The Second State Finance Commission Report (2001), Kerala

SECOND STATE FINANCE COMMISION
KERALA
REPORT
PART -1
JANUARY 2001
1
Dr.Prabhat Patnaik
Chairman
Phone: Off: 337430
518822
State Finance Commission
Government of Kerala
6th Floor, Secretariat Annexe
Thiruvananthapuram - 695 001
Dated: 8th January 2001
His Excellency the Governor of Kerala, Thiruvananthapuram
Sir,
The State Finance Commission was constituted by Government of Kerala in their

notification dated 23rd June 1999 under clause (1) of Article 243-I read with clause (1) Article
243-Y of the Constitution of India to study the financial position of the Panchayats and the
Urban Local Bodies and to make recommendations to the Governor.
The Commission desires to submit its Report in two parts. The first part deals with
the devolution of funds from the Consolidated Fund of the State and the strengthening of the
tax base of the LSGIs. The second part will focus on the modification of the budgeting,
auditing and accounting procedures and the streamlining of the financial administration of
LSGIs.
The Finance Commission has completed the first part of the Report. I have pleasure in
submitting it herewith.
Yours faithfully,
Dr.Prabhat Patnaik
Chairman
2
Contents
SECTION I
Chapter 1 Introduction
Chapter 2 Approach of the Commission
SECTION II
Chapter 3 Overview of Local Government Finances

Chapter 4 The Decentralisation Process- a Summary
SECTION III
Chapter 5 The First State Finance Commission
SECTION IV
Chapter 6 The Devolution and Inter Sc

Distribution of Plan Funds
Chapter 7 The Problem of Maintenance of Assets
Chapter 8 Non-Plan, Non-Maintenance Transfers
SECTION V
Chapter 9 Enhancing Own Revenue of Local Self

Governments
SECTION VI
Chapter 10 State Finances during the

Decade 1990-2000
Chapter 11 Some Issues raised by the
Eleventh Finance Commission
SECTION VII
Chapter 12 Procedural Safeguards
SECTION VIII
Summary of Recommendations
Annexures
3
ACKNOWLEDGEMENTS
1. The State Finance Commission was appointed by Government of Kerala
in a notification dated 23rd June 1999. The Commission desires to submit
its Report in two parts. This is the first part of the Report of the State
Finance Commission.
2. The State Finance Commission was ably assisted by a Secretariat headed
by Sri.V.Manikantan Nair, as its Secretary. The Commission extends
its thanks to the following officers of the secretariat of the Commission.
I. Shri.V.Manikantan Nair Secretary
2.Shri.M.V.Haridas Joint secretary
3. Shri.L.Sanal Kumar Joint Director (Panchayats)
4. Smt.A.K.Sasikala Joint Director (Municipalities)
5. Shri.RI.Raveendran Under Secretary
6. R.S.Rajan Nair Accounts Officer
7. Shri.K.G.Sadasivan Section Officer
Section Officer
8. Shri.M.V.Markose
Assistant
9. Shri.M.B.Sanu
Assistant
10.Shri.P.Unnikrishnan Nair
Assistant
11. Shri.S.Suresh Babu
Assistant
12. Shri.J.L.Justin Wills
Assistant
13. Shri.A.Shibu
4
14. Shri.B.Pratheep Kumar Assistant
15. Shri.B.Mohanan Typist
16. Shri.B.Rajendran Nair Typist
17. Smt.K.Ambika Confidential Assistanat
18. Shri.K.Thankappan Peon
19. Smt.C.Kumari Peon
20. Shri.P.B.Ajithkumar Peon
3. The Commission gratefully acknowledges the support it received from
Sri. S. Parameswaran Nair, Consultant, Municipalities and
Sri.K.Pushparajan , Consultant, Panchayats. The Commission has
greatly benefited from the experience and expertise of the consultants.
4. The Commission is very thankful for the support it received from the
State Government and its various Departments and senior officials by
way of information, suggestions and valuable advice.
5. The Commission likes to offer special thanks to Smt.Shaheena, Assistant
Professor, Kerala Agricultural University and Dr. Vikas Rawal, Centre
for Development Studies, for the support it received from them in the
econometric analysis of a vast volume of data and for the simulation
exercises they have done for the Commission. Dr.K.N.Harilal of
M.G.University, Kottayam, was kind enough to spare time for a number
of very helpful discussion.
6. The Commission also wishes to thank Dr. I.S.Gulati, Dr.T.M..Thomas

Issac and Sri.E.M.Sreedharan Namboothiripad, members of the State
5
Planning Board, and Sri.K.N.Kurup, Secretary, Planning Department, for the
valuable suggestions, advice and guidance given by them.
7. The Commission likes to record its appreciation of the commendable work

done by Sri.Vimal and Sri. John Joseph, software programmers and Shri. R.
Ratheesh Kumar, Computer Operator. Sri N.Rajendra Prasad, Assistant Director,
Statistics deserves special commendation for the analysis of data required by the
Commission. The Commission would like to express its thanks to Shri.C.PR.Pillai,
Confidential Assistant working in Kudumbasree for his high quality stenographic
support. The Commission also acknowledges the assistance it received from
Kudumbasree for the prompt and efficient computerisation of the whole data used by
the Commission.
DR. PRABHAT PATNAIK,

Chairman,
State Finance Commission.
Thiruvananthapuram,
08.01.2001.
6
LIST OF TABLES
NUMBER CONTENTS
3.1 Distribution of population - Village Panchayats

3.2 Distribution of population - Municipalities
3.3 Distribution of population - Corporations
3.4 Geographical area of LSGIs
3.5 Classification of Village Panchayats as per extant income
norms.
3.6 Classification of Municipalities as per extant income norms.
3.7 Property Tax rates in ULBs

3.8 Rate of Building Tax in 1985 and 1995 in Village
Panchayats.
3.9 Rate of Property Tax in 1995 in Urban Local
Governments.
3.10 Rates of Profession Tax in Village Panchayats
3.11 Rates of Profession Tax in ULBs
3.12 Rates of Show Tax
3.13 Receipts from Show Tax & Surcharge on Show Tax.
3.14 Rates of Basic Tax
3.15 Details of Basic Tax Grant
3.16 Rate of Stamp Duty and Surcharge under the 1960 and 1994
Acts
3.17 Distribution of Surcharge on Stamp Duty
3.18 Stamp duty deducted and paid to KWA
3.19 Calculation of Road Units for distribution of VTC
3.20 Collection and distribution of MVT to LSGIs
3.21 Share of important items of Non-Tax Revenue in total Non-Tax
Revenue
3.22 Grants-in-aid from the Rural Pool
3.23 Distribution of General Purpose Grants
3.24 Distribution of Specific Purpose Grant-in-aid
3.25 Grant-in-aid given to local governments for running Schools
3.26 Grant-in-aid given to local governments for running Libraries
3.27 Loans availed by ULBs

3.28 Plan Grant-in aid devolved to LSGIs
3.29 Formula for Devolution of Plan Grants
3.30 Non-Plan Grant-in- Aid to LSGIs
3.31 Receipt and Expenditure of the establishment grants for
District Panchayats / Block Panchayats
3.32 Expenditure pattern in Village Panchayats and ULBs
3.33 & 3.34 Self-sufficiency of LSGIs
7
4.1 Total plan grants to LSGIs as part of people's planning
campaign (Including sponsored schemes)
8.1 Non-Plan transfers to LSGIs
8.2 Tax-Cum- Grants Transfers (Excluding VTC)
8.3 Proposed Distribution of General Purpose Grant
Between Tiers
8.4 Some Important Items of 191 Non-Plan expenditure 2000-
01
10.1 Salary, Interest and Pension components of the State for
the period 1991-99
10.2 Expenditure component of Revenue Deficit from 1989-
90 to 1999-2000
10.3 Outlay on Capital Expenditure from 1990-91 to 1999-2000
10.4 Loans and Advance from Government of India 1990-91 to

1998-99
10.5 Small Savings and Deposits from 1990-91 to 1998-99
10.6 State Provident Funds 1990-91 to 1998-99
10.7 Internal Debt of the State from 1990-91 to 1998-99
10.8 Total Debt of the State
10.9 Relative shares of the major streams of borrowings
10.10 Debt and Interest payments for the period from 1990-
2000
10.11 Maintenance Expenditure of the State from 1990-91 to
1999-2000
10.12 Gross Fiscal Deficit over of the decade
10.13 Growth Rates of various items of Tax Revenues
10.14 Projected Fiscal Services with CFC recommended
transfers for 200 1-2006
10.15 Behaviour of Revenue Deficit as percentage of SDP
8
LIST OF ANNEXURES
NUMBER CONTENTS
1.1 Notification No. 33384/SFC.Al/99/Fin, dated 23,6.99
1.2 Notification No. 48596/Admn.AI/2000/Fin, dated 26.7.2000
1.3 Visit of the commission to LSGIs of each type
1.4 Commission's discussions with Associations
1.5 Commission's discussions with Secretaries and Heads of

Departments
3.1 Municipalities having Entertainment Tax and Additional
Entertainment Tax Exceeding Property Tax collection
3.2 Use of provisions by ULBs - A Status Report
3.3 Details of Plan provisions to Panchayat Raj /

Nagarapalika Institutions
3.4 Details of Non-Plan Specific Programmes 2000-2001
3.5.1 Total receipts (excluding grant-in-aid for peoples' plan

campaign) of Village Panchayats 1993-94 to 1998-99
3.5.2 Abstract of total receipts of Village Panchayats under own
revenue
3.5.3 Percentage share of taxes to total Direct Tax Re venue- Village
Panchayats
3.5.4 Percentage increase of taxes over previous year- Village
Panchayats
3.5.5 Percentage increase of own revenue over previous years-
Village Panchayats
3.5.6 Share of taxes in total own revenue- Village Panchayats
3.5.7 Share of each item under own revenue- Village Panchayats
3.5.8 Total expenditure of Village Panchayats for the years 1993-

94 to 1998-99 (excluding plan grant in aid for peoples' plan
campaign)
3.5.9 Per capita expenditure of Village Panchayats

campaign) of Municipalities 1993-94 to 1998-99
3.6.2 Abstract of total receipts of Municipalities under own
revenue
3.6.3 Percentage share of taxes to total Direct Tax Revenue-
Municipalities
3.6.4 Percentage increase of taxes over previous year-Municipalities
Municipalities
3.6.6 Share of taxes in total own revenue –Municipalities
9
3.6.7 Share of each item under own revenue -Municipalities
3.6.8 Total expenditure of Municipalities for the years 1993-94 to
1998-99 (excluding plan grant in aid for peoples' plan
campaign)
3.6.9 Per capita expenditure of Municipalities
3.6.10 Total Receipts and Expenditure of Municipalities at a glance
campaign) of Municipal Corporations 1993-94 to J 998-99
3.7.2 Abstract of total receipts of Municipal Corporations under own
revenue
3.7.3 Percentage share of taxes to total Direct Tax Revenue-
Corporations
3.7.4 Percentage increase of taxes over previous year-Corporations
Corporations
3.7.6 Share of taxes in total own revenue-Corporations
3.7.7 Share of each item under own revenue -Corporations
3.7.8 Total expenditure of Municipal Corporations for the years
1993-94 to 1998-99 (excluding plan grant in aid for peoples'
plan campaign)
3.7.9 Percapita expenditure of Municipal Corporations
3.7.10 Total Receipts and Expenditure of Municipal Corporations at a
glance
4.1 Details of transfer of Institutions and Staff to LSGIs
4.2.1 Physical achievement of Peoples Plan Campaign -
Panchayats
4.2.2 Physical achievement of Peoples Plan Campaign –
Municipalities
4.2.3 Physical achievement of Peoples Plan Campaign -
Corporations
4.3 Functions assigned to LSGIs
5.1 Status of implementation of the recommendations of the
First SFC
6.1 Proposed Formula for Infer Se Distribution of Plan Funds
9.1 Presumptive Profession Tax for Traders and self employed
persons
9.2 Proposed Licence fees for Trades and Installation of Plants
or Machinery
9.3 Proposed Licence fees under Kerala Cinema Regulation
Rules
9.4 Proposed Rate of Licence fees for Private Market
9.5 Proposed Licence fees under Kerala Places of Public Resort
Act
9.6 Proposed Rate of Licence fees for keeping animals for
commercial purposes
9.7 Proposed Rates for market fees
9.8 Proposed Rate of fees for using Public Halting and Parking
Places
10
9.9 Proposed Rate of Rent and Fee for Slaughtering Animals in
Public and Private Slaughterhouse
CHAPTER I
INTRODUCTION
BACKGROUND
1.1 Kerala has been following a unique trajectory of decentralisation

by devolving substantial development funds to Local Self Government
Institutions (LSGIs) for the preparation and implementation of locally
appropriate development projects and programmes. The People's
Planning Campaign has attempted to use planning as the entry point to
achieve a high degree of democratic decentralisation, ultimately moving
towards the realization, in letter and spirit, of the Constitutional goal of
"genuine institutions of local self government" as set forth by the 73rd
and 74th Amendments. The Campaign has succeeded to a large extent in
setting the agenda of decentralisation and pushing its pace. The
decentralisation efforts of Kerala have moved from the experimentation
phase through a corrective phase into the institutionalization phase. This
is the background against which the Second State Finance Commission
(SFC) has been set up. Thus the Second SFC has a critical role to play in
the consolidation of the gains of the decentralisation experience and in
laying a firm foundation for its institutionalization.
11
APPOINTMENT OF STATE FINANCE COMMISSION
1.2 The First State Finance Commission for Kerala as envisaged

in Article 243 -I and 243 -Y of the Constitution of India and
as provided in Section 186 of the Kerala Panchayat Raj Act
1994 and Section 205 of the Kerala Municipality Act 1994
was appointed on 23rd April 1994. The Commission gave its
final report to Government in February 1996. The Second SFC
was appointed by Notification No.33384/SFC.Al/99/Fin on
rd
the 23 of June 1999, (Annexure 1.1) initially for a period of
one year which was later extended by one more year by
Notification No. 48596/Admn/Al/2000/Fin dated 26-7-2000
(Annexure 1.2).
1.3 As in the case of the First Finance Commission this is also a
three member Commission whose members are:
Dr. Prabhat Patnaik, Chairperson
Professor, Jawaharlal Nehru University,
New Delhi.
Dr. K.M. Abraham, Secretary to Member

Government, Finance (Resources)
Department, Government of Kerala.
Shri S.M.Vijayanand, Member

Secretary to Government,
Local Administration Department,
(Now renamed as Local Self Government Dept.),
Government of Kerala.
12
TERMS OF REFERENCE
1.4 The Terms of Reference of the Commission as given in the

notification are extracted below:
"The Finance Commission shall review the financial position of the

Panchayats and the Municipalities and make recommendations as to -
(a) The principles which should govern, -
(i) the distribution between the State, Panchayats and Municipalities of

the net proceeds of the taxes, duties, tolls and fees leviable by
the State, which may be divided between them under Part IX and
Part IX-A of the Constitution and the allocation between the
Panchayats at all levels and the Municipalities of their respective
shares of such proceeds;
(ii) the determination of the taxes, duties, tolls and fees which may be
assigned to or appropriated by, the Panchayats and the
Municipalities;
(iii) the grants-in-aid to the Panchayats and the Municipalities from the
Consolidated fund of the State.
(b) The measures needed to improve the financial position of

the Panchayats and the Municipalities with reference to,-
(i) the scope for local bodies to raise institutional
13
finance, and suggest a framework for local self-governments to
take recourse to such sources along with procedures to be
followed and limits, if necessary, to raising such resources;
(ii) need for sharing the cost of maintenance of assets and institutions
transferred to local self-governments, and evolving criteria for it,
with due regard to the fiscal position of the State Government
and the local self-governments;
(iii) steps necessary for efficient financial management with particular

reference to efficiency in resource mobilization and economy in
expenditure;
(iv) settlement of claims and dues of Panchayats and Municipalities

vis-a-vis Government and Governmental agencies;
(v) Procedures to be followed for smooth flow of funds to local self-

governments and for ensuring proper financial accountability,"
1.5 Government have gone beyond the Terms of Reference given to the First
SFC, and broadened the scope of the Commission's work by expanding the
second portion of the Terms of Reference dealing with the measures needed
to improve the financial position of LSGIs by clearly stating five specific
items. Thus, the Second SFC, besides suggesting devolution of funds and
their distribution among LSGIs has to go into the question of financial
management including raising of resources, availing
14
of loans, economy in spending and settlement of debts and dues. Also the
Second SFC has been given the task of suggesting procedural refinements
to ensure a smooth flow of funds from Government to local governments
and for ensuring proper financial accountability.
METHODOLOGY FOLLOWED BY THE COMMISSION

1.6 The Commission has followed a methodology appropriate to
the comprehensive task entrusted to it as per the Terms of Reference. Some
of the salient features of the methodology adopted by the Commission are
outlined below:
(1) The Commission directly studied the functioning of each

of the five types of local government with special
reference to financial matters viz., Village Panchayat,
Block Panchayat, District Panchayat, Municipality and
Corporation by visiting one representative of each type.
(Annexure 1.3)
(2) The Commission held consultations with representatives

of local government associations viz., Panchayat
Association, Block Panchayat Association and the
Municipal Chairmen's Chamber. These consultations
brought to the fore various issues relating to the
finances of these local governments as recognized and
felt by the elected representatives. (Annexure 1.4)
(3) Detailed discussions were held with the Secretaries and

Heads of Department involved in decentralisation.
(Annexure 1.5).
15
(4) The Commission had a special meeting with the Finance
Minister and the Finance Secretary.
(5) There was an exchange of views with the State Planning

Board with particular focus on decentralised plan
preparation and implementation.
(6) The Commission conducted a detailed analysis of the

Report of the First Finance Commission and the follow-
up action on it and Annexure IV of the State Budgets
since the year 1996-97.
(7) The services of one Consultant each were utilized by

the Commission in respect of Panchayats and
Municipalities.
(8) The Commission has entrusted the Institute of Public

Auditors of India (IPAI) with the task of doing a
thorough study of the budgeting, accounting and audit
systems in both the rural and urban local governments
so that these can be simplified and modernised. The
IPAI is expected to produce detailed manuals on
budgeting, accounting and auditing, incorporating the
best practices from within and outside the country.
(9) The Commission has collected data from local

governments through a detailed questionnaire. These
questionnaires which were in two parts for the Urban
Local Bodies (ULBs) and Village Panchayats and in one
part for the other local governments were filled up and
returned by all the local governments except 14 Village
16
Panchayats which could not fill up the first part of the
questionnaire relating to own income and non plan grants.
SUBMISSION OF THE REPORT

1.7 The Commission intends to submit its Report in two parts.
This Report deals with the first part of the Terms of Reference relating
to devolution and a portion of the second part of the Terms of
Reference dealing with maintenance needs and the funds required for
meeting them and with procedures related to the flow of funds. The
second part of the Report which is expected to be submitted in May
2001 would deal with the remaining items of the Terms of Reference.
It would also give further suggestions for increasing local resource
mobilization which would be generated after close interaction with the
newly elected LSGIs whose tenure these Reports would basically
cover.
STRUCTURE OF THE FIRST REPORT
1.8 The First Report is structured in eight Sections with twelve Chapters
and a summary of the recommendations. The first Section has an
introductory Chapter on the constitution of the Second Finance
Commission, its Terms of Reference and the Methodology adopted by
it and the second Chapter outlines the approach of the Commission to
the major Terms of Reference. The second Section has two descriptive
Chapters -one giving an overview of local government finances and
other summarizing the decentralisation process in Kerala. Section III
has just one Chapter analyzing the recommendations of the First SFC,
with reference to their present status of operationalisation. Those
recommendations, which need to be followed up further are identified
in this Chapter. Section IV deals with devolution of funds from the
State Government to the LSGIs. This theme is presented in three
Chapters - one dealing with devolution of Plan funds, the next dealing
17
with devolution of funds exclusively for maintenance and the last one
in the Section dealing with devolution of General Purpose Grant in lieu
of the existing Assigned and Shared Taxes and Non-plan grants-in-aid.
The fifth Section has the Chapter on enhancing the own revenues of
LSGIs.
1.9 Section VI has a Chapter on State Government Finances and another

Chapter giving the observations of this Commission on certain issues
raised by the 11th Finance Commission. Section VII consists of the Chapter
outlining the Procedural Safeguards, including legislative changes, which
are required for a proper implementation of the recommendations of this
Commission. And the last Section summarizes the recommendations.
18
CHAPTER 2
OUR APPROACH
FINANCIAL DEVOLUTION
2.1 The State Finance Commission is concerned with the

devolution of funds from the state government to the LSGIs
in its entirety, and not merely with one particular part of the
total devolution. There has unfortunately been a general
tendency to treat the jurisdiction of the State Finance
Commission as being confined to the devolution of non-plan
funds, the matter of Plan funds being considered a prerogative
of the state government. Even the Fist State Finance
Commission of Kerala had only a few recommendations
concerning the Plan, and did not go into the question of
devolution of Plan funds. This tendency echoes the practice
that has got established at the central level, where successive
Central Finance Commissions have adjudicated over the
allocation of only one part of the total devolution from the
Union to the state governments, leaving the decision regarding
the remaining, more substantial, part to the purview of bodies
belonging to the central government itself, such as the Planning
Commission or the Ministry of Finance. This tendency however
cannot be defended on the grounds either of reasonableness
or of conformity to the letter and spirit of the 73rd and 74th
Amendments to the Constitution on whose basis State Finance
Commissions are formed.
2.2 Such a separation, and corresponding attenuation of the role

