Panchayat ministry proposes CAG audit of local body 'empowerment'

Committee report recommends dedicated State Finance Commission units, Panchayat-level fiscal databases and standardised accounting practices to strengthen local fiscal devolution

The Ministry of Panchayati Raj has recommended setting up permanent State Finance Commission (SFC) cells, standardising accounting practices for local bodies, and creating gram panchayat-level databases to strengthen fiscal devolution, according to a report released by the Committee on Datasets for State Finance Commissions on Monday.

 

The report, titled “Datasets for State Finance Commissions”, also proposed a common reporting format for SFCs, a supplementary budget document detailing transfers to rural and urban local bodies, and greater availability of panchayat-level data through collaboration with the statistics ministry. It also suggested classifying Panchayat Advancement Index indicators into categories such as needs, performance and backwardness to support evidence-based fiscal assessments by SFCs.

 

 

Among its key recommendations, the committee proposed establishing dedicated SFC cells within state governments to maintain and regularly update fiscal and institutional data. These cells could preferably within finance or planning departments. The report also called for creating comprehensive time series databases of gram panchayat finances to support trend analysis and assess local revenue-raising capacity.

 

The recommendations come amid persistent challenges faced by SFCs in fulfilling their constitutional mandate of reviewing the financial position of panchayats and recommending principles for the devolution of resources.

 

The effectiveness of fiscal devolution depends on the availability of timely and reliable data, as SFCs use such information to assess infrastructure gaps, revenue capacity and developmental needs while determining the distribution of funds, Chief Economic Advisor V Anantha Nageswaran said.

 

“SFCs need reliable and timely data at the level of individual gram panchayats. What this report documents carefully and honestly is that such data often does not exist in a usable form. Financial records are incomplete,” he said at the launch of the report.

 

“Different departments hold information in silos that do not talk with each another. Accounting standards vary across states, making comparisons impossible. Successive Finance Commissions, from the 13th to the 16th, have noted with increasing frustration that they cannot base their recommendations on SFC reports because those reports themselves lack an adequate evidence base,” Nageswaran added.

 

Other recommendations included creating a formal platform for interaction between current and former SFCs, developing a comprehensive manual for future commissions, and publishing a joint handbook by the Ministries of Panchayati Raj and Statistics on datasets available at the district, block and gram panchayat levels.

 

According to the report, information on local government finances, assets and service delivery remains fragmented across multiple departments. As a result, SFCs are often required to collect data from several sources, limiting their ability to undertake comprehensive fiscal assessments. The absence of panchayat-level datasets and inconsistencies in accounting practices across states further weaken the quality of analysis.

 

The committee also noted that functional and sector-wise expenditure data is often unavailable, making it difficult to assess how spending translates into service delivery outcomes. Capacity constraints at the local level, including shortages of trained accounting and data-management personnel, further affect the quality of available information.

 

While platforms such as eGramSwaraj, the Panchayat Advancement Index, CAG audit reports and state budget documents provide useful data, the report said the ecosystem continues to suffer from gaps in consistency, interoperability and granularity. It also highlighted the continued reliance on outdated datasets such as Census 2011 and the Socio-Economic and Caste Census.

 

Other recommendations included capacity-building programmes for SFCs, revival of panchayat statistics publications, and a performance audit by the Comptroller and Auditor General (CAG) of the implementation of the 73rd Constitutional Amendment.

 

Highlighting what he described as one of the report’s most significant recommendations, Nageswaran stressed the need for a systematic assessment of the implementation of the 73rd Constitutional Amendment. More than three decades after panchayats were granted constitutional status, there is still limited evidence on the extent of functional, financial and administrative devolution across states, he said. A CAG-led performance audit could help identify gaps between powers devolved on paper and the actual transfer of funds and personnel.

 

“The CAG audit would tell us, state by state and function by function, where we actually stand. It would create an evidence base that does not currently exist and bring greater accountability for the gap between constitutional intent and administrative reality. I would urge the Ministry of Panchayati Raj to pursue this recommendation with urgency and vigour,” Nageswaran said.

 

The report also flagged delays in the constitution of SFCs and the submission of their reports. It said variations in methodology and quality across states have reduced the usefulness of SFC recommendations in guiding fiscal transfers and decentralisation policies.

 

Key suggestions

• Ministry of Panchayati Raj proposes permanent State Finance Commission cells
• Common reporting format for State Finance Commissions
• Standardised accounting practices for local bodies
• Supplementary budget document on transfers to local bodies
• Creation of gram panchayat-level fiscal databases
• Classification of Panchayat Advancement Index indicators