Editorial of the Day (21st Feb): Panchayats as Self-governing Institution

Context: The 73rd and 74th Amendments aimed to empower local bodies, but progress varies across states. Panchayats still rely heavily on grants (80% central, 15% state), generating only 1% of their own revenue.

Avenues for Own Source Revenue (OSR)

• State Acts Provisions: State Panchayati Raj Acts allow panchayats to levy and collect various taxes and non-tax revenues. Gram Sabhas plays a crucial role in planning, implementing, and collecting revenue-generating initiatives.
• Major OSRs: Property tax, cess on land revenue, surcharge on stamp duty, tolls, profession tax, advertisement tax, user charges for utilities like water and sanitation, and lighting.
• Non-Tax Revenues: Fees, rent, income from sales, hires charges, and receipts.
• Innovative Projects: Income-generating projects such as rural business hubs, commercial ventures, renewable energy projects, carbon credits, CSR funds, and donations.

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Challenges in Generating OSR

• Lack of Authority: In some States, gram panchayats lack the power to collect taxes; in others, higher-level panchayats do not have tax collection responsibilities.
• Reliance on Central Grants: With increased allocations from Central Finance Commissions, there’s less incentive for panchayats to collect OSR.
• Aversion to Tax Collection: Panchayats show reluctance to collect taxes, partly due to the ‘freebie culture’ and fear among elected representatives that taxation may affect their popularity.
• Decrease in Revenue Collection: There has been a reduction in the collection of both tax and non-tax revenues by panchayats in recent years.
• Dependency on Grants: Panchayats have become dependent on central and state grants, diminishing their drive to generate OSR.

Recommendations to Overcome Challenges

• Educational Initiatives: Educate elected representatives and the public about the importance of revenue generation for self-sufficiency.
• Policy of Incentivisation: Implement policies that provide matching grants to incentivize panchayats to raise their OSR.
• Dedicated Efforts in Governance: Encourage efforts at all tiers of governance, including the state and central levels, to strengthen the fiscal autonomy of panchayats.
• Equitable Sharing of OSR: Ensure that all three tiers of panchayats have clear demarcated sources of OSR for fair distribution.
• Minimising Dependency: Gradually reduce the reliance on grants to ensure panchayats can sustain themselves on their own resources in the long term.

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