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Table of contents :
Preface
Contents
1 Introduction
2 State-Local Intergovernmental Fiscal Transfer (IGFT) in India: Identification of Indicators
3 Recommendations and Methodologies of SFCs: A Review
4 Impediments in the Functioning of SFCs and Good Practices
5 Conclusions and Suggestions
Appendix: Summaries of Recommendations and ATRs
References
Index
Recommend Papers

Fiscal Decentralization in India: An Outcome Mapping of State Finance Commissions [1 ed.]
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V N Alok

Fiscal Decentralization in India An Outcome Mapping of State Finance Commissions

Fiscal Decentralization in India “This comprehensive review of State Finance Commissions across the length and breadth of the country over the past quarter century is a pioneering contribution to the imperative need. Alok’s book is both a necessary read and most timely. I worked with Alok when I was Union Minister of Panchayat Raj and am, therefore, convinced of his exceptional competence in this field. I strongly commend this valuable publication.” —Mani Shankar Aiyar, Indian Politician, Writer and former career diplomat “India’s struggles with implementing a three-tier federalism is more understandable because of V N Alok’s Fiscal Decentralization in India. The book will be a welcome and useful addition to the bookshelf of any student of Indian Federalism.” —Roy W Bahl, Regents Professor Emeritus, Georgia State University, Atlanta “This book sheds considerable light on a major gap in our knowledge of an important area of public policy in India - the state of state-local fiscal relations. The author has had the patience and endurance to collect all the available reports of the State Finance Commissions established by the 1992 amendment that for the first time recognized the constitutional role of local governments, to go through them carefully, and to compile and compare the results for each state.” —Richard M. Bird, Professor Emeritus at Rotman, University of Toronto “This volume fills an important gap in the literature of fiscal federalism. V N Alok draws on his own extensive experience in putting together this most valuable resource.” —Rupak Chattopadhyay, President and CEO, Forum of Federations, Ottawa “This book by V N Alok, the leading scholar in Indian local finance assesses the role played by state finance commissions in India in strengthening/weakening the autonomy and accountability of local governments. The book fills an important void in our knowledge on this subject and should be a must read for students, scholars and policymakers in India and globally.” —Anwar Shah, Non-resident Senior Fellow, Brookings Institution, Washington, DC “A book of extraordinary quality. Readable and lucid on a subject of state finance commissions and a centrepiece of fiscal federalism. Brings enormous domain knowledge, high quality field work and research investigative skills.” —N K Singh, Chairman, the Fifteenth Finance Commission, India

“Dr Alok’s excellent and innovative study of State Finance Commissions in India deserves a wide international readership. His in-depth analysis provide a wealth of knowledge and insight on which other federations can draw with great profit.” —Nico Steytler, Professor, University of the Western Cape, South Africa “Dr. Alok’s well-researched study of the SFC’s provides us much needed insight, information, and data regarding the SFCs and the future of local government finance in India. A must read for understanding that future for the largest democracy in the world.” —Sally Wallace, Dean and Professor of Economics, Georgia State University, Atlanta

V N Alok

Fiscal Decentralization in India An Outcome Mapping of State Finance Commissions

V N Alok Indian Institute of Public Administration New Delhi, Delhi, India

ISBN 978-981-16-2202-1    ISBN 978-981-16-2203-8 (eBook) https://doi.org/10.1007/978-981-16-2203-8 © The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature Singapore Pte Ltd. 2021 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-­01/04 Gateway East, Singapore 189721, Singapore

Preface

“I believe in cooperative federalism”, declared Prime Minister of India Narendra Modi in his first session of Parliament in 2014. In his assertion, Prime Minister’s connotation of ‘cooperative federalism’ was somewhat similar to the notion advanced in other federations particularly Germany and the US where the concept was used to make local and sub-national governments work in tandem with the federal government to achieve shared national goals. Since then, the story of cooperative federalism unfolded almost every day. The recommendations of the Fourteenth Finance Commission, in 2014, and the Fifteenth Finance Commission, in 2019 and 2020, are the key elements in this process. Mechanism that determines funds flow to states has undergone sea changes enabling states to enhance their own fiscal space which was restricted due to discretionary fiscal transfers in the past from the union to states. Likewise, the Commission also recommended strengthening State Finance Commissions (SFC) to improve the state—local fiscal relations and to streamline funds flow to local governments for efficient delivery of local public goods. The one of the recommendations reads as follows “State Governments should strengthen SFCs. This would involve timely constitution, proper administrative support and adequate resources for smooth functioning and timely placement of the SFC report before State legislatures, with action taken notes”. The SFC is an autonomous institution and mandated under Article 243 I and 243 Y of the Indian Constitution to review the financial position of the Panchayats and Municipalities respectively and make recommendations to the Governor on the principles that should govern: v

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PREFACE

1. The distribution between the State and the Panchayats and Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the State, and their allocation between the Panchayats and Municipalities at all levels for such proceeds; 2. The determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats and Municipalities; 3. The grants-in-aid to Panchayats and Municipalities from the consolidated fund of the State; 4. The measures needed to improve the financial position of the Panchayats and Municipalities; 5. Any other matter in the interests of sound finance of the Panchayats and Municipalities. With few exceptions, the states have verbatim reproduced the constitutional provisions and placed them as the terms of reference for the SFC. However, significant variations are noticed in the approach, methodology and recommendations of the SFCs across states and time. While a few research papers examining an SFC report of a state are available, comparative study of all the reports is not available at one place. This is primarily because all SFC reports and their Action Taken reports (ATRs) are not easily available. The present study attempts to analyse variations across states and time and present trends, in several dimensions. The report also presents the summaries of the recommendations of almost all reports and the actions taken by state governments on these recommendations. Data for this study were collected from the available secondary sources viz., 76 SFC reports and several Panchayati Raj Acts and Municipal Acts of various States. Summaries of first, second, third and fourth SFCs have been largely prepared based on author’s contributions published in Indian Journal of Public Administration in 2004, 2016 and 2018. The reports of all the SFCs were analysed for the study barring reports which are extremely difficult to collect for unknown reasons. A preliminary finding of a similar study on Panchayats was presented in the Two-day National Workshop on Fiscal Decentralization and the Role of State Finance Commissions held on 18–19 January 2016 at India Habitat Centre, New Delhi. The Ministry of Panchayati Raj organized the workshop with the technical support of the Indian Institute of Public Administration and the National Institute of Rural Development and Panchayati Raj. Union Minister of Rural Development and Panchayati Raj inaugurated the workshop which was attended by several chairmen &

 PREFACE 

vii

members SFCs, national & international experts as well as senior civil servants from Union and States. Constructive comments from participants are gratefully acknowledged. Prominent among them are Roy Bahl, A K Goyal, Sudhir Krishna, Om Prakash Mathur, Tina Mathur, Sarada Muraleedharan, T R Raghurandan, Indira Rajaraman, Aruna Sharma, D K Sharma, Rashmi Shukla Sharma, K. Siva Subrahmanyam, Shyam Nath and S.M. Vijayanand. Valuable inputs came from several state finance commissions’ chairmen namely B K Joshi, M L Kantha Rao, Jyoti Kiran, S Krishnan, Himmat Kothari, Anand Misra and B A Prakash and members/ member secretary namely C Ashokvardhan, Sushil Kumar Dwivedi, K M Naidu, M K Roy, R Sudharshan Rao, C Venkateswara Rao and Prashant M Wadnere. Their contributions are gratefully acknowledged. Study of this kind is not possible without the support from young scholars. I am thankful to Ambar Zahara, Ankita Singh, Damini Singh, Madhulika Jatoliya and Shonit Nayan for research support at several stages of the study. Madhulika helped a great deal in putting things together in the preparation of the final draft. She also contributed Table 4.1 in the book. None of them is however responsible for the remaining errors. Lastly, I would like to record my sincere gratitude to Richard Bird for constructive suggestions on an earlier draft of the book and to Surendra Nath Tripathi, Director General, Indian Institute of Public Administration for his encouragement. New Delhi, India

V N Alok

Contents

1 Introduction  1 Background   1 Functional and Financial Devolution  10 References  17 2 State-Local Intergovernmental Fiscal Transfer (IGFT) in India: Identification of Indicators 19 References  31 3 Recommendations and Methodologies of SFCs: A Review 33 Recommendations of SFCs  33 Global Sharing  34 Assignment of Revenues  40 Horizontal Distribution  40 Grants in Aid  43 Maintenance/Establishment Grant  56 Functions and Functionaries  58 Other Measures  69 Methodologies of SFCs  69 References  92 4 Impediments in the Functioning of SFCs and Good Practices 93 Local Fiscal Data Deficiencies  93 Inconsistent Methodologies of Various SFCs  94 ix

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Contents

Poor Response by the State Governments on SFC Reports  94 Non-synchronization with Union Finance Commission  95 Indefinite Tenure of SFCs  95 Qualifications of SFC Members  96 Composition of the SFCs 102 Procrastinated Constitution of SFC 102 Extraneous Contents and unordered Presentation of SFC Reports 104 Good Practices of SFCs 106 Other Areas of Concern 108 References 116 5 Conclusions and Suggestions117 Suggestions 119 Role of Union Government 120 Role of State Governments 120 Role of SFC 121 At Last 122 Reference 122 Appendix: Summaries of Recommendations and ATRs123 References513 Index521

Abbreviations

AAY Antyodaya Anna Yojana ADC Autonomous District Council AG Accountant General ANM Auxiliary Nurse Mid-wives AP Andhra Pradesh APMC Agricultural Produce Market Committee ArP Arunachal Pradesh ARM Additional Resource Mobilisation ARV Annual Rental Value ARWSP Accelerated Rural Water Supply Programme AS Anchal Samiti ASHA Accredited Social Health Activist Asm Assam BDPO Block Development & Panchayat Officer BE Budget Expenditure Bih Bihar BP Block Panchayat BPL Below Poverty Line BRGF Backward Regions Grant Fund CAA Constitutional Amendment Act C & AG Comptroller & Auditor General C&P Tax Circumstances & Property Tax CE Capital Expenditure CEO Chief Executive Officer CFC Central Finance Commission CSS Centrally Sponsored Scheme DDO District Development Officer xi

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ABBREVIATIONS

DF Development Fund DLFA Director of Local Fund Audit DP District Panchayat DP Divisible Pool DPC District Planning Committee DPRO District Public Relations Office DRD Department of Rural Development DRDA District Rural Development Agency EO Executive Officer ERP Enterprise Resource Planning ET Entertainment Tax FC Finance Commission FD Finance Division FFC Fourteenth Finance Commission FRBM Fiscal Responsibility & Budget Management GDP Gross Domestic Product GIS Geographical Information System GMC Guwahati Municipal Corporation GO Government Order GP Gram Panchayat GPF General Purpose Fund GSDP Gross State Domestic Product GST Goods & Service Tax Guj Gujarat Har Haryana HIPA Haryana Institute of Public Administration HIRD Haryana Institute of Rural Development HoDs Head of Departments HP Himachal Pradesh HRDD Human Resource Development Department HRDF Haryana Rural Development Fund HUDA Haryana Urban Development Authority HUDCO Housing & Urban Development Corporation ICDS Integrated Child Development Services Scheme IDFC Infrastructure Development Finance Company Ltd IGFF Infrastructure Gap Filling Fund IGPRS Indira Gandhi Panchayati Raj Sansthan ILW Inspector of Local Works IMFL Indian Made Foreign Liquor IPAI Institute of Public Auditors of India IRDP Integrated Rural Development Programme IT Information Technology

 ABBREVIATIONS 

J & K Jammu & Kashmir JRY Jawahar Rozgar Yojna Kar Karnataka Ker Kerala KP Kshetra Panchayat LADT Local Area Development Tax LBs Local Bodies LGs Local Governments LIC Life Insurance corporation LR Land Revenue LSG Local Self Government Mah Maharashtra MAHUD Municipal Administration, Housing & Urban Development Man Manipur MB Municipal Boards MBA Master of Business Administration MFP Minor Forest Produce MIS Management Information System MLA Member of Legislative Assembly MLALAD Member of Legislative Assembly Local Area Development MoPR Ministry of Panchayati Raj MP Madhya Pradesh MP Member of Parliament MPC Metropolitan Planning Commission MPLAD Member of Parliament Local Area Development MV Tax Motor Vehicle Tax NAC Notified Area Council NATPAC National Transportation Planning and Research Centre NDDP Net District Domestic Product NGO Non-Governmental Organization NRHM National Rural Health Mission NIC National Informatics Centre NIRD National Institute of Rural Development NIUD National Institute of Urban Development NLGORR Non Loan Gross Own Revenue Receipts NN Nagar Nigam NOC No Objection Certificate NP Nagar Panchayats NPP Nagar Palika Parishads NPRE Non-Plan Revenue Expenditure NRDWSP National Rural Drinking Water Supply Programme Odi Odisha

xiii

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ABBREVIATIONS

O&M Operation & Maintenance OBC Other Backward Caste OMGFF Operation and Maintenance Gap Filling Fund OTR Own Tax Revenue PBR People’s Biodiversity Register PHC Primary Health Centre PHEO Public Health Engineering Organization PHSC Punjab Health Systems Corporation PPP Public Private Partnerships PR & RD Panchayati Raj & Rural Development PRI Panchayati Raj Institutions PS Panchayat Samiti PU Panchayat Union Pun Punjab PWD Public Works Department PWSSB Punjab Water Supply & Sewerage Board Raj Rajasthan RCC Reinforced Cement Concrete RDA Rural Development Agency RE Revenue Expenditure RLB Rural Local Bodies RMC Regulated Marketing Committees SC Schedule Caste SCP Special Component Plan SFC State Finance Commission SGOTR State’s Gross Own Tax Revenue SHG Self Help Groups Sik Sikkim SIRD State Institute of Rural Development SOTR State’s Own Tax Revenue ST Schedule Tribe SUDA State Urban Development Authority SWM Solid Waste Management TC Town Committee TFC Thirteenth Finance Commission TN Tamil Nadu ToR Terms of Reference TP Taluk Panchayat Tri Tripura TSP Tribal Sub Plan TUFIDCO Tamil Nadu Urban Finance and Infrastructure Development Corporation Limited

 ABBREVIATIONS 

TUIFSL Tamil Nadu Urban Infrastructure Financial Services Limited UDD Urban Development Department UD & HD Urban Development & Housing Department UFC Union Finance Commission UK Uttarakhand ULB Urban Local Body UP Uttar Pradesh UPSEB Uttar Pradesh State Electricity Board VAT Value Added Tax VDO Village Development Officer VLT Vacant Land Tax VP Village Panchayat VRS Voluntary Retirement Scheme WB West Bengal WCP Women Component Plan YASHADA Yashwantrao Chavan Academy of Development Administration ZP Zila Parishad

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List of Exhibits

Exhibit 1.1 Exhibit 1.2 Exhibit 3.1 Exhibit 4.1

[Panchayats]6 [Municipalities]7 Types of grants recommended by various SFCs 43 Ranking of the states. (Source: Author’s calculations) 114

xvii

List of Tables

Table 1.1 Table 1.2 Table 1.3 Table 2.1 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 3.6 Table 3.7 Table 4.1 Table 4.2 Table 4.3

Numbers of Panchayats in each State/UT as on 1st September 2019 3 Numbers of Municipalities in each State/UT as on 1st September 2019 4 Revenue Power of Panchayats in States at Each Tier 12 Criteria for horizontal distribution of allocations to Panchayats and Municipalities 22 SFC Recommendations for Share in State Divisible Pool 35 Assignment of Tax and Non-tax Handles to Local Governments by various SFCs 41 Types of grants recommended by SFCs 45 Devolution of functions & functionaries by SFCs to panchayats 60 Devolution of functions & functionaries by SFCs to the Municipalities65 Other policy and administrative measures 69 Methodologies adopted by SFCs 72 Adherence to the Prescribed Qualifications of Chairman and Members of Finance Commissions in States 97 Constitution of State Finance Commissions by States: How Regular?103 Constitution and Submission of SFC Reports and Action Taken thereon 109

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CHAPTER 1

Introduction

Background From federal perspective, a trend has been noted in many developing countries, in the last four decades, towards increasing decentralization of public sector. The period has witnessed a significant rise in local democracy with growing realization that devolution of political, administrative and fiscal authority to local units of government is one of the best ways to deepen democracy and increase efficiency. It was also felt that responsibilities for public expenditure be devolved with concomitant revenue to maintain fiscal accountability (Bird 1993). Seemingly, this shift along with privatization and deregulation has tended to reduce the authority of national governments over economic policies. India too is moving towards this direction with an added emphasis on cooperative federalism in the second decade. With changing political scenario, from one-party rule till 1980s to coalition government, and greater decentralization with introduction of constitutional amendments in 1992, the Indian federalism has shown notable signs of its evolution. This movement needed greater co-operation of union government with state governments for strengthening of local governments as constitutional entities. With the passage of 73rd and 74th Constitutional Amendments, Part IX and IXA have been inserted into the Constitution for Panchayats and Municipalities respectively. The Constitutional Amendment Act (CAA) © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 V N Alok, Fiscal Decentralization in India, https://doi.org/10.1007/978-981-16-2203-8_1

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gave a constitutional recognition to local governments as third-tier of government and endowed the State legislature with authority to allocate roles to local governments in the matters, listed in the newly created Eleventh Schedule and Twelfth Schedule. It also necessitated the State to transfer the interrelated powers to enable them to carry out the responsibilities conferred upon them. To make local government function as self-­ government institution, the legislature of a State is required to both empower the rural and urban local governments to levy, collect and appropriate certain taxes, duties, tolls and fees, etc., and also assign to them the revenues of certain state level taxes subject to such conditions as are imposed by the state government. Further, the state government may also provide grants-in-aid to these local governments from the consolidated fund of the state. Resulting from the CAA, the numbers of Panchayats as on 1st September 2019 stood at 260,623 of which 253,380 are Gram Panchayats, 6613 are Block Panchayats and 630 are District Panchayats (Table 1.1). On the other hand, Municipalities at the same time numbered 4252 in all States (Table 1.2). Article 243 I and 243 Y of the Constitution necessitates every State Government to constitute, at regular interval of five years, a State Finance Commission (SFC), and assigns it the task of reviewing the financial position of local governments and making recommendations on the sharing and assignment of various taxes, duties, tolls, fees etc. and grants-in-aid to be given to the local governments from the consolidated fund of the State. Each State was required to enact the conformity Acts of the CAA at the State level. These conformity Acts in form of Panchayat and Municipal Acts provide for the composition of the commission, the qualifications for its members and the manner of their selection. Every recommendation of the commission together with an explanatory memorandum is to be laid before the legislature of the state. It is more than two and a half decades since Part IX and IX A were incorporated into the Constitution. During the period, one could have found enough reasons to cheer. Conformity Acts have been enacted in all the States. Elections for local governments have been conducted in all States. Women have been elected as Mayor for city government and Sarpanch (Head) for rural local government. All States have constituted their SFC.  Most States have received their fifth generation SFC recommendations.1 Notwithstanding, local governments are still bearing 1

 6th State Finance Commission has also been constituted in a number of states.

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3

Table 1.1  Numbers of Panchayats in each State/UT as on 1st September 2019 Sl. No. 1 2 3 4 5 6 7 8 9 10

State/UT

Andhra Pradesh Arunachal Pradesh Assam Bihar Chhattisgarh Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir (f) 11 Jharkhand 12 Karnataka 13 Kerala 14 Madhya Pradesh 15 Maharashtra 16 Manipur 17 Meghalaya(d) 18 Mizoram(d) 19 Nagaland(d) 20 Odisha 21 Punjab 22 Rajasthan 23 Sikkim 24 Tamilnadu 25 Telangana 26 Tripura 27 Uttar Pradesh 28 Uttarakhand 29 West Bengal Union Territories 1 Andaman & Nicobar 2 Chandigarh 3 Dadra & Nagar Haveli 4 Daman & Diu 5 NCT of Delhi(e) 6 Lakshadweep

Name of panchayats (numbers) District3 Block2 Village1 Total

Rural population per VP

13 23 26 38 27 2 33 21 12 22

660 177 191 534 146 n.a. 248 126 78 306

13,042 1785 2199 8386 10,978 191 14,292 6197 3226 4482

13,715 1985 2416 8958 11,151 193 14,573 6344 3316 4810

2824 695 13,472 11,857 1804 3827 2588 2986 2100 2259

24 30 14 51 34 6 -na-na-na30 22 33 4 31 9 8 75 13 22

263 176 152 313 351 -na-na-na-na314 147 295 -na385 438 35 822 95 342

4370 6021 941 22,817 27,869 161 -na-na-na6798 13,271 9892 185 12,523 13,057 591 58,791 7762 3340

4657 6227 1107 23,181 27,869 167 0 0 0 7142 13,440 10,220 189 12,939 13,504 634 59,688 7870 3704

6255 6563 49,385 2311 2272 14,668 -na-na-na5264 1335 5127 2672 3159 1726 7600 2847 927 22,498

3

9

70

82

3784

-na1

-nan.a.

n.a. 20

0 21

-na-na-

2 n.a. 1

n.a. n.a. n.a.

15 n.a. 10

17 0 11

-na-na-na(continued)

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Table 1.1 (continued) Sl. No.

State/UT

7

Puducherry India

Name of panchayats (numbers) District3 Block2 Village1 Total n.a. 630

10 6613

Rural population per VP

98 108 4470 253,380 260,623 3624

Source: Author’s compilation based on data from State Governments Note: 1. VPs-Village Panchayats or Gram Panchayats in almost all States 2. The nomenclature of intermediate rung differs from one State to another. It is known as Mandal Parishad in Andhra Pradesh, Anchal Samiti in Arunachal Pradesh, Anchalic Panchayat in Assam, Janpad Panchayat in Chhattisgarh and Madhya Pradesh, Taluka Panchayat in Gujarat, Taluk Panchayat in Karnataka, Panchayat Union in Tamilnadu, Kshetra Panchayat in Uttar Pradesh and Uttarakhand and Panchayat Samiti in many States i.e. Bihar, Haryana, Himachal Pradesh, Jharkhand, Maharashtra, Orissa, Punjab and Rajasthan 3. It is also known as Zilla Panchayat/Parishad in many States 4. The State is outside the purview of Part IX of the Constitution under its Article 243 M 5. Panchayat has yet to be revived 6. The erstwhile state of Jammu and Kashmir has been changed to two Union Territories of (a) Jammu & Kashmir and (b) Ladakh on 31st October 2019

Table 1.2  Numbers of Municipalities in each State/UT as on 1st September 2019 S.No. State/UT

Total number of Municipalities

Municipal corporations

Municipal councils

Nagar Panchayats

1 2

110 19

16 0

74 2

20 17

99 143 165 14 170 81 54

1 12 13 1 8 2 2

34 48 43 13 162 19 31

64 83 109 0 0 60 21

58

1

48

9

54 276 107 378

13 10 6 16

20 175 87 98

21 91 14 264

3 4 5 6 7 8 9 10 11 12 13 14

Andhra Pradesh Arunachal Pradesh Assam Bihar Chhattisgarh Goa Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka Kerala Madhya Pradesh

(continued)

1 INTRODUCTION 

5

Table 1.2 (continued) S.No. State/UT

Total number of Municipalities

Municipal corporations

Municipal councils

Nagar Panchayats

15 Maharashtra 16 Manipur 17 Meghalaya 18 Mizoram 19 Nagaland 20 Odisha 21 Punjab 22 Rajasthan 23 Sikkim 24 Tamil Nadu 25 Telangana 26 Tripura 27 Uttar Pradesh 28 Uttarakhand 29 West Bengal Union Territories 1 Andaman & Nicobar Islands 2 Chandigarh 3 Dadra & Nagar Haveli 4 Daman & Diu 5 Delhi 6 Lakshadweep 7 Puducherry

396 27 11 1 32 52 166 190 7 664 73 20 653 92 126

27 1 0 1 0 5 10 7 1 12 6 1 17 8 6

237 8 6 0 3 47 100 34 3 124 42 13 198 42 120

132 18 5 0 29 0 56 149 3 528 25 6 438 42 0

1

0

1

0

1 2

1 0

0 0

0 2

2 3 NA 5

0 3 NA 0

2 0 NA 5

0 0 NA 0

India

4252

207

1839

2206

Source: Author’s compilation based on data from State Governments Notes: There are three types of Municipalities as per article 243Q of the Constitution. These are (a) Nagar Panchayat in areas which is in transition from rural to urban. In many States, nomenclature is different and terms like ‘Notified Area Committee’, ‘Municipal Committee’, ‘Town Area Committee’, ‘Urban Station Committee’, ‘Notified Area Committee’, are used. (b) Municipal Council in small urban settlement; it is also called ‘Nagar Palika Parishad’ and ‘Municipality’ in some States (c) Municipal Corporation in large urban areas. In some States, it is called as ‘Nagar Nigam’, ‘City Corporation’ and ‘Mahanagar Palikhe’. It is the mandate of the State Assembly to identify and define these three urban local governments

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the financial burnt which not only has affected their development but the operational efficiency as well. The problem has compounded only with the addition of 11th and 12th schedule to the constitution conferring greater role and responsibilities to local government. The 11th schedule to the Constitution lists 29 broad subjects for the Panchayats while the 12th schedule lists 18 matters for Municipalities. (Please see Exhibits 1.1 and 1.2). On these subjects, union and state governments design vertical programmes on economic development and social justice in which Panchayat and Municipalities have roles in their implementations. Exhibit 1.1 [Panchayats]

Classification of Functions Listed in Eleventh Schedule Core Functions • Drinking Water. • Roads, culverts, bridges, ferries, waterways and other means of communication. • Rural electrification, including distribution of electricity. • Health and sanitation, including hospitals, primary health centres and dispensaries. • Maintenance of community assets. Welfare Functions • Rural housing. • Non-conventional energy sources • Poverty alleviation programme. • Education, including primary and secondary schools. • Technical training and vocational education. • Adult and non-formal education. • Libraries. • Cultural activities. • Family welfare. • Women and child development. • Social welfare, including welfare of the handicapped and mentally retarded. • Welfare of the weaker sections, and in particular, of the Scheduled Caste and the Scheduled Tribes • Public distribution system. (continued)

1 INTRODUCTION 

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Exhibit  (continued)

Agriculture and Allied • Agriculture, including agricultural extension • Land improvement, implementation of land reforms, land consolidation and soil conservation. • Minor irrigation, water management and watershed development. • Animal husbandry, dairying and poultry. • Fisheries. • Social forestry and farm forestry. • Minor forest produce. • Fuel and fodder. • Markets and fairs. Industries • Small scale industries, including food processing industries. • Khadi, village and cottage industries. Note: The Eleventh Finance Commission has given the above classifications to the functions enumerated in the 11th Schedule.

Exhibit 1.2 [Municipalities]

Classification of Functions Listed in Twelfth Schedule Core functions • • • • •

Roads and Bridges Water supply for domestic, industrial and commercial purpose Public health, sanitation, conservancy and solid waste management Burial and cremation grounds and electric crematoria Public amenities including street lighting, parking lots, bus stops and public conveniences Welfare functions • Safeguarding the interests of weaker sections of society, including the handicapped. • Slum improvement and up gradation • Urban poverty alleviation (continued)

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Exhibit  (continued)

• Provision of urban amenities and facilities such as parks gardens, playgrounds • Promotion of cultural, educational and aesthetic aspects • Cattle pounds; prevention of cruelty to animals Development functions Urban planning including town planning Regulation of land-use and construction of buildings Planning for economic and social development Fire services Urban forestry, protection of the environment and promotion of ecological aspects • Vital statistics including registration of births and deaths. • Regulation of slaughter houses and tanneries. • • • • •

Note: The Eleventh Finance Commission has given the above classifications to the functions enumerated in the 12th Schedule. Ideally, the functional responsibilities should closely be linked with the financial powers delegated to the local government. However, there is no separate list of taxes (similar to the expenditure responsibilities listed in the 11th and 12th schedules) assigned to them. Own revenues of local governments are generally adequate to meet only a part of their operation and maintenance (O&M) requirements. In reality, therefore, there is a massive gap between the assignment of expenditure accountabilities and revenue sources resulting to a stark financial strain at the local level and hence they are dependent on the higher level of governments to finance their activities. The SFCs are responsible to examine not only the revenue-sharing arrangements between the State governments and the local governments, both rural and urban, but also the entire range of subjects concerning assignment of taxes, transfers of power and such other subjects for improving the financial health of local governments. In this case, the CAA does not draw any distinction between the revenue and capital requirements of the local governments. Therefore, SFCs are not confined only to the assessment of revenue expenditure of the local governments in order to recommend the devolution of funds and financial powers to the local governments at various levels.

1 INTRODUCTION 

9

Against this backdrop, the study presented in the book attempts to review the SFCs and their workings across states and time with the following objectives:• To make a comparative analysis of the recommendations of the SFCs across States at different period of time on the following major heads which emanate from article 243 I and 243 Y of the Indian Constitution: Global Sharing Assignment of Revenues Horizontal Distributions Grants-in-aid Functions and Functionaries Other Measures • To identify the indicators of State-local intergovernmental fiscal transfers • To highlight commonalities and variances of SFC recommendations • To present the methodologies adopted by various SFCs for making recommendations to the State Governments. • To analyse the implementation status of latest SFC recommendations by the State Governments through the Action Taken Reports (ATR) passed in the State Legislatures. • To bring out the constraints faced by the States in implementing the recommendations • To highlight best practices • To recommend roadmaps for improvements in the functioning of SFCs. The study also attempts to identify some of the emerging issues related to the efficacy of SFC in fiscal decentralization. For this, seventy six reports have been analysed. In most cases, actions taken by the respective State Governments on the SFC recommendations have also been analysed. Data for this study have been collected from the available secondary sources viz., 76 SFC reports of various States and many action taken reports (ATRs). The reports of all the SFCs were examined for the study barring reports which are extremely difficult to collect for unknown reasons.

10 

V N ALOK

The book contains six chapters. The first chapter is introductory and presents issues related to functional and financial devolution in India across states in the wake of seventy third and seventy fourth amendments to the Constitution. Chapter 2 identifies indicators of state-local intergovernmental fiscal transfer in India. Chapter 3, as the title of the study indicates, examines the methodologies and recommendations of the SFCs under various heads. Chapter 4 presents impediments that the State and SFC encounter in the functioning of the latter. Some good practices are also presented in this chapter. Chapter 5 presents conclusion and a few suggestions to strengthen SFCs. The scope of the examination is essentially limited by the available information. The overview presented in the report is a mid-term review that can be outdated in future. The appendix of the book contains summaries of the major recommendations of SFCs and the actions taken by State Governments on each recommendation.

Functional and Financial Devolution Articles 243G and 243 W of the Constitution empower Panchayats and Municipalities to function as institutions of self-government for the purposes of (a) preparing plans for economic development and social justice for their respective areas and (b) performance of civic functions and implementing schemes in their respective areas for various subjects including those listed in the Eleventh Schedule and Twelfth Schedule respectively. Such constitutional empowerment of local governments could have resulted in an improved efficiency in delivery of public services in certain terms. The reality, however, is different. The subjects listed in Eleventh and Twelfth Schedules are only indicative and does not entail exclusive powers to Panchayats and Municipalities respectively. It is for the State Legislature to make laws regarding the devolution of powers and functions upon the local governments. The fact of the matter is that almost all the subjects enumerated in the lists are State-concurrent, involving duplication and overlapping. Activity mapping is another task before the SFC where it has to define the functions, finances and functionaries that are to be devolved to each rung of Panchayats and each level of Municipality. However, it is an irony that even the core functions (see Exhibits 1.1 and 1.2), which traditionally belonged to local governments, have not been transferred fully to them in some states. These functions are executed by the line departments of the State Government or the parallel parastatals.

1 INTRODUCTION 

11

Revenue Under CAA, financial autonomy of local governments was deemed to be crucial for working them as self-government institutions. In this effect, powers to impose taxes by the local governments were enshrined in the Constitution under Article 243H and 243 X to impart certainty, continuity and strength to the Panchayats and Municipalities respectively. The Union Minister of State for Rural Development, G Venkat Swamy said while moving the Constitution (73rd Amendment) Bill in Parliament, “Constitution (Seventy-third) Amendment cast a duty on the centre as well as the states to establish and nourish the village panchayats so as to make them effective self-governing institutions….We feel that unless the panchayats are provided with adequate financial strength, it will be impossible for them to grow in stature”. Taxes which are to be devolved to local governments can simply be linked with the functions assigned to them, which vary from State to State. From the long list of Eleventh Schedule and Twelfth Schedule, certain basic functions are believed to be in the sphere of Panchayats and Municipalities exclusively (see Exhibits 1.1 and 1.2). Even these essential core functions require huge funds. Table 1.3 reveals that various tax and non-tax sources have been transferred at different rungs of Panchayats.2 The relative importance of these sources, however, varies from State to State. It can be seen from the table that the maximum taxing powers have been assigned to village Panchayat. The other two rungs, whereas, are endowed with very few taxes. From the list, property tax, land cess, duty on transfer of property, profession tax, entertainment tax, non-motor vehicle tax, user charges, etc. contribute the maximum to the small kitty of own revenue, which contributes only six to seven percent in the total expenditure of Panchayats (Alok 2006, 2019). Of these sources, property tax has been the major contributor to revenue in most states. However, this remains an inelastic tax due to inefficient administration in its collection and the fact that its assessment is based on rental value of property in a year which is often under reported. Over the years, however, some progressive states have switched to unit area method in the determination of the property tax base. There are certain taxes which are levied and collected by the State Government and proceeds of which are transferred to local governments 2

 Municipalities also levy similar taxes and non-taxes as per their respective municipal acts.

Develop ment Tax

V

V

V

V

B, D

V, B

V, B, D B

V

V, B, D

V

V, B

V, B, D

V

V

V

B

V

D

B

V, B

B

B, D V, B

V

V

V, N

V, N, D

V, N

V

V

V

V

V

V, B

House/ Property Tax Duty on Transfer of property Tax on agriculture land for specific purpose Cess on land revenue or surcharge Tax on professions, trades, calling, and so forth Entertainment tax Pilgrim tax or fees Tax on advertise ments Tolls

V

Andhra Assam Bihar Chhattis Goa Gujarat Haryana Himachal Pradesh garh Pradesh

Tax or Fee/ States

V

V

V

V

V

V

V

V

V

D

B

V

V

V

Jhar- Karna- Kerala Madhya khand taka Pradesh

Table 1.3  Revenue Power of Panchayats in States at Each Tier

V

V

V

V

V

V

V

V

V

V

B

V

V

V

B

V

V

V

V

V

V, D

V, B, D

V

V

V

Maha- Odisha Punjab Rajas Sikkim Tamil Uttara- Uttar West rashtra than Nadu khand Pradesh Bengal

Drainage rate Special tax for community civic services or works Fee (Sanitary Arrange ments @ pilgrimage Fairs)

Tax for clearing private latrines and drainage Vehicle tax Fee on Vehicles (other than motor Vehicles) Animal tax Conservancy rate Lighting rate Water rate

Tax or Fee/ States

V, D

V

V, D

V, B, D

V V

V

V, D V

B

V, B, D

V, B, V D V, B, V, B D V

V

V, B, V, B D

V

V

V

V, N

V

V

V

Andhra Assam Bihar Chhattis Goa Gujarat Haryana Himachal Pradesh garh Pradesh

V

V, B, V D V, B, V D

V

V, B

V

V

V

V

V

Jhar- Karna- Kerala Madhya khand taka Pradesh

V

V

V

V

V

V

V

V, B

V, B

V, B

V

B

V, B, D

D

V

V, D

V, D

V, D

V

V, B, D V

V, D

V

(continued)

V, B

V

V

V

Maha- Odisha Punjab Rajas Sikkim Tamil Uttara- Uttar West rashtra than Nadu khand Pradesh Bengal

V

V

D

B

V, B

V, B

V

V

V, N, D

V, N, D

V

V

Andhra Assam Bihar Chhattis Goa Gujarat Haryana Himachal Pradesh garh Pradesh

Fees for license for hat or market Fees for running trade Fees for running dangerous and offensive trade Fees for license for fair or mela Fee for bullock-cart stand & tonga stand Fee for V registration of animals sold in the sabha area Fee for grazing cattle

Tax or Fee/ States

Table 1.3 (continued)

V

V

B, D V

V

V

V

V

V

V

Jhar- Karna- Kerala Madhya khand taka Pradesh

V

V

V

V

V

V

V

D

V

V, D

V, D

B

V

B

V

B

Maha- Odisha Punjab Rajas Sikkim Tamil Uttara- Uttar West rashtra than Nadu khand Pradesh Bengal

D

V

V

V, B, D B, D

V, B, D

V

Jhar- Karna- Kerala Madhya khand taka Pradesh

V V

V

V

V

V, D

V, D

V

V

V

V, B, D V, B, D

Maha- Odisha Punjab Rajas Sikkim Tamil Uttara- Uttar West rashtra than Nadu khand Pradesh Bengal

Note: V denotes Village Panchayat; similarly B, D, and N denote Block, District, and Nagar Panchayat respectively. More than one sign indicates the concurrent power of Panchayats for the respective tax

Source: Author’s compilation based on data from State Governments

Ferry rentals D

B

V

Andhra Assam Bihar Chhattis Goa Gujarat Haryana Himachal Pradesh garh Pradesh

Income V from Fisheries Fees for the V use of sarais, dharamsala, slaughter houses and encamping grounds Service Fee

Tax or Fee/ States

16 

V N ALOK

for their use. These are called assigned revenues. After own revenue, the assigned revenue is the closest to local government finances. Some States deduct collection charges and then transfer the revenue. Wide interstate variations, however, have been observed, in this practice by states. The typical examples of assigned revenue are: surcharge on stamp duty, cess or additional tax on land revenue, profession tax, entertainment tax, etc. In many states, these taxes form part of the own revenue of local governments. Borrowings No reference is made in the CAA to loans and borrowing by Panchayats. In the past, big Municipal Corporations, with the approval of their state governments, have floated bonds in the market. In contrast to the general belief that Panchayats are not empowered to raise loans (Gulati 1994; Oommen 1995; Rajaraman 2003; Jha 2000), Local Authorities Loans Act, 1914, a Central Act does exist enabling the grants of loans to local authorities including Panchayats (Alok 2009). S tate Finance Commission Given the present tax domain of local governments, there is a huge divergence in the responsibilities and financial powers assigned to them resulting in a revenue crunch. They, therefore, depend on higher fiscal transfers from State government in the form of shared taxes and grants. State taxes are shared as per the recommendations of SFC. The SFC, created under articles 243-I and 243-Y, is viewed as the sub-national equivalent of the Union Finance Commission formed under article 280 of the Constitution. The legal provisions for the SFC are, therefore, similar to that of the Union Finance Commission except the wordings of the first paragraph of article 243-I and 243-Y that provides for the constitution of the SFC ‘at the expiry of every fifth year’. This is not akin to the provision exits under article 280 constituting Union finance commission ‘at the expiry of every fifth year or earlier’. The missing part ‘or earlier’ disallows the constitution of a new SFC before the completion of the five-year-period. The article mandates SFC to review the financial position of the Panchayats and Municipalities and make recommendations to the Governor on the principles that should govern: 1. The distribution between the State and the Panchayats and Municipalities of the net proceeds of the taxes, duties, tolls and fees

1 INTRODUCTION 

17

leviable by the State, and their inter se distribution between the Panchayats and Municipalities at all levels for such proceeds, 2. The determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats and Municipalities; 3. The grants-in-aid to Panchayats and Municipalities from the consolidated fund of the State; 4. The measures needed to improve the financial position of the Panchayats and Municipalities 5. Any other matter in the interest of sound finance of the Panchayats and Municipalities Many states have reproduced verbatim the articles 243I and 243Y while framing the terms of reference (ToR) of the SFCs. Some other states deviated and added a few other terms. A detailed analysis of the ToRs of various SFCs is presented in subsequent chapters.

References Alok, V N (2019), ‘Financial Matrix for Empowerment: Design of Inter Governmental Fiscal Transfers in India to Rural Local Governments’, Study report to the 15th Finance Commission, Delhi, IIPA. Alok, V N (2009), ‘Share of Local Governments in the Union Divisible Pool: An Option before the 13th Finance Commission’ in Indian Journal of Public Administration, Jan-Mar, Vol LV. No. 1. Alok, V N (2006), “Local Government Organization and Finance: Rural India” in Anwar Shah (ed), Local Governance in Developing Countries, The World Bank. Bird, Richard M. (1993). “Threading the Fiscal Labyrinth: Some Issues in Fiscal Decentralization,” National Tax Journal, 46, 207–27. Gulati, I S (1994), “Financial Devolution to Local Bodies: Role of State Finance Commission” in Economic and Political Weekly, XXIX, No. 9 of 1914. Jha, Shikha. (2000), Fiscal Decentralization in India: Strengths, Limitations, and Prospects for Panchayati Raj Institutions. Background Paper 2, Overview of Rural Decentralization in India, World Bank. vol. 3. Oommen, M A (1995), Panchayat Finances and Issues relating to InterGovernmental Transfers. In Panchayats and Their Finance, ed. M.A. Oommen and Abhijit Datta, 1–54. Institute of Social Sciences, New Delhi. Rajaraman, Indira. (2003), A Fiscal Domain for Panchayats. Oxford University Press, New Delhi.

CHAPTER 2

State-Local Intergovernmental Fiscal Transfer (IGFT) in India: Identification of Indicators

IGFT is an instrument of public policy and should be designed in terms of its potential effects on outcomes in future. A fundamental principle that guides the design of IGFT is the objective of transfers and not to finance local government. For example, local public goods are to be rendered by Panchayats and Municipalities that have little fiscal capacity to fund them. But, for the sake of efficiency and constitutional mandate, if Panchayats and Municipalities are responsible for the provision of local public goods, IGFT has to be designed for local governments with objective to enhance their fiscal capacity. Such design of IGFT should take into considerations: (a) adequacy of own revenue generation by Panchayats and Municipalities; (b) accountability for results; and (c) flexibility to make decisions. Towards this direction, simplicity, objectivity and transparency are important characteristics in the IGFT design. The overall idea in the IGFT design is thus “to get the prices right” and making local governments fully accountable (Bird 1998). A review of the available literature and SFCs’ reports reveals that optimal design of IGFT takes into considerations the following fiscal attributes: Fiscal Needs (FN) Fiscal Capacity (FC) Fiscal Effort (FE) Disability Factor: Cost Disability and Need Disability[f(D): Cf(D) and Nf(D)] © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 V N Alok, Fiscal Decentralization in India, https://doi.org/10.1007/978-981-16-2203-8_2

19

20 

V N ALOK

The Fiscal Needs of a government whether sub-national or local may be defined as the financial requirement to cover all expenditures responsibilities assigned to a sub-­national or local at a standard level of service provision. There are many ways to measure fiscal needs across sub-national/ local governments. Fiscal needs can be measured from the current expenditure level of sub-national/local governments or costing a standardized basket of subnational services. This approach requires all kind of information and explicit procedures to know all dimensions of the expenditure responsibilities. The fiscal needs so derived may not be affordable. Secondly, ‘fiscal needs’ can be measured through historical expenditures patterns with adjustment for inflation. Thirdly, an index can be constructed with factors representing demography, poverty, unemployment, cost of living etc. Fiscal Capacity (FC) can be defined as the potential ability of the subnational/local government in its jurisdiction to raise revenue and render local public goods to its residents. It plays a vital role in the IGFT design to local governments either from States or from the Union. Often, it is difficult to find good measures of ‘fiscal capacity’. Many times, good revenue base of a jurisdiction and that of a district GDP are considered good proxies for ‘fiscal capacity’ (Vazquez and Boex 1997). But, potential revenue collection of a good local government’s revenue base is difficult to estimate in many states of India. Similarly, district GDP data are not easy to compute. Fiscal Effort (FE) can be described as the degree/extent to which a sub-national or local government utilizes the revenue base available to it. The following factors affect level of ‘Fiscal Efforts’: ( a) Tax enforcement efforts exerted by State/local taxation authorities (b) Tax Rate (if Panchayats and Municipalities having discretion over it); (c) Level of exemptions granted (if Panchayats and Municipalities having discretion over tax structure) Disability Factors [f(D)]: Sub-national government and local governments do not have the same financial capacity to provide the standard level

2  STATE-LOCAL INTERGOVERNMENTAL FISCAL TRANSFER (IGFT) IN INDIA… 

21

of services to their citizens. Differences in their physical and economic circumstances and the characteristics of their population lead to differences in their relative costs of providing services and their relative revenue raising capacities. These sorts of differences, which are beyond the control of a sub-national and local government, are termed as ‘disabilities’ (Saraf and Srivastava 2009). This can be bifurcated into two factors namely: need/use disability and cost disability. Need disability reflects the differences between sub-national government or/and local governments in the use of services as a result of things such as population characteristics and availability of private services. It can be the share of SCs/STs population, share of population in aspirational district1 and others as such. On the other hand, cost disability can be defined in terms of influences that affect cost per unit of service rendered to targeted group of citizens or places. For instance, higher cost might be incurred when services are being rendered in Panchayats and Municipalities falling in hilly or mountainous states, near jurisdiction of international boundaries, coastal and disaster prone areas and others as such. Design as of IGFT in several States; have undertaken inter alia the above considerations. These have been reflected in the reports of their SFCs which have been the main institution to design IGFT in the States. SFCs in general, have framed their recommendations on the basis of a review of the existing conditions at the State and local level. A glance through seventy plus reports reveals that SFCs have examined some common issues including (a) State finances (b) State revenue (c) State expenditure (d) finances of Panchayats and Municipalities (e) fiscal domain of local governments (f) resource requirements (g) accounts and audit (h) administrative structure (i) procedural matters etc. Table 2.1 shows broad criteria used by SFCs in their approach to transfer resources to local governments from State kitties.

 The initiative launched under the aegis of NITI Aayog to quickly and effectively transforming selected districts which are backward. 1





I

IV V

I

II

Asm

Bih

Goa

State

3

4

5

S.N.

SFC

Criteria



√ √ √

√ √ √

√ √ √

III IV V







II





Under development index Performance, discretionary quota

Own Income Effort, Distance from highest per capita income Share of motor vehicle tax for rural areas on the basis of population of each Panchayat as per latest census. Per capita NDDP of primary sector net of mining and quarrying -Same as above-Same as aboveInverse per capita RDDP



√ √

√ √ √





√ √



x

√ √

Ar.P

2







I II III I

AP

Population SC/ST Other Population Population (AAY/ BPL etc)

Popula- SC/ST Other Area Literacy/ Back Other measures tion Population Population Non wardness (AAY/BPL Literacy etc)

1

Municipalities

Panchayats

Criteria

SFC

State

S.N.

Table 2.1  Criteria for horizontal distribution of allocations to Panchayats and Municipalities



√ √

√ √ √







Performance, discretionary quota

Share of motor vehicle tax for urban areas on the basis of number of vehicles in the areas Index of Infrastructure, per capita tax collection -Same as above-Same as above-Same as above-

Area Literacy/ Back Other measures Non wardness Literacy

√ √











II

III

J&K Kar

8 9



√ √ √

√ √ √ √

II III IV V I I

√ √



I

Har

7







√ √

Share in individual taxes have different criteria of distribution

I II

Guj

Decentralized planning √ formula, origin basis, other suitable criteria to be evolved by state government Origin basis √ Gender sex ratio √ √ √ Length of road area, √ hospital bed strength population Population per hospital √ bed Population per hospital √ bed, density of population

Income from professional tax should be shared between Panchayats and Municipalities on the basis of rural and urban population ratio i.e. 67% and 33%.





√ √

Population SC/ST Other Population Population (AAY/ BPL etc)

Popula- SC/ST Other Area Literacy/ Back Other measures tion Population Population Non wardness (AAY/BPL Literacy etc)

6

Municipalities

Panchayats







√ √ √





√ √

√ √

(continued)

Length of road area, hospital bed strength population Population per hospital bed Population per hospital bed, density of population

Gender sex ratio

Origin basis

Income from profession tax should be shared between Panchayats and Municipalities on the basis of rural and urban population ratio i.e. 67% and 33%. Origin basis, other suitable criteria to be evolved by state government

Area Literacy/ Back Other measures Non wardness Literacy

I

Ker

MP

Mah Man

State

10

11

12 13

S.N.

SFC

Criteria

√ √

√ √

II III I I II



√ √

√ √

V I











√a



Tax effort, deprivation √ effect Inverse own income √ Number of agricultural √ labourers, average gross value of output of agriculture per hectare √ √ Per capita basis √ √ Distance from the state √ capital

Distribution formula, own revenue mobilization, maintenance needs





√ (slum)



√ Tax effort, financial need Distribution formula, own revenue mobilization, maintenance needs

Population SC/ST Other Population Population (AAY/ BPL etc)

Popula- SC/ST Other Area Literacy/ Back Other measures tion Population Population Non wardness (AAY/BPL Literacy etc)



Municipalities

Panchayats

Criteria

IV

III

II

SFC

State

S.N.

Table 2.1 (continued)



√ √

Per capita basis

Tax effort, financial need Distribution formula, own revenue mobilization, maintenance needs Distribution formula, own revenue mobilization, maintenance needs Tax effort, deprivation effect Inverse own income Sales tax contribution, infrastructure

Area Literacy/ Back Other measures Non wardness Literacy

Odi

Pun

14

15



Proportionate length of roads, collection of taxes Shortfall of per capita √ own income of Gram Panchayat in the district as compared to per capita own income of all Gram Panchayats in the state, rural population in sub-mountainous areas of the district Per capita basis, √ proportion of collection √ (SC Only)

III





II



√ √

√ √

III IV I

√ (Slum)

√ √

√ √

I II Rural connectivity

Population SC/ST Other Population Population (AAY/ BPL etc)

Popula- SC/ST Other Area Literacy/ Back Other measures tion Population Population Non wardness (AAY/BPL Literacy etc) √

Municipalities

Panchayats





(continued)

Proportion of collection

Proportionate length of roads, collection of taxes Shortfall of per capita tax income as compared to average per capita tax income of all Municipalities

Share of road length Density of population, no. of holdings, revenue efforts

Area Literacy/ Back Other measures Non wardness Literacy

State

SFC

Criteria





V

S.N.





IV

















Incidence of poverty Proportion of tax recovery, poverty Poverty (no. of BPL families) Poverty (no. of BPL families), child sex ratio, decline in decadal population growth 2001–11 over 1991–2001, girl education, infant mortality rate, own revenue mobilization Child Sex Ratio, Decline in decadal population growth 2001–11 over 1991–2001, Girl Education, Infant Mortality Rate, Deprivation on 7 criteria as per SECC 2011





III



√ √

√b

√ √

I II

Raj

Population SC/ST Other Population Population (AAY/ BPL etc)

Popula- SC/ST Other Area Literacy/ Back Other measures tion Population Population Non wardness (AAY/BPL Literacy etc)

16

Municipalities

Criteria

Panchayats

SFC

State

S.N.

Table 2.1 (continued)





Deviation of average per capita own income from the highest average per capita income.

Revenue mobilization

Proportion of tax recovery

Area Literacy/ Back Other measures Non wardness Literacy

Sik

TN

17

18













II

III

IV



√ (Women) √



O&M, capital, debt, inverse per capita, inverse assigned revenue

District income √



Agricultural labourers, √ resource gap on inverse per capita land revenue, asset maintenance

√ Financial viability, per √ capita house tax collection performance, core civic services infrastructure maintenance







(continued)

O&M, capital, debt, inverse per capita, inverse assigned revenue, debt outstanding.

Financial indicator (per capita receipt under own resources), service indicator (existing per capita expenditure on core civic services) Per capita own income, asset maintenance, salary & pension expenditure restricted to corporations/ Municipalities with 49% or less of total revenue income Debt burden

Revenue effort

Area Literacy/ Back Other measures Non wardness Literacy

√(Women) √

√ (Slum)



√ √

V I √



√ √ √

I III IV Revenue effort, vulnerability index

Population SC/ST Other Population Population (AAY/ BPL etc)

Popula- SC/ST Other Area Literacy/ Back Other measures tion Population Population Non wardness (AAY/BPL Literacy etc) √

Municipalities

Panchayats

State

Tri

State

S.N.

19

S.N.

SFC

Criteria





II III

√c





I

√(slum)



O&M, capital, debt, inverse per capita, inverse assigned revenue, per capita consumption expenditure distance







Population SC/ST Other Population Population (AAY/ BPL etc)

Popula- SC/ST Other Area Literacy/ Back Other measures tion Population Population Non wardness (AAY/BPL Literacy etc)

V

Municipalities

Criteria

Panchayats

SFC

Table 2.1 (continued)





Distance from state capital

O&M, capital, debt, inverse per capita, inverse assigned revenue, per capita consumption expenditure distance

Area Literacy/ Back Other measures Non wardness Literacy

UP

UK

20

21

x



x



III

x







II





IV







III

√ √

I



√ √

x

Deprivation index, √ remoteness index, tax effort Tax effort, remoteness, √ no. of GPs (just for KP)

Distance from rail head

√ Inverse of gross value √ of agricultural output per person (rural), average for 1997–2000, educational backwardness (illiterate rural population), 2001, medical facilities (inverse of no. of beds in PHCs per lakh of rural population) 1997–98, tax effort (share in total own revenue of all PRIs), average for 1997–2000 District integrated √ development index, revenue effort Integrated √ development backwardness index

x







x

Population SC/ST Other Population Population (AAY/ BPL etc)

Popula- SC/ST Other Area Literacy/ Back Other measures tion Population Population Non wardness (AAY/BPL Literacy etc)

I II

Municipalities

Panchayats







√ √

x



x

(continued)

Per capita devolution Deprivation index, remoteness index, tax effort Tax effort, special circumstances, per capita own revenue

Integrated development index, revenue effort Establishment comfort backwardness index, integrated development backwardness index, per capita income

Population without drinking water, tax effort

Area Literacy/ Back Other measures Non wardness Literacy







I

II

III

WB



Density population

Area of the district, √ inverse ratio of per capita bank deposits and of working capital of primary agriculture cooperatives taken together √ IMR, per capita √ NDDP at constant price √ √ (as Food insecurity, √ (female) reflected marginal workers, total by HDI) population without drinking water, sparseness of population.









Population density

Population density







Incidence of poverty, proportion of unsurfaced roads, weakness in service provision, sparseness of population, incentive support for Municipalities

Length of kutcha drain in Municipality

Area Literacy/ Back Other measures Non wardness Literacy

c

Backwardness measured in terms of Inverse ratio of agricultural productivity, Inverse ratio of number of PHC and school up to pry. Level, Inverse ratio of national and state highway mileage to the total area, Inverse ratio of area with assured irrigation to the total sown area, Inverse ratio of extent of electrification

b

Population non-desert development programmes/ non-drought prone area programmes/ no-tribal area development blocks

Note: aNo. of workers in registered factories (Per lakh of population), Per Capita Consumption of Power

Source: Author’s compilation based on SFC Reports





Population SC/ST Other Population Population (AAY/ BPL etc)

Popula- SC/ST Other Area Literacy/ Back Other measures tion Population Population Non wardness (AAY/BPL Literacy etc)

22

Municipalities

Panchayats

Criteria

SFC

State

S.N.

Table 2.1 (continued)

2  STATE-LOCAL INTERGOVERNMENTAL FISCAL TRANSFER (IGFT) IN INDIA… 

31

References Bird, R.M (1998), Designing State-Local Fiscal Transfers for Uttar Pradesh, (Summary) July, (mimeo). Saraf, Richa and D.K. Srivastava (2009) Determining General and Specific Purpose Transfers: An Integrated Approach. Working paper 40/2009, Madras School of Economics. Vazquez, Jorge Martinez and L F Jameson Boex (1997) Fiscal capacity: An Overview of Concepts and Measurement Issues and Their Applicability in the Russian Federation, GSU Andhrew Young School of Policy Studies Working Paper No.97-3.

CHAPTER 3

Recommendations and Methodologies of SFCs: A Review

Recommendations of SFCs SFCs, in general, have framed their recommendations on the basis of a review of the existing conditions at the state and local level. A glance over seventy six SFC reports reveals that SFCs have examined some common issues including (a) state finances, (b) state revenue, (c) state expenditure, (d) finances of Panchayats and Municipalities, (e) fiscal domain of local governments, (f) resource requirements, (g) accounts and audit, (h) administrative structure, (i) procedural matters etc. Following these, SFCs have made a number of recommendations. Despite vast inter-state variations in SFC reports, the main recommendations of the SFCs can be grouped into the following six major heads: • Global Sharing • Assignment of Revenues • Horizontal Distribution • Grants-in-Aid • Functions and Functionaries • Other Measures

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 V N Alok, Fiscal Decentralization in India, https://doi.org/10.1007/978-981-16-2203-8_3

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Global Sharing The SFC is mandated to determine the fiscal transfers from the State to local governments. These are broadly of two types, viz. sharing of revenue and grants-in-aid. Global sharing means a percentage share of local governments in the total divisible pool. This way of sharing revenue has the following advantages óver lump sum ad-hoc grant: First, the system has a self-policy feature; the local governments automatically shares buoyancy of state taxes and levies. Second, there is an inbuilt transparency, objectivity and certainty in this system, as local governments can anticipate, in the beginning of each fiscal year, their share in the divisible pool. Third, this system enables local governments to understand the economy in its entirety. In other words, transparency and predictability through this mechanism could be a catalyst for own revenue generation and additional resource mobilization. Fourth, the State Government can be neutral in pursuing tax reforms without considering whether a particular tax is sharable with local governments or not. This brings us to the matter related to the wide variations observed across states in defining the divisible pool and the basis of distribution of global share between the Panchayats and Municipalities. As can be seen from Table 3.1, the second and third SFC of Andhra Pradesh and second SFC of Manipur have included the share of Union taxes in the state taxes and non-tax revenue to form the divisible pool. However, the first SFCs of Andhra Pradesh, Kerala, Madhya Pradesh, and Sikkim and the third SFCs of Himachal Pradesh, Karnataka and Uttar Pradesh have not included the share of union taxes and included only the state tax and non-tax revenues. The majority of states across various SFCs have recommended that only the tax revenues of the State form the divisible pool. As an exception, the Karnataka SFCs have adopted a different mechanism by using the phrase “Non loan gross own revenue receipts” in defining the divisible pool. Table 3.1 illustrates only those States where SFCs have recommended the concept of ‘global sharing’ for transfer of state revenues. The SFCs of other States have recommended sharing of only specific taxes or awarded a fixed amount for local governments. The first SFC of Punjab, for instance, has recommended transferring 20 per cent of net proceeds of the five taxes to the local governments, i.e. stamp duty, motor vehicle tax, electricity duty, entertainment tax and entertainment tax on cinematography between the Panchayats and Municipalities. Also, there are states like Gujarat, Haryana, Orissa, Maharashtra and Tripura where the first SFCs have recommended share in individual taxes for devolution.

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Table 3.1  SFC Recommendations for Share in State Divisible Pool SFC of

%

Total Revenue of State Andhra 40.92 Pradesh(II) Andhra 31.14 Pradesh (III) Arunachal 50.00b Pradesh (I)

Share of Panchayats and Municipalities

Criteria for distribution among Panchayats and Municipalities

67% and 33%

Development criteria

72.25% and 27.75%

Population, area, area under agriculture, own income efforts, distance from highest per capita income and composite index of backwardness Haryana (II) In 62.30% and 37.70% A decentralized planning formula lumpsum based on a composite index of backwardness Punjab (I) 20c • Entertainment tax and • Proceeds from stamp duty to entertainment be distributed on the basis of (cinematograph shows) derivative principle. tax to be distributed in • The Punjab MVT to the ratio 20:80. distributed on the basis of proportionate length of roads maintained • The sharing of electricity duty on the basis of collection. Own Revenue of State Andhra 39.24 70% and 30% Development criteria. Pradesh (I) Goa (I)a 36.00 75% and 25% Population, area, backwardness, performance, discretionary quota Goa(II) 2.0b Population Kerala (I) 1.0 In proportion to Population in 1991 Census; population population of SC/ST in 1991 census; tax effort, financial need Karnataka 33.0 70% and 30% Population; area; SC/ST (III) population; illiterates; population per hospital bed; density of population Madhya 11.58 25.13% and 74.87% Population, area, poverty criteria, Pradesh(I) backwardness, sales tax contribution Manipur (II)a 5.5 34.38% and 20.62% Population, distance from state capital, literacy. (continued)

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Table 3.1 (continued) SFC of

%

Share of Panchayats and Municipalities

Criteria for distribution among Panchayats and Municipalities

Sikkim(I)

1.0b

100% and 0%

Sikkim (III) Sikkim (IV) Uttarakhand (II)

2.0b 2.5 10.0

100% and 0% 75% and 25% 60% and 40%

Uttar Pradesh (III)

15.0

40% and 60%

Uttar Pradesh (IV)

15.0

40% and 60%

Population, No Municipalities in the state. Population, area of panchayat. Population Census 2011 Population, area, deprivation index, remoteness index, tax efforts. Population, SC/ST population, index of district integrated development, revenue effort Population, SC/ST population, area, per capita income, establishment comfort backwardness index, integrated development backwardness Index

Non-Loan Gross Own Revenue Assam (III) 25.0 80% on the basis of population and 20% on population density of rural and urban areas. Karnataka (I) 36.0 85% and 15%

Karnataka (II) 40.0

80% and 20%

State Own Taxes Assam(I) 2.0

Not Mentioned

Assam(II)

3.5

Based on 1991 census

Assam (IV)

14.0

80% on the basis of population and 20% on population density of rural and urban areas.

Population, area, per capita district domestic product, index of infrastructure, per capita tax collection Population, area, illiteracy, length of road area, hospital bed strength population Population, area, SC/ST population, illiteracy, population per hospital bed. Population, number of vehicles in the area Population, area, per capita net district domestic product, infrastructure index, per capita tax collection Population, area, per capita net district domestic product, infrastructure index, per capita tax collection (continued)

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Table 3.1 (continued) SFC of

%

Share of Panchayats and Municipalities

Criteria for distribution among Panchayats and Municipalities

Assam (V)

14.0

Not mentioned

Bihar (IV) Bihar (V) Gujarat (II) Haryana(III)

7.5 9 31.15 4.0

70% and 30% 60% and 40% NA 65% and 35%

Population, area, inverse per capita rural district domestic product, infrastructure index, per capita tax collection Population, poverty, area Population, poverty, area

Haryana (IV)

2.5

65% and 35%

Haryana (V) J & K (I) Kerala (II)

7.0 13.5 9.0

55% and 45% 67% and 33% 78.5% and 21.5%

Kerala (III)

In Not Mentioned lumpsum

Kerala (IV)

8.0

Not Mentioned

Kerala (V)

20.0

Not Mentioned

Madhya Pradesh (II) Madhya Pradesh (III) Maharashtra (II) Maharashtra (III)e Odisha (II)

4.0

73.25% and 26.75%

Population, poverty, area, literacy gap Population, area, literacy gap, AAY population, gender ratio Population and area Population, literacy rate Distribution formula, own revenue mobilization, maintenance needs, population Distribution formula, own revenue mobilization, maintenance needs, population Population (excl. SC/ST), deprivation index, tax effort, area Population, area, inverse own income Population, slum population

5.0

80% and 20%

Population

40.0

80% and 20%

7.8

NA

10.0

80% and 20%

Odisha (III) Odisha (IV) Punjab(II)

15.0 3.0 4.0

75% and 25% 75% and 25% 67.50% and 32.50%

Punjab(III)

4.0

66% and 34%

Population, density, number of holdings, revenue efforts Population Population 2001 census population, per capita tax income shortfalls, SC population. Population (continued)

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Table 3.1 (continued) SFC of

%

Share of Panchayats and Municipalities

Criteria for distribution among Panchayats and Municipalities

Rajasthan(I)

2.18

77.33% and 22.67%

Rajasthan (II)

2.25

76.6% and 23.4%

Rajasthan(III)

3.5

75.7% and 24.3%

Rajasthan(IV)

5.0

75.1% and 24.9%

Rajasthan(V)

8.5

70% and 30%

Sikkim (V) Tamil Nadu (I)d

4.5 8.0

70% and 30% 60% and 40%

Tamil Nadu (II)

10.0

58% and 42%

Tamil Nadu (III)

10.0

58% and 42%

Tamil Nadu (IV)

10.0

56% and 44%

Tamil Nadu (V)

10.0

56% and 44%

Population, property incidences, population in the non-desert development Programmes/ non-drought prone area programmes/non-tribal area development blocks. Population, area. poverty, literacy, proportion of tax recovery Population, area, poverty, literacy, SC/ST Population Population, area, poverty, Socio-economic indicators, revenue efforts Population, area, socio-economic indicators Population Population, SC/ST population, avg. per capita land revenue, Per capita house tax collection, core civic services infrastructure maintenance, Financial indicators, service indicators Population, SC/ST population, agricultural laborers, area, asset maintenance, resource gap, per capita own income, salary & pension expenditure. Population, area, SC/ST and women population, district income, debt burden Population, SC/ST population, area, O&M, capital, debt, inverse per capita, inverse assigned revenue Population, SC/ST population, area, O&M, capital, debt, inverse per capita, inverse assigned revenue, per capita consumption expenditure distance (continued)

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Table 3.1 (continued) SFC of

%

Share of Panchayats and Municipalities

Criteria for distribution among Panchayats and Municipalities

Uttarakhand (I) Uttarakhand (III)

11

42.23% and 57.77%

10.5

50% and 50%

Uttar Pradesh (I) Uttar Pradesh (II)

10.0

30% and 70%

Population and distance from rail head Population, area, per capita on revenue, special circumstances, remoteness, tax efforts. Population (80%); area (20%).

12.5

40% and 60%

West Bengal (I)

16.0

Breakup as per population, district wise

West Bengal(II)

16.0

Breakup as per population, district wise

West Bengal (III)

5.0

76% and 24%

Population, SC/ST population, area, socio-economic backwardness, tax efforts. Population, SC/ST population, non-literates, area, proportion of backward population, proportion of rural population, inverse ratio of per capita bank deposits and working capital of primary agriculture cooperatives, population density. Population, density of population, rural population, SC/ST population, non-literates, IMR, per capita net district domestic product at constant prices, length of kutcha drains in Municipalities. Population, indicators of backwardness

Source: Updated from Alok (2019) Notes: apercent of State’s own tax revenue and share in central taxes b = only for Panchayats. In case of Goa, Municipalities are assigned percentage of Land revenue and royalties of mines and minerals c 20% of the net proceeds of Five taxes, viz. stamp duty, Punjab motor vehicle tax, electricity duty, entertainment tax, and entertainment (cinematograph shows) d In Tamil Nadu, the divisible pool called pool B consists of sales tax, motor vehicle tax, state excise revenue and other state taxes. The other pool A consists of levies, which rightly belong to local governments i.e. surcharge on stamp duties, local cess and local cess surcharge and entertainment tax. The entire proceeds of pool at taxes are recommended to be distributed to the local governments e Total Additional Transfer

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Significant inter-state variations can be noticed in the mechanism of revenue sharing as different SFCs made different set of recommendations.

Assignment of Revenues As per the practice followed in a number of developed and developing countries, the property tax has been assigned to Panchayats and Municipalities in almost all the States as mentioned in Table  3.2 and it remains the major source of own tax revenue for most local governments. Octroi was another tax that was previously assigned to the Municipalities only to abolish in later stage in all States. The last was Maharashtra1 where it was considered to be the most buoyant source of revenue. The Profession Tax and the Entertainment Tax stand assigned to the Municipalities in Goa, Haryana, Kerala, Madhya Pradesh, Maharashtra and Uttar Pradesh. Most States have also authorized the Municipalities to collect market fee, fee for registration of cattle and vehicles. Municipalities in a number of States including Goa, Gujarat, Haryana, Himachal Pradesh, Maharashtra and Tamil Nadu also collect education cess. Water Tax, Lighting Tax, Animal and Vehicle Tax, Trade and Callings Tax, Boat Tax, Toll Tax are the other taxes which have been assigned to the Municipalities and Panchayats in most States. Many SFCs have tried to rationalize the local tax structure by suggesting reforms in assessment and administration of taxes besides assigning powers to local governments. SFC of Kerala, Karnataka, Tamil Nadu and Uttar Pradesh for example, have recommended reform in property taxes and have suggested the `area based’ or `site valuation’ system for assessment of property tax. SFC of Assam, Tripura and Uttar Pradesh recommended even vacant land tax.

Horizontal Distribution Given the rural-urban bifurcation of the divisible pool at the first instance, the respective part is further distributed among Panchayats and Municipalities. Multiple índicators, with certain weight assigned to them, are used to distribute this determined pool of resources. These indicators include: population; density; area; per capita income, mountainous area; 1  In the later part, only Municipal Corporations levied Octroi which had been changed, in 2015, to local body tax [LBT] in Maharashtra.

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Table 3.2  Assignment of Tax and Non-tax Handles to Local Governments by various SFCs Assignment of revenues

Tax Sources Entertainment Tax

Non-agricultural Tax Land Holding Tax Tax on cultivable land Advertisement Tax (Other than Newspaper) Profession tax

I SFC of:

II SFC III of: SFC of:

IV SFC of:

Guj, Ker, WB, ArP Maha

MP

MP, TN WB

Odi

Asm

Odi

UK, WB Sik

Raj

Pun Asm Pun, ArP ArP, Pun Sik Guj

Sanitation tax Re-imposition of Octroi by the Municipalities. Circumstances & Property (C&P) Tax to be replaced by profession tax. Vehicle Tax Guj Vacant Land Tax Asm Municipalities may levy property tax and service charges on the properties of the central and State government undertakings. Property Tax/A surcharge of 50% on the property tax by Local Governments. Development tax

Odi, Maha

UK AP Pun

ArP, Ker, Punc

Irrigation tax. Tourist Tax House Tax

ArPa, Ker

Asm, Bih (only collection)

MP

Raj TN, Har Asm

Sik, TN, Odi Har, Raj Har, Odi HP

State entry tax Consumption based tax as Cess Service tax.

V SFC of:

Bih, Ker

Man Sik Sik TN (continued)

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Table 3.2 (continued) Assignment of revenues

Congestion Tax Betterment tax Land Conversion Tax Show Tax Land Cess Tax on Immovable property Fire Tax Lighting tax Non-tax Sources License Fee

I SFC of:

II SFC III of: SFC of:

IV SFC of:

V SFC of:

Man ArP AP Asm

ArP, Asm Water rate Maha Gate Fee ArP Rent from property ArP Income from Property other than rent ArP Permit fee ArP Registration fee ArP, Asm Services/user charges ArP, Asm, Pun Income from Ferries ArP Fees from weekly Bazaars Asm, Pun Fee for sale of animals Asm Transfer of sairats/leasing of land Har Library Cess Ker

Asmb Har Pun

Asm Har Asm, Ker, Sik Asm Ker, Sik

Pun

Asm

Har

Bih

Source: Author’s compilation based on various SFC Reports Service tax on water supply, street lighting, drainage, scavenging, and sanitation Surcharge on stamp duty of immovable property c Property Tax on Non-Domestic Property a

b

arable land; incidence of unemployment; backwardness index; physical infrastructure; fiscal capacity; tax effort; and other need based factors as can be seen from Table 2.1. It is observed that the population size has been used as the major criterion for intra-local government allocation. The assumption behind a relatively larger weight for population per se is that the need for resources for growth and development is strongly and

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positively correlated with the population size of a region. Further, for the assessment of fiscal need, widely used indicator—‘area’ has been included in the formula by almost all the SFCs, in their recommendations.

Grants in Aid Grants-in-aid are provided to fill the gap of the local governments—both Panchayats and Municipalities—so that they can meet the expenditure on local public goods. These can be (a) general purpose grants or block grants based on some criteria or formula meant for additional resources with no conditions attached; and (b) conditional or specific purpose grants, e.g. some schemes or projects. As mentioned in Exhibit 3.1 this can be further classified into matching or incentive grants and non-matching grants.

Grants-in-Aid from States to Local Governments [Panchayats and Municipalities]

Untied/ General Purpose/ Unconditional

Block Grant Per Capita Grant Lumpsum Grant Ad-hoc Grant Compensatory Grant Start-up Grant

Tied/ Specific Purpose/ Conditional

Matching

Non-Matching

Cost Sharing Supplementry Deficit / Gap Filling

Maintainance/Establishment Development Performance Incentive Capacity Enhancement

Exhibit 3.1  Types of grants recommended by various SFCs

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From another perspective, grants can also be either statutory or non-­ statutory. Statutory grants are compulsory transfers that may be in lieu of abolition or withdrawal of certain taxes such as octroi. Bird (1998) while proposing state local fiscal transfer system in Uttar Pradesh emphasized three major aspects that need considerations while designing grants, these are • Perspective for designing and evaluation • The context within which the transfers would occur (the functions assigned and the revenue available) • Appraisal of various elements that enter into the design of any grant According to him, the purpose of grant design is not only to assist the governments financially but to make them able to provide proper basic services to the citizens. Since the financial capacity and the level of assistance vary from one jurisdiction to another it demands simplicity, objectivity, flexibility and transparency in transfer designs. How the SFCs Designed Their Grants SFCs of all generations have recommended various types of Grants. As can be seen from Table 3.3 these grants vary from state to state. Even the definitions and connotations are diverse across states over time. Broadly, we could classify the following grants recommended by various SFCs. General Purpose/Unconditional/Untied Grants General-purpose grants are basically statutory grants and are formulae based. The purpose of such grants is to maintain the local independence and also to augment the inter-jurisdictional equity. First SFC of Arunachal Pradesh, Madhya Pradesh, Uttarakhand and West Bengal recommended general purpose grant. First SFC of Kerala recommended basic tax grant whereas Punjab suggested lump sum grant. It may be noted that the terminology of this grant varies from one state to another. Second SFC of Tamil Nadu mentioned this as revenue grant whereas second SFC of Gujarat called it general purpose ad hoc grant. Nevertheless, second SFC of Madhya Pradesh, Kerala, Odisha, Tripura, Uttarakhand and West Bengal recommended the grant and called it general purpose grant only. Further, Third SFC of Madhya Pradesh, Sikkim, Tamil Nadu, Tripura,

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Table 3.3  Types of grants recommended by SFCs SFC of:

Types of grants

First Generation SFCs Andhra Pradesh Special Purpose •  Water supply schemes in municipal areas • A special grant to newly formed GPs for purchasing of furniture, forms and registers. •  Newly formed Gram Panchayat converted into Municipality. Maintenance •  Maintenance of rural roads •  Maintenance of minor irrigation sources •  Maintenance of family planning staff quarters. •  Maintenance of school buildings. Block • To each Municipal Corporation. (Hyderabad, Vishakhapatnam and Vijayawada) • To each of the remaining Municipal Corporations as block grants to be utilized for felt needs. •  Increment in Per capita grant Arunachal Special Purpose (Plan grants to the Panchayats) Pradesh •  40% should be spent on the “productive sector”, •  30% on “infrastructure building” and •  10% on “gender-sensitive schemes and subsidies” •  20% may be “open” at the discretion of the Panchayats. General purpose Incentive Grant (to GPs) •  For raising their own revenue. Assam Fund Equalization •  Debt relief against existing government loans Gujarat Per Capita Basic Grant Incentive Grant to Municipalities •  For revenue mobilization Haryana Maintenance •  For maintenance of community assets at Block level •  For maintenance of Panchayat buildings • For the repair of Zilla Parishads for the Panchayat Samities buildings in the entire State Special purpose •  For sanitation and environmental improvement Per capita grant Himachal Deficit Pradesh •  For Deficit recovery of Panchayats and Municipalities Kerala

General Purpose (Basic tax grants) •  The total amount may be credited to a state pool. Maintenance (continued)

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Table 3.3 (continued) SFC of:

Types of grants

Madhya Pradesh General purpose grant Maharashtra General Purpose • The irrigation cess grant equal to 66.67% of the demand should be given to the Zila Parishads as advance grant. Block Grant •  The primary education grant Manipur Establishment Grant Development Grant Punjab General Purpose Grant(Lump Sum) Special Purpose grant Incentive grant Rajasthan Maintenance • For rural roads and buildings @ Rs. 5000/- per panchayat and @ Rs. 10,000/- per Panchayat Samities to maintain office buildings and staff quarters. In case of Zilla Parishads, the amount is Rs. 20,000 per Zilla Parishad per annum. General; Purpose (Start-Up) Grant • To each of 1856 newly created Gram Panchayats due to delimitation exercise carried out before the constitution of the Commission. Incentive • to each level of PRIs for functional improvement, and better performance Matching Grant • Matching share for the utilization of grants recommended by the Tenth Finance Commission. Tamil Nadu Specific Purpose •  Lighting grants, water-supply grant, drainage grants, Maintenance •  Road maintenance grant, •  Maintenance of maternity centres and dispensaries General Purpose (Revenue) Matching grants (House Tax) Uttar Pradesh Fund Equalization • Loans for integrated development and of small and medium towns, as on 31st March 1994 with interest thereon are to be converted into grant. Uttaranchal General Purpose (Uttarakhand) Special Purpose • Computerization •  Environmentally sensitive pilgrim places •  Slum Improvement Deficit (continued)

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Table 3.3 (continued) SFC of:

Types of grants

West Bengal

General Purpose Matching • A large number of Centrally Sponsored Programmes such as JRY, IRDP, ARWSP etc. are now in operation in which the Central releases have to be matched by proportionate State releases. •  Covering of non-Plan expenditures will also be grants. •  D.A. liabilities of approved staff should be available as grants. Second Generation SFCs Andhra Pradesh Special Purpose •  To meet the demand of the salaries bill of teaching employees. •  To provide drinking water in schools. •  For construction of Panchayat building Incentive •  To establish Solid Waste Management Plants Assam General Purpose Goa General Purpose Gujarat Incentive Compensatory (in lieu of Octroi) Maintenance General purpose (Ad hoc) Haryana Maintenance •  For maintenance of Panchayat buildings • For the repair of Zilla Parishads for the Panchayat Samities buildings in the entire State Special purpose •  For sanitation and environmental improvement Development Himachal Deficit Pradesh •  For Deficit recovery of Panchayats and Municipalities Kerala Maintenance General purpose Madhya Pradesh General purpose Special Purpose • (Establishment grant) for the payment of honorarium and other payments to the staff working in the 3-tier Panchayats, • For organizing training programmes at the district level for the elected representatives Panchayats in their respective jurisdictions. Maharashtra Special Purpose • For VPs to eliminate backlog in the districts of Marathwada, Vidarbha, Konkan and the rest of Maharashtra where backlog regarding development exists Incentive (Tax Recovery) • All VPs shall be given Tax Recovery Incentive Grant on the basis of recovery of all the previous financial year (continued)

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Table 3.3 (continued) SFC of:

Types of grants

Manipur

Block Grant •  For purchase of essentials like chalk, registers and stationery etc. • For carrying out essential repairs of school furniture, fixtures and fittings. •  For purchase of class rooms furniture. •  For purchase of games and sports material. Odisha General Purpose Punjab Compensatory (in lieu of Octroi) Incentive Rajasthan Incentive Sikkim Special Purpose •  Grants to meet establishment cost Tamil Nadu Specific Purpose •  Reserve fund •  Equalization Fund •  Incentive Fund Tripura General Purpose Uttar Pradesh Block Grant (A one-time non-recurring grant) • For IT equipment and MIS needs of the Directorate of Local Bodies and the Task Forces to be set up in all districts. Uttarakhand General Purpose West Bengal General Purpose Incentive Fund Third Generation SFCs Andhra Pradesh Per Capita Special •  For construction of GP office building •  For providing basic civic amenities •  For the Rural Water Supply Schemes •  For Rural Sanitation. •  For the construction of Rural Roads and released to Panchayats • For providing drinking water facilities in the schools for the Panchayats •  For maintenance of Mandal Office Buildings. •  For maintenance of Municipal Buildings •  Towards payments of arrears. (Deficit Grant) • Towards increase of half yearly D.A. and revision of pay scale of Municipal Staff. (continued)

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Table 3.3 (continued) SFC of:

Types of grants

Assam

Deficit Grant •  For the purpose of clearing the arrear dues of Panchayat Secretaries. Capacity Building •  For capacity building of GMC and other Municipalities •  For the purpose of training and capacity building in Panchayats. Special Purpose • To Municipalities including GMC for construction of cremation and burial grounds. • To Municipalities including GMC for the construction of public convenience. • To the ZPs for repair and maintenance of roads and buildings within their respective jurisdiction Haryana Supplementary Himachal Matching Conditional Grants (expenditure and infrastructural support Pradesh grants) • For augmentation of accommodation of Panchayat ghars and office infrastructure. Development Supplementary Compensatory (in lieu of Octroi) Deficit Grant (Gap Filling) Karnataka Special Purpose • To organize programmes at village level covering sanitation, health checkup, cultural and folk sports •  Construction of youth association buildings •  For conducting folk arts training programmes. • To take up youth development programmes at village, hobli, taluk and district levels. Statutory Development Fund Equalization (Additional Grant) Incentive Block Untied Grant Kerala The difference between funds available with LSGs and that share of outlay should be given to LSGs. Madhya Pradesh Performance Based •  To those Gram Panchayats which levy and collect the taxes on time. General Purpose Establishment Maintenance Compensatory Conditional Matching Grant (continued)

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Table 3.3 (continued) SFC of:

Types of grants

Maharashtra

Matching (Scheme Specific, Cost Sharing) •  For maintaining water supply schemes • To initiate a programme of low cost sewage disposal scheme in large size villages. Maintenance •  For repair and maintenance of School rooms •  For repair and maintenance of health service to ZPs. Fund Equalization (One Time Grant) • To meet 50% of the remaining outstanding amount of arrears of Maharashtra Jeevan Pradhikaran by GPs. Downward percolation of grants at district level as per the recommendation of District Planning Committee Special Purpose • To panchayats as per the district—wise requirement of the tanks transferred to them. Compensatory (in lieu of Octroi) Incentive •  For raising revenues from untapped sources by the Panchayats. Special Purpose • Under 15 sectors (agriculture, horticulture, animal husbandry, HRDD, health, forest, commerce and industry, disaster management, irrigation, culture, rural management and development department, co-operative, social welfare, tourism & power) excluding teacher’s salary General purpose Incentive Special Purpose General Purpose Matching • Matching amount of additional grant equal to the amount of revenue collected by the Panchayats to be provided from the state govt. as an incentive. Special Purpose •  For setting up of three more training institutes in the state Matching Conditional • Grants for meeting shortfall of fund in maintenance of assets and for establishment expenditure

Punjab Rajasthan

Sikkim

Tamil Nadu Tripura

(continued)

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Table 3.3 (continued) SFC of:

Types of grants

Uttar Pradesh

Special Purpose •  To fulfil the basic infrastructural needs. •  For the needs based on social justice Conditional • One time grant and annual recurring grant for the construction of libraries and information centres. Matching (Scheme Specific) •  To assist Mid Day Meal Scheme. Uttarakhand Incentive Special Purpose •  For construction of ZP building in Champawat. •  For institutional arrangement of solid waste in Kausani. • For repairs, renovation and modernization of Durga Sah Memorial Library in the year 2012–13. • For capacity building/research work relating to urban issues has been recommended. General Purpose West Bengal Deficit Grant (Pension Grant) • A special fund named as a ‘Pension Fund’ to be granted to the Municipalities constituting of the amount received on account of arrear Property Tax and the Service Charges. General Purpose Fourth Generation SFCs Assam Special Purpose • For construction of functional and residential buildings for Panchayats at all levels. • For construction/improvement of markets, cremation and burial grounds at all level of Panchayats and cold storage for selected GP. •  For construction of Town Halls. • Installation of water supply plants in Municipal Boards and Town Committees • For purchase of equipment for solid waste management and creation of toilets. •  For extending pensionary benefits to the employees of GMC. •  For construction of Zonal offices of GMC and for other purposes. •  For training of Auditors in the Directorate of Audit. Untied Compensatory • For payment of electricity charges for four Municipalities. viz. Jorhat, Golaghat, Sonari and Titabor. Deficit •  For liquidating deferred liabilities of 21 Municipalities. (continued)

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Table 3.3 (continued) SFC of:

Types of grants

Bihar

General Purpose (Untied) Special Purpose •  Retirement Benefits of the Municipal Employees: Haryana Special Purpose (one time) •  Maintenance of municipal road and SWM •  Up gradation of fire services •  Capacity building •  Strengthening the rate base of Panchayats & Municipalities •  Maintain some of accounts & audit of local bodies •  Setting up of calls for research & analysing of public finance policy Himachal General Purpose Pradesh Supplementary Kerala General Purpose • A special grant of Rs. 25 lakh to each one of the 16 GPs (Names of the 16 GPs are given in Appendix 8A of the Report). • A grant of Rs. 15 lakh to each of 58 GPs (Names of the 58 GPs are given in Appendix 8B of the Report). Odisha Special Purpose Odisha Kendu Leaves Grants should be either shared with the pluckers instead of Panchayats or it should be withdrawn completely. The Commission does not consider the continuance of Sirat Grants and MFP worthwhile and recommends that it should be stopped. Rajasthan Special Purpose (Functional) Performance General Purpose (Untied) Incentive Compensatory (in lieu of Octroi) Tamil Nadu General Purpose (Lump Sum) Uttar Pradesh No. Recommendation Fifth Generation SFCs Assam General Purpose • To Village Development Council, Municipalities, Panchayats and Panchayat excluded areas Special Purpose •  For construction of Godown Bihar Capacity Building Performance Haryana Special Purpose • For establishing Swarna Jayanati Haryana Institute of Fiscal Management •  For Urban Shared Services Centre (USSC)at Urban Directorate (continued)

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Table 3.3 (continued) SFC of:

Types of grants

Kerala

Special Grant •  Enhanced special grant to six Gram Panchayats and a Municipality •  Special grant to newly created Municipalities

Rajasthan

Special Purpose •  For camps and campaigns •  For filling up of vacant posts •  For payment of remuneration to Multi Task Workers •  For payment of wages of sanitation staff Compensatory Grant •  For payment of O&M and electricity bills of Janta Jal Yojana Gap Filling Grant •  For payment of wages of sanitation staff Maintenance •  For maintenance and upgradation of existing building, • For construction of new buildings, toilets, class rooms, boundary walls of schools, aganbaries etc. •  For upkeep and maintenance of toilets of government schools Incentive •  For Public representatives who execute innovative ideas Capacity Building • For expenditure on Model Accounting System and prescribed software (PRIA) Capacity Building • To build the capacity of elected representatives and officials in the Panchayats and the Municipalities. Special Grant • To some selected Gram Panchayats and Municipal bodies which are financially constrained. The basis of selection is backwardness. • Special Incentive Grant for special support to a certain number of Panchayats and Municipalities which are constrained by topography as well as inaccessibility and other peculiarities. General Grant • Increased minimum lump sum grant to per Village Panchayat and to Panchayat union

Sikkim

Tamil Nadu

Source: Author’s compilation based on various SFC Reports

54 

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Uttarakhand and West Bengal suggested this grant. In the fourth phase, SFC of Assam, Bihar, and Rajasthan mentioned it as untied and SFC of Himachal Pradesh and Tamil Nadu referred it as general purpose grant and lump sum grant respectively. SFCs have also specified General Purpose /Unconditional/Untied Grants in the following categories: Block Grant Block grant is given by the upper level of government for general areas of social welfare of the lower level of government (such as education) rather than a specific programme. It allows, however, recipient’s discretion in allocating the funds among specific uses. First SFC of Andhra Pradesh and Maharashtra, second SFC of Manipur and third SFC of Karnataka recommended block grant to address different areas of concern. Compensatory Grants Second SFC of Gujarat and Punjab, third SFC of Himachal Pradesh and Rajasthan and fourth SFC of Rajasthan recommended compensatory grant in lieu of octroi. Fourth SFC of Assam recommended this grant for payment of electricity charges of select Municipalities. Per Capita Grant Shoup C. S. (1969)2 distinguished two types of per capita grants for general purposes, i.e. uniform and non-uniform. Uniform per capita grant is the most generalized form of general purpose grant where the money is distributed on per capita basis. The population of the receiving government is the most implicit index of need for the grant. No index of effort is involved here. Whereas non-uniform per capita grant gives more weight to distributive factors. It takes into consideration the ability to raise revenue. Poor jurisdictions get higher level of per capita grant in comparison to rich jurisdictions. This type of grant is differentiated according to the relative resources and relative effort (Shoup 1969). First SFC of Andhra Pradesh suggested increment in per capita grant. While the first SFC of Gujarat and Haryana and the third SFC of Andhra Pradesh recommended 2

 Shoup C.S. (1969), Public Finance, London, Weidenfeld and Necolson.

