The Fiscal Matrix

Such entitlements should, of course, flow from what the panchayats (at each level) and the nagarpalikas are expected to do. It is because it is not clear what exactly is expected of these local bodies that it proves difficult to construct a matrix for SFCs to act upon in dividing available budgetary resources between the state government and the local bodies. The first principle surely must be the 11th and 12th Schedules of the Constitution which set out those subjects which, at a minimum, should be devolved to the local bodies. Accordingly, the first task of any SFC should be to ascertain what is the proportion of the state budget allocated to those subjects which have been constitutionally devolved to the elected units of self-government. This should be supplemented by a determination of the additional subjects which the state legislature or government have legally or administratively transferred to the jurisdiction of the local bodies. By matching subjects to budgetary allocations, SFCs would be able to

 

arrive at a first level of approximation about the matrix which should relate the devolution of subjects to that of finances.

However, as the devolution of subjects does not, in practice, necessarily amount to the devolution of all functions thereunder to the local bodies, the next step must be to examine which of the functions, under each of the budgetary sub-heads for these subjects, has actually been devolved to the local authorities, in terms of the state law or the rules made thereunder. Clearly, the local bodies would have an a prioiri claim to resources set aside for the performance of such functions.

Unfortunately, there are at least two major complications. First, under each sub-head, some small proportion of the staff will be employees of the local bodies; the bulk of them will be state employees. Systemic inertia will ensure that, however well-intentioned state governments might be, staff will always prefer being state government employees to being local bodies servants. Changing this mindset will take time. On the other hand, forcing people who have joined state services into local government will prove administratively difficult, perhaps legally impossible, and often politically crippling. Therefore, where functions have been devolved to local bodies, staff, even what are called line departments, could be formally deputed to the local bodies so that salaries and allowances are paid by the local authority. This would ensure that where functions have been clearly identified, resources for meeting staff and establishment expenses are devolved to the local bodies and included in their budgets even where

staff continue, while on deputation, to be borne on the strength of the state government cadre. The additional advantage of this system would be that disciplinary control would vest in the elected and therefore, responsible local authority, thus engendering an administration responsive to local needs.

The second complication is that even where subjects have been devolved, some projects and schemes will continue to be departmentally administered. Clearly, where a project or scheme has been administratively devolved to the local authority, the funds for implementation must also be devolved in parallel. But where a scheme or project is being implemented by the line department, the resources would remain with the state government. Therefore, at this second level of approximation, the fiscal matrix would be modified from subject to function. Where a function falls to a local body, a fiscal entitlement would, pari passu, be established.

The third step for SFCs to take would be to examine the scope for further devolution within the parameters of state legislation. SFC recommendations in this regard would go a long way towards identifying inconsistencies between stated objectives and realities on the ground. Where staff have not been deputed, or where they have been deputed but budgetary provision for establishment and salaries are retained with the state government, SFCs could insist on matching fiscal devolution to administrative devolution. Where functions have not been administratively devolved although state legislation requires that this be done, they could draw attention to such lapses. Thus, the process of matching finances to functions could be further fine-tuned. Indeed, such fine-tuning is the most effective way of strengthening the processes of local self-government. Without transgressing on legislative authority, which, of course, would continue to vest with the legislature, SFCs would thus be able to contribute positively to

promoting devolution instead of being prisoners of the practicalities of any given stage of devolution.

Such regard for properties would also enable SFCs to make recommendations for legislative action without offending legislative prerogatives. Provided there is a measure of cross-fertilisation between different SFCs, imaginative suggestions can be made about what might be done in any one state because of the successful implementation in another state.

Finally, the fiscal matrix must not only match finances to function, it must also establish sub-matrices for relating finances to function for each level of the panchayats. This would mean that state law, and rules made thereunder, would have to specify in detail what role each level of the panchayats must play both in respect of each subject and, more importantly, each function. Karnataka, under M Y Ghorpade, Congress minister for rural development, took a giant step in the direction of specifying both subjects and functions in the state law. It is a legislative model that bears imitation.