Fiscal Devolution

Decentralised Governance and Devolution of Funds to the Panchayats in India-A Critical Analysis of Two Indian States•
Dr. M.Gopinath Reddy 
Bishnu Prasad Mohapatra
Abstract
Decentralised Self-Governing Institutions have been playing a significant role in the matters of poverty alleviation and rural development in India. The increasing nature of the rural development programmes in India has pronounced the significance of these institutions as institutions of self-government. The debates on the devolution of powers to the Panchayats since the last two decades received enormous attention because of the increasing role played by these institutions in planning and implementation of the development programmes in rural India. However, the issues of finance have been continuously abating the functioning of these institutions as institution of self-government. State level experiences show that devolution agenda including the agenda of fiscal devolution and tax decentralisation has not been taken up sincerely in the many states including the state of Andhra Pradesh and Odisha. The institutionalisation of the State Finance Commissions (SFCs) and recommendations of the SFCs are not taken up seriously which has also affected the fiscal devolution process. However, the recent endeavour on the devolution of funds and management of own revenues of the Panchayats have provided some positive results despite huge mismatches among the different indicators of devolution.
Based on the above mentioned scenario, the present paper critically reviews the status of the fiscal devolution to the Panchayats in the state of Andhra Pradesh and Odisha. This paper focuses on the four broad aspects of Decentralised Governance and Fiscal Devolution such as (i) evolution of the local governments and devolution of powers in Andhra Pradesh and Odisha, (ii) Panchayats and status of fiscal devolutions in these two states, (iii) the process of allocation of funds to the panchayts under the various flagship programmes and  (iv) current trends and pattern of fiscal transfer to the panchayats in the context of the recommendations of the SFCs. Examining the secondary data and synthesising the field experiences, this paper tries to explore the evolution of the fiscal decentralisation regime in both the states since the post-73rd constitutional amendment act period to the current era of devolution. Particularly, in the context of the enactment of the 73rd Constitutional Amendment Act (CAA) and institutionalisation of the SFCs, both the states have taken the fiscal devolution agenda seriously. However, in the case of Andhra Pradesh, tax decentralisation and own revenue of panchayats seem to be in improved stage in comparison with Odisha. The paper concludes that “both the states need to strengthen the own revenue of panchayats based on the recommendations of the Finance Commissions of the respective state”. Devolution of funds to the panchayats from the state plan fund should be realistic and based on normative approach.     
Key Words: Decentralisation, Fiscal Devolution, Panchayats, Andhra Pradesh, Odisha