from the ADB), an amount of Rs.l35O crore has been provided in the Budget for devolving among LSGIs as Plan Grant This is one of the highest percentages for any state.

Recommendation No.2(2)

"Five and a half percent of the annual own tax revenue of the State Government may be

devolved to the LSGIs as Grant-in-aid for- maintenance of assets under the control of the LSGIs

including the transferred assets. This percentage may be determined on the figures certified by the

Accountant General, which normally relates to the financial year two years before the Budget year.

All expenses related to running of institutions except wages, supply of medicines to health institutions,

educational concessions / scholarships to students, supply of books, equipments and consumables to

schools and conducting noon-feeding in schools, shall be borne by the LSGIs. This should include

payment of rents, repair of equipment including vehicles, and meeting of telephone charges and

vehicle operating expenses."

Action Taken:

This recommendation has been accepted by Government From 1-4-2OO4 separate provision has been made in the Budget towards maintenance grant For 2004-05, the provision is Rs.273.66 crore for Panchayats and Rs.52.13 crore for Municipalities and Corporations.

Recommendation No. 2(3)

''Three and a half percent of the own tax revenue of the State Government based on the figures

certified by the Accountant General could be devolved to LSGIs as General Purpose Grant, in

lieu of assigned taxes, shared taxes and various statutory and non-statutory grants-in-aid, both

specific purpose and general purpose. This grant-in-aid would subsume under it Basic Tax Grant.,

Surcharge on Stamp Duty, Vehicle Tax Compensation, Rural Pool Grants, the specific purpose and

general purpose grants to Urban Local Bodies and all other non-plan grants-in-aid devolved to

LSGIs from the Local Self Government Department."

Action Taken;

The recommendation has already been accepted by the Government From 1-4-2OO4 separate provision has been made in the Budget towards Genera/ Purpose Grant. For 20O4-O5 the provision is Rs. 174.15 crore for Panchayats and Ks.31.17 crore for Municipalities and Corporations.

Recommendation No.3

"The Eleventh Finance Commission grants to LSGIs should be passed down as such, over and above the grants suggested above." Action Taken:

The recommendation has been accepted with the modification that the grant due for LSGIs may be devolved as part of plan grant but shown separate/y for each LSGI.

Recommendation No.4 (a)

Plan Grant-in-Aid: " The existing devolution formula as well as the distribution formula may continue. However up to

ten percent of the non-SCP/TSP Funds may be distributed as an incentive for increased own revenue

mobilization by the Village Panchayats and the Urban Local Bodies. The actual percentage to be

distributed as incentive grant-in-ajd should be the same as the percentage of Village Panchayats

and .Urban Local Bodies 'showing an increase in own revenue. And this amount could be shared as per the formula given below:

0i = ri . P i /I ri . Pi 0i - share for LSG1 i ri - percentage increase in its revenue Pi - Population of the LSGI

The date of effect of the incentive system may be indicated to LSGls well in advance."

Action Taken:

The recommendation has been accepted. This will be reflected in the 2005-O6 allocation to LSGIs,

Recommendation No.4(b)

Maintenance Grant:

"The maintenance grants should be based on the current cost of replacement" and the

initial norms (which has to be updated periodically) may be as follows:

i) Maintenance of buildings constructed before 1-4-1967 - 3% of capital cost. ii) Maintenance of buildings constructed after 1-4-1967 - 2% of capital cost iii) Current construction cost - Rs.400/- per Sq.ft. iv) Frequency of resurfacing of black-top/WBM Roads - Once in five years, v) Annual repair expenditure of Blacktop roads - Rs.25,0007- per K.M. vi) Annual repair expenditure of WBM roads - Rs.23,000/-per K.M. vii) Annual repair expenditure of Unsurfaced roads - Rs.2000 per K.M viii) Cost of re-surfacing black-top roads (3.8 Metre width) - Rs.1.65 lakhs per K.M

ix) Cost of resurfacing WBM roads (3.8 Metre width) - Rs.1.84 lakhs per K.M." Action Taken;

Recommendation has been accepted.

Recommendation No.6;

"The distribution of the maintenance grant could be as follows:

1. On the basis of a price index work out what Rs.140 crores at 2000- 2001 prices would amount to for the year for which the provision is being made. The deflator for the construction sector can be utilized for this purpose.