of the Finance Commission, is unreasonable on two counts.
19
First, different categories of devolution are intrinsically interrelated. If more
funds are devolved to LSGIs for plan projects, then correspondingly larger
provisions have to be made for them for the maintenance and operation of
the assets created through such projects. Two separate bodies therefore
cannot in any meaningful sense (i.e. without one of them becoming a mere
rubber stamp) decide on these two kinds of devolution. The inseparability
of the two kinds of devolution necessitates that they fall under the
jurisdiction of one body, which can only be the Finance Commission.
Secondly, the 73rd and 74th Constitutional Amendments provide for a
statutory body to adjudicate on financial matters, namely the State Finance
Commission. The spirit of those Amendments therefore requires that the
jurisdiction of that statutory body be as comprehensive as possible. The
letter of those Amendments too is in conformity with this. The State
Finance Commission's task is to "review the financial position" of local
bodies. Since any such review can only be in relation to the functional
responsibilities of the LSGIs, and these include the responsibilities vested
in them for "the preparation of plans for economic development and social
justice", it follows that even the letter of those Amendments enjoins upon
the SFC a concern with the total financial requirement, both plan and non-
plan, of the LSGIs. Our Commission accordingly proposes to take a
comprehensive view of financial devolution from the state government to
the LSGIs and not confine itself only to non-plan devolution.
2.3 Given this perspective, and the fact of the inseparability of different kinds
of devolution, a tempting idea is to earmark a certain fixed proportion, say
20 percent, of the total tax revenue of the state government for devolution
to LSGIs for both plan and non-plan use. The inter sc distribution of this
amount among the LSGIs could then be determined by some specific
criteria, and individual LSGIs could, within limits, be
20
left free to allocate the funds at their disposal in any manner they choose.
This solution is tempting for a number of reasons. First, it is simple and
appears more in keeping with the idea of genuine decentralisation which
gives freedom of resource use to LSGIs. Secondly, it has intellectual
pedigree, having been mooted by some of the first SFCs (including the
SFC of West Bengal headed by Dr.Satyabrata Sen). Thirdly, it is in
conformity with the trend being initiated by the Central Finance
Commission itself. Fourthly, it apparently entails equitable sharing between
the state government and the LSGIs: they evenly partake of affluence and
penury, without either one of them squeezing the other in any obvious
manner. And finally it would seem to be more appropriate in the Kerala
context, where, the upkeep of the good infrastructure facilities being very
important, the LSGIs should not be constrained by the plan - non-plan
distinction. In these respects it would even appear to have an edge over the
current practice in Kerala, following the Peoples' Plan Campaign, of giving
a fixed percentage of plan funds (35 to 40 percent) to the LSGIs.
2.4 There are two obvious problems potentially associated with the current
practice. The first arises from the fact that the LSGIs' requirement of non-
plan funds, as already mentioned, is itself linked to the amount of plan
funds made available to them. Ensuring that a certain percentage of plan
funds is put at their disposal is therefore not enough; an appropriate
amount of non-plan funds must also be made available to them for meeting
the current operational costs and the maintenance requirements of the plan
assets. A system in which a certain overall share of tax revenue of the state
government is passed on to LSGIs, and the latter have a degree of
flexibility in deciding how to deploy their share, would be better able to
avoid any potential disproportionality between asset creation on the one
hand and asset maintenance and operation on the other. The second
problem associated with the current practice
21
arises from the fact that a relative or even an absolute decline in the size of
the state's plan outlay leads ipso facto to a similar decline in the magnitude
of devolution of plan funds to LSGIs and hence in the size of the LSGI
plans. This means that a sudden draft on the state government's resources
on the non-plan side, or plain non-plan profligacy on the part of the state
government, or niggardliness on the part of the Planning Commission, or a
financial squeeze imposed by the central government, all of these would
invariably impinge on the size of the LSGI plans. If we are concerned that
the size of these plans, which cater to the basic requirements of the mass of
the people, should be kept insulated from such extrinsic developments, then
a devolution formula which gives LSGIs a share of the state revenue as
opposed to one which gives them a share of the plan outlay appears
preferable. (To be sure, even with revenue sharing, LSGI plans would still
be vulnerable to the profligacy, on the non-plan side, of the LSGIs
themselves; but more directly exerted popular pressure, through institutions
such as Grama Sabhas and Ward Sabhas together with the imposition of
some pre-determined expenditure "norms", could take care of it).
2.5 The fear that a plan-outlay-sharing system makes LSGI plans vulnerable
to a whole range of extrinsic developments including a financial squeeze
emanating from the central government via cuts in grants-in-aid, is not an
idle one. The additional fiscal burden imposed on the state government on
account of the implementation of the recommendations of the Pay
Commission, together with the fact that grants-in-aid from the Central
government have tended to stagnate, has had an impact on the growth of
the state's plan outlay in 1999-2000 (RE) and 2000-01 (BE), and
correspondingly on the growth of plan transfers to the LSGIs, even though
the absolute amounts of such transfers remain impressive. The total plan
22
and non-plan transfers1 to PRIs as a proportion of the total tax revenue of
the state government, which amounted to 7.2 percent in 1996-7, increased
to 20.8 percent in 1997-8 when the Peoples' Plan Campaign took effect.
The ratio was 19.5 percent in 1998-9, but appears to have declined
somewhat thereafter: to 16 percent in 1999-2000 (RE) and 14.1 percent in
2000-01 (BE). Since the proportion of non-plan transfers to the total tax
revenue of the state government has remained more or less unchanged,
amounting during these five years (in percentages) to 2.07, 2.15, 2.61, 2.2,
and 2.61 respectively, it is the ratio of plan transfers to total revenue that
appears to have been affected. To be sure, these figures do not tell the
whole story, since they exclude the transfers by way of salaries to state
personnel who have been assigned to LSGIs; besides, the period is too
short, and, for the later years, we are not even talking about Actuals but
only about Revised and Budget estimates. Nonetheless, the possibility in
the coming years, if the fiscal problems of the central government get
compounded, of these problems getting "exported" to the state level, and
from there further downwards until they impinge on LSGI plans (or of an
exactly similar denouement arising from a worsening of the state
government's fiscal position for independent reasons), is to be reckoned
with.
2.6 Though the above discussion constitutes a strong case for moving to a
general revenue sharing arrangement between the state government and the
local governments, the Commission feels that there are a number of
weighty counter arguments which cannot also be ignored. These are
summarized below.
1. The term "non-plan transfers" here refers exclusively to the transfers

which figure in the Appendix IV of the Budget, i.e. it does not include the
transfer of the proceeds of the shared and assigned taxes, to which the
LSGIs are entitled or transfers in the form of payments of salaries and
operational expenses on transferred schemes.
23
2.7 Any general sharing of revenue implies that there is a clear
demarcation of responsibilities between the state government
and the local governments. But actually this is an evolutionary
process. Though Kerala has gone beyond any other state in
sharing responsibilities with local governments there are areas
like the productive sector where only over a period of time
can the functional domains be defined with reasonable clarity.
Indeed, the local governments which have been initiated into
the planning process are themselves just coming to grips with
the developmental needs and solutions within their functional
domain, and would also require more time for working out
the financial needs of various aspects of the responsibilities
transferred to them.
2.8 Besides, the allocation of 35-40 percent of the Plan funds to

the local governments also has a symbolic significance, since it
is this move which really gave the big push to decentralisation.
Participatory planning has been used as the entry point to make
decentralisation genuine. Therefore it is necessary to continue
the practice, of sharing Plan funds in this ratio, for some more
time, until the institutions of local government have struck
firmer roots.
2.9 There is a further consideration of some importance. A blanket

revenue-sharing arrangement would even suggest a transfer
of all obligations of meeting the current expenditure in LSGI-
run institutions to the LSGIs themselves. It could for instance
imply a transfer of the obligation to pay salaries to the large
number of state employees, currently working in LSGI-run
institutions but drawing their salaries from the state
government, to the LSGIs themselves. These state government
employees would overnight become LSGI employees. A blanket
re venue-sharing arrangement would also transfer the task of
purchasing supplies for LSGI-run institutions, such as
medicines for hospitals, and books and consumables for
24
schools, to the LSGIs themselves. All this would entail, first of all, an
enormous and unmanageable administrative burden on the LSGIs. They
would have to manage the payroll of a large number of personnel who
would now constitute their direct employees. They would have to arrange
supplies for the day-to-day running of a host of institutions. These tasks are
as onerous as they are unnecessary for LSGIs to perform. A distinction
must be drawn between decentralisation of administrative burdens and
decentralisation of decision-making. The former is not only not a pre-
condition of the latter but may even thwart the latter. Proper sequencing is
very important in the decentralisation process. An LSGI system which has
not stabilised would be put to severe stress if it takes on the burden of
administration in full. For example while it must be the LSGIs which
should control officers placed under them, assign them tasks, and ensure
their proper performance, this does not necessarily imply that they should
bear the burden of recruitment, payment of salaries and dealing with
service matters. These tasks consume a lot of time and energy and could
detract from LSGI efficiency in carrying out their essential responsibilities.
To be sure, there is an obvious contradiction in having personnel who are
recruited by one agency but are answerable to another, a contradiction
referred to by the Committee on Decentralisation of Powers as "dual
control". But a forcible resolution of this contradiction by simply
eliminating one of its poles, either through centralisation as existed earlier
or through complete decentralisation entailing the parcelling out of
administration, is no answer to the problem.
2.10 Even from a financial point of view, making LSGIs responsible for
meeting the entire current expenditure obligations in LSGI-run institutions
would make little sense. The state government has many more financial
options than the LSGIs have. It can borrow. It can introduce new,
innovative taxes;
25
and so on. In the event of an increase in the cost of administration, for
example a rise in salaries, the state government can absorb the increase far
more easily than the LSGIs in case they are asked to bear the cost of
administration under a new dispensation. It was mentioned above that under
the current practice of plan-outlay-devolution a sudden need on the part of
the state government to spend more on the non-plan side would squeeze
LSGIs' plans, and that this strengthened the case for revenue-sharing
between the state government and the LSGIs. This argument clearly lacks
general validity. It holds only when the increase in the state government's
non-plan expenditure need is of a kind that LSGIs would not face when
expenditure obligations are transferred to them along with a share of
revenue. But if they have to face the same non-plan expenditure need as the
state government, they would be worse off in a regime of revenue-sharing.
For example if they had to implement Pay Commission recommendations
out of their own funds in a regime of revenue-sharing, they would have
ended up being worse off than they have actually been under the current
dispensation. Of course it may be argued that additional financial options
which the state government has, such as borrowing, should be made
available to the LSGIs too. We examine this issue later, but, should this be
done indiscriminately, then very sharp inequalities could emerge among
LSGIs, forcing the backward ones to go under, which would defeat the
whole purpose of decentralisation.
2.11 Enough has been said to show that any simple rule stipulating the transfer
of a certain fixed proportion of total tax revenue from the higher to the
lower level, would be inappropriate in the present Kerala context.
Accordingly, we reject this approach. The approach we do adopt instead on
the question of devolution has six main features which are given below.
26
2.12 First, for reasons discussed in Chapter 6, we are of the view
that the current practice of making 35-40 percent of the plan
outlay available to the LSGIs to spend on plan projects of
their choice should be continued: our precise recommendation
is that not less than one-third of total plan outlay (excluding
state-sponsored schemes from the numerator) should be given
to LSGIs, A feeling has been conveyed to us that the transfer
of such substantial amounts of plan funds to the LSGIs has
been accompanied by a corresponding slackening of revenue
effort by the LSGIs themselves. This feeling is pervasive,
though the empirical support adduced in its favour is not very
persuasive. But irrespective of whether larger devolution has
actually caused a slackening of revenue effort, any slackness
in such effort is perse unwarranted. Stimulating revenue effort
therefore is a must; and we do so by incorporating revenue
effort explicitly into the formula determining the inter se
distribution of plan resources.
2.13 Secondly, the question of maintenance of the assets newly

created by the LSGIs from the enhanced devolution of plan
funds under the Peoples' Plan Campaign, not to mention the
assets transferred to them under the Government Order of
September 1995, is going to become exceedingly important in
the coming years. The resources required for the maintenance
of both these types of assets would have to be provided by the
state government, even though the maintenance work is
actually carried out under the aegis of the LSGIs. In other
words, in addition to the devolution of plan funds, the state
government has to make available to the LSGIs an amount
that would cover the maintenance expenditure on both types
of assets. The reasoning behind this is obvious: if the
transferred assets had not been transferred to the LSGIs, then
the state government would have paid for their maintenance;
since they have been transferred the requisite sum should be
handed over to the LSGIs to whom these assets have been
27
transferred. Likewise, if the increased devolution of plan funds had not
taken place, the state government would have used these plan funds through
its various departments, and would have paid for the maintenance of the
assets created through the use of these plan funds. The fact that this
devolution has occurred simply means that these assets are now under the
jurisdiction of the LSGIs; the state government's obligation to pay for the
maintenance of these newly-created assets (and those continuously being
created) is not removed thereby. Of course if the transferred or newly-
created assets were run on commercial lines, then the expenditure on
maintenance could come from their own revenue, exonerating the
government from the obligation to provide for their maintenance. But since
the bulk of these assets are not commercially operated, and are not meant to
be, the obligation on the state government remains. Finally, there are the
assets which are neither transferred under the September 1995 Government
Order, nor newly constructed out of the higher devolution of plan funds
following the People's Plan Campaign. An important segment of this third
category is constituted by assets which the LSGIs already owned prior to
September 1995. The maintenance expenditure on these assets has come
partly from the LSGIs' own funds, including what comes to them as Vehicle
Tax Compensation, and to a limited extent from such non-plan, non-
statutory grants of the state government as the Village Road Maintenance
Grant (when it existed). But the actual maintenance expenditure on these
assets has in practice been rather meagre. Adequate expenditure on the
maintenance of these assets, given their non-commercial nature, would
necessarily require additional financial support from the state government.
2.14 We suggest that this additional amount, together with the requisite amounts
for the first two categories of assets, should be provided by the state
government. In other words, the state
28
government should provide the entire maintenance expenditure on the pre-
existing assets of the LSGIs, on the assets transferred to them after
September 1995 and on assets newly-constructed by them out of plan
assistance in the period since 1997-8. It need not, however, make any
Vehicles Tax Compensation available to the LSGIs. Our approach is to get
the state government to transfer a certain total amount for the maintenance
of assets to the LSGIs as a whole, among whom it is to be distributed
according to certain criteria reflecting maintenance needs. It is essential of
course that the LSGIs in turn should not use the amount, handed to them
for the maintenance of assets, for all sorts of other purposes; we wish to
put this amount beyond their reach for expenditure other than on approved
uses.
2.15 Thirdly, there are a host of payments made by the LSGIs to

meet social obligations, such as pension schemes,
unemployment allowance, scholorships etc., for which the
funds are provided by the state government. These are grouped
together under "Non-Plan" expenditures in the Appendix IV
of the state government's budget. The state government should
continue to make appropriate transfers to the LSGIs under
this head for them to meet all such obligations.
2.16 Fourthly, there is the question of operating costs on transferred

assets, as distinct from maintenance. These are of two kinds:
salaries of personnel and operating costs on account of current
inputs, e.g. medicines for hospitals, books and consumables
for schools. The state government is already meeting the
operating costs of the transferred assets and should, in
principle, continue to do so. A reasoning analogous to that in
paragraph 2.13 would suggest that even on assets newly created
by the LSGIs after the higher devolution of plan funds, the
operating costs would have to be met by the state government,
unless of course these assets themselves happen to be commercially viable.
29
In practice, however, any system where costs are met by one agency while
decisions regarding their size are taken by another, runs the risk of
profligacy (even if these decisions have to be formally approved by the first
agency). This problem has reportedly become quite acute through pressure
for the creation of new posts, by the LSGI. It would become even more
acute in the coming years unless something is done about it immediately.
2.17 An immediate response to the problem may be to say that all

new posts at the LSGI level should have to be financed out of
their own funds (even as the state government meets the salary
component on account of the transferred posts). This however
could well lead to a diversion of funds earmarked for plan or
maintenance purposes towards meeting a burgeoning salary
bill. Even if safeguards against such diversions are provided,
it would not be appropriate to take such a drastic step
immediately. This can be considered as a possible long-term
measure and deserves further discussion. Meanwhile to curb
profligacy under the existing arrangement we make the
following specific suggestion. For the creation of any new post
at the LSGI level, no matter who is financing it, there has to
be a process of consultation between the state government and
the LSGI(s) concerned. After such consultations and before
the proposal comes before the cabinet, clearance must be
obtained from an Expenditure Watchdog body. We do not
propose the setting up of a new Watchdog body. We recommend
instead that the existing institution of Ombudsman should be
used for the purpose. Technical and other help should be made
available to the Ombudsman so that they can also take on this
additional role.
2.18 Apart from this new arrangement we propose, our

recommendations regarding operating costs of LSGI assets
have four elements: first, all existing salary commitments on
30
transferred schemes, including wages to temporary employees, must
continue to be paid by the state government. Secondly, the current practice
of state government funding of medicines and books should be continued
exactly as it is, but in all other sectors, the state government should be freed
from its obligation of having to meet operating costs. And even in the
education and health sectors, all other operating costs, such as rents on
buildings, electricity and vehicle running charges, telephone expenses etc.
should be met by the LSGIs from their own funds including general
purpose grants and upto 10% of maintenance grants. Thirdly, the LSGIs,
apart from meeting all these operating costs, should have the freedom to
undertake extra expenditure at the margin in the education and health
sectors, over and above what the state government provides. And fourthly,
to enable them to do so, they should be allowed to spend up to 10 percent
of the Maintenance Transfer, which is being made available to them, for
meeting operating costs.
2.19 Fifthly, in addition to the devolution under the above-mentioned heads,

there are the transfers on account of taxes and certain non-plan grants from
the state government to the LSGIs. There are three broad categories within
this head: assigned taxes which are collected by the government to be
handed over to the LSGIs (which in the case of PRIs include Basic Tax and
Surcharge on Duty on Transfer of Property and for Urban Local Bodies
(ULBs) only the latter); shared tax (which is the Motor Vehicle Tax); and a
few grants. A plethora of grants makes the system cumbersome and
opaque. Likewise even the system of earmarking particular tax revenues for
distribution to LSGIs has little to recommend it. Our approach is to do
away with this entire cumbersome system and to stipulate that a certain
fixed proportion of the tax revenue of the state government is to be handed
each year to the LSGIs. The state government in turn can retain the
proceeds of the
31
taxes, which were either "assigned" or shared till now, for its own use. For
determining the exact share which is to be so distributed among the LSGIs
and also the inter redistribution of the amount among the various tiers of
LSGIs, we make use of the observed historical shares in the recent past.
2.20 We are aware that in recommending a shift away from the

system of assigning and sharing specific taxes, we are making
a radical departure, since local government finances all over
the world have traditionally been based on such a system.
While this departure per se may not cause control, their may
be legitimate grounds for serious misgivings on the following
score: tax assignment conferse a right on LSGIs which a system
of sharing the over all tax revenue appears not to do; it appears
to be in the nature of a grant that is open to withdrawal by
the State Government at its will. We wish to remove these
misgivings by emphasising that the tax share proposed by us
should be deemed a matter of right by the LSGIs, sanctioned by appropriate
legislation.
2.21 Finally, a consideration which we hold to be important and

which has informed our entire approach in this report is that
the system of transfers from the state government to the LSGIs
should be made as simple as possible. Likewise, the formulae
for inter se distribution of funds should be made as simple as
possible.
2.22 To sum up, our Commission's approach is to take the

devolution of funds in its entirety and to make
recommendations regarding both plan and non-plan
devolutions rather than confining ourselves only to the non-
plan side, as has become customary at the Centre and in many
states. Though we look at devolution in a comprehensive
manner, we reject nonetheless the rather tempting idea of a
32
blanket division of the state government's tax revenue governing
devolution. This idea entails fixing a particular share of the total tax
revenue of the state government that is made available to the LSGIs as a
whole; the amount is distributed among the LSGIs according to some
formula and they are then left more or less free to spend their amounts as
they like. This idea, notwithstanding its simplicity and appeal, is
unworkable in the context of Kerala which has pursued its own unique
trajectory of decentralisation, a pursuit that has to be taken by us as a
historical datum. Our approach is to stipulate a share of plan outlay that
must be handed over to the LSGIs, as is the current practice, and a share of
tax revenue to be given as non-plan statutory transfer in lieu of the current
complex and cumbersome system of tax-assignments and tax-sharing. In
addition to these plan and non-plan transfers, the state government has to
keep meeting the salaries of all personnel on the transferred assets, to keep
making appropriate transfers to the LSGIs' for meeting a host of social
obligations (non-plan payments under Appendix IV of the budget), and to
keep defraying the costs of medicines in hospitals and books and
consumables in educational institutions under LSGI-jurisdiction. It also has
to transfer a certain amount every year for the purpose of meeting the
maintenance requirements on LSGI assets. In arriving at the magnitudes of
these transfers and their inter se distribution among the LSGIs, our
objective has been to simplify the system as far as possible, so that the
mystery and opaqueness governing the devolution of funds from the state
government to the LSGIs get minimised.
RESOURCE MOBILISATION BY LSGIs
2.23 The increased plan allocation to LSGIs has generated a euphoria among
them regarding availability of funds. There is in fact a pervasive feeling
that LSGIs are flush with funds. There are however clear parameters
within which such funds
33
can be spent; they are meant for new development ventures, and, implicitly,
for such development ventures as would give adequate returns, both social
and economic. It is important to note that local governments have
traditional obligatory functions and are often judged on the quality of their
performance of these functions, which relate to public health and sanitation,
maintenance of infrastructure, and the exercise of regulatory civic functions
to ensure good quality of life for the citizens. Now that a lot of new assets
have been transferred to the LSGIs and the flow of maintenance funds from
the state government cannot but be limited on any reasonable expectations,
the need for mobilizing resources becomes very critical. If LSGIs can raise
more funds by themselves they can dramatically improve the upkeep of
assets transferred to them. An analysis of the resource inflows of LSGIs
shows that in the case of Village Panchayats the proportion was broadly
3:2:11 respectively for own funds, non-plan grant-in-aid from the state
government including assigned and share taxes, and plan grant-in-aid. The
corresponding proportion for Municipalities as well as Corporations was
3:1:2. Own funds therefore constitute a significant amount. The very fact
that LSGIs can raise resources including taxes is a symbolic affirmation of
their status as institutions of local self government. The right to fix the rates
for taxes and other revenues and collect them gives authority and
importance to the LSGIs. On the other hand it also demands a considerable
degree of responsibility from them, since the tax payers are not only very
close to the collection point but are also witnesses to the mode of utilization
of the taxes collected. This opens up the possibility of spontaneous tax-
compliance as well as of community pressure to pay dues to LSGIs,
provided the services of the local governments are perceived to be useful
and relevant.
34
2.24 There are however certain problems with regard to the mobilization of
revenue by LSGIs. The most important problem relates to the tax base,
which is rather inelastic and cannot be widened very easily. Moreover, the
minimum and the maximum rates for the taxes and most of the non-tax
revenues are fixed at present by the state government. In the case of many
of the non-tax sources the amounts are fixed by the government through
rules, and these, for a variety of reasons, do not get revised in tandem with
the rate of inflation. A serious additional problem relating to taxation at the
local level is the fact of gross under-assessment. Our interactions with
representatives of LSGIs suggest that the present demand is only about half
of what can really be collected. The assessment is done in a rather primitive
fashion and the process of assessment often tends to be very subjective. To
compound this problem the collection efficiency is also low. The
traditional mode of collecting from the doorstep is still being resorted to.
The enforcement provisions are rarely used.
2.25 The Commission believes that the tax base can be expanded inter alia
through the introduction of Service Tax. Also some non-tax revenue
sources can be further tapped. The Commission strongly endorses the view
that only the floor rates and amounts need to be fixed by the government.
This would allow greater autonomy to the efficient LSGIs to mobilize more
local resources. In addition there is urgent need to index the rates to
changes in money value. Tax assessment methods can be rationalised
essentially by reducing discretion and moving on to a transparent normative
basis, like plinth area in the case of buildings, seating capacity in the case
of cinemas, presumptive taxes for certain professions and so on. In this
respect, some of the recommendations of the first Finance Commission are
very pertinent. Collection efficiency is also very crucial, though the drive to
collect larger revenues has to come from the LSGIs themselves. To be sure,
training and motivating the collecting personnel would help, as would
35
external incentives of the sort we have provided, by incorporating the
revenue effort criterion into the inter se distribution of plan funds. But
there is no escape from the fact that the LSGIs themselves must internalize
the urgency of the need to garner larger revenue.
2.26 Though there are provisions in the Kerala Panchayat Raj Act,
the Kerala Municipality Act and the Local Authorities Loans
Act for borrowing by LSGIs, these provisions are not fully
utilized. The Commission believes that as more and more re
sponsibilities get transferred to LSGIs, they have to supple
ment their own resources and grants-in-aid with borrowings,
mainly for schemes which would generate a revenue stream
that can help repayment, and for socially relevant schemes for
which local surcharges can help in repayment. The question of
borrowing and the safeguards required would be dealt with
in the second part of the Report.
2.27 Raising resources alone is not enough. It is equally important

to spend them prudently. For this, there has to be proper
financial management. This can be achieved to some extent
through improved managerial practices, enshrined in rules
regarding the assessment of taxes, the preparation of budgets
and the regulation of expenditure. There seems to be a tendency
on the part of LSGIs to overspend on items like inauguration
ceremonies and to be liberal with the distribution of funds.
These need to be curbed through mutually agreed guidelines.
The Commission would dwell on these issues in its second
report.
2.28 With so much of public funds being handled by the LSGIs, the need for
enforcing a degree of accountability upon them increases. Of course, since
they are close to the people there is some control from below, especially
through various
36
participatory mechanisms, which have already been adopted by the state
government. Nevertheless, financial accountability through certain fiscal
responsibility provisions as well as through improved maintenance of
accounts is very essential. Similarly the presentation of accounts to the
public to facilitate social audit also needs special attention. The current
procedure by which LSGI accounts are audited leaves much to be desired.
There is invariably considerable delay, and the quality of audit too is not
particularly good. It is a very routine form of audit and its contribution
towards system improvement or towards enabling penal action has been
very limited. These need to be totally revamped. The Commission is getting
a study done on the maintenance of accounts as well as on the procedures
of auditing by the Institute of Public Auditors of India and the second part
of the Report would carry detailed recommendations on the subject.
PROCEDURAL SAFEGUARDS
2.29 In order to ensure that the recommendations of the
Commission are properly implemented, certain procedural
safeguards have to be put in place. The most important
safeguard is to give legislative sanction to the proposed
devolution, by incorporating the share of taxes due to local
governments in the Kerala Panchayat Raj Act and the Kerala
Municipality Act. These devolved funds would be in three
categories: Plan Grant, Maintenance Grant and General
Purpose Grant. Each grant would have clear conditions for
use which should be issued in the form of Rules.
2.30 On the part of the state government it is very important to

ensure a smooth flow of funds. The Commission feels that
there should be automatic crediting of funds to LSGIs, but
these have to be combined with reasonable restrictions on
37
withdrawal, linking such withdrawals to actual expenditure. Similarly, the
funds have to be devolved according to fair and transparent formulae. This
is particularly true of the devolution of the maintenance grant, for which a
scientific assessment of the maintenance needs has to be made and the
results then used for an equitable inter se distribution of the funds.
2.31 At the local government level there is need for a maintenance

plan to be prepared. Also the present tendency to divert funds,
earmarked for some particular purpose, towards an altogether
different use, needs to be curbed, with penal provisions for
such diversion. There should be no diversion whatsoever from
Plan Grants or Maintenance Grants.
2.32 Simple financial devices can be tried out to improve

accountability. For example, by creating a single account to
which all the different streams of own income of the LSGIs
are credited, one can get a good idea of the actual income for
the year. Similarly by limiting the period of validity of cheques
to one financial year, the tendency to inflate expenditure
through the issue of pre-dated cheques can be contained. The
Commission recommends both these procedures, and would
be recommending several others of this sort.
2.33 It has been noted that there is a considerable time lag in

operationalising the recommendations of the State Finance
Commission even after they are accepted by the state
government. Several departments have to take follow up action,
and since amendment to Acts and Rules are required in many
cases, progress naturally tends to slow down. But this defeats
the very purpose of the Commission's recommendations. Since
Finance Commissions come only once in five years, any delay
in implementing the recommendations of the Commission
reduces their effectiveness. There is need therefore for quick
38
follow-up action on Finance Commission's recommendations, for which
an empowered Committee is necessary.
CERTAIN OTHER ISSUES
2.34 Unlike the Central Finance Commissions, there is greater need

for continuity in the case of State Finance Commissions. As
the local government system is evolving in the country, there
is greater need to link up with the recommendations of the
previous Finance Commissions. Another factor is that several
recommendations are slow to get implemented and in such
cases there would be a need for reiteration. This Commission
has gone into the recommendations of the First Finance
Commission in detail and has studied the status of their
implementation. Since it is felt that the implementation
without delay of many of those recommendations is of critical
importance, they are being reiterated in this Report.
2.35 The recently submitted report of the Eleventh Central Finance