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55

per capita grant, the distinction between uniform of non-uniform was ignored. Special Purpose Grant This grant is also implied as conditional or tied grant. In its first phase, SFC of Andhra Pradesh, Arunachal Pradesh, Haryana, Punjab, Tamil Nadu and Uttarakhand recommended this type of grant. In the Second phase, this grant was recommended in the SFC report of Andhra Pradesh, Haryana, Madhya Pradesh Maharashtra and Tamil Nadu. Subsequently, third SFC of Andhra Pradesh, Assam, Karnataka, Rajasthan, Sikkim Tamil Nadu, Uttarakhand and Uttar Pradesh suggested it. In its fourth edition, a small number of SFCs including Assam, Bihar, Haryana, Kerala, Odisha and Rajasthan recommended this grant. Finally, fifth SFC of Bihar and Rajasthan have recommended special purpose grant in their reports. Conditional Non-Matching Conditional non-matching grants are tied to a specific purpose undertaken by the local government. It does not require any matching share from the recipient government, providing it is used for the program it is specified for. In this category, the SFC reports include the following: Incentive Grants In its first phase, SFC of Arunachal Pradesh, Rajasthan and Gujarat recommended incentive grants for functional improvement and better performance. The second generation SFC of Andhra Pradesh and Maharashtra suggested the same to establish solid waste management plants and for tax recovery respectively. SFC of Gujarat and Punjab just referred this grant without mentioning the purpose. Second SFC of West Bengal also dealt on Incentive fund. Third SFC of Rajasthan recommended it for revenue mobilization, whereas SFC of Karnataka, Sikkim and Uttarakhand just mentioned it without assigning specified objective. Further, in the fourth and fifth generation of SFCs, Rajasthan is the only state to suggest this grant.

56 

V N ALOK

Maintenance/Establishment Grant These grants are recommended to meet the operation and maintenance and establishment costs of Panchayats and Municipalities. First SFCs of Andhra Pradesh, Haryana, Kerala Rajasthan and Tamil Nadu recommended maintenance grant. Further, Second SFCs of Gujarat, Haryana and Kerala did mention it. In the third generations of SFCs, only Maharashtra suggested this type of grant. Surprisingly, fourth and fifth SFCs have not mentioned it in their reports. In its First SFC report, Manipur mentioned establishment grant. Similarly, the Second SFC of Sikkim recommended this grant to meet the establishment cost. At last, the third SFC of Madhya Pradesh suggested establishment grant. Development Grant These grants relate to specific schemes of development in respect of which the state governments are expected to bear a proportion of cost. First SFC of Manipur, second SFC of Haryana, third SFCs of Himachal Pradesh and Uttar Pradesh recommended this type of grant.  apacity Building Grants C The grant intends to enhance the capacity of both Panchayats and Municipalities in terms of administration and organization. The objective behind capacity-enhancement grants is to strengthen the institutions so that they could be fully equipped to perform their mandated functions. Third SFC of Assam recommended capacity enhancement grant for the purpose of training and capacity building of Panchayats and Municipalities. Fourth SFC of Assam recommended the grant for training of auditors in the Directorate of Audit. The fifth SFC of Bihar also recommended capacity enhancement grant. Performance Grant Public sector is often cited as pool of corruption as mechanism for accountability and transparency is considered weak in government operating system. The citizens, on the other hand, are not adequately empowered to hold officials liable for their non-compliant behaviour. To ensure accountability for results, conditional non-matching output-based transfers are

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

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preferable to other types of transfers.3 Output-based or performance grant establish a link between the funds provided through grant and the performance associated with the conditions of the grant. Third SFC of Madhya Pradesh, fourth SFC of Rajasthan and Fifth SFC of Bihar recommended performance base grants. Conditional Matching Grant Conditional matching grants, or cost-sharing programs, require the recipient or local governments to match or contribute the funds partially on explicit purposes on which the grants are approved. SFCs included the following, in this category: Cost Sharing Grants First SFC of Rajasthan and West Bengal in their repots recommended these matching grants. The former suggested the matching share for the utilization of grants recommended by the Tenth Union Finance Commission. Whereas, the latter recommended that the central releases for the operations of various centrally sponsored schemes should be matched by proportionate state releases. First SFC of Tamil Nadu mentioned house tax matching grant. Third SFC of Himachal Pradesh recommended expenditure and infrastructure support grant. Third SFC of Haryana recommended supplementary grants. Third SFC of Maharashtra recommended cost sharing and scheme specific grants to maintain water supply schemes and to initiate a programme of low cost sewage disposal schemes in large size villages. Third SFC of Tripura suggested grants for meeting shortfall of funds in maintenance of asset and establishment expenditure. Third SFC of Uttar Pradesh recommended the grant to assist Mid-day Meal Scheme. In its preliminary report, the fifth SFC of Rajasthan proposed matching grant. Supplementary Grants Third SFC of Haryana recommended supplementary grants. Fourth SFC of Himachal Pradesh advocated supplementary grant. 3  Shah Anwar (2006), A Practitioner’s Guide to Intergovernmental Fiscal Transfers, Journal of Economics and Statistics, XLIV, 128–186.

58 

V N ALOK

Deficit Grant/Gap Filling First SFC of Assam recommended debt relief against existing government loans. Similarly, Himachal Pradesh, in its First SFC, suggested grants for deficit recovery of Panchayats and Municipalities. First SFC of Uttar Pradesh, in its report, recommended converting loans for integrated development of small and medium towns into grants. The third SFC of Andhra Pradesh and Assam recommended the grant for payments of arrears. Further, the third SFC of Himachal Pradesh and Kerala recommended gap filling grant to wipe out deficits. Fiscal Equalization Transfers In addition to the above classifications, fiscal equalization transfers that belong to regional fiscal equity concerns, also made by SFCs. These transfers are formula based and are justified on political and economic considerations. The purpose of such transfers is to eliminate differences in net fiscal benefits across states arising out of differential fiscal capacity and cost disadvantages for providing public goods. The second SFC of Karnataka, Maharashtra and Tamil Nadu suggested fiscal equalization transfers.

Functions and Functionaries Articles 243 G and 243 W stipulate every State to provide the Panchayats and Municipalities with powers and authority to enable them to function as institutions of self-government. For the purpose, States are required to enact laws which contain provisions for the devolution of powers and responsibilities upon Panchayats and Municipalities with respect to a) the preparation of plans for economic development and social justice; and b) the implementation of schemes for economic development and social justice including those in relation to the twenty-nine and eighteen matters listed in the Eleventh Schedule and Twelfth Schedule respectively (see Exhibits 1.1 and 1.2). However, the list is merely illustrative and not exhaustive. There is no clear demarcation of powers and functions between the States and Panchayats/Municipalities, as most of the matters in these schedules are also part of the State List. This is in contrast to clearly delineated division of powers and functions between Union and States. Though, almost all states and union territories (UTs) have claimed that they have transferred subjects in varying degrees to the Panchayats and

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Municipalities, by enacting laws in conformity with the CAA, functional domain of Panchayats and Municipalities pertains to only traditional civic functions in several states. Functional domain of Panchayats is without adequate developmental responsibilities in those states where either the intermediate Panchayats or the district Panchayats were absent for decades. States, where they existed for long, have only repeated the provisions of the old statutes in their new laws with marginal adjustments. Moreover, many State Governments have not framed the relevant rules or guidelines as a follow up measure. A few States realized that transfer of additional functions would accompany the concomitant funds and functionaries to local governments, enabling them to perform the specified responsibilities. At the same time, the local governments are also not very clear about the role they are expected to play in the new federal set up. The fact of the matter is that almost all the subjects enumerated in the Eleventh Schedule and Twelfth Schedule are State-concurrent, involving duplication and overlapping. Another challenge before the State Government has been the identification of activities to the appropriate tier of the three-tier-Panchayat system. Traditionally, the lowest level Panchayat, i.e. the village panchayat (VP) has been the most active in almost all States. Generally, the VPs carry out major functions including core functions whereas intermediate and district Panchayats in most States are assigned supervisory functions or act mainly as executing agents for the state government. It is a general perception that Panchayats, Municipal Councils and Nagar Panchayats are financially and technically under-equipped to perform even the core functions, not to speak of the welfare functions and other economic functions (see Exhibits 1.1 and 1.2). Hence, many of the core functions, which traditionally belonged to local governments like, drinking water, rural roads, street lighting, sanitation, primary health etc. have not been transferred fully in some states and are being performed by the line departments of the State Government or the parallel parastatals. It is therefore the mandate of each SFC to make recommendations for the devolution of certain functions, finances and functionaries to Panchayats and Municipalities. While recommendations of SFCs with respect to finances are analysed in other parts of the report, the Tables 3.4 and Table 3.5 contain recommendations of all five generations SFCs with respect to the devolution of functions and functionaries to Panchayats and Municipalities respectively.

60 

V N ALOK

Table 3.4  Devolution of functions & functionaries by SFCs to panchayats S.N.

SFCs →

I SFC of:

Parameters ↓

II SFC of: III SFC IV of SFC of:

V SFCs

Odi

I. 1

Subjects/Functions Transferred Agriculture, including AP, Ar.P, Tri, agricultural extension UP

2

Land improvement, implementation of land reforms, land consolidation and soil conservation Minor irrigation, water management and watershed development Animal husbandry, dairying and poultry

AP, Tri, UP

Odi

AP, Ar.P, Tri, UP

Odi

5

Fisheries

AP, Tri, UP

6

Social forestry and farm forestry

Asm, Guj, Odi AP, Man, Tri, Odi UP

7

Minor forest produce

AP, Tri, UP

Odi

8

Small scale industries, including food processing industries Khadi, village and cottage industries Rural housing Drinking water

AP, Tri, UP

3

4

9 10 11 12 13

Fuel and fodder Roads, culverts, bridges, ferries, waterways and other means of communication

Mah, Har, Pun, Raj –













HP















AP, Odi

Mah, Pun, Raj HP, Mah, Pun, Raj Har, Tri AP, Har, Pun, Raj Pun, Raj –





AP, Tri, UP

Odi







AP, Tri, UP AP, Kar, Man, Odi, Tri, UP AP, Tri, UP AP, Ar.P, Kar,Man, Odi, Tri, UP

Odi Guj, Odi

– Bih

– –

– –

– –

AP, Ar.P,Man, Odi Tri, UP

– HP, Kar Odi – Asm, Kar, Guj, Odi, Mah Pun

(continued)

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Table 3.4 (continued) S.N.

I SFC of:

II SFC of: III SFC IV of SFC of:

V SFCs

Rural electrification, including distribution of electricity Non-conventional energy sources Poverty alleviation programme Education, including primary and secondary schools

AP, Tri, UP

Odi



Bih



AP, Tri, UP

Odi







AP, Tri, UP AP, Ar.P, Tri, UP

Bih Bih, HP

– –

Technical training and vocational education Adult and non-formal education Libraries Cultural activities Markets and fairs

AP, Tri, UP

Odi – MP, Odi, HP, Pun Mah, Pun, Raj Odi –





AP, Man, Tri, UP AP, Tri, UP AP, Tri, UP AP, Man, Tri, UP AP, Ar.P, Odi, Tri, UP

Odi





Odi – Odi – Asm, Odi Tri

– – –

– – –

Odi

Bih, HP



AP, Ar.P, Tri, UP AP, Tri, UP

Odi

HP, Mah, Raj, Pun –









AP, Ar.P, Man,Tri, UP

Odi

HP, Mah –

Bih



AP, Tri, UP

Odi







AP, Tri, UP Odi – AP, Kar, Odi – Ker,Man, Tri, UP Asm Asm, Odi HP, TN

– –

– –

Asm, Sik



AP, Ar.P

Odi, TN



SFCs → Parameters ↓

14 15 16 17

18 19 20 21 22 23

Health and sanitation, including hospitals, primary health centres and dispensaries

24

Family welfare

25

Women and child development Social welfare, including welfare of the handicapped and mentally retarded Welfare of the weaker sections, and in particular, of the Scheduled Castes and the Scheduled Tribes Public distribution system Maintenance of community assets

26

27

28 29

30 II. 1

Registration/Issuance of Certificate of birth & death Administration Regular Inspection by Senior Officials

Odi





Asm, Mah

(continued)

62 

V N ALOK

Table 3.4 (continued) S.N.

SFCs →

I SFC of:

II SFC of: III SFC IV of SFC of:

V SFCs

– – Ar.P, MP, Pun Man

Asm – AP, Ker

Ker MP –

– Raj Sik

– – –

Asm

MP

Man Ar.P, Pun

UP –

Har –

HP, Ker – –

Har, Raj – –



Kar



Ker



Goa





Bih





Kar, TN –

Sik

Har, Raj Bih, Raj

Guj Guj, TN Guj, TN –

Kar – Har, Ker Har

TN – – –

– – TN TN

– –

– –

Parameters ↓ 2 3 4

Assessment of Resources Transfer of Staffs Preparation of Annual Plans

5

Maintenance of Statistics

6 7

10

Maintenance of Infrastructures Execution & Implementation of Projects/Schemes Human Resource Management Policy Creation of Ombudsman Institution Handling Disciplinary Matters

11

Smart Panchayats

III. 1 2 3 4

Tax Administration Property Tax Water Tax Advertisement Tax House Tax

5 6

Service Tax Marriage Registration/Birth & Death Fee Collection of Tolls Collection of Cess Collection of Revenues from different Sources Collection of Arrears Collection of User Charge Assessment of Taxes Determination of Rate of Structure of Taxes & Fees

– –

– –

Har – Har AP, Pun Har HP

– Guj –

– Guj Tri

Tri – –

– – –

Man TN Asm Har, Krn

– Har – Sik

– – – –

Collection of Taxes should be Outsourced Tax Reforms



– Kar Har Asm, Har, Pun, WB –

– – Bih, TN – TN Ker Ker

Har





8 9

7 8 9 10 11 12 13

14 15

Ker (continued)

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Table 3.4 (continued) S.N.

SFCs →

I SFC of:

II SFC of: III SFC IV of SFC of:

V SFCs

– –

TN Sik, Tri

– –

– –

– –



Guj







Pun, WB –

– –

– –

– TN

– Bih



Asm



Raj

– – –

Ker – TN

– – – Asm, Kar Ker

Asm, Raj Ker Asm –

Parameters ↓ IV.

Financial Administration

1 2

Contributory Pension Scheme Enhancement in Rates of Honorarium Salary/Allowances of the Employees Exercise of Financial Powers Prediction of Fund Flow Audit & Accounts C & AG Prescribed Accounts Format Single Account System Primary Auditor Audit by Deputy BDO Separate Wing for Audit

3 4 5 V. 1 2 3 4 5 6 7 8 9 VI. 1 2 3 4 5 6

7 8 9 10

Finance & Account Wing Accounts Cadre Accrual Based Accounting System Mandatory Annual Audit Staffing & Recruitment Officer on Special Duty Recruitment for Database & Accounts Secretary as Permanent Staff Executive Officer Panchayati Raj Cadre Recruitment of Qualified, Skilled & Adequate Candidates Regularised System of Recruitment Special Appointment for SFC functioning Creation of Separate Service Cadres Authority to Abolish Vacant Posts/Create New Posts

MP TN

– – –

Ker Odi Sik

AP AP

AP TN

Kar

HP, Raj, UK Odi MP, Sik

Sik

AP, WB

AP

Bih

Asm, Goa, Kar AP

UK

Ker, MP

Odi

AP

Bih, Raj, UP Har, Raj HP

Raj

Sik

UK (continued)

64 

V N ALOK

Table 3.4 (continued) S.N.

SFCs →

I SFC of:

Parameters ↓ VII. 1

Training & Capacity Building Regularized System of Training

2

Training for Candidates Newly AP Inducted Refreshers Training for Service AP Candidates Training for Officials Har, Kar

3 4 5

Training for Elected Representatives 6 Strengthening/Establishment of Institutes for Training Purpose 7 Training by State Specific Institutes 8 Training of Accounting Officials 9 Action Plan on Capacity Building prepared by State Institute 10 Capacity Build of Accounting Staff VIII. Committees/Expert Groups 1 To fix Staffing Pattern 2 Auditing Committee 3 Human Resource Commission 4 District Level Committee 5 Standing Committee 6 High Level/High Level Monitoring Committee 7 Expert Group 8 Public Accounts Committee IX. Others 1 Outsourcing of Waste Disposal/Civic Facilities to Private Agencies

II SFC of: III SFC IV of SFC of:

Guj, Odi

Kar

UK

Asm, Sik, UK, WB Raj

Guj

AP

Guj, Raj,UK Har

Pun WB

V SFCs

Bih, Asm

Raj

Bih

Har TN

Sik Asm

Sik

Sik

AP

Ker

Odi MP Ker

Har MP Ker Har MP

Raj Odi Ker

Raj

Raj, UK

Raj

TN

(continued)

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Table 3.4 (continued) S.N.

SFCs →

I SFC of:

Parameters ↓ 2

Public Private Partnership

3

Collection of Taxes should be Outsourced Medical Assistance to Elected Members Parastatals to be accountable to Local Governments

4 5

II SFC of: III SFC IV of SFC of: Har, UK Har

V SFCs

Ker

Sik Asm

Source: Author’s compilation from various SFC Reports

Table 3.5 Devolution of functions & functionaries by SFCs to the Municipalities S.No. SFCs →

I SFCs

II SFCs

III SFCs

IV SFCs

V SFCs

AP







Bih

AP



AP



AP





Asm, TN –

AP, Odi Odi AP, Odi Odi

– –

– Odi

– –

AP, Odi –

WB

Asm



AP AP

– –

– –

– –

– –

AP









AP AP

– –

– –

– –

– –

Parameters ↓ I. 1 2 3 4 5 6 7 8

9

10 11

Subjects/Functions Transferred Urban Planning including town planning Regulation of land use and construction of building Planning for economic and social development Roads and bridges Water supply for domestic, industrial and commercial purposes Public health, sanitation conservancy and solid waste management Fire services Urban forestry, protection of the environment and promotion of ecological aspects Safeguarding the interests of weaker sections of society, including the handicapped and mentally retarded Slum improvement and up gradation Urban poverty alleviation



(continued)

66 

V N ALOK

Table 3.5 (continued) S.No. SFCs →

I SFCs

II SFCs

III SFCs

IV SFCs

V SFCs

AP









AP









AP









AP









AP, AP, Asm Asm AP, Ker, – Odi



Asm









AP









– – –

– AP Odi

WB – –

– – –

– – –

– – – –

– – Ker Asm

Asm Ker – MP

Har – – Ker

– Kar –

Har – Kar, TN

– – – Bih, HP, Odi – – –

Parameters ↓ 12

II. 1 2 3 4

Provision of urban amenities and facilities such as parks, gardens, playgrounds Promotion of cultural, educational and aesthetic aspects Burials and burial grounds; cremations, cremation grounds; and electric crematoriums Cattle pounds; prevention of cruelty to animals Vital statistics including registration of births and deaths Public amenities including street lighting, parking lots, bus stops and public conveniences Regulation of slaughter houses and tanneries Door-to-Door Garbage Collection Small Scale Industries Markets under Regulated Market Committees Administration Regular Inspection by Senior Officials Assessment of Resources Preparation of Annual Plans Maintenance of Statistics

5 6 7

Maintenance of Infrastructures – Human Resource Management Policy – Creation of Ombudsman Institution Goa

8 III. 1

Co-ordination amongst all agencies Tax Administration Property Tax

2

Water Tax

3

Advertisement Tax

13 14

15 16 17

18 19 20 21

– – – Raj

Guj, UP Guj, TN, UP, WB Guj, TN



Har

TN







Har, TN –

Har, Ker

Har



– (continued)

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Table 3.5 (continued) S.No. SFCs →

I SFCs

II SFCs

III SFCs

IV SFCs

V SFCs

AP AP, TN – Har

– –

– TN

HP –

– –

Parameters ↓ 4 5

Motor Vehicle Tax House Tax

– –

AP –

6 7

Collection of Cess Collection of Taxes should be Outsourced Assessment of Taxes Determination of Rate of Structure of Taxes & Fees

– –

– –

Asm Har, Kar

– Raj

– –

Ker Ker

10 11

Collection of User Charge Tax Reforms

– TN

– Har, Pun, WB – –

Har –

– –

– Har, Ker

IV. 1



Asm







2 3 4 5 V. 1

Financial Administration VRS to be Prepared by State Government Exercise of Financial Powers Contributory Pension Scheme Salary/Allowances of the Employees Prediction of Fund Flow Audit & Accounts C & AG Prescribed Accounts Format

– – – –

– TN UK –



– – – TN

– – – –



Asm



Raj

2 3 4

Single Account System Audit by Deputy BDO Separate Wing for Audit

– – –

Ker – –

5 6 7

Accounts Cadre Accrual Based Accounting System Uniform Budget Format & Appropriate Accounting Software Staffing & Recruitment Recruitment for Auditing /Database & Accounts Municipal Cadre

– – –

MP – –

– – Asm, Kar – – UK

Asm, Raj Ker – – Ker Odi –

– – –





Kar

Bih







Odi

Sik

Recruitment of Qualified, Skilled & Adequate Candidates Regularised System of Recruitment Directorate of Town & Country Planning at disposal of Municipalities



MP, Odi –





– –

Goa –

UK –

Raj, UP Raj Asm

8 9

VI. 1 2 3 4 5

AP –

– – –

– –

(continued)

68 

V N ALOK

Table 3.5 (continued) S.No. SFCs →

I SFCs

II SFCs

III SFCs

IV SFCs

V SFCs

Authority to Abolish Vacant Posts/ Create New Posts Creation of Separate Service Cadres



UK









Odi





Special Appointment for SFC Functioning Training & Capacity Building Regularized System of Training

AP

Ker, MP AP

AP

HP





Odi





Training for Candidates Newly Inducted Refreshers Training for Service Candidates Training for Officials Training for Elected Representatives



UK

Asm, UK, WB Raj





AP









– –

Mah Pun

– –

Asm –

Odi



Parameters ↓ 6 7 8 VII. 1

2 3 4 5

Strengthening/ Establishment of Institutes for Training Purpose 7 Training by State Specific Institutes 8 Budget Allocation for Capacity Building 9 Action Plan on Capacity Building prepared by State Institute 10 Capacity Build of Accounting Staff VIII. Committees/Expert Groups 1 Auditing Committee 2 Expert Group 3 Service Selection Commission 4 Ward Committees 5 Public Accounts Committee IX. Others 1 Outsourcing of Waste Disposal/Civic Facilities to Private Agencies 2 Public Private Partnership



– Raj, UK Har



Odi –

Har –

Har, Raj Har Raj







Asm

Sik







Sik



– Ker – – Har

– Odi – – –

MP – – – –

– Ker Raj Sik –

– – – – –





Pun

Har







– –

– –

Ker, TN Odi Asm



3 4

Har, UK – –

6

Infrastructural Support Parastatals to be accountable to Local Governments

Source: Author’s compilation from various SFC Reports

– –

– –

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

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Other Measures Many SFCs also suggested some changes in the legislative and administrative spheres to strengthen the local government institutions. Some of them require action even on the part of the Union Government. A few of these recommendations are listed in Table 3.6 below:

Methodologies of SFCs In order to address the common terms of reference, various SFCs have adopted different methodologies. Many of them attempted to estimate, in their own fashion, the resource gap. The definition of resource gap also varies from one report to another even in the same state. In some cases, unique method is employed to quantify the resource gap. At the end, after all these exercises, lump-sum ad hoc grants are recommended by most SFCs. Successive Union Finance Commissions have pointed out that states’ resource requirements for local governments cannot be compared and aggregated at national level due to inconsistent and unique methodologies each SFC uses to estimate resource gap. Some SFCs have attempted to estimate the gap on a normative basis-­ though unsuccessfully in the absence of any systematic work in the last about five decades, at national level to develop expenditure norms of core services at different geographical terrains viz. hilly, coastal, dessert and plain areas. Such estimates were attempted half a century ago in Zakaria Committee Report (1963). In many reports, methodology is not presented as could be seen from Table 3.7:

Table 3.6  Other policy and administrative measures Other measures

I SFCs

One common legislation for all local bodies to avoid confusion regarding the regulations and bye-laws Tax Valuation Committee to listen to the objections of the tax-payer regarding Property Tax assessment-Punjab(I)

Kar, Ker, Mah, Pun, UP Pun

II SFCs

III SFCs

IV SFCs V SFCs

(continued)

70 

V N ALOK

Table 3.6 (continued) Other measures

I SFCs

Finance Commission Cell should function in the Finance Department of the State government even after the expiry of the SFC’s term to review the implementation of the recommendations of the SFC Public Accounts Committee for municipal finance— Local Body should be allowed to levy taxes and service charges on all government properties (including the properties of public sector undertakings of the Union and State Governments, Boards, Corporations). The Constitution should be amended for this purpose. Fund for data base, computerization, software etc

Kar, Ker, TN

A permanent secretariat for SFC with adequate staff./SFC Cell/Other related Issues

Audit of Municipal Corporation accounts by Accountant General of the State Review of implementation of recommendations of the State Finance Commissions may be entrusted to a statutory authority An independent service selection commission to select officers and subordinate officials of municipal services. A state level Property Tax Board should be set up. Synchronization of the period of SFC with the period of Union Finance Commission Introduction of GIS/Extension of GIS

II SFCs

III SFCs

IV SFCs V SFCs Asm

Har, Pun Mah, Raj, TN, UP

WB

Mah, Pun, Kar, – AP, Asm, Guj,

Har, Raj AP, M P, Sik

UP

Asm, HP Asm, Bih, Har, Raj, TN Asm

AP

Raj

Bih



Odi

Sik

Bih Bih HP, Asm –



UP

Creation of Property Tax Board – DRDA should be dissolved and its office should be – merged in ZP The immediate introduction of e-governance or – related issues

– UP

Pun, WB Kerala –

Bih, TN Ker, Bih – Odi –





Raj, Bih Asm, Har, UP

Constitute a strong cadre of officers



MP

Odi



A separate wing for auditing the accounts of local bodies. /audit Committee



Odi, Sik –

AP, Kar, MP





(continued)

71

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

Table 3.6 (continued) Other measures

I SFCs

II SFCs

III SFCs

IV SFCs V SFCs

Ombudsman system to be introduced having jurisdiction over Panchayats and Municipalities Set up Municipal Development Fund





TN





Sik





Training programs for the elected representatives and staff of Panchayats and Municipalities

AP, Har, Kar. Pun,Mah, TN, Ker –

AP, Guj, UK, UP –

Kar, TN Mah, Pun Pun, Raj, UK, WB WB



Sikkim –





For proper accountability of the LSGs, double entry system of book keeping and accounting in order to speed up the system A monitoring and evaluation/Monitoring Committee Introduction of accrual based double entry system in all the Municipalities Privatization of desired services

Appointment of Tariff Commission The powers, functions and responsibilities of the State Governments and the local bodies may be bifurcated similar to the division of subjects that exists between the Union and the States in the form of the Union and the State Lists. A third list for District Governments may be inserted in the Constitution. Women Component Plan (WCP) may be strengthened and gender budgeting be given statutory status. Establishment of Biodiversity Management Committee The Central Government should set up a unit at the National Institute as a repository of State finance Commissions Documents. LSGs should prepare their annual budget and maintain monthly accounts. Apart from house tax and tax on trades, all other sources of revenue allocated to the GPs are in the nature of fees, fines, tolls, cess etc. Hence these can be categorized as non-tax revenue. Source: Author’s compilation from various SFC Reports

Mah,UP, UP TN, Ker, Pun Asm, Guj Raj

Asm, Raj Bih







Asm, Bih, Odi Raj Har, Odi –



Har, Ker –

Raj

Ker

Ker HP

Asm, Bih Asm

States

Andhra Pradesh

Arunachal Pradesh

S.N

1

2

Public Meetings, discussions with elected representatives, press conferences. Questionnaires issues for public response. Questionnaires issues for officials of concerned local bodies. National seminars were organized on Local Body Finances. Not mentioned in the Report

I SFC



Questionnaires were issued to GPs seeking information about income, expenditure and to indicate their views on tax collection, resource mobilization etc. Field visits were conducted in 10 districts and meetings were carried out with the senior officials.

II SFC

Methodology adopted by SFCs

Table 3.7  Methodologies adopted by SFCs



Questionnaires were issued seeking information on receipts & expenditure of the local bodies. Field visits were conducted and regional conferences were organized at Tirupati, Guntur and Warangal.

III SFC





IV SFC





V SFC

72  V N ALOK

States

Assam

S.N

3

Not mentioned in the Report

I SFC Views, suggestions and opinions on the terms of reference of the Commission were invited from individuals, institutions, political parties and other academic organizations. Separate questionnaires were prepared and sent to both urban and rural local bodies. Relevant data/ information was collected from the State and Central Government agencies and autonomous bodies. Discussions were held with departmental officers of the State Government. A member of the Commission was deputed to participate in the National Workshop on Panchayati Raj Finances organized by NIRD at Hyderabad.

II SFC

Methodology adopted by SFCs

Data on income, expenditure, area, population etc. were collected from concerned department of each local body. Questionnaire method was widely used along with regular interaction with elected representatives and officials of Panchayats & Municipalities. Frequent field visits were carried out. Workshops were conducted at different district headquarters. Tasks Force were constituted to assess infrastructural gaps in local administration.

III SFC A set of general questionnaires covering the whole gamut of physical and fiscal administration of Panchayats and Municipalities were formulated & circulated to all concerned departments. Field visit were carried out in various phases, covering almost all the districts of the state. Inter-active sessions were held with the elected representatives and officials of Panchayats and Municipalities.

IV SFC

(continued)

A set of general questionnaires covering the whole gamut of physical-financial performance and fiscal administration of Panchayats and Municipalities were formulated. The field visit of the Commission consists of various phases, covering almost all the districts of the state and interactive sessions were held with the elected representatives and official functionaries of Panchayats and Municipalities. The field officers of PWD, PHE, and Local Audit, DRDA, District NIC, DDOs of Municipalities, Deputy Director of Town and Country Planning and respective Treasury Officers also participated in the interactive sessions.

V SFC

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

73

States

Bihar

S.N

4



I SFC –

II SFC

Methodology adopted by SFCs

Table 3.7 (continued)



III SFC Questionnaires were circulated to all the Panchayats and Municipalities. Views of the Director Panchayati Raj, non-departmental representatives, Panchayati Raj Department, Urban Development department were collected. The Commission made a visit to Nalanda district.

IV SFC

The commission followed the template suggested by Ministry of Panchayati Raj and the Thirteenth Finance Commission. Questionnaires were circulated to the PRD and UDD for obtaining relevant data and information. Questionnaires for both the Municipalities and the Panchayats were made computer-compatible and uploaded on the SFC website to enable online entry of responses and also collation & analysis of data. Suggestions/ comment were invited from people at large through Newspaper advertisements, Divisional level consultations: were held with State Govt. and local govt functionaries (officials as well as elected). Visit to the Panchayats and the Municipalities were made for appreciating the ground reality. Comprehensive analysis of the State Budget was also made.

V SFC

74  V N ALOK

States

Goa

S.N

5

Questionnaires were prepared and circulated to the concerned departments. A considerable amount of data was thus collected and analysed for preparation and presentation of key documents. Meetings were held with the representatives of the Panchayat bodies and municipal councils with Commission. The population figures of 1991 were adopted in all cases where population is regarded as a factor for determinations of devolution of taxes and duties and grants-in-aid.

I SFC

III SFC

On the basis of meetings & – detailed discussions carried out with Secretaries & HoDs & representatives of other important organizations of Central & State government. A considerable amount of data was also collected and analysed. The interactions with the Public and with elected representatives of VP, North and South Goa ZPs, Municipalities and consultations with departments on policy issues were limited because of the Code of Conduct that operated in the months of April, May and June 2007 for elections of Panchayats and of the Assembly. The Code of Conduct also operated in the months of September– October 2007 for the Parliamentary bye-elections.

II SFC

Methodology adopted by SFCs



IV SFC –

V SFC

(continued)

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

75

States

Gujarat

S.N

6

Considering the scope of the work entrusted to the commission, the statistical data and other information were obtained in different forms from the following sources: Concerned Departments, Director of Municipalities, Gujarat Municipal Finance Board, All the Municipal Corporations/ Municipalities, District Collector, Gujarat Water Supply and Sewerage Board

I SFC

III SFC

The Commission interacted – with other SFCs & and views were exchanged on the functioning of the local bodies in the states. Reports of SFCs from UP, AP, Bihar, Punjab, TN & Kerala were useful in understanding other state governments’ views on the finances & procedures between governments & the LBs. Video conferencing with the concerned officers were also held. Detailed statistical information and inputs with regard to financial positions of Municipalities and Panchayats were collected through specially designed schedules, annual reports and budgets of Panchayats and Municipalities. The Commission also contacted NGOs to solicit their suggestions with regard to the local self-governance system.

II SFC

Methodology adopted by SFCs

Table 3.7 (continued)



IV SFC –

V SFC

76  V N ALOK

States

Haryana

S.N

7

Data on LB’s finances was collected through director of Panchayats and from Municipalities. Information on revenue receipts, grants-in-aid, sharing pattern & implementation of CSSs & expenditure and assets owned by LBs were collected on a detailed proforma received from GoI. A study of the finances & tax administration of the Faridabad Municipal Corporation was conducted by NIUD. Similar other studies were conducted for Municipalities and Panchayats. Secondary data from various departments was also collected. Discussions were held with officers of different departments, district level officers and newly elected Panchayat members.

I SFC An exhaustive questionnaire was designed to collect information on finances of all tiers of Panchayats and all levels of Municipalities. Suggestions were invited from all stake-holders and held meetings with the persons of eminence in the field of local governance. The Commission also studied the latest Panchayati Raj Act and Municipal Act. The Commission analysed the annual Administrative Reports of Panchayati Raj, Urban Local Bodies, Rural Development Department, Local Fund and Audit, as also the reports and papers published by National Institute of Urban Affairs, New Delhi, National Institute of Rural Development, Hyderabad and National Institute of Public Finance and Policy, New Delhi.

II SFC

Methodology adopted by SFCs

Comprehensive questionnaires were designed and circulated to the state ministers, elected representatives of LBs, universities, colleges, district bar associations, reputed institutions, eminent experts and professionals and stakeholders inviting their views and suggestions on functional, financial and institutional empowerment of LBs. An analytical study on state finances was sponsored & a Study Group was also constituted to make suggestion on the empowerment of Municipalities. Group discussions/open house seminars were also organized.

III SFC Site visits were organized which helped the Commission in getting first-hand knowledge of the ground level working of LBs. States of HP, Karnataka and Gujarat were visited to know the working & status of their LBs as also the approach & methodology adopted by their SFCs. The Commission also used data from state budget documents, State Statistical Abstract, State Economic Survey, plan documents, accounts related documents, Annual Administrative Reports of various departments. The overall approach of the Commission was to foster inclusive growth promoting fiscal federalism.

IV SFC

(continued)

With a view to have authentic feedback on structural, financial and functional status of Panchayats and Municipalities, the Commission had various rounds of discussions with the Administrative Secretaries and HODs of the Departments of Panchayats, Rural Development and Municipalities. The SFC visited eight Municipal Corporations, four Municipal Councils and 11 Panchayats locations in Haryana wherein it interacted with the elected representatives and government officials of Municipalities, briefed them about the objective of the SFC and sought their views about the working of these bodies including the administrative, revenue, expenditure and service delivery aspects. Also, the meetings were done with the related government officials including BDPOs, DDPOs.

V SFC

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

77

States

Himachal Pradesh

S.N

8

The existing revenue receipts and revenue expenditure of the LBs were estimated. Large number of units were accessed for collection of basic data. The Commission had to collect data separately for the three tiers of the Panchayats. The Commission also resorted to the methodology of mailed questionnaires for collection of basic information. Views of the general public on the terms of reference of the Commission was invited by sending advertisements in the selected newspapers. Commission also held meetings with the elected representatives of Panchayats as well as with the concerned Heads of Departments.

I SFC Information was collected from the Municipalities on the following items: 1991 population, area, statutory functions, delegated functions, existing establishment expenditure, details of assets to be maintained. For the collection of data on receipts & expenditure of Municipalities, department of LBs was approached.

II SFC

Methodology adopted by SFCs

Table 3.7 (continued)

Mailed questionnaires were used for collection of basic information and proformas were also circulated time to time to the Municipalities to gather requite data. Information collected for the assessment of expenditure & receipts of Municipalities has been based on the 2001 population census, area, statutory functions, delegated functions, existing establishment expenditure, details of assets to be maintained and, other committed expenditure of Municipalities.

III SFC The Commission collected data separately from the three tiers of Panchayats and Municipalities. Separate questionnaires were designed for each tier of Panchayats & Municipalities. The task of data collection was assigned to the Department of Information technology to conduct the survey with the help of Lok Mitra Kendras. Regular meetings were conducted to review the status of survey work. More emphasis was given to participatory approach. The Commission invited views and suggestions by publishing advertisements in selected national and regional newspapers.

IV SFC

V SFC

78  V N ALOK

States

Karnataka

S.N

9

Requisite data were formulated and collected through questionnaires. Interactive sessions were planned with different rungs of Panchayats and all the Municipalities which were arranged at the district level. Meetings were held with concerned representatives and officials.

I SFC Not mentioned in the Report

II SFC

Methodology adopted by SFCs

District level interactive meetings were held in all districts except Haveri. Consultations were carried out with experts, academicians, former chairpersons of SFCs. State visit was conducted to Kerala, New Delhi & views were exchanged with delegates and heads & faculty members of academic institutes. Various reports, papers and documents were studied for gaining inputs for the formulation of recommendations.

III SFC –

IV SFC

V SFC

(continued)

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

79

States

Kerala

S.N

10

Not mentioned in the Report

I SFC The Commission directly studied the functioning of each of the five types of local government with special reference to financial matters viz. VP, BP, DP, Municipality and Corporation by visiting one representative of each type. The Commission held consultations with representatives of LB associations which, brought forward issues relating to finances of the LBs. Detailed discussions were held with the Secretaries & Head of Department involved in decentralization. Special meetings were held with Finance Minister & Finance Secretary. And there were exchange of views with the SPB with particular focus on decentralized plan preparation and implementation. A detailed analysis of the report of the First Finance Commission was conducted.

II SFC

Methodology adopted by SFCs

Table 3.7 (continued)

The financial data was collected in three parts reflecting three major stages of transformation: LSGs before 73rd & 74th CAAs, LSGs during & after substantial shift of services & institutions that took place in accordance with Article 243 (G) and 243 (W) and LSGs as instruments of economic development resulting from Kerala’s widely acclaimed experiment of decentralized planning. Five proformas were prepared help the LSGs make self-assessment of their services, wherein only two types of entries were to be made-receipts and expenditure.

III SFC The Commission visited selected LBs to have a first-hand experience of important developmental issues & good practices. Various meetings, workshops as well as seminars were conducted from time to time. The Commission launched an ambitious project to collect online data from the LBs, using the software developed by KELTRON for online collection of data relating to receipts and expenditure of LBs based on accounting system. In addition to this a number of studies were also sponsored by the Commission.

IV SFC

The Commission visited a few selected local governments to have a first-hand experience of important developmental issues and good practices. Various meetings, workshops as well as seminars were conducted from time to time. The Commission had launched an ambitious project to collect online data from the local governments earlier which was continued by Fifth SFC. The main objective behind collection of data online was to build a data base which can be preserved for future use. In addition to this a number of studies were also sponsored by the Commission.

V SFC

80  V N ALOK

States

Madhya Pradesh

S.N

11

I SFC For making a macro review of the finances of LBs, the commission used the data furnished by the XI FC. Personal visits were made to a number of district/block head-quarters, to interact with the elected representatives of LBs. Since, number of rural local bodies in the state is high, Commission decided to take a sample of Gram Panchayats in the state & blow up the data for the whole state, on the basis of sampled data. While making projections of revenue & expenditure, the commission followed the methodology evolved by the XI FC, with certain modifications. In regard to projection of own tax revenue, representative tax approach has been adopted.

II SFC

Methodology adopted by SFCs III SFC –

IV SFC –

V SFC

(continued)

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

81

States

Maharashtra

S.N

12

II SFC

Financial & other data Not mentioned in the were obtained directly Report. from the local bodies. Budgetary data and projections were obtained from Finance Department. Study groups were constituted by different departments of local bodies and intensive interactions were carried out with concerned officials. Seminars and workshops were conducted and were participated in by the senior members of the Commission.

I SFC

Methodology adopted by SFCs

Table 3.7 (continued)

IV SFC

Statistical information was – collected from the Finance Department, UDD, DRD, etc. and data relating to income & expenditure was collected from the LBs. Training camps were organized for the officers of LBs. Discussions were held with the officers of 1st & 2nd SFC & also with other stakeholders. Seminar/ workshop were organized to exchange ideas & suggestions with regard to the finances of LBs. Study groups were appointed to study some specific topics pertaining to the Municipalities/ Corporations in the State.

III SFC –

V SFC

82  V N ALOK

States

Manipur

Odisha

S.N

13

14

Questionnaires were prepared and circulated to the concerned departments. But there were many gaps in the information supplied. A series of meetings were thereafter arranged, individually & jointly with all the officials of concerned departments. Not mentioned in the Report

I SFC

Questionnaires related to various schemes being operated at LB’s level were circulated and statistical data were collected. Visits were carried out in different districts to acquire first-hand information. Visits were also made to the states of WB, Karnataka & Kerala in order to acquaint the Commission with the functioning of LBs in other States. Several meetings were held with the relevant officials in line.

Not mentioned in the Report.

II SFC

Methodology adopted by SFCs

Visits were carried out to Panchayats and Municipalities in the states of Karnataka, Kerala and West Bengal to gain first-hand information about their organization, functioning, resource mobilization efforts and their patterns of expenditure vis-à-vis the activities assigned to them. Meetings were held with different stake holders, from time-to-time, to analyse the problems of the Panchayats and Municipalities and, to work out appropriate policies that would strengthen their finance and rightly impact their working.



III SFC –

V SFC

Commission had apprised – the public of constitution of the 4th SFC & its mandates & their valuable views/advices were sought to strengthen the local self-governments of the State. The Commission visited some of the districts, & the Chairman & Members visited a few other districts individually or in smaller groups for direct interaction with the local body representatives, local public and officials working at the grassroots level.



IV SFC

(continued)

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

83

States

Punjab

S.N

15

The task of primary collection of data from Panchayats & Municipalities was undertook for which detailed questionnaires were issued to different rungs/level of Panchayats/ Municipalities. The data was collected in relation to income & pattern of expenditure, deficit & future requirements and plan & noon-plan expenditure. Sources of revenue for the activities listed in 11th & 12th schedules was also reviewed. Interactions were carried out with the officials of State departments, members of other SFCs from Mah, Kar, & Guj.

I SFC The Commission devised detailed and exhaustive Information Proformas about functions, income and expenditure, grants received from various sources, and under various schemes, indebtedness, level of Civic Services, future requirement of funds etc. and sent these to all the LBs. The received data from the local bodies was then scrutinized, tabulated and analysed. The Commission also tried to collect information from other States about the finances of the state governments and the local bodies. Interaction with the Senior Officers of the state governments and experts provided valuable information and ideas. District level meetings were held with Divisional Commissioners, Deputy Commissioners, Regional and District level Officers of local government.

II SFC

Methodology adopted by SFCs

Table 3.7 (continued)

The basic services essential for civilized living, have been identified and cost of providing these services has been researched for a duration of over 10 years. Also, the cost of running local bodies at present level of services has been worked out. Questionnaires were circulated to all the Panchayats and Municipalities. Views of different officials were taken into account. Seminars were conducted and several meetings were organized. The data were collated and analysed for report writing.

III SFC –

IV SFC –

V SFC

84  V N ALOK

States

Rajasthan

S.N

16

The Commission visited AP to have first-hand information on the functions & finances of Panchayats & Municipalities in the State. The Commission also visited national level institutions to interact with the experts familiar with the subject. Seminars were attended by the Commission officials to enhance their understanding on the subject.

I SFC The methodology adopted by the commission included collection of information and materials and analysis thereof. Various meetings as well as field visits were conducted to enhance the feasibility of the report. Suggestions were invited through public notices. The Commission participated in a number of Workshops and Conferences organized at National and State levels. The Commission also visited some major States and closely studied the working patterns of local governments and the concerning State Finance Commissions.

II SFC

Methodology adopted by SFCs

Questionnaires were circulated to all the Panchayats and Municipalities. The Commission visited a few LBs to have a first-hand experience of important developmental issues & good practices. Various meetings, workshops as well as seminars were conducted from time to time. The distribution of divisible share in net tax revenue (excluding entertainment tax), between the LBs, has been based on the population figures for the year 2004–05. Census figures of rural-urban break up have been used for the distribution of net share. Inter-se distribution among ULBs has been based on Municipality wise population figures of census 2001.

III SFC For collecting information and relevant data from each tier of Panchayats and Municipalities, a well-designed questionnaire and some formats were sent to all the Panchayats and Municipalities. The Commission participated in a number of Workshops and Conferences organized at National and State levels. The Commission also visited some major States and closely studied the working patterns of local governments and the concerning State Finance Commissions.

IV SFC

(continued)

The Commission adopted a multi-layered approach. Comprehensive questionnaire for each tier of Panchayats and Municipalities were prepared and a series of interactions, field visits, surprise visits and meetings were held with various departments. Suggestions from public were also invited through press release in the newspaper and website. The youth of the State was also involved through Yuva Vikas Preraks internship program and were assigned the task to generate awareness and enhance the capacity of the system to ensure that people are able to take benefits of government schemes. The Commission attended several workshops and conferences, and also conducted a number of studies. Efforts were also made to seek views of Public Representatives, Senior Officers, Academics, Experts, Stake holders and public at large.

V SFC

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

85

States

Sikkim

S.N

17

Not mentioned in the Report

I SFC Not mentioned in the Report

II SFC

Methodology adopted by SFCs

Table 3.7 (continued)

The internal allocation of revenue between ZPs and GPs shall be based on population figures of 2001. The horizontal distribution among 4 ZPs will be on the basis of population figure and the Panchayat Area. Questionnaires were circulated to all the Panchayats and Municipalities. The Commission also used data from state budget documents, State Statistical Abstract, State Economic Survey, plan documents, accounts related documents, Annual Administrative Reports of various departments. To firm up the data received from various sources several rounds of meeting were conducted.

III SFC Data was collected through various consultations, meetings, questionnaires, formats, secondary information resources & other correspondences. Both qualitative & quantitative information were collected from the desired destinations. Besides issuing ToRs as public notice in the regional newspapers the Commission also tried to reach experts & retired public servants in Sikkim to get their views. The Commission also tried to invite suggestions / comments / views of netizens on the ToRs by advertising the IV SFC Facebook page link through public notices in the local newspapers. Various workshops were also organized at state/ district level.

IV SFC

The methodology adopted involved participatory discussions and consultations. Besides issuing ToRs as public notice in the regional newspapers the Commission also tried to reach general public, panchayats, public representatives, institutions and organizations to get their views. Consultations were held with relevant stakeholders, experts and academic and research institutions. Various workshops were also organized at state and district level. The Commission extensively used secondary data for the systematic review of finances of State and local government institutions to make recommendations regarding the proportion of funds to be devolved. For this purpose, relevant data from concerned line departments was collected and analysed. Reports of previous SFCs and other States were analysed to understand the trends in recommendations. Field visits and consultations took place with concerned Zilla Panchayats, Municipalities, selected Gram Panchayats, past SFC members, key government officials and civil society members.

V SFC

86  V N ALOK

States

Tamil Nadu

S.N

18

Not Available

I SFC The data have been obtained both in manuscript & through computer floppies & were fed into computer by obtaining the services of Data Centre, Chennai. Interactions were carried out at every stage with elected representatives & other officials. The Commission undertook field visits to various districts also other states viz. Guj, Mah, Kar, AP. State level seminars/ regional seminars were conducted and also, various committees were constituted at the Tamil Nadu Institute of Urban Studies, Coimbatore and PRIs Training Institutes.

II SFC

Methodology adopted by SFCs

In order to assess the income, expenditure, service level, debt and human resources, a detailed questionnaire was prepared and sent to Panchayats &Municipalities. Tours to various Districts were undertaken to take up discussions with District Collectors, District officials and elected chairpersons of LBs at District Collectorates. Visits were carried out to other states to study the functioning of LBs. Sub-committees were constituted on entrustment of functions and delegation of powers to the LBs. A web-site was hosted in September, 2005, containing the details of all the SFCs constituted so far in the state of Tamil Nadu.

III SFC The Commission formed an In house Committee to design an elaborative questionnaires to assess the income, expenditure, service level, capital needs etc. The Commission installed its own server system to collect online data. External agencies were also engaged to study the data collected from local bodies and to furnish an analytical report to the Commission. The commission also visited to various districts on the states as well as of other states to collect relevant information through face to face interviews and discussions with the concerned people. A questionnaire was sent to all the recognized National and State Political Parties.

IV SFC

(continued)

The Commission relied mainly on the primary data collected from the local governments and other stakeholders. The Commission formed an In-house Committee to design an elaborative questionnaires to assess the income, expenditure, service level, capital needs etc. The Commission installed its own server system to collect online data. The server was made available to the users i.e., local governments, 24 hours a day throughout the period of the Commission. The end users were taught to open the server IP, with the username, password provided exclusively for each local government. Training sessions were conducted for all the end users to download, to fill up offline and to upload in the Commission’s server by the local governments themselves. The questionnaires to the local governments were devised almost like data sheets and constraints made therein to capture only the expected data.

V SFC

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

87

States

Tripura

S.N

19

The Commission invited views, suggestions and opinions from individuals, recognized institutions, political parties and organizations. Relevant data/ information were collected from the State Government and other semigovernment bodies and autonomous bodies. Discussions were carried out with departmental officers of the State Government and elected representatives of the three-tiers of Panchayats.

I SFC The Commission held discussions with all the secretaries of all Panchayats, who were requested to indicate their views as to what is expected of the 2nd SFC, what is the financial viability of the Panchayats, what could be the areas of improvement etc. A number of suggestions were brought out & formed the consideration of the Commission. Visits were carried out to different Panchayat institutions.

II SFC

Methodology adopted by SFCs

Table 3.7 (continued)

IV SFC

Approach is guided by the – mandate of the constitutional provisions & the terms of reference contained in the order constituting the commission. Actual revenue expenditure is to be assessed & realistic estimates of expenses are to be projected over a period of next 5 years in order to ascertain the revenue gap of all Panchayats in totality. Differentiation has been made for hilly & plain areas. Projection is computed keeping in view forecast of the State Government on SOTR submitted to the 13th Finance Commission. Pre-devolution gap has been computed by assessing requirement of establishment expenditure, maintenance expenditure & development expenditure of the Panchayats.

III SFC –

V SFC

88  V N ALOK

States

Uttar Pradesh

S.N

20

Questionnaires were prepared and sent to concerned departments. Team of officers from the Commission was sent to various districts to create awareness for the importance of filling the questionnaires and to have an intimate knowledge of the working of rural & urban LBs. Also, visits were carried out to different States (Karnataka, Kerala, Assam, Tamil Nadu, Andhra Pradesh, Haryana & Bihar) with a view to familiarize with the approaches adopted by the other SFCs. Discussion were taken up with the elected representatives of the Panchayats & Municipalities. Seminar at Hyderabad, Mussoorie, New Delhi & Madras were attended to have a better understanding of the need for devolution of funds to LBs and making them self-sufficient for raising their own resources.

I SFC The Commission developed detailed questionnaires to elicit information on the financial and other aspects of LBs which were issued to Panchayats & Municipalities. The Commission undertook visits to other States to familiarize itself with the working of LBs as also the approach of other SFCs. The Commission collaborated with SHERPA, a NGO, in carrying out a field survey on the functioning of Panchayats in the State.

II SFC

Methodology adopted by SFCs III SFC

V SFC

The commission – constructed various kinds of questionnaires to gather relevant information from various sources. The collected information/ responses were analysed to determine the resource requirement of various rungs of Panchayats and levels of Municipalities. Field visits were also conducted within the state as well as various other states to enrich the information gained. Time to time meetings with various stake holders workshops as well as seminars were also part of exercise.

IV SFC

(continued)

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

89

States

Uttarakhand

S.N

21

The review of the institutions is made in the context of the specific historical, demographic, physical and socio-economic realities of Uttaranchal. An effort has been made to bring in the citizens’ point of view. The Report of the first UPSFC for the period 1996 to 2001 has been taken as a starting point. The observations of the 11th FC have been taken note of. Several instruments were used for carrying out the review: Desk studies, Questionnaires, Study of memorandums received, District level hearings, Formal/ Informal meetings & consultations, Consultants’ reports and other inputs.

I SFC Not mentioned in the Report.

II SFC

Methodology adopted by SFCs

Table 3.7 (continued)

IV SFC

The assessment of the – finances of Municipalities & Panchayats includes their resources base, capacity to raise resources, and expenditure requirements in terms of the functions assigned to them. Separate financial assessments have been made for the State, the Municipalities and the Panchayats at various levels. Assessments of the finances of the local bodies have been based on the responses to the detailed questionnaires sent out by the Commission.

III SFC –

V SFC

90  V N ALOK

West Bengal

22

Data were collected from all departments of the State to find out the proportion of plan expenditure spent for districts. However, the information provided was incomplete and entirely unsatisfactory.

I SFC The initial task undertaken by the Commission was to review the actions taken so far by the government on the recommendations of the First SFC and its impact on the LSGs’ functioning in general and their financial state in particular. Meetings were held with representatives of Panchayats and Municipalities, government officers and leaders of political parties of all districts in the State. Discussions were carried out with academicians, senior government officials and ministers.

II SFC

Methodology adopted by SFCs

Source: Author’s compilation from various SFC Reports

States

S.N

Questionnaires were circulated to all the Panchayats and Municipalities. Views of the Director Panchayati Raj, non-departmental representatives, Panchayati Raj Department, Urban Development department were collected. Visits were made to several districts, blocks and GPs and discussions were carried out with the representatives of Panchayats, Municipalities and Corporations.

III SFC –

IV SFC –

V SFC

3  RECOMMENDATIONS AND METHODOLOGIES OF SFCS: A REVIEW 

91

92 

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References Alok, V N (2019), ‘Financial Matrix for Empowerment: Design of Inter Governmental Fiscal Transfers in India to Rural Local Governments’, Study report to the 15th Finance Commission, Delhi, IIPA. Bird, R.M (1998), Designing State-Local Fiscal Transfers for Uttar Pradesh, (Summary) July, (mimeo). Shah Anwar (2006) A Practitioner’s Guide to Intergovernmental Fiscal Transfers, Journal of Economics and Statistics, XLIV. 128–186 Shoup C.S. (1969), Public Finance, London, Weidenfeld and Necolson.

CHAPTER 4

Impediments in the Functioning of SFCs and Good Practices

Local Fiscal Data Deficiencies It is annoying for SFCs to have no reliable fiscal data on most aspects of state-local finances on which to base their analyses and inferences. These include internal revenue and expenditure data of Panchayats and Municipalities, the funds transferred to them from upper levels of governments in the form of devolution and grants, data related to assignments of functions and taxes from the state government. Since an SFC ceases to exist after the submission of its report, many SFCs could not have access to the data generated and scrutinized by the previous SFCs. It is very frustrating to start every time afresh or with limited data or with non-reliable data. Most SFCs have indicated these limitations in their reports. In fact, neither the local government; nor the State Directorate on (a) Panchayats and (b) Municipalities; nor local fund audit; nor Accountant General of the State; nor Reserve Bank of India; nor Central Statistical Organization; nor Union Ministry of Panchayati Raj; nor Union Ministry of Housing and Urban Poor and nor the NITI Aayog (erstwhile Planning Commission) have consistent fiscal data on local governments. Many SFCs, have attempted to collect data from the thousands of Panchayats and Municipalities but could not analysed and maintained it systematically. Almost all the SFCs, in all generations so far, have complaint about the lack of data availability which burdens them with the extra task of collecting the requisite data from the local governments. This delays the report © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 V N Alok, Fiscal Decentralization in India, https://doi.org/10.1007/978-981-16-2203-8_4

93

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submission by a considerable amount of time. A separate and permanent SFC cell, as recommended by various SFCs, could help a great deal in curbing the issue. But, State governments have not shown serious inclination towards this problem.

Inconsistent Methodologies of Various SFCs In order to address the common terms of reference, various SFCs have adopted different methodologies. Many of them attempted to estimate, in their own fashion, the resource gap. Successive SFCs of the same State define resource gap differently. In many cases, unique and unacceptable methods are in use to quantify the resource gap. This exercise turns out to be meaningless, as most SFCs tend to recommend lump sum ad hoc grants towards the end of their reports. Some SFCs have attempted to estimate the gap on a normative basis-though unsuccessfully in the absence of any systematic work in the recent past, at national level to develop expenditure norms of core services at different geographical terrains viz. hilly, coastal, dessert and plain areas since the Zakaria Committee Report (1963).

Poor Response by the State Governments on SFC Reports Article 243 I (4) and 243 Y (2) stipulate state government to present before the Legislature of the State every recommendation made by the respective SFC together with an explanatory memorandum as to the action taken thereon. The provision is akin to article 281 related to the action taken by the Union government on the recommendations of Union finance commission. However, the respective government treats this Institution and its recommendation very differently. It can be easily observed that key recommendations of the Union finance commission are implemented within a timeframe without modification and other general recommendations are respected and considered at various policy-making exercises. However, at the state level, little attention is paid even to the principal recommendations of the SFC. In several cases, the recommendations are rejected. In many cases, they are accepted through the action taken report, but not implemented by not issuing government orders. In some cases, despite issuance of government orders money is not released.

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In three cases,—second SFC reports of Karnataka & Maharashtra and third SFC of Gujarat—the reports have been neither considered nor placed in the State Legislature for number of years. The report of second SFC of Kerala was placed in the legislature, without any action taken report, three years after its submission.

Non-synchronization with Union Finance Commission The CAA provides that the Union finance commission should suggest measures to augment consolidated funds of states based on the recommendations of SFCs. However, all Union finance commissions, i.e. 11th, 12th, 13th, 14th and 15th were handicapped due to the non-availability and non-synchronization of the SFC reports for the relevant period. The 11th Finance Commission even recommended to delete the words ‘on the basis of the recommendations made by the Finance Commission of the State’ from sub-clauses (bb) and (c) of article 280 (3) of the Constitution. According to the Twelfth Finance Commission (TFC), SFC reports should be available to UFC at the time of UFC’s constitution to make it easier for the UFC to assess the SFC on the basis of uniform principles. TFC suggested that as the time of the constitution of UFC is predictable, the States should constitute their SFCs accordingly. In a similar vein Thirteenth Finance Commission also argued about the timely constitution of SFCs. Similarly, the Fourteenth Finance Commission suggested timely constitution of SFC, proper administrative support and adequate resources for smooth functioning and timely placement of the SFC report before the State legislature with action taken reports.

Indefinite Tenure of SFCs In many States, SFCs are constituted for a period of six to eighteen months. But, due to frequent transfers and consequent compositions of SFCs, the tenure keeps on being extended for indefinite period. At times, the report is submitted for the award period of previous years. Moreover, as mentioned earlier, State government takes its own time to consider or not to consider the report and places before the legislature. A few instances are as follows:

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In the State of Assam: The ToR of the Fifth SFC mandated the submission of its report by 30th April 2014, covering a period of five years commencing 1st April 2015. However, the report was submitted in November, 2016 and hence covered the period 2016–17 to 2019–20. In the State of Haryana: The ToR of the fourth SFC required its submission of the report by 31st March 2011. However, due to lack of infrastructural facilities and other impediments, the SFC’s term was extended several times and lastly up to 30th June 2014. Hence, it took the SFC four years to finally submit its report. In the State of Manipur: The ToR of the Second SFC, constituted in 2003, required to cover a period of five years beginning from April 2001. However, the award period was extended till March 2010. Strange bureaucratic practice is in vogue in a few States by which the constitution of the SFC and issuance of its terms of reference (ToR) are notified separately after a long interval. Constituting the Commission without its mandate or purpose on the same notification signifies the casual approach on the part of State Governments. The practice is aggravated by reconstituting the commission several times, due to flimsy reasons. In service civil servants acting as chairman/member/member secretary are transferred at frequent intervals hampers the seamless functioning of the SFC.

Qualifications of SFC Members A SFC has to deal with matters ranging from legal, economic, financial and administrative, as well as those relating to decentralization. It is, therefore, important that the due consideration is paid for the selection of the members of the commission to carry out the objectives with which a SFC is constituted in a State. A State Government is required to constitute a SFC pursuant to clause (1) of article 243-I and 243-Y of the constitution which reads “the Legislature of a State may, by law, provide for the composition of the Commission, the qualifications which shall be requisite for appointment as member thereof, and the manner in which they shall be selected” and accordingly, have made provisions in their respective Panchayat Act and Municipal Act. In this respect, Table 4.1 gives an overview of the qualification criteria, state-wise, adopted for constituting an SFC. It is observed that in most of

(ii)

(i)

Haryana

8

5 6

Gujarat

Chhattisgarh N.A. Goa ad hoc selection and decided at the time of constituting the commission

4

7

Bihar

3







ad hoc selection and decided at the time of constituting the commission



ad hoc selection and decided at the time of constituting the commission

ad hoc selection and decided at the time of constituting the commission

ad hoc selection and decided at the time of constituting the commission

Arunachal Pradesh Assam

2



(iii)

(or) Wide experience in financial matters and in administration

Andhra Pradesh



(or) Special knowledge of the finances and accounts of government

Qualification of a Judge of a High Court

Having Experience in Public Affairs



Other Members having

Chairperson

1

S.N. States





(iv)

(or) Special knowledge of economics

(continued)

One chairman and two members One chairman and four members One or more members of whom one is the chairman.

A chair and four members of whom one is member secretary One or more members whom one is the chairman One chairman and two members One chairman and two members

Strength of the Commission

Table 4.1  Adherence to the Prescribed Qualifications of Chairman and Members of Finance Commissions in States 4  IMPEDIMENTS IN THE FUNCTIONING OF SFCS AND GOOD PRACTICES 

97

Himachal Pradesh

Jharkhand

Karnataka

Kerala

Madhya Pradesh

9

10

11

12

13

S.N. States

(ii)

(i)

(iii)

(or) Wide experience in financial matters and in administration (iv)

(or) Special knowledge of economics

Strength of the Commission

Selection from amongst the officers of the State Government One chairman and two not below the rank of Secretary to the State Government or the members Head of the Department. ad hoc selection and decided at the time of constituting the commission One chairman and two members ad hoc selection and decided at the time of constituting the commission One chairman and two members √ √ having special One chairman and two knowledge and members experience in financial matters and economics N.A.

+ (iii) or (iv)

(or) Special knowledge of the finances and accounts of government

Qualification of a Judge of a High Court

Having Experience in Public Affairs



Other Members having

Chairperson

Table 4.1 (continued)

98  V N ALOK

Maharashtra

Manipur Odisha

Punjab

14

15 16

17

S.N. States

N.A.





or (i) or (iii) or (iv)









(ii)

(i)

Or serving or retired civil servant well versed in Administration and Finance

(or) Special knowledge of the finances and accounts of government

Qualification of a Judge of a High Court

Having Experience in Public Affairs



Other Members having

Chairperson







(iii)

(or) Wide experience in financial matters and in administration





(iv)

(or) Special knowledge of economics

(continued)

One chairman and four members (provided that one of the members is a person who is holding or has held the post not lower in rank than that of an officer in Junior Administrative Grade in Indian Administrative Service or an officer in equivalent grade and he is the member secretary of the Commission). one member One chairman and four members out of whom one is appointed as the member secretary

Strength of the Commission 4  IMPEDIMENTS IN THE FUNCTIONING OF SFCS AND GOOD PRACTICES 

99

Telangana

Uttar Ad hoc and decided at the time of constitution Pradesh Uttarakhand Ad hoc and decided at the time of constitution

West Bengal

Tripura

21

22

23

24

25









(iii)

(or) Wide experience in financial matters and in administration





(iv)

(or) Special knowledge of economics

Note: aSubstituted for the words “Four other members” by Tamil Nadu Act 6 of 2006 w.e.f. 13th June, 2006

Source: Author’s compilation based on State Acts

To be selected from amongst the jurists, economists, administrators and social and political workers of eminence. Ad hoc and decided at the time of constitution



Ad hoc and decided at the time of constitution

Tamil Nadu

20



Sikkim

19



Rajasthan



(ii)

(i) √

(or) Special knowledge of the finances and accounts of government

Qualification of a Judge of a High Court

Having Experience in Public Affairs



Other Members having

Chairperson

18

S.N. States

Table 4.1 (continued)

One chairman and four members One chairman and two members One chairman and fivea members One chairman and four members (whom one is member secretary) One chairman and two members One chairman and two members One chairman and four members One or more members whom one is the chairman

Strength of the Commission

100  V N ALOK

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101

the States including Arunachal Pradesh, Assam, Bihar, Goa, Haryana, Jharkhand, Karnataka, Tamil Nadu, Tripura, Uttar Pradesh, and Uttarakhand that the qualifications prescribed for the members of the commission are ad hoc and decided at the time when a commission is constituted. In the States of Andhra Pradesh, Gujarat, Manipur, Rajasthan, Sikkim and Telangana, a chairperson of a commission is nominated as someone who is well versed in public affairs; whereas in the States of Himachal Pradesh, Kerala, Maharashtra, Odisha and West Bengal, a chairman is someone who has special experience and knowledge of finances and accounts of governments; or has experience in financial matters and in administration; or has special knowledge of economics; or is (or has been) qualified to be appointed as a judge of a High Court. In the appointment/nomination of members, most States select members with special knowledge of finances and accounts of government, or have experience in financial matters and administration. Members with special knowledge of economics are also considered in the States of Andhra Pradesh, Gujarat, Manipur, Odisha, Sikkim and Telangana. A person having the qualification of a Judge of a High Court is another eligibility criterion adopted in the States of Gujarat, Manipur and Sikkim. As a matter of fact, state government can frame or alter rules concerning the qualifications of chairperson and members. Despite having statutory provisions prescribing the qualifications of persons eligible for appointments as chairperson and members of the SFC, it is observed that in practice majority of chairpersons and members are either civil servants (serving or retired) or politicians. Many states are making a mockery of this institution by appointing disgruntled politicians as chairpersons only to appease. Similarly, retired civil servants, who have been loyal to the ruling political parties, are also appointed as chairpersons/members. This erodes the autonomy and technical character of the SFC as envisaged in the Constitution. Almost all Union Finance Commissions suggested that States should by legislation; ensure that chairpersons and members of the SFCs may be drawn from the experts in specific disciplines such as economics, law, public administration and public finance. They also mentioned that States should follow the central legislations and rules which prescribe qualifications of chairpersons and members.

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Composition of the SFCs In most States, the relevant Act, either Panchayat or Municipal, prescribes the strength of its respective SFC. In these Acts, the number of members varies between three and five. As an exception, the State of Tamil Nadu prescribes six-member commission and Manipur, on the contrary, only one. Moreover, rules are flexible or ambiguous in the States of Arunachal Pradesh, Haryana and Tripura so far as the strength of the SFC is concerned. While the rules are flexible, the practices are hilarious. Many times, number of members appointed to the SFC goes beyond statutory limit. For instance, fourth SFC of Assam comprised six members and Second SFC of Goa had five members violating their own laws which provide for three members (including chairman). Similarly, the third SFC of Gujarat had a chairman and a member secretary whereas the relevant law in Gujarat provides for a chairman and four members. Such practice has also been noted in case of third SFC Maharashtra, fifth SFC of Rajasthan and third SFC West Bengal. A jumbo SFC of seven members is also seen in Haryana in its 5th edition. Many experts and commissions including the 12th Finance Commission suggested that “SFCs must be constituted with people of eminence, and competence with qualification and experience in the relevant fields”. It was also recommended that the number of members including the chairperson may not exceed five excluding a serving officer who may act as the Secretary. The 14th Finance Commission recommended that “the State government should strengthen SFCs. This would involve timely constitution, proper administrative support and adequate resources for smooth functioning and timely placement of the SFC report before State legislature with action taken notes”.

Procrastinated Constitution of SFC Article 243 I of the Constitution granted one year time to the Governor to constitute the first SFC in the State from the date of commencement of the 73rd Constitution Amendment Act, 1992. Accordingly, States to which this Act applies were required to constitute their first finance commission before 24 April 1994. However, compliance by the States with this mandatory duty was partial. It may be observed from Table 4.1 that around 50 per cent of the States had constituted their 1st SFC only after cut-off dates of 24 April 1994.

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Article 243 I also stipulates that succeeding SFC needs to be constituted “at the expiration of every fifth year”. As pointed out earlier, this provision leading to the timely constitution of SFC is flawed. Many state governments aggravate it by not constituting it even at the expiry of every fifth year. In some cases, only the chairman and secretary are appointed initially, other members and even terms of reference for the SFC come much later. On the other hand, there are States which constituted their SFC even before the expiry of fifth year from the date of appointment of their previous SFC.  It may be seen from Table 4.3 that there are few States which appointed their next SFC about two years before the expiry of the appointment of their preceding SFC. Examples can be found in Assam, Bihar, Himachal Pradesh, Punjab, Rajasthan, Sikkim and Uttar Pradesh. In this connection, it needs to be noted that States, by and large, are also gradually trying to synchronize the award period of their SFC recommendations with the corresponding award period of the ensuing UFC. It is unfortunate that several States have indulged in abnormal delay in constituting their SFCs. The delay ranged from five months to more than five years. Instances of this type of default can be seen in the States of Arunachal Pradesh, Andhra Pradesh, Karnataka, Madhya Pradesh, Maharashtra, Manipur, Rajasthan, Tripura, Uttar Pradesh and West Bengal. In this connection, the Eleventh Finance Commission suggested that Article 243 I should be amended to enable a state to set up the SFC at expiry of every five year or earlier, in place of the expiration of the SFC at the expiry of every fifth year. The following Table 4.2 gives a broad picture of the constitution of SFCs as on October 2019. As may be seen from the said table, thirteen States Table 4.2  Constitution of State Finance Commissions by States: How Regular? Rank State

Last SFC Constituted

I

5th generation

II III

Asm, Bih, Har, H.P., Ker, M.P., Maharashtra, Odisha, Punjab, Rajasthan, Sikkim, T.N. and U.P. A.P., Asm, Bih, Har, H.P., Ker, Odi, M.P., Mah, Pun, Raj, Sik, T.N., Tri, U.P., U.K. and W.B. A.P., Asm, Bih, Guj, Har, H.P., J.K.. Kar, Ker, M.P., Mah, Man, Odi, Pun, Raj, Sik, T.N., Tri, U.P., U.K., and W.B.

4th generation 3rd generation

Source: Author’s compilation Note: This table does not cover the states of Nagaland, Mizoram and Meghalaya and the U.T.s for want of information

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have constituted their 5th generation SFCs However, data the reports of only eight SFCs could be found and presented in the present analysis. Nineteen States constituted their 4th generation SFCs, while twenty-one States constituted their 3rd generation SFCs. The table indicates the month of (a) SFC constitution in States; (b) month of the submission of respective report; and (c) month of the submission of explanatory memoranda. As pointed out earlier, the constitutional provision leading to the timely constitution of SFC is seemingly flawed. The postponement in the constitution of SFC, partial constitution, and delay in submission of report obstructs the cycle and its connection with the Union finance commission.

Extraneous Contents and unordered Presentation of SFC Reports In the past, Datta (2008) and Mishra (2004) made comments on several SFC reports submitted at that time. A cursory glance at the content and arrangement of various SFC reports reveal the following: • The Second SFCs of all States, except Andhra Pradesh, Kerala, and Uttar Pradesh, did not review the First SFC reports. • The data base on which the SFCs had based their reports, was absent in West Bengal and inappropriately tabulated in most states except Kerala. • None of the Second SFCs attempted to assess local taxable capacities in terms of measurable indicators but in the Third and Fourth generations of SFCs of various States like Himachal Pradesh, Kerala, Rajasthan, Tamil Nadu have attempted to estimate it. • The SFCs generally recommended global sharing with wide variations ranging from 1% in Sikkim to 40% in Karnataka. • Most SFCs adopted supply driven approach to calculate the need of the local governments. • The SFCs waste much of their time in collecting financial data from local governments. • SFCs have paid little attention towards improving fiscal structure of local governments. • SFC reports are generally unsatisfactory in comparison to Union Finance Commission Reports. • So far as the presentation is concerned, Second SFC report of Uttarakhand and Third and Fourth SFC report of Sikkim, Fourth SFC report of Rajasthan, Odisha and Tamil Nadu stand out as neat

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and well drafted, other reports are not presented properly. The report of Fourth SFC of Kerala is in two parts with separate ATRs. Both the parts were submitted separately and the dates of ATR submission also vary. This confuses the fiscal arrangements. • The Third SFC report of Uttarakhand is not based on processed data and meaning full budget classification of local governments. The report of Fourth SFC of Himachal Pradesh covers relevant issues and also provides revenue projections for the local governments related to the award period. • While the First SFC report of West Bengal contained 11 pages and the second report had 31 pages, second SFC report of Tamil Nadu was presented in five volumes, covering a lot of irrelevant issues. With the passage of time, the trend changed in the same State, as the Third SFC report of West Bengal was presented in 360 pages while the Third and Fourth SFC Reports of Tamil Nadu were reduced to only 260 pages each. • Third and Fourth SFCs of Uttar Pradesh, First and Third SFCs of Madhya Pradesh and Rajasthan have published their Report and ATR only in Hindi. It limits the number of the readers and perceptions of various terms explained. • Further SFCs of Madhya Pradesh, Tripura had always presented the report in two parts, one for Panchayats and other for Municipalities. In such a situation it becomes difficult to generate a combined picture in mind to understand overall situation. • ATR of the Third SFC of UP consists of 134 pages while the ATR of Fourth SFC of Himachal Pradesh comprises only three pages. • Though almost all the SFCs of Kerala, Odisha, Rajasthan, Sikkim and Tamil Nadu have mentioned ToRs in the introductory chapter, there are reports of states like Bihar and Uttar Pradesh where ToR is in the annex. • In most of the SFC reports, summery of recommendations comes as the concluding chapter except the Fourth SFC Report of Tamil Nadu where the report starts with the summery of recommendations. • Fourth SFC of Assam has also added ‘suggestions’ along with ‘recommendations’. It creates confusion in assessing the report as they have not distinguished between the two terms. • Third SFC of Bihar and Fourth SFC of Himachal Pradesh have incorporated their interim reports in the final report.

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• Many SFCs presented their reports after the submission of the report of Eleventh Finance Commissions did not follow the guidelines of the latter. SFCs constituted afterwards, mostly the third and fourth generation SFCs, have followed the model template for the report as prescribed by the 13th Finance Commission. • In most of the States, SFCs make recommendations in respect of revenue expenditure requirements, but in some states like Kerala and West Bengal; the SFCs make recommendations for both revenue and capital allocations. • In the State of Bihar, the first and second SFCs of Bihar did not submit the report due to some reason but third, fourth and fifth SFCs have been constituted later on. These SFCs did not take cognizance of the irregularity. • Fifth SFCs of Assam, Bihar, Haryana, Kerala, Rajasthan, Sikkim and Tamil Nadu have submitted their final reports. The reports are available on SFC website but the reports of Bihar, Sikkim and Tamil Nadu do not seem to have been presented in the State Assembly as no ATR is available.

Good Practices of SFCs With an objective to assess the good practices adopted by various States in the working of SFCs, five variables were taken into consideration that covers the major aspects of SFCs. These are: • Qualification of SFC Members in the State Acts/Rules • Constitution of SFCs • Gap in the constitution of last two SFCs • Submission of report by the SFCs from the date of constitution • ATR laid before the Legislature from the date of submission of report by SFC Each variable has been assigned weight to assess the practice from the given data. Based on the scores secured by each State, ranks have been assigned. Result of the analysis is presented below: Based on the parameters used, states have been ranked according to the score they secured in aggregate. From Exhibit 4.1, it is clear that Kerala and Tamil Nadu are ranked at the top, in the context of the five variables assessed. Over all indicator analysis reflects that these states have performed well in almost all the parameters considered in the analysis of good practices so far as

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Good Practices of SFCs 1.2

States

1 0.8 0.6 0.4

0.2 Guj

J&K

UK

ArP

Jha

Har

AP

Bih

WB

Goa

Tri

UP

MP

Asm

Mah

Kar

Man

Pun

HP

Raj

Odi

TN

Sik

Ker

0

Exhibit 4.1  Ranking of the states. (Source: Author’s calculations)

the working of various SFCs across states are concerned. These states have constituted fifth SFC, gaps between the two SFCs is not more than five years. They have submitted reports in the minimum time from the date of constitution and laid ATRs before the legislature in less than a year. Among the north eastern states SFC of Sikkim has performed very well as it is ranked third among the top four States. Though Rajasthan has also acted its best but it falls at fourth rank just because of the zero score in the context of variable one. On the contrary States like Arunachal Pradesh, Gujarat and Jammu and Kashmir are among the lowest rank holder SFCs. If we consider each variable separately we find that in case of Variable 1 only 11 States among 24 states qualify. In the context of constitution of SFCs only eight states have constituted fifth SFC.  Three states, i.e. Chattisgarh, Jharkhand and Uttarakhand, acquired statehood only in the year 2000. Hence, third SFC of Jharkhand is considered as fourth SFC and for Uttarakhand its fourth SFC is considered as fifth SFC. Chattisgarh could not be considered in this analysis due to non-availability of data. For this particular variable, Bihar, Himachal Pradesh, Uttarakhand and Rajasthan are ranked top as they also have constituted their Fifth SFC along with Kerala and Tamil Nadu. In assessing the gaps in the constitution of two SFCs we found that SFCs of Andhra Pradesh, Gujarat and Manipur were performing badly as the gaps in the last two SFCs in these states were more than eight years. In case of the gap in the submission of the report, submission of last SFC is considered. In case of states which have constituted fifth SFC

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submission of the report of fourth SFC is taken into consideration. This parameter puts Haryana and Tripura at the bottom as these two states took more than four years in the submission of the report from the data of constitution, whereas SFCs of Assam, Kerala, Maharashtra, Manipur, Odisha, Rajasthan, Sikkim, Tamil Nadu and West Bengal have been regular in the submission of their reports. So far as ATR submission is concerned, Governments of Andhra Pradesh and Maharashtra took more than six years to place the ATR on the State Assembly. On the other hand, the Government of Himachal Pradesh, Kerala, Madhya Pradesh, Odisha, Rajasthan, Punjab, Tamil Nadu, Tripura and Uttar Pradesh laid ATR before the Legislature in less than one year from the date of report submission.

Other Areas of Concern As per the practice of the Eleventh Finance Commission (EFC), one more chapter should be added in the SFC report, which could focus on specific measures that need to be taken to improve the financial provisions of Panchayats and Municipalities to transform them into institutions of self-government. EFC report pointed out that there is no time prescribed either in Article 243 I (4) or in the State legislation for submission of ATRs. The commission opined that the State governments should place the ATR on the floor of the State legislature within six months from the date of the submission of the report by the SFC. The Twelfth Finance Commission argued that the States should follow the recommendations of SFC without much modification as per the practice at the Union. However, States do not follow the practice even though the recommendations are accepted in the Assembly. Such kind of practice makes the institution of SFCs meaningless. TFC suggested that SFCs should follow the procedure adopted by UFC regarding transfers of resources from Union to States. Further, it advised SFCs to assess the resource gaps by following normative approach for the resource requirements of the local governments instead of forecasts based upon historical trends. Thirteenth Finance Commission highlighted the issues of the quality of SFC reports and recommended a template which was prepared after comprehensive consultation process. The Fourteenth Finance Commission is of the view that there is an urgent need of reliable data of local government finances. Further the

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Commission suggested that local governments should be encouraged to generate own resources and to improve the quality of basic services and local governments should spend the grants only on the basic services within the functions assigned to them. Table 4.3  Constitution and Submission of SFC Reports and Action Taken thereon S.N. State

Date of constitution of SFC

First State Finance Commissions 1 Andhra Jun-94 Pradesh 2 Arunachal Sep-05 Pradesh 3 Assam Jun-95

Date of submission of SFC report

Date of submission of ATR

Period covered by SFC

May-97

Nov-97

Apr-08



1997–98 to 1999–2000 –

Feb-96

Mar-96

4 5

Bihar Chhattisgarh

Apr-94 Aug-03

– May-07

– Jul-09

6

a

NCT of Delhi

Apr-95





ULBs—Dec 1997 Jun-99

Nov-01

7

Goa

Apr-99

8

Gujarat

Sep-94

9

Haryana

10

Aug-01

May-94

RLBs—July 1998 ULBs—Oct 1998 Mar-97

Apr-94

Nov-96

Apr-97

Jan-08

12 13

Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka

14

Kerala

Apr-94

Not Submitted – RLBs—July 1996 ULBs—Jan 1996 Feb-96

15

Madhya Pradesh

Feb-95

Jul-96

11

Jan-04 Jun-94

Sep-00

1996–97 to 2000–01 – 2005–06 to 2009–10 1996–97 to 2000–01

2000–01 to 2004–05 1996–97 to 2000–01

1997–98 to 2000–01 1996–97 to 2000–01

– Mar-97

– 1996–97 to 2000–01

Feb-97

1996–97 to 2000–01 1996–97 to 2000–01

Mar-97

(continued)

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Table 4.3 (continued) S.N. State

Date of constitution of SFC

Date of submission of SFC report

Date of submission of ATR

Period covered by SFC

16

Maharashtra

Apr-94

Jan-97

Mar-99

17

Manipur

Apr-94

Dec-96

Jul-97

1994–95 to 1996–97 1996–97 to 2000–01

18 19 20 21

Meghalaya Mizoram Nagaland Odisha

22

Punjab

Meghalaya SFC Act 2012 Mizoram SFC Act 2010 Exempted under Article 243 M Nov 1996/Aug Dec-98 1998a Apr-94 Dec-95

23

Rajasthan

Apr-94

Dec-95

Mar-96

24

Sikkim

Nov-95

Aug-99

Jun-00

25

Tamil Nadu

Apr-94

Nov-96

Apr-97

26

Tripura

Jan-96

Feb-97

Sep-99

Nov-00

27

RLBs—Apr 1994 ULBs—Aug 1996 Uttar Pradesh Oct-94

Dec-96

Jan-98

28

Uttarakhand

Mar-01

Jun-02

Jul-04

29

West Bengal

May-94

Nov-95

Jul-96

Aug-02

Mar-03

Jun-14



Aug-03

Feb-06

Second State Finance Commissions 1 Andhra Dec-98 Pradesh 2 Arunachal Aug-12 Pradesh 3 Assam Apr-01

Jul-99 Sep-96

4

Bihar

Jun-99





5

Chhattisgarh

Sep-11

Mar-13



6

a

NCT of Delhi

Oct-04





1997–98 to 2004–05 1996–97 to 2000–01 1995–96 to 1999–00 2000–01 to 2004–05 1997–98 to 2001–02 1996–97 to 2000–01 1999–00 to 2003–04 1996–97 to 2000–01 2001–02 to 2005–06 1996–97 to 2000–01 2000–01 to 2004–05 – 2001–02 to 2005–06 1998–99 to 2002–03 2011–12 to 2016–17 2006–07 to 2010–11 (continued)

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Table 4.3 (continued) S.N. State

Date of constitution of SFC

Date of submission of SFC report

Date of submission of ATR

Period covered by SFC

7

Goa

July-06

Dec-07



8

Gujarat

Nov-03

Jun-06



9

Haryana

Sep-00

Sep-04

Dec-05

10

May-99

Oct-02

Jun-03

12

Himachal Pradesh Jammu & Kashmir Jharkhand

2007–08 to 2011–12 2005–06 to 2009–10 2001–02 to 2005–06 2002–03 to 2006–07

Not Constituted Jan-09





13

Karnataka

Oct-00

Dec-02

Jun-06

14

Kerala

Jun-99

Jan-01

Jan-04

15

Madhya Pradesh

Jun-99

Mar-05

16

Maharashtra

Jun-99

Jul-03 (1st Report) Aug-03 (2nd Report) Dec-03 (3rd Report) Mar-02

17

Manipur

Jan-03

Nov-04

Dec-05

18 19 20 21

Meghalaya Mizoram Nagaland Odisha

Exempted under Article 243 M Exempted under Article 243 M Exempted under Article 243 M Jun-03 Sep-04

Aug-06

22

Punjab

Sep-00

Feb-02

Jun-02

23

Rajasthan

May-99

Aug-01

Mar-02

24

Sikkim

Jul-03

Sep-04

Feb-06

11

Mar-06

2009–10 to 2013–14 2005–06 to 2010–11 2001–02 to 2005–06 2001–02 to 2005–06

2001–02 to 2005–06 2001–02 to 2005–06 (award period extended to 1.3.10)

2005–06 to 2009–10 2001–02 to 2005–06 2000–01 to 2004–05 2005–06 to 2009–10 (continued)

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Table 4.3 (continued) S.N. State

Date of constitution of SFC

Date of submission of SFC report

Date of submission of ATR

Period covered by SFC

25

Tamil Nadu

Dec-99

May-01

May-02

26

Tripura

Oct-99

Apr-03

Jun-08

27

Uttar Pradesh Feb-00

Jun-02

Mar-04

28

Uttarakhand

Apr-05

Jun-06

Oct-06

29

West Bengal

Jul-00

Feb-02

Jul-05

2002–03 to 2006–07 2003–04 to 2007–08 2001–02 to 2005–06 2006–07 to 2010–11 2001–02 to 2005–06

Jan-08

Jan-14

2005–06 to 2009–10

Mar-08

Sep-09

2006–07 to 2010–11 2003–04 to 2007–08

Third State Finance Commission 1 Andhra Dec-04 Pradesh 2 Arunachal Not Pradesh Constituted 3 Assam Feb-06 4

Bihar

Jul-04

Nov-07

Mar-07

5

Chhattisgarh

6

a

Not Constituted Jan-01





2001–02 to 2005–06

Feb-14



2010–11 to 2013–14 2006–07 to 2010–11 2007–08 to 2011–12

7

NCT of Delhi Goa

8

Gujarat

Not Constituted Feb-11

9

Haryana

Dec-05

Dec-08

Sep-10

10

May-05

Nov-07

June-08

12 13

Himachal Pradesh Jammu & Kashmir Jharkhand Karnataka

No data available Apr-15 Aug-06

– Dec-08

– Oct-09

14

Kerala

Sep-04

Nov-05

Feb-06

11

– 2011–12 to 2015–16 2006–07 to 2010–11 (continued)

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Table 4.3 (continued) S.N. State

Date of constitution of SFC

Date of submission of SFC report

Date of submission of ATR

Period covered by SFC

15

Jul-05

Nov-08

Mar-09

16

Madhya Pradesh Maharashtra

Jan-05

Jun-06

Dec-13

17 18 19

Manipur Meghalaya Mizoram



20 21

Nagaland Odisha

May-13 – Exempted under Article 243 M Exempted under Article 243 M Exempted under Article 243 M Sep-08 Jan-10

2006–07 to 2010–11 2006–07 to 2010–11 –

22

Punjab

Sep-04

Dec-06

Jun-07

23

Rajasthan

Sep-05

Feb-08

Mar-08

24

Sikkim

Mar-09

Nov-09

Mar-10

25

Tamil Nadu

Dec-04

Sep-06

May-07

26

Tripura

Mar-08



Mar-10

27

Uttar Pradesh Dec-04

Aug-08

Feb-10

28

Uttarakhand

Dec-09





29

West Bengal

Feb-06

Oct-08

Jul-09

Fourth State Finance Commission 1 Andhra Constituted (No data available) Pradesh 2 Arunachal Not Pradesh Constituted 3 Assam Apr-10 Feb-12 4

Bihar

Jun-07

5

Chhattisgarh

Not Constituted

Jun-10



2010–11 to 2014–15 2006–07 to 2010–11 2005–06 to 2009–10 2010–11 to 2014–15 2007–08 to 2011–12 2005–06 to 2009–10 2006–07 to 2010–11 2010–11 to 2015–16 2008–09 to 2012–13





Feb-14

2011–12 to 2015–16 2010–11 to 2014–15

Aug-11

(continued)

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Table 4.3 (continued) S.N. State

Date of constitution of SFC

Date of submission of SFC report

Date of submission of ATR

Period covered by SFC

a

Constituted







7

NCT of Delhi Goa

8

Gujarat

9

Haryana

Not Constituted Not Constituted Apr-10

Jun-14

No Data

10

May-11

Jan-14

Feb-14

12

Himachal Pradesh Jammu & Kashmir Jharkhand

2011–12 to 2015–16 2012–13 to 2016–17

13

Karnataka

14

Kerala

Not Constituted Not Constituted Not Constituted Sep-09

Jan-11(Part 1) Feb-11 –

Jan-12

16

Madhya Pradesh Maharashtra

Mar-11 (Part 2) –

Feb-11





17

Manipur

18

Meghalaya

19

Mizoram

20

Nagaland

21

Odisha

Not Constituted Exempted under Article 243 M Exempted under Article 243 M Exempted under Article 243 M Oct-13

Sep-14

Feb-15

22

Punjab

Nov-08

May-11



6

11

15



2010–11 to 2015–16

2010–11 to 2015–16 2010–11 to 2015–16

2015–16 to 2019–20 2011–12 to 2015–16 (continued)

4  IMPEDIMENTS IN THE FUNCTIONING OF SFCS AND GOOD PRACTICES 

115

Table 4.3 (continued) S.N. State

Date of constitution of SFC

Date of submission of SFC report

Date of submission of ATR

Period covered by SFC

23

Rajasthan

Apr-11

Sep-2013

Feb-14

24

Sikkim

June-12

May-13

Feb-15

25

Tamil Nadu

Dec-09

Sep-11

May-13

2010–11 to 2014–15 2015–16 to 2019–20 2012–13 to 2016–17

26

Tripura

27

Constituted March 2013/No data available Uttar Pradesh Dec-11 Dec-14

Mar-15

2011–12 to 2015–16

28 29

Uttarakhand West Bengal



2013–14 to 2017–18 2016–17 to 2019–20 2015–16 to 2019–20 2016–17 to 2020–21 2017–18 to 2021–22 2016–17 to 2020–21 2015–16 to 2019–20 2020–21 to 2024–25 2017–18 to 2022–23

Constituted/ No data available Apr-13 Apr-14

Fifth State Finance Commission 1 Assam Mar-13

Nov-16

June-17

2

Bihar

Dec-13

Jan-16



3

Haryana

May-2016

Sept-17

Sept.-18

4

Nov-14





5

Himachal Pradesh Kerala

Dec-14

Mar-16

Feb-18

6

Rajasthan

May-15

Nov.-18

July-19

7

Sikkim

Aug.-16

July-17

Mar-18

8

Tamil Nadu

Dec.-14

Dec.-16

Mar-17

Source: Author’s compilation based on data provided by State Governments Note: aNCT of Delhi is not a state but union territory with legislature

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References Datta, Abhijit (2008), State Finance Commissions and Urban Local Bodies, Delhi, NIPFP (mimeo). India, (1963), “Augmentation of Financial Resources of Urban Local Bodies”, (Report of the Committee of Ministers), Constituted by the Council of Local Self Governments (Chairman: Zakaria). Mishra, C S (2004), A Study of the Measures needed to Augment the Consolidated Fund of the States for Supplementing the Resources of Local Bodies, A Report to 12th Finance Commission.