2. One-seventh of this amount may be kept aside for the District and Block Panchayats and divided between them in the ratio 19:1. The share of the Block Panchayat should be divided equally among them. As regards District Panchayats, half the share should be divided according to the ratio of distribution of the transferred village roads and other district roads and the other half based on norms for repair of non-road assets in their control (other than those created after 1995).

3. Seven-eighth of the share of the Village Panchayats and

Municipalities is to be distributed among the Village Panchayats,

Municipalities and Corporations in the same ratio as VTC is currently divided;

one-eighth of the share of the Village Panchayats and Municipalities should be

distributed according to the maintenance needs of non-road assets, own and

transferred (other than those created after 1995) - as determined by norms.

4. The division formula mentioned above needs to be corrected by a

series of iterations.

5. The remaining portion of the maintenance grant i.e. the excess over

Rs,140 crores at 2000-01 prices may be distributed exactly in the

same manner as Plan Grant-in-aid."

Action Taken;

Recommendations has been accepted.

Recommendation No.6 (c)

General Purpose Grant;

'The Government may determine as a one-time exercise, the share of District Panchayats and Block Panchayats in the General Purpose Grant, based on normative assessment of their establishment cost and office expense requirements. The remaining amount may be distributed as follows:

Village Panchayats - 78.50% Municipalities - 8.50% Corporations 13.00%" Action Taken:

Recommendation has been accepted.

Recommendation No. 7

"The inter se distribution among the Municipalities and Corporations should be entirely on the basis of population. As regards Village Panchayats, a corpus of Rs.10 crore may be set apart and be used as per a gap filling formula - to fill the gap between obligatory expenditure (reckoned as establishment expenses, street light and water supply charges) and the revenue usable for these purposes (calculated as the sum of own collected revenue and the share of the Village Panchayat from the General Purpose Grant). The entire gap could be filled up in the case of Second and Third Grade Village Panchayats, 50% of the gap in the case of

First Grade Village Panchayats and 25% of the gap in the case of Special Grade Panchayats. The remaining portion may be distributed according to the population criterion."

Action Taken:

Suggestion has been accepted.

Recommendation No.8

"In order to avoid hardships during transition period, it is recommended that no Village

Panchayat or ULB should experience a real shortfall in its receipts on account of these transfers

compared to the previous year."

Action Taken:

Recommendation has been accepted.

Recommendation No.8 (d)

EFC Grants:

"Eleventh Finance Commission grants may be devolved on the basis of the population criterion

in one instalment"

Action Taken:

Recommendation has been accepted. The devolution will be subject to release of grant from Gort. of India. The formula will be the same as for Plan Grant. -*

Recommendation No.9:

Own Resource Mobilization by LSGIs:

Recommendation No.9 (1)

"For Property Tax the recommendations of the First SFC may be operationalised

and the following scheme is suggested for classifying buildings and fixing the tax.

(i) Location Zone - Four Zones,

(ii) Type of building -

(a) Ordinary Building.

(b) Medium type building. (c) Luxury building.

(iii) Type of use: - (a) Commercial use (b) Non-commercial use

(iv)The relative weights for the Zone could be - 1 : 1.5 : 2 : 2.5

(v) The relative weights for the type of building could be - 1 : 1.5 : 2

(vi)The relative weights between non-commercial and commercial use could b 1 : 3

(vii) Deduction for age and owner occupation may be as provided for in the Kerala Municipality Act."

Recommendation No. 9 (2).

"On no account should there be a cap on increase or a limit to decrease when the new system is

introduced."

Action Taken,-

Since the L5GO has a/ready initiated action for implementation of the recommendation of the Ist SFC relating to Property Tax reforms, these recommendations (9(1) and 9(2) ) need not be pursued as such. However, early steps will be taken to amend the relevant provisions of the Act and to frame Rules,

Recommendation No.9(3)

"A dual system of numbering is suggested so that incomplete buildings can get a provisional

number and their completion tracked properly."

Action Taken

Suggestion has been accepted.