Commission raises a number of important issues that call for
a reaction from our Commission. At least three issues are
pertinent here, two of which relate to principles, while the
third relates to practice. These issues and our response to each
of them are listed below seriatim. First, the CFC feels the need
for introducing Constitutional amendments in at least three
areas: for empowering Parliament to revise the rates of
Profession Tax without having to introduce a Constitutional
amendment on each occasion; for making it possible to bring
forward the dates of setting up of the State Finance
Commissions, so that these could be appropriately synchronised
with the date of institution of the CFC and their reports could
genuinely provide the basis for the recommendations of the
CFC; and for removing the provision which makes it obligatory
for the CFC to take the SFC reports as the basis for making
39
its own recommendations. We are in agreement with both the spirit and the
letter of the first suggestion. We are in agreement with the spirit, though not
the letter, of the second suggestion, since we feel that a carte blanche to
state governments to set up Finance Commissions when they like may be
open to misuse; our own phrasing of the required Constitutional
amendment (given in Chapter 11) attempts to overcome this potential
problem. On the third of the CFC's Constitutional suggestions however we
have differences of both letter and spirit. Though we understand the
circumstances (relating to delays or non-compliance with SFC
recommendations by state governments) which make the CFC wish to get
rid of this albatross round its neck of having to base its own
recommendations on those of the SFCs, abandoning this clause altogether
would in our view be potentially detrimental to the smooth functioning of
our federal system. Our suggestion on the required Constitutional
amendment attempts to meet the problem without going to such extremes.
2.36 The second issue of principle raised by the CFC is one where we have a
basic disagreement, and it relates to their refusal to take any explicit
cognisance of the devolution of Plan funds to LSGIs. (Indeed their non-
recognition of the worth of the Kerala experiment in democratic
decentralisation springs essentially from this fact). We are of the view that
Finance Commissions should have comprehensive jurisdiction covering
both plan and non-plan devolution. It follows from this that if a particular
State Finance Commission has interpreted its jurisdiction narrowly and
refrained from making any recommendations covering plan funds, then the
fact that the state government goes beyond these recommendations to
devolve substantial plan funds to LSGIs should be deserving of
appreciation rather than unconcern. The index of decentralisation cannot in
other words be confined to criteria that stress only conformity to SFC
recommendations (which
40
does not of course mean that such conformity should be given the go by);
they have to be more inclusive.
2.37 The third issue, one of practice, relates to the task given to us
by the CFC to suggest criteria for the inter se distribution of
Rs.65.92 crores for PRIs, and Rs.15.05 crores for ULBs,
which constitute Kerala's share of the total amount (Rs.1600
crores for PRIs and Rs.400 crores for ULBs) made available
by it as a special grant for the improvement in civic services.
Our recommendation is that these amounts should be
distributed on the basis of the population criterion. They
should not be counted as a part of plan funds (either in the
numerator or in the denominator) in determining the size of
the plan grant to LSGIs.
2.38 The present state of monitoring of local government finances

is very weak. The required data are not available and the quality
of data is also very bad. In a situation where substantial funds
are being devolved and spent at the level of LSGIs, it is
necessary to have regular feed back about the finances of local
governments. Much more is required than the mere collection
of data in a routine manner; they have to be appropriately
interpreted. For this a permanent system has to be developed
utilizing the experience of Finance and Local Self Government
Departments as also the expert services of the Statistics
Department.
41
CHAPTER 3
AN OVERVIEW OF LOCAL GOVERNMENT
FINANACES
3.1 INTRODUCTION
3.1.1 Kerala has 990 Village Panchayats, 152 Block Panchayats and
14 District Panchayats; in the urban areas it has 53 Municipalities
and 5 Corporations. Since the First SFC, the following charges
have taken places.
(1) The former Mattathur Panchayat has been converted into a

Municipality with effect from 14-11-1996.
(2) Thiruvananthapuram Corporation has been expanded with the
addition of Nemom, Thiruvallom, Kadakarapally, Ulloor and Attipra
Grama Panchayats.
(3) Two new Corporations viz. Kollam and Thrissur have been created by
adding the following Grama Panchayats.
Kollam Corporation Thrissur Corporation

1.Kilikollur Grama Panchayat 1. Ollukkara Grama Panchayat
2.Sakthikulangara Grama Panchayat 2. Vilvattom Grama Panchayat
3.Eravipuram Grama Panchayat 3. Ayyanthol Grama Panchayat
4.Vadakkevila Grama Panchayat 4. Koorakanchery Grama Panchayat
5. Ollur Grama Panchayat
6. Nadathara Grama Panchayat
(Part)
42
(4) Two municipalities namely Kalpetta and Koyilandi have
been expanded by including wards as shown below from
the adjoining panchayats.
Kalpetta - Ward 11 and 12 of Meppadi panchayat
Koyilandi - 3 wards in Arikkulam panchayat
(10) Five Municipalities viz., Neyyattinkara, Ponnani,

Thalasserry, Taliparamba and Kunnamkulam, have been
expanded by adding panchayats, as shown below:
Neyyattinkara Municipality Perumpazhuthoor Grama Panchayat

Ponnani Muncipality Ezhuvathuruthy Grama Panchayat
Taliparaba Municipality Anthoor Grama Panchayat
Kunnamkulam Municipality Arthat Grama Panchayat (full),
Porkulam grama Panchayat (part) and
Chovannur Grama Panchayat (part)
Thalassery Municipality Kodeyeri (Full)
(6) While 19 Village Panchayats have been merged with urban local bodies
20 new Village Panchayats have been created due to the bifurcation of
20 large Village Panchayats having a population of more than 50,000.
3.1.2 Except item No.l, all the changes were brought into effect in September
2000, with the general elections to LSGIs. With this reorganisation of
urban and rural local governments, the share of the urban population in the
State with reference to 1991 census has gone up to 16.87% from 14.22%.
Kerala has fairly big Village Panchayats, the biggest in the country. It has
relatively small towns. In fact, other than the five cities it has
43
only three Municipalities having a population of more than one lakh.
3.1.3 The distribution of population among the Village Panchayats is given in

Table 3.1
Table 3.1
Village Panchayats.
Range of population No.of Village Panchayats
Below 10,000 16
Between 10,000 and 20,000 287
Between 20,000 and 30,000 426
Between 30,000 and 40,000 181
Between 40,000 and 50,000 59
Above 50,000 21
3.1.4 The distribution of population among Municipalities is shown in Table

3.2.
Table 3.2
Municipalities
Range of population No.of Municipalities

Below 25,000 6
Between 25,000 and 40,000 18
Between 40,000 and 50,000 10
Between 50,000 and 60,000 6
Between 60,000 and 75,000 9
Between 75,000 and 1,00,000 1
Above 1,00,000 3
44
3.1.5 The population of the five Corporations may be seen in Table3.3.
Table 3.3.
Corporations
Thiruvananthapuram 7,04,375
Kollam 3,49,348
Kochi 5,64,589
Thrissur 2,99,042
Kozhikode 4,19,831
3.1.6 It would be interesting to compare the distribution of Village Panchayats

and ULBs according to area as well. As is evident from Table 3.4, there is
much similarity in size between Village Panchayats and ULBs.
Table 3.4
45
3.1.7 Kerala has a long sea-coast. 89 Village Panchayats, 13
Municipalities and 4 Corporations face the sea.
3.1.8 The Village Panchayats were graded in 1983 based on their

annual natural income i.e. income excluding all grants-in-aid,
contributions and debt heads. The grading at that point of
time may be seen in Table 3.5.
Table 3.5
Classification of Village Panchayats as per extant income

norms.
46
3.1.9 The grading using the same norms by the First SFC showed 979 Village
Panchayats as Special Grade and the remaining four Panchayats as First
Grade and Second Grade (two each) on the basis of the data on 987 Village
Panchayats available with them.
3.1.10 Similarly Municipal Councils were graded in 1993. The classification of

the Municipal Councils may be seen in Table 3.6.
47
Table 3.6.
Classification of Municipalities as per extant income norms.
Subsequently Mattannur was constituted as a Municipality in 1996 and

Perinthalmanna was upgraded to the status of a Grade II Municipality in
1999,
3.1.11 A few interesting statistical highlights regarding LSGIs are given below:
48
49
FINANCIAL POSITION OF LOCAL GOVERNMENTS
INCOME OF LOCAL GOVERNMENTS
3.2 For the purposes of this Report, income of local governments

is discussed in two parts. The first part covering the tradi
tional sources of income, which existed before 1994 and the
second part covering the grant-in-aid given by Government to
cover the expenditure on additional responsibilities transferred
to local governments through the legislative changes made in
1994.
TRADITIONAL SOURCES OF INCOME
3.3 These are available only to the Village Panchayats and ULBs.
They could be classified into the following categories.
(1) Tax Revenue
(2) Non-tax Revenue
(3) Grants-in-aid
(4) Loans
TAX REVENUE
3.4A Tax Revenue could be further divided into three.
(a) Own Taxes
(b) Assigned Taxes
(c) Shared Taxes
50
3.4A.1 OWN TAXES
These are taxes directly demanded and collected by Village Panchayats,

Municipalities and Corporations.
3.4A.1.1 (i) PROPERTY TAX. Property Tax constitutes the major item of revenue
for the Village Panchayats, Municipalities and Corporations, which
have a per capita collection of Rs.12.39, Rs.77.62 and Rs. 151.30
respectively. Though amendments have been brought about in the
Kerala Panchayat Raj Act and the Kerala Municipality Act in 1999 to
introduce plinth area based assessment of Property Tax for both
residential and non-residential buildings including commercial
buildings, rules and operational instructions have not yet been issued.
Therefore, Property Tax continues to be assessed as per the old system
based on rental value. In anticipation of switching over to the new
method of assessment Village Panchayats have not had any general
revision of Property Tax since 1993 and in the case of ULBs where the
general revision varies from one Municipality to another there has not
been any such revision after 1998. This has prevented the usual
periodic increase in Property Tax, which normally works out to be
25% at the time of each general revision.
3.4A.1.2 In the case of Village Panchayats, Property Tax is assessed

as per rules issued under Section 203 of the Kerala Panchayat Raj Act.
The rate is fixed as between 6 to 10% of the annual rental value in the
rules. (This has not been amended in consonance with the Act)
3.4A.1.3 The rates fixed as per the amended Section 233 of the
Kerala Municipality Act are given in Table 3.7.
51
The maximum rate is 20% for Town Panchayats, 25% for Municipalities
and Corporations.
3.4A.1.4 Property Tax constitutes 15 percent of the tax and non-tax revenues of
Village Panchayats; the figure for Municipalities is 21.39 and for
Corporations, it is 35.32. Property Tax has grown by 40.34% over a period
of six years in the case of Village Panchayats. The increase for
Municipalities and Corporations is 66,27% and 76.33% respectively.
3.4A.1.5 It is interesting to note that the LSGIs tend to levy lower tax even when
they have a range to choose from. The First SFC has given the details
relating to Village Panchayats and Municipalities, which can be seen in
Tables 3.8 and 3.9.
52
TABLE 3.8.
Rate of Building Tax in 1985 and 1995 in Village Panchayats.
Data from 21 Panchayats have not been received.
TABLE 3.9.
Rate of Property Tax in 1995 in Urban Local Governments.
53
3.4A.2 (ii) PROFESSION TAX. Profession Tax is levied from individuals and
companies by virtue of Section 204 of the Kerala Panchayat Raj
Act in the case of Village Panchayats and Section 245 of the
Kerala Municipality Act in the case of Municipalities and
Corporations. All companies and individuals transacting business
or engaged in a profession for at least 60 days in a half year are
bound to pay the tax at such rates as are fixed by the concerned
local government subject to the maximum rates prescribed by
Government. However, Article 276 (2) of the Indian Constitution
has fixed the maximum tax leviable per year at Rs.2500/-. Now the
11th Finance Commission has recommended that this provision be
taken out of the Constitution and be made part of a Central Act so
that its amendment could be easily made.
Based on the report of the First SFC, Profession Tax has been
revised in Village Panchayats. (TABLE 3.10) But in the case of
3.4A.2.1
ULBs the revision is yet to be carried out. The old rates are still
followed. (TABLE 3.11) However, Dearness Allowance is also
now included in the calculation of income for assessment of
Profession Tax in ULBs as suggested by First SFC.
TABLE 3.10
RATES OF PROFESSION TAX IN VILLAGE PANCHAYATS
54
TABLE 3.11
RATES OF PROFESSION TAX IN ULBs
55
3.4A.2.2 Profession Tax constitutes the second largest source of own
income for the Village Panchayats and has the 5th position for the
Urban Local Bodies. During the last six years the tax has grown by
101.6%, 110.49%, and 180.26% in \ Village Panchayats, Municipalities
and Corporations respectively. This has been mainly due to the steep
increase in salary due to the Pay Commission Recommendations and
due to the inclusion of DA in the calculation of income in ULBs.
3.4A.3 (iii) ENTERTAINMENT TAX: Entertainment Tax is the third

largest source of income for Village Panchayats and the second largest
source of income for Municipalities and Corporations. In fact in the
case of 21 Municipalities, Entertainment Tax constitutes the single
largest source of own revenue (Annexure 3.1)
3.4A.3.1 Entertainment Tax is an own tax of local governments in

Kerala and is collected according to the provisions of Section 3 of the
Local Authorities Entertainment Tax Act. Consequent on the
recommendations of the first SFC, Additional Tax on Entertainment
has been merged with Entertainment Tax and the Kerala Additional
Tax on Entertainment and Surcharge on Show Tax Act 1963 has been
repealed. Now, as per the unified Act, Entertainment Tax is fixed
between 24 to 48% of the price of admission.
3.4A.3.2 Though Entertainment Tax constitutes a significant local

government income it is to be noted that there are no theatres either
temporary or permanent in 331 Village Panchayats. Although
Entertainment Tax has grown by 48.98% in Village Panchayats,
54.95% in Municipalities, and 44.21% in Corporations over the last six
years, it is seen that gross collection of Entertainment Tax declined
56
both in Village Panchayats and Municipalities during the year 1998-99
in comparison with the previous year.
3.4A.3.3 There appears to be considerable 'escaped' tax in this item.

This issue was considered in detail by the First SEC which recalled that
both the earlier Municipal Finance Commissions viz., the Naha
Commission 1985 and the Mohandas Commission 1993 had
recommended that the collection of the Entertainment Tax be based on
gross seating capacity and recommended optional switchover to
taxation based on seating capacity. Analysis of figures given to SFC by
the LSGIs shows that the average collection in Village Panchayats is
equivalent to the average occupancy of 9.5%; the average occupancy
for Municipalities and Corporations works out to 33% and 35%
respectively. In spite of cinemas facing competition from Cable TV, it
is felt that the occupancy would have been much higher.
3.4A.3.4 Though Entertainment Tax Act has been amended and an

enabling provision introduced to tax on the basis of seating capacity the
rules have not yet been framed. Also certain issues like general
exemptions given to dramatic performances and circus shows,
provision for blanket exemptions from tax etc, need a relook in the
context of decentralisation.
3.4A.4 (iv) ADVERTISEMENT TAX. Advertisement Tax has relatively

good potential in a consumerist state like Kerala. But the realization of
revenue under this head has been quite low. It is seen that only 121
Village Panchayats are collecting Advertisement Tax. It constitutes
only 0.34.% of own revenue in Municipalities and 0.62% in
Corporations; in the case of Village Panchayats its share is a paltry
0.04%
Advertisement Tax is collected as per the provisions of Sec-
57
tion 209 of the Kerala Panchayat Raj Act and 271 of the Kerala
Municipality Act. The tax is collected based on bye-laws framed by
the Village Panchayats and ULBs. There are no rules issued by the
Government regarding minimum rates or the mode of collection.
3.4A.5 (v) SERVICE TAX: This tax exists only in Village Panchayats. In
ULBs it is an inbuilt component of Property Tax. It is provided for in
Section 200 of the Kerala Panchayat Raj Act as per which Government
is authorised to fix the minimum rates. The revised rules are under
examination by the Subject Committee of the Legislature and are
expected to be issued soon. The accepted recommendation of the First
SFC to have an independent Service Tax has not yet been
operationalised. The total collection of Service Tax in all the 976
Village Panchayats for which the data is available comes to Rs.1.89
crores or 0.7% of the own revenue.
3.4A.6 (vi) SHOW TAX INCLUDING SURCHARGE: This tax is levied as

per Section 200 of the Kerala Panchayat Raj Act and Section 269 of
the Kerala Municipality Act, which empower the local governments to
levy and collect Show Tax on every show which includes any
entertainment, exhibition, performance, amusement game, sport or
race, that is performed in their territory. The Surcharge was collected
as per the Additional Entertainment Act and Surcharge on Show Tax
Act 1963. Now with the repeal of this Act, Surcharge cannot be
realized. But steps to increase the existing rate by 25% have not yet
been taken.
The present rates of Show Tax are indicated in Table 3.12.
58
TABLE 3.12.
RATES OF SHOW TAX.
a) Panchayats
b) Municipalities
The rates for Village Panchayats have not yet been revised in accordance
with the recommendations of the First SFC.
The collection figures of Show Tax including surcharge for the Village
Panchayats and for the Municipalities and Corporations are shown in Table
3,13.
59
TABLE 3.13.
Receipts from Show Tax & Surcharge on Show Tax.
(Rs. in lakhs)
3.4A.7 (vii) CESS ON CONVERSION OF LAND USE: This is a cess

which can be levied by local governments for conversion of land use
from paddy field, marshy land, pond or water body into garden or
building site subject to the provisions of Kerala Land Utilisation
Order 1967 issued under the Essential Commodities Act. Since there
are severe restrictions on conversion of land use in Kerala, the
collection has been naturally low. In Village Panchayats it was only a
meagre sum of Rs.0.64 lakh in 1998-99; in the case of Municipalities
and Corporations it was just Rs.5.53 lakh during the same period.
3.4A.8 (viii)TAX ON ANIMALS, VESSELS AND VEHICLES: This is

applicable only to ULBs and is levied as per Section 260 of the
Kerala Municipality Act 1994 which allows the Municipal Council to
levy, based on its resolution, tax on domestic animals etc. This is a
very insignificant item and the total collection for Municipalities and
Corporations during 1998-99 amounted to Rs.2000/- only.
3.4A.9 (ix) TAX ON TIMBER: This again is a tax applicable only to

ULBs. It is collected as per Section 277 of the Kerala Mu-
nicipality Act which allows the Council to collect in the manner decided
by it a tax on timber brought into the Municipality at the rate of Rs.24/-
per tonne. This has also fallen into disuse and only Kozhikode
60
Corporation which has the traditional timber yard of Kallai within its
area is realizing this tax which fetched it a revenue of Rs.97,000/- during
19,98-99. This item of revenue has been declining year after year.
3.4A.10 (x) SURCHARGES: Both the Village Panchayats (as per Section 208
of the Kerala Panchayat Raj Act) and ULBs (as per Section 230 of the
Kerala Municipality Act) are empowered to levy Surcharges. In the case
of Village Panchayats up to 5% Surcharge can be levied on the Property
Tax subject to a maximum of two Surcharges and in the case of ULBs a
Surcharge not exceeding 10% can be levied on any Tax other than
Profession Tax. This Surcharge is to be levied for providing for any
specific services or amenity in the case of ULBs and for meeting any
extraordinary expenditure by way of implementation of a scheme, plan
or project in the case of Village Panchayats. This item has not been
tapped in any of the ULBs. For Village Panchayats the total collection
during 1998-99 was Rs.5.29 lakh, which works out to just 0.15 % of the
Property Tax collected during the same year. It is noteworthy that even
with specific quid pro quo, LSGIs have been reluctant to impose
Surcharges.
61
ASSIGNED TAXES
3.4B
These taxes are collected by the Government but the entire revenue is
assigned to local governments.
3.4B.1 (i) BASIC TAX. Kerala does not have a traditional system of land
revenue. Instead it has a general tax on land known as the Basic Tax.
The rates of Basic Tax are given in Table 3.14
TABLE 3.14.
3.4B.1.1 The entire collection is given to the rural LSGIs after deducting a
collection charge of 3%. 3/8th of the Basic Tax is given to the Village
Panchayats, 3/10th to the Block Panchayats, and l/5th to the District
Panchayats. The remaining l/8th is credited to the Rural Pool. Except
in the case of Rural Pool, the distribution is as per the area of the
concerned Panchayat. Though Government had accepted the
recommendation of the First SFC to give a share of Basic Tax to the
ULBs this has not been operationalised so far.
62
3.4B.1.2 The Basic Tax collected and distributed during the last five years is
shown in Table 3.15.
TABLE 3.15.
DETAILS OF BASIC TAX GRANT
(Rs. in crores)
* Includes three instalments of old arrears distributed at Rs.8.41 Crore per

instalment
3.4B.2 (ii) SURCHARGE ON STAMP DUTY: Under the provisions of the

Kerala Stamp Act 1959, for every transaction relating to land, Stamp
Duty and Registration fee are levied. As per Section 206 of the Kerala
Panchayat Raj Act and Section 270 of the Kerala Municipality Act,
Village Panchayats and ULBs are entitled to levy 5% of the amount of
the value of the property transacted. But in practice only the pre 1994
rates of Surcharge i.e. 4% for Village Panchayats and Municipalities
and 5% for Corporations is levied.
3.4B.2.1 The earlier and the present rates are given in Table 3.16.
63
TABLE 3.16.
Rate of Stamp Duty and Surcharge under the

1960 and 1994 Acts
The above rates were introduced from 1-4-1971
* Registration fee is collected by State Government and is not shared with

Local Bodies.
** 5% is the maximum rate permitted. At the time of the Report the rate
collected remains at 4%
3.4B.2.2 In accordance with the recommendations of the First SFC,