CHAPTER 5

Conclusions and Suggestions

The SFCs have a major role to ensure that decentralized democracy envisaged under the CAA becomes operational and effective. The State governments have the responsibility to enhance the credibility and acceptability of the SFCs. It is the State government that has to enact a conformity act prescribing the number and qualification of members of the Commission. It is regrettable that most States have considered the appointment of SFC as one of the instruments through which they can please or appease the group of favourites either from bureaucracy or from the close political group of the ruling party. It is interesting to note that the composition of the SFCs, including the chairperson, varied between two to five persons that too varied from full time to part time or the mix of both. The qualification, status and background of the members range from anybody to former chief minister (in Rajasthan) and former Union minister of state (in Andhra Pradesh and Madhya Pradesh). In many States, SFC report is submitted to the State government and not to the Governor. In addition, the institution of SFC is further weakened in the absence of firm database on local governments and norms for service delivery. Diverse views, channels and methods of Statelocal fiscal transfers make their task even more challenging. In such surroundings, many SFCs, over a period of time, produced second-rate reports without spelling out the principles on which their recommendations are based. Literature, studies and even theoretical models were mentioned without relating to practice. In other words, the chapter © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 V N Alok, Fiscal Decentralization in India, https://doi.org/10.1007/978-981-16-2203-8_5

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on “conceptual framework” or “issues and approach” is not attuned to other chapters including the chapter on recommendations. It goes without saying that the endowment of financial powers and authority are to be matched by the functions and responsibilities. Most SFCs barely looked at the functional domain of the local governments as envisaged in the 11th and 12th Schedules and hardly considered the potential resource generation of Panchayats and Municipalities while making recommendations for the devolution of funds from the State government to them. Given the heavy recurring developmental tasks the local governments have to perform, the assigned taxes and non-tax revenue sources are unlikely to be adequate. Moreover, the revenue generating capacities of local governments, whatever is their level, differ from State to State and even within the State. Some have high revenue potential and some have low. Similarly, cost factor in providing services also differs for various reasons including cost disability factor, e.g. area under forest or desert. One cannot deny the fact that vast differences are also found within the State. A classic example is the case of Uttarakhand, a newly carved out State from Uttar Pradesh, which has been declared a special category state (renamed as Himalayan State) due to its special features e.g. hilly and difficult geographical terrain and considerable international border. Prior to that, the State was a part of Uttar Pradesh, a non-special category state. No inter-­governmental transfer mechanism had ever realized that part of Uttar Pradesh having characteristics akin to a special category state. Intra-state variations postulate the need for an equalization transfer mechanism through SFCs that assess the needs of the local governments as well as their efforts to tap their own revenue potential. This kind of normative assessment by the SFCs should have been ensured for the fulfilment of every citizen’s entitlement of basic minimum service or a set of local public goods. Sadly, such an issue has either not addressed or attempted amateurishly in most SFC reports. It is expected from any finance commission, be it a Union or state one, to evolve a mechanism so that a fine blend of equity and efficiency objectives can be achieved in fiscal transfers. Only this kind of devolution mechanism can promote autonomy. A system of rewards and punishment has to be developed in the State and the SFCs have to initiate and evolve this mechanism. However, a very few SFCs made its recommendations in that direction. Most SFCs have recommended a medley of taxes, cesses, or even surcharge on State taxes. Most of these recommendations assume high capacities of the local governments to collect revenues. Given the fact that collection of taxes at the local level is difficult, such type of efforts lead only to the escalation of administrative cost as each tax requires tax collection machinery. At times, cost of collection exceeds the actual collection of

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a particular tax. In order to strengthen the revenue base of the local governments, SFCs could have recommended measures to tighten tax administration for better compliance of existing taxes, rationalization of taxes and recovery of cost through appropriate user charges. After the CAA, most States made not much change in their existing laws related to Panchayats and Municipalities framed about half a century ago. These laws are fragmented in some States. Like Union Finance Commission, SFC’s recommendations are recommendatory, not mandatory in nature, but unlike Union Finance Commission, SFC’s recommendations are occasionally honoured for e.g. Kerala, Rajasthan, Sikkim, Tamil Nadu. In fact, many states are making a mockery of the constitutional provision. On the one hand, they constitute a body with people of little knowledge on public finance; on the other hand, they do not even consider the report. If the report is considered, very few recommendations are accepted. In the process, the crucial ones are rejected without assigning reasons. In the action taken report in some States, only numbers are mentioned. In this number game, sometime the most crucial recommendations are found rejected surreptitiously. At the top of it, many times, the accepted recommendations are not implemented. Sometime, money is not released even though actions on these recommendations are notified. The story becomes more attention-grabbing given the fact that a state government takes years to only consider the report of the SFC. Since State Governments do not consider the recommendations of the SFC in time, the major problem regarding the synchronization of the periods of SFC with that of the Union Finance Commission (UFC) arise. All UFCs—from the Tenth to Fifteenth—felt the absence of SFC reports as a handicap. All UFCs, though, had the reports of SFC’s of most States but these were of different period of time period covered by the concerned UFC. For this very reason the Eleventh Finance Commission even went to the extent and recommended to delete the words “on the basis of the recommendations made by the Finance Commission of the State” appearing in sub-­ clauses (bb) and (c) of Article 280 (3) of the Constitution. Subsequent finance commissions endorsed views of previous commissions on this issue.

Suggestions The institution of SFC is evolving over a period of time as evident from a few good SFC reports and their treatments by respective state governments in recent time. The working of SFCs could be improved further through concerted efforts of Union and State governments as well as the SFCs themselves. Suggestions in that direction are outlined below:

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Role of Union Government The Union Government should introduce a bill to amend Articles 243 I, 243 Y and 280 (3) (bb) & (c) mooted by various SFCs to provide teeth to SFCs and oversee the fulfilment of constitutional provisions in states particularly the mandatory provisions of Article 243 I and 243 Y related to SFC. Report of the Commission on Centre-State Relations recommended inter-alia in para 8.6.01, “A Commission be constituted to report on the ‘Status of Local Government Devolution of Powers’ giving an All India picture as well as relative status State-wise” (GoI 2010, p. 135). For this, it has been further suggested, requisite provision be made in Parts IX and IX-A on the same lines as Articles 339 and 340. The government should take an initiative to set up an SFC cell in a National Institute for Union Ministry of Panchayati Raj, Union Ministry of Urban Development (renamed as Union Ministry of Housing and Urban Poverty) and Union Ministry of Finance through grants-in-aid which is non-overlapping and synergetic. National grants, both from UFCs and Ministries, to local governments should be monitored by the Union Government through a periodic evaluation of inter-se distributions to local governments by SFCs and states. It should encourage non-Part IX states, especially in North-East region of India, to set up SFCs and hand hold states for capacity equalization of local governments. For this, it should set national minimum goal for equalization of basic services and create vertical schemes so that these objectives are achieved. Further, for capacity enhancement of states it should conduct national international programs and also international experience sharing workshops and conferences. It should encourage dissemination of best practices of SFCs and help states in all matters as and when needed.

Role of State Governments The State Government should see to it that a SFC is constituted for a life span of 18 months and set a time limit of six months to act on SFCs’ recommendations. It should be prompt to issue government orders once the recommendations are accepted and release funds timely to the banks of Panchayats and Municipalities. The government should indicate entitlements of Panchayats in the State annual budgets. Further, it should notify and implement activity maps for all schemes and services for local governments and adopt standard accounting systems as prescribed by the national agencies, including PRIA Soft (Panchayati Raj Institutions Accounting Software); so that the financial records of the parastatal organizations,

5  CONCLUSIONS AND SUGGESTIONS 

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which are created because of their functional efficiency, get reflected in the accounts of the local governments concerned. It should make sure that the members of the commission (including chairman) are appointed with requisite qualifications in public affairs and public finance on the lines of UFC and should desist from making frequent changes in the composition of SFCs which not only a time taking process but also cause delay in submission of report. Efforts should be made to establish a permanent SFC Cell in the finance department of the State government which would institutionalize the arrangements for annual data collection, preferably based on work-flow and to provide core staffs to SFCs. The state government should standardize and notify the procedures for levy of property and other local taxes; norms for basic services at local level and norms for staffing and salaries for local governments and incentivize performance through analysing levy and collection of taxes and user charges; economy in expenditure, people’s participation, database on local finances, etc. The basis for assignment of assets, staff and budget allocations to local governments should be reviewed periodically and local government profiler, directory, assets register, PRIASoft etc. should be maintained.

Role of SFC The SFC should review the finances of the State and local governments, at least, of the last five years. This review of state finances includes, on the one hand, study of the structure of the State economy, trends in growth and development, and fiscal transfers from the Union. On the other hand, the review of local government finances includes own tax revenues, own non-tax revenues, fiscal transfers from Union and State, borrowings and expenditure (both on revenue and capital account). Further, the SFC should not only examine the status of decentralized governance and devolution (functional devolution, activity mapping, financial devolution and, administrative devolution), but also the debt positions and fiscal management of the State and local government. It should make inter se distributions of the grants recommended by the UFCs and recommend more specific schema for giving effect to the other recommendations of the UFC. For this, it should present clear-cut methodologies and approaches— whether positive or normative, in the report, which may also include approaches adopted by the State for district plans and present issues for the considerations of the Union government. Efforts should be made by

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the SFC to assess and review the cost of basic civic services in different geographical regions of the State, so that the revenue expenditure requirements of the local governments could be estimated and recommended. It should also assess expenditure requirement of the local government to maintain common property resources and analyse expenditure on schemes assigned by the Union and State governments. With this, the borrowing possibilities by local government should be explored. SFC is a constitutional body set up in every fifth year. This autonomous institution is also a hearing commission. In order to facilitate communication SFC website be made user friendly preferably a dynamic website in more than one language. Suggestions from general public should be sought on issues contained in its mandates. Studies commissioned by SFC, basic data of the State, Panchayats and Municipalities may be placed on website for informed public debate. Through such concerted efforts there could be some harmonization and uniformity in (a) SFC reports, (b) local budgetary classifications, (c) definitions of local taxes & expenditures, (d) fiscal transfer mechanism to local and procedures for data collection etc.

At Last Considering the feeble own revenue base of the local governments so far, and its high dependency on higher level of governments, the recommendations of State Finance Commission have to be of utmost importance to the local governments. Since all available SFC reports are different to each other with reference to their approaches and methodologies and even the time period covered by them, it is extremely difficult, to standardize these recommendations. Moreover, reliable data on Panchayat and municipal finance are not available from any source. In such circumstances, it is a challenge to the best brain to analyse the impact of SFC recommendations on the finances of local governments. It is clear from the progress report of all States since 1995 that though the stipulation of SFC is an innovative and significant feature of the CAA, it lacks teeth and substance.

Reference India, Government of (2010), Commission on Centre-State Relations Report, Volume IV, Local Self Government and Decentralized Governance, March (Chairman: Justice Madanmohan Punchhi).

 Appendix: Summaries of Recommendations and ATRs

Fifth SFC Summary of: Assam Bihar Haryana Kerala Rajasthan Sikkim Tamil Nadu Fourth SFC Summary of: Assam Bihar Haryana Himachal Pradesh Kerala Odisha Rajasthan Sikkim Tamil Nadu Uttar Pradesh

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 V N Alok, Fiscal Decentralization in India, https://doi.org/10.1007/978-981-16-2203-8

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Third SFC Summary of: Andhra Pradesh Assam Haryana Himachal Pradesh Karnataka Kerala Madhya Pradesh Maharashtra Odisha Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal Second SFC Summary of: Andhra Pradesh Assam Goa Gujarat Haryana Himachal Pradesh Karnataka Kerala Madhya Pradesh Maharashtra Manipur Odisha Punjab Rajasthan Sikkim Tamil Nadu

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Tripura Uttar Pradesh Uttarakhand West Bengal First SFC Summary of: Andhra Pradesh Arunachal Pradesh Assam Goa Gujarat Haryana Himachal Pradesh Jammu and Kashmir Karnataka Kerala Madhya Pradesh Maharashtra Manipur Odisha Punjab Rajasthan Sikkim Tamil Nadu Tripura Uttar Pradesh Uttarakhand West Bengal

Assam Fifth State Finance Commission Award Period: 2016–17 to 2019–20 Constitution: March 2013 Report Submission: Nov 2016 ATR Submission: June 2017

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Composition Prabir K Dutta Former chief secretary government of Assam Prof. Kandarpa Kr. Barman Department of Economics, Guwahati University Saraswati Prasad Principal secretary Urban development department Ashish Bhutani Commissioner and Secretary Guwahati development department

Chairman Member Member

Member

Terms of Reference The Commission was required to make recommendations as to the following: 1. The principles which should govern: (a) The distribution between the State of Assam and the Panchayats/ Municipalities of the net proceeds of taxes and duties, levied and collected by the State, (b) The determination of the taxes, duties, tolls and fees, which may be assigned to, or appropriated by, the Panchayats/Municipalities, (c) The grants-in-aid to the Panchayats/Municipalities from the Consolidated Fund of the State. 2. The measures needed to improve the financial position of the Panchayats/ Municipalities with special references to: (a) the potential for local government to raise funds from financial institutions and the market, and to suggest a mechanism and framework for realising the potential; (b) improving the quality of upkeep of assets owned by local governments as well as those transferred to local governments. (c) improving the financial position of Panchayats and Municipalities with special emphasis of rationalization of taxes and revenues and user charges collected by local governments with innovative method. (d) achieving economy and efficiency in expenditure by local governments.

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(e) providing incentives for higher mobilization of own resources by the local governments. (f) maintaining a proper fiscal data base relating to local governments. (g) putting in place measures required for improving the capacity of financial management by local governments. (h) improving monitoring of the fiscal performance of the local governments. (i) examine the feasibility and make recommendations on creation of urban infrastructure and other civic amenities by the Municipalities through PPP and exploring avenues for viability gap funding. 3. Any other matter referred to the SFC by the Governor in the interests of sound financial position of the Panchayats/Municipalities. Methodology A set of general questionnaires covering the whole gamut of physical and fiscal administration of Panchayats and Municipalities were formulated. The data relating to financial performance of the local governments was sought to be obtained through the questionnaire circulated by the Commission. During our discussion with the Chief Executive Officer (CEO) of Zilla Parishad, the importance of submission of data in time was emphasised. The field visit of the Commission consists of various phases, covering almost all the districts of the state. In course of the field visits inter-active sessions were held with the elected representatives and official functionaries of Panchayats and Municipalities. The field officers of PWD, PHE, and Local Audit, DRDA, District NIC, DDOs of Municipalities, Deputy Director of Town and Country Planning and respective Treasury Officers also participated in the inter-active sessions. Recommendations Global Sharing • 14.1% of the net tax revenue of the state to be devolved between Panchayats and Municipalities.

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APPENDIX: SUMMARIES OF RECOMMENDATIONS AND ATRS

Horizontal Distribution • The district-wise allocation of rural parts in general areas has been vertically apportioned among to Zilla Panchayat, Anchalik Panchayats and Gram Panchayats at the ratio of 30:30:40, respectively. • The share of each Anchalik Panchayat and Gram Panchayat in district shall be determined on the basis of their respective population as per census 2011. Grants-in-Aid • Grants recommended to village development councils in areas mentioned in Schedule VI of the Constitution are Rs.376.06 crores per year and Rs.1504.26 crores during four years for various purposes. • Grants recommended to Municipalities in Schedule VI Areas is Rs. 94 crores per year and Rs.376.05 during four years from 2016–17 to 2020–21 • Grants recommended to Panchayats are Rs.71.41 crores in 2016–17 and Rs.224.84 crores during 4 years. • Grants recommended to Panchayats in excluded areas are Rs.1246.20 crores for Bodoland Territorial Council (BTC), Rs.156.40 crores for Karbi Anglong Autonomous Council (KAAC) and Rs.101.66 crores for Dima Hasao Autonomous Council (DHAC) during 2016–20. • Grant of Rs.84 crores during 2016–20 for construction of godown has been recommended. • Grants recommended to Guwahati Municipal Corporation (GMC) are Rs.33.20 crores in 2016–17 and Rs.132.80 crores during 4 years. Other Measures • The Commission recommended Rs.40 crores for the purpose of training to personnel’s of rural Sector. • The Commission recommended Rs.14.86 crores for the purpose of Urban Sector Training. • A permanent SFC Cell in Finance Department is recommended. In order to maintain continuity in the services of computer operators, a sum of Rs.20 lakhs per year is allocated. • The Government of Assam should implement the Assam Local Self Government Fiscal Responsibility Act, 2011.

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• The General-Sixth Schedule and rural–urban bifurcation of the divisible pool has been determined on the basis of the needs of local governments as assessed by the Commission. • Allocation of Rs.135 crores annually under PWD budget has been recommended for maintenance of rural roads and Semi-Permanent Timer (SPT) bridges. • Allocation of Rs. 117.80 crores annually under PHE budget has been recommended for water supply and sanitation.

Bihar Fifth State Finance Commission Award Period: 2015–16 to 2019–20 Constitution: December 2013 Report Submission: January 2016 ATR Submission: NA Composition A N P Sinha C. Ashok Vardhan Nandini Mehta

Chairman Member Member

Term of References • Assessment of net proceeds of State Taxes. • Distribution between the State Government and the local governments of the net proceeds of taxes, duties, tolls and fees liveable by the State. Determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the local governments. • Grants-in-aid to the local governments from the Consolidated Fund of the State. • Measured needed to improve the financial position of the local governments. Methodology The commission followed the suggestions provided by Ministry of Panchayati Raj and the Thirteenth Finance Commission. Questionnaires were circulated to the Panchayati Raj Department (PRD) and Urban

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Development Department (UDD). Questionnaires were also uploaded on the SFC website to obtain online entry of responses, data collection and analysis. Suggestions from the public were invited through newspaper advertisement. Divisional level consultations were also of much help. To get first-hand experience field visits were also conducted. The Fourteenth Finance Commission Report was analysed. It also included the analysis of a study report on local government finances commissioned by Finance Commission. The State Budget was also critically analysed. Recommendations Global Sharing • Devolution of 2.75% in 2015–16 to 3.25% in 2019–20 from the State Budget to the local governments primarily for capacity building and reforms. Assignments of Revenues • Gram Panchayats to begin levying property tax even at a nominal rate. • Empower the Panchayats to collect tax on advertisement • Net proceeds of land revenue collected from a Gram Panchayat be transferred to the Gram Panchayats. • Property Tax General Rates, which have not been raised since 1992, be doubled effective April 01, 2016 to cover partially inflation costs of over 440% • GIS data available for 29 Municipalities be used for vacant land tax • Newer forms of entertainment such as boat rides, cable television and internet cafes be brought into the entertainment tax net • Congestion tax be levied in Patna, Gaya, Bhagalpur etc. • Municipalities must start levying user charges for water supply, sewerage SWM services etc. • Levy surcharge of 2.5% on electricity consumption on behalf of Municipalities to cover electricity charges. • Levy surcharge of 5% on vehicle tax and transferred to the Municipalities for maintenance of road within its jurisdiction • Rules for levy of betterment tax should be formed and enforced

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Horizontal Distribution • Distribution of the devolved amount and grants between the Panchayats and Municipalities would be in the ration of 70:30  in 2015–16 and 60:40 in the subsequent years. • Inter-se distribution among the Gram Panchayat:Panchayat Samiti: Zilla Parishad would be in the ratio of 70:10:20 • Distribution of devolved funds among the Gram Panchayat, Panchayat Samitis and Zilla Parishads would be as per criteria given below: Criterion

Weight (%) assigned by the fifth SFC

Population Area UDI Total

Zilla Panchayat Block Panchayat 50 50 50 0 10 50 100 100

Each Gram Panchayat falling within a particular block would get equal share of amount available to all the Gram Panchayats in that particular block based on the Block’s under development index (UDI)

• Distribution of devolved funds among the Municipalities would be as per criteria given below: Criterion Population Area No. of BPL families

Inter Weight (%) assigned by the fifth SFC Municipalities Municipal corporation Nagar Parishad Nagar Panchayat 70 1.5 1.3 1.0 10 1.0 1.0 1.0 20 1.0 1.0 1.0

Grants-in-Aid • Devolved funds would be given to the local governments as “Block Funds”. • Devolved amount in 2015–16 would be released to the local governments in one instalment based on RE/Actual of 2014–15. • Grants would focus on capacity building and Reforms and would be utilized for (a) Manpower, Training, e-Governance, Office Space,

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(b) GK, (c) Preparation of Master Plans/CDPs DPRs/GIS Maps, (d) Developing Divisional and District Headquarters on the lines of Smart and AMRUT Cities, (e) SPUR Type Professional Services to the Municipalities and the Panchayats, (f) Promoting PPP, (g) Incentive for ARM and Performance Grants, (h) Regulatory Bodies including Ombudsman, State Property Tax Board and Urban Regulator, and (1) DLFA and internal audit. • Distribution of grants item-wise for the Panchayats is as given below: Distribution of Grants among the Panchayats (Year 2015–2020) 1 2

Devolution (in Cr) Grants (in Cr.) A 1 2 3

4 B

C D E

F G H

5 6 7 8 9 10 11 12 13 14

Capacity building Man power e-governance Training  (a)  Programmes  (b)  institutions TSSP GK Office support Case disposal Dispute free village PSB/ZPB DPCs Performance Grants ARM Overall performance Ombudsman DLFA/internal audit SFC cell

Rs (Cr.) 12,735 5785 3443 2720 305 380 200 180 38 340 260 40 40 470 80 1400 880 520 20 31.20 8.80

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• Distribution of grants item-wise for the Municipalities is as given below: Distribution of Grants among the Municipalities (Year 2015–2020) Devolution (in Cr) Grants (in Cr.) A 1 2 3

B C 1 2 3 4 D 1 2 E

Capacity building Man power e-governance1 Training  (a)  training Programmes2  (b)  SUPA Office space Model cities and towns Preparation of MP/CDP/DPR/GIS Viability gap funding for PPP SPUR type professional services for all Municipalities Exp needs of reforms Performance Grants ARM Overall performance Regulatory bodies

Rs (Cr.) 8055 3725 1245 1035 50 160 71 89 25 1408 200 970 80 88 1035 835 200 12

• Grants amount not likely to be utilized in a year, would be given to the Panchayats and the Municipalities as ‘Block Grants’ in the first week of the last quarter. Function and Functionaries • Urgently operationalize Ombudsmen separately for the Panchayats to enquire into allegations of corruption, misconduct etc. • Panchayats with the support of PRD make all efforts to become smart Panchayats. • Enable the Panchayats to implement certain central acts • Necessary rules and guidelines for collection of taxes by the Panchayats be framed and circulated. 1  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 2  The Schedule VI areas are not covered by the Constitutional Amendments. Accordingly, the Sixth Schedule Areas comprising four districts of Kokrajhar, Udalguri, Chirang and Baksa falling under Bodoland Territorial Areas District (BTAD) and two Autonomous Hill Districts of Karbi Anglong and North Cachar (p. 123).

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• PRD to come with rules and prescribe procedural guidelines and circulate a Manual of Panchayat Finance. • Collection of own revenue by the Panchayats to be incentivized. • Overall supervision of Panchayats revenue collection be done by PRD. • The Panchayats to create income earning natural or man-made assets for augmenting non-tax revenue. • Clearly defined functions of BPRO/DPRO in the Panchayats. • Intensive training of PDO/BPRO • Set up Panchayats training infrastructure. Other Measures • Professionalize the SFC Cell in Finance Department to pursue reforms agenda with PRD and UDD, undertake research and documentation as required, and build database on the Panchayats and the Municipalities for use by Finance, Urban Development, Panchayati Raj and Planning Departments and the future SFCs and UFCs. • Examine in-depth implications of GST for Bihar • Intensive training of PDO/BPRO be done immediately on appointment • Panchayats training infrastructure should be set up. • All e-Panchayat modules be implemented urgently • All internal and AG Audit Reports along with ATR should be uploaded on website. • Create a State Property Tax Board to optimize assessment, collection and recovery of property tax. • GPS system be installed on all vehicles to reduce fuel cost and achieve economy. • Comprehensive GIS Mapping be done for all Municipalities on top priority with multiple purposes • Staff selection should be done through Staff Selection Commission (SSC) and/or a nationally acclaimed HR Agency on the panel of central Govt. and UN agencies. • Biometric attendance system should be made mandatory. • Set up School of Urban Planning and Architecture.

Haryana Fifth State Finance Commission Award Period: 2016–17 to 2020–21 Constitution: May 2016 Report Submission: September 2017

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ATR Submission: September 2018 Composition Mukul. G. Asher Vishnu Bhagwan Rohini Aggarawal Anirudha Rajput Anurag Bakshi Rajendra Mohan Walia Shamlal Bansal Vivek Joshi

Chairman Member Member Member Member Member Member Member Secretary

Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the State and Zila Parishads, Panchayat Samitis and Gram Panchayats, of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part IX of the Constitution of India and the allocation between the and Zila Parishads, Panchayat Samities and Gram Panchayats at all levels of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Gram Panchayats, Panchayat Samities and Zila Parishads; (c) the grants-in-aid to the Zila Parishads, Panchayat Samities and Gram Panchayats from the Consolidated Fund of the State; (d) the measures needed to improve the financial position of the Gram Panchayats, Panchayat Samities and Zila Parishads; 2. the principles which should govern: (a) the distribution between the State and the Municipalities, of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part IX A of the Constitution of India and the allocation between the Municipalities at all levels of their respective shares of such proceeds;

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(b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Municipalities; (c) the grants-in-aid to the Municipalities from the Consolidated Fund of the State; (d) the measures needed to improve the financial position of the Municipalities; 3. In making its recommendations, the Commission was to have regard, among other considerations, to:

(a) the objective of balancing the receipts and expenditure of the State and for generating surplus for capital investment; (b) the resources of the State Government and demands thereon particularly in respect of expenditure on civil administration, maintenance and upkeep of capital assets, maintenance expenditure on Plan schemes and other committed expenditure or liabilities of the State; and (c) the requirements of the Panchayats and the Municipalities, their potential for raising resources and for reducing expenditure. Methodology With a view to have authentic feedback on structural, financial and functional status of Panchayats and Municipalities, the Commission had various rounds of discussions with the Administrative Secretaries and HODs of the Departments of Panchayats, Rural Development and Municipalities. The SFC visited eight Municipal Corporations, namely Ambala, Faridabad, Gurugram, Hisar, Karnal, Panchkula, Rohtak, and Yamuna Nagar; Four Municipal Councils, namely Sirsa, Palwal, Shahabad, and Kaithal. The Fifth SFC interacted with the elected representatives and government officials of Municipalities, briefed them about the objective of the SFC and sought their views about the working of these bodies including the administrative, revenue, expenditure and service delivery aspects. The Fifth SFC interacted with Panchayats at 11 locations in Haryana, namely Nilokheri, Palwal, Faridabad, Gurugram, Hisar, Mewat, Rohtak, Yamuna Nagar, Morni, Panchkula, and Sirsa. In this comprehensive coverage, the members of SFC interacted with various levels of Panchayats representatives, that is, Sarpanches, Panches, members of Panchayat Samiti, and Zila Parishad. Also, the meetings were done with the related government

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officials including Block Development Panchayat Officers (BDPOs), District Development and Panchayat Officer (DDPOs). Recommendations Global Sharing • 7% of the State own tax revenue (SOTR) will be shared between Panchayats and Municipalities in the ratio of 55:45. Assignment of Revenue • Panchayats and Municipalities to receive a part of stamp and registration taxes accruing to the State. Horizontal Distribution • Among the Panchayats, the Fifth SFC recommended 75 percent be devolved to Gram Panchayat, 15 percent to Panchayat Samitis, and 10 percent to Zila Parishad. • The Fifth SFC recommended only population (2011 Indian population Census) (weight of 80 percent), and Area (weight of 20 percent), for allocation among Municipalities and Panchayats. • Fifth SFC also took into consideration area for new District (Charkhi Dadri), separate allocation to this district has not been projected. But Charkhi Dadri will be provided SFC funds on the same basis as other. Grants-in-Aid • The Fifth SFC recommends mandating the (Swarna Jayanati Haryana Institute of Fiscal Management (SJHIFM) and allocated annual grant to SJHIFM. • From the amount allocated to the Municipalities, an annual grant of Rs.50 crore is provided for the Urban Shared Services Centre (USSC) to be located at the Urban Directorate. Other Measures • Staff strength, its composition and job descriptions be done in the future with the consultation of the Chairman of the SFC and of the

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Member Secretary. There should be a timeline for appointment of the SFC staff preferably within 30 days of the appointment of the chairman of the SFC. • Establish a ‘Standard Operating Procedures’ (SOPs) for making any conversion from one type of ‘local government’ to the other, whether from ‘rural’ to ‘urban’; or from Committee to Council to Corporation. SOPs should also be established for handing over of charge by administrative or functional heads in the Municipalities. • Toll-Free phone number or ‘WhatsApp’ number or web address meant for feedback from local residents of a municipal area be well publicized through Boards or by any other means by which general public may become aware of such means of communication. • A onetime exercise to be undertaken to take stock of the property owned by the Municipalities, to ensure that the recording of all the properties owned or claimed to be owned by the Municipalities, the status of encroachment and legal cases if any, is done. • The tax collection mechanism need to adopt a digital platform. This to be developed at state level. • A review be made of the design of the current property tax rates and base. This review should also examine how to improve service standards so as to be able to place a demand for more taxes. • For 6000 plus Gram Panchayats, it has been too difficult to obtain reliable and consistent data of area and population. Therefore, the Fifth SFC has provided an Excel Sheet to each Municipalities, Zila Parishad and Panchayat Samiti for projecting the SFC funds. On the similar basis, the devolution amount for the Gram Panchayat may be computed. • The number and quality of Gram Sachives deployed presently need to be rationalized keeping into account the modalities of ‘Gram Sachivalays’ for providing administrative services.

Kerala Fifth State Finance Commission Award Period: 2016–17 to 2020–21 Constitution: December 2014 Report Submission: March 2016 ATR Submission: February 2018

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139

Composition B.A. Prakash James Varghese V K Baby

Chairman Member Member

Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the State, Panchayats and Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the Government which may be divided between them under Part IX and Part IX—A of the Constitution and allocation between all levels of Panchayats at all levels and the Municipalities of their respective shares of such proceeds; (b) the determination of taxes, duties, tolls, and fees which may be assigned to or appropriated by the Panchayats and Municipalities; (c) the grants-in-aid to Panchayats/Municipalities from the consolidated fund of the State; 2. Measures needed to strengthen the financial position of Panchayats and Municipalities with special reference to:

(a) the potential for local governments to raise funds from financial institutions and the market and also to suggest a framework for realising this potential. (b) improving the quality of upkeep of assets owned by local governments as well as those transferred to the local governments. (c) rationalizing of taxes and revenues now collected by the local governments. (d) achieving economy and efficiency in expenditure by the local governments. (e) providing incentives for higher own resources mobilization by the local governments. (f) maintaining a proper fiscal data base relating to local governments.

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(g) putting in place measures required to for improving the capacity of financial management by local governments. (h) improving monitoring of the fiscal performance of the local government.



3. the measures needed for the proper institutionalization of the decentralization initiatives in the state. 4. the recommendation of the first four State Finance Commissions may be revisited by the Finance Commission and appropriate suggestions may be made on those recommendations which have been accepted by the government, but which have not been operationalised. Methodology The Commission visited a few selected local governments to have a firsthand experience of important developmental issues and good practices. Various meetings, workshops as well as seminars were conducted from time to time. The Commission had launched an ambitious project to collect online data from the local governments earlier which was continued by Fifth SFC. The main objective behind collection of data online was to build a data base which can be preserved for future use. In addition to this a number of studies were also sponsored by the Commission. Recommendations Global Sharing • The commission recommended that 20% of the net proceeds on annual State Own Tax Revenue (SOTR) to be devolved to Panchayats and Municipalities as a total devolution for the 2016–17. For the subsequent year 1% annual increase were recommended. Total devolution: Net SOTR on the basis of % Year

2016–17 2017–18 2018–19

Net SOTR to be transferred to Panchayats and Municipalities

General purpose fund

Maintenance fund

20% 21% 22%

3.5% 3.5% 3.5%

5.5% 6% 6%

Development fund

11% 11.5% 12.5%

  APPENDIX: SUMMARIES OF RECOMMENDATIONS AND ATRS 

Year

2019–20 2020–21

Net SOTR to be transferred to Panchayats and Municipalities

General purpose fund

23% 24%

3.5% 3.5%

Maintenance fund 6% 6%

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Development fund

13.5% 14.5%

• 3.5% of the net proceeds of annual SOTR to be devolved to Panchayats and Municipalities as general purpose funds on the basis for the award period based on the projection of SOTR of the commission. • 5.5% of the net proceeds of annual SOTR to be devolved to Panchayats and Municipalities as maintenance fund for the year 2016–17 based on the projection of SOTR of the commission. For the subsequent years of 2017–18, 2018–19, 2019–20 and 2020–21 the rate shall be increased to 6% per annum. • 11% of the net proceeds of annual SOTR to be devolved to Panchayats and Municipalities as development fund for the year 2016–17 based on the projection of SOTR of the commission. The rate of devolution shall be increased to 11.5% in 2017–18, 12.5% in 2018–19, 13.5% in 2019–20 and 14.5% in 2020–21. • A gap fund to be distributed to the financially weak Gram Panchayats and set apart Rs. 50 crore from the share of general purpose fund available to the Gram Panchayat for the purpose. Assignment of Revenue • The existing minimum rate of show tax which varies from Rs. 5 to Rs. 50 should be raised by 100%. • The existing rates of building permit fee applicable to both the Grama Panchayats and Municipalities are recommended to be hiked by 50%. • The local Self Government Department to enforce the statutory provisions to collect service charge on central government buildings by the Grama Panchayats and the Municipalities. • Building tax now be collected by Revenue department should be assigned to Grama Panchayats. • The range between the minimum rate and maximum rate of property tax to be reduced. The minimum rate should not be less than 75% of the maximum rate.

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Horizontal Distribution • The share of District Panchayats, Block Panchayat, and Grama Panchayat from General Purpose Fund (GPF) have to be done on following measures:–– For distribution of GPF to District Panchayats, weight to be given to population (50%), area (10%), number of government high school (10%), higher Secondary school (10%), and number of district level government hospitals coming under District Panchayat (20%) –– For distribution of GPF to Block Panchayats, weight to be given to population (70%), area (10%), and number of government hospitals coming under Block Panchayat (20%). –– After deducting total share of District Panchayats and Block Panchayats, the rest of the amount will be distributed among Gram Panchayats, Municipalities, Municipal Corporation on the basis of 2011 population. • Grant to be distributed among Panchayats and Municipalities in accordance with the formula adopted from the distribution of GPF, i.e. 80% weight for population, 10% weight for area and remaining 10% weight is given to the inverse of own revenue. Grants-in-Aid • The Grama Panchayats which has collected in the previous year’s not less than 97% of the total revenue demand to be given annual Revenue collection Incentive bonus @ Rs. 5 Lakh per Gram Panchayat. In the case of Municipalities the percentage of tax collection over demanded can be 95%. The annual revenue collection incentive bonus for Municipalities shall be Rs. 10 Lakh per Municipalities and for Municipal Corporation be Rs. 12.50 lakh per Municipal Corporation. • The commission enhanced the rate of special grants to six Gram Panchayats viz., Erumeli, Chittar, Ranni-Perunad, Vadasserikkara, Seethathode, and Naranamuzhi which come under the surrounding area of Sabrimala to Rs 15 lakh per annum. • The commission enhanced the Special grant to Guruvayoor Municipality to Rs 25 lakh per annum. • A onetime grant of Rs 10 lakh per Municipality to 28 newly created Municipalities.

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• One time grant of Rs 20 lakh to newly created Kunnur Municipal Corporation. Other Measures • All Grama Panchayats and Municipalities should take immediate steps to assess BSNL buildings under property tax and to collect the tax accordingly. • A proper database on all categories of professions, traders and businessmen, employees and workers in the unorganized sector and selfemployed persons should be prepared and they be assessed for professional tax. The data base should be updated from time to time. • The ticketing system for both traditional and multiplex theatres to be computerised as contemplated in section 5(1) (aa) of the Kerala Local Authorities Entertainment Tax Act, 1961. • The subscriptions for both Cable TV and Dish TV should be brought under the entertainment tax net. A sum of Rs. 10 per month from each subscriber to be levied. • The entrance fees at tourism centres and agricultural farms and operation of the house boat to be brought under the preview of entertainment tax by making necessary amendments to section 2 (4) of the Kerala Local Authorities Entertainment Tax Act. • Section 230 (4) of the Kerala Panchayat Raj Act (Property Tax, Service Tax and Surcharge), Rules 2011 and Kerala Municipality (Property Tax, Service Tax and Surcharge) Rules to be amended to make levying of the service tax/cess by Grama Panchayat and Municipalities mandatory. • The assistant secretary in Grama Panchayats to be entrusted with the responsibility to monitor revenue mobilization activities • E-governance should be made use of in the area of revenue mobilization. All database relating to revenue mobilization should be computerized and the system generated messages through SMS/e-mail as to tax and non-tax due be sent automatically to all concerned.

Rajasthan Fifth State Finance Commission Award Period: 2015–16 to 2019–20 Constitution: May 2015 Report Submission: November 2018

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ATR Submission: July 2019 Composition Jyoti Kiran Pradhyumn Singh S.C. Derashri

Chairman Member Member Secretary

Terms of Reference Besides, the ToR of earlier Commissions, the Rajasthan Fifth State Finance Commission was required to make recommendations as to the following: 1. identify the services rendered by the Panchayats and Municipalities

(a) standards of these services, (b) normative requirements of funds for delivering these services at the standards recommended, and (c) the gaps in resources for rendering these services. 2. suggest measures needed to generate own resources for delivering these standard of services. 3. suggest the system of accounts maintenance and measures for better fiscal management consistent with the need for speed, efficiency and cost effectiveness of delivery of services.

In making its recommendations, the Commission was to have regard, among other considerations, to: 1. powers available to Panchayats and Municipalities at all levels for raising additional resources including power to levy taxes; 2. the need to keep system of fiscal transfers from the State Government to Panchayats/Municipalities simple and easy to administer and for that purpose, consider transfers based on net own tax receipts of the State Government in place of share in individual taxes (except taxes which have strong tax payer residence linkage to respective Municipalities/Panchayats); 3. the need of grants recommended to be directed towards improvement of standards of administration, keeping of accounts, mainte-

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nance of databases and mainstreaming of information technology in running of the affairs and delivery of services by Municipalities/ Panchayats. Methodology In order to accomplish the comprehensive task given in the TOR, the Commission adopted a multi-layered approach. Comprehensive questionnaire for each tier of Panchayats and Municipalities were prepared and a series of interactions, field visits, surprise visits and meetings were held with various departments. Suggestions from public were also invited through press release in the newspaper and website. The youth of the State was also involved through Yuva Vikas Preraks internship program and were assigned the task to generate awareness and enhance the capacity of the system to ensure that people are able to take benefits of government schemes. The Commission attended several workshops and conferences, and also conducted a number of studies. Efforts were also made to seek views of Public Representatives, Senior Officers, Academics, Experts, Stake holders and public at large. Recommendations Global Sharing • 8.5% of net own states tax revenue (excluding compensation in lieu of GST) of the State Government to be devolved to the Panchayats and Municipalities. [Not Accepted. Instead, recommendation of 7.182% made in the Interim report 2015–16 and 2016–17 is accepted] • The share to be distributed between Panchayats and Municipalities in the ratio of 70:30. [Not Accepted. Instead, recommendation of 75.1:24.9 made in the Interim report 2015–16 and 2016–17 is accepted] Assignment of Revenue • The Panchayats to impose and recover the taxes, fees and surcharge as per rates laid down by the State Government from time to time. For this a strong awareness and ‘attitudinal-change initiative is

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required at the Government level. All the possible instruments from training to consensus building must be adopted for this purpose. • The Commission strongly recommended following course of actions in Urban Development (U.D.) Tax (House Tax) domain: –– Extension of applicability of tax to 100 sq. yards and 50 sq. yards for residential and commercial properties respectively. –– Linkage of U.D.  Tax with electricity bills to ensure effective recoveries. –– Outstanding amount of U.D. Tax can be recovered in instalments Horizontal Distribution • The commission recommended the following district wise distribution weights: S.N.

Parameter

1 2 3 4 5 6 7 8 9

Population Geographical area Child sex ratio S.C. population S.T. population Infant mortality rate Girl education Decline in decadal population growth Deprivation on 7 criteria as per SECC 2011

Weight 40% 15% 10% 5% 5% 5% 5% 5% 10%

[Accepted] • Distribution among Panchayats is as below: Unit Gram Panchayat Panchayat Samiti Zila Parishad

Weight 75% 20% 5%

[Accepted] • As regard, inter-se distribution of Municipalities funds, the Commission recommended to raise the ratio of population to 55 per

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cent and area to 15 per cent for distribution of 70 per cent funds to all the Municipalities. Out of balance 30 per cent, it recommended 20 per cent to be distributed among the Municipalities on population basis and 10 per cent in proportion to deviation of average per capita own income of Municipalities measured from the Municipality having highest average per capita income. [Accepted] Utilization of Funds The Commission has recommended the following for the utilization of funds by Panchayats and Municipalities: S.N. Utilization 1 2 3 (i) (ii) (iii)

National and state priority scheme Funds for basic and development functions Incentive scheme Maintenance of accounts of income and expenditure Maintenance of records including ‘asset register’ Increase in own revenue over previous year

Panchayats 40% 55% 5%

Municipalities 20% 75% 5%

[Accepted] Further, the Commission noticed that sometimes the Panchayats/ Municipalities are not able to avail the incentive grants due to one or the other reason and these funds remain unutilized. Apart from this, there is no system of incentivizing innovations in the routine functioning of Government departments and agencies. The Commission was of the view that public representatives who think out of the box and execute works beyond their routine functions should be incentivized and rewarded. The Commission, therefore, recommended that the Government should frame some scheme for this purpose and unutilized incentive amount may be used towards recognition of these persons. [Not Accepted] Grants-in-Aid • Expenditure on Model Accounting system and prescribed software (PRIA) of Rs. 0.50 crore at Zila Parishads and Rs. 5.40 crore at Panchayat Samities to be met from SFC grants. [Accepted]

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• Funds for camps and campaigns @ 0.50 lakh at Gram Panchayat, Rs. 1.00 lakh at Panchayat Samiti and Rs. 1.50 lakh at Zila Parishad to be met per annum from SFC grants. [Accepted] • Vacant posts of Junior Engineers at one per Panchayat Samiti to be filled up on regular basis or outsourcing the job to qualified persons to be permitted for proper planning, monitoring and supervision of works at Gram Panchayats. Expenditure on this to be met from SFC grants. [Accepted] • Payment of remuneration to Multi Task Workers to be made from the SFC grants. [Accepted] • Payments for O&M and Electricity bills of Janta Jal Yojana to be made out of SFC grants. [Accepted] • SFC funds to be utilized towards school sanitation grant. [Accepted] • The grants recommended by the fourteenth UFC to be distributed on same parameters and weights recommended for the SFC funds. [Accepted] • Gap funding of schemes and program of urban development to be done from the SFC grants. [Accepted] • For effective monitoring of UFC/SFC fund spent by Panchayats/ Municipalities, impact assessment of these spending to be done through independent agencies. SFC grants to be utilised for this purpose. [Accepted] Functions and Functionaries • In view of the better financial management, in case the panchayat fails to utilize 60% amount of the earlier instalment, the subsequent instalment not to be released and deferred for the next financial year. However, this condition should apply only when the instalments are released in time, i.e. first instalment in first quarter and second instalment in third quarter of the concerned financial year. [Accepted]

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• The recommendations of administrative/reformative nature and the response of the State Government thereon should be included in the Action Taken Report presented to the State Legislature. The Commission has prescribed a format for this purpose. [Accepted] • A permanent secretariat of the SFC should be created to maintain continuity and monitor the recommendations/report of the Commission. [Accepted] • The Gram Panchayats need to be equipped with IT enabled system of functioning to become SMART institutions of Local Governance and data management. [Accepted] • State Government to implement the Accounting and Financial System prescribed by the C&AG and the GOI for the Panchayats and Municipalities. [Accepted] • The Panchayati Raj Department to evolve systematic arrangements for collection and maintenance of data bases on the functioning of Gram Panchayats. [Accepted] • The State Government to constitute a Committee of experts to give advice on improving databases at all tiers/layers of Panchayats and Municipalities. [Accepted] Other Measures • State Government to fill up vacant posts on priority basis for effective functioning of Gram Panchayat. [Accepted] • There is need for structured arrangements for coordination among all the agencies engaged in planning, execution, supervision and monitoring of various activities covered within the jurisdiction of Municipalities. [Accepted] • To evolve a suitable mechanism for asset evaluation, reporting and impact assessment of funds utilised under various schemes and programs and made the report available for information of all concerned.

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[Accepted] • A state of art training institute to be set up for the training of officers and public representatives of Municipalities. [Accepted] • The Panchayati Raj Department to draw some strategy to ensure people’s participation in Gram Sabha meeting and proceedings. The department to publish a status paper on this issue. [Accepted]

Sikkim Fifth State Finance Commission Award Period: 2020 to 2025 Constitution: August 2016 Report Submission: July 2017 ATR Submission: March 2018 Composition Tsegyal Tashi Secretary cum relief commissioner, Land revenue and disaster management department Tashi W. Khangsarpa Special secretary, Urban development and housing department Mukti Nath Dhakal Director (Panchayat), Rural management and development department Bikram Tamang Additional director (accounts), Land revenue and disaster management department

Chairman

Member

Member

Member Secretary

Terms of Reference The Commission was mandated to make recommendations as to the following matters, namely: 1. the principles which should govern: (a) the distribution between the State and Zila Parishads, Gram Panchayats, Municipalities, Municipal Councils and Nagar Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this

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Part IX and Part IX A of the Constitution of India and the allocation between the and Zila Parishads (ZPs), Gram Panchayats (GPs) and Municipalities at all levels of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Zila Parishads, Gram Panchayats, Municipalities, Municipal Councils and Nagar Panchayats; and (c) the grants-in-aid to the Zila Parishads, Gram Panchayats, Municipalities, Municipal Councils and Nagar Panchayats from the Consolidated Fund of the State; 2. the measures needed to improve the financial position of the Zila Parishads, Gram Panchayats, Municipalities, Municipal Councils and Nagar Panchayats. 3. The Commission was also to:





(a) examine and make suggestions to the extent to which and the manner in which the resource available to the local governments could be best utilized for meeting the expenditure of these governments. (b) make a detailed analysis of the repayment of loans and advances, if any, extended by the Government from time to time to the local governments and make suitable recommendation for repayment of government dues and make possibility of adjusting these dues against future devolution of revenues from government to these governments, and (c) examine the resources of the local governments for the five years commencing on 1st April 2015, on the basis of the existing and proposed level of taxation and non-tax revenues reached at the end of 2014–2015.

Methodology The methodology adopted involved participatory discussions and consultations, so as to capture the ideas and needs of the people of Sikkim. Besides issuing ToRs as public notice in the regional newspapers the Commission also tried to reach general public, panchayats, public representatives, institutions and organizations to get their views. Consultations were held with relevant stakeholders, experts and academic and research

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institutions. The Commission held several meetings thereafter, to formulate the approaches and strategies to give shape to its final report, with the objective of enhancing its own understanding of local government finances and functioning of the local government institutions. Various workshops were also organized at state and district level. The Commission extensively used secondary data for the systematic review of finances of State and local government institutions to make recommendations regarding the proportion of funds to be devolved. For this purpose, relevant data from concerned line departments was collected and analysed. Reports of previous SFCs and other States were analysed to understand the trends in recommendations. Field visits and consultations took place with concerned Zilla Panchayats, Municipalities, selected Gram Panchayats, past SFC members, key government officials and civil society members Recommendations Global Sharing • The SFC recommended that 4.5% of the net proceeds of State’s Own Tax Revenue (SOTR) should be devolved to Panchayats and Municipalities. Horizontal Distribution • The share of Panchayats and Municipalities from the above devolved resource should be in a ratio of 70:30, respectively which roughly corresponds to the expected rural and urban population during 2020–25. • The Commission recommended resources between Gram Panchayats and Zilla Panchayats should be devolved in a ratio of 65:35, respectively. Grants-in-Aid • The Commission recommended a state level grant for creation of a Capacity Building Fund to build the capacity of elected representatives and officials in the Panchayats and the Municipalities. • Special grants to some selected Gram Panchayats and Municipal bodies which are financially constrained. The basis of selection has to be backwardness.

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• 0.5% of the net proceeds should be allocated as Special Incentive Grant for special support to a certain number of Panchayats and Municipalities which are constrained by topography as well as inaccessibility and other peculiarities. Other Measures • 0.5% of the net proceeds of SOTR should be allocated for Capacity building of Panchayats and Municipalities • In addition to the above, the Commission recommended 0.5% of the net proceeds of the SOTR to be allocated for the State level Capacity Building Fund. • Promotion of village tourism through the concept of home stays by forming clusters of interested Gram Panchayats. The Panchayats will play a role as a marketing agent of these home stays and therefore ensure the quality of services provided to the tourists. • Creation of Panchayats and Municipal Cadres, and Directorate of Municipalities. • The Capacity Building arrangements in the State should be reviewed to explore their convergence for undertaking integrated capacity building approaches. • Mandatory annual audit of Gram Panchayats, Zilla Panchayats, and Municipalities.

Tamil Nadu Fifth State Finance Commission Award Period: 2017–18 to 2022–23 Constitution: December 2014 Report Submission: December 2016 ATR Submission: March 2017 Composition S. Krishna B. Senguttuvan Commissioner of municipal administration K. Baskaran Director of rural development and Panchayat raj

Chairman Member Member

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K. Maharabushanam Director of town Panchayats G. Prakash

Member Non-official member

Terms of Reference The Commission was required to review the financial position of the Panchayats and Municipalities, viz. Village Panchayats, Panchayat Union Councils, District Panchayats, Town Panchayats, Municipalities and Municipal Corporations and make recommendations as to: 1. the principles which should govern (a) The distribution between the State and the said local governments of the net proceeds of the taxes, duties, tolls and fees leviable by the Government which may be divided between them and the allocation between the said local governments of their respective shares of such proceeds; (b) The determination of taxes, duties, tolls and fees which may be assigned to or appropriated by the said local governments; (c) The grants-in-aid to the said local governments from the Consolidated Fund of the State. 2. the measures needed to improve the financial position of the local governments and to suggest possible new avenues for tapping resources in rural and urban local governments keeping in mind the local government tax structure in other States. In making its recommendations, the Commission was to have regard to the resources of the State Government, the demand thereon, in particular the expenditure of the State on pension and debt servicing, including the debt servicing on behalf of local governments /other committed expenditure or liabilities of the State Government and the need to generate adequate surplus on revenue account for State’s commitments on capital account and other commitments of the State Government.

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155

Methodology The Commission relied mainly on the primary data collected from the local governments and other stakeholders. The Commission formed an In-house Committee to design an elaborative questionnaires to assess the income, expenditure, service level, capital needs etc. The Commission installed its own server system to collect online data. The server was made available to the users i.e., local governments, 24 hours a day throughout the period of the Commission. The end users were taught to open the server IP, with the username, password provided exclusively for each local government. Training sessions were conducted for all the end users to download, to fill up offline and to upload in the Commission’s server by the local governments themselves. The questionnaires to the local governments were devised almost like data sheets and constraints made therein to capture only the expected data. Questionnaires were also designed for Mayors of Municipal Corporations, Chairpersons of Municipalities / Town Panchayats and sent to them seeking their views on specific issues related to local governments. Training sessions were conducted at Regional level for Municipalities and Town Panchayats and District level for Panchayats on how to fill up the questionnaires correctly. Recommendations Global Sharing • The existing overall vertical devolution proportion of 10 per cent of the net State’s Own Tax Revenue (SOTR) to be retained for the award period of the Fifth SFC Commission. • A Capital Grant Fund to be established to replace the IGFF, into which 20 per cent of the aggregate devolution intended for Panchayats would be paid. • 10 per cent of the overall devolution intended for Panchayats and Municipalities be credited into a Pooled Fund for deficit Panchayats and Municipalities. 40 per cent of the amounts available in this Fund, i.e. 4 per cent of the overall devolution intended for Panchayats and Municipalities, to be disbursed in the first three years of the award period by the DRD only amongst those Panchayat Unions and Village Panchayats which have been in deficit for at least 3 of the last 5 years.

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• 40 per cent of the Pooled Fund for deficit Panchayats and Municipalities, should be allocated with 20 per cent retained by the DRD and 20 per cent distributed amongst district collectors based on the horizontal District Panchayat wise share. • The minimum lumpsum grant for Town Panchayats to be enhanced from Rs 20 lakh to Rs 30 lakh. Horizontal Distribution • A 56:44 sharing ratio between Panchayats and Municipalities to be adopted. • The vertical sharing ratio between Panchayats to be determined as 8:37:55 amongst District Panchayats, Panchayat Unions and Village Panchayats. • For horizontal sharing of SFC devolution within each tier of Municipalities, the following criteria and weight would be adopted: Criteria Population Area SC/ST population Per capita consumption Expenditure distance

Weight 60% 15% 15% 10%

Grants-in-Aid • The minimum lumpsum grant to be increased from Rs.5 lakh to Rs.7 lakh per Village Panchayat per year. • The minimum lumpsum grant to Panchayat Unions to be increased to Rs. 40 lakhs per annum per Panchayat Union to be released on a monthly basis out of the 37 per cent share of Panchayat Unions in the SFC devolution. Other Measures • GPS, GIS techniques are to be used for tax assessment. • Hand billing machines should be used for House Tax collection. • Panchayats should be allowed to collect tax for all types of advertisements including wall paintings / writings, posters, banners and flex boards.

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• Measures to improve collection of water charges should be undertaken including through fixing water meters and tracking down illegal connections. Water meters should be made mandatory for all house service connections and water charges should be collected on the basis of actual consumption. • Pooling of assigned revenues viz. surcharge on stamp duty and entertainment tax must be done away with. The assigned revenues should be distributed to the local governments based on the place where they actually accrue, after deduction of cost of collection. • Surcharge on stamp duty should be levied on registration of “Construction Agreements” and “Settlement among Family Members” to augment revenue to the local governments. • The proportion of revenue from minor minerals to be shared with local governments should be fixed at 60 percent to leave the government with an incentive to levy and collect this revenue more effectively and at higher rates. • The ceiling on administrative expenditure of District Panchayats be revised as 7.5 percent of the total SFC devolution or Rs. 40 lakhs whichever is less. • The target for property tax collection for Municipalities should be fixed to reach 0.60 percent of GSDP by the last year of award period i.e., 2021–22. • The Government should take urgent action to legislate and permit local governments to levy and collect entertainment tax, in the light of new GST provisions. In Tamil Nadu’s context this is very important as the entire revenue from entertainment tax is assigned to local governments even though it is collected by a State Government agency. • 20% of the Pooled Funds for Panchayats amounting to 2% of the Panchayats devolution and 1% of the Municipalities devolution to be provided to TWAD Board as a deficit correction mechanism for maintenance of CWSSs, over and above the water charges levied. • The sharing of devolution in Chennai City between CoC and CMWSSB to be modified from the present 90:10 ratio to 85:15 ratio. • A permanent SFC cell should be formed in Finance Department similar to the Kerala model to deal with the issues relating to State Finance Commissions.

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Assam Fourth State Finance Commission Award Period: 2011–12 to 2015–16 Constitution: April 2010 Report Submission: February 2012 ATR Submission: February 2014 Composition P K Bora Arun Kumar Principal secretary Panchayat and rural development department Saraswati Prasad Principal secretary Urban development department Ashish Bhutani Commissioner and Secretary Guwahati development department M S Manivannan Joint secretary Ashutosh Agnihotri Secretary, Finance department R S Prasad Commissioner and Secretary Finance department S P Nandi Secretary Finance department

Chairman Member

Member

Member

Secretary (up to 25.4.2011) Secretary (from 25.4.2011) Member Secretary (up to 13.6.2011)

Member Secretary (from 13.6.2011)

Terms of Reference The Commission was required to make recommendations as to the following: 1. The principles which should govern: (a) The distribution between the State of Assam and the Panchayats/ Municipalities of the net proceeds of taxes and duties, levied and collected by the State, (b) The determination of the taxes, duties, tolls and fees, which may be assigned to, or appropriated by, the Panchayats/Municipalities, (c) The grants-in-aid to the Panchayats/Municipalities from the Consolidated Fund of the State.

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159

2. The measures needed to improve the financial position of the Panchayats/ Municipalities with special emphasis on rationalization of property tax, collection of user charges and innovative realization methods. 3. Examine the feasibility and make recommendations about raising of resources by the Municipalities through issuance of bonds. 4. Examine the feasibility and make recommendations about creation of urban infrastructure and other civic amenities by the Municipalities, through public-private partnership (PPP) and exploring avenues of viability gap funding. 5. Any other matter referred to the SFC by the Governor in the interests of sound financial position of the Panchayats/Municipalities.3 Methodology A set of general questionnaires covering the whole gamut of physical and fiscal administration of Panchayats and Municipalities were formulated. This questionnaire was circulated to all concerned departments up to the grass root level with a request to send back the filled in questionnaire in a time bound manner. Adequate care has been taken through official correspondence and personal interaction with the functionaries of Panchayats and Municipalities to explain them the modalities of filling up the questionnaire. Apart from the general questionnaire, specific questionnaire relating to creation of physical infrastructure, maintenance and upkeep of existing infrastructure like roads and buildings falling within the jurisdiction of local governments, capacity building of local government functionaries through training and maintenance of accounts and audit, have been formulated and sent to appropriate stake holders for their response. The field visits of the Commission consist of various phases, covering almost all the districts of the state. In course of the field visits interactive sessions were held with the elected representatives and official functionaries of Panchayats and Municipalities. The field officers of PWD, PHE, and Local Audit, DRDA, District NIC, DDOs of Municipalities, Deputy Director of Town and Country Planning and respective Treasury Officers also participated in the inter-active sessions. The field visit concluded with a meeting of the representatives of Guwahati Municipal Corporation (GMC) with Chairman held on 09.01.2012.

3  In this system tax is calculated on annual rent that is actually or reasonably be fetched by a property. Here Annual Rent (AR) = Monthly actual or reasonable rent X 12.

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In the matter of sharing of the net proceeds of state taxes with Panchayats and Municipalities, a global approach of sharing the net proceeds of all State taxes excluding non-tax revenue and share of Central taxes is adopted. The data were collated and analysed for report writing. Recommendations Global Sharing • 15% of net proceeds of state taxes will be part of divisible pool for the period of 2012–13 to 2015–16. [Accepted- except the year 2015–16] • Revenue from entry tax, entertainment tax, betting tax, electricity duty and the amounts of taxes collected from the areas mentioned in Schedule VI of the Constitution4 shall be kept out of divisible pool. [Accepted] • In the first stage, 5% of the divisible pool to be kept as incentive funds to encourage local governments. [Not considered] • In order to arrive at the net proceeds, 10 percent of the projected gross tax collection shall be deducted. [Accepted] Assignment of Revenue • GMC and other Municipalities to levy property tax and service charges on the properties of the central and State government undertakings. [Not considered] Horizontal Distribution • Out of the total divisible pool of Rs. 4165.65 crores for four years, the balance amount of Rs. 1992.00 crores to be apportioned between the local governments on the basis of population-cum-density of population as per 2001 census figure. The rural-urban bifurcation will be made 80 percent in proportion to rural and urban population and 20 percent in proportion to the density of rural-urban population. [Accepted- except the year 2015–16] 4

 Under the Unit Area Method, the basic tax is related to plinth/carpet area of the building.

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• Horizontal distribution of the Panchayat divisible pool between different districts will be on the basis of the weighted average of three parameters as given below: Criteria

Weight

Population Geographical area Per capita district domestic product (net of mining and quarrying)

50% 25% 25%

[Accepted] • At Panchayat level the share of divisible pool will be vertical at the ratio of 10:25:65 respectively for Zila Panchayat:Anchalik Panchayat:Gram Panchayat. [Accepted] • In the final stage of devolution of Panchayats part of the divisible pool, the share of each Anchalik Panchayat and Gram Panchayat shall be determined on the basis of 2001 census population. • At Municipality level share will be allocated horizontally among GMC, Municipal Boards (MBs) and Town Committees (TCs) on the basis of population (50%), area (25%), Index of infrastructure (12.5%), per capita tax collection (12.5%). [Accepted] • In the budget for 2011–12, a sum of Rs. 5927 crores under nonplan revenue account (nearly 28% of the total non-plan revenue account) is set aside for Panchayats and Municipalities against various transferred subjects. [Not considered] • An amount of Rs. 2075 crores under plan (nearly 21% of the revenue account under plan revenue account) including State’s share of central plan is earmarked for Panchayats and Municipalities. [Not considered] Grants-in-Aid • Out of the DP of Rs.4165.62 crores for four years, an amount of Rs.2173.62 crores as specific purpose grant to Panchayats and Municipalities. [Accepted- except the year 2015–16]

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• An untied grant of Rs.3 lakhs per Gram Panchayat per year. [Accepted- except the year 2015–16] • Specific purpose grant of Rs.120.28 crores per year for construction of functional and residential buildings for Panchayats at all levels. [Accepted- except the year 2015–16] • Specific purpose grant of Rs.852.30 crores for four years for construction/improvement of markets, cremation and burial grounds at all level of Panchayats and cold storage for selected Gram Panchayat. [Accepted for three years] • Compensatory grant of Rs.2.89 crores at the rate of Rs.72.34 lakhs annually for payment of electricity charges for four Municipalities, viz. Jorhat, Golaghat, Sonari and Titabor. [Not accepted] • Grant of Rs.9.45 crores during 2012–13 for liquidating deferred liabilities of 21 Municipalities. [Not Accepted] • Grant of Rs.58 crores per year for construction of town halls. [Accepted] • Grant of Rs.78.68 crores per year for installation of water supply plants in MBs and TCs. [Accepted for three years] • Grant of Rs.17.65 crores at the rate of Rs.4.32 crores, Rs.4.20 crores, Rs.3.55 crores and Rs.5.58 crores per year for purchase of equipment for solid waste management and creation of toilets. [Not considered] • Grant of Rs.18.96 crores at the rate of Rs.4.74 crores per year for construction of staff quarters for Municipalities. [Accepted] • Grant of Rs.100 crores at the rate of Rs.25 crores per year, for extending pensionary benefits to the employees of GMC. [Not considered] • Grant of Rs.124 crores at the rate of Rs.31 crores per year for construction of zonal offices of GMC and for other purposes. [Accepted] • Grant of Rs.50 lakhs at the rate of Rs.12.50 lakhs per year for training of auditors in the Directorate of Audit. [Accepted] • Grant of Rs.20 crores at the rate of Rs.5 crores per year for strengthening of SFC Cell. [Not considered]

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• Swift release of fund against specific purpose grant on receipt of proposal preferably in two instalments for three years for an amount Rs.198.18 crores. [Accepted] Function and Functionaries • Registration of birth and death may be transferred to Panchayats and Municipalities. [Accepted] • Government of Assam has to ensure streamlining of budgetary procedure with local government supplement in the budget document and finance accounts. [Not considered] • Placement of an official of the Directorate of Town and Country Planning partially at the disposal of the concerned Municipalities. [Not considered] • The government should prescribe primary auditor to conduct audit of the accounts of the Panchayats. [Not considered] • Parastatals shall be accountable to concerned local governments in all respect. [Not considered] • Municipalities should concentrate in areas like sanitation, sewerage and solid waste disposal. Drainage system needs revamping. It is essential to preserve the water bodies and restrict haphazard construction of buildings. [Accepted] • Local governments to prepare their budget and maintain their accounts in the formats prescribed by C&AG. [Accepted] • Integration of implementation of the Action Plan on Capacity Building prepared by State Institute of Rural Development (SIRD) with centrally sponsored scheme Backward Regions Grant Fund (BRGF). [Accepted] • Placement of Annual Technical Inspection Report of the C&AG and Audit Report of the Director of Audit (Local Fund) before the State Legislature. [Accepted]

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Other Measures • A permanent SFC cell to be set up in State Finance Department. [Accepted] • Panchayat Financial year to confirm with government financial year. [Not considered] • Necessary amendment in the relevant acts and rules of Panchayats and Municipalities. [Not considered] • A monitoring and evaluation cell to be set up at the nodal heads of department. [Not considered] • Constitution of a Monitoring Committee consisting of 10 members headed by the Minister, Urban Development Department. [Not considered] • Apart from house tax and tax on trades, all other sources of revenue allocated to the Gram Panchayats are in the nature of fees, fines, tolls, cess etc. Hence, these can be categorized as non-tax revenue. [Not considered] • Computerization needs to be introduced in the Municipalities forthwith and to all levels of Panchayats in a phased manner. [Not considered] • Establishment of a Regional Centre for Urban Management at Guwahati State. [Accepted] • Formation of Water Users Association by the Panchayats to collect water charges. [Accepted] • Institution of GIS method by GMC and other MBs for mapping of properties. [Accepted] • Award period of Union and State Finance Commissions to be made coterminous. [Accepted] • In order to motivate the Panchayats to be pro-active in internal revenue mobilization the required legal and administrative framework need to be firmly put in place. [Accepted]

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• The annual sale value of ferries, fisheries and hats settled by Anchalik Panchayats and Zilla Panchayats to be determined considering prevailing market price and revised annually. [Not considered] • Periodicity of revision of holding tax as per provision of the acts and rules may be strictly enforced by the Municipalities. [Not considered] • Fourth Schedule of GMC Act to be amended to incorporate new trades that are emerging. [Not considered] • Valuation of urban land to be done realistically. [Not considered] • In the absence of proper documentation of outstanding State Government loan against Municipalities may be written-off. [Accepted] • In respect of outstanding HUDCO loans to Municipalities against State Government guarantee one time settlement with HUDCO to be made. [Not accepted] • In respect of outstanding LIC loans against Municipalities, immediate reconciliation of the outstanding amount to be done with the LIC. [Accepted] • In respect of outstanding loans of Municipalities from the banking sector, Government of Assam to arrange a tripartite meeting to settle the outstanding amount. [Accepted] • In the matter of property tax the existing Annual Rental Value5 method to be replaced by Unit Area Method.6 [Accepted] • Quarterly release of fund against devolution as well as general purpose grant. [Accepted] • A local government budget supplement to be presented along with the state budget every year and steps to be taken for incorporation of a similar statement in the finance accounts of the State. [Accepted]  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 6  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 5

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Bihar Fourth State Finance Commission Award Period: 2010–11 to 2014–15 Constitution: June 2007 Report Submission: June 2010 ATR Submission: August 2011 Composition D R Mehta Atul Sarma Shaibal Gupta Prakash Keshaw

Chairman Member (up to 8.12.2009) Member (from 8.12.2009) Member

Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the state and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the Panchayats at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats; (c) the grants-in-aid to the Panchayats from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Panchayats; 3. any other matter referred to the Finance Commission by the Governor in the interests of sound finance of the Panchayats.7 Methodology Questionnaires were circulated to all the Panchayats and Municipalities. Views of the Director Panchayati Raj, non-departmental representatives, 7  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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167

Panchayati Raj Department, Urban Development department were collected. The Commission made a visit to Nalanda district on 13.11.08. The data were collated and analysed for report writing. Recommendations Global Sharing • 7.5% of the state’s tax revenue net of collection costs should be devolved to the local governments. Out of this, the amount of Rs. 1589.95 crores and Rs. 251.19 crores should be spent only on the priority activities by the Panchayats and Municipalities, respectively. [Accepted] Assignment of Revenue • 50% of the proceeds of the tax from a municipal area to be assigned to the Municipalities on the basis of the audited figures of the preceding financial year, on account, pending receipt of audited figures for the current year. Similarly, 100% of the collection from the rural areas to be assigned to the concerned Panchayat Samitis. [Not considered] Horizontal Distribution • The devolution at 7.5% of net tax revenue receipts should be further divided so that 70% is disbursed to Panchayats and 30% to Municipalities. [Accepted] • The shares of Gram Panchayats, Panchayat Samitis and Zila Parishads would be in the proportion 70:20:10. [Accepted] • The inter-se distribution between the Zilla Parishads should be on the basis of district population alone. • The share of the Panchayat Samitis should be disbursed on the basis of the following criteria: Item

Weight assigned

Population of the block Number of BPL families in that block

80% 20%

[Accepted]

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APPENDIX: SUMMARIES OF RECOMMENDATIONS AND ATRS

• The 70% share of the Gram Panchayats should be disbursed equally between all Panchayats of the state. [Accepted] • The devolution from the sharable pool should be disbursed among the Municipalities on the following criteria: Item

Weight assigned

Population Number of BPL families Area

60% 20% 20%

[Accepted] Grants-in-Aid • Untied Grants: The Panchayats should be given grants from the consolidated fund of the state in the following manner: • Rs. 15 lakhs per annum to each Zila Parishad • Rs. 1 lakh per annum to each Panchayat Samiti • Rs. 2 lakhs per annum to each Gram Panchayat for capacity This will cause a total expenditure of Rs. 901 crores over five year period. [Accepted] • The Municipalities should be given grants-in-aid from the consolidated fund of the state in the following manner: • Patna Municipal Corporation Rs. 5.00 crores per annum • Each Municipal Corporation except Patna Rs. 1.00 crore per annum • Each Municipal Council Rs. 0.50 crore per annum • Each Nagar Panchayat Rs. 0.20 crore per annum [Accepted] • Retirement Benefits of the municipal employees: • The arrears of retrial dues, whether pension or any other payments, to be cleared by the Municipalities without further delay. [Accepted]

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Functions and Functionaries • Six activities have been identified as high priority for Panchayats. These activities can primarily be financed through devolution amount of share in state taxes. The activities include: drinking water, housing for homeless, drainage and lighting arrangements, poverty eradication schemes and education level. [Accepted] Other Measures • The states should constitute a GIS system for mapping all properties to increase coverage. [Not considered] • The local governments need to hire qualified staff to set up and maintain databases and accounts. [Not considered] • The state budgets should include a supplement showing the details of non-plan and plan wise classification of transfers separately for all categories of Municipalities and Panchayats from major head to object head. [Not considered] • The state should expedite adaptation of National Municipal Accounting Manual. [Not considered] • A state level Property Tax Board should be set up. [Not considered] • The State Government should provide an accountant or at least an accounts clerk to each Panchayat and smaller Municipality. [Not considered]

Haryana Fourth State Finance Commission Award Period: 2011–12 to 2015–16 Constitution: April 2010 Report Submission: June 2014 ATR Submission: NA

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Composition L S M Salins Subhash Sudha Shiv Lal Katyal Brahampal Rana Khazan Singh Sangwan Ram Bhagat Langayan

Chairman Member Member Member Member Member Secretary

Terms of Reference The Commission was required to make recommendations as to the following: I. 1. the principles which should govern: (a) the distribution between the State and Zila Parishads, Panchayat Samities and Gram Panchayats, of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part IX of the Constitution of India and the allocation between the and Zila Parishads, Panchayat Samities and Gram Panchayats at all levels of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Gram Panchayats, Panchayat Samities and Zila Parishads; (c) the grants-in-aid to the Zila Parishads, Panchayat Samities and Gram Panchayats from the Consolidated Fund of the State; 2. II. 1.

the measures needed to improve the financial position of the Gram Panchayats, Panchayat Samities and Zila Parishads; the principles which should govern: (a) the distribution between the State and the Municipalities, of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part IX A of the Constitution of India and the allocation between the Municipalities at all levels of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Municipalities; (c) the grants-in-aid to the Municipalities from the Consolidated Fund of the State;

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2.

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the measures needed to improve the financial position of the Municipalities;8

In making its recommendations, the Commission was to have regard, among other considerations, to: 1. the objective of balancing the receipts and expenditure of the State and for generating surplus for capital investment; 2. the resources of the State Government and demands thereon particularly in respect of expenditure on civil administration, maintenance and upkeep of capital assets, maintenance expenditure on plan schemes and other committed expenditure or liabilities of the State; and 3. the requirements of the Panchayats and the Municipalities, their potential for raising resources and for reducing expenditure. Methodology With a view to have authentic feedback on structural, financial and functional status of Panchayats and Municipalities, the Commission had various rounds of discussions with the Administrative Secretaries and HODs of the Departments of Panchayats, Rural Development and Municipalities. Accounting and Auditing are important areas in which local governments need to develop their capacities. With a view to have updated knowledge in these spheres, the Commission made specific references to the Director Local Fund Audit of the State and the Principal Accountant General (Audit and Entitlements) and exchanged views with them with the objective of enhancing its own understanding of local government finances and functioning of local governments. This Commission organized a number of meetings with representatives of these bodies at divisional and district levels. On these occasions, site visits were also organized. Such meetings and visits were very helpful to the Commission in getting first-hand knowledge of the ground level working of local governments as well as familiarization with the problems being faced by these bodies. The Commission received very valuable suggestions in all these meetings. The Commission visited States of Himachal Pradesh, Karnataka and Gujarat to know the working and status of their local governments as also the approach and methodology adopted by their SFCs. The Commission also attended a National Workshop on Panchayat Finances on 27.06.2011 organized by MoPR/ GoI in Vigyan Bhawan, New Delhi; Deliberations in this workshop were 8  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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relevant for improving quality of reports. The Commission organized two interactive sessions with experts and resource persons from reputed national level research institutes. The Commission also used data from state budget documents, State Statistical Abstract, State Economic Survey, plan documents, accounts related documents, Annual Administrative Reports of various departments. The overall approach of the Commission was to foster inclusive growth promoting fiscal federalism. Recommendations Global Sharing • 2.5% of the net own tax revenue to be shared between Panchayats and Municipalities in the ratio of 65:35 based on the rural-urban population ratio as per 2011 census. [Deferred] Assignment of Revenue • Development tax should be imposed for being a direct source of revenue for Gram Panchayats. [Not considered] • Panchayats should be empowered to levy state entry tax. [Not considered] • The Gram Panchayats should be permitted to levy additional duty on stamp duty at the rate of 3% on sale of transfer of immovable properties in their jurisdiction. [Not considered] • Additional duty on stamp duty should be increased by the Municipalities from existing 2% to 3%. [Not considered] • Electricity tax should be enhanced to 10 paise per unit from 5 paise per unit in Municipalities and electricity tax should be levied immediately at the rate of 5 paise per unit in Panchayat areas. [Not considered] • The power consumed for public utilities in local governments should be changed to domestic rates rather than commercial rate. [Not considered]

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• 10% of the income from royalty on minor minerals should be the share of Panchayat or Municipalities. [Not considered] • The rate of house tax should be revised. [Not considered] • 10% of the income from change of land use may be devolved to the Gram Panchayats. [Not considered] Horizontal Distribution • For horizontal division of share of Panchayats and Municipalities, the Commission computed the composite index consisting of factors like population area, literacy gap, Antodaya Anna Yojana (AAY) population and gender ratio. The following criteria has been recommended for districts wise distribution of local governments share: Parameters

Weight

Population Area (R/U) Literacy gap (R/U) AAY population Gender sex ratio Total

40.00 25.00 15.00 10.00 10.00 100.00

[Not considered] • The Panchayats share at district level to be allocated among Gram Panchayats: Panchayat Samitis: Zilla Parishads in the ratio of 75:15:10. [Not considered] • The share of Gram Panchayats and Panchayat Samitis within the district should be allocated on the basis of population (80%) and area (20%). Same for Municipalities. [Not considered] • For the period 2015–16, the share of local governments in divisible pool would be 7% of net own tax revenue and the ratio of Panchayats and Municipalities would be 50:50 as again rural-urban population ratio of 65:35. [Not considered]

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Grants-in-Aid • The commission recommended one-time grants-in-aid of Rs 113.60 crores for the following purpose: Purpose Maintenance of municipal road and SWM Up gradation of fire services Capacity building Strengthening the pate base of Panchayats and Municipalities Maintain some of accounts and audit of local governments Setting up of calls for research and analysing of public finance policy

Grants (cr.) 57.85 10.00 15.00 10.00 20.00 0.75

[Not considered] Functions and Functionaries • DPC member from Panchayats and Municipalities should have the authority to decide work and areas of such work. [Not considered] • Zilla Parishads needs to be strengthened by providing regular staff. [Not considered] • To make Zilla Parishads functional, one Gram Sevak must be put in place for only two Panchayats. [Not considered] Other Measures • Constitution of incentive funds at the district level for each Panchayats and Municipalities to reward the better performing local governments. [Not considered] • Improvement in the State Government’s own tax revenue (OTR)/ gross state domestic product (GSDP) rate to 8.6% from 2013–14 onwards from existing level of 6 to 6.5%. [Not considered] • Introduction of accrual based double entry system in all the Municipalities. [Not considered] • A well in build social audit system in all Gram Panchayats. [Not considered]

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• A State level urban management training and research academy should be set up in the state. [Not considered] • Privatization of services like street lighting, SWM, construction/maintenance of toilets and such other works in all the major Municipalities. [Not considered] • Liberalization of licensing policy for municipal areas. [Not considered] • Introduction of E-governance at appropriate level to improve work efficiency. [Not considered]

Himachal Pradesh Fourth State Finance Commission Award Period: 2012–13 to 2016–17 Constitution: April 2010 Report Submission: January 2014 ATR Submission: NA Composition The final composition of the Commission, at the time of report submission was as below: Kuldeep Kumar Member of legislative assembly Upma Chawdhry Principal secretary (RD and PR) Amardeep Garg

Chairman (from 21.10.2013) Member (ex-officio) Member Secretary

Terms of Reference The Commission was required to make recommendations to the Government as to: 1. the principles which should govern: (a) the distribution between the State and Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the Government which may be divided between them and allocation between all levels of Panchayats/Municipalities of their respective shares of such proceeds;

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(b) the determination of taxes, duties, tolls, and fees which may be assigned to or appropriated by the Panchayats and Municipalities; (c) the grants-in-aid to Panchayats/Municipalities from the consolidated fund of the State; 2. to suggest measures needed to improve the financial position of the Panchayats/Municipalities; 3. the Commission should make a normative assessment of needs based on the actual devolution of functions to each tier of the Panchayats and an assessment of potential fiscal capacity based on the tax and non-tax resources available to Panchayats in making any recommendations on devolving untied grants or share of State taxes to these bodies; 4. the Commission should make an assessment of recurring grants for specific schemes of the State Government relating to support for honorarium and expenses of elected representatives and employees of Panchayats and suggest improvements in these schemes in order to promote the exercise of fiscal autonomy and responsibility by the Panchayats; 5. the Commission should suggest appropriate ways to take forward the process of devolution of functions, funds and functionaries to the Panchayats keeping in view the existing delivery system and the financial capacity of the State Government. It may make specific suggestions with regard to:

(a) support for pilots to hand over responsibility for delivery of primary education, primary health, water and sanitation and rural roads to appropriate levels of Panchayats; (b) changes in legislation and procedures necessary to enhance the tax and non-tax capacity of the Panchayats consistent with accepted principles of taxation at the local level; (c) strengthening of administrative capacity of Panchayats by placing under their control relevant categories of employees either by way of recruitment at the level of relevant tiers of the Panchayats or by seconding of existing State Government staff to them. 6. any other matter referred to the Himachal Pradesh Fourth State Finance Commission by the Government in the interest of sound finance of the Panchayats and Municipalities.9

9  t-2 method denotes in the report that, for devolution in a particular year, the tax collection figures of two years back for which finalized figures of accounts are ready would be reckoned so as to arrive at the final figures.

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Methodology The Commission designed separate questionnaire for each tier of Panchayats and each level of Municipalities. Due to lack of desired staff for field survey, the task of data collection was assigned to the Department of Information technology to conduct the survey with the help of Lok Mitra Kendras. Regular meetings were conducted to review the status of survey work. Due to non-supportive attitude of the staff at grass root level, the responses gained through Lok Mitra Kendras were very low. Therefore, the Commission started to collect the data by sending the designed questionnaires to the Gram Panchayats (not covered by Lok Mitra Kendras) by post, mailed the questionnaires to district Panchayat Officers/ Block Panchayat Officers). The same process was followed for Municipalities. More emphasis was given to participatory approach. The Commission invited views and suggestions by publishing advertisements in selected national and regional newspapers. Along with the detailed questionnaire, the information was also collected from various departments to cross check the information obtained on questionnaires. To firm up the data received from various sources, several rounds of meeting were conducted. Recommendations Global Sharing • As per the recommendation of Thirteenth Finance Commission, Himachal Pradesh received Rs. 559.54 crores for Panchayats and Rs 81.96 crores for Municipalities as grants-in-aid to augment the consolidated fund of the state, to supplement the resources of local governments. To check the counterbalancing entry the fourth SFC would not take into account the resource transfers as recommended by Thirteenth Finance Commission on either receipts or expenditure account. [Not considered] Assignment of Revenue • To levy a new consumption based tax as cess in the Municipalities. [Not considered]

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• Increment in the rate of electricity tax from 2 paise per unit to a minimum 5 paise in the Municipalities. The revenue generated could be totally adjusted to liquidate the pending arrears on account of street lighting. [Not considered] • The existing ratio of liquor to local governments should be changed to 70:30 from 80:20, where liquor vend is functioning and where there is no liquor vend, respectively. The cess is charged at the rate of Rs. 2.00 per bottle, out of which Re. 1.00 is retained by the Excise and Taxation Department and Re. 1.00 is distributed to the local governments in the ratio of 80:20, for where vend is functioning and not functioning respectively. [Not considered] Grants-in-Aid • The fourth commission in its I, II and III Interim Reports recommended total transfer to Panchayats as mentioned below: Report I interim report II interim report III interim report

Year

Amount (Rs. Crore)

2012–13 2013–14 2014–15 2015–16 2016–17

53.95 63.83 106.39 109.62 130.32

[Not considered] • Against these recommendations, the revised gap in available resources worked out Rs. 64.33 crore and Rs. 65.82 crores for the year 2012–13 and 2013–14. Accordingly the Commission in its third Interim Report recommended further provision of Rs. 10.37 crores for 2012–13 and 1.98 crores for 2013–14 through the supplementary demand for grant. [Not considered]

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• The fourth commission in its I, II and III Interim Reports recommended total transfer to Municipalities as below: Report I interim report II interim report III interim report

Year

Amount (Rs. Crore)

2012–13 2013–14 2014–15 2015–16 2016–17

57.07 63.55 72.38 81.43 101.41

[Not considered] • Based on the data available. it further recommended to provide additional grant of Rs. 66.3 crores through the supplementary demands for the financial year 2012–13 and 2013–14. [Not considered] Horizontal Distribution • The total resource transfer of Rs 858.96 crore to local governments would be distributed as 55.5% to Panchayats (Rs. 476.47 crores) and 44.5% (Rs. 382.48 crores) to Municipalities, respectively). [Accepted] • Allocating Rs. 323.13 lakh to the Gram Panchayats for the year 2012–13 for the maintenance of primary school building with 10% increase per annum. [Not considered] Functions and Functionaries • The cess should be directly credited into the account of concerned Municipality. [Not considered] • Certain amount of contingent funds should be allowed to retain in at Gram Panchayat level and for this Panchayati Raj department should issue the order for devolving powers to Gram Panchayats to use at least 0.1% of the sanctioned budget under development scheme. [Not considered]

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• To empower DPCs, the State Government to consider merging the function assigned to the district planning development and 20 point programme review committee, in the function of DPCs. [Not considered] • The rate of surcharge on duty on transfer of property to be notified on priority to supplement the resources of Gram Panchayats. [Not considered] • There should be proper inventory of assets created at local governments’ level under the framework suggested by the commission. [Not considered] Other Measures • A permanent secretariat for SFC with adequate staff. [Not considered] • Education, Health and Animal Husbandry to be maintained by Gram Panchayats. [Not considered] • Declaring Director Panchayat Raj as Head of the department for proper utilization of maintenance funds by Panchayats. [Not considered] • Synchronization of the period of SFC with the period of UFC. [Not considered] • A standard framework for guidance of the constitution and composition of SFC. [Not considered] • The Central Government should set up a unit at the National Institute as a repository of State Finance Commissions Documents. [Not considered]

Kerala Fourth State Finance Commission Award Period: 2011–12 to 2016–17 Constitution: September 2009 Report Submission: January 2011 ATR Submission: February 2011

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Composition M A Oommen Malcom Adiseshiah chair of development economics and decentralized planning, Institute of Social Sciences, New Delhi S M Vijayanand Principal secretary to government Local-self government department Ishita Roy Secretary to government Finance (expenditure) department

Chairman

Member

Member

Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the State, Panchayats and Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the Government which may be divided between them under Part IX and Part IX—A of the Constitution and allocation between all levels of Panchayats at all levels and the Municipalities of their respective shares of such proceeds; (b) the determination of taxes, duties, tolls, and fees which may be assigned to or appropriated by the Panchayats and Municipalities; (c) the grants-in-aid to Panchayats/Municipalities from the consolidated fund of the State; 2. Measures needed to strengthen the financial position of Panchayats and Municipalities10 with special reference to:

(a) Suggest framework to local governments for realizing their potential to raise funds from financial institutions and markets (b) Improving quality of upkeep assets owned by and transferred to local governments (c) Rationalizing taxes and revenues now collected by local governments

10  The assumed plan size is only notional for determining the share of local governments and should not in any way link to the real plan size of the particular year.

