A Reserve Bank of India (RBI) report on Thursday stated that Panchayati Raj Institutions (PRIs) must step up efforts to increase their own tax and non-tax revenue resources and enhance governance, as the PRIs’ finances are being hindered by their limited own revenues.
According to the report, approximately 95% of PRI revenues come from grants from the federal government and the states, which limits their already limited budgetary resources due to the ongoing delays in the establishment of State Finance Commissions (SFCs).
However, it becomes crucial that SFCs be established as soon as possible, avoiding the significant delays that currently exist. It stated that SFCs can strengthen the financial position of PRIs and assist them in better carrying out their duties for the improvement of the rural economy. SFCs have roles that are identical to those of the Central Finance Commission (CFC) and are required to present their action-taken reports in State legislatures.
The RBI report, which used data on 2,58,000 Panchayats, discovered that the average revenue per Panchayat from all sources—taxes, grants, and non-taxes—was Rs 2.12 million in 2020–21, Rs 2.32 million in 2021–22, and Rs 2.12 million in 2022–23. Less grant devolution was the cause of the decline in 2022–2023.
As a percentage of their overall revenue for the study period, the Panchayats’ own revenues, which they derived from the imposition of local taxes, fees, and charges on a range of activities, such as land revenue, professional and trade taxes, and other fees, made up just 1.1%.
Merely accounting for 3.3% of their total revenue receipts, non-tax revenue is mainly derived from interest earnings and Panchayati Raj programs. States with the highest non-tax revenue reported by panchayats were Tamil Nadu, Himachal Pradesh, Maharashtra, and Telangana.
