6. Panchayat’s Finance

In general, Panchayats receive funds in the following ways:

♤ Internal Resource Generation (tax and non-tax).

♤ Grants from the Union Government based on the recommendations of the Central Finance Commission as per Article 280 of the Constitution.

♤ Devolution from the State Government based on the recommendations of the State Finance Commission as per Article 243I.

♤ Loans/grants from the State Government.

♤ Programme-specific allocation under Centrally Sponsored Schemes and Additional Central Assistance.

Across the country, States have not given adequate attention to fiscal empowerment of the Panchayats. One can draw the following broad conclusions:

♤ Internal resource generation at the Panchayat level is weak.

♤ This is partly due to a thin tax domain and partly due to Panchayats’ own reluctance in

collecting revenue.

♤ Panchayats are heavily dependent on grants from Union and State Governments.

♤ A major portion of the grants both from Union as well as the State Governments is scheme specific.

♤ Panchayats have limited discretion and flexibility in incurring expenditure.

♤ In view of their own tight fiscal position, State Governments are not keen to devolve funds to Panchayats.

♤ Overall, a situation has been created where Panchayats have responsibility but grossly inadequate resources.