KARNATAKA - of Planning Commission

Institutional Reforms for Human Development: Panchayat RajWhile the stategovernment broadlyaccepted the first SFCrecommendations onthe quantum of fundsdevolution to panchayats,it did not do so withregard to the allocationcriteria and continued tofollow the modified Gadgilformula, on the groundthat the latter was betterplaced for ensuring socialjustice.in the poorer regions and to promote highergrowth rates there. On the other hand, thespecific purpose grants are meant to ensurethat categorical equity or ‘wealth neutral’services (unrelated to ability to pay) such aseducation, health and sanitation, rural roadsetc. are provided in adequate quantities(M. Govinda Rao). The First Karnataka StateFinance Commission arrived at a figure of36 per cent of the non-plan gross ownrevenue receipts of the state government tobe devolved to panchayats and urban localself-governments (Government of Karnataka,January 1996). This is an improvement overthe 34.3 per cent in vogue and amounted toRs.2,675 crore during 1996-97. The SecondKarnataka State Finance Commission hiked thisfigure to 40 per cent. As for sharing this amountbetween panchayats and urban local bodies(ULBs) the First Commission recommended ashare of 30.4 per cent to the former and 5.6per cent to the latter; the recommendation ofthe Second Commission was 32 per cent and8 per cent respectively. As for the allocation ofthis amount across different tiers of panchayats,the Commission recommended a ratio of40:35:25 to zilla panchayats, taluk panchayatsand gram panchayats respectively. Under thisallocation scheme, gram panchayats wouldhave gained greatly because the proportiongoing to them at that time was estimated tobe only 13 per cent of the devolved funds. Thecriteria and the weightage suggested by theFirst Commission for allocating funds acrosspanchayats within each tier were: population(33.3 per cent), area (33.3 per cent), andbackwardness seen in terms of road length,hospital beds and illiteracy (33.3 per cent). Thisformula marked a departure from the modifiedGadgil formula followed since 1987, whenthe Commission introduced a new criterion inthe form of area in addition to population andbackwardness. The Second Commission, whileretaining those criteria, replaced roads by theproportion of Scheduled Caste and ScheduledTribe population under the third criterion. Theallocative formula was changed to 30 per centeach to the first two criteria and to 40 per centfor backwardness. Incidentally, while the stategovernment broadly accepted the first SFCrecommendations on the quantum of fundsdevolution to panchayats, it did not do so withregard to the allocation criteria and continuedto follow the modified Gadgil formula, on theground that the latter was better placed forensuring social justice.Human development and fiscaldevolutionAn analysis of fiscal decentralisation inKarnataka by Rao, Amar Nath and Vani(2004) 1 identifies certain features of fiscaldecentralisation to rural local governments thatimpact on human development expenditures.Formally, Karnataka has transferred all thefunctions listed in the schedule to the localgovernments, but several are exercisedconcurrently with the state government. TheKarnataka Panchayat Raj Act, 1993 lists 31functional items to gram panchayats, 28 itemsto taluk panchayats and 29 items to zillapanchayats. The actual assignment, however,involved transferring a number of schemesincluded in the plan – to constitute the‘District Sector’ plans – to ZPs, TPs and GPsfor implementation. The employees of variousline departments in the state were transferredto the district sector to implement theseprogrammes. To ensure that they continueto enjoy the same powers and to undertakethe same functions, the expenditure functionswere devolved in terms of schemes, with thecondition that the local governments couldnot scrap any of the schemes, and salary wasgiven priority in expenditure implementation.In terms of adequacy and reach, the volume ofspending assigned to rural local governmentscontinues to be low. While the state governmenthas transferred the functions and the functionariesto panchayats, the hardening fi scal situationhas restricted the devolution of funds. Based1Rao, Govinda, M., Amar Nath, H.K. and Vani, B. P (2004), ‘FiscalDecentralisation in Karnataka’, in Sethi, Geeta (ed.), FiscalDecentralisation to Rural Governments in India, the World Bank,Oxford University Press.258