The 15th Finance Commission headed by Chairman Shri N K Singh, met with over 25 representatives of various Panchayati Raj Institutions (PRIs) in its first meeting during the 3 day visit to Punjab. The Commission had detailed discussion with the representatives and the State Government Officers.

Status as provided by Punjab on 3Funds Functions and Functionaries :

❖ Punjab Panchayat Raj Act, 1994 is the act provisioning for local self-governance for PRIs

❖ Recommendations of 5^th State Finance Commission (SFC) Report are currently in force: It recommended 4% share of net proceeds of all state taxes.

❖ Only 13 functions out of 29 envisaged in the Eleventh Schedule of the Constitution devolved to PRIs

❖ Elections for Panchayats were last held in December 2018.

❖ Number of local bodies at each level of PRI is as below:

PRI	Number of Local Bodies	Population as per Census 2011
Gram Panchayat	13215	1,73,44,192
Panchayat Samiti	150
Zila Parishad	22

Revenue Sources of PRI’s- Provided by the State

❖ Revenue of Panchayats from its own taxes is almost negligible, around 0.11% of total revenue during 2011-12. This became nil after 2015-16.

❖ Non-tax revenue of Gram Panchayats also reduced from ~26% in 2011-12 to ~19% during 2016-17.

❖ Major source of revenue of the Gram Panchayats is grants from the State/Central Government.

❖ Own revenue of Panchayat Samitis as share of total revenue varied between 40% and 56% during 2011-12 to 2016-17.

❖ Share of own revenue of ZPs to total revenue varied between 1% and 4% during 2011-12 to 2016-17.

❖ Some ZPs have constructed buildings, which generate some revenue in the form of lease money.

According to Pr. AG Punjab, following are the issues pertaining to accounting of PRI

❖ Accounts from the year 2011-12 to 2017-18 are in arrears.

❖ In case of PRI’s, there is no process of consolidation of accounts at different levels (village accounts to block level to district and finally to state level).

❖ Model Accounting System (MAS) for PRIs are yet to be followed

XIV –FC Devolution to the State

Grants	All States(cr.)	Punjab (cr.)	Grants to Punjab as a % to Total Grants
Basic Grant	180263	3682	2.04%
Performance Grant	20029	409	2.04%

Key Observations of 5^th SFC

❖ 5^th SFC recommended 4% of the Net total tax revenue of the state (less cost of collection) to be devolved to local bodies.

❖ It recommended that apart from the 14th FC grants to Gram Panchayats only, the other two levels of PRIs, i.e., Panchayat Samitis and Zila Parishads shall be given an annual grant of ₹ 1 crore. The Commission also recommended performance grants.

❖ PRIs were not able to collect and maintain good quality data as a result of which many Panchayats were ineligible for Performance grants as recommended by XIV -FC

Devolution of finances to PRIs emphasises state grants and performance incentives amid weak own-revenue and accounting gaps. The 5th State Finance Commission recommended a 4% share of net state tax revenue for local bodies, fixed annual grants and performance-linked grants across PRI tiers; however, only 13 of 29 functions are devolved. Gram panchayats have negligible own-tax revenue and declining non-tax income, relying mainly on state and central grants. Significant governance weaknesses include multi-year accounting arrears, lack of consolidated accounts, and non-adoption of the Model Accounting System, which has undermined data quality and eligibility for performance grants.