LOCAL FINANCE, FISCAL DECENTRALISATION AND DECENTRALISED PLANNING A Kerala Experience B. A. PRAKASH LOCAL FINANCE, FISCAL DECENTRALISATION AND DECENTRALISED PLANNING Thank you for choosing a SAGE product! If you have any comment, observation or feedback, I would like to personally hear from you. Please write to me at [email protected] Vivek Mehra, Managing Director and CEO, SAGE India. Bulk Sales SAGE India offers special discounts for purchase of books in bulk. We also make available special imprints and excerpts from our books on demand. For orders and enquiries, write to us at Marketing Department SAGE Publications India Pvt Ltd B1/I-1, Mohan Cooperative Industrial Area Mathura Road, Post Bag 7 New Delhi 110044, India E-mail us at [email protected] Subscribe to our mailing list Write to [email protected] This book is also available as an e-book. LOCAL FINANCE, FISCAL DECENTRALISATION AND DECENTRALISED PLANNING A Kerala Experience B. A. PRAKASH Copyright © B. A. Prakash, 2020 All rights reserved. No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval system, without permission in writing from the publisher. First published in 2020 by SAGE Publications India Pvt Ltd B1/I-1 Mohan Cooperative Industrial Area Mathura Road, New Delhi 110 044, India www.sagepub.in SAGE Publications Inc 2455 Teller Road Thousand Oaks, California 91320, USA SAGE Publications Ltd 1 Oliver’s Yard, 55 City Road London EC1Y 1SP, United Kingdom SAGE Publications Asia-Pacific Pte Ltd 18 Cross Street #10-10/11/12 China Square Central Singapore 048423 Published by Vivek Mehra for SAGE Publications India Pvt Ltd. Typeset in 10.5/13 pt Berkeley by Zaza Eunice, Hosur, Tamil Nadu, India. Library of Congress Control Number: 2020930413 ISBN: 978-93-5388-306-5 (HB) SAGE Team: Rajesh Dey, Syed Husain Naqvi, Madhurima Thapa CONTENTS List of Illustrations vii List of Abbreviations xiii Preface xvii Chapter 1 Introduction 1 Chapter 2 Fiscal Decentralization: Theoretical Issues 12 Chapter 3 Fiscal Decentralization and Mobilization of Own Source of Revenue 29 Chapter 4 Finances of Gram Panchayats 41 Chapter 5 Finances of Block and District Panchayats 74 Chapter 6 Finances of Municipalities 92 Chapter 7 State Finance Commissions in Kerala: A Review 118 Chapter 8 Fifth State Finance Commission in Kerala: Devolution Recommendations and Status of Implementation 136 Chapter 9 Decentralized Planning: Plan Performance of Gram Panchayats 159 Chapter 10 Decentralized Planning: Plan Performance of Municipal Corporations 193 vi Local Finance, Fiscal Decentralisation and Decentralised Planning Chapter 11 Summary and Lessons from Kerala’s Fiscal Decentralization 207 Bibliography 218 About the Author 222 Index 223 LIST OF ILLUSTRATIONS FIGURES 8.1 Horizontal Devolution of 5th SFC 147 8.2 Development Fund 148 8.3 Maintenance Fund 148 8.4 General Purpose Fund 149 TABLES 1.1 Number of Rural and Urban LGs in Kerala from 1995 to 2015 7 1.2 Number of Wards of LGs in Kerala 8 1.3 Average Area and Population of LGs in 2011 8 1.4 District-Wise Distribution of LGs (as on 1 November 2015; in Number) 9 2.1 Governance Structure 20th Century versus 21st Century 16 2.2 The Components of a System of Fiscal Decentralization 22 2.3 Fiscal Decentralization Indicators 25 2.4 Central Involvement in Local Functions 26 2.5 Indicators of Fiscal Decentralization 28 viii Local Finance, Fiscal Decentralisation and Decentralised Planning 4.1 Distribution of Sample GPs 42 4.2 Total Receipts per GP: Amount, Composition and Growth Rate 43 4.3 Tax Revenue per GP: Amount, Growth Rate and Composition 45 4.4 Non-tax Revenue per GP: Amount, Growth Rate and Composition 47 4.5 Tax Arrears per GP in 2011–2012 and 2014–2015 48 4.6 Amount Received per GP through Devolution, Central Grants, Etc.: Amount, Growth Rate and Composition 50 4.7 CSS Receipts per GP: Amount, Growth Rate and Composition 53 4.8 Welfare Pension Receipts per GP: Amount, Growth Rate and Composition 55 4.9 Total Expenditure per GP: Amount, Composition and Growth 57 4.10 Administrative Expenditure per GP: Amount, Growth Rate and Composition 58 4.11 Establishment Expenditure per GP: Amount, Growth Rate and Composition 59 4.12 Expenditure on Decentralized Plan per GP: Amount, Growth Rate and Composition 61 4.13 Maintenance Expenditure per GP: Amount, Growth Rate and Composition 62 4.14 O&M Expenditure per GP: Amount, Growth Rate and Composition 63 4.15 Miscellaneous Expenditure per GP: Amount, Growth Rate and Composition 65 4.16 Expenditure on Welfare Pension per GP: Amount, Growth Rate and Composition 66 4.17 Expenditure on CSS per GP: Amount, Growth Rate and Composition 68 4A.1 Welfare Pension and Number of Beneficiaries (2004–2005) 70 4A.2 Total Number of Staff in Sample GPs 71 List of Illustrations ix 4A.3 Average Staff Strength per GP 72 4A.4 Total Staff Strength (Category-Wise) 73 5.1 Distribution of Sample Block Panchayats 75 5.2 Total Receipts per Block Panchayats: Amount, Composition and Growth Rate 76 5.3 Amount Received per Block Panchayat through Devolution: Amount, Composition and Growth Rate 77 5.4 CSS Receipts per Block Panchayat 78 5.5 Total Expenditure per Block Panchayat: Amount, Composition and Growth Rate 79 5.6 Decentralized Plan per Block Panchayat: Amount, Composition and Growth Rate 81 5.7 Maintenance Expenditure per Block Panchayat 82 5.8 CSS Expenditure per Block Panchayat 82 5.9 Distribution of District Panchayats 84 5.10 Total Receipts per District Panchayat: Amount, Composition and Growth Rate 84 5.11 Amount Received per District Panchayat through Devolution: Amount, Composition and Growth Rate 86 5.12 CSS Receipts per District Panchayat 87 5.13 Total Expenditure per District Panchayat: Amount, Composition and Growth Rate 88 5.14 Decentralized Plan Programme per District Panchayat: Amount, Composition and Growth Rate 89 5.15 Maintenance Expenditure per District Panchayat 90 6.1 Distribution of Sample Municipalities 93 6.2 Profile of Sample Municipalities 94 6.3 Total Receipts per Municipality: Amount, Composition and Growth Rate 96 6.4 Tax Revenue per Municipality: Amount, Composition and Growth Rate 97 6.5 Non-tax Revenue per Municipality: Amount, Composition and Growth Rate 99 6.6 Tax and Non-tax Arrears per Municipality in 2011–2012 and 2014–2015 100