Government have introduced a system whereby the receipts are
shown in the Budget under the Head of Account "0030-Stamps and
Registration - 02 Stamps non-judicial 901 - Deduct payment to Local
Bodies of net proceeds of Duty on Transfer of Properties" which
enables direct payments to local governments of the amounts
collected during the financial year. The amount collected and distrib-
uted during the last five years is shown in Table 3.17.
64
TABLE 3.17.
DISTRIBUTION OF SURCHARGE ON STAMP DUTY
(Rs. in lakhs)
NOTE:- There are time lags between collection and distribution.
3.4B.2.3 As per G.O. (Ms) 118/94/LAD dated 02.08.1994 the Inspector

General of Registration is empowered to deduct dues to Kerala Water
Authority from Village Panchayats, Municipalities and Corporations
from the Surcharge on
65
Stamp Duty and pay them directly to the Kerala Water Authority
(KWA). The amounts thus deducted and given to the Water Authority
in the last five years are indicated in Table 3.18.
TABLE 3.18
STAMP DUTY DEDUCTED AND PAID TO KWA
(Rupees in lakhs}
Amount deducted
3.4B.2.4 Stamp Duty constitutes an important source of revenue of local

governments and it constitutes 13.71% of the total Own revenue of
Village Panchayats, 9.37% of Municipalities and 17.5% of
Corporations during 1998-1999. The proceeds are distributed to ULBs
according to the place of registration of the transaction and to Village
Panchayats on population basis (other than the 25% credited to the
Rural Pool).
66
3.4C SHARED TAX
3.4C.1 MOTOR VEHICLE TAX. This is the only shared tax and it
is called Vehicle Tax Compensation (VTC) and is given to local
governments as per Section 19 of the Motor Vehicles Taxation Act 1976.
3.4C.1.1 20% of the net collection of Motor Vehicles Tax is distributed among
Village Panchayats and ULBs as per road length according to the formula
based in unit length of roads given in the Table 3.19.
TABLE 3.19
CALCULATION OF ROAD UNITS FOR DISTRIBUTION OF VTC
Actual collection of Motor Vehicles Tax and the actual distribution during
the last five years can be seen in Table 3.20.
67
TABLE 3.20
COLLECTION AND DISTRIBUTION OF MVT TO LSGIs
(Rs. in lakhs)
Year Gross Net Amount Percentage Collection

Collection Collection distributed
1995-96 21694 21043 2500 11.88
1996-97 22109 21445 4348 20.28
1997-98 27425 26602 5148 19.35
1998-99 29261 28383 4990 17.58
1999-2000 37120 36006 7885 21.90
3.4C.1.2 Over the years there used to be substantial arrears in the payment of Basic
Tax, Surcharge on Stamp Duty and Vehicles Tax Compensation. Based on
the recommendations of the First SFC, Government released Rs.150 crores
in three instalments as a one-time settlement of dues under Basic Tax,
Surcharge on Stamp Duty and VTC.
NON-TAX REVENUE
3.5 Non-tax revenue of Village Panchayats, Municipalities and Corporations
could be classified as follows:
(1) Licence fee
(2) Gate fee
(3) Rent from Property
(4) Income from Property other than rent,
68
(5) Permit fee
(6) Registration fee
(7) Service/User charge
(8) Other sources
3.5.1 LICENCE FEE : This constitutes the most important source

of non-tax revenue. The following are the important items for which
licence fees are collected by local governments.
(i) Trade Licences
(ii) Licences under prevention of Food Adulteration Act.
(iii) Licences under the Kerala Cinemas Regulation Act.
(iv)Licencing of Private Slaughter House.
(v) Licencing of Private Markets
(vi) Licences under the Kerala Places of Public Resorts Act
(vii) Licencing of Private Parking and Halting Places
(viii) Licencing of Private Burial and Burning Grounds
(ix) Licencing of Technical Experts
(x) Licencing of Domestic Animals
(xi) Licencing of Animal Stalls kept for commercial pur poses.
(xii) Licencing of Special Trades like Butchers, Fishmon gers,
Poulterers, Commission Agents and Brokers.
69
3.5.2 GATE FEES : These are fees, which are normally farmed out
by auction to the highest bidder who is then given the right
to regulate entry based on certain fees. The major sources of
gate fees are -
(1) Public Market
(2) Public Parking and Halting places
(3) Public Slaughter Houses
3.5.3 INCOME FROM PROPERTY: Rent. This is an important item

of non-tax revenue for urban local bodies and urbanized Village
Panchayats. Rents could be classified based on the type of
property.
1. Rent from buildings
2. Rent from lands
3. Rent from cloak rooms and comfort stations
3.5.4 INCOME FROM PROPERTY OTHER THAN RENT: This

can be classified into three.
(i) Proceeds from sale of right to collect river sand,
(ii) Proceeds from sale of right to fish,
(iii) Proceeds from sale of usufructs.
3.5.5 PERMIT FEES: Permit fees are of two kinds.
(1) Fee for Building permits
70
(2) Fee for permits for the construction, establishment or installation
of factories, workshops or work places where electricity is used.
3.5.6 REGISTRATION FEES: This can be grouped as follows:
1. Registration of Hospital and Para medical institutions.
2. Registration of Tutorials.
3. Registration of Births and Deaths.
4. Registration of Contractors (only in ULBs)
5. Registration of lodgings (only in Malabar area - un

der the Madras Public Health Act).
3.5.7 SERVICE/USER CHARGES: These relate to charges collected

for use of utilities and amenities provided by the LSGIs.
3.5.8 INCOME FROM FERRIES: As per the Kerala Panchayat Raj

Act and the Kerala Municipality Act and as per the various
Ferries Acts, function of providing ferries has been transferred
to the Village Panchayats and ULBs. This income could be
either by auctioning of the right to ply ferries or by charging
from users.
3.5.9 FINES AND PENALTIES: These are realized by the LSGIs

when there is a contravention of regulations or there are be
lated payments. A study done in Municipalities shows that
there is serious laxity in the enforcement of penal provisions
[Annexure 3.2]
3.5.10 SUNDRY ITEMS: These miscellaneous sources of revenue

could be listed as follows:
71
(1) Proceeds from auctioning of meat stalls (done in a
few Village Panchayats only).
(2) Interest on deposits.
(3) Endowments.
(4) Return on investments like shares.
(5) Contributions/donations.
(6) Hire charges of vehicles/machinery.
(7) Income from cattle pounds.
(8) Income from Libraries.
(9) Sale of Forms.
(10) Sale of unserviceable articles and fallen trees.
(11) Other items which cannot be classified.
3.5.10.1 The details regarding the rates for each of the important sources of non-
tax revenue are given in the Annexures in Chapter IX relating to the
existing and suggested rates.
The percentage share of important items of non-tax revenue is given in

Table 3.21.
72
TABLE 3.21.
SHARE OF IMPORTANT ITEMS OF NON-TAX REVENUE IN TOTAL

NON-TAX REVENUE.
3.5.10.2 Diagramatic depiction of shares of major sources of income in respect of

Village Panchayats, Municipalities and Corporations can be seen in figures
3.1 to 3.6.
73
74
75
77
78
GRANT-IN-AID FROM GOVERNMENT
3.6 In the case of Village Panchayats, now there are only two Non-Plan
Grants-in-aid from Government viz., Rural Pool and Level Crossing grant-
in-aid. Rural Pool has been created by pooling the 14 specific purpose
grants-in-aid, which were in vogue earlier, 25% of the surcharge on Stamp
Duty and l/8th of the Basic Tax. The amounts released to Village
Panchayats after the constitution of Rural Pool are shown in Table 3.22.
TABLE 3.22.
GRANTS-IN-AID FROM THE RURAL POOL
(Rupees in Crores.)
3.6.2 The grant for Level Crossing is given only to five Village Panchayats to
meet the additional burden on them due to existence of manned Level
Crossings whose establishment costs need to be shared with the Railways.
3.6.3 In the case of ULBs there are two grants - General Purpose
Grant and Specific Purpose Grant. General Purpose Grant is a per capita
grant calculated as follows:
79
It is governed by the General Purpose Grant-in-aid Rules 1962, The
amounts released under this head during the last five years are shown in
Table 3.23.
TABLE 3.23
DISTRIBUTION OF GENERAL PURPOSE GRANTS
(Rupees in lakhs)
1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000
Municipalities 71.31 71.31 64.49 64.42 64.51 64.48
Corporations 30.17 30.17 30.17 30.17 30.17 30.17
3.6.4 Specific Purpose Grant is given for identified purposes like

running of Maternity and Child Welfare Centres, Nursery Schools, Poor
Homes, and carrying out Town Planning and Town Survey operations,
And Mosquito operations etc. This is governed by the Specific Purpose
Grant-in-aid Rules. Actually it is a commitment by Government to share a
portion of the running expenses of the selected services mentioned above,
at the rate of half for Corporations and Major Municipalities and 2/3rd for
Minor Municipalities. Actually the amount provided for specific purpose
grant is far less than what is required as per rules. Originally the Grant-in-
aid was given only with the prior approval of the Government. But during
the last few years it is given more or less as a general-purpose grant.
The amounts released to Municipalities and Corporations during the last

five years are shown in Table 3.24.
80
TABLE 3.24.
DISTRIBUTION OF SPECIFIC PURPOSE GRANT-IN-AID
(Rupees in lakhs)
3.6.5 In addition to the above mentioned grants, there are two kinds
of special grants given to both Village Panchayats and ULBs. 96 Primary
Schools and 21 High Schools are run by Village Panchayats and 3 Primary
Schools and 2 High Schools are run by ULBs. The Education Department
gives a grant-in-aid for running these schools, which are treated as Aided
Schools as per the Kerala Education Rules.
The amounts given during the last three years are summarized in the Table
3.25.
TABLE 3.25.
Grant-in-aid given to local governments for running Schools
(Rs. in lakhs)
Year Village Panchayat Municipality Corporation
1996-97 1.36 NIL NIL
1997-98 2.18 NIL 0.63
1998-99 4.16 NIL 0.23
81
Similarly, libraries run by Village Panchayats and affiliated to the Kerala
Grandhasala Sangham, which gives grant-in-aid as per the size of the library.
The grant –in-aid given during the last three years are noted in Table
TABLE 3.26.
Grant-in-aid given to local governments for running Libraries
Year Village Panachayat Municipality Corporation
96-97 5.29 1.94 0.52
97-98 14.99 1.92 0.58
98-99 4.95 2.34 0.73
LOANS
3.7 In the case of Village Panchayats, loans can be taken with prior
Government permission from the Kerala State Rural Development
Board (RDB) or Commercial Banks. With the acceptance of the
recommendation of the First SFC, Government decided to
restructure RDB. Now it does not give loans and is engaged in
completing the construction projects taken up earlier. However, the
Village Panchayats owe Rs.7.98 crores to RDB by way of
overdues. In addition in the last two years Village Panchayats have
been taking Housing Loan from HUDCO and Co-operative Bank,
jointly with the Block and District Panchayats. LSGIs in Kollam
have borrowed Rs.80 crores from HUDCO in 2000-2001.
Similarly LSGIs in Thiruvananthapuram have availed themselves
of Rs.89.62 crores from the State Co-operative Bank. These loans
are for
82
house construction for families Below the Poverty Line. They are
guaranteed by the Government and repayment of interest would be from
future Plan funds and repayment of the principal amount is taken care of
by fixed deposits which would multiply over a period to the amount
needed for repayment. ULBs have also taken these special loans.
In the case of urban local governments the major sources of loans are the
3.7.2 Kerala Urban Development Finance Corporation (KUDFC), HUDCO and
Commercial Banks. In addition there are loans from Government,
Institution-wise distribution of loans taken by ULBs during the last five
years is given in Table 3.27.
TABLE 3.27.
LOANS AVAILED BY ULBs
Loan released by KUDFC
(Rupees in lakhs)
Loan released by HUDCO
83
Loan Released by Commercial Banks
FUNDS NOT USABLE FOR ITS ROUTINE

FUNCTIONING BY LOCAL GOVERNMENTS
3.8 Both Village Panchayats and Municipalities have certain items of funds,
which cannot be used by them and are kept normally in the Debt Heads.
The major items are, Earnest money Deposit, the Securities, Library
Cess, Taxes deducted at source, contributions to Provident and Pension
funds (for ULBs), Advances etc.
GOVERNMENT SRANTS-IN-AID FOR

TRANSFERRED RESPONSIBILITIES
3.9 New forms of grant-in-aid are being given to all local governments
since 1995 to discharge the new responsibilities transferred to them.
These can be grouped into two.
1. General Plan grant-in-aid for local development projects
2. Specific-purpose grant-in-aid for transferred responsibilities

Plan and Non-Plan.
84
3.9.1 GENERAL PLAN GRANTS-IN-AID. Government have been giving
Plan Grants-in-aid for preparing local level development schemes. This is
a practically untied grant, with the specification that at least 40% of the
grant-in-aid given to Panchayat Raj Institutions should be spent on the
productive sector and not more than 30% can be spent on infrastructure; in
the case of ULBs, the figures are 30% and 40% respectively. (In addition,
for taking up Housing and Water supply Schemes up to 10% can be
diverted from the productive sector by any LSGI). The amounts given to
various LSGIs during the last four years are shown in Table 3.28.
TABLE 3.28.
PLAN GRANT-IN-AID DEVOLVED TO LSGIs
(Rupees in crores)
* In 1996-97 Plan Grants were called untied Funds
Since 1998-99 the grant-in-aid is devolved as per the formula given in

table 3.29.
85
TABLE 3.29.
FORMULA FOR DEVOLUTION OF PLAN GRANTS
Weightage (Percentage)
3.9.2 SPECIFIC PURPOSE GRANTS-IN-AID FOR

TRANSFERRED RESPONSIBILITIES: Kerala has followed a unique
system of earmarking funds to various LSGIs as part of the budgetary
process by introducing a minor Head '191' along with various Heads of
Account operated by different departments. Thus a local government
entitlement has been created. Once the minor Head 191 is shown, the funds
are
86
non-divertible by the departments for other purposes. These funds could be
broadly classified as follows: i Grant-in-aid for implementing
transferred Plan schemes both State sponsored and Centrally sponsored.
ii. Grant-in-aid for implementing specific programmes under non-plan,

particularly welfare pensions.
iii. Non-plan grant-in-aid for running/maintaining institutions/offices

transferred to local governments.
iv. Establishment grants for Block Panchayats and District Panchayats.
3.10 GRANTS IN- AID FOR STATE AND CENTRALLY

SPONSERED PLAN SCHEMES
The State sponsored and Centrally sponsored schemes transferred to

various local governments as provided for in the Budget for the year 2000-
2001 are summarized in Annexure - 3.3.
3.11 GRANT-IN-AID FOR SPECIFIC PROGRAMMES UNDER NON-

PLAN
The details of non-plan grant-in-aid for specific programmes as given in

the Budget for the year 2000-2001 are summarized in Annexure - 3.4.
NON-PLAN GRANT-IN-AID FOR RUNNING/MAINTAINIG

3.12 THE OFFICERS/INSTITUTIONS TRANSFERRED TO LOCAL
GOVERNMENTS
For the assets and institutions transferred to local governments,
Government meets the salary component as well as the opera-
87
tional expenses like supply of medicines in hospitals. However, office
expenses and maintenance costs are given as non-plan grants to LSGIs.
The comparative figures for the last four years for Health, Education and
Public Works Departments who have transferred most of their assets to
LSGIs can be seen in Table 3.30.
TABLE 3.30
NON-PLAN GRANT-IN-AID TO LSGIs
(Rupees in lakhs]
Non-Plan Grant-in-aid for all local

governments together
/. Health 2.27 2.59 2.69 3.10 2,78
2. General 367.00 481.00 484.00 484.00 536.(

Education
3.PWD 1451.9 1597.1 1756.6 1932.1 2317.9

7 7 9 6 9
This clearly shows that the funds given to LSGIs are inadequate vis a-vis
the maintenance requirements. This underlines the need to rationalize
allocation of funds for establishment purposes and mainte nance purposes
in respect of the institutions and offices transfers to local governments.
NON-PLAN ESTABLISHMENT GRANT FOR BLOCK AN!

DISTRICT PANCHAYATS.
For meeting the establishment costs including salary and related expenses
of staff from the Panchayat Department deployed specifically to the
88
Block and District Panchayats, honorarium and travel
89
expenses of elected members and other office expenses, a grant-in-aid is
paid to them. This grant-in-aid, which was fixed in 1996, has not been
changed since then, even though the salaries of staff have increased
considerably after the 1997 Pay Revision and the honorarium of elected
members was enhanced based on the recommendation of the Committee on
Decentralisation of Powers. As of now each District Panchayat gets an
annual grant of Rs. 16.43 lakh and each Block Panchayat gets Rs. 4.01
lakh. Figures collected from District Panchayats and Block Panchayats
show that this provision is highly inadequate resulting in diversion of other
grants-in-aid for meeting establishment cost. (Table 3.31).
TABLE 3.31
RECEIPT AND EXPENDITURE OF THE ESTABLISHMENT
GRANTS FOR DISTRICT PANCHAYATS/BLOCK PANCHAYATS
District Panchayat
Block Panchayat
90
EXPENDITURE OF LOCAL
GOVERNMENTS
EXPENDITURE FROM TRADITIONAL SOURCES
3.14 Expenditure from the traditional sources of revenue can be

classified into three.
1. Establishment costs
2. Expenditure on obligatory duties.
3. Expenditure on development works.
The expenditure on these three categories and their sub-categories over

the last six years for Village Panchayats, Municipalities and Corporations
is summarized in Table 3.32.
TABLE 3.32
EXPENDITURE PATTERNS IN VILLAGE PANCHAYATS AND
ULBs.
91
92
93
3.15
94
3.5 Relating to Village Panchayat

campaign) of Village Panchayats 1993-94 to 1998-99
3.5.2 Abstract of Total receipts of Village Panchayats under

own revenue
3.5.3 Percentage share of taxes to total Direct Tax Revenue
3.5.4 Percentage increase of taxes over previous year
3.5.5 Percentage increase of own revenue over previous years
3.5.6 Share of taxes in total own revenue
3.5.7 Share of each item under own revenue
3.5.8 Total expenditure of Village Panchayats for the years

1993-94 to 1998-99 (excluding plan grant-in-aid for
peoples' plan campaign)
3.5.9 Per capita expenditure of Village Panchayats
3.6 Relating to Municipalities

campaign) of Municipalities 1993-94 to 1998-99
3.6.2 Abstract of Total receipts of Municipalities under own

revenue
3.6.3 Percentage share of taxes to total own tax revenue
3.6.5 Percentage increase of own revenue over previous years
95
3.6.8 Total Receipts and Expenditure of Municipalities
3.6.9 Per Capita Expenditure of Municipalities
3.6.10 Total Receipts and Expenditure of Municipalities at;

glance
3.7 Relating to Municipal Corporations
3.7.1 Total receipts (excluding grant-in-aid for peoples' phi

campaign of Municipal Corporations 1993-94 to 1991
99
3.7.2 Abstract of Total receipts of Municipal Corporation

under own revenue
3.7.3 Percentage share of taxes to total own tax revenue
3.7.5 Percentage increase of own revenue over previous yeai
3.7.8 Total Receipts and Expenditure of Municipi

Corporations
3.7.9 Per Capita Expenditure of Municipal Corporations
3.7.10 Total Receipts and Expenditure of Municipi

Corporations at a glance
96
3.15.1 For meeting the establishment costs as well as performing the obligatory
duties the Village Panchayats and ULBs can use tax revenue other than
shared tax, non-tax revenue, specific purpose and general purpose grants
(in the case of ULBs) and Rural Pool (in the case of Village Panchayats).
The degree of self sufficiency of various LSGIs can be gauged from Table
3.33.
97
3.15.2 General picture of self sufficiency for establishment as well as obligatory
functions as revealed by expenditure percentage for various categories of
establishment and obligatory functions is given in Table 3.34
TABLE 3.34
SELF-SUFFICIENCY OF LSGIs
3.15.3 The comparative trend of increase in revenue in relation to increase of

expenditure on establishment as well as obligatory duties over the last six
years is given in figures 3.7, 3.8 and 3.9 for Village Panchayats,
Municipalities and Corporations respectively.
98
99
MUNICIPALITIES
Own Revenue
Expenditure
• Own Revenue
• Expenditure
100
101
CHAPTER 4
THE DECENTRALISATION PROCESS - A SUMMARY
4.1 Consequent on the 73rd and 74th Amendments to the

Constitution, Kerala passed two new legislations in 1994, viz.,
The Kerala Panchayat Raj Act 1994 and the Kerala Municipality
Act 1994. They listed out the functional responsibilities of the
three tier Panchayat Raj Institutions and the Urban Local Bodies
in the Schedules of the Acts. However, most of the subjects listed
were quite general in nature and it cannot be said that there was
an attempt to consciously and clearly demarcate the functional
domains of LSGIs in the sense of sharing developmental
governance responsibilities with the State and Central
Governments.
4.2 However, this deficiency was covered to some extent through

the Government Order No.GO(P) 189/95/LAD issued in
September 1995 which provided for the transfer of a large
number of institutions and staff to the different LSGIs. This
order indicated the policy framework for defining the functional
areas to be assigned to local governments. Also the order brought
out the key feature of decentralisation in the State i.e., the
strengthening of Village Panchayats and the Urban Local Bodies.
Only a limited number of institutions and staff were transferred
to the Block Panchayats and District Panchayats. The details of
the transfer are summarized in Annexure 4.1
4.3 But due to want of effective operational instructions and due to

lack of.sufficient resources, the LSGIs could not realize their entitlements to
any significant level.
102
The budget presented in 1996 February, can be considered as the next
important milestone in the decentralisation process. It: expanded the
concept of untied funds. It was in 1990 that foi the first time a small
amount was set apart for Village Panchayafc as a plan scheme for which
they could draw up their own schemes according to local priorities. This
scheme, which had an allotmen; of Rs. 28.58 crores in 1995-96, was stepped
up to Rs.155.71 crores and extended to all LSGIs, both urban and rural. The
budget enshrined two important procedural innovations. First the idea of a
separate budget document for local governments was brought into effect. To
this was added the innovation oi giving the specific Head of Account "191"
which indicated gram to LSGIs and which allowed Heads of Department to
transfei credit the amount only to the LSGIs. Any other way of drawing the
grants was prevented by this procedural device. Thus th; local governments
got legislative approval for their resoura allocation and a separate sub
system of grants in aid, which couli flow only to LSGIs, was created. The
second innovation relate to bringing certain departmental Plan schemes into
the sped system and they were the forerunners of the so called "State
sponsored schemes" which still constitute about a tenth of Ph grant-in-aid to
LSGIs. Such schemes are implemented by LSGIs according to the
guidelines issued by the State or Centra Governments.
4.4 The most important landmark in the decentralisation process of the State
is of course the momentous decision taken in July 199f to earmark 35 to
40% of the Plan resources to LSGIs and th launch of the People's Plan
Campaign in August 1996 to provid a framework for decentralisation, flesh
it out and infuse life into it.
103
4.5 Thus considerable resources were handed down to the LSGIs through this
policy decision of the Government and proper utilisation of the resources was
attempted through the mechanics of People's Plan Campaign. The funds
transferred to LSGIs as part of this government decision are indicated in
Table 4.1
TABLE 4.1
TOTAL PLAN GRANTS TO LSGIs
Year State Village Block District Munici- Corpora- Total Percent

Plan Panchayat Panchayat Panchayat pality tion of Plan
Size Size
(inlakhs)
1997- 285500 50686.42 38715.98 18885.64 1525.1 1384.58 111197.7 38.96

98
1998- 310000 61460.7 23245.15 17061.74 10174.08 5848.23 117799 38.00

99
1999- 3251010 63925.3 20049.28 16973 8953 4435.72 114335 35.10

2000
2000- 353500 63637.38 18459.61 16667.47 9802.56 5673.79 114240.8 32.32

2001
4.6 The availability of resources enabled the local governments to realize their
functional responsibilities by formulating and implementing developmental projects
in respect of functions assigned to them.
4.7 PEOPLE'S PLAN CAMPAIGN: Decentralised local level planning has been used
as the engine for harnessing public action in favour of decentralisation. In order to
shake the system and force the process, a campaign approach has been followed.
This campaign has succeeded in setting the agenda for decentralised development.
104
4.8 The People's Plan Campaign has succeeded in providing
concrete methodology for participatory plan for local lei development.
The salient features of this methodology described below, stage by stage.
4.8.1 Needs identification: Through a meeting of Grama Sabi Ward Sabha