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(d) Achieving economy and efficiency in expenditure by local governments (e) Providing incentives for higher own resource mobilization by local governments (f) Maintaining proper fiscal data base relating to local governments (g) Streamlining the measures required for improving the capacity of financial management by local governments (h) Improving monitoring of fiscal performance of local governments



The recommendations of the first three SFCs was to be revisited by the Finance Commission and appropriate suggestions was to be given on those recommendations which had been accepted by Government, but which have not been operationalized. Methodology The Commission visited a few selected local governments to have a firsthand experience of important developmental issues and good practices. Various meetings, workshops as well as seminars were conducted from time to time. The Commission launched an ambitious project to collect online data from the local governments for the period from 2004–05 to 2008–09. Unlike the previous Commissions’ method of collecting data physically, this commission collected data online using the software developed by KELTRON and collected data relating to receipts and expenditure of Local Governments based on the accounting system. The main objective behind collection of data online was to build a data base which can be preserved for future use. In addition to this, a number of studies were also sponsored by the Commission. Recommendations Global Sharing • 3.5% of State Own Tax Revenue (SOTR) to local governments as General Purpose Fund (GPF) using the t-2 method.11 [Accepted] • An amount of Rs. 793 crores (4.5% of SOTR (t-2) as maintenance fund for the financial year 2011–12. Progressive increase over the remaining years would be as given below:  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 11

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2011–12 2012–13 2013–14 2014–15 2015–16

183

4.5% of SOTR (t-2) 5% of SOTR (t-2) 5.5% of SOTR (t-2) 5.5% of SOTR (t-2) 5.5% of SOTR (t-2)

[Accepted] • Development Fund (DF), earlier known as plan grants, for the five years of the award period is as detailed below, based on the assumed plan size12 calculated on historical trends: Year 2011–12 2012–13 2013–14 2014–15 2015–16

Share (%)

Actual Allocation (Rs. Crore)

25 27.5 28.5 29.5 30

2750 3388 3933 4559 5193

[Accepted for the financial year 2011–12] • The share of DF would be subject to the free plan outlay available each year. However under no circumstance should any year’s allocation be less than 25% of the plan size. [Accepted] • Maximum of 10% of the total devolution under DF to be distributed to local governments on the basis of tax effort criterion. [Accepted] Assignment of Revenue • Amount equal to entertainment tax to be collected and individually to be given to each eligible Gram Panchayat, Municipality and corporations, whenever the GST is introduced. • A surcharge of 50% of the property tax by local governments. [Referred to a Committee consisting of Secretaries of LSG Department and Finance Department for examination].  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 12

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• Service tax to be levied by Panchayats and Municipalities subject to the minimum rate fixed for sanitation, water supply, scavenging, street lighting and drainage. [Not considered] • As per the Amendment Act section 208, the Kerala Municipality Act have also been revised to enable the local governments to levy a surcharge not exceeding 50% of the property tax to meet any extraordinary expenses incurred by them towards any scheme or project or plan. The rules need to framed expeditiously. [Not considered] Horizontal Distribution • The GPF to be divided among Gram Panchayat, Municipalities, and Corporations in the ratio of 75.93:10.02:14.05 after setting off Rs. 125 lakhs per District Panchayat and Rs.15 lakhs per Block Panchayat. [Accepted] • The inter-tier distribution of Tribal Sub Plan (TSP) Fund among Panchayats to be restructured in the ratio of 60:20:20, for Gram Panchayat/Block Panchayat/District Panchayat, respectively. [Accepted] • The formula for distribution of non-Special Component Plan (SCP)/ TSP portion of Development Fund should be as outlined below:

Criteria Population (excld.SC/ST) Deprivation index Tax effort Area

GP 50 30 10 10

BP 50 30 – 20

DP 50 30 – 20

(weights) Municipalities 50 30 10 10

[Accepted] • A special allocation of Rs 50 lakh as fiscal support grant to Idamalakkudy Gram Panchayat from the GPF allocation for Panchayats. [Not considered] • 2/3rd of the maintenance fund to be earmarked for road maintenance and remaining 1/3rd for non-road maintenance. [Accepted]

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• 40% of development fund to be allocated to Panchayats for infrastructure. [Not considered] Grants-in-Aid • A special grant of Rs. 25 lakh to each one of the 16 specified Gram Panchayats [Accepted] • A grant of Rs. 15 lakh to each of 58 specified Gram Panchayats [Not considered] Functions and Functionaries • The Director of Panchayats and Director of Urban Affairs are to be made responsible for collection of data on taxes and would provide certified figures of tax collection before 31st December every year to the SFC cell. [Accepted] • Local governments to be given freedom to spend road maintenance fund for any of the items allowed under the non-road maintenance. [Not considered] • Introduce computerized ticketing and a seat-based tax system to streamline collection of entertainment tax from cinema theatres. Simultaneously conduct a study to classify theatres. [Referred to a Committee consisting of Secretaries of LSG Department and Finance Department for examination]. • An Account Cadre as noted below to be put in place in all local governments immediately. Institution

No. of accountants

Gram Panchayat Block Panchayat District Panchayat Municipalities

1 1 1 2 (3 in big Municipalities and 1 in small Municipalities with population Less than 50,000) 5

Corporations

[Accepted]

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• The following officers to be put in charge of inspecting cash books of at least 10% of the local governments every month and report regularly to the heads of department concerned and to the State Government in the case of District Panchayats: Corporations and Municipalities Village Panchayats Block Panchayats District Panchayats

Regional director of Urban Affairs Deputy directors and assistant directors ADC (general) District level officers of the finance inspection wing

[Not considered] Other Measures • Establishments of Biodiversity Management Committee to initiate People’s Biodiversity Registers (PBRs). [Accepted] • PBRs to be mandatory for Panchayats and each Gram Panchayat shall spend Rs 1 lakh from the DF for preparation of Biodiversity Register. DPCs should ensure this. [Accepted] • Introduction of GIS for both road and non-road mapping. [Not considered] • National Transportation Planning and Research Centre (NATPAC) is to be entrusted for mapping roads and agencies like Centre for Management Development, Costford and Socio-economic Unit Foundation and Maitri be entrusted with the task of preparing the details of building assets. Expenses of asset mapping may be deducted from maintenance fund. [Not considered] • All stand posts of Kerala Water Authority to be converted mandatorily into metered domestic connection. [Not considered] • The own office buildings of Block Panchayats and District Panchayats and assets like ferries, burial grounds etc. to be included as eligible for maintenance using non-road maintenance fund. [Not considered] • Public Health Act to replace Travancore-Cochin and Madras Public Health Acts. [Not considered]

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• Setting up of a High-Power Committee to oversee the entire institutionalisation process. [Not considered] • Women Component Plan (WCP) to be strengthened and gender budgeting be given statutory status. [Not considered] • Need of an urgent action for operationalizing the new property tax regime and biennial inflation neutralization to be made compulsory as recommended by second SFC. [Deferred] • Creation of a GIS based property tax database. [Deferred] • The government to fix only the minimum rate and the local governments be given freedom to determine the rate according to the land value etc. of the particular local government. [Deferred] • Creation of Property Tax Board. [Deferred] • Launch a drive to enumerate all professionals and institutions and to map the data suitably. [Deferred] • Entertainment tax act and rules need a re-visit and comprehensive updation to bring various Entrance fee or such other fees collected for entertainment under ET Act. [Deferred] • Immediate issue of service tax rules. [Deferred] • Development and deployment of Web-based software at the level of local governments and treasures with a district level terminal. [Not considered] • District Planning to be made mandatory with focus on the following sectors: –– Health –– Education –– Agriculture and allied sectors –– Water supply –– Energy –– Mobility [Not considered]

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• Constitution of a Human Resource Commission for local governments. [Not considered] • Disclosure of budgets, accounts and audit findings should be made mandatory under Section 4 of the Right to Information Act and formats prescribed for this easily understood by the citizens. [Not considered] • Constitution of a small Expert Group to interact with the local government officials. [Not considered] • Asset maintenance policy should be suitably adapted and reissued as applicable to local governments. [Not considered] • Government should come out with detailed guidelines on PPP Projects for local governments. [Deferred]

Odisha Fourth State Finance Commission Award Period: 2015–16 to 2019–20 Constitution: October 2013 Report Submission: September 2014 ATR Submission: February 2015 Composition Chinmay Basu Adwait Kumar Mohanty Devi Prasad ray Shailendra Nrayan Dey Director, Panchayati raj Sanjib Kumar Mishra Director, municipal administration Pradeep Kumar Biswal Additional secretary, finance department

Chairman Member Member Ex-officio member Ex-officio member Member Secretary

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189

Terms of Reference The Commission was required to make recommendations relating to the following matters: 1. The principles that should govern (a) the distribution between State and Panchayats and the Municipalities of the net proceeds of taxes, duties, tolls and fees leviable by the State which may be divided amongst them under Part-IX and Part-IXA of the Constitution and the allocation between the Panchayats at all levels and the Municipalities of their respective shares of such proceeds; (b) the determination of taxes, duties, tolls and fees which may be assigned to, or appropriated by Grama Panchayats, Panchayat Samities and Zilla Parishads or, as the case may be, Municipalities; and (c) the Grants-in-aid to the Grama Panchayats, Panchayat Samities, Zilla Parishads or, as the case may be, Municipalities from the Consolidated Fund of the State; 2. the measures needed to improve the financial position of the Grama Panchayats, Panchayat Samities, Zilla Parishads and Municipalities. 3. any other matters, which the Governor may refer to the Commission in the interest of sound finance of Grama Panchayats, Panchayat Samities, Zilla Parishads and Municipalities.13 In making its recommendations, the Commission was to have regard, among other considerations, to: 1. the revenue proceeds of the State Government and the demands thereon, on account of expenditure on Civil Administration, Police and Judicial Administration, Education, Maintenance of Capital assets, Social Welfare, Debt Servicing and other committed expenditures and liabilities; 2. the functions and liabilities of Panchayats and Municipalities in respect of discharging and implementing the schemes entrusted to them under article 243G and 243W of the Constitution; 3. the revenue resources of Panchayats and Municipalities at all levels of five years, commencing from 1st April, 2015 on the basis of levels 13  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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of taxation reached in 2011–12, target set for additional resource mobilization and potential for mobilizing additional resources; 4. the scope for better fiscal management consistent with the need for speed, efficiency and cost effectiveness of delivery of services; and 5. the need for providing adequate incentive for better resource mobilization as well as closely linking expenditure and revenue raising decisions. The report of the Commission was required to contain specific chapters, narrating . the approach adopted by it; 1 2. an analysis of the resources of the State Government; 3. an analysis of the resources of Panchayats at each level and also Municipalities at each level and make concrete recommendations for improvements; and 4. an estimation and analysis of the finances of the State Government as well as the Panchayats and Municipalities at the pre and post transfer stages along with a quantification of the revenues that could be generated additionally by the Panchayats and Municipalities by adopting the measures recommended therein. For the purpose of assessment of supplementing the resources of the Panchayats and Municipalities by the Union Finance Commission, the Commission was to1. follow a normative approach in the assessment of revenues and expenditure rather than make forecasts based on historical trends; 2. take into account per capita norms for revenue generation, the data relating to the tax bases and avenues for raising non-tax income by the Municipalities and the Panchayats, assuming reasonable buoyancies and the scope for additional resource mobilization; and 3. take into account per capita expenditure norms on the basis of the average expenditure incurred by some of the best performing Municipalities and Panchayats in the provision of core services. The Commission shall also review the implementation of the recommendations of the Third State Finance Commission.

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Methodology Through newspaper advertisement dated November 14, 2013 and Correspondences, the Commission had apprised the public of constitution of the Fourth State Finance Commission and its mandate, and requested all Gram Panchayats, Panchayat Samitis, Zilla Parishads, Notified Area Councils, Municipalities, Municipal Corporations, universities, other organisations, intelligentsia and individuals to oblige it with their valuable views and advices to strengthen the local self-governments of the State. The Commission visited some of the districts, and the Chairman and Members visited a few other districts individually or in smaller groups for direct interaction with the local government representatives, local public and officials working at the grassroots level. The overall approach of the Commission was to recommend principles to facilitate resource availability to Panchayats and Municipalities in a sustainable manner to carry out functions entrusted to them. Recommendations Global Sharing • Limit the total transfer to local governments within 10% of net divisible pool of State taxes projected for the award period from 2015–20. [Accepted] • 3% of the net tax revenue to be devolved and distributed between Panchayats and Municipalities in the proportion of 75:25. [Accepted] • Devolution to the of local governments, to be on the basis of size, density and percentage of population below poverty line (Tendulkar Methodology), literacy rate and SC and ST concentration. [Accepted] Assignment of Revenue • Local governments should be empowered to impose advertisement tax except in the case of Central or State government advertisements. [Not considered] • Levy of Property Tax by local governments. [Not considered]

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• Exclusion of entry tax, entertainment tax and motor vehicle tax from the shareable pool and to assign a part of these taxes to the local governments directly. [Accepted. Instead of allowing LBs to levy and collect Entertainment Tax, the present system shall continue] • Along with Municipalities, Panchayats should have the right to levy Entry Tax. [Accepted] • Amendment of Gram Panchayat Act enabling Gram Panchayats to collect Advertisement Tax at the rate decided by them and to introduce Property Tax so that the Gram Panchayats may be empowered to levy Property Taxes. [Being examined by State Government in detail. Follow up action would be taken with the High Level Monitoring Committee] • Share of Municipalities in motor vehicle tax need to be enhanced. [Not considered] • The rates and maximum collectable amounts have been fixed under provision 290(7) of the Act these restrictions should be scrapped and the amount to be charged should be the discretion of the municipal bodies. [Not considered] Horizontal Distribution • Arrear pension of retired employees should be cleared from the entry tax. [Being examined by State Government in detail. Follow up action would be taken with the High Level Monitoring Committee] • Inter-se distribution amongst three tiers of Panchayats is based on population, category and number of units like Gram Panchayats, Panchayat Samities etc. [Accepted] • Inter-se distribution of devolution amongst the three tires of Panchayats is to be in the ratio of 75:20:05. [Accepted] Grants-in-Aid • Total transfer of Rs. 25,325.03 crores to the local governments out of which Rs. 12,740.08 crores is from the State’s taxes and Consolidated Fund. [Not accepted]

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• The Commission recommended that the Fourteenth Finance Commission may consider augmenting the State’s Consolidated Fund to meet the balance requirement of Rs.12584.95 crore in the next five years period to supplement the resources of the local governments over and above the fund recommended for transfer from the State’s resources. [Not accepted] • Odisha kendu leaves grants should be either shared with the pluckers instead of Panchayats or it should be withdrawn completely. [Not considered] • The Commission did not consider the continuance of Sirat Grants and MFP worthwhile and recommended that it should be stopped. [Accepted] • An additional amount of 20% to the Panchayats under TSP areas out of the total devolution—and some specific grants for Panchayats. [Accepted] Functions and Functionaries • DRDA should be dissolved and its office should be merged in ZP. [Not considered] • The line department should provide activity mapping for each scheme with details of the functions assigned to Municipalities. [Not considered] • Implementation of centrally sponsored schemes should be the responsibility of the Panchayats with full departmental support. [Not considered] • Key functionaries at the Panchayat level should be accountable to the concerned Panchayats. [Not considered] • New Panchayats should be created where population has exceeded 10,000. The existing Panchayats having more than 7500 population should be strengthened by engaging technical and other functionaries exclusively. [Being examined by State Government in detail. Follow up action would be taken with the High Level Monitoring Committee] • Municipalities should be empowered with infrastructural support. [Not considered] • Drinking water service which comes under Public Health Engineering Organization (PHEO) should be handed over to Municipalities and

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the services of the existing staff along with finance should be placed with the local governments. [Being examined by State Government in detail. Follow up action would be taken with the High Level Monitoring Committee] • Planning unit of the municipal body should focus on planning of day to day activities for basic amenities. [Not considered] • Powers of administrative officials, engineers and other technical functionaries in the Municipalities should be enhanced at least two times to facilitate undertaking routine works locally without sending estimates upwards for approval. [Not considered] • All markets taken over by Regulated Marketing Committees (RMCs) should be returned to Gram Panchayats. [Not considered] • Services of ANMs and anganwadi workers can be placed with the Gram Panchayats. [Not considered] • A time-frame to be fixed for Panchayat Samitis to communicate the minimum procurement price of MFP. [Not considered] • Gram Panchayats should be empowered to seize MFPs if procured illegally and inform the DFO concerned for final say in the matter and initiation of penal action where needed. [Not considered] • Municipal Authorities require more liberty to function within their legitimate domain of operation without waiting for Government’s approval. [Being examined by State Government in detail. Follow up action would be taken with the High Level Monitoring Committee] • Municipal cadre shall be put in a place as quickly as possible. [Being examined by State Government in detail. Follow up action would be taken with the High Level Monitoring Committee] • Constitution of a separate Directorate of Municipal Administration. [Being examined by State Government in detail. Follow up action would be taken with the High Level Monitoring Committee] Other Measures • Constitution of Valuation Organization. [Being examined by State Government in detail. Follow up action would be taken with the High Level Monitoring Committee]

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195

• Development authorities/ improvement trust must issue NOC from local governments for approval of plans. [Not considered] • Introduction of accrual based accounting system. [Being examined by State Government in detail. Follow up action would be taken with the High Level Monitoring Committee] • H&UD Department should continue to fix annual targets even beyond the present award period and put in place a monitoring mechanism involving external agencies to assess the physical progress. [Not considered] • The stamp duty according to the opinion of the Commission is being erroneously projected as grants to Municipalities but goes to Special Planning Authority etc. As such, it should not be part of the assignment. [Accepted] • Engagement of one Inspector of Local Works (ILW) in the level of Assistant Engineer or Executive Engineer to be stationed in each District. [Being examined by State Government in detail. Follow up action would be taken with the High Level Monitoring Committee] • A dedicated Cell (Budget-VI Branch) in Finance Department with full-fledged staff to monitor implementation of grant, submission of utilization certificate, manner of utilization of grants etc. by the local governments. [Accepted]

Rajasthan Fourth State Finance Commission Award Period: 2010–11 to 2014–15 Constitution: April 2011 Report Submission: September 2013 ATR Submission: February 2014 Composition Bulaki Das Kalla Rajpal Singh Shekhawat J P Chandelia P L Agarwal

Chairman Member Member Member Secretary

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Terms of Reference The Commission was required to review the financial position of the Panchayats at all levels, and make recommendations as to: 1. the principles which should govern: (a) the distribution between the State and the Panchayats at all levels of the net proceeds of the taxes, duties, tolls and fees leviable by the State, which may be divided between them under Part‐IX of the Constitution and the allocation between the Panchayats at all levels, of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats at all levels; and (c) the grants‐in‐aid to the Panchayats at all levels from the Consolidated Fund of the State. 2. the measures needed to improve the financial position of the Panchayats. The Commission was also to review the financial position of the Municipalities at all levels and make recommendations as to: 1. the principles which should govern: (a) the distribution between the State and the Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the State, which may be divided between them under Part‐IX‐A of the Constitution and the allocation between the Municipalities at all levels, of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Municipalities; and (c) the grants‐in‐aid to the Municipalities from the Consolidated Fund of the State. 2. The measures needed to improve the financial position of the Municipalities.14

14  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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197

In making its recommendations, the Commission was to have regard, among other considerations, to: 1. the financial resources of the State and demands thereon, keeping in view the non‐plan deficit and surplus, and in particular, the need for providing adequate resources for funding the plan expenditure for the overall development of the State; 2. the expenditure needs of the Panchayats at all levels and Municipalities at all levels for the proper discharge of the functions and responsibilities assigned to them; 3. adjustment of grants available to the Municipalities at all levels and the Panchayat, under the recommendations of Thirteenth Finance Commission in their resources; and 4. powers available to Panchayats and Municipalities at all levels for raising additional resources, including powers to levy taxes. Methodology For collecting information and relevant data from each tier of Panchayats and Municipalities, a well-designed questionnaire and some formats were sent to all the Panchayats and Municipalities. The Commission participated in a number of workshops and conferences organized at national and state levels. The Commission also visited some major states and closely studied the working patterns of local governments and the concerning State Finance Commissions. Recommendations Global Sharing • 5% of net own tax revenue (excluding entry tax and land revenue) of the State Government be devolved to the Panchayats and Municipalities in the ratio of 75.1: 24.9. [Accepted with modification] • Thirteenth Central Finance Commission grants for Municipalities and Panchayats should also be distributed on the basis of criteria and norms recommended by this Commission for devolution of funds under SFC award. [Accepted]

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Assignment of Revenue • 2% of cess on excise duty on liquor should be distributed between Panchayats and Municipalities in the ratio of 40:60 respectively. [Not accepted] • 25% of the entry tax should be distributed between Panchayats and Municipalities in the ratio of 40:60 respectively. [Not considered] • 100% land revenue to be transferred to the Gram Panchayats of the State in proportion to their latest available population. [Not considered] • 3% of royalty on minerals (both major and minor) except hydrocarbons be distributed among all Gram Panchayats in proportion to their population as per latest available Census. [Not considered] • 10% surcharge on stamp duty. [Not considered] • The Urban development tax should be made applicable on all lands and buildings situated in municipal areas. [Not considered] • User charges, license fees, tax on vehicles etc. be made obligatory in Gram Panchayats by the State Government. [Not considered] • A new tax in the name of sanitation tax to be levied on all hotels, restaurants, public schools, private hospitals, nursing homes, recreation clubs, marriage gardens, and shopping complexes and cinema halls/multiplexes. [Not considered] Horizontal Distribution • The Fourth SFC recommended following district wise distribution weights: Parameter Population Geographical area Poverty (represented by no. of families BPL) Child sex ratio (0–6 years)

Weights 40% 15% 5% 5%

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Parameter

199

Weights

SC population ST population Decline in decadal population growth 2001–11 over 1991–2001 Infant mortality rate Girl education Own revenue mobilization by Panchayats

5% 5% 5% 5% 5% 10%

[Not considered] • Distribution among Panchayats is as below: Unit

Weights

Gram Panchayat Panchayat Samiti Zila Parishad

85% 12% 3%

[Accepted] • Inter-se distribution of funds among the Panchayat Samitis and Gram Panchayats is to be made on the basis of population according to latest census of the concerned Panchayat Samitis and Gram Panchayats. [Accepted] • The distribution of devolution for Municipalities is as follows: Criteria Population Area Revenue mobilization To all Municipalities (except Municipal corporations and Municipal council) on population basis

[Accepted]

Weight 50% 10% 10% 30%

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Grants-in-Aid • Provision of specific functional grants to the Gram Panchayat. [Accepted with modification] • Panchayats would be given 20% funds as performance grants on the basis of following criteria: Preparation and completion of annual accounts and asset register Disposal of audit Paras Raising own resources Timely convening the meeting

5% 5% 5% 5%

[Not accepted] • After earmarking functional grant for Gram Panchayats and 20% fund for performance grant to Panchayats, remaining amount would be available as untied grant to Panchayats. This amount to be used by Gram Panchayats, Panchayat Samitis and Zila Parishads for undertaking and executing development works that cannot be carried out under any other schemes/programs. [Accepted with modification that only functional grant be given to Gram Panchayats] • Municipalities would be given 20% funds as performance grant on the basis of following criteria: Preparation and completion of annual accounts and assets registers Disposal of audit paras Raising own resources Timely convening the meetings of boards/councils

5% 5% 5% 5%

[Not Accepted] • Commission recommended an untied grant of Rs.586.96 crores for the Municipalities which is to be used as follows: –– setting up the State Institute of Urban Affairs in a phased manner; –– award for best performances. [Not accepted. Grant to Municipalities only for core functions] • 10% of the State Road Funds to be transferred to the Municipalities for maintenance work. [Not accepted]

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• State Government should recalculate the compensation of octroi for Municipalities since 2001–02 by increasing it at 10% every year and devolve the difference as one time grant to these bodies. [Not considered] Functions and Functionaries • Director, Panchayati Raj Department and Director, Local Self Govt. Department should be nominated as nodal agencies to create data bank in Panchayats and Municipalities and to manage the same. [Not considered] • The Indira Gandhi Panchayati Raj Sansthan (IGPRS) should also serve as reference and research centre for Panchayats. [Not considered] • State Government to consider a major amendment in sub Section (6) of Section 8A of the P.R. Act, 94 so that the resolutions of the Gram Sabha are not treated as mere “suggestions” but should be mandated to be obeyed in compliance as far as possible. [Not considered] • Standing Committees of Panchayats need to be activated to ensure holding of periodic meetings. [Not considered] • District heads of transferred departments should be made integral part of Zila Parishad and they should be designated Additional/ Deputy C.E.O. according to their seniority and other parameters like Addl. CEO (Medical), Dy. CEO (Education) etc. [Not considered] • Panchayats should be authorized to transfer the functionaries in their areas with the prior approval of their general body. [Not considered] • Projects or schemes which involve a matching share or repayment of loan by the Panchayats should be approved by the Panchayats prior to getting loans/advances sanctioned by the State Government. [Not considered] • Budget should be prepared in all local governments as per provisions of the acts and rules. [Not considered] • The local governments should be empowered to recruit the requisite manpower without any intervention of State Government. [Not considered]

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• Municipalities to be authorized to stop the supply of water and electricity of the defaulters in payment of taxes/duties/fees. [Not considered] • 2.5% of the salary budget of the Municipalities should be allocated for capacity building. [Not considered] Other Measures • Providing computer with accessories to each Gram Panchayat. [Not considered] • Compilation of data of Panchayats in the forms designed by C&AG in a time bound manner. [Not considered] • Establishment of a State Institute of Urban Affairs. [Not considered] • Sector related training on urban governance and development should be mandatory to all functionaries. [Not considered] • The immediate introduction of e‐governance in all functional areas of Municipalities. [Not considered] • The Panchayati Raj Department should categorize the Gram Panchayats into three‐four categories on the basis of their area, population and revenue basis etc., for staffing and for functional and financial devolution. [Not considered] • The population of Jaipur and Jodhpur is more than ten lakh each in the 2011 Census, the State government should frame necessary Act/ Rules for declaring these cities as “Metropolitan Area”. [Not considered] • A viable staffing policy needs to be framed by the State Government for each category of Municipalities. [Not considered] • An independent Service Selection Commission to select officers and subordinate officials of municipal services. [Not considered] • Constitution of Corpus Fund. [Not accepted]

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203

Sikkim Fourth State Finance Commission Award Period: 2015–16 to 2019–20 Constitution: June 2012 Report Submission: May 2013 ATR Submission: February 2015 Composition A K Chettri Secretary, Cooperation department C C Wangdi Special secretary, RM and DD L B Chettri Special secretary, UD and HD Binod Sharma Chief accounts officer, E and PD

Chairman Member Member Member Secretary

Terms of Reference The Commission was mandated to make recommendations as to the following matters, namely: 1. the principles which should govern: (a) the distribution between the State and Zila Parishads, Gram Panchayats, Municipalities, Municipal Councils and Nagar Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part IX and Part IX A of the Constitution of India and the allocation between the and Zila Parishads (ZPs), Gram Panchayats (GPs) and Municipalities at all levels of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Zila Parishads, Gram Panchayats, Municipalities, Municipal Councils and Nagar Panchayats; and (c) the grants-in-aid to the Zila Parishads, Gram Panchayats, Municipalities, Municipal Councils and Nagar Panchayats from the Consolidated Fund of the State; (d) The measures needed to improve the financial position of the Zila Parishads, Gram Panchayats, Municipalities, Municipal Councils and Nagar Panchayats.15 15  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. They are however not the exactly similar to the ToR mentioned in the Report, given the semantic barriers.

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2. The Commission was also required to:



(a) examine and make suggestions to the extent to which and the manner in which the resource available to the local governments could be best utilized for meeting the expenditure of the bodies. (b) make a detailed analysis of the repayment of loans and advances, if any, extended by the Government from time to time to the local governments and make suitable recommendation for repayment of government dues and make possibility of adjusting these dues against future devolution of revenues from government to these bodies, and (c) examine the resources of the local governments for the five years commencing on 1st April 2010, on the basis of the existing and proposed level of taxation and non-tax revenues reached at the end of 2008–2009.

Methodology Data was collected through various consultations, meetings, questionnaires, formats, secondary information resources and other correspondences. Both qualitative as well as quantitative information were collected from the desired destinations. Besides issuing ToRs as public notice in the regional newspapers, the Commission also tried to reach almost 40 eminent personalities and retired public servants in Sikkim to get their views. The Commission also tried to invite suggestions/ comments/views of netizens on the ToRs by advertising the Fourth SFC Facebook page link through public notices in the local newspapers. Various workshops were also organized at state and district level. Recommendations Global Sharing • Only 2.5% of the divisible pool of taxes for vertical sharing to the local governments. [Accepted. Net tax revenue based on actual. Excluding cess] • The allocation of share of taxes to Panchayats and Municipalities is made on the basis of provisional rural and urban population figure of census 2011 which is in the ratio of 75:25. [Accepted. In ratio of 80:20 in place of 75:25]

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205

Assignment of Revenue • Assignment of property tax by Municipalities. [Not considered] • Collection of irrigation tax by Gram Panchayats. [Accepted. Subject to uniformity in levying taxes and charges.] • Minimum of Rs 5 per tourist to be levied by Municipalities and GMC. [Not accepted] Horizontal Distribution • Within Panchayats, the inter-se distribution would be 70:30 between the Gram Panchayats and Zilla Panchayats. [Not considered] • 10% funds of National Rural Drinking Water Supply Programme (NRDWSP) should be transferred to Panchayats. [Accepted] Grants-in-Aid • Grants to be split into two grants, viz. primary grant and improvement grant in the ratio of 70:30. Populations would be the criteria for distribution. [Accepted] • Condition based improvement grants. [Accepted] • Direct transfer of funds to Gram Panchayats. [Accepted] Functions and Functionaries • Gram Panchayats and Zilla Parishads should prepare the plan proposal for activities transferred to them. [Accepted] • Gram Panchayats and Zilla Parishads should prepare the budgets for each year as stipulated in Sikkim Panchayat Act. [Accepted] • Artificial and field functionaries should be deputed to the Gram Panchayats under the period of their posting. [Not considered]

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• BDOs should be given responsibility for Gram Panchayats to satisfy the condition for improvement grants. [Not considered] • The District Planning Officer (DPO) to be the district level nodal officer for all local governments. [Accepted] • Deputation of Under Secretary to each of the major Panchayat. [Not considered] • Matters related to other line departments as listed in the XII schedule of the constitution should be fully deviated to Municipalities. [Not considered] • Constitution of ward committees all Municipalities. [Not considered] • Replacement of Nomenclature Block Development Official with Block Admin Officer. [Not considered] • Suitable accounts official be transferred to Nagar Panchayats. [Not accepted] • Gram Panchayats should be the final issuing authority for trade license at grassroots level. [Accepted] • Training of accounting officials at Zilla Parishad level. [Accepted] • Line department to involve local governments in revenue heads function where cost of collection more than actual collection of revenue. [Not considered] • DPCs should be given ownership in deciding the decentralized district development planning priorities. [Not considered] • Gram Panchayats should have direct administrative control over the officials and functionaries deputed. [Accepted] • Payment of salaries of employees of PHSC through Gram Panchayats by fund transfer from the concerned line department. [Not considered]

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207

• Payment of honorarium to ASHA workers through Gram Panchayats. [Not considered] • Issue of birth and death certificates by Gram Panchayats. [Not accepted] • Community fodder bank/pasture development through Gram Panchayats. [Not considered] • Silage preparation at farmer’s level. [Not considered] • Implementation of drought relief through Gram Panchayats. [Not considered] • Functionaries from veterinary dispensaries and stockman centres under direct administrative control of Gram Panchayats. [Not considered] • Renting of houses for veterinary centres in villages through Zilla Parishads. [Not considered] • Bull maintenance through Zilla Parishads. [Not considered] • Gram Panchayats should have responsibilities over administrative/ disciplinary matter of primary school teachers. [Not considered] • Release of grants-in-aid to village level health and sanitation committee (HSCs) through Gram Panchayats and utilization of untied fund of NHRM by PHSCs and PHCs through Gram Panchayats. [Not considered] • Transfer repair works of minor irrigation channels to the Gram Panchayats. [Not considered] • Gram Panchayats should have the responsibility over the disciplinary matter of the officials like Aganwadi Workers, PH Workers, Village Level Worker, Rural Development Assistant, Gram Rozgar Sahayak, Accredited Social Health Activist, and Primary Teachers. [Accepted] • Gram Panchayats should be final issuing authority for trade license at grass root level. [Accepted]

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• BDO should be responsible for Gram Panchayats under their jurisdiction to satisfy the conditionality for availing the improvement grant. [Not considered] • Sabhapatis of Gram Panchayats should be the grass root local representatives. [Accepted] • Funds for Gram Panchayats should be directly transferred to them. [Accepted] Other Measures • An administrative functionary should be appointed as the Secretary of Gram Panchayat. [Not considered] • Existing activity mapping revision by State Government and all function to be devolved fully to local governments. [Not considered] • Incorporation of ‘Revenue Effect’ with a weightage of 15 percentage point in order to motivate local governments to generate increase tax and non-tax revenue. [Not considered] • Circulation of the hard and soft copies of the reports and ATR to all local governments and uploaded on web portals. [Accepted. PRIA Soft subject to improvement] • Rightful ownership to DPCs in deciding decentralised district development planning priorities. [Accepted] • District plan should be integrated into state plan. [Accepted] • Levy of taxes and changes should be made after passing resolution in the Gram Sabhas. [Not considered] • The SFC grants to be transferred in four tranches in a particular financial year. (April, July, October, January). [Accepted. For the months of May, August, November and February considering the release of resource.]

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209

• Monthly maintenance and updating of financial date of local governments by SFC. [Not considered] • Social audit cum vigilance committee should also perform social for the works/schemes of the entire line department as per the activity mapping. [Accepted] • Provision of e-Panchayat module facilities to the citizen. [Not considered] • Capacity building of Panchayat Account Assistants and similar accounting personnel of Zilla Parishads and Municipalities. [Accepted] • The 14th UFC to allocate special grants to the districts to undertaking such capacity enhancement and knowledge dissemination initiative across all the Panchayats and Municipalities. [Not considered]

Tamil Nadu Fourth State Finance Commission Award Period: 2012–13 to 2016–17 Constitution: December 2009 Report Submission: September 2011 ATR Submission: May 2013 Composition K Phanindra Reddy S Ramalingam Commissioner of rural development and panchayat raj Director of municipal administration Director of town panchayats Reeta Harish Thakkar

Chairman Non-official member Ex-officio member Ex-officio member Ex-officio member Member Secretary

Terms of Reference The Commission was mandated to review the financial position of the rural and urban local governments namely Village Panchayats, Panchayat Union Councils, District Panchayats, Town Panchayats, Municipalities and Municipal Corporations and make recommendations as to:

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1. The principles which should govern (a) The distribution between the State and the said local governments of the net proceeds of the taxes, duties, tolls and fees leviable by the Government which may be divided between them and the allocation between the said local governments of their respective shares of such proceeds; (b) The determination of taxes, duties, tolls and fees which may be assigned to or appropriated by the said local governments; (c) The grants-in-aid to the said local governments from the Consolidated Fund of the State. 2. The measures needed to improve the financial position of the local governments and to suggest possible new avenues for tapping resources in rural and urban local governments keeping in mind the local government tax structure in other States.16 In making its recommendations, the Commission was to have regard to the resources of the State Government, the demand thereon, in particular the expenditure of the State on pension and debt servicing, including the debt servicing on behalf of local governments/other committed expenditure or liabilities of the State Government and the need to generate adequate surplus on revenue account for State’s commitments on capital account and other commitments of the State Government. Methodology The Commission formed an In-house Committee to design an elaborative questionnaires to assess the income, expenditure, service level, capital needs etc. The Commission installed its own server system to collect online data. The server was made available to the users i.e., local governments, 24 hours a day throughout the period of the Commission. The end users were taught to open the server IP, with the username, password provided exclusively for each local government. Training sessions were conducted for all the end users to download, to fill up offline and to upload in the Commission’s server by the local governments themselves. The questionnaires to the local governments were devised almost like data sheets and constraints made therein to capture only the expected data. Questionnaires were also designed for Mayors of Municipal Corporations, Chairpersons of Municipalities / Town Panchayats and sent  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 16

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211

to them seeking their views on specific issues related to local governments. Training sessions were conducted at Regional level for Municipalities and Town Panchayats and District level for rural local governments on how to fill up the questionnaires correctly. External agencies were also engaged to study the data collected from local governments and to furnish an analytical report to the Commission. Another 33 questionnaires were issued to various stakeholders including Secretaries to Government, Heads of Departments and others. The commission also visited various districts of the states as well as of other states to collect relevant information through face to face interviews and discussions with the concerned people. A questionnaire was sent to all the recognized National and State Political Parties. The views of NGOs on various issues were also obtained and utilized in the report. Recommendations Global Sharing • 10% of the net state’s own tax revenue to be devolved to local governments. [Accepted] • The vertical sharing ratio between Panchayats and Municipalities should be 56:44. [Accepted. The ratio to be 58:42] • 10% of the devolution for Panchayats towards Infrastructure Gap Filling Fund. [Accepted] Assignment of Revenue • Levy of additional House tax/Property tax on the owners of the buildings having cell phone towers as applicable to commercial buildings by Village Panchayat. [Accepted. License fee instead of property tax] • The issues in the collection of service charges from Central Government properties be taken up with Government of India. [Accepted] • Levy of License fees on mobile service providers by the local governments. [Accepted]

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• The house tax in respect of terraced or tiled or thatched buildings with plinth area not exceeding 200 sq. ft. be fixed at Rs 40/− per annum. [Accepted] • In respect of houses with plinth area of more than 200 sq. ft., the existing rates be increased by 25% under plinth area based taxation and in respect of assessment on capital value basis, the existing rates be increased by 25% subject to a minimum of Rs.40/− per annum during the next revision. [Accepted] • For Self-financing educational institutions, the house tax shall be levied on the basis of the revision suggested for plinth area based assessment. [Accepted] • All the self-financing educational institutions other than those covered under charitable purpose be brought under Property Tax net by suitably amending the Act. [Accepted] • The recommendation of Third SFC to revise the unit measurement of square decimetres into square meters under Schedule-I of the Act is reiterated. [Accepted] • Rural Development and Panchayati Raj (RD & PR) Department should address the Government of India to increase the maximum ceiling or to prescribe a minimum ceiling on Profession tax and to let the local governments to decide on the maximum ceiling depending on their capabilities. [Accepted] • In respect of self- employed professionals, private employers and private employees, experience and service oriented taxation as adopted by other States like Karnataka be adopted. [Accepted] • During the next revision due on 01.10.2013, the rate of revision as decided by the Council between 25% and 35% be adopted and the maximum amount of Profession tax be restricted to Rs.1250/− per half year. [Accepted] • In respect of business, commercial, institutional and industrial establishments, the water charges should be levied with reference to the

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213

quantum of supply made by prescribing rate per kilo litre and by installing quality water meters. [Accepted] • Levy of vacant land tax (VLT) for house sites other than agricultural lands by the Peri Urban Panchayats. [Accepted] • The ceiling on the rate of water charges fixed by the Government earlier should be modified and that Rs.50/− be fixed as the minimum for domestic connections. The user charges to be revised with effect from 1st October, 2012 and periodically once in 5 years. The deposit amount to be collected while giving water connection be increased from Rs.1000/− to Rs.2000/− for new house hold connections and Rs.3000/− for commercial/ industrial connections. [Accepted] • Collection of property tax through banks, post offices and online in all the Municipalities. [Accepted] • The recommendation of Third SFC to levy surcharge on (1) Agreement (2) Power of Attorney, (3) Release of benami right, (4) Release of right in favour of partner and (5) Settlement is reiterated. [Accepted] • The bus stand fees should be revised during the year 2012–13 by 25%. [Accepted] • 75% of the revenue from seigniorage fee due to a particular Village Panchayat having quarries should be passed on to the respective Village Panchayat and the balance 25% should be pooled by the District Collector concerned and shared with Village Panchayats identified as having to bear the brunt of mining/quarrying activity in the particular Village Panchayat. [Accepted] • In case the levy of E.T. prevailed prior to 2006–07 is revived, the sharable components under Section 4 (A)—“Taxes on payments for admission to cinematographic exhibition”, Section 4-(H)—“Taxes on dubbed films”, Section 4-(F)—“Taxes on amusements” and Section 4-(G)—“Tax on recreation parlour” (on its sharing) shall be booked under the receipt major head: 0045 00101 AA 01—“Tax paid in cash” and tax under Section 4 (B)—“Tax on horse race” which is not sharable be booked under 0045 00101 AB 02—Other Receipts. [Accepted]

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• The tax under Section 4-(G)—“Tax on recreation parlour” be shared with local governments by amending the Tamil Nadu Entertainment Tax Act, 1939 and Tamil Nadu Financial Code, Volume-I.  Solid Waste Management fund be created and Rs.200.00 crore per annum may be contributed to the fund for improving solid waste management in the State. [Not accepted] Horizontal Distribution • The vertical sharing ratio between the tiers of Panchayats shall be 8:32:60 for District Panchayats, Panchayat Unions and Village Panchayats respectively. [Accepted] • The vertical sharing ratio between the tiers of Municipalities shall be 40:29:31 for Municipal Corporations, Municipalities and Town Panchayats respectively. [Accepted. The ratio shall be 40:31:29] • For horizontal sharing of SFC devolution within each tier of Municipalities, the following criteria and weight to be adopted: Criteria

Weight

Population Area Debt outstanding

80% 15% 05%

[Accepted] Grants-in-Aid • Rs.200.00 crore per annum to be allocated by the State Government towards the Integrated Solid Waste Management activities both in Panchayats and Municipalities. [Not considered] • From the vertical share of SFC devolution, 2.5 percent should be allocated as a separate corpus for incentive fund. Out of this corpus, the incentive be given to the local governments as given below.

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–– Local governments which record 100% current collection in house/property tax and 75% arrear collection with increase in the collection at 15% over the previous year will be qualified to get an incentive as graded below: 100% of demand subject to a maximum of Village Panchayats Town Panchayats Municipalities Municipal corporations

Rs.2.00 lakh Rs.10.00 lakh Rs.20.00 lakh Rs.50.00 lakh

[Not considered] • The minimum lumpsum grant to Village Panchayats to be increased from Rs.3.00 lakh to Rs.5.00 lakh per Panchayat. [Accepted] • The minimum lumpsum grant for Town Panchayats to be increased from Rs.10.00 lakh to Rs.20.00 lakh. [Not considered] • The minimum lumpsum grant of Rs.30.00 lakh to Panchayat Unions to be continued for the award period. [Accepted] • A norm of 15% of SFC grant or Rs.30.00 lakh whichever is less be adopted for the administrative expenditure of each District Panchayat. [Accepted. 15% of the SFC grant or Rs. 20 lakhs, whichever is less] • The entitlement on the share of Social Forest proceeds to Village Panchayats for the previous year should be released as early in the first quarter of the subsequent year. [Accepted] • The percentage of Infrastructure Gap Filling Fund (IGFF) for each tier of Municipalities should be increased from 3% to 7%. [Accepted] • Transfer of the corpus of the Tamil Nadu Rural Road Development Fund RD & PR Department so as to develop and maintain the public roads in rural areas. [Partially accepted] • The percentage of Operation and Maintenance Gap Filling Fund (OMGFF) for each tier of Municipalities should be increased from 2% to 3%. [Accepted]

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Functions and Functionaries • Local governments should predict their fund flow each year. [Not considered] • The District Collectors through Assistant Director (Panchayats) shall arrange to pass on the amount collected from advertisement tax to the Village Panchayats concerned on quarterly basis. [Accepted] • The Village Panchayats on their part shall arrange to send the details of advertisements exhibited in their areas to the District authorities through monthly reporting for levy and collection of license fees and advertisement tax. [Accepted] • The quinquennial revision in respect of all Village Panchayats invariably be brought to a common date i.e., 1st April 2013 so as to overcome the situation of Village Panchayats in postponing / not revising the House Tax. The Act and Rules be amended suitably. [Accepted. Would be considered separately] • A separate supplementary document to budget covering all fund transfers to both Panchayats and Municipalities including those transferred from Government of India directly to Panchayats through DRDA, be placed in the State Legislature. [Accepted] • Revision of the norms for appointment of sanitation staff in Peri Urban Panchayats by CRD & PR so as to facilitate the Peri Urban Panchayats to appoint additional sanitation staff to meet the growing needs on solid waste management activities. [Accepted] • Commissioner of Rural Development and Panchayati Raj may also issue guidelines for engaging NGOs or outsourcing solid waste management activities following the best practices already in vogue in some Village Panchayats. [Not considered] • License fee for all trades be revised with the rates prescribed by First SFC as the basis for revision. The fees be revised once in five years starting from 1st April, 2013. [Accepted] • The nomenclature ‘D&O Trade License fees’ should be revised as ‘Trade License fee’ as in the case of Chennai Corporation. [Accepted]

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• The Government should approach the Departments of State/ Central Governments which can furnish data needed for bringing various categories of untapped assesses of Profession tax. [Accepted] • The Registration Department should periodically collect the information by the Municipalities on change of ownership by registration of sales, transfers etc. of properties and VLT levied. [Accepted] • The sites for hoardings should be identified by the District Collectors and permission for erection of hoardings given by the executive authorities of Municipalities and the hoarding tax levied by them under the overall monitoring and guidance of the District Collectors and that the hoardings not to be allowed in places other than those identified by the District Collectors. [Accepted. Permission shall be given by District Collectors and tax levied be collected by Municipalities] • The District administration should encourage PPP mode of advertisements and hoardings with investments on infrastructure from the private companies/establishments. [Accepted] • The hoarding tax proceeds collected by the District Collectors in the past years should be passed on to the concerned Municipalities as per the ratios prescribed during 2003 and 2008. [Accepted] • The provisions available under Section 107 (A) of the District Municipalities Act, 1920 and similar provisions available in Municipal Corporation Acts need to be fully used of by Municipalities to raise income from Advertisement including those on lamp posts, telephone posts, posters and walls, writing on walls and buses and vehicles. [Accepted] • Effective monitoring and detection mechanism for unauthorized construction be enforced strictly and in case of detection of violation heavy penalty be levied apart from collecting building license fee. [Accepted] • Issuing of orders regarding the sharing of the proceeds of fishery from Panchayat Union tanks as well as PWD tanks with the Village Panchayats as decided by the Government. [Accepted]

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Other Measures • Constitution of Ombudsman in respect of placing of annual report of DLFA on local governments in the Legislature. [Accepted] • There is no need to share Pooled Assigned Revenue with District Panchayats since all the civic works are implemented at the Village Panchayat level. [Accepted] • To develop a system of independent local government ombudsmen to look into complaints of corruption and maladministration against the functionaries of local governments, both elected members and officials, and recommend suitable action. [Not considered] • Removal of the ceiling on the fixation of property tax. [Accepted] • Enforcing self-assessment system with the field inspection of selfassessed properties by the assessing authority in case of any default in filing return imposition of 100% property tax on such assesses. [Accepted. Imposing 50% fine on assesses in case of default in filing returns] • To develop a system to electronically transfer local government grants provided by the Central Finance Commission to the respective local governments within five days of their receipt from the Central Government. [Not considered] • The State Government must prescribe through an Act the qualifications of persons eligible for appointment as members of the SFC consistent with Article 243 I (2) of the Constitution. [Not considered] • Transfer of assigned revenues to Panchayats as per entitlement. [Accepted] • Extension of GIS to bigger Municipalities and other corporations. [Accepted]

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Uttar Pradesh Fourth State Finance Commission Award Period 2011–12 to 2015–16 Constitution: December 2011 Report Submission: December 2014 ATR Submission: March 2015 Composition Atul Kumar Gupta B S Bhullar Vedpal Singh Saroha

Chairman Member Member

Terms of Reference The Finance Commission was required to review the financial position of the Panchayats and Municipalities and make recommendations as to 1. the principles which should govern: (a) the distribution between the State, Panchayats and Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the Government which may be divided between them under Part IX and Part IX—A of the Constitution and allocation between all levels of Panchayats at all levels and the Municipalities of their respective shares of such proceeds; (b) the determination of taxes, duties, tolls, and fees which may be assigned to or appropriated by the Panchayats and Municipalities; (c) the grants-in-aid to Panchayats/Municipalities from the consolidated fund of the State; 2. the measures needed to improve the financial position of the Panchayats and Municipalities; 3. any other matter referred to the Finance Commission by the Governor in the interests of sound finance of the Panchayats and Municipalities.17 In making its recommendation, the Commission was to take into consideration the following: 17  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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1. Government will abide by the rules and regulations prescribed in the Uttar Pradesh Financial Responsibility and Budget Management Act 2004 (2nd Amendment). 2. Auditing of the financial resources of local governments and inducing them in their effort to generate additional sources of raising finance. 3. Auditing of the outstanding loans of local government up to 31 March 2009 and attempting to resolve the issue by controlling the debt liabilities of local governments. 4. Financial devolution to the local governments as per the recommendation during the award period based upon the changes occurring due to the adoption of the indices of the principle (Sankraman Sidhhant) mentioned in the recommendation. 5. Follow up of the temple 10.5 of Thirteenth Finance Commission’s recommendations, regarding the State Finance Commissions. Methodology The commission constructed various kinds of questionnaires to gather relevant information from various sources. The collected information/ responses were analysed to determine the resource requirement of various rungs of Panchayats and levels of Municipalities. Field visits were also conducted within the state as well as to various other states to enrich the information gained. Timely meetings with various stake holders workshops as well as seminars were also part of exercise. Recommendations Global Sharing • 15% of net own revenue shared with local governments. [Accepted. Only 12.5% of net tax revenue shall be considered for devolution] Assignment of Revenue • No recommendation Grants-in-Aid • No recommendation

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Horizontal Distribution • Inter se distribution at Municipality level should be on the basis of population (90%) and area (10%). [Not considered] • The share of the Municipalities is as given below: Municipal corporation Municipalities Nagar Panchayat

42% 23% 20%

[Accepted. Would instead be in the ratio of 35:40:25] • Within each Municipality the distribution will be based on the following criteria: Parameter

Weight (%)

Population Area SC/ST Per capita income Establishment comfort backwardness index Integrated development backwardness index

40 5 10 15 10 20

[Not considered] • The criteria for district wise Panchayat allocation are as mentioned below: Unit

Revenue

Population Area SC/ST population Integrated development backwardness index

50% 10% 10% 30%

[Not considered]

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• Inter se distribution within Panchayats would be in the ratio of 15:10:75 for Zilla Parishad: Block Panchayat: Gram Panchayat, respectively. [Accepted. The ratio shall instead be 40:10:50]] • Within Block Panchayat and Gram Panchayat, the criteria for distribution would be population (80%) and SC/ST population (20%). [Not considered] Functions and Functionaries • The local governments that reject audience should be punished by restricting any kind of financial assistance. [Accepted] • A separate profit centre for each jal-kal department and the municipal corporation should devolve 35% of its revenue in these centres. [Not accepted] • Kanpur, Allahabad, Varanasi and Agra jal boards have been amalgamated with the concerned municipal corporation so the works of these boards are entitled to get the benefits of the transform through SFC recommendations. [Not accepted] • The SFC website, covering the recommendations, ATRs and the implementation states, should be update regularly. [Accepted] • The administrator should not be entitled to take any action against the public representative without consulting with the lokpal. [Not considered] • The system to dismiss the mayor directly by the municipal councillor by issuing no confidence motion should be abolished. [Not considered] • If the administration is unable to appoint any full time gazette officer within 6  month then mayor should be empowered to appoint an officer on his responsibility for a period duration. [Not considered] • Gazetted officer should be either MBA or Master in Urban Studies. [Not considered] • Arrangement of skilled technical staff. [Not considered]

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• The sanctioned post that do not come under central service nor determined by the administration should be handled by the self-governing institutions despite the fact that these institutions are capable enough to bear the financial burden of their employees. [Not considered] Other Measures • Constitution of audit institution at state level. [Not accepted] • Audit fee payment should be done away. [Not accepted] • Minimum interferences of State in the local governments’ matters. [Not accepted] • The works that can be performed better by outsourcing as through public private partnership should be conducted that way. [Not considered] • Display of financial and administrative data on website and provision of departmental website. [Accepted] • Provision of online data entry and information circulation. [Accepted] • Provision of e-Governance at local level institutions. [Accepted] • Provision of IT professions in. [Accepted]

Andhra Pradesh Third State Finance Commission Award Period: 2005–06 to 2009–10 Constitution: December 200418 Report Submission: January 2009 ATR Submission: January 2014

 The Third Commission was initially constituted on 16.1.2003 but the report could not be submitted on time due to the non-receipt of statistical data from local governments and the concerned departments. 18

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Composition B Satyanarayan Osmania University, Hyderabad C N V Subba Reddy Yatam Anand Rao Anandapet, Perala, Chirala, Prakasam District (A P) Tankala Babji Managing trustee and program director S and V charitable trust, I G Smaraka Bhavan Narasannapeta, Srikakulam District C Venkata Reddy N Gangaiah Regional joint director School education department, Kurnool District (A P)

Chairman Member Member

Member

Member Secretary (up to 3.10.2005) Member Secretary (from 6.1.2006)

Terms of Reference The Commission was to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the state and the Panchayats/ Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the Panchayats/Municipalities at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats/Municipalities; (c) the grants-in-aid to the Panchayats/Municipalities from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Panchayats/ Municipalities.19 In making its recommendations, the Commission was also required to have regard among other considerations to: 19  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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1. The resources of the State Government and the demands thereon, in particular on account of expenditure on administration debt servicing and other committed expenditure or liabilities; 2. The revenue resources of the bodies, for the five years commencing on 1st April, 2005 on the basis of the levels of taxation possible to be reached in 2003–2004, targets for additional resources mobilization and the potential for raising additional taxes; 3. The requirements of the Panchayat Raj Institutions and Municipal Bodies for meeting the non-plan revenue expenditure on staff and administration etc., also keeping in view the potential for raising their resources; 4. The requirements of the bodies for capital expenditure for creating assets like Water Supply Schemes, Roads, Bridges, Buildings, Minor Irrigation source; 5. The maintenance and upkeep of capital assets like buildings, roads, water supply schemes, minor irrigation sources by the Panchayat Raj Institutions, Municipal Bodies, Municipal Corporation and the norms, on the basis on which specified amounts are recommended for the maintenance of assets; 6. The requirements of the Panchayat Raj Institutions and Municipal Bodies in the upgradation of standards in non-developmental sectors and services particularly in respect of Institutions which are backward; 7. The provisions required for emoluments and the terminal benefits of employees including teachers and other employees; 8. The scope for computerization of accounts; and 9. The incentives which may be provided for better realization of taxes and non- taxes. The Commission was also to indicate the manner in which the receipts and expenditure of the Panchayat and Municipal Bodies can be monitored for better financial management. The Commission was also to make recommendations about the financial devolutions to the Panchayat and Municipal Bodies for the functions devolved on them under Articles 243G and 243W of the Constitution of India. The Commission was required to indicate the basis on which it has arrived at its findings. In making its recommendations on the various matters aforesaid, the Commission was to adopt the population figures of 2001 in all cases where population is regarded as a factor for determinations of devolution of taxes and duties and grants-in-aid.

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Methodology A questionnaire was issued in Telugu to the Gram Panchayats in State to furnish information about their income, expenditure and to indicate their views on collection of taxes, resource mobilization etc. Information on receipts and expenditure has been called upon from the executive authorities of the local governments in a prescribed proforma for the period from 2000–01 to 2003–04 (actual) and 2004–05 to 2009–10 (anticipated) regarding taxes and non-taxes. The senior officials have also been addressed by the Commission to furnish their views and a Memorandum of Requirements. To have the first-hand information on various financial and functional aspects of the local governments, the Commission conducted visits to 10 districts and meetings were carried out with the District Collectors, and senior officials of Zilla Parishads, and officials of other departments. Meetings were conducted with the Mayors, Commissioners, Chairpersons, Vice-Chairpersons of different Municipalities in order to have their views with respect to Municipalities. Regional conferences were also organized by the Commission at Tirupati, Guntur and, Warangal. Recommendations Global Sharing • 6.7% of the total tax and non-tax revenue of the State Government (including the share of Central Taxes) for the year 2004–05 would be devolved to the Panchayats and Municipalities. The share would be as 72.25% to the Panchayats and 27.75% to the Municipalities. [Not Considered] Assignment of Revenues • Necessary instructions to be issued to levy maximum house-tax, as per the rules, to enhance revenue under this item. [Accepted] • Necessary instructions may be issued to Gram Panchayats to levy and collect taxes on advertisements, drainage, and lighting to augment their resources. [Accepted] • Gram Panchayats to levy vehicle tax on all vehicles kept/used in the village (except motor vehicles. [Accepted]

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• Gram Panchayats to levy non-taxes on the income of fruit bearing trees and other products, cart stands, and other remunerative enterprises. [Accepted] • Gram Panchayats to levy special tax on houses at the rates indicated in the rules. [Accepted] • The exemptions granted to the educational institutions from payment of house tax to be withdrawn and permit the Municipalities and Panchayats to levy house tax on all such educational institutions. [Accepted] • Actions to be taken to re-issue the rules for the levy of kolagaram or katarusum tax on village produce sold in village. [Not Accepted] Horizontal Distribution • An amount of Rs. 42.08 crores per annum to be released from excise income to Panchayats and Rs. 11.92 crores per annum to Municipalities. [In case of Municipalities not Accepted, for Panchayats no reference] • 10% of the income realized towards motor vehicle tax should be released to the Municipalities on an immediate basis. [Not Accepted] • 5% of the income of Market Committees should go to the local governments on the basis of the population, instead of levying 5% extra surcharge. [To be examined in consultation with Market Committee] Grants-in-Aid • The per capita grant of Gram Panchayats to be enhanced from Rs. 4/− to Rs. 8/−, Mandal Parishads from Rs. 8/− to Rs. 16/− and Zilla Parishads from Rs. 4/− to Rs. 8/− from 2005–06 onwards. [Accepted] • The Government should provide a special grant of Rs. 18 crores per  annum for five years for the construction of Gram Panchayat office buildings. [Treated as fulfilled] • An amount of Rs.42.08 crores per annum to be released from excise income to Panchayat Raj Institutions at least now. [Not Accepted]

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• A special grant of Rs. 30.64 crores per annum at the rate of Rs. 1 lakh to each of 3064 Gram Panchayats having population up to 1000, for providing basic civic amenities. [Treated as fulfilled] • The per capita grant of the Municipalities and Municipal Corporations to be enhanced from Rs. 8/− to Rs. 12/− from year 2005–06. [Not Accepted] • An amount of Rs.11.92 crores per annum to be released from excise income to Municipalities. [Not Accepted] • Rs. 20 crores per annum to be released to the Municipalities towards Pension grants. [No Relevance] • An amount of Rs. 200 crores to be provided towards requirements for core amenities and released to Gram Panchayats. [Treated as fulfilled] • An amount of Rs.220 crores to be provided annually to the Panchayats for the Rural Water Supply Schemes. [Not Accepted] • An amount of Rs.215 crores per  annum to be released to the Panchayats for Rural Sanitation. [Not Accepted] • An amount of Rs.153 crores to be provided for the construction of Rural Roads and released to Panchayats. [Treated as fulfilled] • An amount of Rs.1.42 crores to be provided for providing drinking water facilities in the schools to the Panchayats. [Treated as fulfilled] • An amount of Rs.18 crores per annum to be sanctioned for maintenance of Mandal Office Buildings. [Accepted] • An amount of Rs. 6.08 crores to be released per  annum to the Municipalities for maintenance of Municipal Buildings and Rs. 200 crores per annum to be provided for civic amenities. [Not Accepted] • Provision of Rs. 123.12 crores in the budget towards payments of arrears. [Accepted] • Release of Rs. 17.50 Crores towards increase of half yearly D.A. and revision of pay scale of Municipal Staff. [No Relevance]

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229

Functions and Functionaries • The Government to expedite the orders permitting the Panchayats and Municipalities to advertise the construction of complexes and construct them by taking advance money from the lessee. [Accepted] • An officer to be appointed three months before the constitution of fourth SFC to make all administrative arrangements for the functioning of the Commission. [Accepted] • Regional Transport Authorities adjust Motor Vehicle Tax Compensation directly to the Municipal Bodies. [Not Accepted] • Necessary training contents under Social Forestry (Forest Department) to be included in the training modules of the Panchayat Secretaries. [Accepted] • Pre-audit system to be introduced in the 748 Gram Panchayats initially, whose income is above Rs. 10 lakhs per annum. [Panchayat Secretaries may be trained to discharge the pre-audit] Other Measures • A separate cell in PR&RD Department should be set up exclusively for the work of the SFCs. [Accepted] • Rs. 92 lakhs per annum recommended by second SFC and accepted by Government to be released to 15 Municipalities in Andhra area for medicines and for the salaries of Medical Officers and staff members. [No Relevance] • Clear and specific orders to be issued vesting all poramboke lands in Gram Panchayats. [Accepted] • A comprehensive drainage network to be taken up in 20 or 25 select Municipalities by entrusting the work to an expert committee. [Not Accepted] • Instructions to be issued on the procedure for the adjustment of the cable tax to the Municipalities and Panchayats. [Accepted]

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• A separate Budget Head to be opened for the 13 Municipal Corporations to provide amounts towards payment of the Property Tax and Water Charges annually on Government Buildings. [Accepted]

Assam Third State Finance Commission Award Period: 2006–07 to 2010–11 Constitution: July 200620 Report Submission: March 2008 ATR Submission: September 2009 Composition H N Das Ex-chief secretary, Govt. of Assam S L Mewara Commissioner and Secretary, P&RD Biren Dutta Commissioner and Secretary, UDD Ashish Bhutani Secretary, GDD K V Eapen Commissioner and Secretary, Finance G D Tripathi Joint secretary, Finance Davinder Kumar Commissioner and Secretary, P&RD

Chairman Member Member Member Member Secretary Secretary (25 July 2006) Member (16 March 2007)

Terms of Reference 1. “The principles which should govern (a) The distribution between the State of Assam and the Panchayats/ Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the State, which may be divided between them and the allocation between the Panchayats / Municipalities at all levels of their respective shares of such proceeds, after taking into account 20  Due to certain procedural inadequacies of the original notification dated 06.02.2006; the Commission had to be reconstituted with a fresh notification dated 03.07.2006.

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231

the transfers that are to be made by the State of Assam to the Autonomous District Councils constituted under the Sixth Schedule of the Constitution; (b) The determination of the taxes, duties, tolls and fees, which may be assigned to, or appropriated by, the Panchayats/ Municipalities; (c) The grants-in-aid to the Panchayats/ Municipalities from the Consolidated Fund of the State; 2. The measures needed to improve the financial position of the Panchayats/ Municipalities with special emphasis on rationalization of property tax, collection of user charges and innovative realization methods. 3. Examine the feasibility and make recommendations on raising of resources by the Municipalities through issuance of bonds. 4. Examine the feasibility and make recommendations on creation of urban infrastructure and other civic amenities by the urban local governments through public-private partnership and exploring avenues of viability gap funding. 5. Any other matter referred to the State Finance Commission by the Governor in the interests of the sound finances of the Panchayats/ Municipalities. The Commission was to make an assessment of (a) the actual debt position of each of the local government as on 31-03-2005 and (b) estimated debt position of local governments as on 31-03-2006 and suggest suitable measures relating to the debts as are deemed necessary, keeping in view the financial requirements of the State government also. In making its recommendations, the Commission was required to have regard, among other considerations to: 1. the objective of balancing the receipts and expenditure on revenue account of both local governments as a whole and the State government and each local government. 2. the resources of the State government and demands thereon in particular, on account of expenditure on maintenance of law and order, civil administration, debt servicing and other committed expenditure. 3. the revenue and the resources of the local governments for the five years commencing on 1st April 2006 on the basis of the level of the collection made during 2004–05 from taxes, duties, tolls, fees, cess etc. levied by them.

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4. the potential for raising additional revenue from the existing sources available to them, and; 5. the scope for better financial management consistent with efficiency and economy in expenditure. In making its recommendations on the various matters aforesaid, the Commission was to adopt the population figures of the latest census available in all cases where population is regarded as a factor for determination of devolution taxes and duties and grants-in-aid. The Commission was to indicate the basis on which it has arrived at its findings and make available the local government wise estimates of receipts and expenditure. Methodology An attempt was made to collect local government wise data on income, expenditure, area, population etc. from the concerned departments. The Commission relied mostly on the questionnaire method. A set of questionnaire covering all important aspects of local governments were formulated and circulated to all concerned. The questionnaire method of data collection was supplemented by regular interaction with the elected representatives and official functionaries of Panchayats and Municipalities and frequent field visits by the Chairman and other officials. Workshops were conducted at different district headquarters. Few task forces were constituted to assess and apprise the Commission about important infrastructural gaps in local administration. Consultations were carried out through meetings, discussions, correspondence, memorandums and representations. In determining the quantum of funds, (a) actual population and; (b) density of population, both according to census figures of 2001, was the only two parameters. Global Sharing • 25% of the non-loan gross own tax revenue receipt, minus collection expenditure of Government of Assam, should form the divisible pool out of which allocations should be made to Panchayats and Municipalities during the financial years 2008–11. [Accepted] • Out of the total amount in divisible pool, 80% will be divided in proportion to actual urban and rural population and 20% would be divided in proportion to the population density of urban and rural areas. [Accepted]

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233

Assignment of Revenues • At least 50% of the cost of each service should be recovered by user charges (including minor irrigation and drinking water) on the facilities offered by local governments. [Accepted] • A growth rate of 5% over the budget estimate of non-tax revenue for 2007–08 is recommended for the three financial years 2008–11. [Not Considered] • An annual growth rate of 11% over the actual devolution of tax from GOI. [Not Considered] Horizontal Distribution • The horizontal distribution for the Panchayats between different districts tol be made on the basis of the weighted average of the following three parameters: Population Geographical area Per Capita District domestic product net of mining and quarrying

50% 25% 25%

[Accepted] • The vertical distribution between the three tiers of Panchayats, i.e. Zilla Parishads, Anchalik Parishads and Gram Panchayats will be in ratio of 20:30:50, respectively. [Accepted] • The final stage of devolution each Anchalik Panchayat and each Gram Panchayat shares to be determined on the basis of 2001 census population. • In case of Municipalities, the horizontal distribution among GMC and other Municipalities to be done on the basis of weighted composite index of following: Population Area Index of infrastructure Per capita tax collection

[Accepted]

50% 25% 12.50% 12.50%

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Grants-in-Aid • Grant-in-aid of Rs. 46.38 crores to respective Zilla Parishads from the State Government for the purpose of clearing the arrear dues of Panchayat Secretaries. [Accepted] • Rs. 204.58 lakhs as grants-in-aid for capacity building of GMC and other Municipalities for three financial years 2008–11 at the rate of Rs. 66.98 lakhs for 2008–09, Rs. 66.97 lakhs for 2009–10 and Rs. 70.63 lakhs for 2010–11. [Not Considered] • Rs. 9.21 crores to be given as grants-in-aid for the three financial years 2008–11 for the purpose of training and capacity building in Panchayats. [Accepted] • A total of Rs. 100 crores to be provided as grants-in-aid to Zilla Parishads, as nodal agencies, for distribution to Anchalik Parishads for construction of multipurpose halls. [Accepted] • A grants-in-aid of Rs. 12.60 crores to GMC and other Municipalities for construction of cremation and burial grounds. [Accepted] • Grants-in-aid at the rate of Rs. 1.86 crores per year for the three financial year 2008–11 should be provided to 72 Municipalities including GMC for the construction of public convenience. [Accepted] • An amount of Rs. 98.80 crores per year should be given as grants-inaid to the Zilla Parishads for repair and maintenance of roads and buildings within their respective jurisdiction during each of the three financial years 2008–11. [Accepted] • A hike of 5% to non-plan grants from GOI for each of the three financial years 2008–11 over the actual for 2006–07. [Not Considered] Functions and Functionaries • State Government to communicate various plan schemes and programs to Municipalities under which they can draw funds for improvement in different localities. [Accepted]

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• Revision of valuation of holdings should be regularized and the valuation procedure should be changed from Annual Rated Value to Unit Area Method. Enlargement of tax base should also be taken up. [Accepted] • Registration of births and deaths should be done by the local governments. They should issue the relevant certificates and realize the fees. [Accepted] • Decisions to spend money on felt needs should be taken by the local governments in formal meetings when majority of members are present. [Accepted] Other Measures • Local governments not to spend devolution money or funds from other specific allocations for the purpose of payment of honorariums, allowances or any other payments to the members or elected representatives. [Accepted] • The Panchayats to defray for office expenditure and other non-plan establishment expenditure out of their devolution and other revenues. [Accepted] • Since the local governments are autonomous under the Constitution, their allotted functions must be performed by their own staff and not by any ‘provincialized’ staff. Hence the system of ‘provincialization’ should be completely abolished. [Not Accepted] • A quick management study to be initiated to determine the different category of staff required for GMC and other Municipalities. [Accepted] • A separate wing for auditing the accounts of local governments. [Accepted] • Gram Panchayats should be reconstituted by merger and reorganization and their population should not be less than 6000. [Accepted] • A Director General of Training should be appointed to supervise the activities of the Assam Administrative Staff College, the State Institute of Rural Development and the AIILSG Branch with the three Directors of the three Institutions assisting him. [Accepted]

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Haryana Third State Finance Commission Award Period: 2006–07 to 2010–11 Constitution: May 200721 Report Submission: December 2008 ATR Submission: September 2010 Composition A N Mathur Som Dutt Rajinder Singh Ballah Pritam Singh Balahara Prem Prakash Hardeep Kumar Mohan Singh Malik

Chairman Member Member Member Member Member Secretary Member (5 September 2008)

Terms of Reference The Commission was required to make recommendations as to the: 1. the principles which should govern: (a) the distribution between the State and Municipalities/ Zila Parishads, Panchayat Samitis and Gram Panchayats, of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them under part IX of the Constitution of India and the allocation between the Municipalities/ Zila Parishad, Panchayat Samitis and Gram Panchayats at all levels of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to or appropriated by the Municipalities/ Gram Panchayats, Panchayat Samitis and Zila Parishads; (c) the Grants-in-aid to the Municipalities/ Zila Parishads, Panchayat Samitis and Gram Panchayats from the Consolidated Fund of the State; 2. the measures needed to improve the financial position of the Municipalities/ Gram Panchayats, Panchayat Samitis and Zila Parishads;22  The Third SFC of Haryana was constituted in four stages.  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 21 22

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In making its recommendations, the Commission was to have regard, among other considerations, to: 1. the objective of balancing the receipts and expenditure of the State and for generating surplus for capital investment; 2. the resources of the State government and demands thereon particularly in respect of expenditure on Civil Administration, maintenance and upkeep of capital assets, maintenance expenditure on plan schemes and other committed expenditure or liabilities of the State; and 3. the requirements of the Panchayats and the Municipalities, their potential for raising resources and for reducing expenditure. Methodology Comprehensive formats were designed for seeking primary and secondary data from the departments of Panchayats and Municipalities also involving district administration and all tiers of local governments. A comprehensive questionnaire was designed and circulated to the state ministers, MPs, MLAs, elected representatives of Panchayats and Municipalities, universities, colleges, district bar associations, reputed institutions dealing with rural and urban development, eminent experts and professionals and stakeholders to solicit their views and suggestions on functional, financial and institutional empowerment of local governments. An analytical study on state finances was sponsored and a study group was also constituted to make suggestion on the empowerment of Municipalities. Group discussions and open house seminars were also organized on finances of Panchayats, fiscal decentralization to Panchayats, and the role of SFC. Rounds of meeting and interactions were carried out with various experts, officials and representatives of local governments. Latest Acts governing the local governments were studied and varied information and data published in various state documents were used. Recommendations Global Sharing • 4% of State Own Tax Revenue to be devolved to local governments. • Own tax revenue has been adopted as the most acceptable component of divisible pool in the scheme of revenue sharing. • The local government share should be divided between the Panchayats and Municipalities in the ratio of 65:35.

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• The unreleased share of local governments should be transferred them in a phased manner over and above their respective shares in global transfers. Assignment of Revenues • Profession tax should be levied and collected by the Excise and Taxation Department and shared with the local governments. • Local Area Development Tax (LADT) is already being shared with Panchayats and Municipalities. Its operation has been struck down by the High Court. If LADT is restored by Supreme Court, its proceeds should continue to be shared with the local governments. If LADT is not restored, entry tax be levied and the net proceeds be distributed among Panchayats and Municipalities on 50: 50 basis. • Share of Municipalities in stamp duty should be increased to 3% from existing 2% and 3% of the net proceeds of stamp duties coming from rural areas should be the share of Panchayats. • Tax @ of 5 paisa per unit on electricity consumption to be levied in Panchayat areas and transferred to Panchayats at district level to be further distributed among Gram Panchayats, Panchayat Samitis and Zilla Parishads in the ratio of 75:15:10. Further distribution among Panchayat Samitis and Gram Panchayats be made on population basis. • Vacant Land Tax could be levied by Municipalities @ 1.0 to 1.5% of the capital value. Horizontal Distribution • Criteria of distribution of respective shares of Panchayats and Municipalities amongst the districts would be as follows: Composite index Constituents Population(rural/urban) BPL population (rural/urban) Area Literacy gap (rural/urban) Total

Weight 40% 25% 25% 10% 100%

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• The share of Panchayats to be allocated between Gram Panchayats, Panchayat Samitis and Zilla Parishads in the ratio of 75:15:10, respectively. • The inter se shares of Gram Panchayats and Panchayat Samitis within the district should be distributed on the basis of natural criterion of population and area with 80% and 20% weight assigned, respectively. • The inter se shares of Municipalities at the district level should be worked out by the State Government and be passed on to the local governments as untied funds in regular manner, based on their respective proportion of population and area, assigning weight of 80% and 20% respectively. Grants-in-Aid • The bulk of resource transfers to local governments should be done through tax sharing and the role of grants-in-aid should be supplementary only. Functions and Functionaries • Gram Panchayats should impose token tax on hawkers and other traders who sell their goods in the villages. • Local governments should have full freedom to levy taxes and fees within limits prescribed by law subject to floor or ceiling rates fixed by the State Government. • Exemptions from property tax should be reduced and the property tax should also be levied on non-domestic properties and vacant lands. • There should be an Assets Management System for municipal assets. • The collection of taxes could be outsourced to private agencies on 5–10% commission basis. • The power to levy tax on services must be given to Panchayats as it is an elastic source of revenue. • The rates of sharing excise revenues should be doubled both for Panchayats and Municipalities. Other Measures • The State Government should put in place some other viable alternative source of revenues to compensate the Panchayats for the loss due to abolition of house tax.

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• The State government should double the rate of house tax on other buildings so as to compensate the local governments of their loss on account of abolition of the tax on residential buildings. • The Government should review its policy of distributing village common lands to individuals, as this affects access of the poor to these common resources and reduces support areas needed by rural communities. • Efforts should be made for commercial exploitation of Shamlat lands by setting up commercial complexes, rural industries and industrial sheds etc. • Maximum possible area should be of Panchayat for plantation, afforestation, fishing activities, horticulture, floriculture etc. for augmenting income of Panchayats. • An Incentive Fund should be created at the district level each for Panchayat and Municipalities. 10% of annual entitlement of Panchayats and Municipalities should be retained in the Incentive Fund. • 50% of the annual accruals in the Incentive Fund to be allocated to local governments showing better revenue performance to be measured in terms of at least 10% higher growth in their own tax and non-tax revenue over the preceding year. • The remaining 50% balance in the Incentive Fund should be allocated to local governments which show higher performance over the standard norms to be fixed by the State government. • User Charges should continue to be updated periodically so as to boost revenues. • In order to improve the financial position of Municipalities and the quality of services the State should target full cost of pricing of services. • Training of officials and non-officials of local governments should be entrusted to HIPA and HIRD. • Creation of Statistical Cells in the departments of Panchayats and Municipalities to overcome the problem of statistical data. • Public private partnership should conserve municipal resources and bring latest technologies and managerial expertise for monitoring. • Planning and implementation of infrastructure projects should be carried out through consultation process involving various stake holders. • The State Government to provide suitable guidelines and keep proper watch on proper utilization of devolved funds through effective monitoring and through statutory and social audits.

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• A High Powered Committee be constituted to take policy decisions on all issues related to the Union as well as State Finance Commissions, timely implementation of their recommendations, their review and monitoring etc. • The Commission also recommended that in rural areas, power consumed for street lights and water supply should be charged on bulk supply rates or domestic rates rather than on commercial rates.

Himachal Pradesh Third State Finance Commission Award Period: 2007–08 to 2011–12 Constitution: May 2005 Report Submission: November 2007 ATR Submission: June 2008 Composition Kuldeep Singh Pathania Upma Chawdhry Secretary, RD and PR D K Sharma Secretary, Planning

Chairman Member Member Secretary

Terms of Reference The Commission was mandated to make recommendations to the Government as to: 1. the principles which should govern: (a) the distribution between the state and the Panchayats/ Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the Panchayats/Municipalities at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats/Municipalities; (c) the grants-in-aid to the Panchayats/Municipalities from the consolidated fund of the state;

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2. the measures needed to improve the financial position of the Panchayats/ Municipalities.23 The Commission was to make a normative assessment of needs based on the actual devolution of functions to each tier of the Panchayats/ Municipalities and an assessment of potential fiscal capacity based on the tax and non-tax resources available to Panchayats/Municipalities in making any recommendations on devolving untied grants or share of State taxes to these bodies. The Commission was also to make an assessment of recurring grants for specific schemes of the State Government relating to support for honorarium and expenses of elected representatives and employees of Panchayats/Municipalities and suggest improvements in these schemes in order to promote the exercise of fiscal autonomy and responsibility by the Panchayats/Municipalities. The Commission was to suggest appropriate ways to take forward the process of devolution of functions, funds and functionaries to the Panchayats/Municipalities keeping in view the existing delivery system and the financial capacity of the State Government. It may make specific suggestions with regard to: 1. Support for pilots to hand over responsibility for delivery of primary education, primary health, water and sanitation and rural roads to appropriate levels of Panchayats/ Municipalities; 2. Changes in legislation and procedures necessary to enhance the tax and non-tax capacity of the Panchayats/Municipalities consistent with accepted principles of taxation at the local level; 3. Strengthening of administrative capacity of Panchayats/ Municipalities by placing under their control relevant categories of employees either by way of recruitment at the level of relevant tiers of the Panchayats/Municipalities or by seconding of existing State Government staff to them. The Commission was required to devise its own procedure and to appoint such advisors, institutional consultants as it may consider necessary. It was to call for such information and take such evidence as it may consider necessary. 23  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Methodology Throughout the report, emphasis was laid on the need for equity, efficiency, and owning of the responsibility at all levels. An inventory of physical assets was prepared and updated before estimating the requirement of funds for maintenance of assets at local level. Mailed questionnaires were used for collection of basic information and proformae were also circulated time to time to the Municipalities to gather requisite data. Information collected for the assessment of expenditure and receipts of Municipalities was based on the 2001 population census, area, statutory functions, delegated functions, existing establishment expenditure, details of assets to be maintained and, other committed expenditure of Municipalities. Commission’s recommendations were based on the following conditions: . Financial review of the Municipalities for last six-seven years. 1 2. Recommendations for the First and Second SFC. 3. Recommendations of Eleventh and Twelfth FC. 4. State’s financial position. 5. Existing system of data collection and its maintenance. 6. Revenue resources and its projections for next five years. Recommendations Global Sharing • Devolution of amount equivalent to 2.75% of the aggregate State’s own tax and non-tax revenues between Panchayats and Municipalities. • The total proceeds of cess on liquor to be pooled together and allocated to the Gram Panchayats and Municipalities in proportion of the population according to 2001 census. Assignment of Revenues • Collection of the cess on liquor at the rate of Rs. 2 per bottle should be transferred to the local governments. • 50% of the charges collected on drinking water supply for private domestic connection be entrusted to Gram Panchayats. • Gram Panchayats to collect Abiana charges and retain 50% of such collection at local level.

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• The Panchayats should be entitled to the proceeds of stamp duty just as the Municipalities are under the section 65 of HP Municipal Act, 1994. For this, the HP Panchayati Raj Act may be amended to make the provisions on the lines similar to the Municipal Act. Horizontal Distribution The aggregate transfers to local governments to be distributed as follows: Year 2008–09 2009–10 2010–11 2011–12

Share of Panchayats 1.55 1.49 1.40 1.34

Share of Municipalities

Total

1.20 1.26 1.35 1.41

2.75 2.75 2.75 2.75

Grants-in-Aid • Grant of Rs. 2463.52 lakhs to meet the obligations of committed expenditure and infrastructural support grants amounting to Rs. 201.70 lakhs for augmentation of accommodation of Panchayat ghars and office infrastructure. • For the year 2007–08, a developmental grant of Rs. 3052.05 lakh to be devolved to Municipalities. • Supplementary grant of Rs. 704.13 lakh in current fiscal year to meet committed expenditure. • Rs. 3052.05 lakhs be devolved as developmental grants for Municipalities. • A provision of Rs. 910 lakh be made through the supplementary demands for grants. • Deficit of Panchayats and Municipalities, as assessed by SFC to be met by way of developmental grants (grants in lieu of octroi) and gap filling grants. Functions and Functionaries • Gram Panchayats should be made responsible for preventive maintenance and upkeep of the water supply schemes. • Activities related to primary education, mid-day meal programme, rural health functions and infrastructure up to the level of health sub-centre, ICDS programme up to the level of Anganwaris and animal husbandry programme up to the level of veterinary dispensaries and artificial insemination centres to be taken up by Panchayats.

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Other Measures • The recommended resource transfers to the local government institutions may not be passed on as grants-in-aid. • State government to fix the resource transfers to the local government institutions as a percentage of the state own tax and non-­ tax revenues. • The marriage registration fee and the fee for birth and death be fixed at Rs. 200 and Rs. 100 respectively with a provision for concessional registration for the IRDP families at the rate of Rs. 25  in both the cases.

Karnataka Third State Finance Commission Award Period: 2011–12 to 2015–16 Constitution: August 2006 Report Submission: December 2008 ATR Submission: October 2009 Composition A G Kodgi Mahendra S Kanthi T Thimmegowda

Chairman Member Member

Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the state and the Panchayats/ Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the Panchayats/Municipalities at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats/Municipalities; (c) the grants-in-aid to the Panchayats from the consolidated fund of the state;

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2. the measures needed to improve the financial position of the Panchayats/ Municipalities;24 The Commission was also to: 1. examine and make suggestions on the extent to which and the manner in which the resources available to the local governments could be best utilized for meeting the expenditure of these bodies and; 2. make a detailed analysis of the repayment of loans and advances extended by government from time to time to the local governments and make suitable recommendations for repayment of Government dues and the possibility of adjusting these dues against future devolution revenues from government to these bodies. In making the recommendations the commission was required to have regard, among other things, to the resources of the State government and the demands thereon on account of expenditure of civil administration, debt servicing, development and other committed expenditure. Methodology District level interactive meetings were held in all districts except Haveri. Consultations were carried out with experts, academicians, former chairpersons of SFCs. State visit was conducted to Kerala, New Delhi and views were exchanged with delegates and heads and faculty members of academic institutes. Various reports, papers and documents were studied for gaining inputs for the formulation of recommendations. Recommendations Global Sharing • 33% of Net Own Revenue Receipts of state should be distributed to Panchayats and Municipalities. • Relative shares of Panchayats and Municipalities to be in the ratio of 70:30 out of 33% of Net Own Revenue Receipts of the State. (23% of Net Own Revenue Receipts of the state is the share of Panchayats and 10% of Net Own Revenue Receipts of the state is the share of Municipalities). 24  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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• The divisible pool consists of the net proceeds of the taxes, tolls, duties and fees levied and collected by the State government. Assignment of Revenues • Continuance of present system of assignment and appropriation of taxes, duties, fees and tolls to Panchayats and Municipalities has been recommended. Horizontal Distribution • The indicators selected by the commission which would determine the percentage of relative share between the local governments are: Sl. No.

Indicator

Weightage

1 2 3 4 5 6

Population Geographical area SCs and STs population Illiterates Population per hospital bed Density of population

40% 20% 10% 10% 10% 10%

• The following method has been adopted for calculating the indices to determine relative shares of the local governments: Share of Panchayats 

pri1 – 6  w1 – 6 100

Share of Municipalities 

pui1 – 6  w1 – 6 100

Where, pri = proportion of rural indicator pui = proportion of urban indicator w = weightage assigned to 1th indicator • For equitable distribution of resources, different indicators have been adopted to determine the relative of each Zilla Panchayat, Taluka Panchayat and Gram panchayat. These indicators are:

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Sl. No.

Indicator

1 2 3 4

Rural population Geographical area SCs and STs population Illiterates

Weightage 40% 40% 10% 10%

• The variable and weights used for upfront earmarking of funds to each of the Municipalities, is as below: Sl. No.

Indicator

1 2 3 4

Population Geographical area SCs and STs population Illiterates

Weightage 40% 20% 20% 20%

Upfront earmarking should not exceed 60% of the total devolution to the Municipalities. Grants-in-Aid • 5% of fund is earmarked to encourage rural sports, youth development and folk arts • Maximum of Rs. 10,000 grant be provided to organize programmes at village level covering sanitation, health checkup, cultural and folk sports. • Maximum of Rs. 1 lakh grant be given for construction of youth association buildings. • Maximum of Rs. 2 lakh grant be given for conducting folk arts training programmes. • Minimum of Rs. 1 crores be provided in Zilla Panchayat budget to take up youth development programmes at village, hobli, taluk and district levels. • Distribution of statutory development grants to the three categories of Gram Panchayats in the following manner: • Category I: Rs. 9 lakh per Gram Panchayat per year (Population below 4000 [14%]) • Category II: Rs. 12 lakh per Gram Panchayat per year (Population 4001 to 8000 [71%])

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• Category III: Rs. 15 lakh per Gram Panchayat per year (Population above 8000 [15%]) • Distribution of an additional amount over and above the statutory development grants to the Gram Panchayats located in three categories of backward talukas in the following manner: • All GPs located in ‘Backward Taluks’: Rs. 1 Lakh per GP per year • All GPs located in ‘More Backward Taluks’: Rs. 2 Lakhs per GP per year • All GPs located in ‘Most Backward Taluks’: Rs. 3 Lakhs per GP per year • Rs. 3 lakhs to be given as ‘incentive grant’ to a Gram Panchayat every year. • 25% of the plan grants made available to the Zilla Parishads and Taluka Panchayats to be reserved for ‘Special Needs’. • Block Untied Grants have been recommended for the Zilla Parishads and Taluka Panchayats from the state consolidated fund. Functions and Functionaries • Zilla Panchayats should have independent powers to utilize funds released under UFC grants. • Preparation of development plans be taken up at all three levels of Panchayats as envisaged in Section 309 of Karnataka Panchayat Raj Act, 1993. • Secretary and Adhyaksha should be made responsible for delay in implementation of development works and poor collection of taxes. • EOs of Taluka Panchayat should be responsible for implementation of works and for any irregularities. • CEO of Zilla Parishads be given power for re-appropriation of grants (up to 10% of grants estimated to remain as unspent, from one subhead to another sub-head within the same major head of accounts). Other Measures • To supplement transparency and responsibility, Jamabandhi should be informing public about complaints. Also, action taken on complaints should be displayed on notice board. • Creation of the post of accounts assistant and recruitment under the same.

