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Financial Administration

of The
Local Bodies



and responsibility
Adequacy and elasticity
Integration and coordination
Public accountability
Effective personnel management
Fiscal access


All governmental programmes would remain mere paper
items in the absence of adequate financial resources. As a
matter of fact, government cannot achieve any of its social
and economic goals without requisite finances.
Thus, it can safely be concluded that finances are sine qua
non for the success of Panchayati Raj. The pattern of
revenues of Panchayati Raj varies from State to State. But
the sources of revenue of Panchayati Raj Institutions, in
general, may be grouped under:
Tax Revenue,
Non-Tax Revenue,
Share of State Taxes, and
Donations and Contributions.


Every unit of Panchayati Raj is empowered to impose obligatory or discretionary
taxes under the authority of law.
These are the following:
Chula or House Tax
Local rate
Tax on profession or trade, or employment
Tax on animals and vehicles.
Pilgrimage Tax
Tax on public entertainments
Toll (on new bridges)
Lighting Tax
Water Tax

The non-tax revenue of Panchayati Raj consists of:
a) fees at fairs, agricultural shows etc.,
b) fees for use or benefits derived from public hospitals, dispensaries, markets etc.,
c) licence fees
d) Judicial fines .
e) remunerative assets
f) rents and profits accruing from property vested in or managed by Panchayati Raj
Institutions and
g) income from trusts, endowments, gifts.

In all the States, the Panchayati Raj Institutions depend heavily upon the grants from
the state governments. Grants-in-aid given by the States are ad hoc and
discretionary in nature depending largely on the availability of funds with the States.
broadly be divided into two categories-general purpose grant and specific purpose
grant. The former is released to Panchayati Raj Institutions to meet their general
expenditure. The latter grant is earmarked for certain specific purposes such as water
supply, flush type latrines, sewerage system etc.

Panchayati Raj Institutions raise loans to meet the capital expenditure involved in
satisfying the increasing local needs which are developmental in character. In India,
local borrowings are regulated by an All-India Act known as the Local Authorities
Loan Act of 1914. The State governments may impose different forms of restrictions
on Panchayati Raj Institutions to raise loans which vary from State to State.

Share of State Taxes:

Some of the state governments share the proceeds of some specified taxes such as
Land revenue, local cess, sales tax etc., with the Panchayati Raj Institutions. For
example,40 per cent of the total land revenue collected in the village is given to Gram
Panchayats in Punjab.

Donations and Contributions:

Apart from the above sources of revenue, Panchayati Raj Institutions also derive
income from other sources. For example, Gram Panchayat earns income from
Shamlat (common) Land given on rent for cultivation or grazing purposes. Besides,
they also receive donations and contributions from All-India bodies and institutions
for specific purposes like adult literacy, cottage, village and small scale industries. The
income from these sources is negligible now.

Steps involved in Rural Fiscal Management:

Operations in financial administration in rural local government are
those designed to generate, regulate and distribute the financial
resources needed to provide services to the community. These
operations are performed by :
o The executive wing which prepares the budget.
o The legislative wing which alone can grant funds.
The executive controls the expenditure of funds sanctioned by the
legislative wing.
o Audit department
o Standing Committee

Financial control exercised by the government or Govt or Govt agencies over

Panchayati Raj Institutions:
Strict control exercised by the government on the taxation powers of the
Panchayati Raj Institutions.
Centralised accounting procedures
Accounts subjected to government audit
Pre-audit/test check of the accounts of Panchyati Raj Institutions by the
auditors appointed by the state/government. '
Control exercised by the government with regard to grants-in-aid, loans
provided to the Panchayati Raj Institutions, by way of approval, review etc.
Powers of supersession or dissolution of PRIs is vested with
the government.


Improper utilisation of taxation
Unwillingness on part of Institutions
to mobilize the resources.
Present system of grants-in-aid
which is
uncertain, irregular and unrelated to
needs of the institutions.
Irregularities in the system of audit