(in the case of urban local bodies), the felt ne« of the community are
identified. There is a period of environs creation to mobilise maximum
participation in the Srama/Wn Sabhas. Statistics reveal that about 10
to!2 percent of population has participated in the 6rama/Ward Sabhas
Kelt part of the People's Planning Campaign. The Grama/Ward sab
meetings are held in a semistructured manner with pier sessions and sub-
group sessions dealing with sped developmental issues. The decisions
are minuted and forwarc to the Village Panchayats and ULBs.
4.8.2 Situation analysis. Based on the demands emanating ft

the Grama/Ward Sabha and based on developmental data, primary and
secondary, exhaustive Development Reports been prepared and printed
in the case of every IS&I in State. These reports describe the status in
each sector development with reference to available data, analyze
problems and potential and point out broad strategies for ft
development.
4.8.3 Strategy setting: Based on the Grama/Ward Sabha feed I and the
Development Report, a one day seminar is held at I local government
level in which participation of experts, elect members, representatives
nominated by 6rama/Ward Sato and practitioners from among the
public is ensured. Thi Development Seminars decide the broad
priorities andf general thrust of developmental projects to be taken
particular year.
105
4.8.4 Projectisation: The ideas thrown up by the above three
stages are translated into projects by Task Forces at the LSGI
level. For each LSGI there are about 12 Task Forces dealing
with different sectors of development. Each Task Force is
headed by an elected member and is convened by the concerned
government official. The Vice Chairman of the Task Force is
normally a non-government expert in the sector. The projects
are prepared in the suggested format outlining the objectives,
explaining the benefits, describing the funding and detailing the
mode of execution and the phasing of the project.
4.8.5 Plan finalisation: From among the projects, based on the

allocation communicated, the concerned LSGI finalizes its plan
for the year and this plan is submitted to the District Planning
Committee (DPC) through the Expert Committees.
4.8.6 Plan vetting: The Expert Committees at the Block/Municipal

and District level vet the projects for their technical viability
and consonance with the government guidelines on planning and
costing and forward them to the DPC,
4.8.7 Plan approval: The DPC gives the formal approval to the plans
after which the LSGI can start implementation. It is to be
noted that the DPC cannot change the priority of an LSGI. It
can only ensure that government guidelines are followed.
Administrative approval for implementation is given project-wise
by the concerned LSGI. Every local government has unlimited
powers of Administrative Sanction subject only to the limits of
its financial resources.
4.8.7.1 The most noteworthy feature of the decentralised planning process is the
freedom to plan and prepare projects according to
106
local priorities using the Plan grant-in-aid, which is devolved the LSGIs in a
practically untied form. The only restriction ( the LSGIs is that they have to
spend at least 40% (30% in tl case of ULBs) on the productive sector -
meaning agricultui and allied activities, industries, self-employment etc., and
nc more than 30% (40% in the case of ULBs) on infrastructure.] general
stipulation that 10% of the funds have to be spent 01 women's development
projects is also there. The Specia Component Plan/Tribal Sub-Plan
component for each LSGIii indicated clearly. Also upper-limits of subsidy for
beneficial oriented schemes has been fixed by Government after consultation
with the LSGIs. Thus one third of development schemes in tit State are
conceptualized, formulated and implemented by LSGIs, The physical
achievements of LSGIs in the three years starting from 1997-1998 are
captured in Annexures 4.2.1, 4.2.2 and 4.2.3.
4.8.7.2 Another important feature of the People's Planning Campaign has been the
effective capacity building efforts taken up. In the( first year a cascading
system of training was introduced to enable quick outreach to the cutting
edge level. About 600 Key Resource Persons (KRPs) were identified at the
State level both frou Government and outside, representing various
disciplines. Ai the district level about 10,000 District Resource Persons
(DRPs) and at the local government level about 100,000 Local Resource
Persons (LRPs) were selected. All the DRPs and LRPs and a good number of
KRPs were selected by the LSGIs themselves from government officials,
professionals and activists. Thel massive training programme ensured that at
the level of a Village Panchayat or ULB, there would be nearly 100 persons
sensitized on the objectives and methodology of decentralised planning,
These Resource Persons have taken an active part in spearheading the
campaign as well as intervening in critical stages of the Plan preparation and
implementation cycle.
107
4.8.7.3 In order to fortify and simplify the training system from the
second year, handbooks on various development sectors were
prepared by expert panels and circulated widely among the LSGIs
and Resource persons. These handbooks outline the problems
and possibilities of the sector and contain model projects, which
can be adapted according to local needs. Thirteen such sector-
specific handbooks have been prepared so far; in addition twelve
handbooks have been prepared on topics dealing with operational
procedure.
4.8.7.4 Now the focus is on strengthening the capacity of the Task Forces
on various sectors. Institutions like Medical College, Agricultural
University, Centre for Water Resource Development and
Management (CWRDM) etc., are being utilised to provide high
quality technical training to members of Task Forces in their
respective disciplines. In addition, LSGIs, which have evolved
successful models, are now utilised to train sister LSGIs by
exposing them to the models evolved.
PROCEDURAL REFORMS
4.8.8
With the objective of promoting people's participation and introducing

transparent and norm - based decision making to reduce prosibilities of
malfeasance, certain basic procedural reforms have been introduced. Three
such reforms deserve special mention.
(1) EXPERT COMMITTEES
4.8.8.1 A major innovation is the setting up of Expert Committees. Originally a
Volunteer Technical Corps (VTC) was set up as part of the People's Planning
Campaign at Block and District levels.
108
This consisted of experts in various fields who responded to tl call of
Government to render voluntary professional services i the cause of local
level development. These VTCs were converts into Block/Municipal Level
Expert Committees (BLEC/MLEC and District Level Expert Committees
(DLEC) by adding to it membership professionals from Government. These
Exper Committees are given a three-fold role. Firstly they are expectei to
provide technical advice to the LSGIs whenever requested. I: this respect
they act as Technical Resource Groups for LSGIs t tap. Secondly they are
empowered to technically vet the project of the LSGIs before they are sent
to the DPCs for approva Here the Expert Committees function as the
Technical Advisor Groups of the DPC. However these Expert Committees
are m empowered to change the priority of an LSGI; they can on! insist on
following of technical standards, adherence t mandatory Government
instructions and proper costing an phasing of various programmes. The
third function of the Exper Committees is to give Technical Sanction for
works, which requir such approval. In this role they function as the
Technical Suppor Group of the LSGIs. For technical sanction, sub groups
consists of at least three experts are formed in which as far as possibl the
Government professional is the Convenor and the non government
professional is the Chairperson. This system c technical approval is faster,
cheaper and more transparent, I; the case of Village Panchayats without
engineers, the engine? members of these Expert Committees are allowed to
perforr the role of the engineers on payment of a small fee not exceedini
2.5% of the estimate of a work for the full range of functions,
(2) SELECTION OF BENEFICIARIES
4.8.8.2 Selection of beneficiaries for various individual and grou: oriented

development programmes, particularly relating to ant
109
poverty and minimum needs programmes for people below poverty line is an
important activity of LSGIs. Without infringing on the basic autonomy of
LSGIs, the Government have prescribed a due process for beneficiary
selection. The key elements of this process are fixing of definite and
transparent eligibility criteria for each scheme as well as prioritisation criteria
among those eligible for such scheme. The prioritisation criteria have to be
given weightages in the form of points or marks. These criteria have to be
published and application forms invited after widespread publicity. In fact,
full-page advertisements are issued by Government alerting the people about
impending beneficiary selection and exhorting them to approach the LSGIs.
Each application received has to be acknowledged. Thereafter it has to be
enquired into either through officials or preferably through a committee of
officials and non-officials and marks awarded for each criterion and totalled. A
draft priority list based on these marks has to be prepared and taken to the
Grama/Ward Sabha in which the applicants from that particular ward also
participate. The marks have to be justified in the Grama/Ward Sabha and
altered if decided by the Grama/Ward Sabha. Once the Grama/ Ward Sabha
approves the list, the priority cannot be changed by the LSGIs. In order to
ensure equitable distribution of benefits among the different wards of a Village
Panchayat/Urban Local Body, ward-wise physical target is prepared in
proportion to eligible applicants. Even for selection of beneficiaries to schemes
sponsored by Block Panchayats and District Panchayats it is the Grama
Panchayat, which is to perform the function through its Grama Sabhas in the
manner prescribed above. All records relating to selection of beneficiaries have
been declared as public documents. This insistence on due process has
considerably reduced patronage and nepotism in the selection of beneficiaries.
(3) EXECUTION OF PUBLIC WORKS
4.8.8.3 In a fundamental shift from the existing method a set of rules
110
for execution of public works by LSGIs was issued. It providt for
community contracting of works through committees (I beneficiaries along
with stringent provisions to guard again" benami contractors masquerading
as conveners or nominees I beneficiary committees. The rules provide for
compulsor transparency with all records relating to a public work right fro;
preliminary estimates, up to final bills and payment vouchee being declared
as public documents for any one to peruse or tat copies. The rules also insist
on preparation of a summary of tt estimate in layman's language and
exhibition of this summaryi well as details of execution at the work site. In
addition th process of technical approval is sought to be demystified so th;
government could, through an executive order, bestow powei of technical
sanction on institutions as well as committees ( government or non-
government professionals. This radic; feature provides for easy access to
technical expertise, ll pursuance of these rules the government have decided
on programme of preparing a separate public works manual for loci
governments with updated specifications and standards and mor
accountable and people-friendly methods of preparation c estimates, taking
measurements of public works and finalizini bills. This ambitious
programme when it is carried to its logic; conclusion is expected to improve
the execution of public wort by reducing chances of corruption and
facilitating social audit
4.9 ISSUES TO BE ADDRESSED
Even while a comprehensive methodology for local planning am a system of

procedural safeguards have been put in place, theft are issues of concern
which need to be addressed. The settins up of institutions of genuine local
self governance is still in A nascent stage. It is in this phase that a careful
nurturing is needed which includes weeding out undesirable elements and
rectifyiting distortions which creep into the implementation process, despit
the safeguards in place. In this respect, the important issue which are relevant
for the long term sustainability of th
111
decentralisation process, some of them interrelated, are summarised below.
1. There is a need to enhance the quality of peoples'

participation. Gram Sabhas and Ward Sabhas have to move
away from being primarily 'benefit deciding' mechanisms to
institutions for meaningful dialogue on developmental
priorities and for channelising public contribution for the
common good. All sections of the public have to be
attracted to these institutions.
2. The elaborate provisions for transparency are being only

minimally utilised. Unless there is a powerful check from
below, there is every likelihood of misutilisation of the vast
powers conferred on the local governments. Hence there
is an urgency for setting up systems of social audit.
3. The persistent malfeasance and corruption is disconcerting.

A major threat to decentralisation is the corruption
involved in the execution of public works through 'benami'
contractors, defeating the very purpose of participatory
development. It has to be recognised that while on the
one hand, decentralisation increases the number of players
involved in governance and thereby deepens democracy, on
the other hand, there is a risk of new collusive practices
emerging if the procedural safeguards are not strictly
enforced.
4. The quality of planning needs to be upgraded to prevent thin spreading

of resources, to reduce beneficiary oriented schemes, to foster
productivity increasing schemes, to better inter-tier integration of plans
and to mobilise additional resources through credit linkages.
5. Though most of the officials have been transferred to local

governments, their active involvement in the planning phase
112
is rather limited. Unless these officials, especially tf professionals take an active
interest in the planning proa and assume ownership of the plans and serve as the vita
link between the people and the plan, it will not be possibli to consolidate and
iteratively refine the quality of the plflfi in their areas of expertise.
6. More than implementation of schemes using Governmen

funds, decentralisation implies improved quality of service
This would mean that LSGIs are able to manage the staf
under their control in such a way that there is a
improvement in the quality of services rendered by the
to the public. Such a thing has not happened so far. It;
on the performance of LSGIs in this area that the publi
will ultimately judge the gains of decentralisation.
7. The managerial efficiency of LSGIs leaves much to

desired. There is tremendous scope for improving offic
management, human resources management and finandi
management in LSGIs.
8. Local resource mobilisation by LSGIs is an area wher

further improvements are definitely possible.
9. For achieving good governance through LSGIs, the net

created institutions like Ombudsman have to live up tot-
expectations with which such institutions were design;
and put in place. This would require that these institutio
acquire greater sensitivity to problems of the peopleo
move closer to them.
4.10 REDEFINITION OF FUNCTIONAL DOMAINS OF LOCAL

GOVERNMENTS
4.10.1 As the People's Planning Campaign progressed and empirical evidence

flowed in from the field on the areas of strength or
113
LSGIs, the Government accepted the recommendations of the Committee on
Decentralisation of Powers (popularly known as the 'Sen Committee5 named
after its Chairperson late Dr. S.B.Sen) and decided on a rational allotment of
functional responsibilities among them. Thus the Kerala Panchayat Raj and
Municipality Acts were radically restructured to go beyond the llth and 12th
Schedules of the Constitution by attempting to define clearly the functional
areas of the different tiers and types of LSGIs as precisely as possible.
4.10.2 The llth and 12th Schedules of the Indian Constitution actually do not carve
out the functional domains of LSGIs. They only list developmental areas
where, if so decided by the state government, LSGIs could have a role in
planning for economic development and social justice and in the
implementation of such plans. But Kerala has demarcated the functional
domains of LSGIs with a great degree of clarity. The Kerala Acts classify
functions as mandatory functions, general functions and sector-wise functions.
The functions assigned to the three tier Panchayats and Urban Local Bodies
are given in Annexure 4.3. In areas related to infrastructure and management
of public institutions, the functional differentiation is sharp and clear, but in
productive sectors it is difficult to clearly earmark functions separately for
each tier. Only through experience can the natural functional area in such
sectors get defined. There is a clear recognition of the existence of a role-
range for LSGIs - Agent, Adviser, Manager, Partner and Actor - with the
objective being to reduce the agency role and expand the autonomous - actor
role.
4.1.1 FURTHER TRANSFER OF STAFF TO LOCAL

GOVERNMENTS
After the amendments to the Acts the Government decided to
114
transfer the district level offices to the District Panchayats rationalise the
staff structure for better service to other tien local governments. Of
particular relevance, is the decision provide additional engineering
support as per which, there wot be three Engineering Circles under
Superintending Enginet each District Panchayat will get an additional
division under Executive Engineer, all the Block Panchayats would get
Assistant Executive Engineer each and 573 Assistant Enginet would be
deployed among Village Panchayats in such a man; that 203 large
Village Panchayats would get one engineer a and others at the rate of
one engineer for two Panchayats. i the Urban Local Bodies one
Superintending Engineer each woi go to the two new Corporations, one
Executive Engineer tod of the 12 Grade I Municipalities and one
Assistant Execuc Engineer to each of the remaining 41 Municipalities.
4.12 EXTENT OF DECENTRALISATION –AN ASSESSMENT
4.12.1 The quantum of resources transferred and the range of responsibilities

assigned to LSGIs and the strength of staff pk under their control give
an idea of the extent of responsibilif assigned to LSGIs. As each year
progresses there is clear evidej of Government withdrawing from areas
allotted to the LSGIs so that the constitutional mandate of setting up
institutions off government is realized within a short period of time.
4.12.2 The extent of decentralisation is encapsulated in the statements.
(1) In the Health sector all institutions other than med

colleges and big regional speciality hospitals have I)
placed under the control of the LSGIs.
(2) In the Education sector, in rural areas the high schools
115
have been transferred to the District Panchayats and the primary and
upper primary schools have been transferred to Village Panchayats; in
urban areas, all schools have been transferred to the ULBs.
(3) The entire responsibility of poverty alleviation has gone to

the LSGIs; all the centrally sponsored anti-poverty
programmes are planned and implemented by them.
(4) As regards Social welfare, barring statutory functions

relating to juvenile justice, all the responsibilities have gone
to LSGIs. The ICD5 is fully implemented by Village
Panchayats and Urban Local Bodies. Care of the disabled,
to a substantial degree, has become a local government
responsibility.
(5) In the Agriculture and allied sectors, the following have

become the de facto and de jure local government
functions.
a) Agricultural extension including farmer - oriented

support for increasing production and productivity.
b) Watershed management and minor irrigation.
c) Dairy development.
d) Animal Husbandry including veterinary care.
e) Inland fisheries.
(6) Barring highways and major district roads, connectivity has

become a local government responsibility.
(7) The whole of sanitation and almost the entire rural water
supply have moved over to LSGIs.
116
(8) Promotion of tiny, cottage and small industries is mostly
local government task.
(9) All the welfare pensions are administered by the LSfili
Thus it is clear that, in terms of governance, more than halil with the LSGIs.
4.12.3 As of now government pays the salary and meets other operational
costs particularly in health institutions. All the other
responsibilities of providing new infrastructure and equipments
to attain the minimum standards and of maintaining the
transferred have become the burden of the LSGIs. For examples
282 Krishi Bhavan offices, 2561 Lower Primary Schools; 962
Upper Primary Schools, and 6911 Anganwadis have
transferred to the Village Panchayats alone. In addition the
Village Panchayats have to provide new buildings to 2040 fu
Welfare Centres, 207 PHCs and 9199 Anganwadis.
4.12.4 Thus, in Kerala, LSGIs now share several responsibilities

varying degrees with the state government. And naturally
perform these responsibilities, they deserve the proportioinate
share of state government resources.
117
CHAPTER 5
THE FIRST STATE FINANCECOMMISSION
INTRODUCTION
5.1 The first State Finance Commission which was set up along with
the enactment of the Kerala Panchayat Raj Act 1994 and one
month before the enactment of the Kerala Municipality Act 1994
started functioning from 23rd April 1994 and submitted its report
on 29th February 1996. The context in which the First SFC
functioned needs to be noted. Till October 1995 there were no
elected bodies. The Village Panchayats and Municipalities were
run by Administrative Committees, which consisted of the elected
members who were there before the expiry of the term of office;
and in the Corporations, District Collectors were posted as
Administrators. And in Kerala there were no District Panchayats
or Block Panchayats before 1995.
5.2 Elected local governments assumed office on the 30th of

September 1995 and powers and functions as envisaged in
G.O.(P)89/95/LAD were transferred on 2nd October. The fact
that the First SFC had to give its Report within five months of
the functioning of the newly elected local governments and before
the contours of Government policy on decentralisation became
clear notionally placed several constraints on it. It was too early
for the Commission to determine the quantum of responsibilities
which actually would move out of the State Government into
the hands of the local governments.
118
SIGNIFICANCE OF THE RECOMMENDATIONS OF THE
FIRST STATE FINANCE COMMISSION
5.3 In spite of the constraints, the first SFC broke new ground in
several ways. They are listed below:
(1) It made a number of suggestions with the objective of

increasing the magnitude of financial devolution from the
State Government to local governments. A very significant
recommendation was the one to earmark one percent of
the State Government's current revenue for transfer
the rural and urban pools to be set up for the purpose
Even though the recommendation as such was not acceptet
by the State Government, this idea of a fixed percentage
from the State Government revenue being devolved to
local governments was a novel one in the Kerala context
and it constitutes an important principle informing the
Report of the Second State Finance Commission.
(2) Implicit in the suggestion for setting up the rural and

urban pools was an attempt to change the inter se
distribution of resources among the LSGIs. It attempted
to move away, even though in a small manner, from the
'place of collection' to the population criterion, which was
a step towards greater equity.
(3) The First SFC highlighted the importance of thei maintenance of

assets of LSGIs, both own and transf errec assets. The problem of
reduced allocations fo?| maintenance due to the squeeze on non-plan
allocationi<| becoming acute day by day. This would be very critical
for; local government functioning in future as most of the social
infrastructure assets having direct interface with the public have been
placed under the control of LSGIs.
119
The Commission had laid down the principle that the maintenance
requirements should be calculated on the basis of the current
replacement cost and not on historic cost. Though the State
Government did not accept the suggestion it has certainly influenced
the Second SFC in its assessment of the maintenance needs, to
quantify the devolution required for reasonable maintenance of assets
transferred to LSSIs as well as of new assets created by them using
plan funds.
(4) The First SFC made innovative recommendations for

rationalization of tax collection to avoid inefficiency and
leakages. Taxing of buildings on plinth area, levying
entertainment tax related to seating capacity and
occupancy ratio, preparing tax maps etc., are very
significant recommendations, which the Second SFC fully
endorses.
(5) The First SFC enunciated the principle of moving away

from tied non-plan grants to untied non-plan grants, a very
essential ingredient of financial autonomy for LSSIs. By
virtue of its recommendations 16 tied grants were
amalgamated into the Rural Pool and a similar attempt has
been initiated for urban areas.
(6) Though the First SFC confined itself largely to non-plan

devolution, significantly enough, it suggested transfer of
at least 25% of the Centrally Sponsored Anti Poverty
Programmes, thus hinting at the principle that local
governments could implement plan programmes and the
SFC could deal with plan transfers.
(7) A very important contribution of the First SFC was laying

down transparent formulae for various kinds of devolution.
120
Thus grants to local governments were brought into ti realm of
entitlements and all forms of discretion whi; were used earlier to
discriminate among LSGIs, were tate away with the acceptance of
the report of the First SFC
(8) The First SFC had rightly stressed the need for continues
data gathering on local government finances. The Secor
SFC reiterates this need.
(9) The First SFC gave a comprehensive picture of the local government
finances by providing an update, which was: very difficult thing to
do in the absence of proper datu The analysis of the finance of
Village Panchayats ans Municipalities - the distinguishing features
and thei rationale, the problems and the potentialities, tJ distortions
and their correctives - has proved very useful.
STATUS OF IMPLIMENTATION OF THE

RECOMMENDATIONS OF THE FIRST SFC
5.4 The recommendations of the First SFC could be classified intt
four groups.
(1) Devolution of funds to local governments.
(2) Augmenting resources of local governments.
(3) Rationalisation of fiscal systems of local governments,
(4) Miscellaneous issues.
5.5 Out of the 69 important recommendations, 63 were accepted by

the Government. A good number of recommendations involved
amending the concerned legislations and rules. Naturally this
121
has proved to be time consuming. Also some of the recommendations had to
be implemented by departments other than the Local Self Government
Department. Therefore at this point of time some of the recommendations of
the First SFC including very important ones like rationalization of property
tax, tax mapping etc., have not been fully operationalised even though they
were accepted by the Government. The status of implementation of the
various recommendations of the First SFC can be seen in Annexure 5.1.
RECOMMENDATIONS OF THE SECOND SFC FOR

OPERATIONALISING THE RECOMMENDATIONS OF THE
FIRST SFC
5.6 The Commission strongly feels that the accepted

recommendations of the First SFC should be operationalised immediately
with no further delay. It is necessary to implement them in full, as some of the
recommendations of this Commission are built on the recommendations of the
predecessor Commission. This Commission would therefore reiterate the
following recommendations of the First SFC and call for quick, special
follow-up to carry the implementation process to the logical end.
(1) The rules for levying Property Tax may be notified and
the assessment work started in January 2001 itself. Some
general suggestions in this regard are given in Chapter 9.
(2) In the case of Profession Tax in respect of self-employed

professionals like Doctors, Lawyers, Accountants etc., the
First SFC had suggested slab rates. This has not been
implemented. Second Finance Commission has separately
recommended slab rates for presumptive taxes, which
would cover these categories.
122
(3) Service Tax may be levied as an independent tax by the
urban and rural local governments. Further legislative
action is needed.
(4) Operational instructions need to be given in the form of

rules and guidelines in respect of collecting Entertainment
Tax based on seating capacity. The Second SFC would
further elaborate on this in the second part of its Report.
(5) Rules for levy of Advertisement Tax in Village Panchayat

and Municipalities may be issued at the earliest along
model byelaws. A few guidelines are indicated in Chapter 9.
(6) The First SFC had suggested revision of rates of fees and other
similar non-tax sources. This has been partially
implemented. The Second Finance Commission
recommending thorough revision in Chapter 9.
(7) Steps to finalise the minimum land value for use

registering sales may be taken immediately.
(8) Further action may be taken to charge licence fee from

