The West Bengal Example
The Sen Commission bases itself on the need to grant a status of entitlement to panchayats. Hitherto, these were the creation of the state law; now, they are a constitutional entity. Accordingly, the powers, functions and finances of the panchayats cannot be seen as a matter of state government discretion.
The entitlement of the local bodies has been worked out at three levels. First, as the share of state revenues which will devolve on the panchayats as a matter of right for them to spend in their discretion of priorities. Second, entitlements have been sub-divided between the three tiers of panchayati raj in terms of a ratio which reflects the division of responsibilities. Third, the division of entitlements has been worked out as ratios between different districts, so as to promote equitability between rich and poor districts.
In determining the share which goes untied, and as a matter of entitlement to the local bodies, the commission fixed this at 16 per cent of the net proceeds of taxes collected by the state during the year. This amounts to approximately Rs 600 crore a year. Each set of panchayats will receive close to Rs 8 crore a year and each municipality around Rs 1.3 crore. Both sets of figures will be adjusted for population and other relevant factors.
While the availability of a guaranteed share of state revenues for untied use by the panchayats is to be welcomed, it is not clear how the figure of 16 per cent has been arrived at. It appears to have been reached on the basis of past precedent and an impressionistic view of functions to be performed with untied funds. Possibly, it is based on an informed estimate as to what the state government will find acceptable. The proposed share is sound as far as it goes but cannot be described as scientific.
Similarly, the ratio in which the Sen Commission has proposed the division of untied funds for panchayats and the nagarpalikas, on the one hand, and between different tiers of the panchayati raj system, on the other, also appears to be more directed at being generally acceptable than being scientifically determined. In the example provided in the report of the average size of entitlements at different levels, about 15 per cent of the entitlement is assigned to the municipalities and the remaining 85 per cent to the rural local bodies. This appears reasonable but lacking in firm anchoring. Of the entitlement assigned to the rural bodies, about 30 per cent goes to the zilla parishad; 15 per cent to the panchayat samities; and over half to the gram panchayats. This too appears reasonable but could have done with firmer intellectual anchoring and with the spelling out of the rationale for the ratios chosen. In absolute amounts, each zilla parishad will, on average, have Rs 7 crore a year to spend as untied
funds; each panchayat samiti about Rs 25 lakh; and each gram panchayat around Rs 6 lakh.
The commission also recommends that revenues from certain taxes be reserved for the local bodies to give them an element of assurance about funding sources. It is proposed that the proceeds of entertainment taxes be reserved for them, and that the proceeds of the urban tax and multi-storeyed building tax be guaranteed to the nagarpalikas, even as irrigation rates are assigned to the panchayats. It is not explained and this is a serious lacuna why these taxes and not others have been chosen.
The proposal regarding irrigation rates illustrates the confusion in the minds of the commission about the distinction made in the relevant Article of the Constitution between revenues assigned to and appropriated by the local bodies. The proceeds of the entertainment tax are, quite correctly, described as being assigned to the local bodies. They are assigned both because they are collected first by the state and then devolved to the local bodies; as also because there is no nexus between the act which generates the revenues and the purpose for which these are expended. With regard to irrigation rates, the proposal amounts to appropriation by the panchayats because the rates will be collected by them and retained. This unique instrumentality of establishing a link between these sources from which a local body might raise revenues and the revenue so raised being returned to the same sources as community expenditure or investment in the same sector, have not been explored. There can be no better way than
appropriation to ensure popular participation in revenue collection, a matter on which the commission has rightly laid special emphasis.
While being unstinted in my praise for the imagination shown by the commission, and the awareness it has demonstrated of the need to give fiscal teeth to panchayati raj, my criticism is that it has no more than tinkered with the pre-amendment fiscal provisions. It has not radically reconceived them. What needs to be done is to establish a matrix between the tasks actually devolved to the panchayats and the resources meant to fulfill these.It has quoted the West Bengal finance minister as claiming that 53 per cent of development expenditure is in the districts. But the devolved component of budgetary spending by local bodies will not amount to even 20 per cent of the total. True panchayati raj will come only when the sums add up.