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• Creation of an audit wing in the RD&PR on the lines similar to of Co-operation department. • A Rural Infrastructure Development and Finance Corporation should be created for mobilizing capital for the development of rural roads, drinking water supply, streetlights, etc. in rural areas. • Monthly programme implementation calendar be introduced to avoid heavy expenditures at the fag end of financial year. • The post of Field Extension Officer at taluk level should be included in the Cadre and Recruitment Rules. • Ombudsman system to be introduced having jurisdiction over Panchayats and Municipalities. • Every year an amount of Rs. 50 crores be set apart as Incentive Grants. • Govt. should formulate clear and special yardsticks to identify the persons living below poverty line. • A single window system should be created to integrate the works of different departments related to agriculture, horticulture, dairy and other activities at the village level. • Release of Development grants through different boards, corporations should be stopped, and all funds should be released through Zilla Parishads only. • Posts should be created for Taluk Planning Officers in remaining taluks where the posts have not been created. • Posts of taluk level officers should be created for all the 176 taluks of the State. • Gram Panchayats functions such as maintenance of drinking water supply, streetlights and cleaning should be given on annual contract basis (AMC). This will result in saving and instances of misutilisation also be reduced. • Government should issue orders for identification of houseless and site less persons. • For the effective implementation of public awareness program, a separate head of accounts be created by the government and funds should be released along with suitable instructions. • Task Force under each Taluka Parishad should be constituted to oversee the activities of Gram Panchayats and its accounts. • Adhyaksha of Zilla Parishad should be given grants for taking up developmental works of urgent nature. • The Government should give additional grants to provide ground drainage to all the urban areas.

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Kerala Third State Finance Commission Award Period: 2006–07 to 2010–11 Constitution: September 2004 Report Submission: November 2005 ATR Submission: February 2006 Composition K V Rabindran Nair P Kamalkutty, Secretary Local self government department V S Senthil, Secretary Finance expenditure

Chairman Member (part-time) Member (part-time)

Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the State, Panchayats and Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the Government which may be divided between them under Part IX and Part IX—A of the Constitution and allocation between all levels of Panchayats at all levels and the Municipalities of their respective shares of such proceeds; (b) the determination of taxes, duties, tolls, and fees which may be assigned to or appropriated by the Panchayats and Municipalities; (c) the grants-in-aid to Panchayats/Municipalities from the consolidated fund of the State; 2. Measures needed to strengthen the financial position of Panchayats and Municipalities25 with reference to:

(a) The scope of local governments to raise institutional finance and to suggest a framework for local self-governments to take recourse to such sources along with procedures to be followed and limits, if necessary, to raise such resources;

25  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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(b) The need for sharing the cost of maintenance of assets and institutions transferred to local self-governments, and evolving criteria for it, with due regard to the fiscal position of the state government and the local self-governments; (c) The steps necessary for efficient financial management with particular reference to efficiency in resource mobilization and economy in expenditure; (d) The settlement of claims and dues of Panchayats and Municipalities vis-a-vis government and governmental agencies; (e) The procedures to be followed for smooth flow of funds to local self-governments and for ensuring proper financial accountability; (f) The systems and procedures with respect to budgeting, accounting and auditing; (g) The incentives for higher resource mobilization and efficiency in resource use; (h) The systems and procedures for monitoring the fiscal performance of local self-governments; (i) Providing for specific fiscal responsibilities on local self-governments.



Methodology The financial data was collected in three parts reflecting three major stages of transformation: LSGs before 73rd and 74th Constitutional amendments, LSGs during and after substantial shift of services and institutions that took place in accordance with Article 243 (G) and 243 (W) and LSGs as instruments of economic development resulting from Kerala’s widely acclaimed experiment of decentralized planning. Five proformae were prepared to help the LSGs make self-assessment of their services, wherein only two types of entries were to be made- receipts and expenditure. The five proformae are: 1 . Proforma 1—Receipts and expenditure of local selfgovernments-abstract 2. Proforma 2—Statements showing receipts under own funds, expenditure for traditional functions met from own funds and projections 3. Proforma 3—Statements showing receipts and expenditure under transferred functions/assets and projections

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4. Proforma 4—Statement showing receipts, expenditure and projections under plan schemes 5. Proforma 5—Statement showing details of receipts and expenditure under 11th finance commission award. Recommendations Global Sharing • An amount of Rs. 2050 crore to be transferred to local governments, as their share of state tax revenue in financial year 2006–07. [Accepted] • Out of this Rs. 300 crore was be for expenditure on their traditional functions, Rs. 350 crore for expenditure on maintenance of assets and Rs. 1400 crore for expenditure on developing and expanding services and institutions transferred to them by State Government. [Accepted] • The total amount to be so transferred during the five years 2006–07 to 2010–11 will be Rs. 12,515 crores. [Accepted] • Additional resources of three types can be raised by local governments, (i) increase in tax and non-tax revenues, (ii) public contribution, and (iii) borrowing, [Accepted] Assignment of Revenues • No such recommendations. Horizontal Distribution • Funds means for expenditure on traditional functions and maintenance to be distributed among the local governments in the same ratio as applied to the distribution of 3.5% and 5.5% of state tax revenue. The funds meant for expenditure on development to be distributed among local governments following the ratio applied for distributed plan funds. [Accepted]

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Grants-in-Aid • 1/3rd of state plan outlay to be given as plan grant to local governments. [Not Considered] • The difference between funds available with local governments and that share of outlay should be given to local governments. [Accepted] Functions and Functionaries • A new system of fiscal freedom should come into force in 2008–09 after necessary staff deployed, accounting details worked out and monitoring agencies formed. [Accepted] • Joint consultation, co-operation and mutual understanding is needed to solve the problems during release of funds. [Accepted] • There should be four bank accounts for each local government: –– For traditional functions expenditure –– For maintenance expenditure –– For expenditure on development of services –– For agency functions [Accepted] • Finance wing and secretary to be responsible to point out the pros and cons of a decision proposed to be taken. If higher authority overrules them they will have to own the responsibility for that decision. [Accepted] • Work of disbursement of welfare pensions to be transferred to concerned departments. [Accepted] Other Measures • Funds meant for traditional functions expenditure should be released in twelve equal monthly instalments from April to March. [Accepted] • Funds meant for maintenance expenditure should be released in ten equal monthly instalments from April to January. [Accepted]

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• Funds meant for development expenditure should be released in ten equal monthly instalments from May to February. [Accepted] • To have a framework of accounting and financial control, Finance and Accounts Wing to be established in Gram Panchayats. [Agreed to in principle] • Resource assessment of local governments each year before finalizing the size of decentralised plan to be implemented by them. [Accepted] • A ‘Board of Fiscal research’ headed by the chief Secretary to be constituted. [Accepted]

Madhya Pradesh Third State Finance Commission Award Period: 2001–02 to 2005–06 Constitution: July 2005 Report Submission: November 2008 ATR Submission: February 2010 Composition Sheetal Sahaya M.N. Buch Surendra Nath Amar Singh Iqbal Ahmad Manoj Goyal

Chairperson Member Members (retired–30.4.2006) Member (6.6.2006 to 31.08.2007) Member (29.9.2007–31.12.2007) Member

Terms of Reference 1. Government will abide by the rules and regulations prescribed in the Madhya Pradesh Financial Responsibility and Budget Management Act 2005. 2. Recommendations of Twelfth Finance Commission regarding Local Governments. 3. Devolution of functionaries as per the constitutional amendments. 4. Inducing local governments in their effort to generate additional sources of raising finance.

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. Need of E-Governance 5 6. Need of proper guidance for construction work and capital expenditure 7. Evaluation of the reports and data of Panchayats and Municipalities. Methodology A set of general questionnaires covering the whole gamut of physical and fiscal administration of Panchayats and Municipalities were formulated. Adequate care has been taken through official correspondence and personal interaction with the functionaries of Panchayats and Municipalities to explain to them the modalities of filling up the questionnaire. Commission organized a number of meetings with representatives of these bodies at divisional and district levels. The Commission also visited some major States and closely studied the working patterns of local governments and the concerning State Finance Commissions. Recommendations Global Sharing • 5% of the net divisible pool to be devolved to the Panchayats and Municipalities. [Accepted] • 4% to be allocated to the Panchayats and 1% to the Municipalities [Accepted] Assignment of Revenues • Levy and collection of entertainment tax by the state government and assignment of the net proceeds to Municipalities on the basis of collection from their jurisdiction. [Accepted] • Introduction of self-assessment system regarding property tax [Accepted] • Continuation of cess on passenger tax. [Passenger Tax is abolished] • Continuation of the distribution of the net receipts from land revenue and additional stamp duty to the Panchayats [Accepted]

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Horizontal Distribution • Devolution of the net 4% of the divisible pool to the Panchayats would be as mentioned below: Village with the population less than 500, total population 57.87 lakh Village with the population 501–1000, total population 116.63 lakh Village with the population 1001–1500, total population 86.42 lakh Village with the population more than 1500, total population 182.89 lakh

35% 26% 21% 18%

[Accepted] • Devolution of 1% of the net divisible pool to be allocated to the Municipalities would be as mentioned below: District Panchayat Municipalities District councils not covered under Jawaharlal Nehru urban scheme District councils covered under Jawaharlal Nehru urban scheme

45% 40% 10% 05%

[Accepted] • 10% of the net divisible pool to be allocated to such Municipalities where slum population is more than 10% of their respective population. The remaining amount to be allocated among Municipalities on the basis of their populations including that of slums, as per 2001 census. [Accepted] Grants-in-Aid • Grant of Rs. 110. 95 crore per annum to 23,040 Gram Panchayats on the basis of the population. This grant would be availed only by those Gram Panchayats who levy and collect the taxes on time. [Accepted] • The grant would be allocated on the basis of population. For general category Gram Panchayats 50% of the tax collection and for SC population category 100% of tax collection would be allocated. [Accepted]

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• Block Panchayats to receive Rs. 20 Crore per  annum and Zila Panchayats Rs. 5 Crore per annum as general purpose grants [Accepted] • Continuation of establishment grants to Panchayats [Accepted] • Grant of Rs. 50 crore as maintenance grants to Gram Panchayat on the basis of population in the Panchayat. [Accepted] • 100% Compensation of electricity expanses of those Gram Panchayats that are collecting water rates. [Accepted] • For Municipalities, if the collection of property tax is –– Less than 50% of demand, municipal councils to get general purpose grants per head of population at the rate of Rs. 4/− per capita and Nagar Panchayats at a rate of Rs. 5/− per capita. –– 50% and more but less the 75% of demand, rates of general purpose grants per head of population to be Rs.4/− for Municipal Corporations, Rs.5/−for Municipal Councils and Rs.6/−for Nagar Panchayats. –– 75% or more of demand, the per capita grants to be Rs. 5/− for Municipal Corporations, Rs. 6/−for Municipal Councils and Rs.7/− for Nagar Panchayats. [Accepted] • 5% of VAT to Municipalities as grant. [Accepted] • If the Municipalities collect water tax then they should receive financial assistance as mentioned below –– Provision of 50% grant to the Municipalities with the population less than 10,000, as a compassion for electricity expenses –– Provision of 33% grant to the Municipalities with the population between 10,000 to 20,000, as a compassion for electricity expenses –– Provision of 25% grant to the Municipalities with the population between 20,000 to 50,000, as a compassion for electricity expenses [Accepted] • Provision of Rs 30 per head as maintenance grant to District Panchayats as well as corporations with the population of 50,000. [Accepted]

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Functions and Functionaries • Formation of Data collection units in Municipalities and Panchayats. [Not considered] • Inclusion of financial management natural resource management, human resource and disaster management in the training manuals. [Accepted] • Population and area should be the criteria to quantify Panchayats. Three to four Panchayats should be dissolved into one Panchayat. Water Conservation Area can also be a unit for the constitution of Panchayat. [Rejected] • At District level, the technical expert’s pool should be created to help the Gram Panchayats in their work. [Rejected] • Provision of tax raising power to Panchayats. [Action will be taken separately] • Removal of division of taxes as compulsory and voluntary taxes as mentioned in the MP PRI Act. [Action will be taken separately] • Zilla Parishads and Block Panchayats can critically review the responsibilities of levy and collection of taxes given to Gram Panchayats. In Case Gram Panchayats are not performing properly Zilla Parishads and Block Panchayats should take the responsibility. [Action will be taken separately] • The officers of the Block Panchayats should have the right to transfer the Panchayat secretaries from one Panchayat to another. Similarly for Zilla Parishads. [Action will be taken separately] Other Measures • Transparent display of the receipts and grant provided to the local governments by the state governments. [Accepted] • Constitution of auditing committee at district level [Accepted] • Setting up of SFC cell. [Accepted]

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• Formation of a high level committee for devolution of functions and functionaries to Panchayats. [Accepted] • Constitution of District level Cadre of the secretaries of Gram Panchayats. [Rejected]

Maharashtra Third State Finance Commission Award Period: 2006–07 to 2010–11 Constitution: January 2005 Report Submission: June 2006 ATR Submission: December 2013 Composition Satish Tripathi Sudhir Shrivastava Jeevanrao Gore Pradeep Apte

Chairman Member Secretary Member (part time) Member (part time)

Terms of Reference The Commission was required to make recommendations as to the following: The principles which should govern: 1. the distribution between the State, Panchayats and Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the Government which may be divided between them under Part IX and Part IX—A of the Constitution and allocation between all levels of Panchayats at all levels and the Municipalities of their respective shares of such proceeds; 2. the determination of taxes, duties, tolls, and fees which may be assigned to or appropriated by the Panchayats or as the case may be the Municipalities; 3. the principles which should govern the grants-in-aid to Panchayats or as the case may be Municipalities from the consolidated fund of the State.26 26  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Methodology Not mentioned in the Report. Recommendations Global Sharing • Total additional transfer to local governments to be around 7.8% of the revenues, without breaching Fiscal Responsibility rules. [Not Considered] Assignment of Revenues • 10% increase in rate of tax every three years to maintain buoyancy in tax receipts. [Not Considered] • Gram Panchayats to levy and collect taxes on open lands, appropriately. [Accepted] • A fivefold increase from 15 paisa per day in rate of tax on fairs, festivals and entertainments. [Accepted] • A ten time increase in rates on the tax on shop keeping and hotel keeping. [Accepted] • Five times increase on the rates of fees on markets and weekly bazaars. [Accepted] Horizontal Distribution • Only 50% of the amount shown against Implementation of Development Plans, and 50% of the amount suggested for water supply and sewerage schemes be considered for release during the year 2006–07. [Not Considered] • Out of Rs. 550 crores available for devolution to Municipalities, it is proposed that Rs. 246 crores be given to Corporations and Rs. 304 crores to Councils, for carrying out activities indicated in the report. [Not Considered]

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Grants-in-Aid • The motor vehicle tax will be shared with Municipalities through a grant equalling 17.75% of the net tax collection. [Not Considered] • An annual grant of Rs. 40 crore for support to difficult villages for maintaining water supply schemes. [Accepted] • Rs. 40 crores annually to initiate a programme of low cost sullage disposal scheme in large size villages. [Not Considered] • Rs. 300 crore for maintenance of internal village roads to Gram Panchayats. [Not Considered] • An annual grant of Rs. 100 crores to Zilla Parishads for repair and maintenance of School rooms with the remaining 50% being provided as matching contributions by Zilla Parishads. [Accepted] • An additional annual grant of Rs. 25 crore for medicines and Rs. 17.25 crore for repair and maintenance of health service to Zilla Parishads. [Not Considered] • Grant in aid to Zilla Parishads for maintenance of the regional piper water supply scheme @50% of the expenditure on salary of employees engaged on the scheme. [Not Considered] • One time grant to meet 50% of the remaining outstanding amount of arrears of Maharashtra Jeevan Pradhikaran by Gram Panchayats [Partially Accepted] • Rs. 40 crores annually to those Municipalities which cannot raise user charges to recover the cost of water supply to the town. [Not Considered] • A formula of grant to be devised so that the Gram Panchayat of limited capacity are not deprived of grants. [Not Considered] • Increase in maintenance grants to 35% of requirement. [Not Considered] • Rs. 5.272 crores annually be allocated to YASHADA for arranging training and capacity building. [Not Considered]

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Functions and Functionaries • Zilla Panchayats should issue instructions for compulsory revision of the assessment list by the Gram Panchayats every four years. [Accepted] • Government should take over hospitals for management if there are such requests from local governments. [Partially accepted] • Panchayats are responsible for primary education, communication, minor irrigation, health care, child care and nutrition services in the rural areas and extension services in veterinary care, agriculture and animal husbandry etc. [Not Considered] Other Measures • Rural Development Department should carry out a review of section 124 of the Bombay Village panchayat Act 1958 and take steps to discontinue taxes/fees that are not capable of yielding sufficient revenue to panchayats or are difficult to administer. [Accepted] • Gram Panchayats should receive the entire amount of cess/ grants in the first half of the year in which it falls due. [Not Considered] • Additional posts of extension officers, technical and accounting staff for larger Gram Panchayats. Government to bear 50% of expenditure on these posts. [Accepted] • To supervise developmental programme in a close manner, an independent vehicle be provided to the President of the Panchayat Samities and the BDO. [Not Considered] • Local governments should be compensated by paying past arrears which has accumulated due to remission of cess of land holder who are liable to pay land revenue between Rs. 5 to Rs. 10. [Not Accepted] • The norms for supply of medicines to P.H.Cs be increased from Rs. 60,000 to Rs. 2 lakhs per PHC, for P.O.L be increased from Rs. 7000 per vehicle to Rs. 25,000 per vehicle, medicines for sub-centres be increased from Rs. 6000 to Rs. 10,000 per sub centre and miscellaneous grants be increased to Rs. 15,000 per P.H.C. [Not Considered]

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• Rateable value method for calculation of property tax be replaced by capital value method to ensure buoyancy, equity, transparency and simplicity in fixation of taxes. [Not Considered] • To introduce appropriate substitute of octroi, Government should stop payment of compensation. [Not Accepted] • The entire expenses on training of staff, capacity building, provision of computers and hardware in municipal councils be borne by the government. [Accepted] • A provision for imposition of up to 1% tax on transfer of immovable properties is provided in BPMC Act 1949. [Partially Accepted] • Set up Municipal Development Fund. [Not Accepted]

Odisha Third State Finance Commission Award Period: 2010–11 to 2014–15 Constitution: September 2008 Report Submission: January 2010 ATR Submission: February 2011 Composition Sudhakar Panda Utkal University, Bhubaneshwar Swapneswar Baya Bhubaneshwar Bijaya Kumar Mohanty Sambalpur Rabi Ranjan Mallick Municipal administration, Bhubaneshwar Durga Prasad Dash S N Sarangi Finance department, Bhubaneshwar

Chairman Member Member Member (14 January, 2009)

Member Secretary (retired attaining superannuation) finance department, Bhubaneshwar Member Secretary (after Shri Durga Prasad Dash)

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Terms of Reference The Commission was asked to make recommendations relating to the following matters:-. The principles that should govern 1. the distribution between State and Panchayati Raj Institutions and the Municipalities of the net proceeds of taxes, duties, tolls and fees leviable by the State which may be divided amongst them under Part-IX and PartIXA of the Constitution and the allocation between the Panchayats at all levels and the Municipalities of their respective shares of such proceeds; 2. the determination of taxes, duties, tolls and fees which may be assigned to, or appropriated by Grama Panchayats, Panchayat Samities and Zilla Parishads or, as the case may be, Municipalities; and 3. the Grants-in-aid to the Grama Panchayats, Panchayat Samities, Zilla Parishads or, as the case may be, Municipalities from the Consolidated Fund of the State; the measures needed to improve the financial position of the Grama Panchayats, Panchayat Samities, Zilla Parishads and Municipalities. any other matters, which the Governor may refer to the Commission in the interest of sound finance of Grama Panchayats, Panchayat Samities, Zilla Parishads and Municipalities.27 In making its recommendations, the Commission was to have regard, among other considerations, to 1. The revenue proceeds of the State government and the demands thereon, on account of expenditure on civil administration, police and judicial administration, education, maintenance of capital assets, social welfare, debt servicing and other committed expenditures and liabilities; 2. The functions and liabilities of Panchayats and Municipalities in respect of discharging and implementing the schemes entrusted to them under article 243G and 243 W of the Constitution; 3. The revenue sources of Panchayats and Municipalities at all levels for five years, commencing from 1st April, 2010 on the basis of levels of taxation reached in 2006–07, target set for additional resource mobilization and potential for mobilizing additional resources; 27  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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4. The scope for better fiscal management consistent with the need for speed, efficiency and cost effectiveness of delivery of services; and 5. The need for providing adequate incentive for better resource mobilization as well as closely linking expenditure and revenue raising decisions. The report of the Commission was required to contain specific chapters, narrating . The approach adopted by it; 1 2. An analysis of the resources of the State Government, and 3. An analysis of the resources of Panchayats at each level and also Municipalities at each level, 4. An estimation and analysis of the finances of the State Government as well as the Panchayats and Municipalities at the pre and post transfer stages along with a quantification of the revenues that could be generated additionally by the Panchayats and Municipalities by adopting the measures recommended therein. For the purpose of assessment of supplementing the resources of the Panchayats and Municipalities by the Union Finance Commission, the Commission was to 1. Follow a normative approach in the assessment of revenues and expenditure rather than make forecasts based on historical trends; 2. Take into account per capita expenditure norms on the basis of the average expenditure incurred by some of the best performing Municipalities and Panchayats in the provision of core services. The Commission was also required to review the implementation of the recommendation of the Second State Finance Commission. Methodology Visits were carried out to Panchayats and Municipalities in the states of Karnataka, Kerala and West Bengal to gain first-hand information about their organization, functioning, resource mobilization efforts and their patterns of expenditure vis-à-vis the activities assigned to them. Meetings were held with

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different stake holders, from time-to-time, to analyse the problems of the Panchayats and Municipalities and, to work out appropriate policies that would strengthen their finance and rightly impact their working. Recommendations Global Sharing • 15% of the average own gross tax revenue of the State Government at Rs. 896.17 crores per annum to be devolved to local governments for providing public services and undertaking local development. [Accepted] • The devolved amount is to be distributed among the Panchayats and Municipalities in the ratio of 75:25. [Accepted] Assignment of Revenues • Continuance of following grants as assignment of revenues in favour of Panchayats: Grants

In crores

Sairat Kendu leaf Grant Cess on land revenue Minor Forest produce Entertainment tax Total

Rs. 1.00 Rs. 20.00 (as against Rs. 10.00) Rs. 15.00 Rs. 1.00 Rs. 0.15 Rs. 37.15

[Accepted] • The State government to provide 20% increase per annum towards Entry Tax to Municipalities. Out of the 20%, 10% would be passed as untied resources and the remaining 10% would be released to concerned Municipalities based on their performance. [Accepted] • The Commission has not made any recommendation with regard to the following taxes. The transfer from the following sources in the B.E. 2010–11 is as below:

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Taxes

In crores

Entertainment tax Motor vehicle tax Stamp duty/ annuity Managerial fines and pilgrim fees Grants for festival occasions Total

0.15 25.00 3.00 0.00 0.65 28.80

[The Government have decided that the same shall continue despite the fact that the Commission have not recommended any assignment from the aforesaid sources.] • The Gram Panchayats to be empowered to levy and collect following taxes/fees: –– Re-introduction of Panchayat tax –– Advertisement tax –– Permit fees for construction, establishment/ installation of factories, workshops/ work places where electricity is used –– Share in cess on conversion of agricultural land for non-­ agricultural uses –– Social development and ecological protection fees –– Licence fees from shops –– Transfer of sairat sources and minor minerals to the Gram Panchayats –– Toll/user fees for using village, Gram Panchayat and Panchayat Samiti roads –– [Not considered] • The Municipalities must strengthen and widen their resource base for larger revenue mobilization and hence the Municipalities have been recommended to levy following taxes/fees: –– Introduction of Unit Area Value Assessment (Property Tax) –– Fines on unauthorised use of land under Municipal jurisdiction –– Share in cess on conversion of agricultural land for noon-­ agricultural uses –– Capital/property transaction fee –– Trade licence fees –– [Not considered]

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Horizontal Distribution • No such recommendation. Grants-in-Aid • An annual grant of Rs. 82.72 crores towards salaries and pension of employees has been recommended for Municipalities. [Not accepted] • An annual grant of Rs. 1.00 crore and Rs. 0.50 crore to be given as incentive grant to best Municipalities and best Notified Area Council, respectively. [Accepted] Functions and Functionaries • Government should examine the creation of Gram Panchayat Level Cadre, District Level Cadre and a State Cadre, in the light of recommendation of MoPR. [Not considered] • Demand of Panchayati Raj Service Engineers’ Association for creation of a Cadre and promotion of Panchayati Raj Junior Engineers to the post of Assistant Engineers should be considered by the Government without further delay. [Not considered] • Housing and UD Department, Finance Department and Revenue and Disaster Management Department should jointly discuss the matter for creation of a Cadre of Executive Officers for the Municipalities. [Not considered] • A professional body to be entrusted with the task of formulating a plan relating to composition of man-power requirement of Municipalities and phasing out of a surplus staff keeping in view resource base of Municipalities. [Not considered] Other Measures • A State Institute of Urban Development in the pattern of SIRD should be established for developing training materials and for imparting training to the elected representatives with the objective of enhancing their capacity. [Not considered]

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Punjab Third State Finance Commission 

Award Period: 2006–07 to 2010–11 Constitution: September 2004 Report Submission: December 2006 ATR Submission: June 2007

Composition A S Chatha Tapas Kumar Sen Senior fellow, NIPFP, New Delhi Principal secretary, local government Government of Punjab Financial commissioner/Secretary Government of Punjab Anjuly Chib Duggal Secretary (in addition to her own duties)

Chairman Expert member Ex-officio member Ex-officio member Member

Terms of Reference The terms of reference require the Commission to make recommendations on the following matters: In the case of ‘Panchayats’ as to: 1. The principles, which shall govern: (a) The distribution between the State and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them and the allocation between the Panchayats at all levels of their respective shares of such proceeds; (b) The determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Panchayats; and (c) The grants-in-aid to the Panchayats from the Consolidated Fund of the State. 2. The measures needed to improve the financial position of the Panchayats. 3. Any other matter referred to the Finance Commission by the Governor in the interest of sound finances of Panchayats.

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In the case of ‘Municipalities’ as to: 1. The principles, which shall govern: (a) The distribution between the State and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them and the allocation between the Municipalities at all levels of their respective shares of such proceeds; (b) The determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Municipalities; and (c) The grants-in-aid to the Municipalities from the Consolidated Fund of the State. 2. The measures needed to improve the financial position of the Municipalities. 3. Any other matter referred to the Finance Commission by the Governor in the interest of sound finances of Municipalities.28 The commission was also required to examine the levy of appropriate user charges for civic services to strengthen the resource position of Panchayats/Municipalities and to make them ultimately self-reliant. Measures to reduce unproductive revenue expenditure and steps to improve the quality of administration and technical support for efficient and effective use of capital resources. Methodology The basic services essential for civilized living, were identified and cost of providing these services were researched for a duration of over 10 years. Also, the cost of running local governments at present level of services was worked out. Questionnaires were circulated to all the Panchayats and Municipalities. Views of different officials were taken into account. Seminars were conducted and several meetings were organized. The data were collated and analysed for report writing.

28  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Recommendations Global Sharing • 4% of the State’s net tax collection (minus compensation for abolished octroi) to be divided between Municipalities and Panchayats. • Rs. 400 crore to be devolved on Municipalities every year, through the Municipal Development Fund. Assignment of Revenue • 16% of the excise duty on IMFL and beer, and 10% of auction money from liquor vends continue to devolve on local governments. Horizontal Distribution • Division between urban and rural areas on the basis of population in 34%: 66% respectively. Grants-in-Aid • Downward percolation of grants at district level as per the recommendations of DPC. Functions and Functionaries • Responsibility for collection of house tax and other taxes levied by Gram Panchayats, particularly by Panchayat Secretaries. Other Measures • Use of GIS technology to ensure that no property escapes the tax net. • An implementation committee under the chairmanship of Chief Secretary to be set up. • Training programs for the elected representatives and staff of both Municipalities and Panchayats, delivered through reputed training institutes. • Setting up of Municipal and Village Development Funds to focus on filling the infrastructure gaps in rural and urban areas.

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Rajasthan Third State Finance Commission 

Award Period: 2005–06 to 2009–10 Constitution: September 2005 Report Submission: February 2008 ATR Submission: March 2008

Composition Manik Chand Surana Jeet Ram Member of legislative assembly Khush Veer Singh, Member of legislative assembly Ramavatar

Chairman Member Member Member Secretary

Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern (a) the distribution between the State and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them under this Part and the allocation between the Panchayats at all levels of their respective shares of such proceeds. (b) the determination of the taxes, duties, tools and fees which may be assigned to, or appropriated by, the Panchayats. (c) the grants-in-aid to the Panchayats from the Consolidated Fund for the State. 2. the measures needed to improve the financial position of the Panchayats. 3. any other matter referred to the Finance Commission by the Governor in the interests of sound finance of the Panchayats.29

29  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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In making its recommendations, the Commission was to have regard, among other considerations, to: 1. The financial resources of the State and demands thereon, keeping in view the non-plan deficit and surplus, and in particular, the need for providing adequate resources for funding the plan expenditure for the overall development of the State; 2. The expenditure needs of the Panchayats at all levels and Municipalities at all levels for the proper discharge of the functions and responsibilities assigned to them; 3. Adjustment of grants available to the Municipalities at all levels and the Panchayats, under the recommendations of Twelfth Finance Commission in their resources; and 4. Powers available to Panchayats and Municipalities at all levels for raising additional resources, including powers to levy taxes. Methodology Questionnaires were circulated to all the Panchayats and Municipalities. The Commission visited a few selected local governments to have a first-­ hand experience of important developmental issues and good practices. Various meetings, workshops as well as seminars were conducted from time to time. The distribution of divisible share in net tax revenue (excluding entertainment tax), between the local governments, was based on the population figures for the year 2004–05 (as on 1 Mar 2005). Census figures of rural- urban break up have been used for the distribution of net share. Inter-se distribution among Municipalities has been based on Municipality wise population figures of census 2001. Recommendations Global Sharing • Devolution of 3.50% of the net proceeds of State Own Tax Revenue to Panchayats and Municipalities. Out of this 0.50% shall be earmarked for incentive to these local governments for mobilizing revenue from their own resources. [Accepted]

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• Rs.34.40 crore representing 100% net share of entertainment tax is to be devolved to the Municipalities in proportion to collection of entertainment tax from their respective areas. [Accepted] • Devolution of Rs 46.22 crore representing 1% of net royalty receipts from minerals to the Gram Panchayats in proportion of royalty collection in the concerned districts. [Considered complied] Assignment of Revenues • No such recommendations. Horizontal Distribution • Distribution of Rs. 1843.15 crores representing share in net tax revenue (excluding entertainment tax) between the Panchayats and Municipalities on the basis of population ration of 75.7% and 24.3% respectively. [Accepted] • Panchayats share of net own tax revenue, amounting to Rs. 1395.27 crores distributed among Gram Panchayats, Panchayat Samities and Zila Parishads in the ration of 85:12:3 respectively. [Not considered] • Following parameters and their weights were recommended for district wise devolution of funds for onward devolution to Panchayats: Sl. No.

Parameters

Weights

1 2 3 4 5 6

Population Geographical area Poverty (no. of BPL families) Level of literacy S C population S T population

60% 20% 5% 5% 5% 5%

[Considered complied]

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• For the inter-se distribution amongst the Municipalities, the following criteria has been adopted: 85% Additional 15%

On population basis among all Municipalities On population basis to class-II, class-III and class-IV Municipalities

[Not Considered] • Distribution of 80% amount from share in tax revenue (except entertainment tax) among all the Municipalities on population basis and the balance 20% amount among all the three categories of Municipalities namely, viz., Class II, Class III and Class IV on population basis as an additional share to compensate their weak financial position to some extent. The share of II, III and IV class Municipalities has been raised from 15% to 20% in view of their pathetic financial position. [Accepted] Grants-in-Aid • Transfer of Rs. 32.20 crore out of the budget of irrigation department to the Panchayats as per the district-wise requirement of the tanks transferred to them. [Compliance still waited] • Grants of Octroi compensation with 10% annual increase. [Implemented] • Rs. 307.20 crores as incentive amount to Gram Panchayats and Municipalities for raising revenues from untapped sources by the Panchayats. [Accepted] • Rs. 74.65 crores from the incentive amount to the recovery of discretionary taxes not levied and collected so far by the Municipalities. [No amount was released by the State Government as incentive with effect from 2008–09] Functions and Functionaries • Enable the Gram Panchayat to render services mainly for rural cleanliness and sanitation and other essential functions. [Compliance awaited]

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• Power of revision of rates conferred on Municipalities. [Not Considered] • Cleaning, scavenging, solid-waste management, maintenance of roads, street lighting and other civic facilities in urban areas could be contracted out by Municipalities, to help cost saving and improving Municipal finances. [Implemented] • Transfer of the following core subjects along with funds, functions and functionaries to Panchayats: –– Agriculture –– Minor Irrigation –– Education –– Public Health –– Animal Husbandry –– Dairy and Poultry –– Social Forestry and Agro-forestry –– Miner forest produce [Transferred to Panchayats vide order dated 2.10.2010] • An amendment in Sub Section (6) of Section 8 A of the Act, 1994, so that the resolutions of the Gram Sabha are not treated as only “suggestions” but should be mandated to be obeyed in compliance to the extent feasible. [The Provisions of the Act are being followed] • Enable the Ward Panchas to effectively participate in the proceedings and decisions of the Gram Panchayat. [Copies of the funds released to Panchayats are circulated up to Gram Panchayat level] • The asset register of the Gram Panchayat is to be kept at both Gram Panchayat and Panchayat Samiti levels. Panchayat Samiti staff should carry out physical verification of such assets twice in a year. [Provision has been made in rule 137 of Rajasthan Panchayati Raj Rules, 1996] Other Measures • Discretionary tax system or levying of tax by Municipalities on priorities basis. [Powers to levy discretionary taxes have been given to Municipalities under Rajasthan Municipalities Act 2009]

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• A full time qualified computer friendly graduate in each Gram Panchayat, besides qualified Gram Sewak is required and the payment to these personnel will be made out of the devolution amount recommended. [Compliance is still awaited] • Training of newly elected representatives, particularly for those who have been elected for the first time. [Implemented] • Funds to be placed at the disposal of Zila Parishad for organizing training programmes for newly elected ward panchas/ sarpanchas, members of Panchayat Samities, Zila Parishads and other public representatives. [Compliance is still awaited] • The grants meant for maintenance of core civic services may be disbursed to Gram Panchayats on the criteria of population, geographical area, poverty, illiteracy population of SC/ST. [Not Considered] • The outstanding amount of house tax needs to be recovered expeditiously by incentivizing the staff. [Not Considered]



Sikkim Third State Finance Commission



Award Period: 2010–11 to 2014–15 Constitution: March 2009 Report Submission: November 2009 ATR Submission: March 2010

Composition R Telang Secretary, food security and agriculture department D P Sharma Special secretary, home department B Datta Additional director, Finance revenue and expenditure department K K Shrestha Deputy director, Rural management and development department

Chairman Member Member

Member Secretary

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Terms of Reference The Commission was required to make recommendations as to 1. The principles which should govern: (a) the distribution between the state and the Panchayats as well as the Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the Panchayats as well as the Municipalities at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats as well as the Municipalities; (c) the grants-in-aid to the Panchayats as well as the Municipalities from the consolidated fund of the state. 2. To make recommendations to the Governor as to measures needed to improve the financial position of the Panchayats as well as the Municipalities.30 To make recommendation to the Governor as to any other matter referred to the Finance Commission by the Governor in the interest of the sound finance of the Panchayats as well as the Municipalities. To examine the resources of the local governments for five years on the basis of the existing and proposed level of taxation and non-tax revenues at the end of 2008–09. To give suggestions to improve the quality of public expenditures to obtain better output and outcome. To examine the component of maintenance and upkeep of capital assets created by the local governments or transferred by the government to the local governments. In making its recommendation on various matters the Commission was also to take the base of population figure as of 2001 in all such cases where population is a factor for determination for devolution of taxes, duties and grants-in-aid.

30  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Methodology The internal allocation of revenue between Zilla Parishads and Gram Panchayats shall be based on population figures of 2001.The horizontal distribution among four Zilla Parishdas will be on the basis of population figure and the Panchayat Area. Questionnaires were circulated to all the Panchayats and Municipalities. The Commission also used data from state budget documents, State Statistical Abstract, State Economic Survey, plan documents, accounts related documents, Annual Administrative Reports of various departments. To firm up the data received from various sources several rounds of meeting were conducted. Recommendations Global Sharing • 2% of the net proceeds of State revenue from the following sources which comes to Rs. 362.58 lakhs to be transferred to Panchayats: • Land Revenue • Stamps and Registration • Tax on Sale, Trade, etc. • Animal husbandry • Forestry and wildlife • Minor irrigation • Village and small industries • Tourism [Accepted] Assignment of Revenues • Gram Panchayats to collect the following taxes: • Household tax @ Rs. 5/−, Rs. 10/− and Rs. 15/− per month from each household- small, medium and bigger, respectively. For resorts, hotel, restaurant, guest houses @ Rs. 5000/− per annum. • Water and sanitation tax @ Rs. 1/month from each household. • Village road and environment tax @ Rs. 2 per month from each household. • Panchayat recommendation/ Clearance/ Certificate Fees @ Rs. 20 per case. • Sale of tender forms as per Government norms.

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• Building, construction fees @ Rs. 2/ sq. feet for RCC building and @ Re. 1/ sq. feet for Egra / Kaccha Structure. • Trade license fees and hawker licenses fees as UD and HD rates. • Fees on Melas, picnic, etc. in rural areas. • Fees for construction of temporary sheds of any kind of social gathering in public property. • Fees for minor dispute redressal @ Rs. 20 per application/case. [Accepted] • The proposed seven numbers of Municipalities to impose and collect the following revenues –– –– –– –– –– –– –– –– –– –– ––

Property Tax Toll Tax Other Taxes Sanitation Charges Parking fees Rent from Premises Other Charges Blue print fee License Fee Other fees Fines.

The anticipated collection for 2010–11 from above sources would be Rs. 316.00 lakhs and Rs. 1919.00 lakhs for five years (2010–15). [Accepted] Horizontal Distribution • The distribution of share of revenue between Zilla Parishads and Gram Panchayats will be in the ratio of 40:60. [Accepted with modification in the ratio, i.e. 30:70] Grants-in-Aid • Specific Purpose Grant of Rs. 46882.88 lakhs for five years under 15 sectors (agriculture, horticulture, animal husbandry, HRDD, health, forest, commerce and industry, disaster management, irrigation, culture, rural management and development department, co-operative, social welfare, tourism and power) excluding teacher’s salary. [Accepted]

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• General Purpose Grant of Rs. 14891.00 lakhs for five years. [Accepted] • CFC Grant of Rs. 4855.00 lakhs for five years (@ Rs. 150 per capita per annum). [Not Considered] • Special Incentive grant of Rs. 20.00 lakhs to each of top 3 Gram Panchayats and Rs. 30.00 lakhs to the top Zilla Parishads annually. [Accepted] Functions and Functionaries • Power to approve the rates for levying of taxes and fees to be delegated to the DPC. [Accepted] • Directorate of Panchayat should monitor the system of preparation of Annual Budgets, District Plans, and Annual Statement of Accounts. [Not Considered] • Creation of Directorate of Local Fund Audit (DLFA) under FRED. The DLFA to be responsible for conducting audit of all the Gram Panchayats, Zilla Panchayats and Municipalities. [Accepted] • The DPC to constitute Sub-Committees to examine the budget of two or three Gram Panchayats and Sub-Committee will submit their report to the General body of DPC. [Accepted] • All the fund whether pertaining to certain revenue, taxes etc. must be accounted for in the budget and no withdrawal from any of the Gram Panchayat account should be made which is not in consonance with the approved budget. [Accepted] • Every Gram Panchayat should prepare Annual budget which will take into consideration the sectoral allocation for Gram Panchayat Units. [Accepted] Other Measures • Gram Panchayats be allowed to operate two accounts, one for receipts of grants from state govt. and another for depositing the fees, taxes or user charges collected by the Gram Panchayat. [Accepted]

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• Organization of regular training programs for Gram Panchayats and Zilla Parishads. [Accepted] • Gram Panchayats be empowered to select and appoint suitable candidate on suitable pay (one accountant and one chowkidar to each Gram Panchayat). [Accepted] • Submission of Utilization Certificates on annual basis to District Planning Officer by Panchayats. [Accepted] • Every Gram Panchayat and Zilla Parishad shall have a separate account for Non-plan grant including collection of revenue. [Not Considered] • A permanent SFC cell within the FRED be created to administer and monitor the functioning of SFCs and to maintain records/data. [Accepted] • The Financial Rules of Gram Panchayats and Zila Panchayats should be so amended to give full power to the Gram Panchayat /Zilla Parishads for incurring expenditure within sanctioned annual budget provision under each item. [Accepted] • The salary of Rural Development Assistants/Gram Rojgar Sahayaks (under GPS), honorarium of Gram Panchayat members etc. should be paid through concerned Gram Panchayats. [Accepted] • Quantum of grants for each Gram Panchayat/Zilla Panchayat should be predictable and specific. [Accepted] • Grants to Panchayats should be released in two instalments. [Accepted] • SFC should be constituted in advance so that their report is available for consideration of the Union Finance Commission. [Accepted]

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Tamil Nadu Third State Finance Commission 

Award Period: 2007–08 to 2011–12 Constitution: December 2004 Report Submission: September 2006 ATR Submission: May 2007

Composition M A Gowrishankar D Heerachand Director of rural development Commissioner of municipal administration P M Basheer Ahamed

Chairman Non official member (resigned on 31.5.2006) Ex officio member Ex officio member Member Secretary

Terms of Reference The Commission was required to review the financial position of the Panchayats and Municipalities, namely Village Panchayats, special Village Panchayats, Panchayat union councils, District Panchayats, Municipalities and municipal corporations and make recommendations as to 1. the principles which should govern: (a) the distribution between the state and the said local governments of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them and the allocation between the said local governments at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the said local governments; (c) the grants-in-aid to the said local governments from the consolidated fund of the state;31 2. The measures needed to improve the financial position of the local governments taking into account inter-alia, their level of debt, pension and interest payment liabilities, possibilities of regulating the

31  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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borrowing power and containing the debt liabilities of local governments depending on their resource position and their ability to service the debt; 3. The measures needed to bring about greater efficiency in the functioning of local governments in the mobilisation and use of their resources as local self-governments and suggestions on a well-­ defined demarcation of functions of State Government vis-a-vis local governments taking into account the prevailing levels of delegation of administrative, functional and financial powers to local governments with reference to the functions enumerated in the Constitution of India and the concomitant State Legislations; 4. Draw a monitorable fiscal reforms programme aimed at reduction of revenue deficit of the local governments and a scheme for providing an incentive to local governments within the ambit of devolution mechanism linked to progress in implementing the said programme taking into account the measures and the extent to which the local governments have implemented such measures to exploit the available and the potential sources of the revenue and State Finance Commission and Union Finance Commission grants; 5. Suggest possible new avenues for tapping resources in Panchayats and Municipalities keeping in mind local government tax structure in other States. In particular, the levy of user charges to attain the goals of covering operation and maintenance costs and capital costs for each item of service may be gone into together with suitable mechanisms to effectively realise these goals; 6. Suggest measures, after review of the present system for assessing the accountability of the local governments in utilizing the resources raised or received from the State and Central Governments and other agencies and also the maintenance of local government accounts and database based on the recommendations of Central Finance Commission, for effective operation of these recommendations; 7. Suggest measures for improvement of the administrative arrangements already made by the Government consequent on the reclassification of town Panchayats. The Commission shall also suggest reclassification of other local governments as well taking into account their present status and the reorganisation exercise already undertaken for the town Panchayats.

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The Commission was also have regard to— (i)

(ii)

(iii)

(iv)

(v) (vi)

The existing level of devolution and other resource transfer from the state and central governments and other agencies including the award and recommendations of twelfth finance commission to the local governments and their adequacy; The requirement of the local governments for meeting revenue expenditure including maintenance of capital assets, keeping in view the need for generating surplus for capital investment; revenue resources of the local governments for the five years commencing from 1st April 2007 on the basis of level of taxation reached in 2004–05 and the expected increase in revenue keeping in mind the potential for revision of rates of tax and non-tax revenue; The status of implementation of the recommendations of the eleventh finance commission appointed by the central government and the second state finance commission constituted by the state government and the utilisation by the local governments of the resources transferred; The scope for better fiscal management consistent with efficiency and economy in major components of recurring and non-recurring items of expenditure; The classification of rural and urban local governments as per the government of India guidelines and the consequences thereof.

The Commission was also to review the functions of Grama Sabha, its linkages with Non-Governmental Organisations, line agencies / departments on par with other States and suggest measures/ powers to strengthen grass root democracy. Methodology In order to assess the income, expenditure, service level, debt and human resources, a detailed questionnaire was prepared and sent to Panchayats and Municipalities. The number of local governments covered under the questionnaire were: 1. 2. 3. 4. 5. 6.

Village Panchayats (VPs) Panchayat unions (PUs) District Panchayats (DPs) Special village Panchayats (town Panchayats) Municipalities Municipal corporations

12,618 385 29 561 152 6

Tours to various districts were undertaken to take up discussions with District Collectors, District officials and elected chairpersons of local governments at District Collectorates. Questionnaires were sent to

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recognized National and State political parties and interactive meeting was also held with a few to have their views on various issues concerning local governments which, have been considered and discussed in the report. Visits were carried out to other states to study the functioning of local governments. Sub-committees were constituted on entrustment of functions and delegation of powers to the local governments. A web-site was hosted in September, 2005, containing the details of all the SFCs constituted so far in the state of Tamil Nadu. District allocations shall be based on the following criterion: 80% Population (32% Total population, 32% women Population,16% SC/ST population) 10% Area 10% District income

Inter se allocation among Panchayat Union and Village Panchayats shall be based on the following criterion: 80% Population (32% Total population, 32% women Population,16% SC/ST population) 20% Area

Vertical sharing among Municipalities could be based on the following criterion: 80% Population (32% Total population, 32% women Population,16% SC/ST slum population) 10% Area 10% Debt burden

Recommendations Global Sharing • Based on the SOTR as arrived at by the Commission by adopting compounded annual growth rate for major state taxes (viz. sales tax, motor vehicle tax, stamp duty and state excise etc.), the devolution transfer to local governments under Pool B shall be 10% for each year during entire award period of 3rd SFC (2007–12). [Accepted with following modifications:]

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2007–08 2008–09 2009–10 2010–11 2011–12

9% 9% 9.5% 10% 10%

• The rural share shall be 50% on population and 50% on collection for which Section 175 of TN Panchayat Act, 1994 may be amended. [Not accepted] • Pool B devolution between Panchayats and Municipalities shall be at 58:42 respectively. [Accepted] Assignment of Revenues • The entertainment tax dues from 1997–2002 and from 2002–2006 should be adjusted to local governments in 2007–08 by the state government, failing which local governments are entitled for interest at the maximum. [Accepted with modification that the arrears if any will be released but without interest] • Collection charge to be 1% of the tax proceeds and the balance 99% of the entertainment tax to be transferred to local governments with effect 1.4.2007. [Status quo shall continue] • There should be separate detailed heads for surcharge on stamp duty collections and apportionment to local governments. [Accepted] • Ceiling on Local Cess to be enhanced from Re. 1/− to Rs. 3/− with a minimum of Rs. 2/−. [Not accepted] • Minimum local cess surcharge to be enhanced from Rs.5/− to Rs. 10/− and further enhancement of the same may be left to Panchayat Unions. [Not accepted] • With regard to the profession tax, the income slab rates for salaried class to be revised and those in the higher income bracket to be made to pay higher levy. [Not accepted. Status quo shall continue]

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• No separate water tax/ sewerage tax needs to be collected by Municipalities except by Chennai Metropolitan Water Supply and Sewerage Board. [Accepted] • The education tax to continue to be levied at the rate of 2.5% of annual rental value or any other rate prescribed instead of as a percentage of property tax. [Accepted] • The government to identify the places of archaeological/ historical interests and fix rates for different vehicles for the collection of tourist tax by Municipal bodies. [Not accepted] • The advertisement tax share should be apportioned to the Municipalities. [Accepted] • In all Municipal Corporations, parking areas to be identified and parking lots be developed and parking fees to be collected. [Accepted] • 100% proceeds of Fishery rental from Village Panchayat ponds and 50% of the same from PU tanks should be credited to Village ­Panchayat account. [Accepted] • The local governments should be empowered to levy property tax in the Housing Board notified area. [In vogue. Deemed to be accepted] • Municipalities to be permitted to levy tract rent on the land used for TN Electricity Board poles at the rates as prescribed by the government. [Not accepted. Status quo shall continue] Horizontal Distribution • Horizontal sharing among Panchayats to be at 8% for District Panchayats, 32% for Panchayat Unions and 60% for Village Panchayats. In respect of Municipalities, 30% for Municipal Corporations, 41% for Municipalities and 29% for Town Panchayats. [Accepted]

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Grants-in-Aid • Specific purpose grant under Pool C to be 0.5% to 1% of the SOTR. [Not accepted] • 50% of the Rural Road Development fund to be given to the DPs only. [Not accepted. Status quo shall continue] Functions and Functionaries • State government to plea Central Government for amending Article 285 to enable local governments to levy service charges on Central Government buildings/properties. [Accepted] • The local governments should involve SHGs and NGOs in raising public awareness and also function as the watch dogs of the local government administration. [Accepted] • The Municipal Council to be empowered to fix the rates with reference to the minimum and maximum prescribed by the government in such a way that is not too exorbitant for the tax payer. [Accepted] • All fee collecting institutions viz. schools, colleges, medical institutions, coaching centres etc. to be subjected to house tax. [Accepted] • The issue of birth and death certificates to be entrusted to the Village Panchayats and the Village Panchayat President to be the issuing authority. [The High Level Committed constituted to examine the delegation of powers to the LBs will examine the issue.] • The devolution grant to be exclusively spent for development. [Accepted] • The following functions should be discharged by the TN State Pollution Control Board in close cooperation with Municipalities: –– Regulation of sanitary filled sites –– Scientific disposal of municipal solid waste [Accepted]

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Other Measures • The State government may address Government of India to remove ceiling on the profession tax rates and let the States decide the same depending on the augmenting capacities of the local governments. [Accepted] • The loan deductions from devolutions in respect of Municipalities shall not exceed 25% of the gross devolution. [Not accepted] • Every year, along with the Budget, the government must place details of the transfer to the local governments made during the year based on the decision taken by the government. [In vogue. Deemed to be accepted] • A local government council should be constituted and its effective functioning be ensured. [Not accepted] • The creation of Ombudsman has been reiterated on the lines of Kerala and Karnataka. [Not accepted] • There should be no ceiling on collection of water charges and the minimum to be retained at Rs. 30/− per month for residential supply. [Accepted with modification that Panchayats shall be allowed to revise the rates at appropriate intervals]

Tripura Third State Finance Commission 

Award Period: 2005–06 to 2009–10 Constitution: March 2008 Report Submission: NA ATR Submission: March 2010

Composition R K De Choudhary Special secretary Finance department, Govt. of Tripura Bhupal Sinha Controller of examinations Tripura University Soumitra Bandopadhyay, Joint secretary, finance department, Govt. of Tripura

Chairman

Member

Member Secretary

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Terms of Reference Under Article 243-I of the constitution of India, the Governor appoints a Finance Commission to review the financial position of Panchayats and to make recommendations as to: 1. the principles which should govern: (a) the distribution between the state and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the Panchayats at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats; (c) the grants-in-aid to the Panchayats from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Panchayats; Any other matter referred to the Finance Commission by the Governor in the interests of sound finance of the Panchayats.32 Methodology Approach is guided by the mandate of the constitutional provisions and the terms of reference contained in the order constituting the commission. Actual revenue expenditure is to be assessed and realistic estimates of expenses are to be projected over a period of next five years in order to ascertain the revenue gap of all Panchayats in totality. Differentiation has been made for hilly and plain areas. Projection is computed keeping in view forecast of the State Government on SOTR submitted to the 13th Finance Commission. Pre-devolution gap has been computed by assessing requirement of establishment expenditure, maintenance expenditure and development expenditure of the Panchayats.

32  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Recommendations Global Sharing • Matching contribution in the ratio of 1:1 to be provided additionally to the below devolution to the concern Panchayats: Recommendation for devolution of fund from share of taxes (Rupees in crore) Item

2010–11 2011–12 2012–13 2013–14 2014–15

For Panchayats only For Panchayats of sixth schedule areas Total

26.80 19.60 46.40

29.25 21.52 50.77

31.95 23.86 55.81

35.00 26.03 61.03

38.50 28.52 68.82

[It may be accepted] Assignment of Revenues • Service charge at nominal rate ranging from Rs 5/− to Rs. 50/− to be realized from the beneficiaries who are provided significant benefits of durable nature from the Panchayats. [Not accepted] Horizontal Distribution • Development fund per capita ratio of 4:5 is maintained between Panchayats and ADC (autonomous district council) areas. [It may be accepted] • Fund devolved among Panchayats and Municipalities in sixth schedule areas based on population. [It may be accepted] Grants-in-Aid • Matching amount of additional grant equal to the amount of revenue collected by the Panchayats to be provided from the state government as an incentive. [It would be examined]

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• Grant to be provided for setting up of 3 more training institutes in the state along with its up keeping cost. [It may be accepted] • Grants to be provided for meeting expenditure for imparting training and capacity building of the elected representatives and staff of Panchayats. [It may be accepted] • Grants for meeting shortfall of fund in maintenance of assets and for establishment expenditure. [It may be accepted] Functions and Functionaries • All village markets should be managed and controlled by the Panchayats so that they can levy and collect tolls and taxes from those markets. [It may be accepted] • Panchayats should utilize fisheries, horticulture farms etc. assets for supply of inputs to various development schemes and raise their own revenue. [It may be accepted] • Panchayat Samities to let their halls on rent. [It may be accepted] • Maintenance of Asset Register. [It may be accepted] Other Measures • Rules for collection of taxes, tolls, duties and fees by the Panchayats to be framed and notified. [Not considered] • A scheme for providing incentive against collection of revenues by Panchayats to be introduced. [It may be accepted] • The records of providing benefits under various welfare and development schemes to be reflected and maintained in a family card. [It may be examined]

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Uttar Pradesh Third State Finance Commission 

Award Period: 2006–07 to 2010–2011 Constitution: December 2004 Report Submission: August 2008 ATR Submission: February 2010

Composition S.A.T. Rizvi Principal secretary, Urban development, Govt. of Uttar Pradesh Secretary, finance department Govt. of Uttar Pradesh

Chairman Member Member

Recommendations Global Sharing • 15% of the state’s net own tax and non-tax revenue to the local governments. [Accepted with modification, i.e. devolution of 12.5%] • The devolution to be in the ratio of 60:40 for Municipalities and Panchayats. [Accepted] Assignment of Revenues • Trade tax should be assigned in four slabs as mentioned below Raw martial Jewellery Motor Spirit diesel Others

[Deferred]

4% 1% 20% 12%

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• Pithead value of mineral be increased from 20% to 25% in the context of royalty from minerals. The arrangement needs to be reviewed periodically. [Deferred] • Exemptions to women for stamp duty payment, at the time of the purchase of immovable properties, to be withdrawn. [Deferred] • Enhancement of the license fee to Rs. 2400 per  annum from the cable operators. [Deferred] • The Gram Panchayats should levy the house tax. [Deferred] • The rate of profession tax should be increased by Rs 10,000 from the running rate of Rs. 25,000. [Deferred] • 50% of land revenue and 20% of house tax should be charged as flood safety fee from the farmers in the villages and residents in the cities whose agriculture land and buildings respectively are safe through flood safety measures. [Deferred] Horizontal Distribution • An amount of Rs. 9686 crore would be devolved to the Panchayats for the award period. It would be distributed among the Zila Panchayats, Kshetra Panchayats and Gram Panchayats in the ratio of 20:10:70, respectively. [Accepted] • The inter-se distribution among Municipal Corporation, Municipal Council and Nagar Panchayat would be in the ratio of 40:40:20 respectively. [Accepted] • The criteria adopted for the inter-se distribution among Municipal Corporation, Municipal Council and Nagar Panchayat would be as mentioned below:

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Parameter

Weight

Population SC/ST population Index of integrated development Revenue effort

50% 10% 30% 10%

297

[Accepted] • Funds meant for Panchayats will be distributed among districts as per the formula mentioned below: Parameter

Weight

Population SC/ST population Index of district integrated development Revenue effort

50% 10% 30% 10%

[Accepted] • Funds allocated to Blocks will be distributed as per the formula ­mentioned below. Similar formula will also apply for Gram Panchayats: Parameter

Weight

Population SC/ST population

80% 20%

[Accepted] • Entertainment show, recreation, sports and horse race should be included under the definition of show tax. [Deferred] Grants-in-Aid • Additional Grant of Rs. 15729.95 crore to fulfil the necessary basic infrastructural needs for the award period [Not Accepted]

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• Additional Grant of Rs. 5379.23 crore for the needs based on social justice for the award period of five years. [Not Accepted] • Grant of Rs 119.25 crore for the award period to assist Mid-Day Meal Scheme @.Rs. 45,000 per year. [Accepted with modification of Rs 15,000 per year] • One time grant of Rs. 42.12 crore and annual recurring grant of Rs. 28.45 crore to Gram Panchayats for the construction of library and information centre. [Deferred] Functions and Functionaries • Appointment of staffs in panchayat to manage the piped water supply mechanism in rural areas [Deferred] • Proper monitoring is needed at departmental head level to encourage Zilla Parishad towards various ways to raise revenue. [Considered] • Only the Gram Panchayats are permitted to do fisheries in the rivers. In this context necessary guidelines should be issued collectively by all the departments i.e., revenue, irrigation and fisheries. [Accepted] • Gram Panchayats should be authorized to levy onetime fee in proportion to the market price of the land based on the nature of land use from such agricultural lands that are used for purposes other than farming. [Deferred] • Zilla Parishad employees should be declared as state employees on the line of Kshetra Panchayats and Gram Panchayats. [Not Accepted] • Shiksha Mitra could be appointed directly by Gram Panchayats on the basis of Gradation Schedule. [Deferred] • The services of the finance controller of District Rural Development Agency (DRDA) are required to strengthen the internal auditing mechanism of Zilla Parishad. [Accepted]

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• Director Panchayati Raj should be authorized to transfer the tax officers and junior engineers at Zilla Parishad level. [Deferred] Other Measures • Units of local fund audit should be affiliated with the municipal corporations to strengthen the audit system. [Accepted] • Establishment of a Police Cell in Municipalities [Deferred] • Public Private Partnership (PPP) should be promoted. [Accepted] • Post of Environment Engineer should be created in place of Sanitary Inspector. [Deferred] • The process of determining water charges should be more rational. [Accepted] • A research cell should be set up in the tax and registration department. [Deferred]

Uttarakhand Third State Finance Commission 

Award Period: 2010–11 to 2015–16 Constitution: December 2009 Report Submission: NA ATR Submission: NA

Composition Indu Kumar Pande T N Singh, former additional secretary Finance department L N Pant, budget officer Finance department M C Joshi Additional secretary, finance department

Chairman Member Secretary Secretary Member

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Terms of Reference The State Finance Commission was required to review the financial position of the Panchayats and the Municipalities and make recommendations to the Governor as to: 1. the principles, which should govern: (a) the distribution between the State and Gram/Kshetra/Zila Panchayats and Municipalities, of the net proceeds of taxes, duties, tolls and fees leviable by the State which are to be or may be divided amongst them under Part-IX and IX-A of the Constitution and the allocation between Panchayats and the Municipalities at all levels of their respective shares of such proceeds; (b) the determination of taxes, duties, tolls and fees, which may be assigned to or appropriated by the Gram/Kshetra/Zila Panchayats or, the Municipalities; (c) the principles which should govern grants–in-aid to the Gram/ Kshetra/Zila Panchayats or Municipalities from the consolidated fund of the State. 2. the measures for strengthening the financial position of Gram/Kshetra/ Zila Panchayats and Municipalities. 3. any other matter, which the Governor may refer to the Commission in the interests of sound finance of Gram/Kshetra/Zila Panchayats and Municipalities;33 In making its recommendation, the State Finance Commission was to have regard, among other considerations to: 1. The revenue resources of the State Government and the demands thereon, in particular, on account of expenditure on civil administration, debt servicing and other committed expenditure or liabilities; 2. The liabilities of Panchayats and Municipalities in respect of implementation of schemes entrusted to them under Article 243-G and 243-W and works entrusted to them at appropriate levels;

33  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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301

3. The revenue resources of Panchayats and Municipalities at all levels based on the potential for raising resources for the next years and targets fixed for additional resources mobilization along with tax efforts made in this direction; 4. The matching efforts of the Panchayats and Municipalities with the devolution amount; 5. The scope for improvement in fiscal management as well as organizational streamlining consistent with economy in expenditure and efficiency in administration; 6. The maintenance and upkeep of capital assets and maintenance expenditure on those plan schemes, which are entrusted to these bodies and are to be completed by 31 March, 2015; 7. The Commission may make an assessment of the debt position of the Panchayats and Municipalities at all levels as on 31 March, 2011 and suggest such corrective measures as are deemed necessary keeping in view the financial requirements of the State; 8. If the funds available at local level; do not meet full requirement of expenditure on Plan side after the new arrangement, then the Commission will make specific recommendation regarding the arrangement of funds for expenditure on both Plan and Nonplan side; and 9. The use of information technology and right sizing of staff. In discharging its responsibilities, the State Finance Commission was to have the following powers: 1. It can ask for any information or document from any officer or authority; 2. It can send for any person for evidence or to produce a document; 3. The commission will determine its own procedure; 4. Any other powers, as may be laid down. Methodology The assessment of the finances of Municipalities and Panchayats includes their resources base, capacity to raise resources, and expenditure requirements in terms of the functions assigned to them. The U P Acts consisting of the U P Municipal Corporation Act, 1959, the U P Municipalities Act, 916 for the Municipalities, and the U P Panchayat Raj Act, 1947 and u P Zila Panchayat and Kshetra Panchayat Act, 1961 for Panchayats continue to govern the local

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governments of Uttarakhand. Separate financial assessments have been made for the State, the Municipalities and the Panchayats at various levels. Assessments of the finances of the local governments have been based on the responses to the detailed questionnaires sent out by the Commission. Recommendations Global Sharing • 10.5% of the State’s own tax revenue to be distributed equally between the Municipalities and Panchayats in the ratio of 50:50. [Accepted with modification] • Grant-in-aid of 0.25% over and above 10.5% to be given to local governments depending on the quantum of arrears. [Accepted with modification] Assignment of Revenue • Profession tax to be levied in the State and assigned to Municipalities in the urban areas and to Zilla Parishads in rural areas and Circumstances and Property (C&P) tax to be replaced by it. [Cognizance taken] • C&P tax to be replaced by profession tax. [Cognizance taken] • Municipalities to get conversion charges as per the changes in the land use of a master plan area. [Cognizance taken] Horizontal Distribution • The distribution of devolution amount among various categories of Municipalities shall be distributed as follows: Nagar Nigams (NNs) Nagar Palika Parishads (NPPs) (30) Nagar Panchayats (NPs) (30)

[Accepted]

25% 60% 15%

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303

• Inter-se distribution between Nagar Nigams would be based on the following criterion: Population Area Tax effort Special circumstances

75% 10% 10% 5%

[Accepted] • Inter-se distribution of the devolution amount among Nagar Palika Parishads and Nagar Palikas would be based on the following criterion:

Populationa Areab Per capita on revenue Special circumstances

Nagar Panchayat

Nagar Palika Parishads

65% 10% 15% 10%

60% 10% 15% 15%

Actual population subject to a minimum of 5000

a

For consideration of area, all Nagar Palika Panchayats would be placed in one of four bands, and all Nagar Panchayats in one of three bands with different weights assigned to these bands as under b

NPPs Area bands (sq. km.) Weight

0–10 50%

11–20 70%

21–30 85%

Area bands (sq. km.) Weight

0–10 65%

11–20 95%

Above 20 100%

Above 30 100%

NPs

[Accepted] • The distribution of devolution amount among various categories of Panchayats shall be done as follows: Gram Panchayats (7541) Kshetra Panchayats (95) Zila Panchayats (13)

[Accepted]

50% 20% 30%

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• Devolution to different tiers of Panchayats would be based on separate formulae and weights assigned to different components would be as follows: Population Area Remoteness Tax effort

50% 20% 15% 15%

[Accepted] • The formula for devolution to the Kshetra Panchayats shall be as follows: Population Area Remoteness No. of Gram Panchaytas

60% 15% 15% 10%

[Accepted] • In case of Gram Panchayats, following two factors are to be taken into consideration for devolution: Population Area

80% 20%

[Accepted] Grants-in-Aid • Incentive grant to Municipalities in 2015–16 that have fully utilized the grants of 13th Finance Commission during 2010–15:

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Nagar Nigams NPPs with population above 1 lakh 50,000 to 1 lakh 20,000 to 50,000 Below 20,000 NPs

305

50 lakhs 40 lakhs 30 lakhs 20 lakhs 10 lakhs 5 lakhs

[Accepted] • Annual grant-in-aid of Rs. 15 lakhs has been recommended to ZP Uttarkashi. [Accepted] • Grant-in-aid of Rs. 1.68 crore in the year 2012–13 for construction of ZP building in Champawat. [Accepted] • A special annual grant of Rs. 5 lakhs is recommended for institutional arrangement of solid waste in Kausani. [Accepted] • Grant-in-aid of Rs. 50 lakhs is recommended for NPP Nainital for repairs, renovation and modernization of Durga Sah Memorial Library in the year 2012–13. [Accepted] • Annual grant of Rs. 25 lakhs to Uttarakhand Academy of Administration for capacity building/research work relating to urban issues has been recommended. [Accepted] Functions and Functionaries • Outsourcing of functions should be seriously considered in order to compensate the lack of staff. [Accepted] • There is an urgent need to (a) develop and prescribe uniform budget formats for all Municipalities; and (b) identify and prescribe appropriate accounting software for use by Municipalities and make its adoption mandatory. [Accepted] • A beginning should be made, in selected Municipalities like the Nagar Nigam and the larger Nagar Palika Parishads, for experi-

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menting with on-line payment of property tax and license fees and public grievances. Gradually it should be extended to the other Municipalities. [Accepted] Other Measures • ‘Unit Area System’ of computation of property tax based on self-­ assessment principle to be started in Dehradun, Hardwar, Haldwani, Nagar Nigams and Roorkee, Kashipur, Nagar Palika Parishads and then gradually extended to other Nagar Palika Parishads and Nagar Panchayats. [Accepted] • A regular system of recruitment and training to be introduced. [Accepted] • Integrated city/town planning should be implemented with greater focus on convergence and periodic revision of master plan. [Accepted] • Financial management systems at Municipalities level to be strengthened. [Accepted] • Both the directorates, i.e. Municipalities and Panchayats need to be strengthened and e-enabled. [Accepted]



West Bengal Third State Finance Commission



Award Period: 2008–09 to 2012–13 Constitution: February 2006 Report Submission: October 2008 ATR Submission: July 2009

Composition SukhbilasBarma N N Bandyopadhyaya Bijan Kumar Kundu Spe. Secretary, home department B P Syam Roy Spe. Secretary, development and planning department

Chairman Member Member Member Secretary

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307

Terms of Reference The Commission was required to make recommendations as to the following: 1. In case of Panchayats (a) the principles which should govern: • the distribution between the State and the Panchayats, of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part IX of the Constitution of India and the allocation between the Panchayats at all levels of their respective shares of such proceeds; • the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Panchayats; • the grants-in-aid to the Panchayats from the Consolidated Fund of the State; (b) the measures needed to improve the financial position of the Panchayats; 2. In case of Municipalities (a) the principles which should govern: • the distribution between the State and the Municipalities, of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part IX A of the Constitution of India and the allocation between the Municipalities at all levels of their respective shares of such proceeds; • the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Municipalities; • the grants-in-aid to the Municipalities from the Consolidated Fund of the State; (b) the measures needed to improve the financial position of the Municipalities;34

34  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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In making recommendations, the commission was to have regard, among other considerations, to: 1. the resources of the state government and the demands thereon on the account of expenditure on administration, development and debt-servicing; 2. the resource-raising powers of the Panchayats and Municipalities 3. the responsibilities entrusted upon the panchayats and Municipalities by Statutes and Government orders; The commission shall determine its own procedure. Methodology Questionnaires were circulated to all the Panchayats and Municipalities. Views of the Director Panchayati Raj, non-departmental representatives, Panchayati Raj Department, Urban Development department were collected. Visits were made to several districts, blocks and Gram Panchayats and discussions were carried out with the representatives of Panchayats, Municipalities and Corporations. Recommendations Global Sharing • 5% of State’s own net tax revenue to be devolved as an ‘untied’ entitlement to the local governments for 2008–09 with a progressive increase of 12% per annum for the remaining four financial years. [Accepted] • The total ‘untied’ fund allocation at the state level should be split into 2 segments: Municipalities and Panchayats, with the respective population ratio 24:76. [Accepted] • 2% ‘incentive fund’ to be raised for improvement of own resource mobilisation and participatory governance of the local governments in the following departments: –– Panchayat and Rural Development (76%) –– Municipal Affairs Department (24%) [Accepted]

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309

Assignment of Revenues • Rates and taxes to be transferred to the Panchayats with effect from the financial year 2010–11 are as follows: –– –– –– ––

Entertainment Tax Profession Tax Land Revenue Royalties on minor minerals

• Collection of Irrigation rates [The transfer of power will depend upon the capability of the local government] • Entertainment tax and profession tax to be assigned to Municipalities. [The transfer of power will depend upon the capability of the local government] • Incorporating a provision enabling Municipalities to collect at least Service Charges from the occupiers of unauthorised constructions. [The transfer of power will depend upon the capability of the local government] • Municipalities should collect outstanding property tax. [Accepted] Horizontal Distribution • 12% of ‘untied’ fund is allocated to Zilla Parishads, 18% to Panchayat Samitis and 70% to Gram Panchayats. [Accepted] • An allocation of 0.726% of the total ‘untied’ fund as the entitlement to the Hill area Panchayats. [Accepted] • 20% of ‘untied’ fund to be utilised for maintenance of assets by the local governments, owned by or transferred to them. [Not considered] Grants in Aid • A special fund named as a ‘Pension Fund’ to be granted to the Municipalities constituting of the amount received on account of arrear property tax and the service charges. [Not considered]

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• Municipalities to be given a share of proceeds from sale/lease of lands owned by parastatal agencies/State/Central Governments, within their jurisdiction. [It requires further examination] Functions and Functionaries • Municipalities to be allowed to impose annual fees on the service providers like power utilities, telephone companies and cable T.V. companies. [It requires further examination] • All the Municipalities to introduce door-to-door garbage collection systems and impose necessary fees for the same. [Implemented] • Suitable rules to be framed empowering Municipalities to collect non-tax revenue on all the items mentioned in the act. [Accepted in principle] • Municipalities should be allowed to impose tolls at a higher rate for heavy trucks for use of municipal roads and on tourist/ pilgrims. [It requires further examination] • Conversion of posts of Panchayat bodies into posts of Block and District Panchayat Cadres and then filled up by the respective local government. [Accepted] • Municipalities should be empowered to issue trade licenses of shops and establishment of shopping mall at a higher rate. [Accepted] Other Measures • Training Institutes to be set up in all district headquarters for year round training/refresher courses of all associated functionaries of the local governments. [Accepted] • Geographical Information System (GIS) should be introduced in all Municipalities. [Not considered] • Ferries coming under the section 132 of the West Bengal Municipal Act, 1993, to be returned to the concerned Municipalities. [It requires further examination]

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311

• Water rates should be introduced on the basis of consumption in all Municipalities. [Accepted] • For proper accountability of the local governments, double entry system of book keeping and accounting in order to speed up the system. [Accepted] • Instead of Rental Method of Valuation and Land and Building Method of Valuation, ‘Unit Area’ Method or ‘Capital Value’ Method to be introduced. [Under Consideration] • Impact fees should be introduced on shopping mall, multiplexes and residential-cum-shopping complexes. [It requires further examination] • Urgent rejuvenation of the DPCs. [Accepted]

 Andhra Pradesh Second State Finance Commission 

Award Period: 2000–2001 to 2004–2005 Constitution: December 1998 Report Submission: August 2002 ATR Submission: March 2003

Composition D L Narayana K Pichayya A Damodar Chairperson, Wanaparthy Municipality J Krishna Rao Sarpanch, gram panchayat M Venkatramaiah

Chairman Member Member Member Member Secretary

Terms of Reference The Commission was mandated to make recommendations as to the following:

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1. the principles which should govern: (a) the distribution between the state and the Gram Panchayats, Mandal Parishads, Zilla Parishads, Nagar Panchayats, Municipal Councils and Municipal Corporations of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the said bodies at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Gram Panchayats, Mandal Parishads, Zilla Parishads, Nagar Panchayats, Municipal Councils and Municipal Corporations; (c) the grants-in-aid to the Gram Panchayats, Mandal Parishads, Zilla Parishads, Nagar Panchayats, Municipal Councils and Municipal Corporations from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Gram Panchayats, Mandal Parishads, Zilla Parishads, Nagar Panchayats, Municipal Councils and Municipal Corporations including measures for improving the management of available resources. The Commission shall also make recommendations on any other matter that may be referred to it by the Governor in the interest of sound finances of the Panchayat Raj and Municipal Bodies referred to above.35 In making its recommendations, the Commission was to have regard among other considerations to: 1. The resources of the State Government and the demands thereon, in particular on account of expenditure on administration debt servicing and other committed expenditure or liabilities; 2. The revenue resources of the bodies, for the five years commencing on 1st April, 2000 on the basis of the levels of taxation possible to be reached in 1998–99, targets for additional resources mobilization and the potential for raising additional taxes; 3. The requirements of the Panchayat Raj Institutions and Municipal Bodies for meeting the non-plan revenue expenditure on staff and 35  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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4. 5.

6. 7. 8. 9.

313

administration etc., also keeping in view the potential for raising their resources; The requirements of the bodies for capital expenditure for creating assets like Water Supply Schemes, Roads, Bridges, Buildings, Minor Irrigation source; The maintenance and upkeep of capital assets like buildings, roads, water supply schemes, minor irrigation sources by the Panchayat Raj Institutions, Municipal Bodies, Municipal Corporation and the norms, on the basis on which specified amounts are recommended for the maintenance of assets; The requirements of the Panchayat Raj Institutions and Municipal Bodies in the upgradation of standards in non-developmental sectors and services particularly in respect of Institutions which are backward; The provisions required for emoluments and the terminal benefits of employees including teachers and other employees; The scope for computerization of accounts; and The incentives which may be provided for better realization of taxes and non- taxes.

The Commission was also to indicate the manner in which the receipts and expenditure of the Panchayats and Municipal bodies can be monitored for better financial management. The Commission was also to make recommendations about the financial devolutions to the Panchayats and Municipal Bodies for the functions devolved on them under Articles 243 G and 243 W of the Constitution of India. The Commission was to indicate the basis on which it has arrived at its findings. In making its recommendations on the various matters aforesaid, the Commission was required to adopt the population figures of 1991 in all cases where population is regarded as a factor for determinations of devolution of taxes and duties and grants-in-aid. Methodology A questionnaire was issued in Telugu to the Gram Panchayats in State to furnish information about their income, expenditure and to indicate their views on collection of taxes, resource mobilization etc. Information on receipts and expenditure was called upon from the executive authorities of the local governments in a prescribed proformae for the period of four

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years from 1996–97 to 1999–00 and anticipated receipts and expenditure for five years from 2000–01 to 2004–05. The senior officials were also addressed by the Commission to furnish their views and a Memorandum of Requirements. To have the first-hand information on various financial and functional aspects of the local governments, the Commission conducted visits to 10 districts and meetings were carried out with the District Collectors, and senior officials of Zilla Parishads, and officials of other departments. Meetings were conducted with the Mayors, Commissioners, Chairpersons of different Municipalities in order to have their views with respect to Municipalities. Recommendations Global Sharing • 10.39% in the total tax and non-tax revenue of the state including the share of central taxes for the year 2000–2001 to be devolved to Panchayats and Municipalities. (6.76% for Panchayats and 3.63% for Municipalities) [Not considered] Assignment and Revenues • Levy of taxes on vehicles (other than motor vehicle) and fruit bearing trees on Panchayat lands by Gram Panchayats. [Not considered] • Levy of special taxes on houses by Gram Panchayats. [Not considered] • Tax imposition on items like sugar cane, coffee and black pepper. [Not considered] • Collection of cable tax by district Panchayats on regular basis. [Not considered] • A surcharge of five percent on market cess. [Not considered] Horizontal Distribution • The revenue forgone by Panchayat due to abolition of local tax should be given to them as compensation in the following ratio

  Appendix: Summaries of Recommendations and ATRs 

Gram Panchayat Mandal Panchayat Zila Parishad

315

50% 30% 20%

[Not considered] • In respect of major and medium sector of irrigation allocation of Gram Panchayats to be fixed at 10% of water charges per acre as in the case of minor irrigation sources instead of Rs 10 per acre. [Not considered] • 10% of the income released by the State Government towards motor vehicle tax to be given as compensation to Municipalities. [Not considered] • Release of an amount of Rs. 19.40 crores p.a. for the award period under minor irrigation. [Not considered] • Release of an amount of Rs. 165 crores p.a. to the Municipal Corporations for civic amenities etc. on population basis. [Not considered] • 2% of the basic price plus excise duty plus sales-tax at the initial point of release of the liquor in the market to be set apart as excise cess. It is to be distributed among Municipalities and Panchayats on population basis. [Not considered] • Funding of the amounts required for infrastructure development on Water Supply and Drainage in Municipalities to be in the following ratio: Municipalities Loan State government Government of India

10 30 40 20

[Not considered] • From the 5% Surcharge on market cess, 20% of the amount shall be passed on to the local governments where market committee is located and the remaining 80% shall be distributed among the other Municipalities and Panchayats that lie within the jurisdiction of the market committee. [Not considered]

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Grants-in-Aid • Provision of special grant to strengthening small Panchayats (Gram Panchayat) on population criteria as follows: SLAB-I: With population up to 500 SLAB-II: With population from 501–1000 SLAB-III: With population from 1001–1500

50,000 each 75,000 each 1,00,000 each

[Not considered] • Special grant of Rs. 39.22 crore to 81 Municipalities from the year 2002–2003 to meet the demand of the salaries bill of the no-­teaching employees. [Not considered] • Vijayawada and Visakhapatnam Municipal Corporations have established plants for conversion of Solid Waste as manure etc. The Commission recommends that an incentive grant of Rs. 1 crore each to the remaining five Municipal Corporations may be given, if they come forward to establish Solid Waste Management Plants. [Not considered] • Eleventh Finance Commission grant of Rs. 152.05 crores for providing civic amenities to Gram Panchayats, data bank, maintenance of accounts etc., to be distributed as per the formula. [Not considered] • The Eleventh Finance Commission grant of Rs. 32.93 crores p.a. for creation of data base relating to finances of municipal bodies and for maintenance of civic amenities to be distributed among municipal bodies. [Not considered] • An amount of Rs 0.41crore p.a. as grants-in-aid to provide drinking water in schools. [Not considered] • Grant of Rs 31.00 crore p.a. for construction of Panchayat building. [Not considered] Functions and Functionaries • Transfer of small scale industries to local governments. [Not considered]

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317

• The Regional Transport Officers to be authorized to adjust motor vehicle tax compensation to the municipal corporation and Municipalities. [Not considered] • Transfer of schools in urban area in Telangana Region to Municipal Corporation and Municipal Councillor to maintain uniformity in the procedure throughout the state. [Not considered] • Appointment of an officer on special duty before it is proposed to constitute the third SFC. [Not considered] • The Commissioner and Director of School Education should prepare a district allocation statement of contingent grant, immediately after the budget is passed and necessary formalities are completed and send it to the District Treasury Officers with budget authorisation before 30th April with instructions to adjust the amount to the Zilla Parishads / Mandal Parishads by 15th May and 15th October. [Not considered] • Gram Panchayats have to prepare Five Year Plans and Annual Plans for utilisation of grants by prioritising their needs. [Not considered] Other Measures • Constitution of SFC cell. [Not considered] • State Government to appoint subsequent SFC much before the constituted of Union Finance Commission. [Not considered] • Review of the implementation of recommendation of SFC by a statuary authority which may submit the report by 30th June of the succeeding year to the Governor with a copy to Government. [Not considered] ATR: Based on the review of the Cabinet Sub- Committee, Government agreed to devolutions to the extent of Rs 300 crores per annum towards Second State Finance Commission grants to the local governments as shown below:

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Name of the Local government Panchayats Municipalities

Rs in Crores per annum 200.00 100.00

The amounts are to be distributed as shown below: Name of the Local government Panchayats   Zilla Parishads   Mandal Parishads   Gram Panchayats Municipal bodies  Municipalities   Municipal corporations



Rs in Crores 40 25 135 80 20

Assam Second State Finance Commission



Award Period: 2001–2002 to 2005–2006 Constitution: April 2001 Report Submission: August 2003 ATR Submission: February 2006

Composition Rajiv Kumar Bora Commissioner and Secretary Finance department Dilip Barua Professor of economics S K Dutta M Ariz Ahammed Joint secretary, education department G C Laskar Director, finance (E A) department

Chairman

Member Member Member Member Secretary

  Appendix: Summaries of Recommendations and ATRs 

319

Terms of Reference The Commission was required to make recommendations as to 1. The principles which should govern: (a) the distribution between the state and the Panchayats/ Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the Panchayats /Municipalities at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats/Municipalities; (c) the grants-in-aid to the Panchayats as well as the Municipalities from the consolidated fund of the state. 2. To make recommendations to the Governor as to measures needed to improve the financial position of the Panchayats /Municipalities.36 The expression ‘Municipalities’ includes Municipal Corporation and Town Committee. The Commission was to make an assessment of (a) the actual debt position of each of the local governments as on 31st March, 2000 (b) estimated debt position of each of the local governments as on 31st March, 2001 and suggest suitable measures relating to the debts as are deemed necessary, keeping in view also the financial requirements of the State Government. In making its recommendations, the Commission was to have regard, among other considerations, to: 1. the objective of balancing the receipts and expenditure on revenue account of both the local governments as a whole and the State Government and each local government; 2. the resources of the State Government and the demands thereon, in particular, on account of expenditure on maintenance of law and order, civil administration, debt servicing and other committed expenditures; 3. the revenue resources of the local governments for the five years commencing on 1st April 2001 on the basis of the level of collection made during 1998–99 from taxes, duties, tolls, fees, cess etc. levied by them;  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 36

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4. the potential for raising additional revenue from the existing sources available to them; and 5. the scope for better financial management consistent with efficiency and economy in expenditures. In making its recommendations on various matters aforesaid, the Commission was to adopt the population figures of 1971 census in all cases, where population is regarded as a factor for determination of devolution of taxes and duties and grants-in-aid. The Commission was required to indicate the basis on which it has arrived at its finding and make available the local government- wise estimates of receipts and expenditure. Methodology The constitution of the Commission was given wide publicity through print and electronic media and views, suggestions and opinions were invited from individuals, institutions, political parties and other academic organizations. Separate questionnaires were prepared and sent to parishads and also the Deputy Commissioners seeking information on both Panchayats and Municipalities. Relevant data/ information were collected from the State and Central Government agencies and autonomous bodies. Discussions were held with departmental officers of the State Government. A member of the Commission was deputed to participate in the National Workshop on Panchayati Raj Finances organized by NIRD at Hyderabad. Recommendations Global Sharing • 3.5% of the aggregate collection of states taxes and duties to be devolved annually to local governments based on the census of 1991. [Not accepted] Assignment of Revenue • Levy of tax on cultivation land by Gram Panchayats lying fallow for two consecutive years. [Not considered]

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321

• Collection of surcharge of stamp duty by Municipalities. [Accepted] • Implementation of user charge instead of property tax on central and state government properties. [Accepted] Horizontal Distribution • The distribution between three tier of Panchayat viz. Zilla Panchayat, Anchalik Panchayat and Gaon Panchayat would be in the ratio of 10:30:60. [Not considered] • The horizontal distribution of divisible pool for Panchayats as between different district would be on the basis of the weighted average of three criteria, viz. population, geographical area and per capital net district domestic product (NDDP). [Not considered] • The horizontal distribution of the divisible pool among the individual Municipalities are as follow: Population Area Infrastructure index Per capita tax collection

50% 25% 12.5% 12.5%

[Not considered] Grants in Aid • A reduction of 5% in the grants-in-aid to Panchayats for payment of salary for the year 2004–2005. [Not accepted] • A grants-in-aid of Rs 10.00 crore to Municipalities out of which GMC will receive Rs 5 crore and remaining Rs 5 crore will be delivered to the Municipalities. [Not accepted]

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Function and Functionaries • Improvements in the condition of markets, fisheries, ponds and fairies run by Panchayats. [Not considered] • Birth and death certificate should be transferred to local government. [Not considered] • The Gram Panchayat should do proper assessment of annual yield from various sources allocated to them and fix the target of collection for the year. [Not considered] • Engagement of additional manpower on contractual basis. [Not considered] • Creation of a separate pay structure for Panchayat employees and the Panchayat should raise their own resources to meet the salary liabilities of their employees. [Not considered] • Maintenance of a register of asset by both Panchayats and Municipalities. [Accepted] • The local government should adopt the accounts format prescribed by the C&AG. [Accepted] • Municipalities can consider engaging tax collectors on commission basis. [Not considered] • Freedom to Municipalities to revive trade license fee every three years and to distribute the rate and basic of such fees. [Not considered] • Restricting the power of Municipalities to appoint staff and preparing of VRS for employees of Municipalities. [Not considered] • Local government to encourage community participant. [Not considered] Other Measures • Setting up of permanent SFC cell. [Accepted] • Setting up of metropolitan planning board. [Not considered]

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323

• Necessary amendment in GMC Act 1971 and Assam Municipal Act 1956 to enable Municipalities to adopt special rate for recovering shares. [Accepted] • Writing off the outstanding loan against the Panchayat, amounting Rs 46.40 lakhs. [Accepted] • Uniformity in the financial year of central, state and local governments. [Not considered] • Abolition of the maximum limit of taxes. [Not considered] • Fixation of a floor rate instead of ceiling rate. [Not considered] • Amendment in Assam Panchayat Act to enable Panchayats to impose surcharge on stamp duty on the sale, gift etc. of immoveable property. [Not considered] • Simplification of the tax collection productivity. [Not considered] • Constitutions of DPC as per the provisions of the constitution and Assam Panchayat Act, 1994 and the existing DPCs should be replaced with the new one. [Not considered]

Goa Second State Finance Commission 

Award Period: 2007–08 to 2011–12 Constitution: July 2006 Report Submission: December 2007 ATR: NA

Composition Alban Couto Uddipta Ray Secretary, finance/ budget R P Pal Secretary (urban development) Ajit Srivastava Secretary, Panchayati raj Anupam Kishore Joint secretary (DMU)

Chairman Member Member Member Member Secretary

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Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the state and the Panchayats/ Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the said bodies at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats/Municipalities; (c) the grants-in-aid to the Panchayats/Municipalities from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Panchayats/ Municipalities.37 3. the measures needed for consideration of the Finance Commission to augment the Consolidated Fund of the State to supplement the resources of the Panchayats and of the Municipalities. Methodology The Commission held several meetings and detailed discussions were carried out with Secretaries and Heads of Departments and representatives of important organizations on the central and state government. On the basis of these, the Commission was able to make recommendations on Activity Mapping, Devolution of finances, functions and responsibilities. A considerable amount of data was also collected and analysed for preparation and presentation of key documents. The interactions with the Public and with elected representatives of Village Panchayats, North and South Goa Zilla Panchayats, Municipalities and consultations with departments on policy issues were limited because of the Code of Conduct that operated in the months of April, May and June 2007 for elections of Panchayats and of the Assembly. The Code of Conduct also operated in the months of September–October 2007 for the Parliamentary bye-elections. 37  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Recommendations Global Sharing • Resource sharing was not recommended. Assignment of Revenues • Assignment of 2% of State Own Revenue to Panchayats to meet expenditure of Zilla Panchayats (which have no taxation powers) and Panchayats. The apportionment of the proceeds would be as −25% to be provided to Zilla Panchayat and 75% to Panchayats on the basis of population. Horizontal Distribution • Total provision of Rs. 1294.25 crores for Panchayats, Rs. 629.92 crores for Zilla Panchayat and Rs. 1011.10 crores for Municipalities, represents transfer from plan and non-plan budgets of the departments. Grants-in-Aid • Grants from Directorate of Panchayats for Panchayats estimated at Rs.15.59 Crore. • Grants to Municipalities are estimated at Rs.54.02 Crore. Other Measures • Activation of DPCs that should first consider follow up plans on the basis of activity mapping and devolution of finances. • Enlargement of DPCs to provide for expert advice from relevant departments. • Staff requirement regarding deputation and upgrading in terms of capacity building for Panchayats and for the DPCs to be provided for 681 posts for a total financial outlay of Rs.55.06 Crore for five years. • Acceptance of the two tier Panchayati Raj System with the addition of the non-statutory Block Advisory Committees.