Cable TV Operators. As regards the question of collecting
Entertainment Tax from Cable Operators the Second
Finance Commission's view is that it should be done through
necessary legislative amendments.
(9) The suggestion for amending the Building Tax Act to

ensure that the tax is paid to the concerned local
government would become infructuous once government
accepts this Commission's recommendation for a general
sharing of tax revenue.
(10) The tax mapping should be done immediately in all local
123
governments and the unique premises numbering system followed.
(11) The First SFC had suggested that the Rural Development
Board be made into a financing agency and that soft loans
should be given both by the Rural Development Board and
the Kerala Urban Development Finance Corporation. This
matter will be dealt with in detail by the Second Finance
Commission in the second part of its Report. However, it
is suggested that a single financing agency would do for
all LSGIs, both urban and rural.
(12) Though building exemption has been taken away,

compounding is still being resorted to in the process of
regularization of constructions made on or before 1-1-
2000. 50% of the fee thus realized should go to the
concerned Village Panchayat and Municipality.
(13) The question of Village Panchayats and Municipalities

levying daily fee for use of poramboke may be examined
and decided by Government without further delay,
(14) The rationalization of Revenue Village and Village

Panchayat/Municipality boundaries may be done in such a
way that each such LS6I has one or more full revenue
villages within its boundary i.e., no revenue village would
lie within more than one Village Panchayat or Municipality.
(15) As suggested by the First SFC a special Cell has been

created in the Finance Department. This Cell should be
revamped and assigned the task of regular monitoring of
the finances of LSGIs, both income and expenditure.
124
(16) The recommendations of the First SFC were accepted! 1997.
Strictly speaking they should have been maJ effective from 1-4-
1996. However they are legally in fon since 1-4-1997. Therefore
any shortfall in devolutioi below the accepted level in respect of
assigned and shari taxes should be made good by the government.
125
CHAPTER 6
THIS DEVOLUTION AND INTER SE
DISTRIBUTION OF PLAN FUNDS
6.1 T he decision to transfer 35-40 percent of plan outlay to LSGIs,who are
then left left free to spend the amount on plan projects formulated by themselves,
has been a historic one. While panchayats as active institutions exist in several
other states in the country, notably in West Bengal which played a pioneering role
in activating them and in Karnataka, the Kerala model of democratic
decentralisation is unique in so far as it has three specific features not found
elsewhere: the first is the quantitative magnitude of devolution; nowhere else is
such a high proportion of plan funds handed over to the LSGIs. The second and
related feature is the freedom accorded to LSGIs to make plans according to their
own priorities. There exists of course a system of vetting of local plans at higher
levels, which is essential for avoiding unnecessary duplication, for ensuring
complementarities, and for enforcing compliance to state government guidelines.
But subject to such general constraints, the priorities informing any local plan are
respected. The third feature has to do with the fact that there is a clear
demarcation of responsibilities between the state Government and the LSGIs
These three features make the Kerala practice the first authentic attempt,
anywhere in the country, at planning from below. Not surprisingly, it has
unleashed, by all accounts, unprecedented enthusiasm among people, attracted
much attention from other states, aroused a great deal of curiosity all over the
world, and earned wide acclaim in intellectual circles as representing a
breakthrough in conception, a breakthrough
126
which has even been hailed as "a synthesis of Gandhi and Marx”
6.2 There can be little doubt that Kerala's ability to achieve this breakthrough
can be attributed to the fact that it was a part of the Peoples' Plan
Campaign. The significance of this Campaign,
and the array of measures of democratic decentralisation which
followed in its wake (of which the devolution of 35-40 percent
of plan outlay to LSGIs is only one), have been described in an
earlier chapter. Here we would like to reiterate our belief that
minimum share of plan funds of this order of magnitude should
continue to be transferred to the LSGIs every year. While we
recommend this for the next five years which constitute our jurisdiction, we
hope this practice would be carried forwar
thereafter too. To be sure, there are several problems associated
with the present practice of decentralised planning. Some of these
are discussed below. But these in no way negate the worth and
legitimacy of the experiment, which should be seen not merely
in narrowly economic terms as an alternative, more effects
model of planning, but more importantly as a means of deepening
democratic structures in our country.
6.3 Any estimate of the actual percentage of devolution of plan funds

to the LSGIs is sensitive to the definitions used. In 1999-2000
for instance the plan grant-in-aid as a proportion of state plan
outlay was supposed to be 31.4 percent (Rs.1020 cr. compart
to Rs. 3250 cr.). But this ratio goes up, if we include stati
sponsored schemes, to 35.5 percent (Rs. 1154.4 cr, compared to
Rs. 3250 cr.). The term "state-sponsored schemes" came to be
used from 1997-98 to denote two categories of schemes. Each
of these categories is a part of the state plan but is implemented
by LSGIs. The first category consists of certain national and
state level schemes especially in health, poverty alleviation etc,
These are likely to continue for some time. The second category
consists of those schemes which were originally covered under
the departmental allocation in the state plan but were transferred
127
to LSGIs in the transitional phase. These would decline naturally with the
passage of time, and have been doing so. The total outlay on state-sponsored
schemes has in fact been declining, from Rs.276 cr. in 1997-8 to Rs.166.50
cr.in 1998-9, to Rs.134.40 cr.in 1999-2000 (RE). As long as state sponsored
schemes exist the outlay on such schemes should not be counted as part of
total devolution, but should be treated as an additionality: counting them as
devolution causes a hiatus between the actual and apparent magnitudes of
funds left to the domain of LSGI decision-making. (What appears for instance
as 35 percent devolution actually means less, as we have seen for 1999-2000).
Our recommendation is that a minimum of one-third of the state's plan outlay
in any year should be statutorily transferred to the LSGIs, and that in
computing this ratio the transfers on account of state-sponsored schemes
should be excluded from the numerator. This is convenient for framing
appropriate legislation and corresponds on present reckoning to over 35
percent plan outlay, including state-sponsored schemes in both the numerator
and the denominator1
6.4 We now come to the problems associated with transferring such huge amounts
of plan funds to LSGIs. Among the many problems that can be identified we
would focus on four broad sets of problems here. Two of these will be
discussed here only cursorily since they would be taken up in the second part
of our report. The first of these is the absence of an adequate permanent
institutional framework for decentralised planning, which makes the exercise
a "voluntaristic" one, not de-linked from a
1.
The figure 35-40 percent was originally arrived at through some studies
which showed, on the basis of historical data for the state, that the proportion
of plan outlay which could in principle fall within the province of district-level
planning (including planning by tiers below) was around this. It has acquired
an added legitimacy from practice which induces us to stick to this figure.
128
"Campaign mode". An example of this absence of an institutional
framework is the fact that the decision to transfer 35 percent or plan funds
to LSGIs has itself till now been only an administrative decision, reversible
at any point of time. It has been without any statutory basis whatsoever (a
lacuna that we hope o recommendation would remove). But more generally,
planning of any kind required personnel. A carde of trained personnel
appropriate for this kind of planning, has not yet bet fully created.
Decentralised planning has had to make do win whatever personnel are
available from voluntary organisatloi and the ranks of locally available
experts. Some no doubt wouli see a virtue in the present state of affairs: the
Campaign mod; arouses popular enthusiasm, while shrouding decentralised
planning within an institutional framework would lead n bureaucratisation,
ossification, and "routinisation", all of what are inimical to the spirit of
popular participation. In short tt: fear may be expressed that the very
process of institutionalisinf decentralised planning would rob it of its
authentic democrat character, i.e. would make people passive objects all
over again. from being, in howsoever limited a fashion, active subjects.
Whil this fear is not without justification, it is nonetheless the can that
voluntarism is essentially impermanent, that the "Campaign mode" can
never be sustained for long, so that eschewicf institutionalisation eventually
means throwing the baby out wit the bathwater. The need is to combine
active popular participate with an appropriate institutional framework which
would mail the existing government staff, both professionals and generalisti
fully involved. The process of bringing into being an appropriate
institutional framework for decentralised planning is currentli underway in
the state. Ensuring that active popular participate in planning is not
destroyed as this framework comes into bein will be one of the challenges
before decentralised planning i the coming years.
6.5 The second problem relates in a broad sense to the issue of
129
corruption. Corruption, without a doubt, exists in several different forms in the
decentralised planning system. But then so it did, even earlier, i.e. prior to the
increased devolution of plan funds. There is no reason to believe that the scale
of corruption in the use of plan funds has increased in any way after
devolution; indeed several knowledgeable observers have the impression that
it might have decreased. Its continued existence nevertheless is a source of
concern. The fact of popular participation, and hence vigilance, should have
the effect of reducing at least certain types of corruption. On the other hand
however the absence of an appropriate institutional framework for
decentralised planning would provide scope for corruption. Putting it
differently, a comparison of the earlier planning system with an alternative
system of decentralised planning with popular participation would associate a
much lower level of corruption with the latter. It follows that if corruption
exists on a by-no-means-modest scale in the present dispensation, then this is
at least partly due to the fact that the system of decentralised planning,
complete with its own institutional framework with its new checks and
balances, has not yet been put in place. Once the institutional framework for
decentralised planning is erected, the scale of corruption should come down
significantly. The recent appointment of an Ombudsmen is an example of an
institutional framework gradually coming into place, which should reduce the
scope for corruption. A more elaborate discussion of these issues together with
specific suggestions will be made in the second part of our report.
6.6 The third problem springs from the type of plan projects which small bodies,
such as the panchayats, are intrinsically capable of undertaking on their own.
These typically are tiny projects catering to local needs. Transferring
substantial plan funds to them would necessarily result in a proliferation of
such projects. While this would not be a bad thing at all for a certain period of
time (since centralised decision-making typically ignores local
130
needs, and has done so in our country), a continuous replication of such
projects, with progressively lesser and lesser soc usefulness, can scarcely be
justified, especially when resour are being taken away from larger state-
level projects which migli be essential for the state's economic health.
Putting it different a devolution of 35 percent of plan funds continuing not
jir into the immediate, but also into the more distant, future woif be justified
only if the composition of projects on which tk amount is spent can be
made to keep changing in consonan; with the changing requirements of the
people. This in tuJ requires that the LSGIs should be capable of overcoming
the narrow, "small bodies'" horizon. Village panchayats, for instant should
in the next phase be prepared to collaborate with one another to undertake
meso-level projects, or even macro-level projects. In short the transfer of
resources to the lower level should not mean a perpetual entrapment in
mini-projects a progressively decreasing rationale. One can go further. The
LSGI have to break out at some stage not only from their narrow micro
project preoccupation, but also from their almost exclusive rol of being
purveyors of welfare goods and services to the people. To be sure, the need
for such goods and services can hardly bj overemphasised, but the word to
note is "exclusive". Even fit providing a larger flow of welfare goods and
services to the peopt at a later date, the LSGIs may have to take on a more
diversify, role, aimed at augmenting the means at their disposal. Many of
them of course provide help at present to deserving private individual
producers in their respective areas, but this has nc generally been a source
of revenue for them. It has been a: extension of the welfare-purveyor role.
They have to pay greatr attention to means augmentation possibilities while
renderta such help. In addition, LSGIs can also boost their resources by
eliminating the wastes and "leakages" that entrusting public work
programmes to middlemen entails, and by undertaking innovate output
augmenting local projects which can yield larger revenues as well. Taking
up government contracts for civil construction
131
for a reasonable centage charge is a possibility work exploring. The third
problem for decentralised planning would arise therefore if the LSGIs do not
show sufficient flexibility to transform and broaden their nature. If they
continue to remain mere conduits for distributing welfare goods and services,
then even this role cannot be sustained in the not-unlikely event of a
worsening of the fiscal squeeze experienced by the central or the state
government, for then, as this squeeze gets "passed downwards", they would
find themselves increasingly bereft of resources.
6.7 The fourth problem concerns the inadequacy of the LSGIs' own
tax effort. It is often asserted that there has been a slackening of the LSGIs tax
effort as larger plan funds have been made available to them. While hitherto-
published research attempting to establish this slackening hypothesis is not
convincing, the view that such a slackening has actually occurred is widely
held in knowledgeable circles. Time-series data do show a lower level of
revenue in recent years compared to what a long-term trend fitted to earlier
data would project, but this per se does not constitute proof of slackening.
Besides, this shortfall relative to trend predates the increase in devolution that
came with the Peoples' Plan Campaign. But whether or not there has been an
actual slackening on account of the larger devolution, the fact remains that
LSGIs5 tax collections are way below potential. This makes them almost
entirely dependent on devolution from the state government and hence
extremely vulnerable to the fiscal travails afflicting the state, and hence by
implication the central, government. In the absence of adequate local-level
resource mobilisation the base for decentralised planning remains extremely
fragile. We recognise of course that resource mobilisation is not synonymous
with raising larger tax revenue: the former can take several forms, such as for
instance mobilisation of voluntary labour by LSGI, of which tax effort is only
one. It has also been brought to our notice that not an inconsiderable amount
of additional resource
132
mobilisation has occurred in LSGIs, even when conventional indices like
tax revenue have shown unimpressive increase! Nonetheless, given the
indubitable fact that tax collections by LSGIs have been much below
potential, our Commission has felt the need to recommend the introduction
of a system of rewarl for tax effort through an amendment in the formula
for the inter se distribution of plan funds.
The first Finance Commission had suggested the following criteria for the
6.8 inter se distribution of plan funds.
ULBs RLBs
Population in 1991 Census 75 70

SC/ST Population in 1991 10 1O
Total Workers Excluding Workers in 15 10

Manufacturing, Processing, Servicing, and
Outside household industry
Proportion of Agricultural Workers among Nil 10
Workers
Total 100 100
6.9 The Finance Commission had not explicitly demarcated between the
different tiers of the PRIs and ULBs, the presumption being that the above
criteria would apply within each tier, while the division between tiers
would continue in the same ratios as were prevailing at the time. The
Cabinet Subcommittee set up to examine the First SFC report felt that,
instead of the formula recommended by the Commission, plan funds may
be distributed according to a simple formula giving 90 percent weight to
population and 10 percent to area. The distribution of funds in
133
1997-8, the year when plan grant-in-aid was greatly increased, was however
entirely on the basis of population alone. The Planning Board set up a
Working group in October 1997 to look into the matter and evolve a fresh
formula for the inter se distribution of plan funds. This formula, on the basis
of which plan funds are distributed at present is the one set out in Chapter 3
above.
6.10 The total amount of transfers to local bodies is distributed

between the General Sector, claiming about 75 percent, the SCP
about 21 percent, and the TSP about 4 percent. The distribution
of General Sector funds between the PRIs and the ULBs is in
the ratio of 85 and 15, and within the former the distribution
between the GPs, BPs, and DPs is in the ratio of 70, 15 and 15.
SCP and TSP funds are shared between urban and rural LSGIs
on the basis of the SC/ST population. The ratio of distribution
between tiers however is somewhat different here compared to
the General Sector funds: for SCPs it is 60, 20, 20, while for
TSPs it is 40, 20, and 40. The inter se distribution of General
Sector funds across institutions within each tier is now
undertaken, as already mentioned, on the basis of the formula
given in Table 3.2.9 of Chapter 3.
6.11 While suggesting that the tax effort, or more accurately the
revenue effort, criterion should be introduced in addition to
the above, we propose not to disturb the current pattern of
distribution of plan funds among the various tiers. The revenue
effort criterion should be introduced only at the stage of inter
se distribution within a tier. It follows that this criterion can be
introduced only in the Grama panchayats and ULBs which alone
have significant revenue raising capacities. To see how we propose
to introduce the revenue effort criterion into this scheme, let us
134
first look only at Grama Panchayats. We wish to earmark a maximum of 10
percent out of the plan funds destined for Grama panchayats for distribution
on the criterion of revenue effort. This percentage, which is not a fixed one
but varies from year to year, has to come out of the 65 percent currently
distributed on the (Non-SC/ST) population criterion. This percentage
should be arrived at as follows. In any particular year some panchayats will
show an increase in their revenue (consisting of all revenue from taxes, fees
and other sources1) over the previous year, whilt others will show either a
decline in revenue or the same level of revenue. Let the number of
panchayats showing an increase it revenue be n, while the total number of
panchayats is N. The percentage of plan funds distributed on the revenue
effort criterion in the following year (by which time the relevant data
regarding revenue collections by the panchayats would haul become
available) will then be 10.n /N. If for instance out of 990 village panchayats
in a particular year only 371 show at increase in revenue (over the previous
year) then the proportion of plan funds distributed on the revenue effort
criterion in ths following year will be (10 multiplied by 371) / 990. We
recommend that in actual calculation, 990 should be roundeo: off to 1000
for simplicity. Adopting this procedure, the proportion distributed on the
revenue effort criterion would be 3.71 percent, and the proportion
distributed on the Non-SC/ST population criterion would be 61.29 percent.
Once the amount of plan funds to be distributed on the revenue effort
criterion in any particular year is so determined, this amount has to be
1
There have been instances, where due to some government or Court order
revenue has not been collected for some time under some particular head,
and the lifting of the ban causes a sudden jump in revenue under that head.
Since jumps of this sort would cause a distortion in the application of our
proposed criterion, we suggest that in all such cases the increase in
revenue under this head in the year of the jump should be ignored. This
head should begin to count only from the next year onwards.
135
distributed among the panchayats which did raise their revenue, i.e. the 371
panchayats in the above example. For this we recommend the following
procedure. For each of the 371 panchayats there is a certain percentage
increase in revenue in the year just completed over the preceding year. This
percentage for any panchayat multiplied by its population gives a number for
that panchayat. The share of that panchayat (in the total amount available for
distribution on the revenue effort criterion) is this number divided by the sum
of such numbers for all the 371 panchayats. If the share for panchayat i is
denoted by q i, the percentage increase in its revenue is given by r . and its
population by P i then
qi = ri .Pi / Σ ri .Pi
6.12 A simple example will clarify the proposed procedure. To do so however let
us take a smaller number of panchayats showing a revenue increase. Let the
number be 10. Then 10 times 10 divided by 1000, i.e. only 0.1 percent of plan
funds will be distributed on the revenue effort criterion and 64.9 percent on the
non-SC/ ST population criterion. Suppose the plan grant-in-aid earmarked for
Grama panchayats is Rs.1000 crores; then Rs.l crore will be distributed on the
revenue effort criterion. How will it be distributed? Suppose the percentage
increases in the revenue of the 10 panchayats are respectively, 1, 2, 3, 4, 5, 6,
7, 8, 9, and 10. And suppose their populations are respectively 100, 200, 300,
400, 500, 600, 700, 800, 900, and 1000. Then the share of the first panchayat
will be (1 times 100) /(1 times 100 + 2 times 200 + 3 times 300 + 4 times 400
+...........).The respective shares of the ten panchayats in the pool of Rs.l crore
work out in this fashion to: 1/385, 4/385, 9/385, 16/385, 25/385, 36/ 385,
49/385, 64/385, 81/385, and 100/385. These shares add up to 1.
6.13 In the actual application of the formula however we suggest a modification.
Since we are taking percentage increases, a Panchayat with a low base can
show a phenomenal increase in a particular year and hence get unduly
rewarded by our formula. Likewise a Panchayat which shows a negative
increase in year and a large increase in the following year would stand to gain
by our formula (since we are not directly penalising negati increases). To
avoid such quirky results, we propose to count all percentage increases of 30
or above as 30. The reason for taking 30 as the ceiling is the following. From
136
simulations carried out on data for 1998-9 and given in an Annexure, it turns
out that the difference made to the big losers from alternative ceiling
negligible. This being the case, since the incentive effect for the others would
get blunted if we take a very low ceiling, say 10 or percent, we have decided
to take 30 percent as the ceiling,
6.14 We recommend an exactly analogous procedure for incorporating revenue

effort into the criteria for the distribution of plan funds among the ULBs.
Here too a maximum of 10 percent of the plan funds earmarked for ULBs can
be set aside for distribution the revenue effort criterion. The actual percentage
would be given by this maximum multiplied by the proportion of ULBs
showing revenue increases, and this percentage would come out from the 75
percent currently earmarked for distribution on the populatio criterion.
Likewise the inter redistribution of this amount among the ULBs would be on
the basis of the following formula: the share of any ULB = percentage
increase (subject to a maxim of 30 percent) in its revenue during the previous
year times its population / the sum of the percentage increase in revenue tim
population of all such ULBs (which show revenue increases). Revenue in this
entire discussion, we wish to emphasise, includes only taxes, fees and license
fees, and other incomes, which are the result of the LSGIs' own effort. It
excludes what they get from shared and assigned taxes, the other non-plan
grants, and of course the plan grants, from the state government. In short, the
term”revenue” used in this context is synonymous with “own colelcted
revenue”.
137
6.15 Let us now turn to the rationale of the above formula. Ideally,
revenue effort should be evaluated by looking at the actual
revenue collections in comparison to some notion of potential
revenue generating capacity. Unfortunately we simply do not have
the data to calculate this potential capacity for each and every
LSGL Looking at Increases in revenue as an indicator of effort
is only a convenient proxy. Here, introducing explicit penalties
for LSGIs showing reductions in revenue would be unfair, and
would inevitably result in appeals to discretion on pleas of special
circumstances, which would have the effect of undermining the
entire system. We have therefore introduced penalties indirectly,
not merely through an exclusion from reward for revenue
increases, but through consignment to a group that only shares
a reduced amount available for distribution on the population
criterion. The precise formula of course has been dictated by the
need to have "well-behaved" properties (which also constitute a
reason for the exclusion of "negative" transfers, i.e. of explicit
penalties for reduced revenue collection), and the need to avoid
absurd results. For instance, a variable proportion of plan funds
is supposed to be distributed on this criterion, as opposed to a
fixed proportion on other criteria, because of the need to avoid
absurd results. If in a particular year, say, only 10 panchayats
happen to show an increase in revenue, then, with a fixed 10
percent distribution on revenue effort basis, they would walk
off, in the above example, with nearly Rs.100 crores between
them, which would be extremely unreasonable (especially since
we are using ordinal terms like "increase" and "decrease"). As
for the actual formula for the inter se distribution from the pool
earmarked for rewarding revenue effort, it satisfies the property
that if all panchayats showing revenue increases showed the same
percentage revenue increases, then the pool would be shared
among them exactly in the same ratio as their non-SC/ST
138
population, which is perfectly reasonable. On the other hand the above
formula also says that if all panchayats showed a reduction or constancy in
revenue collections, then again the size of the pool would be zero, so that
the entire 65 percent of plan funds would be shared among grama
panchayats (75 percent for ULBs) on the non-SC/ST population criterion,
the same as is the practice now. In such a case in other words, all being
delinquent, none would be singled out for punishment, which too is
reasonable.
6.16 The real limitation of the above formula arises from the fact that we are
taking percentage increases. This gives rise to two different kinds of
problems: the first is the "low base" effect. For example if a panchayat had
zero (or very low) revenue in one year and some increase in the next year,
then its rate of growth would be infinitely large, giving it an enormous,
illegitimate advantage. One way of avoiding this problem is to divide the
absolute increase in revenue by the total income of the inhabitants of a
panchayat (or some similar variable). But we do not have data on the total
income of the inhabitants of a panchayat. Taking the expenditure by
panchayats as the denominator, while it would get rid of the low base
problem, would work against the poorer panchayats. All things considered,
therefore, there is no easy alternative to taking percentage increases in
revenue as the proxy for revenue effort. And it may not be a bad proxy in
practice. Nonetheless, to guard against anomalies, we are suggesting a
maximum figure of 30 for the percentage increase in reveue. The second
problem with taking percentage increases is the fact that the revenue
raising capacity of panchayats and ULBs is subject to a limit that does not
move up much from one year the next. It does not even go up in tandem
with price increases or real income increases of residents within their
jurisdiction since a good part of this revenue is supposed to come from
property taxation, and the revenue to be raised from a particular property
can be adjusted only at discrete intervals. As a result
139
even with the best of intentions some local bodies will find it difficult to raise
their revenue beyond a point. Any criterion that looks only at percentage
increases in revenue therefore is potentially discriminatory against them. This
no doubt is an important consideration, but its practical relevance over the
next five years may not be all that much. The current level of revenue
mobilisation relative to potential is too low in the case of all Panchayats and
ULBs for us to worry about the implicit discrimination against those that have
hit or are close to their revenue-raising capacity. What is true however is the
fact that this formula, though adequate for the coming five years, should not
be continued ad infinitum. True, the low base effect would disappear over
time, but the other factor mentioned above would introduce serious biases as
some local bodies approach their revenue-raising ceiling.
6.17 Let us now turn to the practical problems of using the above formula. While the
mechanics of making the necessary computations are quite simple and non-
time consuming once the data on tax and non-tax revenue collections by the
local bodies are available, the real problem lies in obtaining reliable revenue
collection data. To overcome this, our recommendation is that it should be
made mandatory for all local bodies to have a separate account with the
treasury where collections from all items constituting their own income, and
only such collections, are deposited. Then these data would be easily available
to the state government from the treasury, and would be useful for a number of
purposes quite apart from the employment of the revenue effort criterion for
determining the inter redistribution of plan funds. Of course even if this
statutory provision is introduced, local bodies would not necessarily comply
with it immediately. To goad them into doing so before more drastic action is
taken against the deviants, a particular date should be fixed from which the
revenue effort criterion should be introduced into the distribution of plan
funds; and all local bodies for whom there
140
is no treasury-authenticated information on revenue collection should Ipso
facto be treated as if they have not had any revenue increases and thereby
excluded from any distribution under this head. Announcing such a date in
advance would also be useful for another reason, namely, any sudden
drops in plan funds for particular LSGIs can be avoided if they intensify
revenl collection effort owing to prior warning. (And if they do not then
they can scarcely claim injured innocence). For an early introduction of
the revenue effort criterion, it is essential that the government should bring
in this statutory provision as soon as possible. Since the criterion is based
on increases, time-laga intrinsic to it.
6.18. A simulation exercise on the basis of the data given to us on PRI and ULB
revenues has been carried out to determine what would have been the
distribution of plan funds in 1998-9 if the revenue effort criterion had
been applied in that year. Some results from a comparison of this
distribution with the actual distribution is given in an Annexure 6.1.
141
CHAPTER 7
THE PROBLE OF MAINTANANCE OF ASSETS
7.1 A substantial number of assets has been transferred from the state
government to the LSGIs as part of the functional devolution under the
Panchayat Raj and Municipal Legislations. A good number of assets were
transfered through a Government order in September 1995 and some more
assets were transferred in the wake of the Peoples' Planning Campaign. As a
sequel to this Campaign, the devolution of plan funds to the LSGIs was
substantially increased, and this in turn was used for building up further assets.
The LSGIs today have thus become the custodians of a vast array of assets,
and the problem of the maintenance of these assets has acquired a degree of
urgency. For convenience of discussion, the assets existing under LSGI
jurisdiction at present can be divided into three categories: assets which the
LSGIs owned and maintained prior to the transfers following the September
1995 Government Order (for the maintenance of some of these assets they had
access to specific revenue sources such as VTC, and grants such as VRM);
assets which have been transferred to the LSGIs following the Government
Order; and assets which have been built since 1997-8, the year in which
enlarged devolution began. Within this last category not all assets have been
financed out of plan funds alone; surplus from own revenue and public
contribution have also gone with in. The maintenance requirements as well as
the sources of funds for maintenance for these three different types of assets
need to be discussed separately. But let us first see what exactly is being
referred to under the concept of maintenance.
7.2
142
7.2 THE CONCEPT OF MAINTANANCE
7.2.1 "Maintenance" is by no means a simple concept. It gets invariably

