States giving local governments the short shrift
Though some state governments have argued that they haven’t really benefitted much from the Fourteenth Finance Commission, there can be little doubt devolution of taxes from the central government has gone up dramatically, from 27.1% of gross tax collections in FY15 to 34.7% in FY16; net resources, though, haven’t gone up due to a decline in other transfers like Plan grants, and rose from 53.7% of gross tax collections in FY15 to 55.6% in FY16 and a planned 55.9% in FY17. As a result, however, the proportion of untied funds available to states has gone up.
According to a study by Accountability Initiative, Centre for Policy Research, untied funds rose for 10 states, remained unchanged for two while seven received marginally more in tied funds in FY16 over FY15. Bihar’s untied funds, as a proportion of the total, remained constant at 74% in FY15 and FY16, Karnataka saw untied funds rising from 64% to 70% while Maharashtra saw untied funds falling from 67% to 58%.
While central devolution to state governments may not have risen by as much as some would like, the problem is a lot more severe when it comes to the money being devolved by state governments to the next tier of government, the panchayats. Several states like Karnataka, Kerala and Uttar Pradesh, have delineated certain devolution of budgetary resources to panchayats in their panchayati raj laws—in Karnataka’s case, a third of the total FY15 budget was to have devolved while, according to Accountability Initiative, only around half of this was actually passed on. Of the state’s FY15 budget of Rs 150,379 crore, only 17.5% was given to panchayati raj institutions while around 11% was used by the state government itself. Of the non-plan allocation, around 78% was tied to salaries; this was around 23% in the case of plan allocations.
Since the staffers are hired by the state, this means panchayats have even less control over a large proportion of their budgets. In other words, the panchayati raj institutions essentially become mere pass-through agencies for various central and state government agencies even though they were voted in with a mandate to get certain things done. The study across 30 gram panchayats in Mulbagal block of Kolar district in Karnataka showed that the bulk of the expenditure in a panchayat was made by entities other than the gram panchayats. While states have been fighting a long battle with the centre to get more untied funds, not giving panchayats any flexibility in using their funds sounds more than a little hypocritical.