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Functions and Finances of the PRIs in India

The 73rd Constitutional Amendment in 1992 provides for the devolution of funds from the upper tiers of government to
the PRIs, apart from their own sources of revenue like taxes, duties, fees and user charges
Fiscal Position of Panchayati Raj Institutions
Fiscal Position of Panchayati Raj Institutions
 Fiscal Position of Panchayati Raj Institutions

Over time, the coverage of village Panchayats reporting data has improved, with an average of 2.43 lakh
Panchayats reporting revenue receipts and 2.36 lakh reporting expenditure in the last 3 years. This
covers more than 90% of total village Panchayats in the country.

The revenue receipts are dominated by grants-in-aid, with a share of more than 95% of the total
receipts. Aggregate revenue receipts appear to vary broadly in line with the States’ populations.
The ratio of revenue receipts of the
Panchayats to States’ own revenues
ranges from 0.1 per cent in Andhra
Pradesh to 2.5 per cent in Uttar
Pradesh, indicating that their revenues
are moderate relative to those of the
States (Chart II.2).

The average revenue per Panchayat

varied from 2.7 lakh in Andhra Pradesh
to 64 lakh in West Bengal (Chart II.3).
 Fiscal Position of Panchayati Raj Institutions

The average expenditure per Panchayat decreased from 17.3 lakh in 2020-21 to 12.5 lakh in 2022-23
due to higher than-normal spending in the pandemic year 2020-21.

The ratio of revenue expenditure of Panchayats to nominal GSDP is less than 0.6 per cent for all the
States, ranging from 0.001 per cent in Bihar to 0.56 per cent in Odisha.
Fiscal Position of Panchayati Raj Institutions

Investment in capital projects

constituted 29.6 per cent of
the total expenditure of
Panchayats in 2022-23, on
average, across States. A
significant share of the capital
expenditure by PRIs is
allocated to Panchayati Raj
Programmes, transportation,
water supply and sanitation,
rural electrification, and rural
housing.
Fiscal Position of Panchayati Raj Institutions

The revenue to capital

expenditure ratio
averaged 3.2 in 2022-23,
and the ratio varied
between 0.1 in Bihar and
11.5 in Tripura.
Role of Panchayats in Economic Development
Section 3.1 PRIs and Localisation of Sustainable
Development Goals
Role of Panchayats in Economic Development
 Section 4

o Total Allocation for Health: 0.70 lakh crore

Role of Panchayats in Economic Development
 Section 6

Article 243D (3) of the Constitution mandates a minimum 1/3rd reservation for women in both the
directly elected seats and the positions of Panchayat Chairpersons in PRIs.

Elected women representatives (EWRs) constitute 45.6% of total Panchayati Raj Institution (PRI)
representatives in India.
 Way Forward
➢ State Finance Commissions (SFCs), similar to CFCs and accountable to state legislatures, can fortify the
financial position of PRIs and help them in better delivery of their responsibilities for upliftment of the rural
economy.
➢ 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, robust monitoring and evaluation processes, prudent asset management,
raising public awareness and adopting digital tools.
➢ Financially and functionally empowered PRIs can also contribute actively to climate change resilience. Due
to their proximity to communities and possession of valuable local knowledge about the environment, PRIs
are well-equipped to identify climate-related risks and devise effective adaptation strategies.
➢ PRIs can also facilitate the adoption of climate-resilient farming methods, and promote renewable energy
sources like solar panels and biogas plants, thus reducing reliance on fossil fuels and mitigating climate
change.
➢ 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.
 MCQs for Practice

Q1. Recently, RBI released its Report titled “Finances of Panchayati Raj Institutions” Drawing upon data
on 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. As per the report which of the following
statements is correct?

1. The ratio of revenue expenditure of Panchayats to nominal GSDP is less than 0.6 per cent for all the
States, ranging from 0.001 per cent in Bihar to 0.56 per cent in Odisha.
2. Grants-in-aid constituted over 95% of total revenue receipts of PRIs.
3. Over time, the coverage of village Panchayats reporting data has improved in the last 3 years which
covers more than 90% of total village Panchayats in the country.
4. The own revenues of Panchayats made up approximately 10% of their total revenue.
5. Investment in capital projects constituted 29.6% of total Panchayat expenditure in 2022-23.
 MCQs for Practice

Q2. Rural India still faces around 29 per cent shortfall in rural health facilities in several States. The

Fifteenth Central Finance Commission (CFC-XV) recommended a total grant of 4.3 lakh crore for local
governments covering the period from 2021-22 to 2025-26. Out of the recommended grants,
_______________ was allocated for health.
A. 0.70 lakh crore
B. 0.44 lakh crore
C. 0.26 lakh crore
D. 0.50 lakh crore
E. 0.60 lakh crore
Q. Recently (September 2021) NARCL was launched by the
Union Cabinet approving the government guarantee on
security receipts to buy bad loans of lenders. It has been
incorporated under the Companies Act and has applied for
license from RBI. What does R stand for in NARCL?

1. Resolution
2. Reconstruction
3. Restructuring
4. Revenue
5. None of the Above