Panchayats may soon be the newest kids on the debt block. The government is planning to give them the freedom to borrow funds directly from the market for projects with specific recovery charges.
The plan is aimed at pushing local area development onto the high street. The panchayats would replicate the plan already cleared for urban bodies to float municipal bonds?or munis?to fund development projects, instead of having to depend on central and state resources.
Local bodies will have to now come up with bankable projects to raise money from the capital markets. The change in the funding norms will also help panchayats become fiscally prudent and develop stiff accountability norms to deliver on projects.
Since projects handled by panchayats are small, the government would ask the bodies to pool their projects to develop a viable offering on the debt market. The initiative is built upon the success achieved with state governments vis-?-vis capital markets. Going to the markets has introduced discipline in the financial policies of states.
The Planning Commission feels the process should be ?deepened and strengthened and made completely objective?. This includes pushing the empowerment envelope down to Panchayati Raj institutions (PRIs). The empowered sub-committee of the National Development Council on the financial and administrative empowerment of Panchayati Raj institutions has already drawn up a road map for such empowerment.
The Panchayati Raj ministry at the Centre has already prepared software to maintain a database of bank accounts of all PRIs to facilitate the transfer of funds.