Recommendation No.9(4)

"Presumptive Profession Tax may be introduced to bring certain self employed occupational

groups into the tax net"

Action Taken:

Recommendation has been accepted, ft has also been decided that Annexure 9(1) of the Report will be made exhaustive by incorporating the following items also:

Item HalfyeartyRate(Panchayat,

Municipalities and Municipal Corporations)

Rs

1. Members of Stock Exchange 1000

2. Directors (other than those nominated by Govt.) of companies registered under the Indian Companies Act

1250

3. Persons engaged m the Films/T. V industry

(a) Writers, Cameramen, Still Photographers

(b) Lyricists, Directors. Playback Singers, Recordists, editors

600

1000

4. Cinema Theatre - Owner/ Licensee 1250

5. Money-lenders Iicensed under the law relating to money lending 125O

6. Individual/ Private Institutions conducting chitties under Chitties Act

1250

7. Air Travel Agents 1000

8. Each partner of firms engaged in any profession, trade or calling 600

9. Advertising firms/ Agencies 750

10. Courier Service, Internet cafe, Computer Training Institute 45O

11. Educational Institutions including self- financing Institutions other than those owned and aided by State or Central Govt

1250

12. Driving Schools 450

13. Owners of Kalyanamandapams/Halls other than those owned by religious institutions

1250

14. Beauty Parlours / Dry cleaners 6OO

15. Tax Practitioners 75O

Recommendation No. 9(5)

Entertainment Tax may be introduced for Cable and Internet."

Government has decided that Entertainment Tax be introduced only for cable and not for internet. Action to amend the Entertainment Tax Act and Rules is being taken by the Local Self Government Department

Recommendation No. 9(6)

"In the case of Advertisement Tax the Government may fix the minimum rates for taxation

for different kinds of advertisement for different types of locations by issuing Advertisement Tax

Rules, which could set out the guidelines for LSGIs to assess the tax."

Action Taken.

Suggest/on has been accepted. Rules are being amended. Recommendation No. 9(7)

"There should be a system of authenticating advertisements to avoid unauthorized

advertisements. Penal provisions for unauthorized advertisement should be at least five times

the normal tax."

Action Taken Recommendation has been accepted. Rules are being amended.

Recommendation No.9 (8)

"Conversion Tax may be realized at the rate of five per cent of the capital value in the case of

conversion of paddy lands. Half this rate maybe made applicable for other kinds of conversions. In

the case of conversions without prior permission a severe penalty of ten times the Conversion Tax

should be realized in the case of conversion of paddy land and an amount equivalent to the

Conversion Tax could be realized in other cases."

Action Taken: Recommendation has been accepted. However, it has been made clear that the

rate specified in the Recommendation will be the post-conversion rate. Relevant Act (including KLU Act) and Rules will be amended.

Recommendation No.9 (9)

"The Service Tax should be made compulsory and be linked to the cost of performing obligatory

functions and calculated as a percentage of Property Tax."

Action Taken:

Recommendation has been accepted. Changes in Act and Rules are required. This will be pursued.

Recommendation No. 9(10)

"The ceiling on Surcharges may be removed."

Action taken:

Recommendation has been accepted. Act and Rules have to be amended for which action is in progress.

Recommendation No.9 (11)

In the case of Non-tax Revenue the Government should fix the minimum fees for various

kinds of licences in the case of Municipalities and Corporations through notification. In the case of

Village Panchayats only the minimum amount may be fixed in the rules."

Action Taken: It is observed as per Annexure 9.2 that storing and selling of various items In a single premises attracts levy of fees for each of the items. This may lead to difficulty in fixing license fees in the case of large shops like Margin Free shops/Departmental stores etc. Margin Free shops/Departments/ stores are premises where most of the items under provisions and stationery are stored and sold. Therefore, items which are coming under provisions and stationery, hardwares including plumbing, sanitary items, building materials etc. cart be grouped together in two groups and single license fees according to the size of the trade can be levied. It has been decided that the following shall be the classifications:

Provisions & Stationery: Chillies, Corriander, grains, tea, coffee, sugar, jaggery, flour items, turmeric, edible oils, spices, common salt, potato, onion, cattle feeds, cashew nuts etc. Soap, Talcum powder, Cosmetics, Plastic items, biscuits/ sweets, meats, squash, polythene item, candles, disinfectants etc. Baby food, fancy goods, matches, cigarettes, beedies, snuff, toys, rubber goods, bathies, office equipments, paper, rose water, batteries other than for motor vehicles etc. The rate applicable to them may be as follows: A B C Panchayats- Rs.1500 Rs.lOOO Rs.500

Municipality - Rs.2000 Rs.1500 Rs.1000

Municipal Corporations -Rs.25OO RS..2OOO Rs.1500

Hardwares including plumbing materials, steel and steel rods, wash basin, closet, paint, turpentine, AC sheet, light roof sheet, PVC/ Tin/Aluminium sheet, Fibre sheet, glazed tiles etc. The following rates may be made applicable to them.