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Gujarat Second State Finance Commission 

Award Period: 2005–06 to 2009–10 Constitution: November 2003 Report Submission: June 2006 ATR Submission: NA

Composition Dhirubhai Shah J S Rana S C Sanehi

Chairman (up to 29.01.2005) Member and Member Secretary (up to 01.06.2005) Member and Member Secretary (from 01.06.2005)

Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the state and the Panchayats/ Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under the Part IX and IX- A of the Constitution and the allocation between the said bodies at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats/Municipalities; (c) the grants-in-aid to the Panchayats/Municipalities from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Panchayats/ Municipalities.38 The Commission was to review the state of finances of the State Government, the Panchayats and Municipalities and suggest the plan by which the State Government and the Panchayats and Municipalities collectively and severally may bring about speedy and equitable growth along with high quality of public services. 38  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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In making its recommendations, the Commission was to have regard, among other considerations to 1. the resources of the State Government for five years commencing from 1st April 2005, on the basis of levels of tax and non-tax revenues likely to be achieved by the end of 2003–04; 2. the demands on the resources of the State Government, in particular, on account of expenditure on civil administration, police and security, public works, general, social and economic services, debt servicing and other committed expenditure and liabilities; 3. the resources of the Panchayats and Municipalities, for the five years commencing from 1st April 2005, on the basis of levels of tax and non-tax revenues likely to be achieved by the end of 2003–04; 4. the objective of not only balancing the receipts and expenditures of the Panchayats and Municipalities, but also generating surpluses for capital investment; 5. tax and non-tax efforts of the Panchayats and Municipalities as against targets, if any, and the potential for additional resource mobilization in order to improve the per capita own tax and non-­ tax revenue; 6. the need for ensuring the commercial viability of the drinking water supply system; drainage system, sanitation, street lighting as well as other commercial operations like public transport etc. through various means including adjustment of user charges, reduction of cost of public services through privatization and relinquishing of non-­ priority unviable areas; In making its recommendations, the Commission was to 1. adopt a normative approach in assessing the receipt and expenditure of the Panchayats and Municipalities and, in doing so, keeping in view the special problems of a few Panchayats and Municipalities with regard to their geographical location; 2. have due regard to the need for providing adequate incentives for better mobilization, financial discipline and cost effective provision of high quality public services; 3. take into account the need for speed, efficiency and effectiveness of the delivery system of government programs;

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4. make an assessment of the debt position of the Panchayats and Municipalities, as on 31st march 2004, suggest such corrective measures as are deemed necessary, consistent with the debt sustainability; 5. review the reforms facility introduced by the State Government on the basis of the First State Finance Commission and suggest measures for effective achievements of its objectives; 6. suggest such measures that will enhance the absorption capacity and credit worthiness of Panchayats and Municipalities; 7. suggest such measures so as to fully utilize the process of information technology to augment the resources of Panchayats; 8. take the base of population figures as of 2001, if available, or else 1991, in all such cases where population is a factor for determination of devolution of taxes, tolls and fees and grants-in-aid. Methodology The Commission held interactions with other State Finance Commissions (SFCs). Officials from Haryana SFC visited Gujarat and views were exchanged on the functioning of the local governments in the two states. Reports of SFCs from Uttar Pradesh, Andhra Pradesh, Bihar, Punjab, Tamil Nadu and Kerala were useful in understanding other state governments’ views on the finances and procedures between governments and the local governments. To elicit the views of the peoples’ representatives, letters were written to Ministers, MPs, MLAs, Presidents of District Panchayat, Taluka Panchayats and Municipalities, Municipal Corporation s and other nonofficials, seeking their suggestions. Video conferencing with the concerned officers were also held. Detailed statistical information and inputs with regard to financial positions of Municipalities and Panchayats were collected through specially designed schedules, annual reports and budgets of Panchayats and Municipalities. The Commission also contacted NGOs to solicit their suggestions with regard to the local self-governance system. Recommendations Global Sharing • State allocates 21.15% of total tax revenue to Panchayats and Municipalities. Now, additional 10% of tax revenue should be diverted to Panchayats and Municipalities, which becomes 31.15% of the total gross tax receipts of the state. [Not considered]

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• 6% amount of divisible pool should be kept for social justice committees of all three levels. [Not considered] Assignment of Revenues • Cess on stamp duty can be imposed in the ratio of 20:15 by District Panchayats and Taluka Panchayats, respectively. [Not considered] • A cess should be levied on vehicle tax and royalties on mineral for Panchayats. [Not considered] • Local tax on industries should be levied so that they become partners in Village Development. [Not considered] • Municipalities must be authorized to levy cess on stamp duty on the line of Gujarat Panchayat Act. [Not considered] • Government should empower the local authorities to levy cess or charges for the use of infrastructural facilities. [Not considered] • Increase in charges for civil amenities provided by Municipalities to a reasonable level. [Not considered] • Local governments should be empowered to levy tax on sale proceeds to agricultural produce market committee (APMCs) to provide better infrastructure services. [Not considered] • Re-imposition of the pilgrimage tax and entry tax. [Not considered] • Fixation of reasonable rate for issuing certificates to increase the non-tax income of the Municipalities. [Not considered] • Exemption of Municipal Corporation from fringe benefit tax. [Not considered] • Increase in user charges for civic amenities provided by Municipalities to a reasonable level. [Accepted] • Panchayats can impose local cess up to 3 times of land revenue. [Not considered]

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• The District Panchayats and Taluka Panchayats are empowered to impose stamp duty cess. [Not considered] Horizontal Distribution • Income from professional tax should be shared between Municipalities and Panchayats on the basis of rural and urban population ratio, i.e. 67% and 33%. [Not considered] • 10% cess for the development of Village Panchayats. [Not considered] • 10% income out of total surcharge of stamp duty cess should be kept with District Panchayats as a contributory fund. [Not considered] • Government provide 25% grant from income of education cess to the District Panchayats and they disburse the amount of grants to Village Panchayats. [Not considered] Grants-in-Aid • Panchayats should receive grant to 10% of total minor forest produces. [Not considered] • Incentive to the Village Panchayats who manage assets (Gochar land) in the best manner on the pattern of SAMRAS Village Panchayat. [Not considered] • Grant for octroi on the basis of three years average of octroi collection to Village Panchayats who were collecting prior to abolition. An increase of Rs. 10 per capita instead to Rs. 5 is recommended. [Action yet to be taken] • Some grant from the local cess collection to Taluka Panchayats. [Not considered] • Under stationery and printing grant, Taluka Panchayats should be given at least Rs. 1 lakh and District Panchayats should be given Rs. 5 lakhs every year. [Action yet to be taken] • 5% administrative charges should be provided to Panchayats to meet the administrative expenses of development activities. [Action yet to be taken]

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• Adequate grant for repair and maintenance should be provided every year. [Not considered] • Increase in grants in lieu of octroi given to Municipalities should be increased from 7% to 10% on cumulative basis. [Not considered] • Grants for road maintenance to Municipal Corporation and Municipalities and asset maintenance grant on yearly basis. [Not considered] • The ad hoc grant of Rs. 35 per head given to the Municipal Corporation and Municipalities. [Accepted] • Municipalities should be given ad hoc grant at the rate of Rs. 100 per capita per year (initially for three years) for new area development. [Not considered] Functions and Functionaries • Developmental works for Village Panchayats, especially under Sampurana Gramin Rojgar Yojana (SGRY). [Not considered] • Village Panchayats are responsible to remove encroachments on Gamtal and Gochar lands and it should be allowed for commercial use of Gochar lands by themselves or by organizing women co-­ operatives or co-operative of BPL families. [Not considered] • Village Panchayats should be allowed for the commercial use of village pond for the purpose of fisheries and use of clay for brick manufacturing when pond remains empty. [Not yet implemented] • One regional office (under Urban Development Department) to be opened in South/Central Gujarat. [Yet to be implemented] • Civic amenities namely drinking water, roads etc. are provided by Village Panchayats. [Not considered] • The power of technical sanction of the development work by Deputy Engineer of Taluka Panchayat should be enhanced up to Rs. 2.50 lakh or up to the limit to be announced by the govt. time to time. [Not considered]

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• In order to minimize the delay regarding the development works financed by the grants of 12th FC to be carried out by Panchayats, power for making minor changes should be vested with DDO, after final approval of the proposal by the Development commissioner. [Not considered] • President and the Mamlatdar are authorized to sign on the usage of grants received by the state govt., this should be given to Chief Officer to relieve extra burden of Mamlatdar. [No order has yet been issued] • Salaries and allowance to District Development Officer, his staff and Accounts officer should be borne by the state government. [Action is yet to be taken] • Panchayats should be allowed to dispose-off the properties not of any use by way of auction and the income accrued should be considered as their own fund. [Not considered] Other Measures • Uniform pattern of imposing local cess across Panchayats by issuing direction to District Panchayat. [Not considered] • Government should merge all the four schemes, i.e. State Equalization Fund, District Equalization Fund, District Village Encouragement Fund and District Development Fund into one scheme named District Development Fund and the provisions and norms of the assistance should be revised. [Not considered] • Filling-up of 2331 of vacant post of Talati, 1369 post of Gram Sewaks and taluka level vacancies of technical officers such as Junior Engineers, Supervisors, Divisional Accountants, Dy. Accountants. [Not considered] • Regular training programmes should be organized at the taluka and district levels for sarpanchs and other elected members. [Not considered] • The estimates of the development work to be undertaken in the Village Panchayat areas should be prepared in Gujarati instead of English. [Not considered]

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• To avoid the ownership disputes and encroachment, the commission recommends undertaking the city survey in the villages having more than 1500 population. [Not considered] • Formulation of a policy by which developers must bear the development expenditure on the agriculture land converted into non-agriculture. [Not considered] • Up-gradation of directorate into Commissionerate for better control over Municipalities. [Not considered] • Municipalities be exempted from Industrial Dispute Act and Government should establish a separate administrative tribunal for Municipalities establishment. [Not considered] • Separate Appellate Authority should be constituted with legal powers for settlement of disputes. [Not considered] • Municipalities be classified under ‘domestic use’ and the electricity bill be charged accordingly. [Implemented] • Spending limit enhanced from Rs. 50 to 500 on the celebration of national event. [Yet to be implemented]

Haryana Second State Finance Commission 

Award Period: 2001–02 to 2005–06 Constitution: September 2000 Report Submission: September 2004 ATR Submission: December 2005

Composition Suraj Bhan Kajal P P Singh Sahni Ami Chand Sehrawat Ram Kumar P K Dass

Chairman Member Member Member Member Secretary

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Term of References The Commission was required to make recommendations relating to the following matters: 1. The principles which should govern (a) the distribution between the State and the Zila Parishads, Panchayat Samitis and Gram Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them under Part IX of the Constitution of India and the allocation among the Zila Parishads, Panchayat Samitis and Gram Panchayats at all levels of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to or appropriated by the Gram Panchayats, Panchayat Samitis and Zila Parishads; (c) the grants- in- aid to the Zila Parishads, Panchayat Samitis and Gram Panchayats from the Consolidated Fund of the State, and (d) the measures needed to improve the financial position of the Gram Panchayats, Panchayat Samitis and Zila Parishads. 2. The principles which should govern: (a) the distribution between the State and the Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them under part IX A of the constitution of India and the allocation between the Municipalities at all levels of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to or appropriated by the Municipalities; (c) the grants-in-aid to the Municipalities from the Consolidated Fund of the State, and (d) the measures needed to improve the financial position of the Municipalities.39

39  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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In making its recommendations, the Commission was also have regard, among other considerations, to: 1. the objective of balancing the receipt and expenditure of the State and for generating surplus for capital investment; 2. the resources of State Government and demands thereon particularly in respect of expenditure on civil administration, maintenance and upkeep of capital assets, maintenance expenditure on plan schemes and other committed expenditure or liabilities of the State, and 3. the requirement of the Panchayats and the Municipalities, their potential for raising resources and reducing expenditure. Methodology An exhaustive questionnaire was designed to collect information on finances of all tiers of Panchayats, i.e. Zila Parishads, Panchayat Samitis and Gram Panchayats and various other related issues through the Director, Panchayats. The Commission also collected information on municipal finances in the designated questionnaire through Director, Urban Development Department. The Commission also invited suggestions from all stakeholders and held meetings with the persons of eminence in the field of local governance. The Commission also studied the latest Panchayati Raj Act and Municipal Act. The Commission analysed the annual administrative reports of Panchayats, Municipalities, Rural Development Department, Local Fund and Audit, as also the reports and papers published by National Institute of Urban Affairs, New Delhi, National Institute of Rural Development, Hyderabad and National Institute of Public Finance and Policy, New Delhi. Recommendations Global Sharing • Total devolution of Rs. 1117.51 crore to the local governments as share of taxes and grants-in-aid for the period 2001–02 to 2005–06. Further devolution of Rs. 696.22 crore to Panchayats and Rs. 421.29 crore for Municipalities [Accepted with modification]

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Assignment of Revenues • 20% of the annual income from royalty on minor minerals to be shared with Gram Panchayats and Municipalities in the ratio of 50:50. [Accepted] • 10% of conversion charges to be devolved to Panchayats through Panchayats Department. [Not Accepted] • The entire net income from cattle fairs be transferred to the Panchayat Samitis through the Panchayats Department. [Previous norms will be followed] • It is recommended that electricity consumed for street-lighting and water supply be charged at domestic rates and not on commercial rates in the rural and urban areas. [Not Considered] • Show tax to be re-imposed at 10% and the entire amount be transferred to Municipalities. [Accepted with Modification] • 20% of the net proceeds from vehicle tax should be transferred to the Municipalities. [Accepted with Modification] Horizontal Distribution • 3% of the net receipts from stamp duty and registration fee collected from the panchayat area be transferred to Panchayats Department for further Inter-se distribution among Gram Panchayats, Panchayat Samitis, Zila Parishads in the ratio of 75:15:10. The share of Panchayat Samitis and Gram Panchayats within the district will be on the basis of population. [Accepted] • 65% of net proceeds of Local Area development Tax (LADT) to be given to the three tiers of Panchayats in the ratio of 10:15:75 to Zila Parishads, Panchayat Samitis and Gram Panchayats. The rest 35% be devolved to Municipalities. [Deferred] • 50% of the net income from entertainment duty to be devolved to the Municipalities on the basis of origin. [Accepted with Modification]

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Grants-in-Aid • Maintenance grants of Rs. 1276 lakhs (Rs. 10 lakhs per block annually for maintenance of community assets and Rs. 1 lakh per block for maintenance of Panchayat buildings). [Accepted with modification] • Sanitation and environmental improvement grant of Rs. 495.24 Lakh per annum for Panchayats. [Not Accepted] • Development grant of Rs 37.50 crore per annum (including HRDF share) for Panchayats with district-wise distribution to be made on ‘Decentralized Planning’ formula and distribution among Gram Panchayats, Panchayat Samitis and Zila Panchayats be made in the ratio of 75:15:10. [Accepted with modification] • Grant of Rs. 25 lakh for the repair of Zilla Panchayat/Panchayat Samitis buildings as a one-time measure. [Not Accepted] • As a measure to reward for better performance by Panchayats, the Commission recommended an incentive grant of Rs. Rs.292.80 Lakh per annum. [Not Accepted] • A per capita grant of Rs.25/− (2001 census) for all Municipalities. [Not Considered] • Loan liability of Rs.5.92 crore against Municipalities to be waived-­ off as one-time measure. [Accepted] Functions and Functionaries • The Commission recommended privatisation of services like street lighting, solid waste management, construction/maintenance of toilets, garbage collection/disposal, street leaning, maintenance of gardens/parks/play grounds etc., as it would be cost saving and improve the level of civic services. [Not Considered] • Initiate survey to assess the amount due to various Municipalities by way of service charges and take immediate steps to recover the same. [Not Considered]

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• Strengthening of HIPA (Haryana Institute of Public Administration) at Gurgaon and HIRD at Nilokheri by way of additional manpower and infrastructural facilities. [Considered] • Strengthening the data base of local governments through computerisation and modern aids. [Not Considered] • Constitution of committees at State, Municipalities and Panchayat level for audit of accounts at Panchayat, municipals and district level, respectively. [Not Considered] • Electricity Board and other agencies of the central and state governments should compensate the local governments for use of their lands and other properties. The State Government should take suitable steps towards this end. [Not Considered] • Municipal staff be contained and salary expenditure be brought down to the level of 50% of the total revenue receipts of Municipalities. [Not Considered] • Encroachments of shamlat lands be removed and total panchayat land be leased out at rates not lower than the fixed by the Committee constituted for the purpose. [Considered] • Urban Development Department should tie up with HUDA for infrastructural development in the cities. [Considered] • Revise house tax every five years and, maintain and ensure recoveries of the tax. [Not Considered] • All the activities listed in the Eleventh schedule of the constitution should be transferred to the Panchayats along with budget, staff and logistic support. [Not Considered] • A number of beneficiary oriented schemes should be transferred to the Panchayats along with clearly set-out guidelines. [Not Considered] • Cable operators should be liable to pay Rs. 20/− per month per connection to the concerned Panchayat/Municipality for using their land for lodging cables. [Not Considered]

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• Budget of municipal council and municipal committees be sanctioned by the Directorate of Urban Development as it can have better watch on income and expenditure of Municipalities in the State. [Not Considered] • Village Sarpanch and Gram Sachiv need to be made accountable for affecting recovery of house tax and registration fee for sale of animals. [Considered] • Examine the possibility of taxing telephone towers, cable operators, industrial units, sale of agriculture produce, passage of loaded vehicles passing through villages and use of land by power utilities and other agencies of centre and state government. [Considered] • Gram Panchayats should be empowered to impose token tax on hawkers and other traders to visit the village to sell their goods/products. [Not Considered] • Professional tax, entry fee in fairs and royalty on sand etc. be levied wherever possible. [Not Considered] Other Measures • The Panchayats should consider imposing suitable levies on irrigated and un-irrigated holdings, pumping sets and tractors, local brick kilns etc. [Not Considered] • Fee, fines and other user charges be reviewed and revised periodically so as to augment the revenue. [Considered] • Finance Commission Cell in Finance Department to be created to monitor the follow-up measures on implementation of the recommendations of State Finance Commissions and Union Finance Commission. [Considered] • The possibility be explored if moneys donated to Panchayats and Municipalities could be got exempted from income tax. It would motivate people to donate liberally for welfare schemes. [Considered] • Some charges should be imposed by Panchayats/Municipalities on advertisements and hoardings. [Considered]

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Himachal Pradesh Second State Finance Commission 

Award Period 2002–03 to 2006–07 Constitution: May 1999 Report Submission: October 2002 ATR Submission: June 2003

Composition The composition of the Commission underwent several changes in the course of its term. The report of the Commission was submitted under the following team: K D Dharmani Narinder Chauhan D K Sharma

Chairman Member Member Secretary

Terms of References The Commission was required to make recommendations to the Government as to: 1. the principles which should govern: (a) the distribution between the state and the Panchayats/ Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the Panchayats/Municipalities at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats/Municipalities; (c) the grants-in-aid to the Panchayats/Municipalities from the consolidated fund of the state; (d) the measures needed to improve the financial position of the Panchayats/Municipalities.40 2. Any other matter referred to the Himachal Pradesh State Finance Commission by the Government in the interest of sound finance of the Panchayats and Municipalities. 40  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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The notification relating to the constitution of second State Finance Commission also covered: 1. The Commission shall devise its own procedure and may appoint such Advisors, institutional Consultants as it may consider necessary. It may call for such information and take such evidence as it may consider necessary. 2. The Commission shall make its recommendations as soon as feasible. It may consider, if necessary, sending reports on any of the matter as and when recommendations are finalized. Methodology One of the important components of the approach was the question of estimating the existing revenue receipts and revenue expenditure of the Panchayats. The Commission had to access a very large number of units for collection of basic data. The Commission had to collect data separately for the three tiers of the Panchayats. The Commission devised separate proformae for collection of basic data from these bodies. The Commission also resorted to the methodology of mailed questionnaires for collection of basic information. In addition, the Commission also invited views of the general public on the terms of reference of the Commission by sending advertisements in the selected national level newspapers. Besides the mailed questionnaires, the Commission also resorted to meetings at selective levels. Meetings were held with the elected representatives of Panchayats as well as with the concerned Heads of Departments. Recommendations Global Sharing • No such recommendation. Assignment of Revenues • Amend the Statutes to empower the local governments to levy new taxes and levies/cess as well as the revision of the existing rates. [Accepted] • In case some local government bodies do not collect the statutory levies, the resource transfers recommended through this Report of the Commission, should not be released. [Accepted]

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• All governments’ properties, which belong to the Central or the State Governments, should be subject to the levy of user charges. [Not Accepted] • Urban areas should be classified into three different zones and taxes based on slab system be apportioned accordingly. [Not Considered] Horizontal Distribution • No such recommendation. Grants-in-Aid • Commission recommended a one-time liquidation of the arrears of payments on account of street lighting energy bills and bulk supply of water. Further, the administration/release of grants for the future years to the defaulting bodies shall be governed as under: –– The arrears for energy bills for street lighting shall be adjusted against the future grants in four equal instalments in case the local governments fail to raise the local tax on consumption of electricity in a manner that no arrears accrue in future. –– For water supply, the local governments, as a first step, will raise the water rates to cover full cost of bulk supply at existing rates of supply and subsequently raise the rates towards ensuring full cost recovery of O&M charges over a five year period. In case of a failure to comply, the grants due to the local governments will be adjusted at the rate of 25% of the arrears paid during the first year. [Not Considered] • An “Incentive Fund” amounting to Rs. 1.50 crore per annum from the year 2003–04, implying a total Corpus of Rs. 6 crore over the forecast period for any hike in the rates of local tax on consumption of electricity or water rates. [Not Considered] • In Municipalities release of grants should be linked with the imposition of house tax. The release of grants should be administered in the following manner.

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–– 75% of the grants to be released provided the local government imposes and collects a house tax on a minimum of 7.5%. –– 25% of grant to be released provided the local government commits to raise the rate of house tax by a percentage point each year so that it reaches 12.5% by the end of the award period. [Not Considered] Functions and Functionaries • Smaller local governments should not have any permanent staff except Secretary. [Not Considered] Other Measures • The transfer of the grants should be administered through the institutional mechanism. [Not Considered] • There should be a Permanent Institutional Arrangement in the State Planning Department. [Not Accepted]



Karnataka Second State Finance Commission



Award Period: 2005–06 to 2010–11 Constitution: February 2002.41 Report Submission: December 2002. ATR: NA

Composition K P Surendranath M C Kodli K R Shashidhara

Chairman Member Member Secretary

41  The Commission was initially constituted in October 2000. But the then Chairman expired in October 2001 and the first member resigned from his post. Hence the Commission was reconstituted.

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Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the state government and the Zilla Panchayats, Taluk Panchayats, Gram Panchayats, Municipal Corporations, City Municipal Councils, Town Municipal Councils and Town Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the Zilla Panchayats, Taluk Panchayats, Gram Panchayats, Municipal Corporations, City Municipal Councils, Town Municipal Councils and Town Panchayats at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Zilla Panchayats, Taluk Panchayats, Gram Panchayats, Municipal Corporations, City Municipal Councils, Town Municipal Councils and Town Panchayats; (c) the grants-in-aid to the Zilla Panchayats, Taluk Panchayats, Gram Panchayats, Municipal Corporations, City Municipal Councils, Town Municipal Councils and Town Panchayats from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Zilla Panchayats, Taluk Panchayats, Gram Panchayats, Municipal Corporations, City Municipal Councils, Town Municipal Councils and Town Panchayats;42 The Commission was also to: 1. examine and make suggestions on the extent to which and the manner in which the resources available to the local governments could be best utilized for meeting the expenditure of these bodies and; 2. make a detailed analysis of the repayment of loans and advances extended by government from time to time to the local governments and make suitable recommendations for repayment of gov Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 42

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ernment dues and the possibility of adjusting these dues against future devolution revenues from government to these bodies. In making the recommendations the commission was to have regard, among other things, to the resources of the State Government and the demands thereon on account of expenditure of civil administration, debt servicing, development and other committed expenditure. Methodology Requisite data were formulated and collected through questionnaires. Interactive sessions were planned with 27 Zilla Panchayats, 175 Taluk Panchayats, selected Gram Panchayats and all the Municipalities which were arranged at the district level. Reports of First SFCs from select states were studied. Recommendations Global Sharing • Increase in percentage of Non-Loan Gross Own Revenue Receipts (NLGORR) as the share of Panchayats and Municipalities. Assignment of Revenues • Quantum of user charges levied to Gram Panchayats should not exceed 50% of the total operation and maintenance expenditure assessed by the Gram Panchayats in a financial year. • The minimum rate of property tax be fixed at 8% of the annual letting value and maximum at 12% of the annual letting value. Horizontal Distribution • NLGORR be shared in the ratio of 80:20 with Panchayats and Municipalities, respectively. • The revenue realized from all the tanks falling within jurisdiction of Gram Panchayats be fully assigned to the concerned Gram Panchayat.

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Grants-in-Aid • Out of the total share of the Municipalities, Rs. 5 crores each year be set apart to serve all Municipalities under ‘Common Purpose Fund’. • 1 lakh be given to Gram Panchayats out of Eleventh UFC grants for the purpose of maintenance of civil services in rural areas and the remaining amount be allocated to Zila Panchayats and Taluk Panchayats in the ratio of 40:60, respectively. • To encourage Gram Panchayats to maximize their revenue, Rs. 10 crores be earmarked for the incentivization scheme. Functions and Functionaries • Power to levy property tax is with Gram Panchayats. Other Measures • An incentive scheme be formulated by the government on similar lines as recommended for Gram Panchayats, after two years of implementation of the capital value-based taxation system. • Concept of user charges must be introduced at the Gram Panchayats level as an additional to the house tax/property tax. • Annual letting value should be revised by a designated authority for every Gram Panchayats once in four years. • The revenue realized by lease/ auction of sand beds and stone quarrying be utilized only for community development programmes and for protection of environment. • Consolidation of schemes which are multi sectoral in nature not confined to any one department should be integrated and the department identified by the government should implement such schemes. • Reduction in number of heads of Accounts by broadly categorizing them. • Funds released during the end of the financial year be permitted to be used after the concerned financial year is over, by giving three months’ time for utilization of funds. • A human resource management policy should be framed for regular recruitment to fill vacancies promptly.

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Kerala Second State Finance Commission



Award Period: 2001–02 to 2005–06 Constitution: June 1999 Report Submission: January 2001 ATR Submission: January 2004

Composition Prabhat Patnaik Professor, Jawaharlal Nehru University New Delhi K M Abraham Secretary, finance (resources) department Government of Kerala S M Vijayanand, secretary Local administration department Government of Kerala

Chairman

Member

Member

Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the State, Panchayats and Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the Government which may be divided between them under Part IX and Part IX—A of the Constitution and allocation between all levels of Panchayats at all levels and the Municipalities of their respective shares of such proceeds; (b) the determination of taxes, duties, tolls, and fees which may be assigned to or appropriated by the Panchayats and Municipalities; (c) the grants-in-aid to Panchayats/Municipalities from the consolidated fund of the State;

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2. Measures needed to strengthen the financial position of Panchayats and Municipalities43 with reference to:





(a) the scope of local governments to raise institutional finance and to suggest a frame work for local self-governments to take recourse to such sources along with procedures to be followed and limits, if necessary, to raise such resources; (b) the need for sharing the cost of maintenance of assets and institutions transferred to local self-governments, and evolving criteria for it, with due regard to the fiscal position of the state government and the local self-governments; (c) the steps necessary for efficient financial management with particular reference to efficiency in resource mobilization and economy in expenditure; (d) the settlement of claims and dues of Panchayats and Municipalities vis-a-vis government and governmental agencies; (e) the procedures to be followed for smooth flow of funds to local self-­governments and for ensuring proper financial accountability.

Methodology The Commission directly studied the functioning of each of the five types of local government with special reference to financial matters viz. Village Panchayat, Block Panchayat, District Panchayat, Municipality and Corporation by visiting one representative of each type. The Commission held consultations with representatives of local government associations viz., Panchayat Association, Block Panchayat Association and the Municipal Chairmen’s Chamber which, brought to the fore various issues relating to the finances of these local governments as recognized and felt by the elected representatives. Detailed discussions were held with the Secretaries and Head of Department involved in decentralization. The Commission held special meeting with the Finance Minister and the Finance Secretary. Also, there were exchange of views with the State Planning Board with particular focus on decentralized plan preparation and implementation. The Commission conducted a detailed analysis of the Report of the First Finance Commission and the follow-up action on

43  The distribution among the Panchayats with the present criteria of population, area and tax collection viz. 70, 25 and 5 per cent respectively shall be retained.

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it. The services of one consultant each were utilized by the Commission in respect of Panchayats and Municipalities. The Commission has entrusted the Institute of Public Auditors of India (IPAI) with the task of doing a thorough study of budgeting, accounting and audit systems in both Panchayats and Municipalities. Data from local governments has been collected through detailed questionnaire which were in two parts for Municipalities and Panchayats. Recommendations Global Sharing • Plan funds (excluding state sponsored schemes) not less than 1/3rd the annual size of the State Plan may be devolved to the Panchayats and Municipalities for planning and implementing locally relevant projects. [Deferred for further examination] Grants-in-Aid • 5.5% of the annual own tax revenue of the state government to be devolved to the Panchayats and Municipalities as grants-in-aid for maintenance of assets under their control, including the transferred assets. [Accepted] • 3.5% of the own tax revenue of the state government based on figures certified by the Accountant General could be devolved to Panchayats and Municipalities as general purpose grant. [Accepted] Horizontal Distribution • Up to 10% of the non- SCP/TSP funds may be distributed as an incentive for increased own revenue mobilization by the Village Panchayats and the Municipalities. This could be done as per the formula given as below:

i 

ri pi  ri pi.



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Where, θi—share for local governments i ri—percentage increase in its revenue pi—population of the local governments i [Accepted. Will be reflected in 2005–06 allocation to local governments] • The maintenance grants should be based on the current cost of replacement and the initial norms (to be updated periodically) may be as follows: –– Maintenance of buildings constructed before 1.4.1967—3% of capital cost –– Maintenance of buildings constructed after 1.4.1967—2% of capital cost –– Current construction cost—Rs 400/− per sq. ft. –– Frequency of resurfacing of black-top/WBM roads—Once in 5 years –– Annual repair expenditure of black-top roads—Rs 25,000/− per K M –– Annual repair expenditure of WBM roads—Rs 23,000/− per K M –– Annual repair expenditure of unsurfaced roads—Rs 20,000/− per K M –– Cost of re-surfacing black-top roads (3.8 meter width)—Rs 1.65 lakhs per K M –– Cost of re-surfacing WBM roads (3.8 meter width)—Rs 1.84 lakhs per K M [Accepted] • Distribution of maintenance grant could be as follows: –– 1/7th of the maintenance grant should be divided among District and Block Panchayats in the ratio of 19:1. –– Seven-eighth of the share of the Village Panchayats and Municipalities is to be distributed among the Village Panchayats, Municipalities and Corporations in the same ratio as VTC is currently divided; one-eighth of the share of the Village Panchayats and Municipalities should be distributed according to the maintenance needs of non-road assets, own and transferred, (other than those created after 1995) - as determined by norms. [Accepted] • After taking out the share of District Panchayats and Block Panchayats from the general purpose grant, the remaining amount may be distributed as follows:

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Village Panchayats Municipalities Corporations

351

78.50% 8.50% 13.00%

[Accepted] • The inter-se distribution among the Municipalities and Corporations should be based on population. [Accepted] Assignment of Revenue • For property tax, the recommendations of the first SFC to be operationalized. [Need not be pursued as action initiated for implementation of recommendation of 1st SFC] • Presumptive profession tax to be introduced to bring certain self-­ employed occupational groups into the tax net. [Accepted] • Entertainment tax to be introduced for cable and internet. [Accepted only for cable and not for internet] • Minimum rates of taxation to be fixed for different kinds of advertisement for different locations. This could be done by issuing ­advertisement tax rules which could set the guidelines for local governments to assess the tax. [Accepted] • Conversion tax at the rate of 5% of the capital value (in case of conversion of paddy lands). Half of this rate to be made applicable for other kinds of conversions. [Accepted] • The service tax should be made compulsory and linked to the cost of performing obligatory functions and calculated as a percentage of property tax. [Accepted] • The ceiling on surcharge to be removed. [Accepted]

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• Minimum fees for various kinds of licenses under non-tax revenue should be fixed for Municipalities and Corporations through notification. In case of Village Panchayats, only minimum amount to be fixed in the rules. [Partially accepted] • For periodically renewed licenses and permits, 25% of the license fee to be collected as fine for delay beyond a grace period of ten days; and this to be increased by 25% for every additional fortnight of delay. [Accepted] • The following fees to be enhanced: –– –– –– –– ––

Building fee for theatres License fee under Kerala Places of Public Resort Act License fee for private markets License fee for private slaughter houses License fee for brokers, commission agents, weigh men and measurers –– License fee for butchers, fishmongers, poulterers –– License fee for premises where animals are kept for commercial purposes –– Market fee –– Gate fee for public halting and parking places –– Gate fee for slaughter houses –– User charges for burial grounds, burning ghats and electric crematoria [Accepted] • 50% of building exemption fees and regularization fees to be given to the concerned Village Panchayats and Municipalities. [Accepted] • Rules for levy of advertisement tax in Village Panchayats and Municipalities to be issued immediately. [Accepted] Functions and Functionaries • A system for authenticating advertisement should be introduced. Penal provisions for unauthorized advertisements should be five times the normal tax. [Accepted]

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• A compulsory display by local governments on the spot for various items of revenue and in case of auctions, a district level public notice should be given in December about all the forthcoming auctions. [Accepted] • Present practice in Village Panchayats for calculation of trade licenses based on turnover should be done away with. For both VPs and Municipalities, minimum rates for each trade with separate rates in each category of small, medium and large establishment should be notified by the government. [Accepted] • A separate numbering system should be adopted for trade establishments [Accepted] • The meat stalls and the right to fish in water bodies to be auctioned every year by the concerned local governments after giving due publicity. [Accepted] • Village Panchayats may auction the right to set up temporary shops in public land. [Accepted] • Steps to finalize minimum land value for use in registering sales to be completed at the earliest. [Accepted] • All proposals for staff creation should be cleared by the Ombudsman. [Not accepted] • A Local Government Staff Commission to be set up to suggest redistribution of staff among local governments as well as from government to local governments. [Accepted] • Village Panchayats, Municipalities and Corporations should have a single account for crediting all their own revenues. [Accepted] Other Measures • Grants to local governments from Eleventh Finance Commission should be passed down as such, over and above the grants suggested by the Commission. [Accepted with modification that the grants due be devolved as part of grant but shown separately for each local government]

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• To avoid hardships during transition period, no Village Panchayat or Municipality should experience shortfall in its receipts on account of the transfers compared to previous year. [Accepted] • A separate numbering system should be adopted for trade establishments. [Accepted] • Tax mapping to be done immediately and unique premises numbering system introduced. [Accepted] • A single financing agency for local governments to be set up by merging KUDFC and the Rural Development Board. [Accepted] • The question of Village Panchayats and Municipalities levying daily fee for use of poramboke to be examined and decided by government without further delay. [Accepted] • Rationalization of revenue village and Village Panchayat/ Municipality boundaries to be done in such a way that no revenue village would lie within more than one Village Panchayat or Municipality. [Accepted. Further action by revenue department] • Shortfall in devolution of assigned and shared taxes vis-à-vis the accepted level to be made good by government. [Accepted] • Necessary amendments to the Kerala Panchayat Raj Act and the Kerala Municipality Act to be made to specify the minimum shares of local governments, of the plan grant, maintenance grant and general purpose grant. [Accepted] • Local governments should get automatic allocations at the beginning of every month. [Accepted] • A survey of the assets transferred to and owned by the local governments to be carried out to calculate the standard spending assessment for maintenance purpose. [Accepted] • All local governments should prepare annual maintenance plans. [Accepted]

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• Unpermitted diversion of funds should be penalized by charging a penalty of 2% per month from the persons responsible. [Accepted] • In case of plan grant-in-aid and maintenance grant-in-aid, bill system of drawing from treasuries should be introduced in the place of personal deposit accounts. [Accepted. Orders have been issued] • An empowered committee under the Chief Secretary to be set up to follow-up the accepted recommendations and implement them fully. [Accepted] • A cell under the joint control of finance and local self-government departments to be created for concurrent monitoring of all financial matters of local governments. [A cell in finance department is already looking after the financial matters of local governments.] • A separate budget document indicating local government-wise distribution of the three streams of grants-in-aid and grants-in-aid for pensions and for noon feeding to be prepared. [Accepted] • A legislative provision to be introduced for indexing non-tax revenue items, and taxes like property tax, advertisement tax and service tax. [Accepted]

Madhya Pradesh Second State Finance Commission 

Award Period: 2001–02 to 2005–06 Constitution: June 1999 Report Submission: December 2003 ATR Submission: March 2005

Composition S S Sisodia C S Mishra V C David M K Dixit

Chairman Member Member Member Secretary

Terms of Reference The Commission was required to review the financial position of local governments and make recommendations to the Governor as to-

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1. The principles which should govern: (a) The distribution between the State and the local governments of the net proceeds of taxes, duties, tolls and fees leviable by the state, which may be divided between them and the allocation between local governments at all levels of their perspective shares of such proceeds, (b) The determination of taxes, duties, tolls and fees which may be assigned to or appropriated by rural and urban local governments, (c) The grants-in-aid to local governments from the Consolidated Fund of the State, 2. The measures needed to improve the financial position of local governments.44 In addition to the above, the Governor of the state, in the interest of sound finance of Panchayats and Municipalities, included the following reference for the recommendations of the State Finance Commission: 1. (a) The objective of not only balancing the receipts and expenditure or revenue account of both the state government on the one hand and the Panchayats and Municipalities on the other, but also generation of surplus for capital investment and reducing fiscal deficit, (b) The resources of the state government and the demands thereon, in particular on account of expenditure on civil administration, police and judicial administration, debt-servicing and other committed expenditure or liabilities; (c) The maintenance and upkeep of capital assets and maintenance expenditure on Plan schemes to be completed by 31-3-2000 and the norms on the basis of which specified amounts are recommended for the maintenance of capital assets and the manner of monitoring such expenditure; (d) The revenue resources of the state government on the one hand, the Panchayats and Municipalities on the other, for the five years commencing on 1st April, 2000, on the basis of the levels of taxation reached in 1999–2000, targets set for additional resource mobilization for the Plan and the potential for raising additional taxes;  Establishment grant to PRIs at 5% increase every year.

44

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357

(e) The scope for better fiscal management consistent with efficiency and economy in expenditure; (f) The functions and services transferred by the state government to the Panchayats and the Municipalities in pursuance of the constitutional amendments vis-à-vis the transfer of services of employees engaged in those functions and services; (g) Recommendations of the Eleventh Finance Commission for Panchayats and Municipalities.

2. (a) Adopt a normative approach in assessing receipts and expenditure on revenue account of the state government, Panchayats and Municipalities, keeping in view the liabilities already committed. (b) Have due regard to the need for providing adequate incentive for better resource mobilization and financial discipline as well as closely linking expenditure and revenue raising decisions. (c) Taking into account the need for speed, efficiency and effectiveness of delivery systems for government programmes. Methodology Due to absence of any agency in the state which may collect comprehensive financial data in respect of local governments and unavailability of a mechanism in the state department of Rural Development and Panchayats for co-ordination and integration, in a systematic manner and on regular basis, the commission had to undertake the exercise of data collection from local governments relating to their revenue and expenditure and allied matters during the period of five years, 1995–96 and 1999–2000 and for making projections for the next five years, 2001–2002 to 2005–2006. For making a macro review of the finances of local governments in the state, the commission used the data furnished by the Eleventh Finance Commission. In addition, the Commission made attempts to collect budgets of local governments, along with other documents like the annual reports and audit reports. The members of the SFC made personal visits to a number of district/block head-quarters, to interact with the elected representatives of local governments and officials working there, with a view to getting first-hand information regarding the functioning of local governments, their difficulties and constraints in the way of resource mobilization and in the process of functional and financial decentralization. Since the number of rural local governments in the state is very large the Commission decided to take a sample of Gram Panchayats in the state

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and blow up the data for the whole state. While making projections of revenue and expenditure on some normative basis, the commission followed the methodology evolved by the Eleventh Finance Commission, with certain modifications. For making projections of tax revenue, non-tax revenue and revenue expenditure, we moved from micro to macro. In regard to projection of own tax revenue we have adopted the representative tax approach in contrast to the aggregative tax revenue approach adopted by the Eleventh Finance Commission. Recommendations Global Sharing • After deducting 10% collection charges, 2.93% to be given to the Panchayats out of the State’s own tax revenue. 1.07% share of the divisible pool to be allotted to the Municipalities. [Accepted] Assignment of Revenues • Continuation of the devolution of net proceeds of land revenue, surcharge on stamp duty and cess on sales tax in the form of assigned tax revenue. [Accepted] • Net revenue from entertainment tax at present being levied and collected by the State Government to be assigned to Municipalities on the basis of the collection from their respective jurisdiction. [Not Accepted] • Revenue from entry tax, passenger tax and cess/surcharge on certain taxes to be continued to be assigned to Municipalities in proportion to collection of revenue from their respective jurisdiction. [Accepted] • Inclusion of entertainment tax in the category of assigned taxes to Municipalities. [Not Accepted] • Re-imposition of Octroi by the Municipalities. [Decision after further examination] • The industrial and commercial establishments in rural areas also to be brought within the orbit of property tax. [Not Accepted]

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359

Horizontal Distribution • Out of the divisible amount of the tax revenue to the Panchayats, 90% to be given to the District/Village Panchayats on the basis of population ratio and remaining 10% to be allocated among such districts where rural population of SC and ST is 10% or more of the rural population of the respective districts. [Accepted]45 • 10% of the total amount of divisible pool of Municipalities to be pre-­ empted for allocation on to such Municipalities which have slum population higher than 10% of their respective population, as per 2001 Census. Remaining 90% amount is to be allocated to the Municipalities of the State on the basis of their respective population including slum population according to 2001 Census. [Accepted] Grants-in-Aid • The general purpose grant of Rs. 50 crores to Village Panchayats. [Not Accepted] • General purpose grant of Rs.14.65 crores to Janapads and Rs.2 crores to Zila Panchayats for maintenance of buildings. [Accepted] • Establishment grant (specific grant) of Rs.28.40 to Panchayats for the payment of honorarium and other payments to the staff working in the three- tier Panchayats, with a provision of 10% increase in the amount of grant every year to be given. [Accepted]46 • Specific grant of Rs.5 crores to the Zila Panchayats for organizing training programmes at the district level for the elected representatives of Panchayats in their respective jurisdictions. [Accepted] • Rs. 8.5 crore for the purpose of general-purpose grants to Municipalities. [Not Accepted] 45  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 46  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Other Measures • Creation of a separate service cadre for professionals in the field of municipal administration, engineering, environment management, spatial planning, architecture, public health and accounts. [Not Accepted] • Present system of participation of Panchayats in primary education through autonomous bodies may be strengthened and continued. [Not Accepted] • Setting of State Panchayat level service cadre. [Not Accepted]

Maharashtra Second State Finance Commission 

Award Period 2001–02 to 2005–06 Constitution: June 1999 Report Submission: March 2002 ATR Submission: March 2006

Composition S Habeebullah Vijay Naval Patil Mukund Ghaisas Vijay Bhaise G S Sandhu

Chairman Member Member Member Member Secretary

Terms of Reference The Commission was required to make recommendations as to the following: The principles which should govern: 1. the distribution between the State, Panchayats and Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the Government which may be divided between them under Part IX and Part IX—A of the Constitution and allocation between all levels of Panchayats at all levels and the Municipalities of their respective shares of such proceeds;

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361

2. the determination of taxes, duties, tolls, and fees which may be assigned to or appropriated by the Panchayats or as the case may be the Municipalities; 3. the principles which should govern the grants-in-aid to Panchayats or as the case may be Municipalities from the consolidated fund of the State.47 In making its recommendations, the Commission was to have regard, among other considerations, to (a) the projected gap between the revenue receipts and revenue expenditures (non-plan or non-development or both) of the Panchayats and the Municipalities in the State for five years from 1st April 2001 on the basis of their level of taxation likely to be reached in 1999–2000; (b) the measures and the extent to which the Panchayats and the Municipalities have exploited the available and the potential sources of the revenue and the manner and the extent to which their revenue gap can be reduced by such measures; (c) the principles of financial assistance from the State Government to the Panchayats and the Municipalities as may be determined by the Commission taking into account the provisions of clauses (a) and (b) above. In making its recommendations on the various matters aforesaid, the Commission was mandated to adopt the population figures of 1991 census, where population is regarded as a factor for determination of devolution of taxes and duties and grants-in-aid. (d) the outstanding debt position as on 31st March 1999 of the Panchayats and the Municipalities; and specify• The principles and procedures to regulate the borrowing power of the Panchayats and the Municipalities; and • The steps needed to contain the debt liabilities taking into account their resource position. 47  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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(e) The resources of the State government and the demands thereon, in particular, on account of expenditure on civil administration, police, social and economic services, debt servicing and all other committed expenditures or liabilities and non-plan revenue expenditures; (f) The maintenance and upkeep of the capital assets of the Panchayats and the Municipalities, and work out the norms for their adequate maintenance with due regard to their resource position and introduce measures for mobilizing resources locally to meet these liabilities; (g) The need for ensuring reasonable returns on investment made, if any, by the Panchayats and the Municipalities as the case may be, in irrigation projects transport undertakings, pipe water supply schemes; borewell programs and other activities of commercial nature, if any. The Commission was also required to make the recommendations about introducing a scheme for calamity relief and considering the need to have a calamity relief fund on the lines of the calamity relief fund scheme recommended by the Tenth Finance Commission. Methodology Financial and other data were obtained directly from the local governments. Budgetary data and projections were obtained from Finance Department. Study groups were constituted by different departments of local governments and intensive interactions were carried out with concerned officials. Seminars and workshops were conducted and were participated in by the senior members of the Commission. Recommendations Global Sharing • State should pass 40% share of its taxes, duties, tolls and fees leviable, to the Panchayats and the Municipalities. [Rejected] • Out of the devolution, 5% should be reserved for incentives in birth control, 95% of the devolution funds, should be distributed to Panchayats and Municipalities. [Rejected]

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363

Assignment of Revenues • Entertainment tax imposed by Gram Panchayat to the families, cable T.V. operators and small cinema houses. [Not considered] • Area based property tax is compulsory for all the Village Panchayats. [Not considered] • The power to levy property tax should be conferred on the Municipalities, in addition to those resting with the State, up to maximum limit of Rs. 2500/− and relevant to local situation. [Rejected] • It is binding on the Village Panchayat to impose private and general water tax at revised rates. [Not considered] Horizontal Distribution • Allocation of the devolution funds, should be in the ratio of 80:20 to the Panchayats and the Municipalities which should settle at 75:25 in future. [Not considered] • Allocation of various tiers of Panchayats within a district should be made in the proportion of 85:5:10 to Zilla Parishads, Panchayat Samitis, and Village Panchayats, respectively. [Not considered] Grants-in-Aid • All Village Panchayats shall be given Tax Recovery Incentive Grant on the basis of recovery of all the previous financial year. [Rejected] • Special grant for Village Panchayats to eliminate backlog in the districts of Marathwada, Vidarbha, Konkan and the rest of Maharashtra where backlog regarding development exists. [Not considered] • The additional funds to be made available to Municipalities through VAT system should not be treated as a share within ‘Global Devolution’ but should be in addition to that. [Rejected]

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Functions and Functionaries • At Zilla Parishad level, the Chief Executive Officer should work out the amount of Tax Recovery Incentive Grant to each of the Village Panchayats. [Not considered] • The total grant amount shall be given to each Zilla Parishad by the state and Zilla Parishad shall distribute it among eligible Gram Panchayat. [Not considered] • The CEO of Zilla Parishad can take final decisions on case if the Village Panchayat encounter any technical or legal difficulty in executing the works as per the plan sanctioned by Gram Sabhas. [Not considered] Other Measures • Present limit to sanction loan from District Village Development Fund by the standing committee should be revised up to Rs. 100 Lakhs. [Not considered] • The government should study the haphazard growth of village in each of the talukas and establish a planned village or town in the areas near such villages. [Partially accepted] • The Government should increase the number of sanctioned posts of VDOs and Gramsevaks. [Not considered] • The Government should study whether to raise the minimum educational qualifications for the post of Gramsevak. [Not considered] • While computerizing Village Panchayat, 50% expenses of training be borne by employee and remaining by concerned Village Panchayat. [Partially accepted] • The Government should study whether Jr. engineers to be appointed for the Village Panchayat could be paid from the consolidated Village Panchayat funds at district level or from their own funds. [Partially accepted]

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• The calamity relief funds for urban and rural areas should be established. For this, the Municipal Corporations/Municipalities/Zilla Parishads should be directed to credit half per cent of their respective revenues income every year to this fund. [Not considered] • For preservation of State Finance Commission, the government to establish an Information and Research Centre. [Partially accepted] • Necessary amendment in the Village Panchayat Act for the attendance of employees at meetings. [Partially accepted]

Manipur Second State Finance Commission 

Award Period: 2001–02 to 2005–06 48 Constitution: January 2003 Report Submission: November 2004 ATR Submission: December 2005

Composition S S Sharma Secretary, government of India M Iboton Singh S. Ibochouba Singh H Deleep Singh Joint secretary, government of Manipur O.P. Bohra was also appointed as consultant

Chairman Member Member Secretary

Terms of Reference The Commission was required to make recommendations as to the: 1. The division of net proceeds of the taxes, duties, tolls and fees leviable by the State between the State and the local governments in accordance with part IX A of the Constitution and allocation between the local governments of their respective shared. 2. The taxes, duties, tolls and fees to be assigned to or appropriated by local governments.  Award period of the Commission was extended till March 2010.

48

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3. The principles governing the grants-in-aid (including specific amounts to be paid) to local governments.49 4. Classification of tolls/taxes/duties to be exclusively levied by the local governments. In making its recommendation, the Commission was required to have regard among other considerations, to (i)  the relevant recommendation of the Eleventh Finance Commission (EFC). (ii) the resource position of the State. (iii) the respective responsibilities of the State Government and local governments and the overall limitations of revenue. (iv) the objective of balancing the receipts and expenditure on revenue account of local governments. (v) the revenue resources of local governments, targets for additional resource mobilization (ARM) and scope for economy measures. (vi) promoting fiscal autonomy as well as fiscal responsibility among local governments. (vii) the resource structure adopted for annual plans. (viii) the need for balanced inter-sectoral and inter-regional development, inter and intra municipal equity and coverage of various target group like SCs, STs and other. With regard to (v) above, the Commission was also required, among other things, to (i) review the functions vested in the local governments and suggest needed changes; (ii) review their territorial jurisdictions and suggest needed changes to improve fiscal viability; (iii) analyse and develop norms for; (a) collection of taxes and non-tax revenue including property tax. (b) performance of services, including standards and unit costs (c) expenditure on establishment 49  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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(iv) forecast for each of the five years period; (a) revenue receipts (b) revenue expenditure (c) revenue gap/surplus; (v) specify desirable pattern, principles and procedures of development/plan assistance to the local governments; (vi) specify needed changed including desirable pattern in fiscal relationship between local governments and the development authorities and other infrastructure agencies; and (vii) suggest corrective measures for proper administration of the capital account with specific suggestions regarding principles and procedure to regulate their borrowing power. Methodology Not clearly mentioned in the report. Recommendations Global Sharing • 10% share for the Panchayats including District Councils and Municipalities in the State’s own revenue including the State’s share of central taxes. [Accepted] • As regards the respective shares in the above, of District Councils in the hill district and the Panchayats and Municipalities in the valley districts, the share of the District Councils should not be less than 45%. In other words, the Panchayats and Municipalities will together get the remaining 55%. [Accepted] • Accordingly, the respective shares of Panchayats and Municipalities in the valley districts of Manipur in the total devolution from the State’s taxes would work out to be 34.38% and 20.62% respectively. [Accepted]

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Assignment of Revenues • To make financial empowerment more effective, the local governments need to be encouraged to utilize their taxation powers by: –– fixing the following as minimum target of taxation as percentage of their total budget: Imphal Municipal council 50% of their total budget Other Municipal council 20% of their total budget Nagar Panchayats 15% of their total budget Village Panchayats 10% of their total budget Zilla Parishads 5% of their total budget –– promotion of a system of incentives to encourage the local governments to raise their own resources through judicious exercise of their powers of taxation is required. An incentive Fund with a corpus of Rs. 5 crores (Rs.2 crores each for village Panchayats and District Councils and Rs. 1 crore to Municipal Councils and Nagar Panchayats) should be set up for the purpose. [Accepted] • Introduction of Profession Tax for specified occupations. [Accepted] • The State Government should take appropriate steps to exploit the rich resource potential offered by entertainment tax as in other states. It demands for a system of assessment based on seating capacity and occupancy ratio. [Accepted] • Cable TV operators should be liable for entertainment tax. [Accepted] • Revenue collection from land revenue should be transferred to the Panchayats, who should be allowed to retain the amount collected after remitting 15% of it to the Zilla Parishads for supervision etc. [Accepted] • At least 45% of the share of local governments in state taxes ­including state’s share in central taxes should go to the District Councils. [Accepted]

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• The entire collection of hill house tax to be made over to the District Councils after retaining 6.25% of it towards the cost of collection. [Accepted] • Land conversion tax as a onetime charge may be imposed and collected on the minimum capital value of the land as may be notified by the State Government. [Accepted] Horizontal Distribution • The following criteria and weight shown against each should be adopted for deciding the share of the various District Councils in the total share of state taxes falling to District Councils Criterion

Weight

Population (2001 Census) Area Distance of ADC HQ from the state capital Economic backwardness (Literacy-5% and villages electrified −5%) Additional resource mobilization (ARM) and economy measures.

60% 10% 10% 10% 10%

[Accepted] • The total share of Panchayats in a district should be determined according to the following formula: Criterion Rural population Distance from state capital Literacy (as a proxy for economic backwardness)

Weight 80% 10% 10%

[Accepted] • As for sharing of resources between the Zilla Parishad (District level Panchayat) and the Gram Panchayats (Village Panchayats) in a district, the respective share should be maintained at 15% and 85% so long as there is a two tier Panchayat structure in Manipur. [Accepted]

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• In case it is decided to have a full three tier structure, as prescribed in the Constitution for States having a population of more than 20 lakhs, then the share of the three tiers should be as follows: Criterion Zila Parishad Block Panchayat Gram Panchayats

Weight 10% 15% 75%

[Accepted] • 20% of the share of Municipalities in the devolution to be earmarked for Imphal Municipality. The remaining amount to be released in favour of other Municipalities for sharing according to the prescribed formula. [Accepted] Grants-in-Aid • At least 50% of the centrally sponsored anti-poverty programme fund should flow to the local governments in the state. [Accepted] • Every District Council school should be given a grant-in-aid @ Rs.750/− per annum for purchase of essentials like chalk, registers and stationery etc. [Accepted] • Every District Council school should be given a grant-in-aid of Rs.750/− per annum for carrying out essential repairs of school furniture, fixtures and fittings. [Accepted] • Every District Council school should be given a grant-in-aid of Rs.5000/− per year for the remaining two years of the Commission’s term, i.e., 2004–05, and 2005–06 for purchase of class rooms furniture. [Accepted] • Every District Council school should be given a grant-in-aid of Rs.1000/− per annum for purchase of games and sports material. [Accepted]

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• The subject of IVRs, along with minor bridges and culverts en-route should be transferred to the Engineering Cell under the ADCs, along with sufficient budgetary allocation every year to enable them to look after the work of both construction of new roads, and maintenance and repairs of existing IVRs. Annual allocation of Rs.10 lakhs should be given to every District Council for this purpose. [Accepted] • Similarly, the subject of planning and implementation of simple gravity fed drinking water supply schemes in villages should be transferred to the Engineering Cell under the District Councils along with appropriate budgetary allocation. Annual allocation of Rs.25 lakhs should be given to each District Council for this purpose. [Accepted] • All the existing Block roads and water supply schemes should be transferred to the Engineering Cell under the District Council, each of which should be provided Rs.25 lakh every year (Rs.12.5 lakhs for roads, and Rs.12.5 lakhs for water supply schemes) by the Tribal Development Department for their upkeep. [Accepted] Functions and Functionaries • The State Government must speed up the process of transfer of functional responsibilities including devolution of financial powers to local governments in keeping with the letter and spirit of the Constitution and to obtain greater devolution from UFC to local governments. [Accepted] • In order to maximize the share on account of the factor of decentralisation effort in the finance commission award and to ensure that local governments get a better deal from the Twelfth Finance Commission, corrective action should be taken along the following fronts:–– Greater decentralisation and devolution of powers and functions upon the local governments should be undertaken by bench marking against the best performing States; –– Holding of long over-due election to the District councils without further delay; –– Constitution of District Planning Committee in accordance with the provision of Article 243 ZD of the Constitution. [Accepted]

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• The total administration of the beneficiary oriented programmes be transferred to the local governments subject to such guideline as the State Government may deem it fit to impose. Pending the same, no changes should be made in the list of beneficiaries recommended by local governments without recording reasons in writing that can withstand judicial scrutiny, if necessary. [Accepted] • It would be necessary to take all steps well in time to meet the conditionalities laid down by EFC and the Government of India to avail the funds specifically earmarked for the local governments so that no part of this funding lapses. [Not Considered] Other Measures • Committee consisting of Chief Secretary/Additional Chief Secretary as Chairman, Finance Commissioner as Member and Commissioner MAHUD as Member Secretary will scrutinize claims for incentive for ARM and economy measures by Municipalities and decide their entitlements. [Not Considered] • A practice should be followed to auction rights to set up temporary shops etc. in Panchayats/ Municipal lands by local governments during fairs and festivals by making a suitable provision in the relevant acts/rules. [Accepted] • Provision of essential classroom furniture [Accepted] • Proper pyramidical structure under the Executive Engineer should be set up in the Engineering Cell under the District Councils so that each level has an appropriate number of subordinate level of officers to supervise who in turn have a sufficient number of complementary staff to assist them. The number of assistant engineers in the Engineering Cell should be equal to the number of revenue ­ subdivisions/TD Blocks in the ADC area so that there is one designated assistant engineer to look after the public works of ADC in each subdivision/TD Block. [Accepted]

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Odisha Second State Finance Commission 

Award Period: 2005–06 to 2009–10 Constitution: June 2003 Report Submission: September 2004 ATR Submission: August 2006

Composition Trilochan Kanungo Nihar Ranjan Hota Prasanta Kumar Tripathy Sudhakar Panda Department of Analytical and Applied Economics, Utkal University. Durga Prasad Dash Addl. Secretary to government, General administration department

Chairman Member Member Member

Member Secretary

Terms of Reference The Commission was required to make recommendations relating on the following matters 1. The principles which should govern (a) the distribution between State and Panchayati Raj Institutions and the Municipalities of the net proceeds of taxes, duties, tolls and fees leviable by the State which may be divided amongst them under Part-IX and Part-IXA of the Constitution and the allocation between the Panchayats at all levels and the Municipalities of their respective shares of such proceeds, (b) the determination of taxes, duties, tolls and fees which may be assigned to, or appropriated by Grama Panchayats, Panchayat Samitis and Zilla Parishads or, as the case may be, Municipalities, and (c) the grants-in-aid to the Grama Panchayats, Panchayat Samitis, Zilla Parishads or, as the case may be, Municipalities from the Consolidated Fund of the State.

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2. The measures needed to improve the financial position of the Grama Panchayats, Panchayat Samitis, Zilla Parishads and Municipalities Or 3. any other matter, which the Governor may refer to the Commission in the interest of sound finance of Grama Panchayats, Panchayat Samitis, Zilla Parishads and Municipalities.50 In making its recommendations, the Commission was also to have regard, among other considerations, to:— 1. the revenue proceeds of the State Government and the demands thereon, on account of expenditure on Civil Administration, Police and Judicial Administration, Education, Maintenance of Capital assets, Social Welfare, Debt Servicing and other committed expenditures and liabilities; 2. the functions and liabilities of Panchayats and, Municipalities in respect of discharging and implementing the schemes entrusted to them under article 243-G and 243-W of the Constitution; 3. the revenue resources of Panchayats and Municipalities at all levels for five years, commencing from the 1st April, 2005 on the basis of levels of taxation reached in 2001–02, target set for additional resource mobilization and potential for mobilizing additional resources; 4. the scope for better fiscal management consistent with the need for speed, efficiency and cost effectiveness of delivery of services; and 5. the need for providing adequate incentive for better resource mobilization as well as closely linking expenditure and revenue raising decisions. The report of the Commission mandated to contain specific chapters, narrating; . the approach adopted by it, 1 2. an analysis of the resources of the State Government, and, 3. an analysis of the resources of Panchayats at each level and also Municipalities at each level. 50  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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The Commission was to indicate the basis on which it has arrived at its findings. Methodology The Commission designed a set of questionnaires for collection of information/ data from different Panchayats and Municipalities for analysis, interpretation at the time of preparation of report and recommendation. The questionnaires were sent to different quarters requesting for information. With a view to acquiring first-hand information regarding the functioning of different Panchayats and Municipalities in various parts of the State, the Chairman and the Members of the Second SFC decided to go on field visits individually and also in a body. The Commission also decided to have a series of discussions and interaction with different categories of persons connected with local self-governance; namely, government officers, employees of the local governments, ministers and the office bearers of Urban and rural local governments of the State. In order to acquaint themselves with the resources position, levy of taxes, different modes of organization of resources, manner of functioning etc. of local governments in other States of the Union, the Commission visited the states of West Bengal, Karnataka and Kerala and held discussions with the Ministers, Secretaries and other officials of concerned Departments. The Commission visited the Zilla Parishad in Barasat and Municipality in Bhadreswar in West Bengal, Municipal Corporation, Zilla Parishad, State Institute of Urban Development and Kurugoli S.P. in Mysore and the State Planning Board in Kerala. The Chairman visited Mumbai for interacting with the Minister Urban Development Department and Secretaries of Finance, Urban Development and Rural Development Departments regarding strategy taken by the State of Maharashtra for mobilization of the resources of the Panchayats and Municipalities, for creation and maintenance of infrastructure in rural and urban area of the State and for improving the living conditions of people residing there. Recommendations Global Sharing • 10% of the average of State’s Gross Own Tax Revenue from 1999–2000 to 2001–2002 which comes to Rs.211.83 crores for devolution to the Panchayats and Municipalities each year, during the Award period from 2005–06 to 2009–10 (altogether Rs.1916.505 crore for the period 2005–10).

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• It should be allocated to the Panchayats and Municipalities in the ratio of 80:20. Assignment of Revenues • Certain taxation measures would help in augmenting the internal revenue of the Panchayats these areas– –– –– –– –– –– –– –– –– –– –– –– –– –– ––

reintroduction of Panchayat tax turnover tax on commercial agricultural farms livestock registration and development fee capital/ property transaction fee population welfare cess pisciculture cess education, environment and health care cess on industries, mines, ports and jetties and power plants parking fees license fees from shops on the basis of turn over toll fees for using Gram Panchayat and Panchayat Samitis roads local government cess by Forest Corporation for Kendu Leaves Collected local government health fees from private hospitals and nursing homes pilgrim fee turn over tax on minor forest produce

• Like the Panchayats, the Municipalities in the State are also starving for funds and have no expandable tax- base. The Commission for the same reasons, recommended the following taxation measures in respect of the Municipalities: –– –– –– –– –– –– –– –– –– –– ––

Possession Tax on encroached land Turnover Tax on Commercial Agricultural Farms Livestock Registration and Licence Fee Capital / Property Transaction Fee. Population Welfare Cess Pisciculture Cess Education, Environment and Health Care Cess on Industries, mines, ports and jetties, power plants Parking Fee. Licence Fees from shops on the basis of annual turnover. Local government Health Fee from Private Hospitals and Nursing Homes. Pilgrim Fee

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377

Horizontal Distribution Devolution to the Panchayats • In each of the villages of each Grama Panchayat there must be a regular monthly interaction meeting. An amount of Rs.0.75 lakh per Gram Panchayat per year i.e. Rs.46.755 crores per  annum for the 5 years of award period) for the purpose of such knowledge and skill empowerment through monthly interaction meetings in every village. • An amount of Rs.0.25 lakh per Gram Panchayat per year, i.e. Rs.15.590 crores per year for the 6234 Gram Panchayats is recommended for appointment of a person as ‘Data Bank’ and publication of an annual Gram Panchayat profile regularly. • An amount of Rs.0.25 lakh per Gram Panchayat per annum is recommended, i.e. Rs.15.590 crores for all the 6234 Gram Panchayats for disaster relief. • An amount of Rs.5.4 crores for all the Gram Panchayats in a year and Rs.4 crores for all the Zilla Parishad per annum for maintenance of buildings and classrooms, supply of teaching-aids and equipment, library books etc. for improving functional literacy. • A sum of Rs.30.40 crores for the 5  years of the award period for providing mobile health units to the Panchayat Samitis to make health services reach the poor in every nook and corner. • A total amount of Rs.2 crores per annum, i.e. Rs.10 crores for the award period is recommended in favour of the Zilla Parishads, for providing drinking water facilities. • Provide Rs.30 crores each year to the Panchayat Samitis (i.e. Rs.150 crores for the award period) for developing watersheds to boost agricultural production. • Devolution of Rs.9.75 crores at the rate of Rs.1.95 crores per annum to promote literacy among the school going children, particularly female children in the tribal blocks. • Provide the newly opened Gram Panchayats with Rs.11.76 crores in the 1st year of the award period for office building, furniture, etc. • To provide funds to riverine Gram Panchayats for country boats at the rate of Rs. 10,000/− per boat. • An amount of Rs.21.58 crores spreading over the period of five years for construction of buildings for library purposes and for providing books and journals and personnel for running the libraries.

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• For the purposes of maintenance of drinking water schemes, sanitation, livestock improvement, electricity charges, maintenance of productive assets, maintaining vital statistics, etc. untied funds at the ratio of 50:30:20 is recommended to the Zila Parishads, Panchayat Samitis and Gram Panchayat. Devolution to Municipalities • An annual increase of 20% in the transfer of entry tax in favour of all Municipalities for the award period, in place of the prevailing annual increase of 10%. • Provide Rs.7.20 crores to the 103 Municipalities and NACs excluding the two corporations, in the first year for construction of 180 numbers of public toilets at a cost of Rs.4 lakhs each in the first year of the award period and Rs.0.90 crore during each of the following four years for their day-to-day management and maintenance. The total expenditure on this account for the five years comes to Rs.10.80 crores. • A total amount of Rs.14.42 crores is recommended for construction of library building and provision of books and periodicals for the total period of five years for the 103 Municipalities and NACs, excluding the two corporations. • Provision of Rs.1 crore to each of the two Municipal Corporations per year (i.e. Rs.10 crore for the award period). Distribution of the balance among the Municipalities and NACs on the weight of 40% on density of population, 30% on number of holdings and 30% on revenue collection efficiency. Grants-in-Aid • 10% of the Gross Own Tax Revenue of the State for the year 2002–03 minus the Devolvable amount, i.e. Rs.171.47 crores (Rs.383.30– Rs.211.83) is recommended towards grants-in-aid for different specific problems. Functions and Functionaries • Along with the activities delineated under the activity mapping, adequate gripping power over the functionaries of the concerned 21 Departments of the Government should also be given to the Panchayats to enable them to function as “Institutions of Self-

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Government”. More specifically, powers like performance appraisal, supervision and monitoring, power to call for report / information, routine administrative control powers, powers of imposition of minor penalties and powers to sanction development works are recommended for making the empowerment efficacious. • The DRDA should be fully merged with the Zila Parishads, with a full time Executive Officer for the Zila Parishads. • Stringent punishment for un-hygienic and uncleanliness habits in urban localities • The State Government should provide necessary training, expertise and assistance to the staff and beneficiaries for mosquito and fly eradication in the urban areas, through the respective elected councils. • The roads belonging to different line departments lying within the jurisdiction of Municipalities be handed over to the concerned Municipalities with funds equivalent to last three years average expenditure on such roads for proper upkeep and maintenance. • The State Government, the Elected Councils / Corporations and the Electricity Supply Company of the town / city must sit periodically to chalk out programmes for keeping the streets well-lit and to draw up plans for underground electricity cabling. • The function of providing safe drinking water and the functionaries, particularly technical and funds now spent on this account on an annual average of last three years, should be transferred to the respective Municipality for effective supply, service and maintenance. • The local governments must find funds and commit themselves to provide a nutritious lunch to the poor children after proper identification. The Ward Member / Councillor / Corporator should control and manage the education programme and should be officially accountable. The Gram Panchayat/ Town must prepare an advance action plan for education programme and the programme should be closely monitored by the Panchayat Samiti / Municipal Council apart from the educational officers. All money released by the ministries and departments of the central and state. • Government in charge of welfare of S.Cs and S.Ts, towards education should be channelized through the local governments. • Establishment a State Institute of Urban Development. • Repeal the Orissa Agricultural Produce Markets, Act, 1956 and to transfer all markets now managed by the Regulated Marketing Committees to the concerned Gram Panchayat.

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• Amendment in existing Rules regarding Sairat sources and Minor Minerals and all such sources situated within the area of Grama Panchayats to be transferred to the control and management of the respective Grama Panchayats. • The Executive Officer of the Gram Panchayat be declared as the Registrar / Sub-registrar of births and deaths and authorized to issue birth and death certificates by collecting prescribed fee for issue of such certificates. • Transfer of the markets under the management of the Regulated Market Committees to the concerned Municipalities. • Transfer of all the Sairat Sources and Minor Minerals to the concerned Municipalities. Other Measures • The amount devolved should be released in three instalments during the 2nd week of April 1st week of August and 1st week of December, every year. • There is no provision in the constitution regarding synchronization of the recommendation periods of the Union Finance Commission and the State Finance Commission. Besides, Article—243-I stands as a barrier to constitute the State Finance Commission earlier than the expiration of the fifth year from the date of constitution of the former Commission. The Commission recommends initiating necessary action for removing these deficiencies. • Statutory provisions be made for placing the reports of the State Finance Commission along with Action Taken Report before the State Legislature within six months from the date of submission of the report to the Governor. • Constitute a strong cadre of officers for the Municipalities with proper training facilities for them to have the required expertise in urban development and management. • Appoint an Expert Committee to study the man power requirements of all the Municipalities and to suggest a staffing pattern, recruitment procedure, etc. • Revamp the Public Distribution System by involving Panchayats. • Arrange Oriya rendering of the whole report of this Commission and to make it available to all the Panchayats and Municipalities within one year of submission of the report.

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Action Taken Report The State Government have decided to transfer Rs.1256.29 crores to local governments in place of Rs.735.43 crores recommended by the second State Finance Commission. The existing pattern of distribution of Kendu Leaf Grant to continue (i.e. @ 72% to Gram Panchayats, @ 10% to Panchayat Samitis, @ 8% to Zila Parishads and @ 10% as Hard Cash Kendu Leaf Grant to be distributed by Government). The annual average transfer of fund would be Rs.50.26 crores and this would include the following: • Road maintenance grant @ not less than Rs.15.00 crores per annum • Surcharge on stamp duty for development authorities @ Rs.3.00 crores per annum • Surcharge on entertainment tax @ Rs.0.15 crore per annum. • Pensionary contribution by State Government for Non-LFS ­employees of the Municipalities. • The State Government’s share as per the agreed pattern for the non-­ teaching posts approved prior to 1.1.74 and for the teaching posts approved prior to 1.11.76. Since the teaching and non-teaching staff of the Schools hitherto managed by the Municipalities. As recommended by the second State Finance Commission, the State Government will provide 20% increase per annum towards compensation on entry tax to the Municipalities. But out of this 20% hike, 10% hike would be passed on to the Municipalities as untied resources and the balance 10% hike would be released by the State Government to the concerned Municipalities based on their performance in undertaking various reforms including augmentation of internal non-debt resources. The local governments should ensure appreciable growth in their own non-debt revenue from year to year to take care of the basic services supposed to be provided by the local governments. Appropriate incentive schemes should be worked out by Panchayati Raj Department and H&UD Department to encourage the local governments to increase their own revenue. Other recommendations and suggestions including revenue generation measures as recommended by the second State Finance Commission have been accepted by Government.

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Punjab Second State Finance Commission 

Award Period: 2001–02 to 2005–06 Constitution: September 2000 Report Submission: February 2002 ATR Submission: NA

Composition B B Mahajan O P Mathur, Housing and urban economics NIPFP, New Delhi N K Arora Principal secretary, local government Government of Punjab J S Kesar Financial commissioner Rural development and panchayats Government of Punjab S P Karkara Rajesh Chhabra B C Gupta

Chairman Member

Member (up to 5.3.2001)

Member

Member Secretary Member (from 5.3.2001 to 15.10.2001) Member (from 15.10.2001)

Terms of Reference The terms of reference required the Commission to make recommendations on the following matters: In the case of ‘Panchayats’ as to: 1. The principles, which shall govern: (a) The distribution between the State and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them and the allocation between the Panchayats at all levels of their respective shares of such proceeds; (b) The determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Panchayats; and (c) The grants-in-aid to the Panchayats from the Consolidated Fund of the State.

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383

2. The measures needed to improve the financial position of the Panchayats. 3. Any other matter referred to the Finance Commission by the Governor in the interest of sound finances of Panchayats. In the case of ‘Municipalities’ as to: 1. The principles, which shall govern: (a) The distribution between the State and the Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them and the allocation between the Municipalities at all levels of their respective shares of such proceeds; (b) The determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Municipalities; and (c) The grants-in-aid to the Municipalities from the Consolidated Fund of the State. 2. The measures needed to improve the financial position of the Municipalities. 3. Any other matter referred to the Finance Commission by the Governor in the interest of sound finances of Municipalities.51 Methodology The Commission devised detailed and exhaustive information proformae about functions, income and expenditure, grants received from various sources, and under various schemes, indebtedness, level of civic services, future requirement of funds etc. and sent these to all the Municipal Corporations, Municipal Councils, Nagar Panchayats, Zila Parishads, Panchayat Samitis and Gram Panchayats. The received data from the local government was then scrutinized, tabulated and analysed. A detailed questionnaire covering all important issues relating to the finances of the Municipalities and Panchayats was prepared to be placed in the offices of Deputy Commissioners, the Sub-Divisional Officers (civil) and local governments. The Commission also tried to collect information from other states about the finances of the state governments and the local governments. Interaction with the senior officers of the state governments and

51  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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experts provided valuable information and ideas. District level meetings were held with Divisional Commissioners, Deputy Commissioners, Regional and District level Officers of local government. Recommendations Global Sharing • 4% of the net receipts from all state taxes to be transferred to the local governments during the period covered by the report, viz. 2002–03 to 2005–06. • Share in the state taxes may be allocated between the Panchayats and Municipalities in the ratio of population living in areas of Gram Panchayats and Municipalities as per 2001 census, viz. 67.5% and 32.5%, respectively. Assignment of Revenue • All Municipalities should start levying the property tax on vacant land on which no building has been erected but on which building can be erected and on any land on which building is in the process of erection. • Profession tax to be imposed in all Municipalities on persons practicing any profession or carrying out any trade or calling in the area of Municipalities. • Municipalities to levy suitable fee on hospitals and nursing homes generating bio-medical wastes. • Octroi (abolished) to be replaced by surcharge on sales tax or accounts based entry tax on dealers in urban areas. • A land holding tax to be levied by the Panchayats on the owners of the agricultural land situated within the Panchayat area (with suitable rebate for barani land and exemption for banjar and uncultivable land). • Gram Panchayats of the villages where street lighting exist or are to be made in future should levy lighting tax. Horizontal Distribution • Inter se distribution of the share of state taxes allocated to Municipalities amongst individual Municipalities to be determined by giving the following weight:

  Appendix: Summaries of Recommendations and ATRs 

i Population as per 2001 census ii Population of SCs in the Municipalities iii Shortfall of per capita tax income as compared to average per capita tax income of all Municipalities

385 70% 15% 15%

• Department of Rural Development and Panchayats to distribute the share of Panchayats in auction money of country liquor and excise duty on Indian Made Foreign Liquor (IMFL) among Panchayat Samitis and Zila Parishads. • The entire share in taxes allocated to Panchayats to be distributed among Gram Panchayats. Grants-in-Aid • The Municipalities to be compensated by compensatory grants equal to the net receipts from octroi of each Municipality during the year 2000–01. • Incentive funds to be set up for Municipalities and Gram Panchayats. State government to provide Rs. 10 crores per  annum to the Incentive fund for Municipalities and Rs. 20 crores per annum for Gram Panchayats. • 40% of the amount available in the Incentive Fund for Municipalities to be earmarked for being awarded to the Municipality which has an increase in the total income tax in the previous year. • Another 40% of the amount from Incentive Fund to be distributed among Municipalities with increase in the percentage recovery of O&M expenditure on water supply and sewerage schemes. • Remaining 20% of the Incentive Fund to be awarded to Municipalities which reduction in the ratio of their expenditure on salary of establishment to their total expenditure. Functions and Functionaries • Operation and maintenance of all tube-well based rural water supply schemes to be transferred to Panchayats. • The supervision and control over working of the primary/elementary schools in rural areas to be transferred to the Gram Panchayat of the village in which the school is situated.

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• Municipal Corporations and Class I Municipalities to be permitted to have their water supply and sewerage schemes executed by inviting tenders. Preferences, however, be given to PWSSB, other things being equal. • The power to fix the rate of tax should vest in the Municipalities subject to the maximum laid down in the act and the minimum to be prescribed by the State Government. • Exemption from a tax to any class of persons/properties should be left to the Municipalities. • A system of parking fee to be introduced in areas in bigger towns with significant congestion. • Efforts should be made by Municipalities to reduce the cost of collection of property tax. • The collection of house tax and other taxes levied by the Gram Panchayats to be fixed by the Panchayat Secretaries. Other Measures • The area based method for assessment of the present market value of the property to be adopted for the purpose of determination of the annual value for levy of property tax. • The blanket exemption to all residential buildings occupied by the owners from property tax should be withdrawn. • All Municipalities where re-assessment has not been carried out during the last five years, should do so and it should be carried out regularly after every five years. • Computerization of information on property tax to be given priority, particularly in Class I Municipal Councils and Municipal Corporations. • Tax on vehicles other than mechanically propelled vehicles and animals to be abolished. • 100% of the O & M expenditure on water supply and sewerage schemes in Municipalities should be recovered by 2005–06. • For yellow card holders, the rates for water supply and sewerage to be fixed at 50% of the normal rates. • The authority to fix rates for water supply and sewerage should vest in the Municipalities.

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387

• Provisions of Punjab Municipal Bill, 1999 for rebate for payment of tax on or before the due date and levy of interest on delayed payment should be strictly enforced. • Arrangements should be made for deposit of taxes, water and sewerage charges and license fees in banks. Post Offices also to be approached to undertake this work. • Performance linked incentives to be provided to the municipal staff engaged in assessment and collection of taxes. • All Municipalities which have vacant municipal lands should draw up plans for their commercial development. • The larger Municipalities with sound financial position should be encouraged to go in for tax free municipal bonds. • All posts in Municipalities which are at present in provincialised cadres to be de-provincialised. • An accrual based double entry system of accounts to initially be adopted in Municipal Corporations and Class I Municipal Councils. • House tax in rural areas to be re-named as property tax and levied on the annual value of the property determined on area-based system. • It should be made obligatory for a senior officer (Panchayat Samiti) nominated by the BDPO to attend the meeting of gram sabha wherein accounts of Gram Panchayat are reviewed.

Rajasthan Second State Finance Commission 

Award Period: 2000–2001 to 2004–05 Constitution: May 1999 Report Submission: August 2001 ATR Submission: March 2002

Composition Hira Lal Depura Ghanshyam Tiwari Munna Lal Goyal S C Derashri

Chairman Member Member Member Secretary

388 

Appendix: Summaries of Recommendations and ATRs

Terms of References The Commission was required to make recommendation on the following matters 1. The principles which should govern: (a) The distribution between the State and the Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the State, which may be divided between them under part-IX-A of the Constitution and the allocation between the Municipalities at all levels of their respective shares of such proceeds; (b) The determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Municipalities; and (c) The grants-in-aid to the Municipalities from the Consolidated Fund of the State. 2. The measures needed to improve the financial position of the Municipalities.52 In making its recommendations, the Commission was to have regard, among other considerations, to: 1. The financial resources of the State and demands thereon, keeping in view the non-plan deficit and surplus and, in particular, the need for providing adequate resources for funding the plan expenditure for the overall development of the State; 2. the expenditure needs of the Panchayats at all levels and Municipalities at all levels for the functions and responsibilities already assigned to them and those as may be assigned to them hereafter as per provisions of new/amended legislations; 3. Adjustment of grants available to the Municipalities and Panchayats under the recommendations of the Eleventh Financial Commission in their resources; 4. Power available to Panchayats and Municipalities for raising additional resources, including powers to levy taxes.

52  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

  Appendix: Summaries of Recommendations and ATRs 

389

The Commission was required to make its report available by 31st December 1999 on each of the matters aforesaid, covering a period of five years commencing on the 1st day of April, 2000. The Commission was to indicate the basis on which it has it has arrived at its findings and make available the estimates of receipts and expenditure of the Panchayats and the Municipalities at all levels. Methodology The methodology adopted by the commission included collection of information and materials and analysis thereof. Various meetings as well as field visits were conducted to enhance the feasibility of the report. Suggestions were invited through public notices. The Commission participated in a number of workshops and conferences organized at national and state levels. The Commission also visited some major states and closely studied the working patterns of local governments and the concerning State Finance Commissions. Recommendations Global Sharing • Devolution of 2.25% of state’s net own tax revenue (excluding entertainment tax). [Accepted] • The distribution of divisible pool between the Panchayats and Municipalities would be based upon 2001 population percentage 76.6% and 23.4%, respectively. [Accepted] Assignments of Revenues • Transfer of net proceeds of entertainment tax to the Municipalities. [Deferred] • Recovery of House tax by Municipalities. [Deferred] • Release of grants to Municipalities in lieu of Octroi. [Deferred]

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Appendix: Summaries of Recommendations and ATRs

Horizontal Distribution • The amount of 15% share in entertainment tax to be given to the Municipalities in proportion to the recovery from their areas. [Accepted] • Payment of 1% share from royalty on minerals to be made to Gram Panchayats based on actual recovery from the respective districts/Gram Panchayats. [Deferred] • Out of the net proceeds of tax revenue of 2.25%, 2.20% amount to be paid as share in taxes for maintenance of civic services to Panchayats and Municipalities and 0.05% as incentive money for raising resources from untapped sources by the Gram Panchayats and Municipalities except corporations. [Accepted] • The distribution of share in tax amount (2.20%) to be made among districts for Panchayats based on population 80% area 10% illiteracy 5% and poverty 5% weights. [Deferred] • The distribution of share in tax among three tiers of Panchayats to be made as 85% to Gram Panchayats, 12% to Panchayat Samitis, and 3% to Zila Parishads. [Deferred] • Out of Municipalities share in taxes (2.20%), 85% will be distributed among all the five categories on population basis. The remaining 15% share would be distributed among II, III, IV categories of Municipalities on the basis of population. [Deferred] Grants-in-Aid • Incentive amount equal to the revenue raised form untapped sources of tax/non-tax to be given to Gram Panchayats. Similar incentive to be paid to Municipalities but for Corporations on raising tax/non-­ tax revenue except house tax. [Deferred] • Payment of incentive amount to be made to Gram Panchayats by Zila Parishads out of the incentive amount of Rs. 12.57 crores which is to be transferred to their PD accounts out of 0.05% share in net taxes. [Deferred]

  Appendix: Summaries of Recommendations and ATRs 

391

• At the end of award period undisbursed balances including interest if any from the incentive amount to be distributed to Gram Panchayats and Municipalities except corporations on population basis. [Deferred] Functions and Functionaries • Provision of a secretary in each Gram Panchayat. [Deferred] • Outsourcing the services for cleaning and solid waste management and in case of emergency the local governments should be authorized to hire labour for cleaning operations. [Deferred] • Rationalization of the staff norms along with computerization of office functions by Municipalities. [Deferred] • Gram Sevak should handle cash and maintain records of Gram Panchayat. [Deferred] Other Measures • The government should appoint the commission on time and the members should not be changed before completion of the task and the member secretary should be appointed for full time. [Deferred] • The life span of SFC should be maximum 18 months. [Deferred] • Synchronize the recommendations of Union Finance commission with the SFC. [Deferred] • Timely collection and compilation of financial data of Panchayats and Municipalities. [Deferred] • Monitoring of the recommendations of SFC by the Finance Department. [Deferred] • Proper utilization of Finance Commission’s grant in the prescribed manner. [Deferred]

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Appendix: Summaries of Recommendations and ATRs

• Proper arrangement for training of the elected representatives of Panchayats and Municipalities. [Deferred] • Inclusion of the third list of District Government in the Constitution. [Deferred] • The District Rural Development Agencies should be merged with the Zila Parishads. [Deferred] • Constitutional amendment is required to declare Jaipur a Metropolitan Area. [Deferred] • Synchronize the criteria for rural and urban bifurcation adopted by the census authorities. [Deferred] • Provision of recommended funds to local governments on regular basis and no ban on withdrawal after release. [Deferred] • For raising additional resources, the Panchayats and Municipalities shall have resource to existing laws and rules. [Deferred]



Sikkim Second State Finance Commission



Award Period: 2004–05 to 2009–10 Constitution: July 2003 Report Submission: September 2004 ATR Submission: March 2002

Composition Tobjor Dorjee Secretary, co-operation department K N Sharma Special secretary, home T P Koirala Director, treasury and pay and accounts administration

Chairman Member Member

  Appendix: Summaries of Recommendations and ATRs 

393

Terms of Reference NA Methodology NA Recommendations Global Sharing • Global sharing was not recommended. Assignment of Revenues • Introduction and assignment of the following taxes, fees, charges, etc. to local governments: –– Taxes on property in municipal area. –– User charges for drinking water in Panchayat areas @ Rs. 10/− per house per year. –– User charge for use of irrigation water. –– Fees for construction of house in Panchayat area. –– Fees for occupation of hat shed. –– Assignment of taxes on fairs Melas, markets and entertainment in Panchayat area to Panchayats. –– Service charge for registration of birth and deaths. Horizontal Distribution • Allocation of grants for development programmes. Grants in Aid • Allocation of grants to meet establishment cost amounting to Rs. 5.25 lakhs per annum. Functions and Functionaries • Posting of District Planning Officer as Member Secretary of DPC. • Allowing the Panchayats some scope for self-determination in selection of developmental programmes. • Devolution of powers to the District Sub-Divisional level officials.

394 

Appendix: Summaries of Recommendations and ATRs

Other Measures • Setting up of local area development fund. • Enhancement of rates of honorarium of the elected members of the Panchayats. • Preparation of Panchayat budgets. • Framing of Sikkim Gram Panchayat Financial Rules. • Constitution of Committee for monitoring and evaluation. • Winding of advisory body to the DPC. • Preparation of Planning Calendar. • Construction of East Zila Panchayat Bhawan and 64 Panchayat Ghars. • Pension plans and medical assistance to elected members of Panchayats. • Creation of Panchayati Raj Cadre and four DRDAs.

