1. Fiscal Decentralization to Rural Governments
India
Fiscal Decentralization to Rural Governments
Geeta Sethi
Washington, DC
March,

2. What is India
Federation of 28 states.
Over 1 billion people, 700 million live in villages, almost half of world’s poorest.
400 ethnic groups, and about as many languages.
Fast growing economy, increasing rural/urban disparities.
Fiscal deficit in double digits (10%).

3. Decentralization in India
Two Constitutional Amendments, urban and rural in 1992.
Central Finance Commissions
State Finance Commissions
State Acts

4. Intergovernmental structure
All sub-national governments are directly elected; There are seats reserved for women, SCs and Sts
Central Government
States (28)
Average Pop millions
URBAN LOCAL BODIES:
28%t of total population
RURAL LG: Raj Panchayats
72% of total population
District–ZP (515)
Average Pop. 1,351,228
Block or Taluk–TP (5,930)
Average Pop. 117,349
Village–GP (240,588)
Average Pop. 2,892

5. Fiscal Decentralization Study
Karnataka
Kerala
Population
52 million
31 million
# of rural local governments
5870
1157
# of Zilla (districts) Parishads (ZP) 27 14
# of Taluk (block) Panchayats (TP)
175
53 Municipalities
# of Gram (village) Panchayats GP
(average population)
5659
(6,137 inhabitants)
991
(23,810 inhabitants)
Total elected number of rural governments
84,886; 44 % women; two local elections and two SFCs since 73rd Amendment
12,117; 33 % women
two local elections and two SFCs since 73rd Amendment
Devolution of subjects to panchayats
All 29 subjects
All 29 functions, but functionaries and funds devolved for only 15 functions.
Channeling of public expenditure through panchayats
About 20 percent
About 30% of plan expenditure and 18% of total state budgets

6. Problems with the current system
Gram Panchayats are the relevant LGs in terms of revenue powers and discretion.
But, smallest fiscal role
Transfer system is scheme based (tied funds), non-transparent, unpredictable, non-equalizing.
Unclear expenditure assignments and overlaps between different tiers.
Revenue raising powers not effectively used in both states.

7. Allocation of transfers among rural governments
Karnataka
Kerela

8. Reform Agenda Emerging from the Study
C/S/L (urban and rural) inseparable on fiscal issues—a need for a fiscal analysis unit.
Information and Monitoring systems
Financial Management systems updated.
Improvement of enabling policy environment.
Improved Transfer system.

9. How will the States finance this Reform Agenda
Bank financing for the transition costs of reforms.
A Fiscal Cell
Redesigned transfer system
Improved financial management and information systems (including for monitoring of service delivery)

10. Another ESW:Improving Accountability relationships for rural people