Rethink needed on panchayat Budget-making process

Vinson Kurian Thiruvananthapuram | Updated on March 13, 2011

An analytical review of Budget information system in panchayats has emphasised the need for a serious rethinking on the whole process of Budget preparation.

Budget estimates are not based on any scientific assessment of the actual requirements or supported by reliable data, according to Dr R. P. Nair of the Centre for Budget and Policy Studies here.


There are a number of data discrepancies in the Budget documents. The most glaring are the wide variations between Budget estimates and actuals (audited figures).

Data provided in the detailed report clearly shows that Budget estimates do not have any relation to actuals when audited figures become available. Second, the mismatch between opening and closing balances in the abstract of accounts included in the Budget documents.

Opening and closing balances often do not agree, though a 100 per cent agreement of these figures is an accounting pre-requisite.

This mismatch holds true not just for any particular year but across the many for which data are available, Dr Nair said. These are obvious reflections of poor audit system in the panchayats.


The decentralisation process, Dr Nair recalled, was introduced in Kerala from 1995 onwards. Thus, it is ahead of peers with respect to functional and fiscal decentralisation.

The State Government has transferred 27 mandatory functions, 14 general functions and 19 sector-wise functions to local self-government institutions (LSGIs).

Similarly, 25 per cent of the Plan Budget is allocated to various LSGIs every year, in addition to providing nine per cent of the State's own tax revenue as general purpose grant (3.5 per cent) and maintenance grant (5.5 per cent).

These allocations have boosted the average annual income of panchayats to approximately Rs 3 crore.

According to Dr Nair, an important pre-requisite for decentralised planning is the availability of adequate, timely and reliable database at the local level.


This information base is extremely weak and no serious efforts have been made so far in collection, compilation and documentation of data generated by various agencies. The main problem is the non-availability of essential information and unscientific methods of keeping records and files which make reference to the important documents difficult and time-consuming.

The most important revenue source for the panchayats is State Grants (Plan and Non-Plan), which contribute as much as 75 to 90 per cent of the total.

Per-capita total revenue may have witnessed an increase in absolute terms, but percentage contribution of own-revenue to total revenue is either falling or has remained stationary.

This brings out a strong case for increasing own-revenue mobilisation.

Nearly 95 per cent of the own-tax revenue is contributed by two traditional sources — building tax (65 per cent) and profession tax (30 per cent).

It is also seen that over years, the percentage contribution of profession tax and building tax is either stationary or even falling. This indicates that the full potential from these revenue sources has not been exploited.

Contribution of different components viz. own-tax and non-tax, has also tended to vary considerably from one panchayat to another.


The extent of variation in the case of own-tax revenue ranges from 1.99 per cent to 18.01 per cent while for no-tax, it is between 0.41 per cent and 8.47 per cent.

Similar variation is also seen in the case of grant-in-aid from the State Government. The reason for this extreme variation in different sources of revenue needs further analysis, Dr Nair said.

Published on March 13, 2011

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