Tamil Nadu Second State Finance Commission 

Award Period: 2002–03 to 2006–07 Constitution: December 1999 Report Submission: May 2001 ATR Submission: May 2002

Composition Sukavaneshvar Ma Vea Narayanaswamy K Ganesan K Shanmugam B Anand

Chairman Non official member Ex officio member Ex officio member Member Secretary

Terms of Reference The Commission was mandated to review the financial position of the Panchayats and Municipalities, namely, Village Panchayats, Panchayat Union Councils, District Panchayats, Municipal Corporations, Municipalities and Town Panchayats and make recommendations as to: 1. The principles which should govern (a) The distribution between the State and the said local governments of the net proceeds of the taxes, duties, tolls and fees leviable by the

  Appendix: Summaries of Recommendations and ATRs 

395

government which may be divided between them and allocation between the said local governments of their respective shares of such proceeds. (b) The determination of the taxes, duties, tolls and fees which may be assigned to or appropriated by the said local governments; (c) The grants-in-aid to the local governments from the Consolidated Fund of the State. 2. The measures needed to improve the financial position of the local governments53 taking into account inter alia, their level of debt and their ability to service the debt. In making the recommendations, the commission was to have regard, to the resources of the State Government, the demand thereon, in particular the expenditure of the State on debt servicing including the debt servicing on behalf of local governments/other committed expenditure or liabilities of the state government and the need to generate adequate surplus on revenue account for states commitments on capital account. The commission was required to have regard to: 1. The existing level of devolution and other resource transfer from the state and Central Government and other agencies, including the award and recommendations of the Eleventh Finance Commission to the local governments and their adequacy; 2. The requirement of the local governments for meeting revenue expenditure including maintenance of capital assets, keeping in view the need for generating surplus for capital investment; 3. The revenue resources of the local governments for the five years commencing from 1st April 2002 on the basis of level of taxation reached in 1999–2000 and potential for increase in revenue; 4. The status of implementation of the recommendations of the First State Finance Commission and the utilization by the local governments of the resources transferred; 5. The scope for better fiscal management consistent with efficiency and economy in major components of recurring and non-recurring items of expenditure. 53  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Appendix: Summaries of Recommendations and ATRs

The Commission shall review the present system for assessing the accountability of the local governments in utilizing the resources raised or received from the state and central governments and other agencies. The Commission may suggest changes, if any, on the basis of classification of local governments as Panchayats and Municipalities. The Commission can also make suitable recommendations on the changes if any, needed in the system for payment of pension to retired employees of local governments. The Commission can also make suitable recommendations regarding any other issues having bearing on the terms of reference above in paras 2 to 8. Methodology The Commission’s major source for eliciting information was through questionnaires, which were carefully designed and were separately prepared and sent to all Mayors of Municipal Corporations, Chairmen of Municipalities, Town Panchayats, District Panchayats and Panchayat Unions besides Village Panchayats Presidents. The data for Municipalities have been obtained both in manuscript and through computer floppies. The data obtained from Panchayats were fed into computer by obtaining the services of Data Centre, Chennai. Interactions were carried out at every stage with elected representatives and other officials. The Commission undertook field visits to various districts also other states, viz. Ahmedabad, Mumbai, Bangalore and Hyderabad. State level seminars and regional seminars were conducted and also, various committees were constituted namely, Task Force Committee for Municipalities and Panchayats, Pension Sub-Committee, Urban and Panchayats Review Committee, Rainwater Harvesting Committee and Committees to study the needs of training and infrastructure in Tamil Nadu Institute of Urban Studies, Coimbatore and Panchayats Training Institutes. Recommendations Global Sharing • Pool A: Assigned revenue items, viz. entertainment tax, surcharge on stamp duty, local cess and local cess surcharge need to continue as such and are to be distributed among the local governments as follows:

  Appendix: Summaries of Recommendations and ATRs 

(Rs. In Lakhs) 1 2 3

Surcharge on stamp duty Local Cess and local Cess surcharge Entertainment tax Total

397

26,318 3000 7196 36,514

Or Rs. 365 crores

[Accepted] • Pool B: (i) The percentages of global sharing from out of the state own tax revenue, after excluding entertainment tax, shall be: 2002–03 2003–04 2004–05 2005–06 2006–07

8% 8% 9% 9% 10%

[Accepted with modification. The transfer shall be 8% from 2002–03 to 2006–07] • (ii) 5% of the central devolution to be passed on to the local governments and be shared among them vertically and horizontally based on the formula suggested by SSFC for global sharing. The above mentioned components of transfers including a percentage of central devolution are considered as ‘Formula Based Transfers’. [Not accepted] • Out of total transfer made by the State, 80% needs to be by way of formula based transfer (Pool A and Pool B) and the plan, non-plan and other discretionary transfers outside the State Finance Commission devolution need to be 20%. [Not accepted] • The sharing of 87% of the recommended devolution between Panchayats and Municipalities shall be in the ratio of 58:42 respectively, after giving weight to population resource potential and needs. [Accepted] • 10% each of the SFC devolution to be reserved for capital works in Municipalities and Corporations, 15% for Town Panchayats and 20% for Village Panchayats. [Accepted]

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Appendix: Summaries of Recommendations and ATRs

• Unspent amount, if any, under Collector’s Development Fund should be pooled in the fourth quarter and taken to general devolution and distributed based on population. [Accepted] Assignment of Revenue • The existing system of pooling to be continued and the distribution formula be modified in respect of Panchayats by according 50% weightage to population and 50% weightage to surcharge on Stamp Duty collections. [Accepted] • The Commission recommended to restrict the collection charges for the surcharge collected at 5% for Municipalities and 3% for Panchayats. [Accepted] • Continue the transfer of 90% of the entertainment tax collection to the local governments and transferring the entertainment tax in the form of “deduct entries” [Accepted] • The Commission recommended to compensate the loss of local cess and local cess surcharge when there is waiver or remission of land revenue [Deferred] • Adjust the local cess and local cess surcharge dues for the period 1997–2002 on the basis of G.O. issued in 1982. [Accepted] • Enhance the rate of levy of local cess surcharge from Rs.5 to Rs.7 and local cess from Re.1 to Rs.2 on the rounded land revenue and to transfer half of this incremental revenue to Panchayats and Panchayat Unions as assigned tax revenue and the remaining 50% to Water Users Associations. In areas where Water Users Associations have not been formed, the funds will be used for the maintenance of tanks under the control of Panchayat/Panchayat Union. [Accepted] • Sanction 2.5% of the collection of local cess and local cess surcharge to Village Administrative Officers as an incentive. [Not Accepted] • Retaining 2.5% of the collection of local cess and local cess surcharge towards collection charges by the Government. [Accepted]

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399

Horizontal Distribution • The sharing of devolution among Corporations, Municipalities and Town Panchayats to be in the ratio of 33:32:35, respectively. [Accepted with modification. The ratio of 31:34:35 shall be adopted] • After allocating the salary requirements of District Panchayats, the balance funds shall be distributed between Village Panchayats and Panchayat Unions in the ratio of 60:40 respectively. [Existing ratio of 47:45:8 for Village Panchayats, Panchayat unions and District Panchayats shall continue for distribution of funds] • The horizontal distribution of funds allotted to Village Panchayats and Panchayat Union will be as below: (in percentage) Criteria

Village Panchayats

Panchayat Union

Population SC/ST population Agricultural laborers Area Asset maintenance Resource gap on inverse per capita land revenue Total

60 10 10 10 10 – 100

60 10 10 10 – 10 100

Municipalities: Criteria

Corporations Municipalities

Town Panchayats

Population SC/ST and slum population

50 10 (slum population) 20 10 10

50 10 (SC/ST population) 20 10 10

50 10 (SC/ST population) 20 10 10

100

100

Per capita own income Asset maintenance Salary and pension expenditure restricted to corporations/Municipalities with 49% or less of total revenue income Total 100

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Appendix: Summaries of Recommendations and ATRs

[The following weightages have been assigned within each class of Municipalities and Panchayats: Total Population 40% Women Population 40% SC/ST Population including Slum Population 20%] Grants-in-Aid • 13% from the devolution, as noted below, shall be set apart to take care of the needs and utilizations of the local governments: Reserve fund Equalization fund Incentive fund

3% 5% 5%

[Accepted with modification. 2% for reserve fund, 6% for equalization fund and 5% for incentive fund] • The distribution pattern for the Reserve, Equalization and Incentive Fund should be, except where specified differently, at 58% for Panchayats and 42% for Municipalities. [Accepted] Functions and Functionaries • The Village Panchayats’ audit shall continue to be done by Deputy Block Development Officers as at present. But a test audit by Director of Local Fund Audit has been recommended. [Accepted] • For each Panchayat Union, a qualified para-accounting professional from the panel approved and maintained by Director of Local Fund Audit can be appointed on a pooled basis by the District Collector for maintaining accounts of Village Panchayats. [Accepted] • The acts be suitably amended for introduction of Contributory Pension Scheme for the employees of local governments, as and when the scheme is introduced in respect of central/state government employees. [Accepted]

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401

• The local governments to be encouraged to explore the options of obtaining loans from Infrastructure Development Finance Company Ltd. (IDFC) also in addition to TUFIDCO/TUIFSL depending on the terms of IDFC. [Accepted] Other Measures • Director of Local Fund Audit shall be the statutory auditor for Municipal Corporations, Municipalities, Town Panchayats, District Panchayats and Panchayat Unions. [Accepted] • The accrual accounting system to be extended to all Town Panchayats and Panchayat Unions from 2003–04 after due and extensive training to the staff. [Accepted] • The Commission recommends for the preparation of schematic budget for a period of two years to start with. [Accepted] • Except Village Panchayats, others can host website giving salient features of their area including budget. [Accepted] • Computerized Information Kiosks to be opened in all the Corporations, Municipalities and Panchayat Unions. [Accepted]

Tripura Second State Finance Commission 

Award Period: 2003–04 to 2007–08 Constitution: October 1999 Report Submission: April 2003 ATR Submission: June 2008

Composition Sudhir Sharma Haradhan Debnath Asst. Professor, MBB college N C Sen, Joint secretary (finance), government of Tripura

Chairman Member Member Secretary

402 

Appendix: Summaries of Recommendations and ATRs

Terms of Reference Under Article 243-I of the constitution of India the Governor appoints a Finance Commission to review the financial position of Panchayats and to make recommendations as to: 1. the principles which should govern: (a) the distribution of the net proceeds of the taxes, duties, tolls and fees leviable by the state among the state and the Zilla Parishads, the Panchayat Samitis and the Gram Panchayats; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Zilla Parishads, the Panchayat Samitis and the Gram Panchayats; (c) the grants-in-aid to the Zilla Parishads, the Panchayat Samitis and the Gram Panchayats from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Panchayats; or 3. any other matter referred to the Finance Commission by the Governor in the interests of sound finance of the Zilla Parishads, the Panchayat Samitis and the Gram Panchayats.54 Methodology Not clearly mentioned in the report. Recommendations Global Sharing • 1.40% of agricultural income tax and land revenue to be devolved to each of the Panchayats Samitis. • 5% of forest revenue to each Zilla Parishad. • 1% of collection from tax on motor vehicles to Zilla Parishads @0.25% for each Zilla Parishad.  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 54

  Appendix: Summaries of Recommendations and ATRs 

403

Assignment of Revenues • Panchayats be empowered to collect revenue from sand, stone quarry and soil lifted/collected from the Panchayat areas. • Power to levy taxes, tolls, fees etc., to be assigned to Panchayats at all levels. Horizontal Distribution • Allocation of funds to sabhadhipatis and sahakari sabhadhipati of the Zilla Parishads for implementation of local area development schemes on the lines of MPLAD/MLALAD. Grants-in-Aid • Gram Panchayats to be provided grant @ Rs 200/− per head, Panchayats Samitis @ Rs 120 per head and Zilla Parishads @ Rs 80/− head on the basis of total population living in each unit on a permanent basis. Other Measures • State Government should fix uniform rates for leasing out of water areas belonging to Panchayats. • Incentives to Panchayats be provided as incentives for raising resources through their own efforts. • State Government to pursue the banks to consider providing some incentives to the Panchayats in consideration of their service rendered to the banks for the recovery of bank loans. • Appropriate amount of honorarium to be provided to the functionaries of the Gram Panchayats to ensure their more meaningful involvement. Action Taken Report—Not considered due to financial crunch.

Uttar Pradesh Second State Finance Commission 

Award Period 2001–02 to 2005–06 Constitution: February 2000 Report Submission: June 2002 ATR Submission: NA

404 

Appendix: Summaries of Recommendations and ATRs

Composition T.N. Dhar A.K. Singh D.N. Roy

Chairman Member Member Secretary

Terms of Reference The Commission was required to make recommendations as to the following: 1. The principles which should govern: (a) The distribution between State, Gram/Kshetra/Zila Panchayats and Municipalities of the net proceeds of taxes, duties, tolls and fees leviable by the State which may be divided amongst them under Part-IX and IX A of the Constitution and the allocation between Panchayats at all levels and Municipalities of their respective shares of such proceeds; (b) The determination of taxes, duties, tolls and fees which may be assigned to or appropriated by the Gram/Kshetra/Zila Panchayats, or, as the case may be, the Municipalities; (c) The principles which should govern the grants-in-aid to the Gram/ Kshetra/Zila Panchayats or as the case may be, Municipalities from Consolidated Fund of the State; 2. The measures for strengthening the financial position of Gram/ Kshetra/Zila Panchayats and Municipalities; 3. Any other matter, which the Governor may refer to the Commission in the interest of sound finance of Gram/Kshetra/Zila Panchayats and Municipalities. In making its recommendations, the Commission was to have regard, among other considerations, to: 1. the revenue resources of the State Government and the demands thereon, in particular, on account of expenditure on civil administration, debt serving and other committed expenditure or liabilities; 2. the liabilities of Panchayats and Municipalities in respect of implementation of schemes entrusted to them under Article 243-G and 243-W and works entrusted to them at appropriate levels.

  Appendix: Summaries of Recommendations and ATRs 

405

3. the revenue resources of Panchayat and Municipalities at all level based on the potential for raising resources for the next five years and targets fixed for additional resource mobilisation along with tax efforts made in this direction. 4. the matching efforts of the Panchayats and Municipalities with the devolution amount. 5. the scope for improvement in fiscal management as well as organizational streamlining consistent with economy in expenditure and efficiency in administration; 6. the maintenance and upkeep of capital assets and maintenance expenditure on those plan schemes which are entrusted to these bodies and are completed by March 31, 2002. 7. the Commission may make an assessment of the debt position of the Panchayats and Municipalities at all levels as on March 31, 1999 and suggest such corrective measures as are deemed necessary keeping in view the financial requirements of the State; 8. if the funds available at local level do not meet full requirement of expenditure on Plan side after the new arrangement, then the Commission will make specific recommendation regarding the arrangement of funds for expenditure on both Plan and nonPlan side. Methodology The Commission developed detailed questionnaires to elicit information on the financial and other aspects of local governments. These questionnaires were issued to Panchayats and Municipalities. Help of the Director, Panchayati Raj was taken in distribution of questionnaires to Kshetra Panchayats/Gram Panchayats in each district. The Commission also decided to have wide ranging interactions and discussions with experts, officials and representatives of Panchayats and Municipalities in Uttar Pradesh as well as other states. The Commission undertook visits to other states to familiarize itself with the working of local governments as also the approach and thinking of other SFCs. With this end in view, the Chairman visited Andhra Pradesh, Kerala and Maharashtra. Most local governments have responded to the questionnaires. For the first time, SSFC has been able to develop a comprehensive and reliable set of data for local governments in the State. The Commission collaborated with SHERPA, a NGO, in carrying out a field survey on the functioning of Panchayats in the State.

406 

Appendix: Summaries of Recommendations and ATRs

Recommendations Global Sharing • The total share of local governments in the divisible pool should be increased from the present 11% to 12.5%, of which 7.5% share should go to Municipalities and 5% to Panchayats. [Accepted] • 70% of Panchayats devolution should go to Gram Panchayats, 10% to Kshetra Panchayats and 20% to Zilla Parishads. [Accepted] Assignment of Revenues • Land Cess should be charged at a fixed rate of 50 paise per rupee of LR and it should be collected along with LR by revenue authorities and passed on to Gram Panchayats on the basis of origin. [Accepted] • The tax rates on animals and vehicles (other than mechanically propelled) plied for hire, be increased to Rs. 30 per animal and Rs.60 per vehicle per annum. [Not Accepted] • The existing rate of Rs. 5 per day on theatres, cinemas, etc. exhibiting in the rural areas should be increased to Rs. 20 per show per day. [Accepted] • Levy of Property tax in rural areas. [Deferred] • A fee at the rate of Rs. 200/− per harvester, Rs. 100/− per tractor, Rs.100/− per tube well and Rs. 50/− per pump set be charged annually from their owners by Gram Panchayats as a compulsory levy. [Accepted with Modification] • Penalty at the rate of 2% per month be imposed for delayed payments. [Accepted with Modification] • The existing C&P tax should be replaced by a comprehensive profession tax. It should be made mandatory for all districts in the State. [Deferred]

  Appendix: Summaries of Recommendations and ATRs 

407

• Maximum limit of C&P tax should be increased to Rs. 10,000/−. Also, the rate of tax should be increased from 3 to 5 paise per rupee of taxable income. [Differed] • Zilla Parishads should be empowered to impose tax on advertisement. [Accepted] • A cess of 5% to be levied on sales tax on motor spirit and diesel, which should be transferred to local governments in entirety. 70% of receipts from this cess should be given to Municipalities and 30% to Zilla Parishads in each district on the basis of origin. [Accepted with Modification] Horizontal Distribution • A composite formula for distribution of the devolution shares among Panchayats, was applied. The indicators used for the composite index at the district level and the weights assigned to them are given below: Indicators and weights used for Composite District level index for Panchayats Indicators Weights assigned (%) Population (rural), 2001 50 SC/ST population (rural), 1991 10 Area (rural), 1998 15 Socio-economic backwardness 15 (i) Inverse of gross value of agricultural output per person 5 (rural), average for 1997–2000 (ii) Educational backwardness (illiterate rural population), 2001 5 (iii) Medical facilities (inverse of no. of beds in PHCs per lakh of 5 rural population) 1997–98 Tax effort (share in total own revenue of all Panchayats), average for 1997–2000 Total

10 100

[Accepted] • The inter-se shares of Kshetra Parishads, and Gram Panchayats within the district to be considered based on total population, SC/ST population and area with the weights indicated against each below:

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Appendix: Summaries of Recommendations and ATRs

Indicators for Determining Inter-se Shares of Gram/Kshetra Panchayats Indicators Population SC/ST population Area

Weights 70 10 20

[Accepted] • Entertainment tax should be taken out of the shareable pool and the realization from this tax should be shared between the State Government and local governments in the ratio of 50:50 on the basis of origin, net of collection charges. [Not Accepted] • Land revenue to be taken out of the tax pool for devolution purposes and 50% of it be transferred to Gram Panchayats on origin basis. Only those Gram Panchayats should be eligible to receive this share which imposes cess on LR at the rate of 50 p. per rupee. [Not Accepted] • 75% of receipts from fishing leases in ponds/lakes should be directly deposited in the Gaon Nidhi. The balance 25% be deposited in the Sanchit Gaon Nidhi. [Accepted] • 75% of district level Sanchit Gaon Nidhis should be transferred to Gram Panchayats. [Accepted] • The development charge of 0.50% collected by Mandi Samities should be passed on to concerned Zilla Parishads. [Not Accepted] Grants in Aid • A one-time non-recurring grant of Rs.1.5 crore to be provided for IT equipment and MIS needs of the Directorate of local governments and the Task Forces to be set up in all districts. The breakup of Rs.1.5 crore would be Rs.1.05 crore for 70 districts. Urban Task Forces at Rs.1.5 lakh per unit and Rs.45 lakh for the Directorate. This amount would be utilizable only on non-recurring expenditure on IT equipment and should be released in two equal annual instalments of Rs.75 lakh each in the year 2002–03 and 2003–04. [Not Accepted]

  Appendix: Summaries of Recommendations and ATRs 

409

• The Commission is not recommending any grant to Panchayats on account of their debt and other liabilities as the burden on this account is not large and can be borne by them on their own. [Accepted] Functions and Functionaries • Gram Panchayats should be empowered to impose a graded levy on sale of water by private tube wells or pump set owners for irrigation purposes. [Not Accepted] • Panchayats be encouraged to borrow funds from financial institutions and capital market for funding specific schemes for rural infrastructure. For doing so they would require credit rating. [Accepted] • Expenditure on unpaid bills of electricity, water, telephone, etc. should be borne by Zilla Parishads from their own sources as these are items of routine expenditure. [Accepted] • Powers, functionaries and funds related to the tasks devolved upon Panchayats in an increasing manner should be simultaneously transferred to these bodies to enable them to discharge properly the responsibilities assigned to them. [Accepted] • There is clear functional overlap between the three tiers of Panchayats as they have been broadly entrusted with practically same functions specified in schedule XI of the Constitution. At present the nature of inter linkages between them is vague and unclear, both in law and practice. This ambiguity needs to be addressed. Above the Gram Panchayat level, there is need for allocating specific coordinating and monitoring functions to Kshetra Panchayats/Zilla Parishads. Kshetra Parishads have to consolidate the Gram Panchayat plans and Zilla Parishads, the Kshetra Parishad plans. [Accepted] • The post of DPRO should be given administrative and financial status of a district level officer in keeping with its responsibilities [Accepted] • There should be relocation of employees from Zilla Parishads which have surplus staff to those with shortages. [Not Accepted]

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• Employees belonging to non-centralized services should be transferable within the same revenue division. [Not Accepted] • Gaon Sabhas should be strengthened and at revenue village level implementation of local schemes, beneficiary identification, etc. should be entrusted to the constituent villages. [Accepted] • PR Department should develop model Citizens’ Charters for the three tiers of Panchayats spelling out programmes being carried out, grievance removal methods, procedures, facilities, etc. and disseminating this information to people. [Accepted] • The role of wards committees with respect to the functions entrusted to them needs to be clearly spelt out. [Accepted] • The responsibility for district plan preparation, implementation and monitoring should be entrusted to DPCs. [Accepted] • The Directorate of local governments to be strengthened by inducting three Joint/Dy. Directorate level officers at the headquarters who, together with the Director, local governments, would look after Municipalities in the four recognized economic regions of the State. [Not Accepted] Other Measures • Need of a high level monitoring mechanism for ensuring time-bound follow-up action for implementing SFC recommendations. [Accepted] • A separate independent organization for audit of Panchayats in the State should be created within the Finance Department. [Acknowledged] • A Zilla Parishad Level Rural Infrastructure Development Fund should be created in each district for development and maintenance of rural infrastructure. [Accepted] • Mandatory annual audit and certification of accounts and audit reports publication in local newspapers. [Not Accepted]

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• Cost reduction measures need to be taken. [Accepted] • High priority to creation for data bases for Panchayats. [Accepted] • An expert group to be appointed by the State Government for the setting up of the Panchayat data base system. [Accepted] • The functional domains of the three tiers of Panchayats, as also the nature of interlink ages between them, should be clearly defined and detailed in law, rules, and executive orders. [Accepted in Principle] • Training for elected representatives/officials deployed with Panchayats assumes special significance [Accepted in Principle] • Training Institutes should be set up in those districts also, where such institutes of RD Department do not exist at present [Not Accepted] • Social audit system for works and accounts should be introduced in Panchayats. [Accepted] • DRDAs should be merged with and located within Zilla Parishads [Not Accepted] • The minimum size of the Gram Panchayats in the State should be raised to at least 5000 [Not Accepted] • GIS be used by Nagar Nigams and large sized Nagar Palika Parishads [Accepted] • Introduction of computerization in all Municipalities. [Accepted] • Public Private Partnerships (PPPs) can help in increasing ­financial resources [Accepted in Principle] • Inflation indexing to be introduced at a rate not exceeding 5 per cent of basic rate every year for revision of ARV. [Not Accepted]

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Uttaranchal Second State Finance Commission 

Award Period: 2006–07 to 2010–11 Constitution: April 2005 Report Submission: June 2006 ATR Submission: October 2006

Composition G C Srivastava B K Joshi Former vice chancellor Kumaon University L M Pant Additional secretary (finance) Government of Uttaranchal

Chairman Member

Member Secretary

Terms of Reference The State Finance Commission was required to review the financial position of the Panchayats and the Municipalities and make recommendations to the Governor as to: 1. The Principles, which should govern: (a) The distribution between State, Gram/Kshetra/Zila Panchayats and Municipalities, of the net proceeds of taxes, duties, tolls and fees leviable by the State which may be divided amongst them under Part-IX and IX-A of the Constitution and the allocation between Panchayats and the Municipalities at all levels of their respective shares of such proceeds; (b) The determination of taxes, duties, tolls and fees, which may be assigned to or appropriated by the Gram/Kshetra/Zila Panchayats or, the Municipalities; (c) The principles which should govern the grant-in-aid to the Gram/ Kshetra/Zila Panchayats and Municipalities from consolidated fund of the State. 2. The measures for strengthening the financial position of Gram/ Kshetra/Zila Panchayats and Municipalities.

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413

3. Any other matter, which the Governor may refer to the Commission in the interest of sound finance of Gram/Kshetra/Zila Panchayats and Municipalities;55 In making its recommendation, the State Finance Commission was to have regard, among other considerations, to: 1. The revenue resources of the State Government and the demands thereon, in particular, on account of expenditure on civil administration, debt servicing and other committed expenditure or liabilities; 2. The liabilities of Panchayats and Municipalities in respect of implementation of schemes entrusted to them under Article 243-G and 243-W and works entrusted to them at appropriate levels; 3. The revenue resources of Panchayats and Municipalities at all levels based on the potential for raising resources for the next years and targets fixed for additional resources mobilization along with tax efforts made in this direction; 4. The matching efforts of the Panchayats and Municipalities with the devolution amount; 5. The scope for improvement in fiscal management as well as organizational streamlining consistent with economy in expenditure and efficiency in administration; 6. The maintenance and upkeep of capital assets and maintenance expenditure on those plan schemes, which are entrusted to these bodies and are to be completed by 31 March, 2006 7. The commission may make an assessment of the debt position of the Panchayats and Municipalities at all levels as on 31 March, 2006 and suggest such corrective measures as are deemed necessary keeping in view the financial requirement of the State; 8. If the funds available at local level do not meet full requirement of expenditure on Plan side after the new arrangement, then the Commission will make specific recommendation regarding the arrangement of funds for expenditure on both Plan and NonPlan side and 9. The use of information technology and right-sizing of staff. 55  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Methodology Not mentioned in the Report. Recommendations Global Sharing • 10% of state’s own revenues (both tax and non-tax excluding interest receipts, dividend, profits, royalties from minerals and sale proceeds from forest produce etc.) should devolve on the local governments in each of the five years of the award period (2006–07 to 2010–11). [Accepted] Assignment of Revenues • Municipalities should get full net proceeds of the additional stamp duty. [Additional stamp duty has been abolished] • Amendment in the relevant legislation(s) to provide for imposition of additional stamp duty in rural areas as well and the collection on this account should be passed on to the Gram Panchayat concerned. Until then, the Panchayats be given 15% of the stamp duty collections from transfer deeds of rural areas. [Not Accepted] • 20% of the total amount of development charges, betterment levy, fee for building permission, etc. collected by the prescribed/development/special development authorities be passed on to the local government concerned. [Deferred] • A pilgrim-cum-tourist tax be imposed by the State Government and to be collected by the Municipalities/Kshetra Parishad concerned. [Deferred] • Land revenue to be fully assigned to the Gram Panchayats. [Not Accepted] • The system of property tax should be made free of any discretion and as objective and transparent as possible by adopting the system of self-assessment based on the unit area method, as has been done in Delhi Municipal Corporation and many other cities in the country. [Deferred]

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• The minimum rate of property tax should be fixed at 12.5 per cent of ARV for Nagar Palika Parishads and 10 per cent of ARV for Nagar Parishads. Municipalities levying property tax at rates lower than these should be asked to reach the prescribed level within a period of three years, i.e. by 2008–09. [Deferred] Horizontal Distributions • The criteria and weights assigned for inter se determination of the shares of the districts (separately for urban and rural areas) are as follows: Indicators

Weightage (%)

Population Area Deprivation index Remoteness index Tax effort

50 15 10 15 10

[Accepted] • The local governments should be given a share, district-wise, as specified in table below in the state’s gross revenues (tax and non-tax taken together excluding interest receipts, dividend, profits, royalties from minerals and sale proceeds from forests etc.) in each of the five financial years during the period 2006–07 to 2010–11. District

Rural

Urban

Almora Bageshwar Chamoli Champawat Dehradun Hardwar Nainital Pauri Pithoragarh Rudraprayag

5.13 1.82 4.27 1.54 4.92 6.74 3.41 12.50 4.40 1.89

0.87 0.31 2.35 0.61 12.37 4.64 4.78 2.22 1.67 0.53

Total 6.00 2.13 6.62 2.15 17.29 11.39 8.19 14.72 6.07 2.42

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District

Rural

Urban

Total

Tehri Uttarkashi U.S.Nagar Total

5.01 3.30 5.07 60.00

1.74 6.59 1.32 40.00

6.75 9.89 6.39 100.00

[Accepted] • Zila Panchayats may consider making some contribution out of the incentive grant to the funds of some or all the Gram Panchayats of the district depending upon the assistance rendered by them in collection of the C&P tax. [Deferred] Grants-in-Aid • The three non-elected Municipalities in the state to be given the following grants-in-aid in lieu of normal devolution: Municipality

Amount

Badrinath Kedarnath Gangotri

Rs. 25 lakh p.a Rs. 15 lakh p.a Rs. 10 lakh p.a

[Accepted] • Honoraria may be given to entitled elected functionaries of the Panchayats also, as per the norms indicated below: Upadhyaksha of a Zilla Parishad Pramukh of a Kshetra Parishad Up pramukh of a Kshetra Parishad Pradhan of a Gram Panchayat Up pradhan of a Gram Panchayat

[Accepted]

Rs.750 /− p.m. Rs.750 /− p.m. Rs.500/− p.m. Rs.500/− p.m. Rs.250 /− p.m.

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• To facilitate payment of honoraria to the elected functionaries, without putting financial burden on the Panchayats, an additional grant-­ in-­aid to be called “establishment grant” be given to each Panchayat at the following scale: Each Zilla Parishad Each Kshetra Parishad Each Gram Parishad

Rs. 9000 p.a Rs. 15,000 p.a Rs. 9000 p.a

[Accepted] • Special purpose grants are recommended for the following local governments: –– Almora Zilla Parishad: Rs.75 lakh for reconstruction of office building destroyed in a fire. –– Pauri Zilla Parishad: Rs.30 lakh for construction an annexe to the Zilla Parishad building. –– Uttarkashi Nagar Palika Parishad and Bhatwari Kshetra Parishad: Rs 50 lakh for development of Bhagirathi river front. [Accepted] • All Zilla Parishads to achieve realization of at least Rs. 3.00 per capita in each of the five years (2006–11) through circumstances and property tax. [Deferred] • All the municipal bodies to achieve realization of at least Rs. 75.00 per capita in each of the five years (2006–11) through property tax. [Accepted] • Zilla Parishads and Municipalities, which achieve the norms laid down in the preceding recommendations, should be given an additional grant as incentive grant amounting to the actual collection made by them. This grant should be disbursed within three months of the close of the financial year in which the norm is achieved. [Deferred] • No deficit grant need be given to local governments, as all of them are expected to be in revenue surplus, post- devolution [Accepted]

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Functions and Functionaries • The act for Panchayats should clearly demarcate the functions of the three tiers of Panchayats so that each tier has its unique set of functions and there is no overlapping. [Deferred] • Gram Sabha should be convened by rotation in each revenue village within a Gram Parishad. [Not Accepted] • Local governments should be given the authority to abolish vacant posts no longer needed and in their place create equivalent rank posts in areas needing additional staff. [Local governments are authorized to get sanitation work done through outsourcing] • Two stage training programme be organized for elected representatives of all local governments-one immediately after they are elected and the other after completion of one year in office. [Accepted] • Need of hierarchical system in the Panchayats. Kshetra Parishads should supervise works undertaken by Gram Panchayats and Zilla Parishads should supervise works undertaken by Kshetra Parishads. [Deferred] • Training programmes should be organized for officials connected in any manner with the functioning of the state finance commissions. [Accepted] • Local governments should be allowed to engage the manpower required for scavenging work without financial constraints. They should be pulled up if, despite this freedom, they are not able to keep their areas clean. [Deferred] • Gram Panchayats, which do not have a full-time secretary, should appoint a qualified person. [Not Accepted] • The state government should not take a decision on the revision of salary and allowances of municipal employees on its own. It should invariably consult the Municipalities. The Municipalities should also be free to accept or modify any revisions suggested by the state government, in the light of their financial situation. [Accepted]

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• Scattered and isolated Gram Panchayats with very small population be merged with contiguous Gram Panchayats so that every Gram Panchayat has a population in excess of 300 and a voter population of at least 200. [Not Accepted] Other Measures • The State should levy profession tax. [Not Accepted] • The state should consider levying an environment or carbon tax on the 19 industries identified by the Ministry of Environment and Forests as polluting industries [Deferred] • The state excise duty on spirits and alcohol should be levied on the maximum retail price. [Accepted] • The design of VAT be rationalized and the rate may be increased. [Accepted] • Introduction of ERP in a phased manner starting with a few large Municipalities and gradually extended to other Municipalities and later to Panchayats. [Deferred] • Possibility of introducing the concept of “e-gram” of Gujarat and “e-Panchayat” of Chhattisgarh in Uttaranchal be explored. [Deferred] • An independent national agency could be set up to facilitate data, learning and support exchanges among different SFCs. The Thirteenth Finance Commission may support this recommendation. [Deferred] • Modern methods like GIS should be adopted. [Accepted] • The State Government should refrain from standing guarantee for loans to be taken by local governments and the financial institutions should assess proposals from local governments for loan independently on merit and credit worthiness of the borrower. [Accepted]

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• The own tcax revenues of the state should have annual growth rate of 23.5%. [Accepted] • Not more than 35% of the revenue expenditure (net of interest payments and pensions) should be on salaries as recommended by the TFC. [Accepted] • Two stage training programme be organized for elected representatives of all local governments-one immediately after they are elected and the other after completion of one year in office. [Accepted] • District planning committees as per the provisions of article 243ZD of the Constitution should be constituted at the earliest. [Accepted] • The State Government should set up an incentive fund with a core amount of Rs. 50 crore, to be replenished through normal budgetary mechanism, as and when required. [Accepted]



West Bengal Second State Finance Commission



Award Period: 2001–02 to 2005–06 Constitution: July 2000 Report Submission: February 2002 ATR Submission: July 2005

Composition D K Bose N N Bandyopadhyaya R Bandyopadhyay B K Kundu

Chairman Member Member Member Secretary

  Appendix: Summaries of Recommendations and ATRs 

421

Terms of Reference The Commission was required to make recommendations as to the following: 1. In case of Panchayats (a) the principles which should govern: • the distribution between the State and the Panchayats, of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part IX of the Constitution of India and the allocation between the Panchayats at all levels of their respective shares of such proceeds; • the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Panchayats; • the grants-in-aid to the Panchayats from the Consolidated Fund of the State; (b) the measures needed to improve the financial position of the Panchayats; 2. In case of Municipalities (a) the principles which should govern: • the distribution between the State and the Municipalities, of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part IX A of the Constitution of India and the allocation between the Municipalities at all levels of their respective shares of such proceeds; • the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Municipalities; • the grants-in-aid to the Municipalities from the Consolidated Fund of the State; (b) the measures needed to improve the financial position of the Municipalities;56  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 56

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Appendix: Summaries of Recommendations and ATRs

Methodology The initial task undertaken by the Commission was to review the actions taken so far by the government on the recommendations of the First SFC and its impact on the local governments functioning in general and their financial state in particular. Lack of knowledge about the recommendations of the First SFC amongst the people proved a handicap for the Commission as, it could not benefit from the reactions of the local governments representatives whose experience counted. The Commission, therefore, had to formulate their recommendations largely on their own understanding of the relevant issues. However, meetings were held with representatives of Panchayats and Municipalities, government officers and leaders of political parties of all districts in the State. Discussions were carried out with academicians, senior government officials and ministers. Recommendations Global Sharing • 16% of State taxes as entitlement fund for local governments, as recommended by first SFC, have been endorsed by the Commission. [Accepted] • A minimum amount of Rs 700 crore should be provided in the budget for devolution to local governments as ‘untied’ entitlement. [Accepted] Assignment of Revenues • Arrangement for sharing of entertainment tax may continue to be made by the State Government as at present. [Accepted] • Local governments to collect taxes on urban land and multi-storied buildings needs to be made. [No changes at present. No separate tax on multi-storied buildings] • Powers to collect land revenue and cesses to be devolved to the local governments. [No changes at present] • Irrigation charges to be collected by the Panchayats and the revenue devolved to them. [Being examined with concerned government departments]

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423

• User charges and service charges should be levied by all Municipalities. [Accepted] Horizontal Distribution • Sub-allocation of District Panchayat Fund as 60%, 20% and 20% for Gram Panchayats, Panchayat Samities and Zila Parishads, respectively. [Accepted] Grants-in-Aid • 2% of the State tax collection, i.e. 0.32% be earmarked for a state level incentive fund. [Accepted] • Local governments in hill areas should be given an additional allocation of 0.04% of total State’s taxes. [Accepted] Functions and Functionaries • Zilla Parishads and Panchayat Samitis should apportion a part of ‘untied’ fund for villages suffering from calamities and problems of inaccessibility. [Accepted] • Different rates and fees levied by Municipalities should be revised. [Accepted. Process has started] • State government should consider making consolidated payments directly to the Municipalities through Municipal Affairs Department on account of municipal tax on State government properties. [Under examination] • Besides augmenting resources by raising taxes and increasing fees etc. on items listed in local governments acts, the local governments should exploit potential resources lying unutilized like land, water bodies, livestock, trees etc. for generating both income and employment for the people. [Accepted] • State Government to consider redefining the functional responsibilities of the Panchayats and review the areas of own resource mobilization between the three rungs of Panchayats. [Accepted]

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• Reconciliation of overlapping responsibilities for planning and allocation of fund between DPC and regional development boards both in rural and urban areas. [Would be considered in consultation with the concerned departments] Other Measures • State Government should ensure that recommendations of the Central Valuation Board are implemented in all Municipalities. [Implemented in all Municipalities except Kolkata Municipal Corporation and Howrah Municipal Corporation] • State Government should pursue with the central government the Eleventh Finance Commission recommendation on impositions of service charge on central government properties. [Is being pursued]

 Andhra Pradesh First State Finance Commission 

Award Period: 1997–98 to 1999–2000 SFC Constitution: June 1994 Report Submission: May 1997 ATR Submission: September 2009

Composition G Laxmana Swamy K Pichayya T Srinivasa Chary Chandra Venkata Narayana Rao O Chandramma

Chairman Member Secretary Member Member Member

Terms of Reference The Commission was to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the state and the Gram Panchayats, Mandal Parishads, Zilla Parishads, Nagar Panchayats, Municipal Councils and Municipal Corporations of the net pro-

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425

ceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the said bodies at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Gram Panchayats, Mandal Parishads, Zilla Parishads, Nagar Panchayats, Municipal Councils and Municipal Corporations; (c) the grants-in-aid to the Gram Panchayats, Mandal Parishads, Zilla Parishads, Nagar Panchayats, Municipal Councils and Municipal Corporations from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Gram Panchayats, Mandal Parishads, Zilla Parishads, Nagar Panchayats, Municipal Councils and Municipal Corporations57 including measures for improving the management of available resources. In making its recommendations the Commission was to have regard among other considerations to 1. The resources of the State Government on account of expenditure on administration, debt servicing and other committed expenditure on liabilities, 2. The maintenance and upkeep of capital assets like buildings, roads, water supply schemes by the Panchayats, Municipal Councils, and Municipal Corporations and the norms on the basis of which specified amounts are recommended for the maintenance of assets and the manner of monitoring such expenditure. 3. The requirement of Panchayats, Municipal Councils, and Municipal Corporations for modernizing of expenditure, i.e., computerization of accounts and upgrading the standards and non-developmental sectors, servicing and the manner in which such expenditure can be monitored, 4. The requirements of the Panchayats, Municipal Councils, and Municipal Corporations for meeting the non-plan revenue expenditure on staff and administration etc., also keeping in view the potential for raising their resources. 57  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Appendix: Summaries of Recommendations and ATRs

Methodology The Commission held meetings in-camera, meetings in public, discussions with groups or individuals and elected representatives and conducted press conferences. The Commission was faced with several challenges. Especially the inadequate data of local governments relating to administration, finances, accounts and audits. Hence, the Commission has worked towards evolving its own methodology so that the condition of local governments could be elevated towards self-reliance. Consecutively, questionnaires were issued in Telugu and English in the daily newspapers and invited the public to respond. A copy of the same was communicated to all the officials from the concerned local governments. A proformae of receipts and payments was prepared to cover a period of preceding five years and Chief Executives of Panchayats and Municipalities were requested to furnish the statistics in the forms. National seminars on Local government Finances were organized and were attended by different state finance commissions. It is a strong opinion of the Commission that all statistics required should be collected by the Government for the convenience of the Second Finance Commission. Recommendations Global Sharing • 39.24% of States revenue both tax and non-tax revenue to all local governments. Ratio of Panchayats and Municipalities should be 70% and 30% respectively. Assignment of Revenues • Assignment of taxes levied by state government was not recommended to local governments.

• Government to issue rules relating to levy of new taxes like advertisement tax etc. to enable Gram Panchayats to derive income rightly due to them. • 95% of the profession tax collected was to be transferred to the local governments and allocated between rural and urban areas as the basis of population. • 10% of receipts from betting tax were to be passed on to the Hyderabad Municipal Corporations.

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427

• Property tax compensation was to be enhanced by 5% every year. • Octroi compensation was to be increased by 10% every year. • Increase of motor vehicle tax compensation to Municipal Bodies. • Municipal Councils to be empowered to enhance the user charges for water supply. • The rate of 18 paise/ 25 paise of land cess local cess to be increased to Rs. 2. Horizontal Distribution • Government might get the categorization of Panchayats as advanced, ordinary, backward and tribal with weight to be suggested by Planning Department to measure rate of development. Pending categorization as recommended, the amount recommended to the Gram Panchayats might be distributed on the basis of the following formula taking Panchayats in the former ordinary, advanced, backward and tribal blocks as such: 1. 2. 3. 4.

Ordinary Advanced Backward Tribal

… … … …

X 2/3 X 1 2/3 X 2 2/3 X

• As regard Municipalities the amount of Rs 94 crore meant for various grades of Municipalities to be distributed to each grade by giving the following weight:Population Area (excluding slum area) Area of slum in each Municipality

40% 40% 20%

• Funding of the amounts required for infrastructure development on water supply and drainage in Municipalities to be in the following ratio:

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1. 2. 3. 4.

Urban bodies Loan State government Government of India

10 30 40 20

Grants-in-Aid • For rural water supply, an additional provision of Rs 148 crores per annum. • Rs 18.6 crores to be provided for minor irrigation plan provision. • Rs. 6.03 crores to be provided for maintenance of minor irrigation sources. • Rs 20 crores to be provided annually for construction of rural roads. • A grant of Rs 100 crores is recommended for construction of school buildings. • For the construction of mandal buildings Rs 12.06 crores per annum is recommended. • For rural sanitation Rs 22.53 crores is recommended. • Grants should be released for the maintenance of the following assets: • Mandal Parishad roads • Zilla Parishad and Mandal Parishad buildings, offices and guest houses • Minor irrigation • Gram Panchayats should levy the compulsory water tax prescribed in Section 71 of Andhra Pradesh Panchayati Raj Act. • An amount of Rs 18 crores to be provided additionally for maintenance of rural roads annually. • An amount of Rs 13.58 crores to be provided for maintenance of school buildings. • An additional amount of Rs. 0.16 crores to be provided for maintenance of family planning staff quarters. • Rs 18 crores to be provided from 1997–98 onwards for water supply schemes in Municipal areas after setting off the Tenth Finance Commission grants. • Per capita grant of Gram Panchayat to be increased from Rs. 1 to Rs. 4 that of Zilla Parishad from Rs. 2 to Rs. 4 and Mandal Parishad from Rs. 5 to Rs. 8. • Per capita grant to Municipal Bodies to be increased from Rs. 4 to Rs. 8.

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429

• Incentive grant to the local governments for Family Planning. • A special grant of Rs. 5000 to the newly formed Gram Panchayats for purchasing of furniture, forms and registers. • An amount of Rs. 50,000 to the newly formed Gram Panchayat converted into Municipality. • A special grant of Rs. 25 lakhs to a new Municipal Corporation is constituted. • A grant of Rs. 15 lakhs to Zilla Parishad for construction of meeting halls. • An amount of Rs 8 crores each to Municipal Corporations, Hyderabad, Vishakhapatnam and Vijayawada and an amount of Rs 5 crores to each of the remaining Municipal Corporations as block grants to be utilized for felt needs. Functions and Functionaries • Transfer the functions contemplated in the Constitution to the local governments along with finances, functionaries and empowerment in discharge of the responsibility. • Government should pay the pension of provincialized non-teaching Panchayat employees from treasuries. • There is a need for thorough examination of requirements of Zilla Parishads keeping in view the contemporary situation. • Accounts wing of the Zilla Parishads should be strengthened with qualified and trained staffs. • A part time group clerk or a Panchayat servant should be appointed. • Senior officers in the Panchayat Department should conduct regular inspection in few allocated districts and get feedback about the programs being implemented there. • An Officer on Special Duty to be appointed six months before the constitution of second SFC to secure accommodation, furniture, phones etc. for the Commission’s office. • A committee may be constituted to fix the staffing pattern of Gram Panchayats. • Training programmes should be conducted for candidates to be inducted into Panchayat Services and also refresher training for service candidates.

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Appendix: Summaries of Recommendations and ATRs

Other Measures • Effective steps should be taken to get the consolidated audit and review reports on the accounts of Panchayats and Municipal Bodies prepared and placed on the floor of the Assembly. Government should take effective steps for preparing and publishing the consolidated annual administration reports on the accounts of local governments. • The Second Finance Commission should be appointed early in 1998, much earlier to the appointment of Eleventh Union Finance Commission. • Government to chalk out a programme of training for those to be inducted into Panchayat Raj Service and also a refresher training for in service candidates on the same lines. • Provisions related to percentage of devolution to be incorporated in the Andhra Pradesh Panchayati Raj Act, Andhra Pradesh District Municipalities Act and Municipal Corporations Act. • Government to get the categorization of Panchayats as Advanced, Ordinary, Backward, and Tribal with weights to be suggested by Planning Department to measure rate of development. • Grants not released and not adjusted during 1995–96 to the Panchayats and Panchayat Engineering Department may be released now. • Computerization in local governments is recommended. • There should be no government interferences in matters relating to taxation. • General revision of taxes to be conducted once in three years. • No house, however humble, shall be exempted from the tax. • The vacant lands which are immediately available must be converted into complexes. • Whenever exemptions or concessions are granted by the government in entertainment tax, local governments should be compensated to that extent. • Social audit to be introduced in the local governments. • Provisions related to the percentage of devolution may be incorporated in the Andhra Pradesh Panchayat Raj Act, Andhra Pradesh District Municipality Act, and Municipal Corporation Act. • A monitoring cell to be created in Secretariat to monitor SFC’s recommendations.

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431

• Schools should be considered for grants-in-aid if conditions are fulfilled and grants should be paid regularly. • Consolidated annual administration reports of local governments should be prepared and published by the government.

 Arunachal Pradesh First State Finance Commission 

Award Period: NA Constitution: September 2005 Report Submission: April 2008 ATR Submission: NA

Composition A J Tayeng

Chairman

Terms of Reference The Commission was constituted with following terms of reference: 1. the principles, which should govern the distribution between the State and the Zilla Parishads, the Anchal Samiti and Gram Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the said bodies at all levels of their respective share of such proceeds; 2. the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, Zilla Parishads, the Anchal Samiti and Gram Panchayats; 3. the grants-in-aid to Zilla Parishads, the Anchal Samiti and Gram Panchayats from the consolidated fund of the State.58 Methodology Not clearly mentioned in the report. 58  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Appendix: Summaries of Recommendations and ATRs

Recommendations Global Sharing • 50% of the total State revenue to the Panchayats. • 20% of the State share of central taxes to be assigned to the Panchayats in the ratio of 10:8:2 to Zila Parishads, Anchal Samities and Gram Panchayats, respectively. Assignment of Revenues • No such recommendation Horizontal Distribution • The basis of the horizontal allocation of taxes among individual units could be the following factors: Indicator

Gram Panchayat

Anchal Samitis

Zilla Parishad

Population Geographical area excluding area under forests Area under agriculture Own income of efforts Distance from highest per capita income Composite index of backwardness/houses without latrines or electricity or HDI of the state Total

65 5 10 5 15 –

65 10 – – 25 –

55 15 – – 20 10

100

100

100

• 97% of the land revenue levied and collected by the state in previous year in a district should go to the Panchayats in the ratio of 37.5: 30.0:20.0 and 12.5 to the Gram Panchayats, Anchal Samities, Zila Parishad and rural resource pool for Panchayats, respectively. • 5% duty in the form of surcharge on transfer of immovable property can be directly provided to the Panchayats after retaining 3% of the gross proceeds towards collection charges of this additional stamp duty. • 75% of the net proceeds of the additional stamp duty and surcharge should go to the Gram Panchayats on the basis of population.

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• The following revenue should go to the rural resource pool for Panchayats: Stamp duty and surcharge Forest revenue Motor vehicle tax Minor minerals Surcharge on commercial taxes

25% 5% 15% 5% 10%

Grants-in-Aid • Plan grants to the Panchayats, where 40% should be spent on the productive sector, 30% on infrastructure building and 10% on gender-­sensitive schemes and subsidies and 20% to be “open” at the discretion of the Panchayats. • General purpose grant of Rs. 15 and 5 lakhs to Anchal Samitis and Zilla Parishads, respectively for meeting the establishment costs including salary and related expenses of the staff. • Incentive grant to the Gram Panchayats for raising their own revenue. Functions and Functionaries • Zilla Parishads, Ancha Samitis and Gram Panchayats will perform an important role in planning, co-ordination and monitoring rural area development scheme/programmes at district level, anchal level and village level, respectively. • Panchayats are authorized to utilize up to 10% of the plan grant earmarked to productive sector for taking up housing, sanitation and water supply schemes. • Plan grants for local area development to be shared in the ratio of 60:20:20 between Gram Panchayats, Anchal Samitis and Zilla Parishad, respectively. • Anchal Development Officer and the Gram Development officer to perform not only the duties relating to the Anchal Samities and Gram Panchayat but also of the State line department. • Schemes of the state department of education, public health, family welfare, agriculture, animal husbandry, social welfare, minor irrigation, roads and building to be transferred to the Panchayats at appropriate level.

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Other Measures • Detailed activity mapping particularly on the grants-in-aid (plan, non-plan and others). • System of record keeping and provisions has to be kept for the purpose of creation of database and maintenance of accounts and the same be given to the Gram Panchayat, Anchal Samitis and Zilla Parishad in the ratio of 70:15:15, respectively.



Assam First State Finance Commission



Award Period: 1996–97 to 2000–01 Constitution: June 1995 Report Submission: February 1996 ATR Submission: March 1996

Composition M M Taimur Haren Das Advocate Anil Kr Sarma Bhupendra Kr Barooah Secretary to the government of Assam Finance department

Chairman Member Member Member Member Secretary

Terms of Reference The Commission was required to make recommendations as to 1. The principles which should govern: (a) the distribution between the state and the Panchayats/ Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the Panchayats/ Municipalities at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats/Municipalities; (c) the grants-in-aid to the Panchayats/Municipalities from the consolidated fund of the state.

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2. The measures needed to improve the financial position of the Panchayats/ Municipalities. 3. Any other matter referred to the Finance Commission by the Governor in the interest of sound finance of the Panchayats/Municipalities.59 The expression ‘Municipalities’ includes Municipal Corporation and Town Committee. The Commission was to make an assessment of 1. the actual debt position of each of the local governments as on 31st March, 1995; 2. estimated debt position of each of the local governments as on 31st March, 1996 and suggest suitable measures relating to the debts as are deemed necessary, keeping in view also the financial requirements of the State Government. In making its recommendations, the Commission was to have regard, among other considerations, to: 1. the objective of balancing the receipts and expenditure on revenue account of both the local governments as a whole and the State Government and each local government; 2. the resources of the State Government and the demands thereon, in particular, on account of expenditure on maintenance of law and order, civil administration, debt servicing and other committed expenditures; 3. the revenue resources of the local governments for the five years commencing on 1st April 1996 on the basis of the level of collection made during 1994–95 from taxes, duties, tolls, fees, cess etc. levied by them; 4. the potential for raising additional revenue from the existing sources available to them; and 5. the scope for better financial management consistent with efficiency and economy in expenditures. In making its recommendations on various matters aforesaid, the Commission was to adopt the population figures of 1971 census in all 59  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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cases, where population is regarded as a factor for determination of devolution of taxes and duties and grants-in-aid. The Commission was also required indicate the basis on which it has arrived at its finding and make available the local government- wise estimates of receipts and expenditure. Methodology Not clearly mentioned in the Report. Recommendations Global Sharing • Share of state taxes for transfer to local governments was recommended @ 2% each year. [Accepted] • No transfer of fund out of non-plan provision of the State Government to be made to local governments other than that for share of state taxes. [Not considered] Assignment of Revenues • 10% of motor vehicles tax to Panchayats. [Accepted] • House tax to cover the new house holds on the basis of floor area, revision and assessment of house tax in every five year. [Not considered] • User charges should be levied for services rendered by the local governments on parks, public toilets, public health centres etc. [Accepted] • Fee for sale of animals being a village trade should also be imposed. [Accepted] Horizontal Distribution • Share of motor vehicle tax for Municipalities to be on the basis of number of vehicles in the areas while share to Panchayats to be made on the basis of population of each rural local government as per latest census. [Not considered]

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437

Grants-in-Aid • Local governments should be provided with grants-in-aid for 2000–01 by State Government at par with the Tenth Finance Commission grants for 1999–2000. [Accepted] • Local governments should be given debt relief against existing government loans. [Not considered] • Funds of Rs. 147.56 crores as per the award of Tenth Finance Commission be distributed equally in each year from 1996–97 to 1999–2000 as grants-in-aid by state to each local government on the basis of population as per 1971 census out of the funds allocated under the state plan. [Accepted] Functions and Functionaries • Assessment of property tax should be made in every five years for periodic revision. [Accepted] • Subject for registration of birth and death certificate was recommended to be transferred from Health and Family Welfare Department to the local governments. [Accepted] Other Measures • High Power Committee headed by the Chief Secretary of the State Government to be constituted to review the flow of funds to local governments in every six months. [Not considered] • Gram Panchayats should be re-constituted to have population between 6000–8000. [Not considered] • Permanent arrangement be made to monitor the follow up action on the recommendations of the Finance Commission. [Not considered] • In view of the difficult financial position of the local governments no fresh recruitment should be made. [Not considered]

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• Panchayat election should be held regularly for transferring power to elected body. [Not considered] • Tariff Commission to be set up for streamlining the existing rates, taxes etc. of the local governments and also to look into the service conditions and staffing pattern of the Municipalities. [Not considered] • Posting of regular executive officer to Municipalities for affective functioning with necessary statutory provisions. [Not considered]

Goa First State Finance Commission 

Award Period: 2000–01 to 2004–05 Constitution: September1997 Report Submission: June 1999 ATR Submission: July 2002

Composition Vishvanath A Pai Panandikar Chairman Rajiv Mishra Joint secretary (budget) Government of Goa K S R V S Chalam Director, planning and statistics

Member

Member Secretary

Terms of Reference The Commission shall make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the state and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under Part IX of the Constitution and the allocation between the said bodies at all levels of their respective shares of such proceeds;

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(b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats; (c) the grants-in-aid to the Panchayats from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Panchayats60 The Terms of Reference mutatis mutandis, hold good for the Commission’s review of the finances of Municipalities as well under Article 243-Y of the Constitution of India. Methodology Questionnaires were prepared and circulated to the concerned departments. A considerable amount of data was thus collected and analysed for preparation and presentation of key documents. Meetings were held with the representatives of the Panchayat bodies and municipal councils with Commission. The population figures of 1991 were adopted in all cases where population is regarded as a factor for determinations of devolution of taxes and duties and grants-in-aid. Recommendations Global Sharing • 27% of the State’s own tax revenue and share in central taxes are to be devolved to Zilla Panchayats for activities transferred under non plan. [Rejected] • 9% of the State’s own tax revenue and share in central taxes are to be devolved to Municipal Councils for activities transferred under non plan. [Rejected] • 13% of annual state plan, excluding earmarked negotiated loan components and project specific central assistance for devolution to Zilla Parishads for activities transferred under plan. [Rejected]

60  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Appendix: Summaries of Recommendations and ATRs

• 3% of the annual state plan, excluding earmarked negotiated loan components and project specific central assistance for devolution to Municipal Councils for activities transferred under plan. [Rejected] Assignment of Revenue • No such recommendations. Horizontal Distribution • Inter-se distribution of non-plan grants among local governments during first year should be based on actual and during subsequent years in the same proportion as first year. [Rejected] • For inter-se distribution of plan grants among local governments, the following formula has been recommended: Criteria

Weightage

Population Geographical area Backwardness Performance Discretionary quota

40% 20% 10% 25% 5%

[Partly accepted] • The devolution of plan grants from Zilla Parishads to Village Panchayats shall be in the nature of ‘gap filling’ subject to the formula based allocation. [Rejected] Grants-in-Aid • The Eleventh Finance Commission should award a special grant of Rs 209.85 crore towards urban and rural sanitation and creation of infrastructure for Zilla Parishads, Village Panchayats and Directorate of Panchayats. [Accepted]

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441

Functions and Functionaries • A committee to be appointed to go into the staffing pattern of Village Panchayats. [Accepted] • No additional posts to be created. All recruitment shall be done through Goa Public Service Commission. [Rejected] • The administrative set up required for the local governments needs to be created from the existing employees associated with various activities and functions, placing them at appropriate levels and giving additional responsibilities wherever required. [Accepted] • The role of Rural Development Agency (RDA) in the Panchayat Raj set up is obscure; hence, the staff of RDA could be transferred to Zilla Parishads. [Rejected] • Some of the staff released on account of transfer of functions must be located at the Block level as well. [Accepted] Other Measures • A detailed study on the local governments finances in terms of tax potential, sources of additional resource mobilization, rationalization of tax structural, user charges in terms of ability to pay an equity, levy of cess and tax evasion. [Accepted] • Local governments should go for additional resources mobilization to increase the level of basic minimum services and pace of development. [Accepted] • The decisions of the Gram Sabha are to be treated as binding on Panchayats. [Accepted] • The constitution of Vigilance Committee has to be made mandatory. [Accepted] • Misuse/abuse of powers by elected local governments should be strongly dealt with. [Accepted]

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Appendix: Summaries of Recommendations and ATRs

• Auditing of incomes and expenditure of local governments and follow up action of audit report should be given prime importance. [Accepted] • Appointment of an Ombudsman headed by a retired High Court Judge Scheme. [Rejected]

Gujarat First State Finance Commission 

Award Period: 1996–97 to 2000–01 SFC Constitution: September 1994 Report Submission: October 1998 ATR Submission: August 2001

Composition Vinay Sharma Sumanbhai Patel M P Bhatt Sahdevibhai Chaudhari R S Jani

Chairman Member Member Member Member Secretary

Terms of Reference Not available. Methodology Considering the scope of the work entrusted to the commission, the statistical data and other information were obtained in different forms from the following sources: 1. Concerned Departments 2. Director of Municipalities 3. Gujarat Municipal Finance Board 4. All the Municipal Corporations/Municipalities 5. District Collector 6. Gujarat Water Supply and Sewerage Board

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443

Recommendations Global Sharing • The share of prescribed ratio in taxes and fees by the State Government granted to the three tier Panchayats is as under: S. No. Taxes/Fees

1. 2. 3. 4. 5. 6. 7. 8.

Share of Panchayats

Land revenue Royalty on sand Irrigation Cess Local Cess Additional local Addl. Land revenue Cess Addl. Stamp duty Forest revenue

District Panchayat

Taluka Panchayat

Gram Panchayat

Total

6% 47.5% – 60% 100% – 96% 5%

15% – 20% – – – – –

30% 47.5% – – 100% – – As per population

51% 95% 20% 60% 100% 96% 96%

Assignment of Revenues • Commission also recommended share to Panchayats from the following taxes:• Profession Taxes • Entertainment Tax on Cable TV Antenna • The Municipalities and Municipal Corporations should get a certain amount of fixed share from the income of certain specified taxes collected by the State Government as per the following: S. No. Taxes

Share to the Municipalities

1.

75% of the amount collected from Municipality area

4.

Non-agricultural assignments Land revenue (Agri) Local Cess on land, revenue and water rate Education Cess

5.

Entertainment tax

2. 3.

35% of the recovery made during the previous year After deduction of recovery-expenditure, 100% of the remaining amount 75% to 85% on the basis of the percentage of recovery (provided responsibility of primary education is also taken) 50% of the income, amount given to municipal finance board

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• The Commission has considered providing share from the income of the State to the Municipalities for (a) Stamp Duty (b) Motor Vehicle tax (c) Entertainment Tax on Cable/Dish Antenna etc. • Share of Municipalities in entertainment tax be raised from 50% to 75%. [Accepted] • Municipalities should collect the entertainment tax on Cable TV. It should be distributed on 50%–50% basis between the State. [Accepted] • At present, 50% amount of entertainment tax is given to Municipalities. This should be raised to 75%. [Accepted] • Pilgrimage Tax by the Municipalities should be revived. • Surcharge on stamp duties collected during 1988–98 (Rs.127.08 crore) be given to the Gujarat Municipal Finance Board. [Accepted] • Municipal Corporations and “A” class Municipalities should collect minimum Rs.100/− and maximum Rs.250/− while other Municipalities should collect minimum Rs.50/− and maximum Rs.125/− as theatre tax. [Accepted] • 50% of profession tax should be given to the local governments. [Accepted] • Turnover tax to be charged at the rate of 0.25% in lieu of Octroi on industries. Tax income to be shared among all Panchayats. [Accepted] • Property tax, water tax and sanitation tax should compulsorily be levied by Village Panchayats. [Accepted] • Compulsory 10% cess on Village Panchayat taxes instead of up to 15% cess which is voluntary. [Accepted] • With a view to giving grant in aid, State Government has imposed surcharge on stamp duty. Municipalities should be paid the amount of surcharge. [Accepted] • Municipalities should be authorized for imposing lifetime Motor Vehicle tax in consultation with Transport Department. [Accepted]

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• Municipalities which undertake the work of primary education will be entitled to receive 100% of the amount collected by them. Non-­ authorized Municipalities should be given 10% instead of 5% as recovery expenses. [Accepted] • Imposition of property tax, water tax and sanitary cess be made obligatory for the Municipalities. [Accepted] • The ceilings of Rs. 5000/− and Rs. 20,000/− for inviting tender through advertisement in newspapers should be raised to Rs.1 lakh and Rs. 5 Lakh, respectively. [Accepted] • Two percent rebate should be given to those Municipalities which pay loan instalments regularly. [Accepted] Horizontal Distribution • Share of District Panchayat, Taluka Panchayat and Village Panchayat in land revenue should be increased to 10, 25, 50 Paise instead of existing 6, 15 and 30 out of 100 paise, respectively. [Accepted] Grants in Aid • Rates of grant in aid in respect of per capita basic grant given to various types of Municipalities should be doubled. Henceforth this grant should be paid at the following rates • “A” Class .. Rs.2/− per head • “B” Class .. Rs. 3/− per head • “C” Class .. Rs. 5/− per head [Accepted] • Dispensaries, hospitals, maternity homes and child welfare centres should be paid grants-in-aid at the rate of 40% for “A” class, 50% for “B” class and 60% for “C” class and “D” class Municipalities of the total admissible expenditure. Upper ceiling fixed in this regard should be removed. [Accepted]

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Appendix: Summaries of Recommendations and ATRs

• Grants-in-aid to the Municipalities from the amount recovered as assessment on non-agricultural lands be raised from 75% to 85%. Similarly, share of land revenue be raised from 35% to 85%. [Deferred] • The Scheme of incentive grant to the Municipalities against revenue mobilization should be made more attractive. [Accepted] • Per capita grant of students to be raised from Rs.4 to 5. Panchayats will get additional income of Rs.45 lakh per annum. [Accepted] • Grant from land revenue should be given at the rate of Rs.10 per capita to the Village Panchayats of Forest areas. [Accepted] • Grant of District Panchayats against the forest yield should be to 10% from 5%. [Accepted] • Maintenance of 4% of annual expenditure on O&M should be given to Panchayats. [Accepted] • Grants-in-aid for of Rs.35/− per capita. This should be increased after very three-four years. [Accepted] Functions and Functionaries • At present the term of office of the President/Mayor is for a period of one year. It should be increased to two and a half years. [Accepted] • Sanctioning authority of Cess on land revenue should be District Panchayat. [Accepted] • District Panchayat should be authorized for revision of compulsory rate of local cess. Compulsory rate should be increased from 50 Paise to 100 Paise. [Accepted] • District Panchayats should be empowered to scrutinize the sale of open plots and to give grants to Village Panchayats. [Accepted]

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• Officer of Municipalities should be empowered to impose penalty for creating nuisance by throwing garbage, wastes etc. [Accepted] Other Measures • Training to be given to the office-bears and employees of Panchayats for increasing work efficiency. [Accepted] • Set up Information Unit for giving information about Panchayats functioning. [Deferred] • Rate of land revenue should be doubled and rate of cess on land revenue be also doubled. • A Tariff Commission should be constituted to determine the rates of taxes and fees. [Accepted] • Make the Gujrat Panchayat Finance Board (GPFB) a statutory institution such as Gujrat Electricity Board (GEB), registered company or a registered society. [Accepted] • A legal cell should be set up in the office of the Director of Municipalities. This cell should also provide necessary guidance to Municipalities for solving disputes. [Accepted] • The Municipalities should be exempted from paying sales tax on the basis of “P” form as applicable to government offices. This exemption should also be given to Panchayats. This benefit will not be available for commercial activities. [Accepted]

Haryana First State Finance Commission 

Award Period: 1997–98 to 2000–01 SFC Constitution: May 1994 Report Submission: March 1997 ATR Submission: September 2000

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Composition Kamla Verma Health minister Government of Haryana L C Gupta S K Sharma M S Rathee G Madhavan

Chairman

Member Member Member Member Secretary

Terms of Reference The Commission was required to make recommendations as to the: 1. the principles which should govern: (a) the distribution between the State and Municipalities/ Zila Parishads, Panchayat Samitis and Gram Panchayats, of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them under part IX and IX A of the Constitution of India and the allocation between the Municipalities/ Zila Parishad, Panchayat Samitis and Gram Panchayats at all levels of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to or appropriated by the Municipalities/ Gram Panchayats, Panchayat Samitis and Zila Parishads; (c) the Grants-in-aid to the Municipalities/ Zila Parishads, Panchayat Samitis and Gram Panchayats from the Consolidated Fund of the State; 2. the measures needed to improve the financial position of the Municipalities/ Gram Panchayats, Panchayat Samitis and Zila Parishads;61 In making its recommendations, the Commission was to have regard, among other considerations, to: 61  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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1. The objective of balancing the receipts and expenditure of the State and for generating surplus for capital investment; 2. The resources of the State government and demands thereon particularly in respect of expenditure on civil administration, maintenance and upkeep of capital assets, maintenance expenditure on plan schemes and other committed expenditure or liabilities of the State; and 3. The requirements of the Panchayats and the Municipalities, their potential for raising resources and for reducing expenditure. Methodology Comprehensive formats were designed for seeking primary and secondary data from the departments of Panchayats and Municipalities also involving district administration and all tiers of local governments. A comprehensive questionnaire was designed and circulated to the state ministers, MPs, MLAs, elected representatives of Panchayats and Municipalities, universities, colleges, district bar associations, reputed institutions dealing with rural and urban development, eminent experts and professionals and stakeholders to solicit their views and suggestions on functional, financial and institutional empowerment of local governments. An analytical study on state finances was sponsored and a Study Group was also constituted to make suggestion on the empowerment of Municipalities. Group discussions and open house seminars were also organized on finances of Panchayats, fiscal decentralization to Panchayats, and the role of SFC. Rounds of meeting and interactions were carried out with various experts, officials and representatives of local governments. Latest acts governing the local governments were studied and varied information and data published in various state documents were used. Recommendations Global Sharing • No such recommendations. Assignment of Revenues • 7.5% of the net proceeds of stamps and registration revenue be devolved to the Panchayats. [Accepted with modifications. 3% of net proceeds.]

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Appendix: Summaries of Recommendations and ATRs

• The entire net income from revenue from cattle fairs is transferred to Panchayat Samitis instead of the present 80%. [Accepted with modification. 80% of the net income from cattle fairs will go to Panchayat Samitis and 20% to Zila Parishads] • 20% of the motor vehicle tax and 50% of entertainment tax be transferred to Municipalities. [Accepted with modifications. 20% of motor vehicle tax only for 2000–01 and only 25% of entertainment tax.] • 20% of the royalties on minor minerals be devolved to Municipalities and Gram Panchayats which works out to Rs. 5 crore annually to Gram Panchayats and another 5 crores to Municipalities. [Not accepted] • 10% of the bid amount payable by lessee for compensation in view of surface rights is transferred to local governments / Gram Panchayats. • 10% of the net receipts from conversion charges (change of land use) should go to Gram Panchayats. [Not accepted] • With a view to expanding the pool of available resources, the commission recommended the levy of Haryana Development Road Fund (HDRF) be increased from 1% to 2%. [to be used as before] • Tax on consumption of electricity within municipal areas to be increased from 1 paisa per unit to 5 paisa per unit. HSEB should charge domestic rates from the Municipalities with regard to street lighting to water supply and not commercial rates as is being done at present. [Accepted] Horizontal Distribution • The amount of funding required for development grant would be based on the formula of decentralized planning. Below the district, the inter-se distribution between the Zila Parishads, Panchayat Samitis and Panchayats will be in the ratio of 10:15:75. Further distribution to Panchayat Samitis and Panchayats would be on population basis. In the case of Panchayats, 75% of the grants due to them will be given straightway and 25% will be on the basis of their raising an equivalent matching contribution. [Not accepted]

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451

Grants-in-Aid • A maintenance grant amounting to Rs. 10 per block for maintenance of community assets and Rs. 1 lakh per block for maintenance of Panchayats buildings along with a 10% step up each year are recommended. [Accepted only for the year 2000–01] • A grant of Rs. 25 lakhs for the repair of Zilla Parishads/ Panchayat Samities buildings in the entire State as the one time measure is recommended. [Accepted] • A grant of Rs.2.19 crores is recommended to be provided for sanitation and environmental improvement as a special purpose grant. [Accepted only for the year 2000–01] • Incentive grant of Rs. 1.67 crores is recommended to be given to Zilla Parishad, Panchayat Samities and Gram Panchayat for best performances based on an approved criteria. [Accepted only for the year 2000–01] • A per capita grant of Rs. 50 per annum is recommended for development purposes, which would work out to a total sum of Rs. 62.00 crores. [Not accepted] • A one-time grant of Rs. 25 lakhs is recommended for repair of own existing assets of Zilla Parishads and Panchayats Samities. [Accepted] • SFC recommends a grant of Rs. 50 per capita (based on 1991 census) to be provided to all Municipal Councils and Municipal Committees which would work out to Rs. 16.15 crores annually. [Not accepted] • Development grant of Rs. 50 per capita is recommended to Municipal Corporations of Faridabad, which would be about Rs. 3.09 crores with 10% escalation, year-wise. [Not accepted] Functions and Functionaries • Registration fee be increased from 4% to 6% of the sale price and the fee per cattle to Rs. 10 against the existing Rs. 2. [Not considered]

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Appendix: Summaries of Recommendations and ATRs

• The minimum lease money in respect of Shamlat Land is fixed for various Panchayat lands by a committee specially constituted for purpose. [Not considered] • SFC recommended change over from the present system of house tax assessment on the basis of annual rental value to the “Area linked scheme”. [Not considered] • Rates of fees and fines are revised. Rates for user charges should be revised upward at least once every year. [Not considered] Other Measures • A 10% escalation year-wise is recommended to take care of the increases in population and escalation costs in respect of maintenance grant, grant for sanitation and grant for developmental purposes. [Not considered] • In order to strengthen the Urban Infrastructure and accelerate development, Commission recommended the creation of two Apex organizations namely Haryana Water Supply and Sewerage Board; and Haryana Urban Development Finance Corporation. [Not considered] • The budget of the Municipal Council to be entrusted to Directorate of local governments. [Not considered] • Training programme for the officials and non-officials of the Municipalities should be duly organized. [Not considered] • A State level Public Accounts Committee for Municipal Finance and another committee for Audit of Accounts of Zilla Parishads and Panchayat Samitis have been constituted. In case of Panchayats, a Committee at district level to be constituted. [Not considered]

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Himachal Pradesh First State Finance Commission 

Award Period: 1996–97 to 2000–2001 Constitution: April 1994 Report Submission: November 1996 ATR Submission: April 1997

Composition S C Nayar A Shukla D K Sharma

Chairman Member Member Secretary

Terms of Reference The Commission was required to make recommendations to the Government as to: 1. the principles which should govern: (a) the distribution between the state and the Panchayats/ Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the Panchayats/Municipalities at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats/Municipalities; (c) the grants-in-aid to the Panchayats/Municipalities from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Panchayats/ Municipalities.62 3. any other matter referred to the Himachal Pradesh State Finance Commission by the Government in the interest of sound finances of the Panchayats and Municipalities. 62  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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Methodology One of the important components of the Commission’s approach was the question of estimating the existing revenue receipts and revenue expenditure of the Panchayats and Municipalities. Data sent by these bodies suffered from serious inconsistencies, mainly of classificatory nature, where it was difficult to sift what constituted their own revenue receipts and what comprised the object specific grants from the state government or the central government. The Commission carefully considered the Statutory functions assigned to the Panchayats as enshrined in Sections 11, 81 and 92 of the H P Panchayati Raj Act, 1994 for Gram Panchayats, Panchayat Samitis, and Zilla Parishads, respectively. Similarly, the obligatory functions of the Municipal Corporation as laid down under Section43 and delegated functions under Section 42 of the H P Municipal Corporation Act, 1994 and Section 48 of the H P Municipal Act, 1994 were also considered and assimilated. Data were collected separately for the three tiers of Panchayats and Municipalities. Separate proformae were devised for collection of basic data from these bodies. Questionnaires were mailed for the collection of basic information. Besides the mailed questionnaires, meetings were conducted with concerned officers from different districts. Recommendations Global Sharing • No such recommendations. Assignment of Revenues • Certain taxes and levies are assigned to the Panchayats, i.e. land revenue, irrigation tax, cess on sale of liquor etc. Horizontal Distribution • No such recommendations. Grants-in-Aid • Deficit of Panchayats and Municipalities, as assessed by the SFC to be met by way of grants from the State Government.

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455

• Grants for Municipalities in lieu of Octroi, be revised and raised @ 10% per year. Functions and Functionaries • 13 functions should be transferred to Municipalities along with the resources. Other Measures The resource transfers recommended by the SFC should not be released for those local governments which do not collect the statutory levies.

Jammu and Kashmir First State Finance Commission  Award Period 2003–2005 [The summary is based on the Report submitted to the 12Th Finance Commission. Copy of the same is not available]. Global Sharing • A scheme of global sharing from the divisible poor comprising sales tax, State excise, tax on goods and passengers and motor vehicle tax to be adopted. Sharing of non-tax revenue has not been recommended. • 10% and 5% share from the divisible pool to Municipalities and Panchayats respectively after deduction of 10% on account of collection charges for the year 2003–04 and 2004–05. This works out to 9% and 4.5% for Municipalities and Panchayats respectively. Assignment of Revenues • The proceeds of entertainment tax should be made over to the local governments after deducting 10% collection charges till it is completely transferred to the local governments. • The administration of entertainment tax should be transferred to the local governments by 31.3.2004. • The process of the imposition of tax on electricity is completed and its proceeds be transferred to the local governments.

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• The revenue collected to the administration of laws pertaining to food adulteration, registration of hotels, labour and weights and measures within the municipal limits should be passed on to the concerned Municipal Bodies. Horizontal Distribution • The inter-se distribution of devolved funds among various categories of Municipalities will be determined by assigning a weight of 75% to population and 25% to illiteracy. • The devolved funds to the Panchayats will be shared by the Halqa Panchayats and the Block Development Councils in the ratio 70:30. Grants in Aid • Post tax devolution deficits of the Municipalities to be covered by grants-in-aid transfers from the consolidated fund of the State on tapering basis as under:–– 67% of the assessed post tax devolution deficit during 2003–04. –– 33% of the assessed post tax devolution deficit during 2004–05. Functions and Functionaries • Civic bodies should be entrusted with all the Municipal obligatory functions from the respective line departments of the State Government along with the staff considered absolutely necessary for the efficient discharge of such functions. Other Measures • The elections to Municipalities to be held as early as possible (Elections for Panchayats were conducted in the year 2001). • Implementation of the schemes provided in the State budget and centrally sponsored schemes pertaining to poverty alleviation, physically and mentally challenged and weaker sections of the society be transferred along with the budget allocations from respective line departments of the State Government to the local governments. • A beginning should be made in imposing a tax on profession, trades, callings and employments at least to the extent of Rs.250 per annum.

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457

Karnataka First State Finance Commission



Award Period: 1996–97 to 2000–01 Constitution: June 1994 Report Submission: January 1996/ July 199663 ATR Submission: March 1997

Composition G Ashwathnarayan G Thimmaiah Institute for Social and Economic Change Bangalore Abdul Aziz Institute for Social and Economic Change Bangalore R Suresh A K Agarwal

Chairman [up to 28.2.1995] Chairman [from 28.2.1995]

Member

Member Secretary [up to 9.6.1995] Member Secretary [from 9.6.1995]

Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the state government and the Zilla Panchayats, Taluk Panchayats, Gram Panchayats, Municipal Corporations, City Municipal Councils, Town Municipal Councils and Town Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part and the allocation between the Zilla Panchayats, Taluk Panchayats, Gram Panchayats, Municipal Corporations, City Municipal Councils, Town Municipal Councils and Town Panchayats at all levels of their respective share of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Zilla Panchayats, Taluk Panchayats, Gram Panchayats, Municipal Corporations, City 63  Two separate reports were submitted. Report on the Municipalities was submitted in January 1996 and the report on Panchayats was submitted in July 1996.

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Municipal Councils, Town Municipal Councils and Town Panchayats; (c) the grants-in-aid to the Zilla Panchayats, Taluk Panchayats, Gram Panchayats, Municipal Corporations, City Municipal Councils, Town Municipal Councils and Town Panchayats from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Zilla Panchayats, Taluk Panchayats, Gram Panchayats, Municipal ­Corporations, City Municipal Councils, Town Municipal Councils and Town Panchayats;64 The Commission was also to: 1. examine and make suggestions on the extent to which and the manner in which the resources available to the local governments could be best utilized for meeting the expenditure of these bodies and; 2. make a detailed analysis of the repayment of loans and advances extended by government from time to time to the local governments and make suitable recommendations for repayment of Government dues and the possibility of adjusting these dues against future devolution revenues from government to these bodies. In making the recommendations, the commission was to have regard, among other things, to the resources of the State Government and the demands thereon on account of expenditure of civil administration, debt servicing, development and other committed expenditure. Methodology Requisite data were formulated and collected through questionnaires. Interactive sessions were planned with different rungs of Panchayats and all the Municipalities which were arranged at the district level. Meetings were held with concerned representatives and officials.

64  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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459

Recommendations Global Sharing • 36% of Non-Loan Gross Own Revenue Receipts of the state was recommended for transfer to Panchayats and Municipalities. [Accepted] • Ratio of Panchayats and Municipalities was 85% and 15% respectively, valid for financial years beginning from 1996–97 to 2000–01. [Accepted with modification. The ratio of 85:15 to be reached in a phased manner in the year 2001–02] Assignment of Revenues • Property tax is re-designed to make it an elastic source of municipal revenue. [Not considered] Horizontal Distribution • The respective share of Zilla Panchayats, Taluk Panchayats and Gram Panchayats in the devolution to Panchayats to be 40:35:25, respectively. [Under consideration of Government] • Share of Panchayats to be distributed on the basis of the following criteria and weightage: 1. 2. 3 4. 5.

Population Area Illiteracy Length of road area Hospital bed strength population

[Under consideration of Government]

33.33% 33.33% 11.11% 11.11% 11.11%

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Grants-in-Aid • Gram Panchayats to continue to be given a grant of Rs. 1 lakh per annum as additional financial assistance. [Not accepted] • Tenth Finance Commission grant of Rs. 43.80 crores for spending on reconstruction, improvement and repairs of school buildings, building of primary health centres, veterinary hospitals etc. to be distributed as per the formula of the SFC. [Under consideration of Government] • Total cost for upgradation of essential public services, i.e. drinking water, street lights, roads, primary education and primary health is estimated at Rs. 11.30 cores. [Under consideration of Government] Functions and Functionaries • All individual beneficiary oriented programs and schemes be transferred to Gram Panchayats. [Under consideration of Government] • Municipalities should be free to determine the rate structure for various taxes and fees. [Not considered] • Full cost should be recovered for the services provided by the Municipalities. [Not considered] • Entrusting of repair works and maintenance of water supply system, street lights and intra-village roads to Gram Panchayats. [Under consideration of Government] • The Urban/Slum Development Authorities, Town Planning Units and Urban Forestry are brought under the respective Municipalities. [Not considered] • The clerk-cum-accountant-cum-typist of the Village Panchayat as also bill collector-cum-clerk should be paid a monthly salary of Rs. 1000. [Under consideration of Government]

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461

Other Measures • The Zilla Panchayats/Taluk Panchayats/Gram Panchayats be allowed to allocate 10% of the district plan outlay to whatever schemes and programmes they consider important. [Under consideration of Government] • A common valuation authority should be created to undertake revision of valuation of rural and urban properties. [Under consideration of Government] • Ensuring of proper training to elected representatives and officials of Panchayats. [Under consideration of Government] • Constitution of District Planning Committee, provided under 74th amendments of Constitution. [Under consideration of Government] • Creation of ‘Gram Panchayat Fund’. [Accepted] • Abolition of all regional developmental boards and MLA local area development fund. [Under consideration of Government] • Formulation of rules of business to define the powers and privileges of elected representatives and government officials. [Rules of Business formulated for Taluk and Zilla Panchayat] • Supply of safe drinking water, primary education, roads, street light and primary health care constitute as the most essential civic services by the Commission to be provided in rural areas and these be raised to certain normative standards. [Under consideration of Government] • The funds for Gram Panchayats to be released directly from Zilla Panchayat. Funds for Gram Panchayats need not be released through Taluk Panchayats. [Accepted]

 

Kerala First State Finance Commission Award Period: 1996–97 to 2000–01 Constitution: April 1994 Report Submission: February 1996 ATR Submission: February 1997

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Composition P M Abraham K Mohandas, Secretary Local administration department K A Ommer

Chairman Part time member Part time member

Terms of Reference The Commission was required to make recommendations as to the following: 1. the principles which should govern: (a) the distribution between the State, Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the Government which may be divided between them under Part IX of the Constitution and allocation between all levels of Panchayats at all levels of their respective shares of such proceeds; (b) the determination of taxes, duties, tolls, and fees which may be assigned to or appropriated by the Panchayats; (c) the grants-in-aid to Panchayats from the consolidated fund of the State; 2. the measures needed to strengthen the financial position of Panchayats. The same Terms of reference mutatis mutandis, hold good for the Commission’s study of the finances of Municipalities as well. Methodology Not mentioned in the report. Recommendations Global Sharing • Non-statutory non-plan grants be provided to the local governments @ 1% of the State Revenue and distributed among Panchayats and Municipalities in proportion to the population. [Not accepted]

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463

Assignment of Revenues • District Panchayats to be empowered to levy tax on sale of immovable properties @ 1%. [Accepted] • Local governments should be empowered to levy entertainment tax and annual license fee on cable TV operators. [Necessary amendments may be proposed by the Local Administration Department to fix lower rates.] • Property/building tax collection be exclusively assigned to the Village Panchayats and Municipalities and tax payments rationalized. [Not considered] • A portion of the income from sale of court fee stamps should be earmarked for local governments. [Accepted] • Land tax is doubled and 60% of the additional income be given to Block Panchayats and 40% to District Panchayats. [Accepted] • 25% of surcharge on stamp duty levied on behalf of Municipalities should be put into the state pool. [Accepted] • The rates of profession tax to be uniform in urban and rural areas and the number of slabs be reduced and the rates be rationalized. [Accepted] • Local government should be eligible for 50% of the Building Exemption Fees. This exemption should be increased to 100%. [Accepted] Horizontal Distribution • The indicators with the suggested weights are given below for devolution of plan funds: Indicator i) Population in 1991 census ii) Population of SC/ST in 1991 census iii) Total workers excluding workers in manufacturing processing, servicing and repairs outside household industry iv) Proportion of agricultural workers among workers

[Rejected]

For Municipalities For Panchayats 75 10 15

70 10 10

Nil 100

10 100

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• The SFC has recommended that 1% each of the Rural and Urban Pool to be credited to the proposed fund for local development. After making this appropriation, the remaining 99% of the annual accruals to be distributed on the basis of composite criteria given below: Criteria 1. 2. 3. 4.