A B C

Panchayats - Rs.l500 Rs.1200 Rs.800

Municipality - Rs.2250 Rs.1500 Rs.lOOO

Municipal Corporations- Rs.2800 Rs.2OOO Rs.1200

In other cases, the licence fees as recommended vide Annexure 9.2 of the SFC Report has been accepted.

Recommendation No:9(12)

"In the case of licences and permits, which are renewed periodically, 25% of the licence

fee may be collected as fine for delay beyond a grace period often days; this penalty may be

increased by 25% for every additional fortnight of delay."

Action Taken: Recommendation has been accepted.

Recommendation No:9 (13)

"There must be compulsory display by LSGIs on the spot for various items of revenue and in

the case of auctions a district level public notice should be given in December about all the

forthcoming auctions."

Action Taken:

Recommendation has been accepted.

Recommendation No:9(14)

"For trade licences the present practice in Village Panchayats of calculation based a turnover

may be done away with and for both Village Panchayats and Urban Local Bodies, Government

could notify the minimum rates for each trade with separate rates in each category for small,

medium and large establishments."

Action Taken:

Recommendation has been accepted.

Recommendation No:9(15)

"A separate numbering system should be adopted for trade establishments."

Action Taken:

Suggestion has been accepted.

Recommendation No. 9(16)

"The following fees may be enhanced, (i) Building fee for Theatres. (ii) Licence fee under the Kerala Places of Public Resort Act. (iii) Licence fee for Private Markets (iv) Licence fee for Private Slaughter Houses. (v) Licence fee for Brokers, Commission Agents, Weigh men and Measurers (vi) Licence fee for Butchers, Fishmongers, Poulterers. (vii) Licence fee for premises where animals are kept for commercial purposes. (viii) Market fee. (ix) Gate fee for public halting and parking places. (x) Gate fee for slaughterhouses. (xi) User charges for burial grounds, burning ghats and electric crematoria

Action Taken:

Proposal has been accepted.

Recommendation No:9(17)

"The meat stalls and the right to fish in water bodies may be auctioned every year by the concerned

LSGIs after giving due publicity."

Action Taken:

Recommendation has been accepted.

Recommendation No:9(18)

" Village Panchayats may auction the right to set up temporary shops in public land just as

Urban Local Governments are doing so under Section 376 of the Kerala Municipality Act. "

Action Taken:

Recommendation has been accepted. It has also been decided that the maximum period for occupation shall be limited to 15 days during each fair/festival taking place in the local limit without any right over the land. Auction shall be for individual shops. Permission for occupation of the land will be allowed only on furnishing a written agreement in stamp paper of appropriate value to the effect that the temporary structure if any put up by the licensee shall be removed by him. Failure to comply with this shall entail removal of the structure by the local body concerned forfeiting his security amount and at his risk and cost.

Recommendation No: 10:

Follow up of First SFC Recommendations. Recommendation No.10(1):

"Rules for levy of Advertisement Tax in Village Panchayats and ULBs may be issued immediately" Action Taken:

Recommendation has been Accepted (See decision 9(6) ). Local Self Government Department is taking action.

Recommendation No. 10(2)

"Steps to finalise minimum land value for use in registering sales may be completed at

the earliest."

Action Taken: Recommendation has been accepted. Recommendation No.10(3)

"Tax mapping may be done immediately and unique premises numbering system

introduced."

Action Taken:

Recommendation has been accepted. Local Self Government Department is taking further action.

Recommendation No.10(4)

"A single financing agency for LSGIs may be set up by merging KUDFC and the Rural

Development Board."

Action Taken:

Recommendation has been accepted. Action is being taken by the Local Self Government Department.

Recommendation No. 10(5) "50% of building exemption fees and regularization fees may be given to the concerned

Village Panchayats and ULBs."

Action Taken:

Recommendation has been accepted. Details are being worked out

Recommendation No. 10(6)

''The question of Village Panchayats and ULBs levying daily fee for use of poramboke may be

examined and decided by Government without further delay."

Action Taken:

Recommendation has been accepted. Further action is being taken by the Revenue Department.

Recommendation No. 10(7)

"Rationalisation of Revenue Village and Village Panchayat/ULB boundaries may be done

in such a way that no revenue village would lie within more than one Village Panchayat or ULB."

