Financial Autonomy for Panchayats

With the 16th Finance Commission advocating for Panchayats to increase their Own Source Revenue (OSR), the Centre has initiated a study to develop a viable financial model. States have been urged to address gaps highlighted in a report to implement comprehensive recommendations.

Key Recommendations

• Issuance of clear guidelines on tax assessments and user charges at the Panchayat level.
• Appointment of Panchayat Secretaries with tax-trained staff to bridge the 'skill gap'.
• Adoption of practices from West Bengal and Maharashtra, such as maintaining local services like water supply.
• Implementation of standardized rate structures and tariff rates for trade licenses.
• Introduction of community-based monitoring mechanisms.
• Legal amendments where necessary to facilitate these changes.

Current Financial Status

• Data from the Ministry of Panchayati Raj indicates that Gram Panchayats raised only ₹5,118.98 crore as OSR from 2017 to 2022.
• This amounts to ₹59 per capita and ₹2.27 lakh per Panchayat.
• Panchayats currently generate only 1% of their revenue independently, relying heavily on central and state funding.

Challenges and Concerns

• Panchayats are empowered to levy nearly 20 types of taxes/charges, but actual collection is minimal.
• Empowered taxes vary significantly across states, from two in Bihar, Punjab, and West Bengal to eight in Gujarat, Karnataka, and Kerala.
• Ambiguities in laws hinder effective tax and charge collection.
• Human resource and capacity-building challenges further constrain Panchayat functioning.

Additional Observations

• Top 10 Gram Panchayats with the highest per capita income are primarily from Karnataka, Andhra Pradesh, Maharashtra, and Gujarat.
• Gram Panchayats in Eastern and Southern India perform better in user charge collection compared to those in Northern India.