Population in 1991 census Population of SC/ST in 1991 census Financial need of LGs Tax effort of LGs Total

Village Panchayats 75 5 15 5 100

Municipal Council 80 5 10 5 100

[Not considered] • The tax efforts of local governments is to be judged on the basis of the two indicators: –– Percentage of collection to demand. –– The rate at which property tax is being levied. [Not considered] Grants-in-Aid • 50% of the gap estimated for the local governments for maintenance of roads should come from the central government via centrally sponsored schemes and the balance from the state government. [Under consideration] • Maintenance grants should be based on current cost of construction. [Rejected] • Municipalities should also be eligible for basic tax grants. The total amount to be credited to the state pool. [Accepted] • It should be left to the local governments to decide on the application of the non-plan grants according to their own priorities and perception of needs. [Accepted]

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465

• All roads to be eligible for grants from motor vehicle tax. [Accepted] • 85% of the UFC grant to be earmarked for Village Panchayats and the remaining 15% to be distributed among Block and District Panchayat in the proportion of 3:2 on per capita basis. [Accepted] Functions and Functionaries • Local governments that are prepared to undertake the work should be encouraged to take up maintenance and replacement works or street taps and street lights. [Accepted] • Local governments should be competent to execute civil works finance out of funds raised from public on the basis of estimates ­prepared by architect and without the intervention of any government agency. [Not considered] • 25% of the funds of the CSSs for poverty alleviation should be at the disposal of the local governments to be spent on poverty alleviation programmes formulated by them and approved by the District Planning Committee. [Under consideration] Other Measures • A special cell to be constituted in the Finance Department after the expiry of the term of the Commission to watch the implementation of the recommendations of the SFC. [Not considered] • Government to appoint a small expert group which will go into the whole question of format of budget and other related matters of local governments. [Accepted] • Government to undertake a delimitation of revenue villages to ensure that no village falls in more than one Panchayat. [Not considered]

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• A provision should be incorporated in the rules and, if necessary, in their Kerala Panchayat Raj Act requiring heads of offices and owners of buildings to furnish to the Panchayat details of employees and occupants. [Accepted] • To assess properties for valuation, plinth area method be adopted for residential properties and rental value method for commercial properties. Revision should be done in every four years. [Accepted] • Both the rural development board and Kerala Urban Development Financial Corporation should preferably have a soft window for socially desirable purposes. [Not considered] • State level fund for Village Panchayat and Municipal Council called the rural pool and the urban pool, respectively to be constituted. [Accepted, but the quantum of the pool would be less than that envisaged by the commission in view of non-acceptance of non-statutory non-­ plan grants] • While library cess may continue to be collected by local governments, it to be earmarked for improving the infrastructure of the educational institutes under their control. [Rejected] • Instead of specifying a unique rate of license fee, etc. government may specify only the minimum rate and leave it to the local governments to fix rates above it, except in the case of births and deaths. [Accepted] • All local governments to conduct a systematic tax mapping followed by assigning unique premises number to each premise. [Under consideration] • Government should review the whole arrangements for auditing and accounts of local governments. [Under consideration]

Madhya Pradesh First State Finance Commission 

Award Period: 1996–97 to 2000–01 Constitution: February 1995 Report Submission: July 1996 ATR Submission: March 1997

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467

Composition S S Sisodiya C S Mishra V C David O P Mathur A K Dutta

Chairman Member Member Member Member Secretary

Recommendations Global Sharing • Either 2.91% of the total tax and non-tax revenue or 3.24% of net proceeds of the total revenue of the preceding year for Panchayats. [Accepted] • 8.669% of tax and non-tax revenue of the preceding year for Municipalities. [Accepted with modification] Assignment of Revenues • The revenue forests falling under the geographical area of Gram Panchayats should be handed over to the concerned Gram Panchayat. [Deferred] • The rates of agricultural produce market are revised to raise additional sum for the Panchayats. [Deferred] • Rates of user charges are raised to ensure cost recovery. [Accepted] • A special grant to Municipalities in lieu of abolition of passenger tax. [Accepted] Horizontal Distribution • On the issue of district-wise inter-se distribution among Municipalities the SFC had recommended the following criteria: Urban population Sales tax contribution Backwardness Infrastructure

: : : :

[Only Population is considered]

40% 35% 15% 10%

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• On the issue of district-wise inter-se distribution among Panchayat, the SFC had recommended the following criteria: (a) 1 2 (b) 3 4 5 (c) 6 7 8

Neutral criteria Total population Area Poverty criteria Rural SC and ST population Number of agricultural labourers Average gross value of output of agriculture per hectare Indicators of backwardness Distance method No. of workers in registered factories (per lakh of population) Per capita consumption of power Literacy rate

21.25 10.625 15.0 10.625 10.625

10.625 10.625 10.625

[Deferred] Grants-in-Aid • General purpose grant be given to Janpad/District level Panchayats @ Rs. 14.65 crores and Rs. 1.50 crores, respectively for 1995–96. [Deferred] • Incentive grant to Municipalities [Deferred] Functions and Functionaries • Disposal of Waste in the Municipalities on the principle of energy management with the help of private institutions. [Accepted] • To make the entry tax practical and comprehensive, standardize the tax rates in such a way that the minimum Rs.400 crore is generated through this tax in the financial year 1996–97. [Accepted] Other Measures • Continue the monitoring cell with limited staff even after the expiration of the Commission. [Accepted]

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469

• Strengthen internal accounting mechanism. [Accepted] • Set up Data Bank. [Accepted] • Review of the rights delegated to the Panchayats. [Accepted] • Preparation of the annual plan of action (at district level) of the functions performed by the Panchayats with continuous monitoring [Accepted] • Preparation of a separate performance budget by every department. [Accepted] • Constitution of Rural Development Fund. [Not Accepted] • Installation of Urban Infrastructure Development Fund. [Deferred]

Maharashtra First State Finance Commission 

Award Period: 1996–97 to 2000–01 Constitution: April 1994 Report Submission: January 1997 ATR Submission: March 1999

Composition Makrand Herwadkar Diwakar Kalsulkar Vijay Tated Shripad Patwari P P Mahana

Chairman Member Member Member Member Secretary

Terms of Reference The Commission was required to make recommendations as to the following: The principles which should govern: 1. the distribution between the State, Panchayats and Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the Government which may be divided between them under Part IX and

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Part IX—A of the Constitution and allocation between all levels of Panchayats at all levels and the Municipalities of their respective shares of such proceeds; 2. the determination of taxes, duties, tolls, and fees which may be assigned to or appropriated by the Panchayats or as the case may be the Municipalities; . the principles which should govern the grants-in-aid to Panchayats or 3 as the case may be Municipalities from the consolidated fund of the State.65 In making its recommendations the Commission was to have regard, among other considerations, to: (a) the projected gap between the revenue receipts and revenue expenditures (non-plan or non-development or both) of the Panchayats and the Municipalities in the State for five years from 1st April 1996 on the basis of their level of taxation likely to be reached in 1994–95. (b) the measures and the extent to which the Panchayats and the Municipalities have exploited the available and the potential sources of the revenue and the manner and the extent to which their revenue gap can be reduced by such measures; (c) the principles of financial assistance from the State Government to the Panchayat and the Municipalities as may be determined by the Commission taking into account the provisions of clauses (a) and (b) above; In making its recommendations on the various matters aforesaid, the Commission was required to adopt the population figures of 1991 census, where population is regarded as a factor for determination of devolution of taxes and duties and grants-in-aid; (d) the outstanding debt position as on 31st March 1994 of the Panchayats and the Municipalities; and specify• the principles and procedures to regulate the borrowing power of the Panchayats and the Municipalities; and • the steps needed to contain the debt liabilities taking into account their resource position. 65  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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471

(e) the resources of the State government and the demands thereon, in particular, on account of expenditure on civil administration, police, social and economic services, debt servicing and all other committed expenditures or liabilities and non-plan revenue expenditures; (f) the maintenance and upkeep of the capital assets of the Panchayats and the Municipalities, and work out the norms for their adequate maintenance with due regard to their resource position and introduce measures for mobilizing resources locally to meet these liabilities; (g) the need for ensuring reasonable returns on investment made, if any, by the Panchayats and the Municipalities as the case may be, in irrigation projects transport undertakings, pipe water supply schemes; borewell programs and other activities of commercial nature, if any. The Commission was to make the recommendations about introducing a scheme for calamity relief and considering the need to have a calamity relief fund on the lines of the calamity relief fund scheme recommended by the 9th Finance Commission. Methodology Financial and other data were obtained directly from the local governments. Budgetary data and projections were obtained from Finance Department. Study groups were constituted by different departments of local governments and intensive interactions were carried out with concerned officials. Seminars and workshops were conducted and were participated in by the senior members of the Commission. Recommendations Global Sharing • The global sharing was not recommended. Assignment of Revenues • 10% of the profession tax should be given to the local governments.

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Appendix: Summaries of Recommendations and ATRs

• 25% of the net income received by way of vehicle tax should be allocated as ‘tax share’ to all the urban bodies including Mumbai on the basis of population. • 10% of the net income of profession tax should be given to local governments. Horizontal Distribution • The revised share of entertainment tax should be 50% for ‘A’ Class Municipal Councils, 90% for ‘B’ Class Municipal Councils, 100% for ‘C’ Class Municipal Councils and 25% for Municipal Councils. • It was reported that urban areas had contributed 90% of the profession tax whereas rural areas contributed only 10%. 10% of the net income of profession tax should be given to local governments. Out of this amount 80% should be given to the Municipalities and 20% to the Gram Panchayats on per capita basis. Grants in Aid • The present rate of recovery of land revenue and cess is 50 to 60% of the demand therefore 66.67% of the demand of land revenue and cess should be given as advance grant to Panchayats every year. • The irrigation cess grant equal to 66.67% of the demand should be given to the Zila Parishads as advance grant. • 10% of forest revenue to Zila Parishads to undertake projects in the forest areas • A sum of Rs. 25 lakhs per year should be given to the Zila Parishads as an incentive grants subject to some conditions. 50% of the incentive grant should be passed on to the Panchayat Samities by the Zila Parishads. • The amount of grant by way of land revenue, given to Municipal Corporation and Municipal Councils, should be increased to 75% from 15%. • The primary education grant given to the Municipal Corporations and Municipal Councils should be increased by 10% for A & B class Municipal Councils. Functions and Functionaries • No such recommendation.

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473

Other Measures • Maharashtra Government’s premier training institution, YASHADA, Pune in consultation with national level institute should prepare training packages for different level of staff in the Panchayats and Municipal Councils. • Each Municipal body should set aside half percent of their own income for ‘Calamity Fund’. • District Planning Committee and Metropolitan Planning Committee should be constituted at the earliest. • There should be a data bank on the financial position of the Panchayats and the Municipal bodies. The consolidation and checking of the information received from the primary level to be made at the District level and finally the work of collection and analysis to be done at the State level. The Director, the Directorate of Economics and Statistics should do the work of collection and consolidation of the information and maintaining data bank information at State level. • There should be uniformity in the rates and types of taxes in all the four acts governing Municipalities. • The local government should be allowed to levy taxes and service charges on all the government properties (including the properties of public sector undertakings of the central and State government, boards, corporations).

Manipur First State Finance Commission 

Award Period: 1996–97 to 2000–01 SFC Constitution: April 1994 Report Submission: December 1996 ATR Submission: July 1997

Composition B R Basu Y Radheshyam Singh D S Sharma

Chairman Member Member

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Appendix: Summaries of Recommendations and ATRs

Terms of References The Commission was required to make recommendations as to the: 1. The division of net proceeds of the taxes, duties, tolls and fees leviable by the State between the State and the local governments in accordance with part IX A of the Constitution and allocation between the local governments of their respective shared. 2. The taxes, duties, tolls and fees to be assigned to or appropriated by local governments. 3. The principles governing the grants-in-aid (including specific amounts to be paid) to local governments.66 In making its recommendations, the Commission was called upon to keep in view, among others: 1. The recommendations of the Tenth FC and the resource position of the State; 2. Allocation of revenue between the State government and the local governments keeping in view their respective responsibilities; 3. Revenue resources of the local governments for next five years and the objectives of balancing their receipts and expenditure on revenue account and ensuring fiscal autonomy as well as fiscal responsibility among them; 4. Scope for economy in expenditure and need for balanced, inter-­ regional development. The Commission was also directed to: 1. review the functions at present vested in the local governments and suggest changes therein, if necessary; 2. develop norms for collection of tax and non-tax revenue, establishment expenses and performance of services by the local governments; 3. forecast revenue receipts and expenditures of the local governments for the next five years;

66  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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475

4. Specify the pattern and procedure of plan assistance from state government to the local governments during above period, and 5. Specify necessary changes in the fiscal relationship between the local governments and the various state government departments. Recommendations Global Sharing • Global sharing was not recommended. Assignment of Revenues • The State Government to hand over the entire work of collection of land revenue to the Panchayats to be used by latter as their own resources after present collection staff is suitably absorbed in other works. Horizontal Distribution • ARM targets for Municipalities/Panchayats (excluding Imphal Municipal Council) totalling Rs. 186 lakhs in four years commencing 1997–98 have to be worked out on the basis of population for each of the four years and communicated to all concerned by the administrative departments. • While average annual per capita government grant, excluding bonus, works out to Rs. 37.17 and Rs. 40.44 for rural and urban areas respectively for the five year period, annual per capita ARM targets work out to Rs. 3.25 and Rs. 8.52 (4  years average) only. Since Panchayats start with ‘nil’ revenue, ARM burden equals total burden as well. For Municipalities excluding Imphal Municipal Council, present per capita annual contribution is less than Rs. 2.00. Grants-in-Aid • Commission recommended transfer of the entire Tenth Finance Commission grant to the local governments, without insisting on matching current surpluses from the latter. • Establishment grants of Rs. 9.25 crores to the Panchayats/ Municipalities in the state for five years commencing 1996–97

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including Rs. 50 lakhs per year for Imphal Municipality (in lieu of octroi); • Development grants totalling Rs. 14.16 crores to the Panchayats/ Municipalities in the State for the five year period. • Bonus grants totalling Rs. 145.00 lakhs during the five years for exceeding minimum resource mobilization targets (100% matching grant). Functions and Functionaries • Gram Panchayats to be entrusted with the following 14 functions: –– Maintenance of essential statistics; –– Organizing voluntary labour and contribution for community works; –– Maintenance of all property created by or entrusted to Gram Panchayat; –– Construction / maintenance of all drinking water wells, tanks and ponds; –– Construction / maintenance of village roads drains and culverts; –– Maintenance of general sanitation including cleaning of all public roads, drains, tanks, wells, bathing ghats cremation ground and such other public places; –– Construction / maintenance of community latrines; –– Construction / maintenance of street lighting; –– Control of cattle and grazing lands; –– Regulation of markets and fairs; –– Control of eating and entertainment establishments; –– Social forestry; –– Adult literacy; –– Assistance to all governmental and voluntary agencies in implementation of all rural development programs. • Amendments in laws and rules for the local governments to bestow additional powers of taxation on Gram Panchayats, simplify manner of approval of taxation proposals and to provide effective machinery for collection of arrears by both Panchayats/Municipalities. • Assets created by government departments—roads and paths, street-­ lighting, drainage/sewerage facilities, and community services, etc.

  Appendix: Summaries of Recommendations and ATRs 

477

should be handed over immediately to Panchayats/Municipalities for maintenance through newly created funds of all these bodies. • Arrears of holdings tax can be collected by the Municipalities under the relevant provisions of the act. It will be advisable to vest full authority and responsibility in the matter the local government. Other Measures • Octroi should be abolished and replaced by a surcharge on States tax, the proceeds of which can be distributed by way of maintenance grants to local governments. • Administrative Departments must take more interest in ‘Servicing’ of the local governments-approval of budgets and taxation bye-laws, collection and scrutiny of year-end performance, and so on. • New, comprehensive budget formats should be prepared for Panchayats/Municipalities and circulated immediately. • A municipal services cadre to be created to provide control and mobility in respect of senior personnel. Training of municipal personnel should receive priority. • Pending proposals of the Municipalities (for various purposes) may be approved expeditiously.

Orissa First State Finance Commission 

Award Period: 1998–99 to 2002–03

Global Sharing • 10% of gross collection of MV tax is given to Municipalities to be divisible among Municipalities and NACs in the ratio of 60:40, respectively. • 50% of the gross revenue of profession tax is transferred to Municipalities. Assignment of Revenues • Octroi to be replaced by an entry tax only if the Municipalities are properly compensated. • Gram Panchayats are empowered to levy building tax, lighting tax and drainage tax.

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Horizontal Distribution • Arrear of land cess share due to Panchayats (Rs. 19.04 crores) be paid to them in five instalments. • Surcharge on entertainment tax be assessed and the dues be provided to six Municipalities with arrear. • For inter-se distribution among Panchayats the commission recommended a formula: (a) (b) (c)

Size/area of the district Rural population of the district Lack of rural connectivity

: : :

50% 25% 25%

• For inter-se distribution among Municipalities the commission recommended a formula: (a) (b) (c)

Population Area Slum population

: : :

50% 25% 25%

Functions and Functionaries Roads, drinking water, public health, street lights and sanitation functions should be transferred to local governments along with staff and funds.

Punjab First State Finance Commission 

Award Period: 1996–97 to 2000–01 Constitution: April 1994 Report Submission: December 1995 ATR Submission: September 1996

Composition J P Gupta Chairman Om Prakash Mathur Member (part-time) National Institute of public finance and policy, New Delhi R R Bhardwaj Member (part-time) Financial commissioner, Govt. of Punjab

  Appendix: Summaries of Recommendations and ATRs 

K R Lakhanpal N K Arora Principal secretary, Govt. of Punjab B K Srivastava Surjit Singh Principal secretary, Govt. of Punjab

479

Member (part-time) (from 25.7.94 to 12.6.95) Member (part-time) (from 12.6.95) Member Secretary (till 23.11.94) Member Secretary (from 23.11.94)

Terms of Reference The terms of reference required the Commission to make recommendations on the following matters: In the case of ‘Panchayats’ as to: 1. The principles, which shall govern: (a) The distribution between the State and the Panchayats of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them and the allocation between the Panchayats at all levels of their respective shares of such proceeds; (b) The determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Panchayats; and (c) The grants-in-aid to the Panchayats from the Consolidated Fund of the State. 2. The measures needed to improve the financial position of the Panchayats. 3. Any other matter referred to the Finance Commission by the Governor in the interest of sound finances of Panchayats. In the case of ‘Municipalities’ as to: 1. The principles, which shall govern: (a) The distribution between the State and the Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the State which may be divided between them and the allocation between the Municipalities at all levels of their respective shares of such proceeds; (b) The determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Municipalities; and (c) The grants-in-aid to the Municipalities from the Consolidated Fund of the State.

480 

Appendix: Summaries of Recommendations and ATRs

2. The measures needed to improve the financial position of the Municipalities. 3. Any other matter referred to the Finance Commission by the Governor in the interest of sound finances of Municipalities. Methodology The Commission devised detailed and exhaustive Information Proformae about functions, income and expenditure, grants received from various sources, and under various schemes, indebtedness, level of civic services, future requirement of funds etc. and sent these to all the Municipal Corporations, Municipal Councils, Nagar Panchayats, Zila Parishads, Panchayat Samitis and Gram Panchayats. The received data from the local governments was then scrutinized, tabulated and analysed. A detailed questionnaire covering all important issues relating to the finances of the Municipalities and Panchayats was prepared to be placed in the offices of Deputy Commissioners, the Sub-Divisional Officers (civil) and local governments. Interaction with the Senior Officers of the state governments and experts provided valuable information and ideas. District level meetings were held with Divisional Commissioners, Deputy Commissioners, Regional and District level Officers of local government. Recommendations Global Sharing • 20% of the net proceeds of five taxes i.e. stamp duty, Punjab motor vehicles tax, electricity duty, entertainment tax and entertainment (cinematograph shows) tax should be shared with the Municipalities and the Panchayats. Assignment of Revenues • Additional Excise duty at the rate of 7% of the auction money of country liquor and 16% of Indian Made Foreign Liquor was collected by the State Government in lieu of octroi on import of liquor into Municipalities and was reimbursed to the Municipalities. This should be enhanced from 7% to 10% on country liquor and from 16% to 20% on IMFL.

  Appendix: Summaries of Recommendations and ATRs 

481

• House tax should be charged on pucca houses on 10 Marla land and above at rate not below Rs. 100 per  annum. However, no tax be levied on Kacha houses, below 10 Marla houses and houses of Yellow Card holders. • Mandatory tax on professions, individuals, traders, commission agents, shop-keepers etc. based on income slabs be levied by the Gram Panchayats after the Government has fixed slabs of taxation. • The Gram Panchayats should levy tax on advertisements other than those appearing in the newspapers within their respective areas. The Panchayats should lease out spaces owned by them for advertisers for putting up hording. • The Gram Panchayats should tax brick kilns, rice shellers, stone crushers, petrol pumps, poultry farms, dairy units, fish farms and stud farms and small and large scale industries in the rural areas. All these levies will be in the form of property tax payable in lumpsum on yearly basis. • The Gram Panchayats should charge fee on sale of goods @ 2% of the value of goods sold. • The Gram Panchayats should also charge Parchi Fee from the buses operating on the route @ Rs. 5 to Rs. 10 when they provide certain facilities. Horizontal Distribution • The share of proceeds from stamp duty should be distributed between the Municipalities and the Panchayats on the basis of derivative principle, i.e. the stamp duty collected from the urban areas should be transferred to Municipalities and that from the rural areas should be transferred to the Panchayats. It is also recommended that separate records for the transactions relating to urban and rural areas should be maintained by the registering authorities. • The sharing of Punjab Motor Vehicles Tax be on the basis of proportionate length of roads maintained by the Municipalities and the Panchayats. Keeping in view the intensity of usage of roads in urban and rural areas, the proportion of urban and rural roads should be worked out by applying a multiplier of 10 to the actual length of Municipal roads. • The sharing of electricity duty between the Municipalities and the Panchayats should be on the basis of collection.

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Appendix: Summaries of Recommendations and ATRs

• The sharing of the entertainment tax and the entertainment (cinematograph shows) tax be on the criteria listed below: Municipalities Panchayats

80% 20%

• The inter-se distribution of these taxes amongst the Panchayats should be as under: Gram Panchayats Panchayat Samitis Zila Parishads

50% 30% 20%

Grants-in-Aid • The weak Gram Panchayats, having per capita income of less than Rs. 100 should be given grants to bring their income up-to Rs. 100 per capita to enable them to perform their obligatory functions. The gap between Rs. 100 per capita and actual per capita income should be met up-to 50 per cent by the grant and the remaining 50 per cent should be raised by the Panchayats through the statutory powers of taxation or through donations. For this purpose, a lumpsum grant of Rs. 18 crore is recommended in each of the five years (1996–97 to 2000–01) and that no part of it should be utilized for salaries and wages. • Grant-in-aid for street lighting should be given to weak Gram Panchayats, varying between 25 per cent and 50 per cent of the total electricity bill to be decided by the department on merit. • The Panchayats which put in a desirable amount of effort to make the optimal use of their own fiscal domain, augment their resources and improve upon their fiscal administration should be suitably rewarded with additional grants to be known as ‘incentive grants’. • The incentive grant should be given at the following rates as the maximum and the actual disbursement should be according to the proportionate performance of each body: Gram Panchayat Panchayat Samiti

Rs. 0.50 lakh Rs. 1.00 lakh

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483

• SFC laid-down certain parameters like utilization of all tax/non-tax measures falling within its fiscal jurisdiction; periodical revision in the rates of fees and non-tax rates; recovery of 80% of assessed demand of taxes, non-taxes and user charges including arrears up to the preceding year; cost of collection not exceeding 5% of the total taxes; user charges recovering the cost of provision and maintenance of services; expenditure on salaries, wages and contingencies, etc. as per norms fixed by the State Government for proper utilization of previous grants and devolutions. Functions and Functionaries • Devolution of the following functions to Panchayat Samitis: • Superintendence, direction and control of schemes and functionaries at the Panchayat Samiti and the Gram Panchayat level and, in ­particular, responsible for the accounting of expenditure incurred by the Gram Panchayats. • Execution and implementation of projects/schemes directly and through Gram Panchayats. • To co-ordinate functioning of Gram Panchayats regarding preparation and implementation of developmental schemes • Preparing of block level development plans for consideration of the Zila Parishad and to undertake all activities necessary for such preparation. • To implement schemes which spill over to more than one Gram Panchayat. • Promotion of people’s participation and contribution in cash, kind and labour for programmes of development. • Make recommendation to State Government/Zila Parishad in the interest of development in the area. • To exercise financial powers delegated to them. • Budgetary control. • Any other function as may be assigned by the Government. • Devolution of the following functions to Zila Parishad: • Superintendence, control and co-ordination of Panchayat Samitis and Panchayats. • To prepare the draft development of plan of Gram Panchayat/ Panchayat Samiti areas of the District for consideration of the District Planning Committee.

484 

Appendix: Summaries of Recommendations and ATRs

• Execution and implementation of the Zila Parishad schemes. • To make recommendations to the State Government in the interest of development in the District. • To implement schemes which will spill over to more than one Panchayat Samiti. • To exercise delegated financial powers. • To exercise budgetary control. • Any other function as may be assigned by the Government. • The functions devolving on the Panchayats to be performed with the funds identified by the Finance Commission and the funds of the State Government. Other Measures • Constitution of Public Accounts Committee at district and State level. • District Planning Committees be set up for preparing District Draft Development Plans. • Allocation of (1) untied funds, (2) Rural Development Board funds, and (3) State Marketing Board funds to be made by the District Planning Committees. • System of pre-audit be stream-lined and applied on a selective basis. • Municipal Accounts Committee in each Municipality and a State level Public Accounts Committee be set up. • The local finance data be collected in formats that are easy and simple and still conducive for analysis and policy making. • The data maintained should include information on income, expenditure and level of services. • Contingency charges provided with centrally sponsored and states schemes be transferred to Panchayats along with the funds of the Scheme.

Rajasthan First State Finance Commission 

Award Period: 1995–96 to 1999–00 SFC Constitution: April 1994 Report Submission: December 1995 ATR Submission: March 1996

  Appendix: Summaries of Recommendations and ATRs 

485

Composition Krishna Kumar Goyal Chandan Mal Baid Devendra Singh Shaktawat T Srinivasan

Chairman Member Member Member Secretary

Terms of Reference The Commission was required to review the financial position of the Panchayats at all levels, and make recommendations as to: 1. the principles which should govern: (a) the distribution between the State and the Panchayats at all levels of the net proceeds of the taxes, duties, tolls and fees leviable by the State, which may be divided between them under Part‐IX of the Constitution and the allocation between the Panchayats at all levels, of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Panchayats at all levels; and (c) the grants‐in‐aid to the Panchayats at all levels from the Consolidated Fund of the State. 2. the measures needed to improve the financial position of the Panchayats. The Commission was also to review the financial position of the Municipalities at all levels and make recommendations as to: 1. the principles which should govern: (a) the distribution between the State and the Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the State, which may be divided between them under Part‐IX‐A of the Constitution and the allocation between the Municipalities at all levels, of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Municipalities; and (c) the grants‐in‐aid to the Municipalities from the Consolidated Fund of the State.

486 

Appendix: Summaries of Recommendations and ATRs

2. The measures needed to improve the financial position of the Municipalities.67 In making its recommendations, the Commission was to have regard, among other considerations, to: 1. the financial resources of the State and demands thereon, keeping in view the non‐plan deficit and surplus, and in particular, the need for providing adequate resources for funding the plan expenditure for the overall development of the State; 2. the expenditure needs of the Panchayats at all levels and Municipalities at all levels for the proper discharge of the functions and responsibilities assigned to them and those as may be assigned to them hereafter as per provisions of new/amended legislations. Recommendations Global Sharing • 2.18% of the net state tax proceeds to be devolved on the local governments. [Accepted] Assignment of Taxes • A nominal 10% tax on land rent could be imposed by all Panchayat Samitis in the State. [Deferred] • The State Government to consider vesting the powers of imposition of land revenue on barani land to Zilla Parishads. [Deferred] • Zilla Parishads should levy a surcharge of 1% on the sale of land in rural areas and 0.5% surcharge on market fee. [Deferred]  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 67

  Appendix: Summaries of Recommendations and ATRs 

487

• The Panchayats should levy taxes/ fees on dhabas, hotels, automobile servicing and repair shops, petrol/ diesel pumps, etc. situated on the national/ state highways in their respective areas. [Deferred] • Zilla Parishads is empowered to levy land revenue on barani land. [Deferred] • Parking tax and hording tax could be a good source of revenue for big Municipalities [Deferred] Horizontal Distribution • The share of the Panchayats and the Municipalities out of the divisible pool would be in the ratio of 3.4:1 on the proportion of rural/ urban population according to the 1991 census. [Accepted] • Most of the items of assistance to the Gram Panchayats are per capita grant. Therefore the developmental assistance provided in Tenth Finance Commission’s recommendations and matching contribution recommended would be distributed to the Gram Panchayats on the following basis: –– 50% on the basis of incidence of property –– 40% on the basis of total rural population –– 10% on the basis of population in the non-Desert Development Programmes / non-Drought Prone Area Programmes / non-­ Tribal Area Development blocks. [Deferred] • Land revenue on barani land to be shared by Panchayats in the ratio 60% Gram Panchayats, 25% Panchayat Samitis and 15% Zilla Parishads. [Deferred] Grants-in-Aid • Grants for maintenance of rural roads and buildings @ Rs. 5000/− per Panchayat and @ Rs. 10,000/− per Panchayat Samities to maintain office buildings and staff quarters. In case of Zilla Parishads, the amount is Rs. 20,000 per Zilla Parishad per annum. [Deferred]

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Appendix: Summaries of Recommendations and ATRs

• One time ‘start-up’ grant of Rs. 5000/− to each of 1856 newly created Gram Panchayats due to delimitation exercise carried out before the constitution of the Commission. [Deferred] • Incentive grants to each level of Panchayats for functional improvement, and better performance: • Three cash awards for Gram Panchayats at each district level every year, the first prize being of Rs. 2 lakhs, second being of Rs. 1 lakh and third being of Rs. 50,000 only. • Cash awards to Panchayat Samities at every divisional level every year: 1st—Rs. 8 lakhs, 2nd—Rs. 5 lakhs and 3rd—Rs. 2 lakhs. • Cash awards to Zilla Parishads at State level every year: 1st—Rs. 8 lakhs, 2nd—Rs. 5 lakhs and 3rd—Rs. 2 lakhs. [Deferred] • Grants of Rs. 61.30 crores to arrange matching share for utilization of grants of the Tenth Finance Commission. [Accepted] • The existing per capita general purpose grant of Rs. 5/− be raised to Rs. 11/− with an annual increase of 10% per  annum for Gram Panchayats and in case of Panchayat Samities from Rs. 0.50 to Rs. 1.25 per person per  annum. In case of Zilla Parishads, it is Rs. 30,000/− per block. [Deferred] • Incentive grants to provide cash awards for better performance every year A. State Level 1. Corporations 1 award Of Rs. 5 lakhs. 2. Councils 3 awards First of Rs. 5 lakhs, second of Rs. 3 lakhs, third of Rs. 1 lakh.

B. Divisional Level 1. Class II 2. Class III 3. Class IV

6 awards One in each division of Rs. 5 lakhs. 12 awards Two awards in each division, first of Rs. 5 lakhs and second of Rs. 3 lakhs. 18 awards Three awards in each division, first of Rs. 5 lakhs, second of Rs. 3 lakhs and third of Rs. 1 lakh.

[Deferred]

  Appendix: Summaries of Recommendations and ATRs 

489

• Grants of Rs. 10.68 crores as a matching share for the utilization of grants recommended by the Tenth Finance Commission. [Deferred] Functions and Functionaries • Functions transferred to the Panchayats and Municipalities should be accompanied by transfer of resources and staff. [Deferred] • Cleaning of new colonies could be given on contract and the staff could be readjusted to fill the staff shortage in old colonies [Deferred] • Compilation of financial data by the Director Local Fund Audit, in the prescribed format. [Deferred] • Training of the Panchayat account Staff in the field of Panchayats finance, account and budgeting, technical staff in soil conservation water management, civil construction and the other staff in office procedure and management. [Deferred] • Separate classification for service/ maintenance activities for clear determination of fund flow. [Deferred] • Putting up of a self-contained unit with two filters under each Zilla Parishad to attend major repairs of hand pumps in their respective districts. [Deferred] • A system of midterm appraisal of financial position of the Municipalities is required [Deferred] Other Measures • Lumpsum assistance in lieu of property tax could be given to Municipalities by the Central and State Governments. [Deferred] • Rajasthan State Electricity Board should charge domestic rates from the Panchayats for street lighting. [Deferred]

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Appendix: Summaries of Recommendations and ATRs

• A mechanism should be developed by the FD for transferring the surcharge to Panchayats at the district level itself without treating it as state receipts. [Deferred] • A Committee should go into the issue of strengthening the cadre of Panchayat and Municipal Services. [Deferred] • Set up service selection board to select municipal employees up to ministerial service level. [Deferred] • Areas like street lighting and road maintenance could be privatized. [Deferred] • A systematic study to work out index of urban backwardness in terms of income and infrastructure is needed. [Deferred] • LSG Departments in consultation with the FD should develop an effective Management Information System. [Deferred]



Sikkim First State Finance Commission



Award Period: 2000–01 to 2004–05 Constitution: November 1995 Report Submission: August1999 ATR Submission: June 2000

Composition S Lama Rudra Pradhan Topjor Dorji

Chairman Member Member

Terms of Reference The Commission was mandated to make recommendations as to 1. The determination of the principles which should govern: (a) The distribution between the State Government and the Zilla Panchayats, Gram Panchayats, Municipalities and Municipal

  Appendix: Summaries of Recommendations and ATRs 

491

Councils of the net proceeds of the taxes, duties, tolls and fees levied by the Government which will be divided between them and the allocation between the Zilla Panchayats, Gram Panchayats, Municipalities and Municipal Councils of their respective shares of such proceeds; (b) The determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Zilla Panchayats, Gram Panchayats, Municipalities and Municipal Councils; (c) The grants-in-aid to the Zilla Panchayats, Gram Panchayats, Municipalities and Municipal Councils from the Consolidated Fund of the State; 2. The measures needed to improve the financial position of the Zilla Panchayats, Gram Panchayats, Municipalities and Municipal Councils; 3. The Commission was also:



(a) examine and make suggestions on the extent to which and the manner in which the resources available to the local governments could best be utilized for meeting the expenditure of the bodies; (b) make a detailed analysis of the repayment of loans and advances extended by the Government from time to time to the local governments and make suitable recommendation for repayment of Government dues and make the possibility of adjusting these dues against future devolution of revenues from Government to these bodies; 4. In making its recommendations, the Commission was to have regard to, among other things, resources of the State Government and the demands thereon on account of expenditure on civil administration debt servicing, development and other Committee expenditure. Recommendations

Global Sharing • One percent of the net proceed of all taxes collected by the State in the year be transferred to Panchayats.

492 

Appendix: Summaries of Recommendations and ATRs

Assignment of Revenues • Introduction of property tax and its collection by the local governments. • Urban land tax to be enhanced. • Entertainment tax is enhanced by 10%. • Introduction of toll tax and its collection in every entry point of the local governments. • Rate of existing trade licence / hawkers licence be doubled. • Profession tax be levied by the local government depending upon the nature and profitability of the Profession. • Introduction of Sanitation tax by the local government and State Government. • Enhancement of advertisement tax by 100%. • Dhuri khajana (i.e. annual fee for each house) be levied at the revised rates. • Revision of water tax (user charges). • Fees for construction of house within the Panchayat unit be charged at the revised rates. • Water cess from the user of irrigation facility at revised rates. Horizontal Distribution • Municipalities do not exist in the State. Only Panchayats exist. The functions of Municipalities are carried out by Department of Urban Development and Housing. Therefore, question of allocation between the two does not arise. Grants-in-Aid • Continuation and enhancement of existing grants-in-aid is recommended. • Non-plan expenditure will be in the form of grants to the local governments. • Centrally sponsored schemes, for which central releases have to be matched by proportionate state releases, would also continue to be considered grants to the local governments. Functions and Functionaries • SFC has recommended for the transfer of a set of functions to Panchayats.

  Appendix: Summaries of Recommendations and ATRs 

493

Other Measures • Infrastructure/establishment expenditure of Panchayat borne by the State to be continued.

Tamil Nadu First State Finance Commission 

Award Period 1997–2002

Global Sharing • “Pool A” tax, which belongs to the local governments but collected by the State Government, is to be distributed to the local governments concerned. This includes: –– Surcharge on stamp duties –– Local cess and local cess surcharge and –– Entertainment tax • “Pool B” is the Net Tax Revenue of the State consisting of sales tax, motor vehicle tax, state excise revenue and others. Of this, the percentage of devolution towards local governments each year will be gradually increased from 8% in 1st year, to 9% in 2nd year, 10% in 3rd year, 11% in 4th year and 12% in the fifth year. 15% of this amount would however be kept aside as reserves to meet post devolution conditions. Assignment of Revenues • 25% of the royalties from major minerals be shared with the local governments. Horizontal Distribution • The ratio for the distribution of funds between the Panchayats and Municipalities would be 60:40. • 14% of the total rural fund to be given to District Panchayats. The remaining 86% to be distributed among the Panchayat Unions and Village Panchayats on 50:50 basis. • Inter se distribution among Panchayat Unions will be based on:

494  a b c

Appendix: Summaries of Recommendations and ATRs

Total population of the Panchayat union (last census) Total SC and ST population of the Panchayat union Financial viability of the Panchayat union (average per capita land revenue)

50% 25% 25%

• Inter se distribution among Village Panchayat will be based on: a b c d

Total population of the Village Panchayat (1991) Total SC and ST population of the Village Panchayat (1991) Per capita house tax collection performance Core civic services infrastructure maintenance

50% 15% 15% 20%

• Municipalities funds are to be distributed in the following ratio: a b c

Town Panchayat Municipalities Municipal corporations

38% 31% 31%

• The following principle of weights to be adopted for inter se distribution from out of the divisible pool of the respective tier of local government: Town Municipalities Corporations Panchayats (i) Total population (1991) (ii) Total SC/ST Population (1991) (iii) Financial indicator Per capita receipt under own resources (average of both tax and non-tax resources for the last 3 years ending with 31.3.94) (iv) Service indicator(existing per capita expenditure on core civic services for the last 3 years ending with 31.3.94) Total

45% 20% 15%

45% 10% 15%

40% 10% 15%

20%

30%

35%

100

100

100

  Appendix: Summaries of Recommendations and ATRs 

495

Grants-in-Aid • Local governments should be provided with various grants, such as the specific purpose grants, revenue grants, road maintenance grant, lighting grants, water-supply grant, drainage grants, house tax matching grants, grants for maintenance of maternity centres and dispensaries. Functions and Functionaries • Local governments should levy advertisement tax, higher user charges on water supply, sanitary services, tax on trade, parking fees etc. • Village Panchayats should levy water tax compulsorily. • Local governments should be allowed to levy following taxes: • Tax on motorized vehicles not taxed under the Motor Vehicle Tax • Tax on timber • Cable T.V. (Addl. Levy) • Surcharge on bus tickets etc. Other Measures • The procedure for sharing of revenue from royalties of minor minerals with the local governments be streamlined. • Reform in property tax and profession tax be undertaken, to improve the tax collection.

Tripura First State Finance Commission 

Award Period for Panchayats: 1996–97 to 2000–01 Award Period for Municipalities: 1999–00 to 2003–04 Constitution: April 1994 (Panchayats) August 1996 (Municipalities) Report Submission: January 1996 (Panchayats) September 1999 (Municipalities) ATR Submission: February 1997 (Panchayats) November 2000 (Municipalities)

496 

Appendix: Summaries of Recommendations and ATRs

Composition S K Panda Haradhan Debnath D Dutta

Chairman Member Member Secretary

Terms of Reference Under Article 243-I of the constitution of India the Governor appoints a Finance Commission to review the financial position of Panchayats and to make recommendations as to: 1. the principles which should govern: (a) the distribution of the net proceeds of the taxes, duties, tolls and fees leviable by the state among the state, Zilla Parishads, the Panchayat Samitis and the Gram Panchayat; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by, the Zilla Parishads, the Panchayat Samitis and the Gram Panchayat; (c) the grants-in-aid to the Zilla Parishads, the Panchayat, the Panchayat Samitis and the Gram Panchayat from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Zilla Parishads, the Panchayat, the Panchayat Samitis and the Gram Panchayat; 3. Any other matter referred to the Finance Commission by the Governor in the interests of sound finance of the Panchayats. Under Article 243-Y of the constitution of India the Governor appoints a Finance Commission to review the financial position of Municipalities and to make recommendations as to: 1. the principles which should govern: (a) the distribution between the State and the Municipalities of the net proceeds of the taxes, duties, tolls and fees leviable by the state which may be divided between them under this part and the allocation between the Municipalities at all levels of their respective shares of such proceeds;

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497

(b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated to the Municipalities; (c) the grant-in-aid to the Municipalities from the consolidated fund of the state; 2. the measures needed to improve the financial position of the Municipalities.68 Methodology The Commission invited views, suggestions and opinions from individuals, recognized institutions, political parties and organizations. Relevant data/information were collected from the State Government and other semi-government bodies and autonomous bodies. Discussions were carried out with departmental officers of the State Government and elected representatives of the three-tiers of Panchayats. Recommendations Global Sharing • At the initial stage, 10% of the state share of central taxes to be assigned to the Zilla Parishad, 8% to the Panchayat Samiti and 2% to the Gaon Panchayats. The total amount to be distributed among individual units at each tier as per a formula, based on population and socio-economic backwardness. [Accepted] • 50% of the revenue earned from sale tax, purchase tax and luxury tax to be passed on to the Panchayats @ 30% to Gaon Panchayat, 15% to Panchayat Samiti and 5% to Zilla Parishads. The horizontal distribution in each tier may be done based on the population. [Accepted] • 35% of the professional tax to be provided to the Panchayats @ 20% for Gaon Panchayat, 10% for Block Panchayat and 5% for Zilla Parishad. The horizontal distribution to be done based on population. [Accepted]

 Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution. 68

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• 15% of the forest revenue to be passed on to the three Zilla Parishads @ 5% each. [Rejected] • 32% of the collection from agri-income tax and land revenue to be passed on to the middle tier Panchayats, i.e. Panchayat Samiti at an uniform rate of 2% each. [Accepted] Assignment of Revenues • The Gaon Panchayats to levy taxes @ 1% of the value of land and building per annum and 1% additional stamp duty on all transfer of immovable property. [Accepted] Horizontal Distribution • No such recommendations. Grants-in-Aid • Panchayats to be given untied fund for taking up innovative and location specific schemes. The Gaon Panchayat to be provided grant @ Rs. 100/− per head, Panchayat Samity @ Rs. 60/− per head and Zilla Parishad @ Rs. 40/− per head on the basis of total population living in each unit on a permanent basis. [Accepted] Functions and Functionaries • 29 activities indicated in the XIth schedule of the constitution implemented at the District, Block and village level to be transferred to the Panchayats in a phased manner. [Deferred] Other Measures • Preparation of annual plan for each tier of Panchayati Raj Institutions should be given specific emphasis. This to be introduced at the Zilla Parishad level immediately and taken up to Panchayati Samiti and Gaon Panchayat level in a phased manner. The Zilla Parishad to be provided required assistance for the purpose. [Deferred]

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• The best three Gaon Panchayats in each block to be given cash reward amounting to Rs. 3 lakhs, Rs. 2 lakhs and Rs. 1 lakh, respectively. Similarly, the best three blocks to be given reward @ Rs. 10 lakhs, Rs. 5 lakhs, Rs. 3 lakhs, respectively. The best Zilla Parishad to be given reward @ Rs. 50 lakhs, Rs. 20 lakhs and Rs. 10 lakhs in order of performance. This amount to be utilized mainly for creation of infrastructure. [Rejected]

Uttar Pradesh First State Finance Commission 

Award Period: 1996–97 to 2000–01 Constitution: October 1994 Report Submission: December 1996 ATR Submission: January 1998

Composition B C Shukla M S Verma O P Agarwal

Chairman Member Member Secretary

Terms of Reference The Commission was required to make recommendations as to the following: 1. The principles which should govern: (a) The distribution between State, Gram/Kshetra/Zila Panchayats and Municipalities of the net proceeds of taxes, duties, tolls and fees leviable by the State which may be divided amongst them under Part-IX and IX A of the Constitution and the allocation between Panchayats at all levels and Municipalities of their respective shares of such proceeds; (b) The determination of taxes, duties, tolls and fees which may be assigned to or appropriated by the Gram/Kshetra/Zila Panchayats, or, as the case may be, the Municipalities; (c) The principles which should govern the grants-in-aid to the Gram/ Kshetra/Zila Panchayats or as the case may be, Municipalities from Consolidated Fund of the State;

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2. The measures for strengthening the financial position of Gram/ Kshetra/Zila Panchayats and Municipalities; 3. Any other matter, which the Governor may refer to the Commission in the interest of sound finance of Gram/Kshetra/Zila Panchayats and Municipalities. In making its recommendations, the Commission was required to have regard, among other considerations, to: 1. the revenue resources of the State Government and the demands thereon, in particular, on account of expenditure on civil administration, debt serving and other committed expenditure or liabilities; 2. the liabilities of Panchayats and Municipalities in respect of implementation of schemes entrusted to them under Article 243-G and 243-W and works entrusted to them at appropriate levels; 3. the revenue resources of Panchayats and Municipalities at all level based on the potential for raising resources for the next five years and targets fixed for additional resource mobilization along with tax efforts made in this direction; 4. the scope for better fiscal management consistent with economy in expenditure and efficiency in administration; 5. the maintenance and upkeep of capital assets and maintenance expenditure on those plan schemes which are entrusted to these bodies and are completed by March 31, 1997; 6. the Commission may make an assessment of the debt position of the Panchayats and Municipalities at all levels as on March 31, 1994 and suggest such corrective measures as are deemed necessary keeping in view the financial requirements of the State; 7. if the funds available at local level do not meet full requirement of expenditure on Plan side after the new arrangement, then the Commission will make specific recommendation regarding the arrangement of funds for expenditure on both plan and nonplan side. Methodology Questionnaires were prepared and sent to concerned departments. Team of officers from the Commission was sent to various districts to create awareness for the importance of filling the questionnaires and to have an intimate knowledge of the working of Panchayats and Municipalities.

  Appendix: Summaries of Recommendations and ATRs 

501

Also, visits were made to different States (Karnataka, Kerala, Assam, Tamil Nadu, Andhra Pradesh, Haryana and Bihar) with a view to familiarize with the approaches adopted by the other SFCs. Discussion were taken up with the elected representatives of the Panchayats and Municipalities. Seminar at Hyderabad, Mussoorie, New Delhi and Madras were attended to have a better understanding of the need for devolution of funds to local governments and making them self-sufficient for raising their own resources. Recommendations Global Sharing • 10% of net proceeds of States total tax revenue to local governments of which 70% be earmarked to Municipalities and the remaining 30% to Panchayats. Assignment of Revenues • No new tax was recommended to be assigned to Gram Panchayats as Panchayats were considered not capable of collecting tax and non-­ tax revenue already assigned to them. • Since Municipalities were not collecting more than 50 to 55 per cent of the current demand of their own taxes, there is no need to assign more taxes and duties. Horizontal Distribution • Out of 7% of net proceeds of States total tax revenue to Municipalities, 44.57%, 44.57% and 10.86% are to be divided between Nagar Nigams, Nagar Palika Parishads and Nagar Panchayats, respectively based upon the criteria of 80% population and 20% area. • Out of 3% of the net proceeds meant for Panchayats, 20% be earmarked for Zila Panchayats and the balance 80% for Gram Panchayats based upon the criteria of 80% population and 20% area. Grants-in-Aid • The existing system of grants-in-aid was considered to be discretionary. It was recommended that it should be disbanded and substituted by global sharing.

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• The existing system of grants-in-aid with reference to centrally sponsored and central sector schemes need to be continued. • The Tenth Finance Commission’s grant in 1996–97 to 1999–2000 should be utilized strictly for civic services like improving drainage facilities, garbage disposal, latrines, street lighting etc. A matching contribution be provided by Municipalities for raising their resources. • Arrears of the electricity bills of the Municipalities till 31st March 1996 be liquidated and the State Government out of their outstanding wage and means advance against UPSEB convert the amount of dues of electricity into grant to electricity board. • The Electricity board in turn treats this amount as payment made by the Municipalities towards electricity dues till 31st March 1996. • Loans given under integrated urban development schemes and special and general component plan for SCs and STs, etc. to Municipalities as on 31st March 1994 with interest thereon be converted into grant. • Loans for integrated development and of small and medium towns, as on 31st March 1994 with interest thereon be converted into grant. Functions and Functionaries • Recommendations regarding transfer of functions as mentioned in the Eleventh Schedule of the constitution made by the Administrative Reforms and Decentralization Commission to the State Government should be considered. Funds for such activities/functions should also be passed on to the Panchayats. Other Measures • Adoption of carpet area as the basis for assessing the annual rental value of buildings in Municipalities. • Property tax, water tax and latrine tax are to be collected by the Municipalities concerned. • Comprehensive enactment covering the recommendations of the Commission and various provisions under different act to ensure a uniform policy for levy and recovery of property and other taxes in all the Municipalities, i.e. Nagar Nigams, Nagar Palika Parishads and Nagar Panchayats. • Municipalities should pay for water used in parks etc. to Jal Sansthans. If the local governments fail to pay the same should be recovered by

  Appendix: Summaries of Recommendations and ATRs 

503

the State Government out of devolutions to them from the State Budget. • Water supply need to be maintained on commercial lines hence revision of water charges/rates need to be revise. • The entire domestic water supply should not be metered and the minimum flat rate be raised gradually over the years. The post of some of the meter readers which would be rendered surplus, should be reduced gradually as meter readers retire, to enable local governments to save the staff cost. • Public private participation need to be encouraged in Municipalities for the improvement in essential civic services. • Development authorities and Jal Sansthans operating in a municipal area should be brought under the umbrella of elected Municipalities. • Constitution of a committee of experts to reorganize the administrative structure etc. of the Municipalities including the State level bodies like the State Urban Development Authority (SUDA) and Directorate of Urban Local governments. • Strengthening of the existing Finance Commission Cell in the State Finance Department so that necessary information and data about the Municipalities and Panchayats could continue to be updated for study and use by the future Commissions. • Common detained format for budget estimates for all the three categories of Municipalities. • Audit of the accounts of Nagar Nigams and Nagar Palika Parishads should be given to the Accountant General, Uttar Pradesh. However, the accounts of Nagar Panchayats to continue to be audited by the Director, Local Funds Accounts. The A.G., U.P. should submit a detailed audit report annually which should be placed before the State Legislature through Public Accounts Committee. • The sanitation workers in the total strength of the local government employees account for almost 50 per cent. But the duty hours and work of the sanitation staff are not properly monitored in the light of norms laid down for the purpose in the U.P. Health Services Manual. This is resulting in poor standard of sanitation services despite increasing trend in expenditure on sanitation staff. The work of sanitation staff should be monitored closely and regularly. Dependence on the sanitation staff could also be reduced by encouraging private agencies to take up on contract basis work for sanitation and disposal of garbage.

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Uttarakhand First State Finance Commission 

Award Period: 2001–02 to 2005–06 Constitution: March 2001 Report Submission: June 2002 ATR Submission: July 2004

Composition R K Dhar L M Pant

Chairman Member Secretary

Terms of Reference The Commission identified the tasks set out in the TOR for action along the following lines: 1. Review the revenue resources of the State Government and the demands thereon, keeping in view the expenditure on civil administration, liabilities on account of debt servicing, and committed expenditure levels and liabilities. 2. Review the financial position of the Panchayats consisting of Zila Panchayats (13), Kshetra Panchayats (95), and Gram Panchayats (7055), as well as of the Municipalities, namely the Nagar Nigam (only one), the Nagarpalika Parishads (31), and the Nagar Panchayats (31) in the State. 3. Develop and indicate the measures for strengthening the financial position of the Zilla Parishads/Kshetra Parishads/Gram Parishads and the Nagar Nigams/Nagar Palika Parishads/Nagar Panchayats, 4. Examine the scope, and set out the means, for improving fiscal management, economy of expenditure, organizational streamlining and efficiency in administration; 5. Consider the outcome of the above process, and in the context of the functions, capacities and needs of the Panchayats and Municipalities at various levels, recommend the principles on which an appropriate scheme of devolution should be developed for these institutions of self-governance. 6. Assess the quantum of funds to be devolved and the distribution thereof to these institutions, at different levels, including the sharing or assigning of taxes, and the distribution of grants-in-aid.

  Appendix: Summaries of Recommendations and ATRs 

505

Methodology The review of the institutions is made in the context of the specific historical, demographic, physical and socio-economic realities of Uttaranchal. An effort has been made to bring in the citizens’ point of view. The Report of the first UPSFC for the period 1996 to 2001 has been taken as a starting point. The observations of the Eleventh Finance Commission have been taken note of. Several instruments were used for carrying out the review: Desk studies, questionnaires, study of memorandums received, district level hearings, formal/informal meetings and consultations, consultants’ reports and other inputs. Recommendations Global Sharing • 11% of the State Net Tax Revenues be distributed between the Panchayats and the Municipalities on the basis of 42.23% to Panchayats and 57.77% for Municipalities. • The Panchayats as a whole would receive an annual devolution of Rs. 37.32 crores of which Gram Panchayats and Zilla Panchayats would receive Rs. 30.95 crores and Rs. 6.37 crores respectively. • The Municipalities as a whole would receive an annual devolution of Rs. 48.61 crores of which Nagar Nigam, Nagar Palika Parishads and Nagar Panchayats would receive Rs. 11.19 crores, Rs. 33.03 crores and Rs. 4.39 crores, respectively. Assignment of Revenues • No such recommendation. • In the past Municipalities were levying and collecting octroi and toll taxes, which were abolished by the State Government, and the power of Municipalities to levy them was repealed. In lieu thereof, these institutions were given compensatory grants. The compensatory grants were done away with and merged in the scheme of devolution made effective w.e.f. 1-4-1997 on the recommendations of U.P. State Finance Commission.

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Horizontal Distribution • Out of the share of the Panchayats, the respective percentage for Gram Panchayats, Kshetra Panchayats and Zila Panchayats work out to 75.18%, 9.35%, 15.47%. Out of the share of the Municipalities, the percentage for Nagar Panchayats, Nagar Palika Parishads and Nagar Nigam respective work out at 9.41%, 68.94% and 21.65%. • The Gram Panchayats would be classified into five classes based on the distance of the headquarter of their respective blocks from the nearest railhead as follows: (1) 0 to 49 Km. (2) 50 to 99 Km, (3) 100 to 149 Km, (4) 150 to 199 Km, and (5) 200 Km and above. The devolution would be made in rounded per capita terms based upon the category of Gram Panchayats. • All Nagar Palika Parishads and Nagar Panchayats would be classified into only two classes on the basis of the minimum distance from the nearest railhead. • The devolution would be made in rounded per capita terms to ensure certainty, stability and transparency of entitlements. Grants-in-Aid • Grants-in-aid of Rs. 3.85 crores to Kshetra Panchayats for joint provision of essential civic services. • Grants-in-aid of Rs 7.71 crores per annum to Municipalities in the following manner: Grants-in-Aid Deficit Grants Grants for computerization Grants for joint provisioning of essential civic services Grants to environmentally sensitive pilgrim places Grants for slum improvement

Functions and Functionaries • No major recommendations.

Rupees (in crore) 1.68 0.93 0.95 0.15 4

  Appendix: Summaries of Recommendations and ATRs 

507

Other Measures • The system of keeping records dealing with citizens complaint, staff needs, revenue accounts including tax records in the Nagar Palika Parishads and Nagar Panchayats is archaic. The Commission is of the firm view that modern means of keeping records etc. must be introduced at the earliest which will not only lead to economy in expenditure in the long run but will also provide more transparent and efficient services to the citizens. Thus for rapid computerization for priority objectives, the Commission recommended that a grant be made of Rs. 2 Lakhs per annum to each Nagar Palika Parishads and Rs. 1 Lakh to each Nagar Panchayats with effect from the financial year 2002–03, i.e., a total of Rs. 93 Lakhs per annum. • It was recommended that initially in a year only 70% of the entitlement should be released and the release of remaining 30% be linked to their financial and institutional performance for which the Commission recommended the following criteria: • The fulfilment of revenue increase as per norms recommended by the Commission (15%). A State Level Monitoring Committee chaired by the Finance Secretary should determine this entitlement. • The progress towards more democratic good governance (15%) as judged by: The grievance removal mechanisms and community mobilization. The regularity and quality of proceedings of their councils and committees. Grading achieved in audit or budgeting, account keeping, timely placement of audit reports before the Parishad/Panchayat. A Committee chaired by the Divisional Commissioner and convened by the Director Local governments or his nominee should determine the entitlements in this regard.

 

West Bengal First State Finance Commission Award Period 1996–97 to 2000–01 Constitution: May 1994 Report Submission: November 1995 ATR Submission: July 1996

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Composition Satyabrata Sen Nripendra Nath Bandyopadhyay Prasad Ranjan Roy Bijan Kumar Kundu

Chairman Member Member Secretary

Terms of Reference The Commission was required to make recommendations as to the following: I. In case of Panchayats 1. the principles which should govern: (a) the distribution between the State and the Panchayats, of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part IX of the Constitution of India and the allocation between the Panchayats at all levels of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Panchayats; (c) the grants-in-aid to the Panchayats from the Consolidated Fund of the State; 2. the measures needed to improve the financial position of the Panchayats; II. In case of Municipalities 1. the principles which should govern: (a) the distribution between the State and the Municipalities, of the net proceeds of the taxes, duties, tolls and fees leviable by the state, which may be divided between them under this Part IX A of the Constitution of India and the allocation between the Municipalities at all levels of their respective shares of such proceeds; (b) the determination of the taxes, duties, tolls and fees which may be assigned to, or appropriated by the Municipalities; (c) the grants-in-aid to the Municipalities from the Consolidated Fund of the State;

  Appendix: Summaries of Recommendations and ATRs 

509

2. the measures needed to improve the financial position of the Municipalities;69 Methodology Not mentioned in the report. Recommendations Global Sharing • 16% of the net proceeds of all tax collected by the State in a year should be transferred to local governments. These form untied funds at the disposal of the local governments. Such funds to be released to districts in suitable instalments, quarterly or monthly. Assignment of Revenues • Taxes on entertainments now collected by the States should be handed over to local governments. • Urban land tax and multi-storeyed building tax should be handed to Calcutta Municipal Corporation. • Collection of irrigation rates along with the related responsibility of water management and routine maintenance is handed over to concerned Zilla Parishads. • Resources generated in regulated markets should be brought within the purview of DPCs and the net proceeds ploughed back in the market hinterlands. Horizontal Distribution • For distribution between districts the following factors were taken were population (50% weightage), level of non-literacy (10% weightage), proportion of backward population (10% weightage), area of the district(10% weightage), proportion of rural population(10% weightage) and inverse ratio of per capita bank deposits and of working capital of primary agriculture cooperatives taken together (10% weightage). 69  Words in italics are verbatim reproduction of the proviso under articles 243 I and Y of the Constitution.

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• Within a district its allocation among Panchayats, Municipalities and Special areas should be on the basis of respective total population. • The distribution between Municipalities has been based on factors: Population (50% weightage), Level of non-literacy (16.67% weightage), Proportion of SC and ST population (16.67% weightage), and Population density (16.66% weightage). • Of the total entitlement going to Panchayats, the proportionate allocation between a three tiers is Zilla Parishads 30 percent, all Panchayat Samitis together 20 percent, all Gram Panchayats together 50 percent. • The distribution between Gram Panchayats has been made on the basis of population (50% weightage), level of non-literacy (25% weightage) and proportion of SC/ST population (25% weightage). • The distribution between Panchayat Samitis has been based on the same three factors as in the case of Gram Panchayats. Grants-in-Aid • Over the past decade, the proportion of plan expenditure for districts has increased and, with further decentralization, this share will go up. A substantial part of this should be entitlement to the local governments in the form of untied funds and the rest will continue to be grants. • There should be modifications of some grants to Municipalities. In place of entry tax, a surcharge on sales tax has to be introduced. As promised, the State Government should distribute the fund to the Municipalities as grants in the same manner as done so far with money from the entry tax. State grants on parts of collection of profession tax and motor vehicles tax to local governments to be discontinued. • A large number of centrally sponsored programmes such as JRY, IRDP, ARWSP etc. are now in operation in which the central releases have to be matched by proportionate State releases. Such State and central releases would continue to be grants and will not be part of the untied entitlement of the local government concerned. • Covering of non-Plan expenditures will also be grants. • DA liabilities of approved staff should be available as grants.

  Appendix: Summaries of Recommendations and ATRs 

511

Functions and Functionaries • The West Bengal Panchayat Act has empowered the three tiers of Panchayats to raise taxes, levies and tolls for a wide range of fields. Efforts should be stepped up. • Fiscal powers of local governments have been set forth in various legislations, but further spread is necessary. Other Measures • District Planning Committees (DPC) has now been given a constitutional status. In this state for nearly a decade Planning Committees at a district level were functioning. But the planning process needs to be much more comprehensive than hitherto. Also the process should start from the Gram Panchayat level and move upwards with appropriate modifications at upper levels including the State Planning Board. • Suitable and adequate number of persons from existing employees in the district should be selected for the job of auditing of income and expenditure of local governments. No additional recruitment should be necessary. • A new Standing Committee (Sthayee Samiti) to be created in each Zilla Parishads to help develop favourable milieu for small-scale and large industrial units. • Municipalities should be empowered to issue trade licenses with fees at a much higher level; to impose higher toll taxes, higher water taxes and introduce conservancy charges for commercial and industrial establishments. • Auditing of incomes and expenditures is a must for healthy running of local governments. • Periodical assessment by the Central Valuation Board should be made mandatory.

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Index1

A Accommodation, 244, 429 Accountability, 1, 8, 19, 56, 252, 285, 311, 348, 396 Additional resource mobilization (ARM), 34, 132, 190, 265, 327, 356, 366, 372, 374, 405, 441, 475, 500 Administration, 40, 56, 101, 119, 127, 136, 144, 159, 171, 217, 222, 223, 225, 231, 232, 237, 246, 256, 265, 271, 290, 300, 301, 308, 312, 313, 319, 327, 335, 342, 345, 356, 360, 362, 367, 372, 404, 405, 413, 425, 426, 430, 431, 435, 449, 455, 456, 458, 471, 482, 491, 500, 504 Advertisement tax, 191, 192, 216, 268, 289, 351, 352, 355, 426, 492, 495

Anchalik Panchayat, 128, 161, 165, 321 Andhra Pradesh (AP), 34, 54–56, 58, 101, 103, 104, 107, 117, 223–230, 311–318, 328, 405, 424–431, 501 Animal husbandry, 233, 244, 263, 277, 280, 281 Annual growth rate, 233, 287, 420 Annual rental value, 165, 289, 452, 502 Article, 16 Article 243G, 10, 58, 189, 225, 252, 265, 300, 313, 374, 404, 413, 500 Article 243W, 10, 58, 189, 225, 252, 265, 300, 313, 374, 404, 413, 500 Article 243 ZD, 371, 420 Arunachal Pradesh (ArP), 44, 55, 101–103, 107, 431–434

 Note: Page numbers followed by ‘n’ refer to notes.

1

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2021 V N Alok, Fiscal Decentralization in India, https://doi.org/10.1007/978-981-16-2203-8

521

522 

INDEX

ASHA workers, 207 Assam (Asm), 40, 54–56, 58, 96, 101–103, 105, 106, 108, 128, 158, 163, 165, 230–235, 501 Assessment, 8, 11, 40, 118, 129, 134, 148, 149, 156, 176, 190, 212, 231, 242, 243, 255, 263, 266, 301, 302, 319, 322, 328, 354, 368, 386, 387, 405, 413, 435–437, 446, 452, 500, 511 Assignment of revenues, 40, 130, 137, 141, 145–146, 160, 167, 172–173, 177–178, 183–184, 191–192, 198, 205, 211–214, 220, 226–227, 233, 238, 243–244, 247, 253, 261, 267–268, 272, 275, 280–281, 288–289, 293, 295–296, 302, 309, 320–321, 325, 329–330, 336, 341–342, 345, 351–352, 358, 363, 368–370, 376, 384, 389, 393, 398, 403, 406–407, 414–415, 422–423, 426–427, 432, 436, 440, 443–445, 449–450, 454–456, 459, 463, 467, 471–472, 475, 477, 480–481, 492, 493, 498, 501, 505, 509 Auditing, 171, 220, 235, 252, 259, 298, 442, 466, 511 B Below poverty line, 191, 250 Betting tax, 160, 426 Bihar (Bih), 54–57, 101, 103, 105–107, 129–134, 166–169, 328, 501 Block Panchayats (BP), 2, 142, 177, 184, 186, 222, 258, 259, 348, 350, 463, 497 Borrowing power, 285, 361, 367, 470

Budgetary control, 483, 484 Budgets, 105, 120, 121, 129, 161, 163, 165, 169, 172, 179, 188, 201, 202, 205, 216, 228, 233, 248, 276, 280, 282, 283, 291, 305, 317, 325, 328, 338, 339, 355, 357, 368, 394, 401, 422, 452, 456, 465, 469, 477, 503 C Cable tax, 229, 314 Capacity building, 56, 130, 131, 153, 159, 202, 209, 234, 262, 264, 294, 305, 325 Capacity building grants, 56 Capital, 8, 121, 154, 155, 210, 212, 238, 250, 256, 264, 271, 285, 321, 346, 350, 351, 367, 369, 395, 397, 409, 509 allocations, 106 assets, 136, 171, 189, 225, 237, 265, 279, 301, 313, 335, 356, 362, 374, 395, 405, 413, 425, 449, 471, 500 expenditure, 225, 256, 313 investment, 136, 171, 237, 327, 335, 356, 395, 449 transaction fee, 268, 376 Carbon tax, 419 Centrally sponsored schemes (CSS), 57, 163, 193, 456, 464, 465, 492 Circumstances and property (C&P) Tax, 302, 406, 407, 416, 417 Civil administration, 136, 171, 231, 237, 246, 265, 300, 319, 327, 335, 345, 356, 362, 404, 413, 435, 449, 458, 471, 491, 500, 504 Compensatory grant, 54, 162, 385, 505 Composite index, 173, 233, 407

 INDEX 

Congestion tax, 130 Consolidated Fund, 126, 129, 135, 136, 139, 151, 154, 158, 166, 168, 170, 176, 177, 181, 189, 192, 193, 196, 203, 210, 219, 224, 231, 236, 241, 245, 249, 251, 260, 265, 270, 271, 273, 279, 284, 292, 300, 307, 312, 319, 324, 326, 334, 340, 344, 347, 356, 361, 373, 382, 383, 388, 395, 402, 404, 412, 421, 425, 431, 434, 439, 448, 453, 456, 458, 462, 470, 479, 485, 491, 496, 497, 499, 508 Constitution, v, 1, 2, 5, 6, 10, 11, 16, 95, 96, 101–104, 106–115, 119, 128, 133n1, 139, 160, 164, 165n5, 165n6, 166n7, 171n8, 174, 180, 181, 182n11, 183n12, 188, 189, 189n13, 191, 194, 196, 196n14, 203n15, 206, 210n16, 218, 219, 219n17, 223, 224n19, 225, 229, 231, 235, 236n22, 242n23, 246n24, 251, 251n25, 259, 260, 260n26, 265, 265n27, 271n28, 273n29, 279n30, 284n31, 285, 292, 292n32, 300, 300n33, 307, 307n34, 312n35, 313, 317, 319n36, 320, 323, 324n37, 326, 326n38, 334, 334n39, 338, 340n40, 341, 344n42, 347, 359n45, 359n46, 360, 361n47, 365, 366n49, 370, 371, 373, 374, 374n50, 380, 383n51, 388, 388n52, 392, 394, 395n53, 402, 402n54, 404, 409, 412, 413n55, 420, 421, 421n56, 425n57, 429, 431n58, 435n59, 438, 439, 439n60, 441, 448, 448n61, 453n62, 458n64, 461, 462, 469, 470, 470n65, 474, 474n66, 484,

523

485, 486n67, 488, 496, 497n68, 498, 499, 502, 503, 508, 509n69 Constitutional provisions, vi, 120, 292 Cooperative federalism, v, 1 Criteria, 21–30, 43, 96, 131, 156, 167, 168, 173, 197, 200, 205, 214, 221, 222, 238, 252, 259, 276, 278, 296, 316, 321, 348, 348n43, 369, 392, 415, 451, 459, 464, 467, 468, 482, 501, 507 D Debt Servicing, 154, 189, 210, 225, 231, 246, 265, 300, 308, 312, 319, 327, 345, 356, 362, 374, 395, 413, 425, 435, 458, 471, 491, 504 Decentralization, 1, 96, 140, 237, 348, 357, 371, 449, 510 Decentralized planning, 252, 337, 450 Deficiencies, 93–94, 380 Deficit grant, 58, 417 Development fund (DF), 141, 183–186, 293, 394, 398, 461 Development scheme, 179, 294, 403, 433, 502 Disaster management, 259, 281 Discretionary taxes, 276, 277 District panchayats (DP), 2, 59, 142, 154, 156, 157, 161, 177, 184, 186, 209, 214, 215, 218, 258, 284, 289, 290, 310, 314, 329, 330, 332, 348, 350, 394, 396, 399, 401, 423, 445, 446, 463, 465, 493 Divisible pool, 34, 40, 129, 160, 161, 173, 191, 204, 232, 237, 247, 256, 257, 321, 329, 358, 359, 389, 406, 455, 487, 494

524 

INDEX

Drainage system, 163, 327 Drinking water supply, 243, 250, 327, 371 E Economic development, 6, 10, 58, 252 Economic policies, 1 Efficiency, 1, 6, 10, 19, 118, 121, 126, 139, 144, 175, 182, 190, 232, 243, 252, 266, 285, 301, 320, 327, 348, 357, 374, 378, 395, 405, 413, 435, 447, 500, 504 E-governance, 131, 143, 175, 202, 223, 256 Elected representatives, 127, 136, 152, 159, 176, 232, 235, 237, 242, 269, 272, 278, 294, 324, 341, 348, 357, 359, 392, 396, 411, 418, 420, 426, 449, 461, 497, 501 Electricity, 34, 54, 130, 146, 160, 162, 172, 202, 238, 258, 268, 333, 336, 342, 378, 379, 409, 450, 455, 480–482, 502 Electricity tax, 172, 178 Energy, 187, 342, 468 Entertainment tax (ET), 11, 16, 34, 40, 130, 143, 157, 160, 183, 185, 187, 192, 256, 274–276, 288, 309, 351, 358, 363, 368, 381, 389, 390, 396–398, 408, 422, 430, 443, 444, 450, 455, 463, 472, 478, 480, 482, 492, 493 Entry tax, 160, 172, 192, 197, 198, 238, 267, 329, 358, 378, 381, 384, 468, 477, 510 E-Panchayat, 134, 209, 419 Equalization, 120, 400 transfer, 118

Establishment grant, 56–58, 258, 259, 417, 475 Excise duty, 198, 272, 315, 385, 419, 480 Exemption, 227, 239, 296, 329, 352, 384, 386, 430, 447, 463 Exemptions granted, 20, 227 Expenditure, 1, 8, 11, 20, 21, 33, 43, 57, 69, 93, 94, 121, 122, 126, 136, 139, 147, 148, 151, 154, 155, 157, 168, 171, 177, 182, 189, 190, 197, 204, 210, 215, 225, 226, 231, 232, 235, 237, 243, 244, 246, 250, 252–256, 262, 263, 265, 266, 271, 274, 279, 283, 286, 292, 294, 300, 301, 308, 312–314, 319, 320, 325, 327, 333, 335, 338, 339, 341, 344, 345, 348, 350, 356–358, 361, 362, 366, 367, 374, 378, 379, 383, 385, 386, 388, 389, 395, 404, 405, 408, 409, 413, 420, 425, 435, 436, 442, 445, 446, 449, 454, 458, 470, 471, 474, 480, 483, 484, 486, 491–493, 500, 503, 504, 507, 510, 511 F Federalism, 1, 172 Financial management, 127, 140, 148, 182, 225, 232, 252, 259, 306, 313, 320, 348, 435 Fiscal administration, 127, 159, 256, 482 Fiscal autonomy, 176, 242, 366, 474 Fiscal capacity (FC), 19, 20, 42, 58, 176, 242, 243, 332, 474 Fiscal data, 93–94, 127, 139, 182 decentralization, 9, 237, 449

 INDEX 

deficit, 356 equalization transfers, 58 management, 121, 144, 190, 266, 301, 357, 374, 395, 405, 413, 500, 504 performance, 127, 140, 182, 252 transfer, v, 16, 34, 44, 117, 118, 121, 122, 144 G Gaon Panchayat, 321, 497–499 Gap filling grant, 58, 244 General purpose fund (GPF), 141, 142, 182, 184 General purpose grant, 44, 54, 165, 258, 282, 349, 350, 354, 359, 433, 468, 488 Geographical Information System (GIS), 130, 132, 134, 156, 164, 169, 186, 187, 218, 272, 310, 411, 419 GIS Mapping, 134 Global sharing, 34–40, 104, 127, 130, 137, 140–141, 145, 152, 155–156, 160, 167, 172, 177, 182–183, 191, 197, 204, 211, 220, 226, 232, 237–238, 243, 246–247, 253, 256, 261, 267, 272, 274–275, 280, 287–288, 293, 295, 302, 308, 314, 320, 325, 328–329, 335, 341, 345, 349, 358, 362, 367, 375–376, 384, 389, 393, 396–398, 402, 406–407, 414, 422, 426, 432, 436, 439–440, 443, 449, 454, 455, 459, 462, 467, 471, 475, 477, 480, 486, 491, 493, 497–498, 501, 505, 509 Goa, 40, 101, 102 Goods & service tax (GST), 134, 145, 157, 183

525

Gram Panchayats (GP), 2, 128 Gram sabha, 150, 201, 208, 277, 364, 387, 418, 441 Grants-in-aid, vi, 2, 9, 17, 34, 43–55, 120, 126, 128, 129, 131–133, 135–137, 139, 142–143, 147–148, 151–154, 156, 158, 161–163, 166, 168, 170, 174, 176–179, 181, 185, 189, 192–193, 196, 200–201, 203, 205, 207, 210, 214–215, 219, 220, 224, 225, 227–228, 231, 232, 234, 236, 239, 241, 244, 245, 248–249, 251, 254, 257–258, 260, 262, 265, 269–273, 276, 279, 281–282, 284, 290, 292–294, 297–298, 300, 304–305, 307, 309, 312, 313, 316, 319–321, 324–326, 328, 330–331, 334, 335, 337, 340, 342–344, 346, 347, 349, 355, 356, 359, 361, 363, 366, 370–371, 378, 382, 383, 385, 388, 390–391, 393, 395, 400, 402–404, 408–409, 416–417, 421, 423, 425, 428–429, 431, 433, 434, 436, 437, 439, 440, 445–446, 448, 451, 453–456, 458, 460, 462, 464–465, 468, 470, 472, 474–476, 479, 482–483, 485, 487–488, 491, 492, 495, 496, 498, 499, 501–502, 504, 506, 508, 510 Gross Domestic Product (GDP), 20 Gross own tax revenue, 232, 375, 378 Gross state domestic product (GSDP), 157, 174 Gujarat (Guj), 34, 40, 44, 54–56, 95, 101, 102, 107, 171, 328, 329, 332, 419

526 

INDEX

H Haryana, 34, 40, 54–57, 101, 102, 106, 108, 136, 236–241, 328, 501 Health, 8, 59, 176, 187, 207, 242, 244, 248, 262, 263, 281, 360, 376, 377, 433, 436, 460, 461, 478 Health care, 263, 376, 461 Himachal Pradesh (HP), 34, 40, 54, 56–58, 101, 103–105, 107, 108, 171, 176, 177, 241–245, 340, 453 Historical trends, 108, 183, 190, 266 Horizontal distribution, 9, 22–30, 40–43, 128, 131, 137, 142, 146–147, 152, 156, 160–161, 167–168, 173, 179, 184–185, 192, 198–199, 205, 214, 221–222, 227, 233, 238–239, 244, 247, 253, 257, 261, 269, 272, 275–276, 280, 281, 289, 293, 296–297, 302–304, 309, 314–315, 321, 325, 330, 336, 342, 345, 349–351, 359, 363, 369–371, 377–378, 384–385, 390, 393, 399–400, 403, 407–408, 415–416, 423, 427–428, 432–433, 436, 440, 445, 450, 454, 456, 459, 463–464, 467–468, 472, 475, 478, 481–482, 487, 492–494, 497, 498, 501, 506, 509–510 Horticulture, 240, 250, 281, 294 House tax, 57, 146, 156, 164, 173, 211, 212, 216, 226, 227, 239, 240, 272, 278, 290, 296, 338, 339, 342, 343, 346, 369, 386, 387, 389, 390, 436, 452, 481, 495

I ICDS programme, 244 Incentive fund, 55, 160, 174, 214, 240, 308, 342, 368, 385, 400, 420, 423 Incentive grants, 43, 55, 147, 249, 250, 269, 304, 316, 337, 416, 417, 429, 433, 446, 451, 468, 472, 482, 488 Income, 40, 134, 147, 155, 173, 190, 210, 217, 226–229, 232, 240, 286, 288, 313, 315, 329, 330, 332, 336, 339, 365, 383, 407, 423, 426, 442–444, 446, 450, 463, 472, 473, 480–482, 484, 490, 511 Income tax, 339, 385, 402 Indices of the principle, 220 Inefficient administration, 11 Infrastructure Gap Filling Fund (IGFF), 155, 211, 215 Investment, 217, 362, 471 Irrigation, 207, 225, 233, 263, 276, 277, 280, 281, 298, 309, 313, 315, 362, 393, 409, 428, 433, 471, 472, 492, 509 Irrigation tax, 205, 454 J Jammu and Kashmir (J & K), 107 Judicial administration, 265, 356 K Karnataka (Kar), 34, 40, 54, 55, 58, 95, 101, 103, 104, 171, 212, 245–250, 266, 291, 343–346, 375, 457–461, 501

 INDEX 

Kerala (Ker), 34, 40, 44, 55, 56, 58, 95, 101, 104–108, 138–143, 157, 180–188, 246, 251–255, 266, 291, 328, 347–355, 375, 405, 461–466, 501 Kshetra Panchayats, 296, 298, 301, 304, 405, 406, 409, 504, 506 L Land revenue (LR), 16, 130, 197, 198, 256, 263, 280, 296, 309, 329, 358, 368, 398, 402, 406, 408, 414, 422, 432, 445–447, 454, 472, 475, 486, 487, 498 Law and order, 231, 319, 435 Legislation, 101, 108, 176, 242, 388, 414, 486, 511 Legislature, 2, 95, 106–108, 218 Level of taxation, 151, 204, 279, 361, 395, 470 License fees, 198, 211, 216, 217, 281, 296, 306, 322, 352, 376, 387, 463, 466 Liquor vend, 178, 272 Literacy gap, 173 Local area development tax (LADT), 238, 336 Local government (LGs), v, 1, 19, 33, 93, 117, 126 Local public goods, v, 19, 20, 43, 118 Local self-government (LSG), 191, 251, 252, 285, 348, 355, 490 Local tax, 40, 121, 122, 314, 329, 342 M Madhya Pradesh, 34, 40, 44, 55–57, 103, 105, 108, 117, 255–260 Maharashtra, 34, 40, 40n1, 54–58, 95, 101–103, 108, 260–264, 363, 375, 405, 473

527

Maintenance grant, 56, 258, 262, 331, 337, 350, 354, 355, 381, 451, 452, 464, 477, 495 Manipur, 34, 54, 56, 96, 101–103, 107, 108, 367, 369 Marginal adjustments, 59 Metropolitan, 322 Minor Forest Produce, 330, 376 Minor irrigation, 207, 225, 233, 263, 277, 280, 313, 315, 428, 433 Mobilization, 127, 327, 375, 507 Motor vehicle tax, 34, 192, 227, 262, 287, 315, 317, 427, 436, 444, 450, 455, 465, 493, 495 Municipal bodies (MBs), 152, 161, 192, 194, 225, 229, 289, 312, 313, 316, 387, 417, 427, 428, 430, 456, 473 Municipal Corporations, 16, 40n1, 136, 142, 154, 168, 191, 214, 217, 222, 225, 230, 258, 284, 289, 296, 299, 312, 313, 315–317, 319, 328, 329, 331, 344, 365, 375, 378, 383, 386, 387, 394, 396, 401, 424, 425, 429, 435, 442–444, 454, 457, 458, 472, 480 Municipal Development Fund, 264, 272 Municipalities, v, 1, 19, 33, 93, 118, 272 N Nagar Nigam (NN), 5, 303, 305, 306, 411, 501–506 Nagar Panchayat (NP), 5, 59, 150, 151, 168, 203, 206, 258, 296, 306, 312, 368, 383, 424, 425, 480, 501, 503–507 Net district domestic product, 321 Net divisible pool, 191, 256, 257

528 

INDEX

Net tax revenue, 127, 167, 191, 204, 220, 274, 275, 308 Non-Loan Gross Own Revenue Receipts (NLGORR), 345, 459 Non-matching grants, 43, 55 Non-plan grant, 234, 283, 440, 462, 464, 466 Non-plan revenue expenditure, 225, 312, 362, 425, 471 Non-road maintenance fund, 186 Non-tax revenue, 34, 118, 121, 134, 151, 160, 164, 204, 208, 226, 233, 240, 243, 245, 249, 253, 295, 310, 314, 327, 352, 355, 358, 366, 390, 426, 455, 467, 474, 501 O Octroi, 40, 40n1, 44, 54, 201, 244, 264, 272, 276, 330, 331, 358, 384, 385, 389, 427, 444, 455, 476, 477, 480, 505 Odisha, 44, 55, 101, 104, 105, 108, 188–195, 264–269 Ombudsman, 132, 218, 250, 291, 353, 442 Operation and maintenance (O&M), 8, 56, 148, 215, 285, 342, 345, 385, 446 Output-based transfers, 56 Own gross tax revenue, 267 Own revenue potential, 118 Own tax revenue (OTR), 40, 121, 172–174, 197, 211, 232, 275, 302, 349, 358, 389, 397, 439 P Panchayati Raj, vi, 129, 134, 166, 179, 216, 299, 308, 405 Panchayats, 1, 19, 33, 93, 118, 126

Panchayat Samiti (PS), 4, 131, 135–138, 147, 148, 167, 168, 170, 173, 189, 191, 192, 194, 199, 200, 236, 238, 239, 263, 265, 268, 275, 277, 278, 294, 309, 334–337, 363, 373, 374, 376–379, 381, 383, 385, 387, 390, 402, 403, 423, 448, 450–452, 454, 472, 480, 482–484, 486–488, 496–498, 510 Panchayat tax, 268, 376, 444 Panchayat Union (PU), 4, 154–156, 209, 214, 215, 217, 284, 287–289, 394, 396, 398–401, 493 Panchayat Union Councils, 154, 209, 284, 394 Participatory approach, 177 Part IX, 1, 2, 4, 135, 139, 151, 181, 189, 196, 203, 219, 236, 251, 260, 265, 300, 307, 326, 334, 347, 360, 365, 373, 404, 412, 421, 438, 448, 462, 469, 485, 499, 508 Part-IXA, 189, 265, 373, 388, 404, 412, 499 Passenger tax, 256, 358, 467 People’s biodiversity registers (PBR), 186 Performance grants, 56–57, 132, 200 Peri Urban Panchayats, 216, 231 Pilgrimage tax, 329, 444 Plan funds, 253, 349, 463 Police, 189, 265, 327, 356, 362, 374, 471 Political parties, 101, 287, 320, 422, 497 Potential fiscal capacity, 176, 242 Poverty line, 191, 250 Primary education, 176, 242, 244, 263, 360, 445, 460, 461, 472

 INDEX 

Primary health, 59, 176, 242, 460, 461 Privatization, 1, 175, 327 Profession tax, 11, 16, 40, 212, 217, 238, 288, 291, 296, 302, 309, 351, 368, 384, 406, 419, 426, 443, 444, 463, 471, 472, 477, 492, 495, 510 Property tax, 11, 40, 130, 134, 138, 141, 143, 157, 159, 160, 165, 183, 184, 187, 191, 192, 205, 211–213, 215, 218, 230, 231, 239, 256, 258, 264, 268, 281, 289, 306, 309, 321, 345, 346, 351, 355, 358, 363, 366, 384, 386, 387, 406, 414, 415, 417, 427, 437, 444, 445, 459, 464, 481, 495, 502, 489492 Property Tax Board, 132, 134, 169, 187 Public administration, 101 finance, 101, 119, 121 goods, 58 policy, 19 sector, 1, 56, 473 service, 10, 267, 326, 327, 441, 460 Public Private Partnership (PPP), 127, 132, 159, 188, 217, 223, 231, 240, 299, 411 Punjab, 4, 34, 44, 54, 55, 103, 108, 270–272, 328, 387, 480 R Rajasthan, 4, 54–57, 101–108, 117, 195–202 Recurring grants, 176, 242, 298 Regulation, 220, 255, 290, 476 Resource mobilization, 182, 190, 226, 252, 265, 266, 313, 327, 348,

529

356, 357, 366, 369, 374, 423, 441, 476, 500 Revenue, 1, 19, 33, 93, 126 expenditure, 8, 106, 122, 136, 225, 271, 292, 312, 341, 358, 361, 362, 367, 395, 420, 454, 470, 471 gap, 292, 361, 367, 470 mobilization, 55, 143, 164, 268, 349, 446 potential, 118 receipts, 34, 167, 232, 338, 341, 361, 367, 454, 470, 474 roads, 59, 129, 176, 228, 242, 250, 290, 428, 481, 487 sanitation, 48, 228, 428, 440 sharing, 8, 40, 237 Royalty on minor minerals, 173, 336 Rural development, 136, 171, 207, 466, 476 Rural Road Development fund, 215, 290 Rural-urban population ratio, 172, 173 Rural water supply schemes, 228, 385 S Sanitation, 59, 129, 148, 163, 176, 184, 198, 207, 216, 228, 242, 248, 276, 280, 281, 327, 337, 378, 418, 428, 433, 440, 444, 451, 452, 476, 478, 503 Sanitation tax, 198, 280, 444, 492 Scavenging, 184, 277, 418 Schedule Caste (SC), 21, 222, 257, 278, 359, 400, 407, 510 Schedule Tribe (ST), 21, 191, 222, 278, 359, 400, 407, 510 Schedule VI, 128, 133n2, 160 Self-assessment, 218, 252, 256, 306, 414

530 

INDEX

Service provision, 20 Service tax, 143, 184, 187, 351, 355 Sewerage SWM services, 130 Sikkim (Sik), 34, 44, 55, 56, 101, 103–108, 203–209, 394 Social justice, 6, 10, 58, 298, 329 welfare, 54, 189, 265, 281, 374, 433 Social forestry, 215, 229, 277, 476 Solid waste management (SWM), 55, 162, 214, 216, 277, 337, 391 Special incentive grant, 153, 282 Specific purpose grant, 43, 161–163, 281, 290, 495 Stamp duty, 16, 34, 157, 172, 195, 198, 238, 244, 256, 287, 288, 321, 323, 329, 330, 336, 358, 381, 396, 398, 414, 432, 444, 463, 480, 481, 498 Stamp duty payment, 296 Stamps and Registration, 280, 449 State-local finances, 93 State own tax revenue (SOTR), 137, 140, 182, 237, 274, 397 Street lighting, 59, 175, 178, 184, 277, 327, 336, 337, 342, 384, 450, 476, 482, 489, 490, 502 T Taluka Panchayats, 4, 247, 249, 328–331, 445 Tamil Nadu (TN), 39, 40, 44, 54–58, 101, 102, 104–108, 157, 209–218, 287, 328, 396, 501 Tax grant, 44, 464 mapping, 354, 466 recovery, 55

share, 289, 472 Taxable capacities, 104 Toll tax, 40, 281, 492, 505, 511 Tourism, 143, 153, 280, 281 Tourist tax, 289 Town Panchayats, 154–156, 209–211, 214, 215, 285, 289, 344, 394, 396, 397, 399, 401, 457, 458 Trade license, 206, 207, 216, 281, 310, 322, 353, 511 Transfer mechanism, 118, 122 Tribal Sub Plan (TSP), 184, 193, 349 Tripura, 34, 40, 44, 57, 101–103, 105, 108 U Union finance commission (UFC), 16, 57, 94, 95, 101, 103, 104, 108, 119–121, 190, 266, 283, 285, 317, 339, 380, 391 Unit area method, 11, 160n4, 165, 235, 311, 415 Untied grants, 44–54, 162, 168, 176, 200, 242, 249 Upkeep assets, 181 Urban development tax, 198 Urban infrastructure, 127, 159, 231, 452 User charges, 11, 119, 121, 126, 130, 159, 198, 213, 231, 233, 240, 262, 271, 282, 285, 321, 327, 329, 339, 342, 345, 346, 352, 393, 423, 427, 436, 441, 452, 467, 483, 492, 495 Uttarakhand, 4, 44, 54, 55, 101, 104, 105, 107, 118 Uttar Pradesh (UP), 4, 34, 40, 44, 55–58, 101, 103–105, 108, 118, 219–230, 328, 405, 503

 INDEX 

V Vacant land tax (VLT), 40, 130, 213, 238 Value Added Tax, 258, 363, 419 Vertical distribution, 233 Viability gap funding, 127, 159, 231 Village Panchayats (VP), 4, 11, 59, 154–156, 209, 211, 213–218, 263, 284, 287, 289, 290, 324, 330–332, 348–350, 352–354, 359, 363–365, 368, 369, 394, 396, 397, 399–401, 440, 441, 444–446, 460, 463, 465, 466, 493–495 W Water bodies, 163, 353, 423 supply, 42, 57, 129, 130, 162, 184, 187, 205, 225, 228, 241, 243, 244, 250, 261, 262, 289, 298, 313, 315, 327, 336, 342, 362, 371, 385, 386, 425, 427, 428, 433, 442, 450, 452, 460, 471, 495, 503

531

tax, 40, 258, 289, 363, 428, 444, 445, 492, 495, 502, 511 West Bengal (WB), 44, 54, 55, 57, 101–106, 108, 266, 306–311, 375, 420–424, 507–511 Z Zilla Panchayat, 4, 128, 152, 153, 165, 205, 247–249, 263, 282, 283, 321, 324, 325, 337, 344, 345, 439, 457–459, 461, 490, 491, 505 Zilla Parishad, 127, 131, 167, 173, 174, 189, 191, 205–207, 209, 222, 226, 227, 233, 234, 238, 239, 249, 250, 259, 262, 265, 280–283, 298, 299, 302, 309, 312, 314, 317, 363–365, 368, 369, 373–375, 377, 402, 403, 406–411, 417, 418, 423–425, 428, 429, 431, 433, 434, 439–441, 451, 452, 454, 486–489, 496–499, 504, 509–511