enmeshed with three other concepts, operational costs, depreciation, and
investment, in the sense that it is difficult to demarcate its boundary from
those of these three other concepts. The difficulty has a conceptual
dimension: we simply cannot tell in many situations how much of an
expenditure is maintenance and how much of it is, say, investment. In
addition it has an even more overwhelming practical dimension: we often do
not know how to tell what is maintenance expenditure, and what is, say,
investment expenditure. Strictly speaking the term maintenance refers to the
expenditure required to keep an asset running with unimpaired productive
potential during its life-time, Operational expenses refer to the expenditures
on all other current inputs that are combined with this asset for producing
the final good. The term depreciation refers to the amount that has to be set
aside during each period, so that when the asset has reached the end of its
life-time, a new asset can be purchased to take its place. Finally, (net)
investment refers to any addition to productive capacity, unlike either
depreciation or maintenance.
7.2.2 Of course the life-time of an asset is not independent of the maintenance

expenditure that is undertaken upon it; or, putting it differently, different
levels of maintenance expenditure, while maintaining approximately the
same level of productive potential (or quality of service) of an asset, may
cause different lengths of life-time. There is in other words a trade-off
between depreciation and maintenance Not withstanding this trade off
however, there would be some "optimum" level of maintenance
expenditure at which the depreciation cum-maintenance expenditure would
be the least. The concept of "maintenance norm" is ideally derived from
this consideration. To give an example, if an asset costs Rs.100 (we ignore
inflation in this example), and can last 10 years with an annual maintenance
expenditure of Rs.l0 and 12 years with an annual maintenance expenditure
of Rs.15, then clearly the former option is preferable. This is because the
expenditure
143
on depreciation-cum-maintenance is Rs.20 per year in the former (10 + 10),
and Rs.23 1/3 per year in the latter (15 + 8 1/3).
7.2.3 The logic of this argument is not affected even when there are no
explicit depreciation provisions, as is the case with LSGI assets. This is
because at the end of 12 years in the above example, following the first
option (where the asset is replaced after 10 years), we would have
spent a cumulative sum of Rs. 120 on maintenance and would be having
a 2-year old asset with a depreciated value of Rs.80 (which comes from
100 original value minus 20 loss of value owing to depreciation); on
the second option we would have spent a cumulative sum over the 12-
year period of Rs.180 on maintenance and would be having a brand
new asset worth Rs. 100 at the end of it. By following the second option
then we would have, compared to the first option, spent Rs.60 extra as
maintenance over the 12 years and ended up with only Rs.20 worth of
extra asset value. This being patently irrational, the first option should
be adopted. It follows then that the comparison between the two, or
several, options is unaffected by whether depreciation provisions are
actually made each year or not. There would be some optimum option
on the basis of which the maintenance norms can be ideally calculated.
7.2.4 Of course the concept of life-time of an asset is not unambiguous (since

an asset does not just drop dead); nor is the proportion of maintenance
expenditure to the value of the asset constant through its life-time.
This magnitude typically increases with the age of the asset, and at
some point quite steeply. The point at which this steep increase occurs
can be taken approximately as the end of its life-time corresponding to
that particular stream of maintenance expenditure. (The logic of the
example discussed in paragraphs 3 and 4 can be restated in terms of
such rising streams instead of the constant streams assumed there).
Though in practice the maintenance norms we have are given to us by
engineers, and their economic underpinnings are not always clear and
not necessarily what they should be, the notion of "maintenance norms"
is at least conceptually well-founded.
144
7.2.5 The conceptual basis of actual estimates of maintenance expenditures
however is shaky because it is invariably mixed up with net investment.
When the roof of a school building is repaired, this does not occur in
pristine purity. Sometimes a boundary wall is added at the same time
While the repair constitutes maintenance expenditure, the addition
constitutes net investment. But the two are frequently reported together as
maintenance expenditure. This is not just due to lack of knowledge about
the distinction. Sometimes drawing the distinction is practically
impossible, since it entails a separation that is either impossible or tedious.
An example of impossibility of separation is when sow maintenance
expenditure raises the quality of service of the asset compared even to
what it was when the asset was newly installed: here maintenance has got
inextricably merged with net investment. A more common case however is
where disaggregation is possible but tedious For instance if in the process
of adding a new wing to a hospital which has to be whitewashed, some
existing walls also get whitewashed, tha keeping track of the latter as
maintenance in contrast to the formar which is net investment requires a
degree of disaggregation that is too tedious to be practically possible. All
this, somewhat abstract discussion has practical implications to which we
shall return later.
7.3
MANITANACE EXPENDITURE OUT OF PLAN ASSISTANCE
7.3.1 It can be argued that of the three categories of assets, clearly the
maintenance requirements of those assets which were with the LSGls
earlier and for whose maintenance specific revenue sources were assigned,
such as VTC, should be maintained by them; the state government should
have no responsibility in this regard. As for the assets transferred after the
1995 Government Order, the responsibility of meeting the maintenance
expenditure must fall on the state government. This is because if these
assets had not been transferred and had remained with government
departments, then the responsibility of maintaining these assets would have
fallen on the state exchequer Since these are not income-earning assets, so
that their transfer to the LSGIs has not been accompanied by any
corresponding transfer of
145
income, the task of meeting their maintenance expenditure must still fall
on the state government1. When it comes to assets constructed by
LSGIs from 1997-8 onwards, clearly the responsibility for the
maintenance of the assets whose construction has been financed by the
larger devolution of plan funds should also be borne by the government.
The reasoning again is that if these funds had not been transferred to the
LSGIs then the departments would have used them for their plan
projects, for which the government would have had to provide
maintenance. (Of course a distinction may be drawn between the assets
built out of the increased devolution, and assets that would have been
constructed out of those plan funds which would have come to the
LSGIs anyway, and the government's responsibility for providing
maintenance confined only to the former. But, without the increase, the
plan funds with LSGIs would have been so meagre that we can ignore
this distinction). As for the assets whose construction in the period
starting 1997-8 has been financed by sources other than plan funds,
clearly the LSGIs would have to look after the maintenance
requirements of these assets on their own.
7.3.2 As a matter of fact however even with regard to the assets existing with
the LSGIs earlier to the large-scale transfers, the actual maintenance
expenditure was woefully small. The first State Finance Commission
had noted that with respect to roads, the most important
1
While this principle is perhaps accepted at present, the amount of actual
maintenance expenditure undertaken is too minuscule to confirm this
acceptance. The total maintenance grant to LSGIs in the budget during the
four years 1996-7 to 2000-1 has been, respectively, Rs.3.74 cr., Rs.5.05 cr.,
Rs.5.77 cr. and Rs.3.53cr.
146
asset owned by LSGIs in the pre-1996-7 period, against the maintenance
expenditure requirement of Rs. 102.88 crores, on Rs.30 crores were being
spent.2 Of these Rs.30 crores, Rs.23 crores came from VTC and VRM. The
LSGIs' own resources contributed only about Rs.7 crores. Thus, for the
proper maintenance even of these assets, the state government has to meet
the bulk of the maintenance requirement, while ensuring that the LSGIs do
not spend in other ways what it provides maintenance. In return it need not
make any VTC payments to the LSGIs. (The first Finance Commission's
recommendation that the VTC and VRM should be merged has been
accepted by the government).
7.3.3 Of course it may be argued that with such a large share of plan funds being
set aside for the LSGIs, they should now meet their own maintenance
requirements. But this argument is wrong for several reasons: first, using
plan funds for purposes of meeting non-plan current expenditure, which is
what maintenance expenditure amounts to, is wrong in principle and would
set an unhealthy precedent. Secondly, it would defeat the very purpose of
democratic decentralisation, which is to let people prioritic investments
allocation based on local needs. Maintenance expenditure, though essential,
does not really involve any choice. If financed out of plan funds it
precludes plan projects, and ipso facto any choice in the matter of plan
projects. Thirdly, plan,
2
The fact that the "norm" used by the Commission relates to 1996-7 while
the actual expenditure figures relate to 1993-4 makes little difference to
the arguments Likewise the questions raised in the text below about the
accuracy of the estimate of Rs. 102.88 crores do not invalidate the
Commission's general point about the inadequacy of the actual
maintenance expenditure undertaken
147
assistance from the state government to the LSGIs, as a proportion of the state
government's total tax revenue, has already shown a decline in the last couple
of years: from 19.12 percent in 1997-8 and 19.52 percent in 1998-9 it came
down to 15.6 percent (RE) in 1999-2000 and 13.3 percent (BE) in 2000-01. As
the state government has faced a somewhat tighter fiscal situation owing to a
stagnation in central grants-in-aid and increased expenditure on implementing
the Pay Commission recommendations, its plan outlay has suffered, and even
though the 35 percent "norm" has been maintained, the devolution of plan
funds to LSGIs as a proportion of tax revenue has gone down. If in this
situation, maintenance requirements on LSGI assets have to come out of the
plan funds, then the size of the LSGI plans would in effect become a sort of
residual which would mean an attenuation of local planning. Fourthly, since
maintenance requirement on LSGI assets is going to increase in the coming
years, relative to other variables, owing to the fact that maintenance
expenditure on some of the newly constructed LSGI assets, negligible till now,
will have to begin and be sustained on a rising scale, the attenuation of local
level planning involved in making LSGIs finance their maintenance needs out
of plan funds, would be far greater than appears at first sight. The following
paragraphs highlight some of the issues.
7.3.4 If a certain proportion x of the value of an asset has to be spent each year for
its maintenance, then the total maintenance expenditure Mt upon this asset in
any year t is given by
M, = x. (I1+ I2+ I3+..........................It-1)
where I denotes gross investment, the subscript refers to the year when a
particular addition to the asset (represented by the corresponding investment)
started functioning, t-1 the previous
148
year ( the asset's life-time T is assumed to be not less than t),3 There are
however some assets, of which roads are a prime example, for which the
pattern of maintenance expenditure has a singular complexity. Roads too
require a certain amount of expenditure on repairs every year; but, in
addition, surfaced roads require re-topping every three to five years. Since,
with such maintenance and re-topping, surfaced roads can last a very long
time, both these types of expenditure should be counted as maintenance
expenditure. Our perception of maintenance expenditure then has to be
modified in the case of surfaced roads
3
With this definition we have two formulae representing simple logical
truisms a universe where gross investment grows at a steady rate g. If the
asset (assmued for simplicity to be a single homogeneous one), which it
creates, has, as before a life of T years and requires x percent of its value as
maintenance expenditure each year, then the ratio of total maintenance
expenditure to gross investment any year becomes a constant
M1/It=(x/g).{1-1/91+g)T-1}
after a minimum period of T years of operating the asset has passed. Before
T years have passed, the ratio of maintenance expenditure to gross
investment during any year t , such that 1 < t <T, is given by
(x/g).{1-1/(1+g)t-1}
which, for any x and g, keeps increasing until it reaches the value given in
the first formula. The first formula therefore gives an upper limit for the
ratio. If the ratio of maintenance expenditure to the value of the asset
increases over the life of the asset, then x in the first formula has to be
interpreted as a weighted average. In the second formula maintenance
expenditure as a proportion of gross investment would then rise even faster,
both because t rises and because x also rises with time. Now, even if gross
investment creates an assortment of assets and not just one single asset, as
long as they have similar life-spans and simihi patterns of maintenance
requirement (as proportion of value of asset) through life, both formulae
remain valid.
149
(whose maintenance is of overriding practical importance in Kerala). If a
surfaced road needs re-topping every T years, if the expenditure on re-topping
per unit of investment (however measured) is given by y, and the expenditure
on repair per unit of investment is given by x, then the total maintenance
expenditure on surfaced roads in any year t is
Mt= x. (I, + I2 + ...................It-1 ) + (y-x).I t.T
For unsurfaced roads of course the first definition of maintenance givenabove

would continue to hold.
7.3.5 Now, on the basis of "norms" mentioned below, the maintenance expenditure
at 2000-1 prices for the road length that existed with the LSGIs prior to
September 1995, or has been transferred to them after September 1995, comes
to about Rs.109 crores (the calculations are given below). In addition, on the
basis of assuming that about 5000 kms. of surfaced roads are, on average,
newly constructed each year by the LSGIs out of plan funds from 1999-00
onwards (we know that about 8000 kms. were constructed in the two years
1997-8 and 1998-9), and that all such new roads are constructed entirely by
converting existing un-surfaced roads into surfaced roads (an assumption that
turns out to be not very consequential), the additional maintenance
requirement for this road length comes to about Rs.159 crores for the year
2005-64. In that year in other words, Rs.268 crores would be needed for the
maintenance of roads alone. The maintenance expenditure on assets, either
already with LSGIs
4
The assumption of SOOOkms of extra roads each year is perhaps on ihe high
side. Knowledgeable persons we have spoken to believe that 4000 km. is a
more plausible figure. On the other hand however Planning Board estimates
suggest that 17600 kms of new roads have already been built in the three-year
period 1997-8 to 1999-00, as against 13000 assumed by us. If 4000 km is
taken to be the average annual addition after 1999-00, the number of extra
kms of road-length assumed by us for the terminal year 2005-6 still remains
valid (though its distribution over time would be different from what we
assume).
150
prior to Septemebr 1995 or transferred to them thereafter, comes to about
Rs.30 crores at 2000-1 prices. On the assumption that plan assistance to
LSGIs in 2001-2 would be raised one percentage point to 14.2 percent of total
tax revenue, and would grow (like total tax revenue) at 5 percent per annum in
real terms thereafter, the magnitude of maintenance expenditure (at 2 percent
of capital cost) on newly created, plan-assistance-financed assets would be a
further Rs.88 crores at 2000-1 prices in 2005-6. The total maintenance
requirement of the LSGIs for these particular assets in that year would thus be
Rs.386 crores which would absorb 25 percent of plan assistance on our
assumptions, Moreover if LSGIs are allowed to use plan assistance for
maintenance, then they would use such funds even for maintaining those
assets which have been constructed in the post-1997-8 period out of funds
other than plan assistance. In such a case the share of maintenance in plan
assistance would go up to 41 percent. The conclusion is inescapable that if
LSGIs are given the freedom to use plan assistance for maintenance, and if
they are serious about maintenance, then they will end up using up to two-
fifths of such assistance even as early as 2005-6, and still higher and higher
proportions beyond that date. This clearly is an untenable situation. On the
other hand if they are not serious about maintenance, then that too becomes an
untenable situation The object is both to prevent erosion in plan size and to
ensure the maintenance of assets. And this can be served only if the state
government takes the responsibility of financing the maintenance requirement
of the bulk of the LSGI assets. The only exception would be those assets
which have been constructed I in the post-Campaign period by LSGIs with
funds other than what the government has provided. Even as the government
takes I the responsibility of financing the maintenance expenditure onal whole
range of LSGI assets, it must be emphasised to the LSGIs that the
maintenance of the remaining assets would have to be I financed from their
own sources, other than plan assistance. In other words the habit of treating
plan funds as a cornucopia that
151
can finance all kinds of expenditures should be actively discouraged5. We
shall return to this issue in the second part of our report.
7.3.6 According to our perception then, what the government has to meet by way of
maintenance expenditure, consists of two components: one component for a
fixed stock of assets either possessed by LSGIs earlier or transferred to them
after the 1995 GO; this would be a constant component (except to the extent
that the maintenance requirement itself might grow with the age of the assets).
The other component is for assets constructed out of plan assistance in the
period since 1997-8; this would be a growing component since the stock of
assets whose maintenance has to be covered would itself be growing.
7.4 ESTIMATES OF MAINTANANCE REQUIREMENTS
7.4.1 There is a serious paucity of reliable data for making a proper estimate of
maintenance requirements. Even though a comprehensive list of assets
transferred to the LSGIs is now available, the age-structure of the transferred
assets is not known. What is more, even on the road length owned by the
LSGIs there are vastly differing estimates. Thus, the first Finance
Commission had shown a total road length of 112491 kms. with the LSGIs
5
. This argument also applies to the view that re-topping of roads should be
counted as part of plan, rather than maintenance, expenditure. This view is
both conceptually questionable, given the meaning of the term "maintenance"
discussed earlier, and practically inadvisable, since it would entail a big drain
on plan outlay. To be sure, if the maintenance expenditure undertaken by
LSGIs on roads is separately met by the State government, as we suggest, then
this would only encourage still more extravagant road building. But this
problem has to be addressed separately, by placing tighter constraints, if need
be, on road-building. If LSGIs are both left free (within the 30/40 percent
ceiling) to go on building roads and have to re-top these roads from plan
outlay, then the problem of unwise use of plan funds would only get
compounded.
152
as on 31.3.1996 (including 3437 kms. of PWD roads transferred), of
which 105553 kms. were with Grama Panchayats. On the other hand data
given to us by the Directorate or Panchayats show that Grama
Panchayats own only 77359.49 kms. of road length as on 31.3.1999. This
decline of 28000-odd kms, in four years is wholly inexplicable. Under
the cirucumstances we have assumed in our estimates that the total road-
length shown by the first Finance Commission is correct and that the
increase in the road-length of surfaced roads that has occurred since
31.3.1996 has been through the surfacingi hitherto un-surfaced roads6.
7.4.2 The first Finance Commission had estimated the maintenance expenditure
required on the 112491 kms. of roads with LSGIs at Rs.102.88 crores on
the basis of maintenance norms for different road surfaces which were
derived from figures given by the Ministry of Surface Transport of the
Government of lndia There are however two problems with the estimate
of the first Finance Commission. First, it does not take into account the
question of re-topping at all. Its estimate relates exclusively annual
repairs in the sense of patchwork. Secondly, the norm takes for the
maintenance of un-surfaced roads, which is Rs7500 per km. per year at
the prevailing prices, is extremely high.We have been told by several
knowledgeable persons that even today's price a sum of Rs.2000 would
be quite adequate for the annual maintenance expenditure per km. of
earthen and gravelled road. We attempt to rectify the estimates on both
these coun For re-topping, the PWD rates are Rs.6.5 lakhs per km. of
Blac Topped road, and Rs.7.25 lakhs per km. of WBM road when the
road width is 15 metres. Since village roads are 3.8 metres wide, we have,
with proportionate adjustment, Rs.1.65 lakh
6
. Dropping this last assumption and taking the entire increase since
31.3. as a net increase (consisting of surfaced roads) would not make
much diffem to our estimates
153
per km. of B-T road and Rs. 1.84 lakhs per km. of WBM roads as the re-
topping expenditure. As for costs of repair, we take the first Finance
Commission's figures for B-T and WBM roads adjusted for a 30 percent price
increase7, and Rs.2000 per km. for un-surfaced roads at today's prevailing
prices. Applying these norms to the figures given by the first Finance
Commission's data on road lengths, taking four years as the interval for re-
topping (and making allowance for the fact that if a road is being re-topped in
a given year, it does not need repairs in addition in the same year), we get a
total annual maintenance requirement of Rs. 108.6 crores at 2000-1 prices on
the road-length existing with LSGIs on 31.3.1996, i.e. prior to the 1997-8 plan
assistance increase.
7.4.3 As regards the assets transferred, the first Finance Commission had quite
rightly suggested that the basis for calculating maintenance expenditure
should be, not the original cost of the building but its current replacement cost.
We have accordingly tried to calculate the current replacement cost of this list
of buildings on the basis of certain assumptions: an LP School has seven
rooms (20' by 20') and a veranda 5' wide running its entire length; a UP
School has 8 such rooms with a corresponding veranda; a High School has 2
labs (40' by 40') in addition to what a UP School has; and PHCs, Dispensaries,
Veterinary Centres and Krishi Bhavans have 4 rooms each (20' by 20'). We
have assumed Rs.400 per sq.ft. as the current construction cost, 2 percent of
capital cost as maintenance expenditure for schools and hospitals and 3
percent for other buildings. What our
7
This is not too far from an alternative estimate we can make. That is as
follows. For annual repairs we can take the PWD norms of Rs.150 per
sg.metre as the cost of patchwork, and 4 2/3 percent of surface area
as the necessary extent of patchwork per annum. This gives us an estimate for
repairs on B-T roads which is Rs.26619 per km. of road length. Our estimates
based on adding 30 percent for price increase to the first FC's figure assume
Rs.2509Q per km.
154
illustrative calculations indicate is that the total amount of maintenance
requirement on this part of the asset stock of the LSGIs is very small
compared to that on roads. We surmise in the basis of our calculations that
a sum of about Rs.30 crores would perhaps be adequate for the
maintenance needs of the transferred assets (i.e. more accurate information
on the age structure would not add all that much to the total). This sun (of
Rs. 140 crores approximately) is unlikely to increase much in real terms
in the coming years. True, there would be soni increase in the maintenance
requirement with the ageing of the assets. But it is only for schools and
hospitals that we have assumed a 2 percent maintenance cost; for the
others we havt taken 3 percent which is the government's norm for
ordinary old buildings. The increase in maintenance requirement owing
to asset aging will add only a small sum.
7.4.4 What would increase is the maintenance requirement of asse newly

constructed after 1997-8 out of the increased plan assistance. Let us take
the State Planning Board figure of about 8000 km. of new roads in the
first two years of the increased devolution8, and assume 5000 km. of extra
roads each year thereafter. If we take a re-topping interval of four years for
thesi roads (taking cognisance of the view held by many that they are of
slightly inferior quality compared to the old PWD-built roads then the
extra amounts needed for the maintenance of these newly constructed
roads (after deducting the saving in expenditun arising from the fact that
the un-surfaced roads, now converted to surfaced roads, would no longer
need to be maintained), come to as follows.
155
2001-2 Rs. 69.95 crores
2002-3 Rs. 129.97 crores
2003-4 Rs. 134.91 crores
2004-5 Rs. 147.25 crores
2005-6 Rs. 158.70 crores
7.4.5 On the assumption that approximately 40 percent of the total

plan assistance has taken the form of assets whose maintenance
would require about 2 percent of capital cost per annum we get
a figure for the maintenance of such assets at around Rs.35 crores
in 2001-2 and Rs.88 crores in 2005-6 at 2000-1 prices (the latter
on the assumption, already stated, that plan assistance as
percentage of total tax revenue goes up by one point from its
current level to 14.2 percent in 2001-2 and remains there, while
total tax revenue grows at 5 percent per annum from 2000-1
onwards). It follows then that the extra maintenance requirement
on account of the newly-constructed assets goes up from Rs. 105
crores in 2001-2 to about Rs.247 crores in 2005-6.
7.4.6 Taking the two components together we can say that the total
maintenance requirement on account of all the LSGI assets whose
maintenance should in our view be the responsibility of the state
government, goes up from Rs.245 crores in 2001-2 to Rs. 387
crores in 2005-6 at 2000-1 prices. If we assume the state
government's total tax revenue at 2000-1 prices to grow at about
5 percent per annum from 2000-1 onwards, which is roughly
equivalent to the SDP growth rate, then the maintenance
requirement on account of all these assets, new as well as old, as
a proportion of the tax revenue of the state, would increase from
2.72 percent in 2001-2 to 3.55 percent in 2005-6. The former
figure is more firmly based than the latter. In arriving at the
latter figure we have had to make assumptions about the size of
156
plan assistance in the years to come which may not materialise. On the other
hand, the assumption that the ratio of plan assistance to total tax revenue can
be raised by at least one percentage point during the next year and kept at
that level until 2005 appears to be an eminently reasonable one, in view of
the fact that this ratio was as high as 19.1 percent in 1997-98 and 19.5
percent in 1998-99. Likewise the assumption that real revenue would grow
at 5 percent per annum is by no means a far-fetched one. If this happens
then the government’s maintenance commitments as visualised by us
would increase from an estimated 2.72 percent of the total tax revenue in
2001-2 to 3.55 percent in 2005-6.
7.5 RECOMMENDATIONS REGARDING MAINTANANCE

