Effective devolution of finances is an important requirement for Panchayati Raj Institutions (PRIs) to fulfill their objectives. Discuss while also elaborating on the reasons behind lack of financial resources for PRIs in India.

The 73rd constitutional amendment act 1992 gave recognition to the Panchayati Raj Institutions (PRIs) in India. However, PRIs have been unable to achieve their dreams of self-sufficient villages for which they were formulated. The ineffective financing and lack of autonomy have been often cited as the reason for their shortcomings.

Effective finance is important for fulfilling PRI objectives

  • Fulfilling responsibilities under 11th schedule subjects require funds.
  • Own finance resources and freedom to use resources leads to need-based creation of assets and services etc.
  • Solving local problems need local taxation by PRIs.
  • Financial independence also increases the capability of Panchayats to manage funds better. Also, it saves costs to the exchequer which may not understand local needs.

Reasons behind lack of funds with PRIs in India

  • States have limited resources so they are hesitant to devolve their finances. There is a shortfall of 5-7 lakh crore due to GST by 2022 (Finance Commission).
  • Panchayats hesitate to impose taxes on locals as they are elected by them. This has been noted by the 2nd ARC report.
  • Tied nature of funds.
    • 15th finance commission funds to panchayats have 60% use tied to drinking water and rainwater harvesting. This prevents independence to take initiative.
  • Poor financial management. Panchayat members lack financial education to manage themselves and the practice of corruption is also prevalent.

Way forward

Financial training of panchayats, strengthening of finance commission in states for proper devolution. The municipal and panchayat bond market needs developments to raise funds. Financial decentralization is imperative to achieve grassroot democracy.


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