Impact of Economic Reforms on Panchayat Finance: A Study of the Gram Panchayat Experiment in North Bengal

The 73rd Amendment constitutes the Panchayati Raj Institutions (PRI) as self-governing institutions, and as the third tier in the federal structure of India. From the financial perspective, the most important feature of this new constitutional provision is that it determines the pattern of devolution from the state to the PRIs in a manner similar to the constitutional provisions governing the devolution of financial resources from the center to the states. The Act empowers the gram panchayat to raise resources, through tax on land and building, fees and user charges. But the track record of panchayats to utilize such fiscal powers properly, has been very poor. Thus, internal resource generation of panchayats at all levels has been very poor. The receipts from all sources do not cover more than one-fifth of their total receipts. As a result, they are considered as totally dependent on the state. This paper examines the existing status of Panchayati Raj finances in West Bengal with reference to their composition and trends (both receipts and expenditure) and assesses the revenue mobilization effort of the PRIs on both tax and non-tax spheres. It also suggests measures to improve the financial administration of PRIs. Further, it focuses on some new sources of revenue, which could possibly be utilized by the PRIs in accordance with political will. This analysis mostly deals with the third tier of the PRIs, viz., the gram panchayats.