Action Taken:

Government feels that the recommendation of the Commission can be Implemented even without reducing the total number of villages. It has been accepted accordingly. Further action will be taken by Revenue Department

Recommendation No. 10(8)

"Shortfall in devolution of assigned and shared taxes vis-a-vis the accepted level may be made

good by Government."

Action Taken:

Recommendation has been accepted. Since the arrears have been almost cleared further action is not necessary.

Recommendation No.11

Procedural Safeguards

Recommendation No. 11(1) :

"Necessary amendments to the Kerala Panchayat Raj Act and the Kerala Municipality Act may

be made to specify the minimum shares of LSGIs, of the Plan Grant, Maintenance Grant and General

Purpose Grant."

Action Taken:

Recommendation has been accepted. At present, the charges for noon-feeding for pupils are met from the pro vision set apart under the head of account for Education Department and the purchases are from Civil Supplies Corporation. Since difficulties are being experienced both in the Education Department and LSGIs to settle accounts with the Civil Supplies it has been decided that the fund may devolve to LSGIs. They may decide the source of purchase subject to observation of rules.

Recommendation No.ll(2)

"LSGIs should get automatic allocations at the beginning of every month."

Action Taken:

It has been decided that the recommendation need not be pursued since Orders have already been issued for ensuring automatic release of funds to the LSGIs by the Local Self Government Department

Recommendation No. 11(3)

"A survey of assets transferred to LSGIs as well as assets owned by them may be carried out

to calculate the standard spending assessment for maintenance purposes and the result of the study

should be utilized for devolution of maintenance funds."

Action Taken:

Recommendation has been accepted.

Recommendation No.11(4)

"A separate Budget document indicating LSGI-wise distribution of the three streams of

grants-in-aid and grants-in-aid for pensions and for noon feeding may be prepared. For other grants-

in-aid, district-wise figures may be indicated along with formula for devolving them to individual

LSGIs.

Action Taken;

Recommendation has been accepted. Planning Department is taking further action.

Recommendation No. 11(5)

" A legislative provision may be introduced for indexing non-tax revenue items, and taxes

like Property Tax, Advertisement Tax and Service Tax. Two-yearly revisions are recommended

for non-tax licence items and Advertisement Tax based on Consumer Price Index for non-manual

workers for Thiruvananthapuram in the case of Urban Local Bodies and Consumer Price Index for

agricultural labourers for the state in the case of Village Panchayats; four-yearly revision may be

done for Professional Tax and Service Tax."

Action Taken:

Recommendation has been accepted.

Recommendation No. 11(6)

"All proposals for staff creation should be cleared by the Ombudsman."

Action Taken:

It has been decided that this recommendation need not be pursed in view of the fact that the size of Ombudsman has been reduced to one.

Recommendation No. 11(7)

"A Local Government Staff Commission may be set up to suggest redistribution of staff among LSGIs as well as from Government to LSGIs."

Action taken

Recommendation has been accepted.

Recommendation No.11(8)

"AH LSGIs should prepare annual maintenance Plans."

Action Taken:

Recommendation has been accepted.

Recommendation No. 11(9) "Unpermitted diversion of funds should be penalized by charging a penalty of two percent per

month from the persons responsible."

Action Taken:

Recommendation has been accepted. Recommendation No.11(10)

"Village Panchayats, Municipalities and Corporations should have a single account for

crediting all their own revenues."

Action Taken:

Recommendation has been accepted,

Recommendation No. 11(11)

"In the case of Plan Grant-in-aid and Maintenance Grant-in-aid, bill system of drawing from

treasuries should be introduced in the place of PD Accounts."

Action Taken: On the basis of the decision of the Council of Ministers in agenda item No. 2O96

dated 2-7-2003 orders have already been issued in G. O(P) 381/2003/Fin dated 9-7-20O3 for introducing bill system in the LSGIs with effect froml-4-2OO4. For 20O4-05, a special dispensation has been made from June 2O04 till 30-9-2004.

Recommendation No. 11(12)

"An Empowered Committee under the Chief Secretary may be set up to follow-up the accepted

recommendations and implement them fully."

Action Taken:

Recommendation has been accepted.

Recommendation No.12

"A Cell under the joint control of Finance and Local Self Government Departments may be

created for concurrent monitoring of all financial matters of LSGIs."

Action Taken:

"A Cell in the Finance Department is already monitoring all financial matters

of LSGL The Local Self Government Department will also be associated for

concurrent monitoring ".