Panchayats need to intensify efforts to augment revenue resources: RBI report

Mumbai: Panchayats need to intensify efforts to augment their own tax and non-tax revenue resources as well as improve their governance, a RBI report said on Wednesday. Finances of Panchayati Raj Institutions (PRIs) face constraints as they have limited own revenues from property taxes, fees and fines.

Nearly all of their revenues are generated through grants from higher levels of government, underscoring their heavy reliance on the central and state governments, as per the report on 'Finances of Panchayati Raj Institutions' by the Reserve Bank of India (RBI).

"For sustainable growth, panchayats need to intensify their efforts to augment their own tax and non-tax revenue resources and improve their governance," it said.


Nevertheless, the report said prompt establishment of State Finance Commissions (SFCs), eschewing the sizeable delays that occur currently, assumes importance.

SFCs, with roles identical to those of the Central Finance Commission (CFC), and with the obligation of tabling their action-taken reports in state legislatures, can fortify the financial position of PRIs and help them in better delivery of their responsibilities for upliftment of the rural economy.

The report also stressed that PRIs, on their part, can use their limited resources more efficiently and effectively through measures such as transparent budgeting and fiscal discipline, active involvement of the local community to prioritise development needs, staff training, and robust monitoring and evaluation processes.

"Overall, given the pivotal role of PRIs in local governance and rural development in India, it is imperative to empower local leaders and officials by providing them with ample and diverse funding sources, promoting greater decentralisation, implementing capacity-building programs, and upgrading infrastructure," the RBI report said.

Further, it emphasised on the need to raise citizens' awareness about the functions and significance of PRIs by encouraging their increased participation in local governance processes and by enhancing people-centric administration and communication.

Drawing upon data of 2.58 lakh panchayats for the years 2020-21 to 2022-23, it presents an assessment of their finances and their role in India's socio-economic development.

The report noted that an assessment of the fiscal health of PRIs is challenging due to the uneven availability of data on their revenues and expenditures, driving home the point that the provision of these data in standardised formats would enhance fiscal transparency and accountability and also contribute to their empowerment.