EXPENDITURE
7.5.1 To keep the procedure simple, we are of the view that each year the
government should set aside an amount equivalent to 3 percent of its total
tax revenue for distribution among LSGIs for meeting their maintenance
requirements8. Since it was felt
8. This would mean a slight surplus relative to requirements in the first

couple of years but a deficit in the later years. And if it is felt that the
correct re-toppimg interval on newly-constructed LSGI roads should be
five rather than four years (so that the re-topping exercise in effect gets
postponed by a year), then the surplus would be larger for the first couple
of years. On the other hand however it should be remembered that our
estimate of Rs.140 crores as maintenance expenditure on transferred assets
assumes a steady state of maintenance, i.e the absence of any backlog with
regard to maintenance. Given the fact that there is actually likely to be a
backlog, the surplus may be only illusory. Moreover,if there is any surplus,
as long as it is spent on the assets for which it is meannt, even if it entails
some capacity addition (which, as mentioned earlier, is often
indistinguishable from maintenance), there can be no possible harm in it. It
is the diversion of funds, destined to be spent on assets, towards sundry
curm expenditures that is questionable, not diversion of the reverse kind
(after current expenditures are met). Besides we are also allowing the
expenditure of up to 10 percent of the Maintenance Transfer for meeting
operational costs. See paragraphs 7.5.13 and 7.5.14 below.
157
by the Commission that earmarking a share of total tax revenue including the
share in central taxes might not be appropriate, we would like to present our
recommendation in terms a share in the tax revenue raised by the state. On
average an approximate ratio of 3:1 has been maintained in recent years
between the state's own tax revenue mobilisation and its share of central taxes.
Given this fact we would like to recommend that the state government should
put aside 4 percent of the tax revenue raised by itself each year over the next
five year period for distribution among the LSGIs for meeting their
maintenance requirement. LSGIs should not accordingly have the option, that
they now enjoy of spending 10 percent of their plan funds for purposes of
maintenance.
7.5.2 We would however like to present our final recommendation in

yet another way. Since it is important that LSGIs know at the
beginning of the financial year the exact amount of maintenance
funds they are going to get, it would be more appropriate if we
relate these to the latest audited Actuals. These, at the time of
preparing the budget for the year t-2 , are known only for the year
t-2 . On the basis of the projected trends it turns out that 4
percent of the current year's revenue of the state government
amounts to about 5.5 percent of the own revenue two years back.
Our precise recommendation therefore is that the state
government should make available to the LSGIs each year an
amount of maintenance grant amounting to 5.5 percent of the
latest audited Actuals of own tax revenue.
7.5.3 This amount consisting of two parts, one constant and the other
changing, must also be distributed according to two distinct
criteria. Of the total amount so earmarked, Rs. 140 crores at
2000-1 prices should be distributed in accordance with the
distribution of old and transferred assets among the LSGIs, for
whose maintenance it is meant. The remainder has to be
distributed in accordance with the distribution of newly created
158
assets out of plan assistance among the LSGIs. Since the latter would
correspond roughly to the distribution of plan assistance itself, the
distribution of this part of the maintenance transfer should mirror exactly the
distribution of plan assistance.Or course we are introducing a break in the
pattern of distribution of plan assistance, by bringing in the revenue effort
criterion in addition to those being used earlier. As a result, the distribution
henceforth would be somewhat different from what it has been till now, so
that if this part of the maintenance fund is distributed according to our
criterion then it may diverge from the maintenance requirement on newly
constructed assets whic would have been determined till now by the way
plan assistance has been distributed so far. But this divergence is unlikely to
be very significant and may in fact provide further inducement for
undertaking a revenue effort. Besides, simplicity has to be an important
consideration. Our recommendation for the inter se distribution of the
maintenance fund then is as follows: an amount equivalent to Rs.140 crores
at 2000-1 prices has to be distributed keeping in mind the distribution of a
stock of assets The remainder is to be distributed in exactly the same way as
plan assistance. The adoption of this dual criterion would ensure that neither
the Block and District Panchayats whose share in the stock of assets is larger
than their share in plan assistance nor Grama Panchayats for whom the
opposite is true, would have any cause for complaint.
7.5.4 At present 3437 kms. of roads which have been handed overt to the District
Panchayats are being maintained by the PWD. If the entire maintenance of
the transferred assets is going to be the responsibility of the LSGIs
themselves, then the District Panchayats should get the amount equivalent
to the maintenance expenditure on these 3437 kms of roads. Likewise at
present while assets have been handed over to the LSGIs, the maintenance
of these assets often remains with the respective Departments. The
responsibility for the maintenance of all such transferred
159
assets should from now on be transferred to the LSGIs, since we are asking for
funds to be made available to them for this purpose.
7.5.5 While the distribution of a part of the maintenance fund in accordance with
that of plan assistance is easy to arrange, the distribution of the other part, the
Rs.140 crores at 2000-1 prices, in accordance with the maintenance
requirements of old and transferred assets, would be more difficult to effect.
We would therefore suggest the following procedure only for the fixed
component of the maintenance transfer. Out of the total of Rs.140 crores at
2000-1 prices (which has to be translated to current prices every year), one-
seventh should be kept aside for the District Panchayats and Block
Panchayats. Five percent of this amount (i.e. 1 /140 th of the total amount)
should be given to the Block Panchayats for equal division among them. The
other 95 percent should go to the District Panchayats which would now have
the responsibility of maintaining 3437 kms of surfaced road-length (including
re-topping at four year intervals). The remainder of the Rs.140 crores (at 2000-
1 prices) should be distributed among the Grama Panchayats and the
Municipalities. The mode of distribution of the respective amounts among the
District Panchayats and among the Grama Panchayats and Municipalities will
be initially according to the following formula. The maintenance amount for
District Panchayats should be split between road and non-road assets on a
50:50 basis. The former should be distributed on the basis of road length and
the latter on the basis of certain "norms" (given below) applied to the value of
non-road assets. For Grama Panchyats and Municipalities, exactly the same
formula should hold except that the distribution of the maintenance amount
between road and non-road assets should be in the ratio 7:1 (correspondingly
roughly to their estimated requirements). For the distribution of the
maintenance amount on roads the existing criteria based on Babu Paul
Committee report should be followed. For the other part, the "norms"
mentioned below could be applied to the data on the
160
magnitude of transferred assets to get an inter se distribution To be sure,
what any particular LSGI would get out of Rs.140 crores (at 2000-1 prices),
distributed in this manner, may be very different from what it objectively
needs for the maintenance of the old and transferred assets at its command
in accordant with the given "norms". Ideally, to get at a genuin
correspondence between the two vectors, namely, what the LSGIs get for
the maintenance of these assets and what they objectively need, there
should be an iterative procedure of the following kind.
7.5.6 In the first year, as the total maintenance expenditure amounting to Rs.140
crores (at 2000-1 prices) is distributed according to the above criteria, the
government can simultaneously announting these maintenance expenditure
"norms" (e.g. rupees per sq.ft of buildings and per km. of road length etc.)
on the basis of which those LSGIs which feel that they have got less than
theij due would put in claims for more. At that point, the validity of their
claims will have to be verified by the government (and in the process a
proper inventory of their pre-existing an transferred assets built up). Now,
suppose the sum of valid exte claims comes to Rs.10 crores. Then, in the
second year, since tk total maintenance transfer would increase to a larger
figure owini to price increase (say to Rs.154 crores, if prices rise by 10
percent), these extra claims can be met out of this increase. In the second
year then Rs.10 crores would be given to thos: particular LSGIs which had
got less in the first year, and Rs.144 crores (154 - 10), distributed among
all the LSGIs (including those who have been given the extra Rs.10 crores)
in a new ratio (where the Rs.10 crores get added to the weights of those wb
have been given this sum). If on the other hand the sum of extra claims
exceeds the increase in the provision in the second yea. say the valid extra
claims come to Rs. 20 crores against an increase in provision of Rs.14
crores, then the Rs.14 crores would have to be rationed out among the
claimants, with each getting 70
161
percent of the extra claims, and being asked to put in fresh claims for the
remainder next year. When the available funds exceed the claims at the old
norms, this excess can be distributed in accordance with the latest prevailing
weights. And at this point the norms can be revised to take account of price
increases in the interim, on the basis of which fresh claims would be put
forward.
7.5.7 When a situation arises where all LSGIs put in valid extra claims,
we have reached the end of the iterations. Once these claims have
been accommodated in the manner described above, the pattern
of weights prevailing at that point can be used for all subsequent
distribution of the fixed amount (of Rs.140 crores at 2000-1
prices). In this manner we start with incomplete information,
and hence only a rough and ready index of weights for inter sc
distribution, but we keep revising the index as we go along on
the basis of information provided by the LSGIs themselves (and
verified as authentic by the government), and simultaneously
building up the information base. This way eventually we should
get at the “true" index of weights (i.e. the iterations will converge
to the "true” index), provided we start in the neighbourhood of
the "true" index.
7.5.8 In case this procedure, which relies heavily on the assumption

that a posteriori verification would be authentic, is found to be
administratively infeasible, the more simple and obvious
alternative is to cut out iterations, and take the initial inter sc
distribution as the final one as well. In this case a careful a priori
calculation, based on the available data on transferred assets,
supplemented by further verification through visits and the
eliciting of additional information through questionnaires, may
be made of the maintenance requirements, especially of the
transferred non-road assets. Rs.30 crores can be distributed on
the basis of these calculations and the Rs.110 crores (both figures
at 2000-1 prices) can be distributed on the basis of the Babu
Paul Committee recommendations, and the matter can be left at
that.
162
7.5.9 The scheme of iterations has several additional advantages: first,
it is flexible in the sense that it can be stopped after any round if
we are not too finicky. For instance when the very first round of
excess claims have been accommodated, and available funds have
shown an excess over claims (and hence distributed according to
the latest prevailing weights), the iterations may be stopped. The
latest prevailing weights can then be taken as final, for the safe
of convenience. Secondly, it is flexible in yet another sense: the upward
revision in the maintenance norms (to reflect price increases) can be
calibrated in accordance with the capacity of
the administration. Since all claims have to be verified by the
administration, a sharp increase in the norms would put a greatcj
burden on the administration than a small increase in the norms
Thirdly, the scheme works even if the original estimate of Rs.140
crores (at 2000-1 prices) as maintenance expenditure requirement
on old and transferred assets is inaccurate. What the schemt
achieves is the following: if the amount is "too little" or "too
much", this "too little-ness" or "too much-ness" is evenly
distributed across LSGIs. Notwithstanding the advantages of the
scheme of iterations however, it was felt by us that on practical
considerations a once-for-all formula of inter se distribution
would be better. We would therefore recommend the latter.
7.5.10 A possible criticism of our proposal is that it requires an

identification of pre-existing or transferred assets separate froir
those newly constructed. But even though by looking at a house
one cannot say whether it is newly-constructed or whether it has
been transferred, or looking at a road-length one cannot be sure
whether it was pre-existing with the LSGI or has been
constructed out of the plan assistance (especially since such
assistance might have been used to re-top an old road),
nonetheless records are available on the basis of which the
authenticity of maintenance claims on pre-existing or transferred
assets can be verified. Besides, this whole system of dual criterion
that we are suggesting is a transitional arrangement anyway: in
163
the future when the weight of the maintenance expenditure on pre-existing or
transferred assets in the total would have gone down (it being a fixed part of a
growing amount), this dual criterion can be replaced by a single one, viz.
distributing maintenance assistance entirely in the same proportion as plan
assistance.
7.5.11 It remains to identify the verifying authority and to fix the initial norms. This
authority should vest with the Ministry of Local Self Government of the state
administration. The initial norms can be as follows
i. Maintenance on Buildings 3% of capital cost

Constructed Before 1.4.67
ii. Maintanace on Buildings 2% of capital cost Rs.400 per sq.ft

Constructed After 1.4.67
iii. Current Construction Cost Rs.400 per sq.ft
iv. Frequency of Re-topping of Once in Five Years
Surface Roads
v. Repair Expenditure: B-T Rs.25090 per Km
Roads Annually
vi. Repair expenditure:(WBM) Rs.23140 Km
Raods Annually
vii. Reapir Expentiure: Un- Rs.2000/Km
surface Raods Annually
viii. Cost of Re-topping B-T Rs.1.65 lakhs/km
Roads(3.8 m.width)
ix. Cost of Re-Topping WBM Rs.1.84 lakhs/km
Roads (3.8m width)
164
These figures would have to be updated from time to timet to take account of
inflation.
7.5.12 The procedure we are suggesting can be summed up forconvenience as

follows:
(i) Set aside, in each year's budget, 5.5 percent of the tax revenue raised
by the state government during the latest year for which audited
accounts are available, for transfer to LSGIs as a maintenance fund.
(ii) On the basis of a price-index work out what Rs.140 crores at 2000-1
prices amount to for the coming year for whichthe provision is being
made in the budget. (The deflator for the construction sector
employed in SDP calculations can be used for the purpose and the
Department of Economics and Statistics can be asked to give a quick
estimate of its increase during the preceding 12-montr period at the
time of the formulation of the state budget, and this increase can be
assumed to hold over the next twelve months).
(iii) Of this sum, one-seventh is to be kept aside for District and Block
Panchayats, and divided between them in the ratio of 19:1. The Block
Panchayats should have the amount equally divided among them. The
District Panchayats shout have half the amount divided among them
in exactly the same ratio as the 3437 km. road length is distributed,
and the other half on the basis of "norms" applied to estimated non-
road asset values.
(iv) The remaining six-sevenths of this sum is to be distributee among the

6rama Panchayats and the Municipalities ano Corporations; seven-
eighths of this is to be distributee on the basis of the Babu Paul
Committee recommendations
165
and the remaining one-eighth on the basis of "norms" applied to
estimated asset values.
(v) The remaining part of the maintenance fund, i.e. the excess of 5.5
percent of the state's own tax revenue two years ago over Rs.140 crores
at 2000-1 prices, is to be distributed exactly in the same ratio as the
plan assistance.
7.5.13 The LSGIs should not in general be allowed to spend the amount they receive
as maintenance transfer for any other purpose. There is however a problem
here. Since, as argued earlier, the expenditure on maintenance cannot be
distinguished from net investment in many cases, the LSGIs would perforce
get embroiled in tedious, almost theological, hair-splitting if they seek
scrupulously to follow this injunction. The only practical way of avoiding this
and yet ensuring that the maintenance transfer is not illegitimately used, is to
insist that the total amount of such transfer should be spent exclusively
(subject to one qualification mentioned below) on the assets for which they are
meant. Ideally, the amount meant for the maintenance of transferred and old
assets should be spent on these assets alone and on nothing else, and the
amount meant for the maintenance of newly constructed assets should be spent
on only these assets and on nothing else. But, ensuring that maintenance
transfers within each category are spent exclusively on assets belonging to that
category, would be practically impossible. What can however be ensured is
that the total amount transferred for maintenance is spent only on assets that
require maintenance. (Of course, in the process, some of the maintenance
transfer would be used for the maintenance of assets newly-constructed from
sources other than plan funds. But this is a problem which can be ignored for
the time being). What is most important is that maintenance transfers to LSGIs
should not be diverted either towards entirely new projects or for arbitrary
current expenditures. If this much is assured through proper audit, then it can
be left to the peoples'
166
intervention to ensure that the maintenance amounts are spa as far as
possible on maintenance. Once it is known that adequa amounts are
available for the maintenance of assets, thenal observed poverty in the
quality of these assets would aroJ popular anger which is the best means
of ensuring that the LSfl follow the straight and narrow path of rectitude.
7.5.14 We now come to the qualification mentioned in para 7.5.11 There is a

widespread feeling that the present practice of making LSGIs rely
exclusively on the supplies of medicines and books and consumables made
available by the state government is an inefficient one; likewise the
practice of making the state government meet a host of current costs such
as rent, telephone bills, the repair and fuel consumption bills on vehicles,
electricity and water charges etc. is both cumbersome and inefficient. I this
context we propose in Chapter 8 that the state governmel should be freed
from the obligation of having to meet any operational expenses other than
on medicines and books and consumables. To meet these other costs, the
LSGIs should make their own provisions; and even in the matter of
medicines an books and consumables where we recommend a continuation
of the present system, the LSGIs should be allowed to make their own
additions! purchases at the margin. For all this, howevei the LSGIs need
some funds. We recommend that they shouldm allowed to spend up to a
ceiling of 10 percent of the Maintence Transfer for meeting current
expenses. While we strongly oppose the practice of diverting maintenance
transfers for current uses we make this exception only as a transitional
arrangement, to provide a bridge from the existing system to a new one. By
thj time the next Finance Commission conies into being, how the proposed
system works would have become clear, and appropriate rectifications can
be made so that operational expenditure and maintenance expenditure are
kept strictly separate, and the former does not lay claim to what is
earmarked for the latter.
167
7.5.15 To recapitulate, we are allowing LSGIs to use maintenance funds
for operational expenses up to a ceiling of 10 percent; in addition
we are allowing them some leeway in selecting the assets for
maintanance expenditure in a particular year. This is because
maintenance too is undertaken in practice in a bunched manner.
It is not as if little bits are spent regularly on the repair and
maintenance of particular assets; rather, sizeable sums are spent
every once in a while for the maintenance of particular assets.
The candidates on whom such sums are spent differ from year to
year.
7.5.16 Earmarking a part of the state's own tax revenue for transfer to
LSGIs for the maintenance of their assets would no doubt entail
a certain additional strain on the state's finances. The whole
purpose of the exercise however would be lost if this strain is
sought to be met by cutting back on plan outlay. If we disapprove
of the use of plan funds for maintenance at the LSGIs' level,
then we are equally opposed to the use of what in effect would
have been the state's plan outlay for the purpose of maintaining
LSGI assets. Any such reduction in the state's plan outlay would
also entail a reduction in plan assistance to the LSGIs (under
the one-third formula suggested by us), so that a part of what
the latter would gain through maintenance transfers would be
lost through reduced plan assistance. The funds for the
maintenance transfers therefore have to be found independently.
One way of ensuring that plan assistance to LSGIs is not adversely
affected by the maintenance transfers, is to suggest that a certain
minimum proportion of tax revenue should go as plan assistance,
in the same way as we have done for maintenance assistance. But
if we do so, then, together with our stipulation of one-third
transfer of plan outlay to LSGIs, it would amount to fixing the
minimum size of the state's plan outlay itself (as a proportion of
its tax revenue) which is outside our terms of reference. Our
expectation is that plan assistance to LSGIs which has fallen to
13.3 percent of total tax revenue in 2000-01 (BE) would be raised
168
by at least one percentage point and whould be kept at least! that level for
the next quinquennium.
7.5.17 That still leaves the question: how is the state government to find the
resources to make this extra transfer to the LSGIs? The amount is not
much, since against payments to be made as maintenance transfer we have
to offset the savings the government would be making by not paying VTC,
by not paying the PWD for the maintenance of 3437 km. of road-length,
by not paying the (very small amount of) maintenance grants currently
used by Departments for maintaining assets falling within the jurisdiction
of LSGIs, and by not paying the operational expenses except for the
purchase of medicines, books and consumables. Even so, funds have to be
found for this. How the government can do so, is an issue that falls
outside our terms of reference. It seems to us nonetheless that that if the
service sector in Kerala, which has been the fastest-growing sector, could
be brought under the ambit of taxation to a greater extent than has been
the case till not then the state which has a good record of revenue
mobilisatioin would do still better.
169
CHAPTER 8
NON-PLAN, NON MAINTANANCE

TRANSFERS
8.1 Traditionally, transfers from the state government to the LSGIs have been
grouped under two separate heads: plan transfers and non-plan transfers. We
have discussed plan transfers in Chapter 6. In Chapter 7 we have introduced a
new category, namely transfers for the maintenance of certain LSGI assets, or
"maintenance transfers" for short. In the current chapter we shall discuss what
was traditionally referred to as "non-plan transfers" and what we shall call
"non-plan, non-maintenance transfers" to emphasise that we are no longer
discussing "maintenance transfers" (which logically must also fall under the
general rubric of "non-plan"). At the time of the first Finance Commission
Report, the bulk of the "non-plan transfers" referred exclusively to the
transfers of shared and assigned taxes and a host of specific and general
purpose grants to LSGIs. And these "non-plan" transfers were divided into two
parts: statutory transfers and non-statutory transfers. The former referred to the
transfers on account of the assigned taxes (Basic Tax, and Surcharge on Duty
on Transfer of Property) and shared taxes (Motor Vehicle Tax), while the non-
statutory transfers included a host of grants (a possible 18 in the case of
panchayats and a possible 10 in the case of municipalities). Now, on account
of the shifting of a whole array of assets and responsibilities to the LSGIs
whose operational costs have to be financed by the state government, there is
an additional and significant element of transfers whose magnitude even
exceeds what conies to LSGIs through shared and assigned taxes and sundry
grants. An entirely new category,
170
which had appeared only in an embryonic form at the time the first Finance
Commission has now grown to an extent when it even dwarfs what
traditionally constituted "non-plat transfers". This category in turn has two
distinct parts: one is listed in the budget under the Minor Head "191:
Assistance Local Bodies and Municipalities/ Municipal Corporations". We
shall refer to this part as the "191 Non-Plan Transfers" (since Plan Transfers
are also listed under 191). The other part consists of the amounts that are
made available to the LSGIs on account of meeting the operational costs, i.e.
the salaries and material input costs, on transferred assets. We shall refer to
these transfers as "Operational Cost Transfers". Finally, we shall refer to
thtl transfers on account of tax devolution and minor grants as "Tai-Cum-
Minor Grants Transfers". It follows then that we are talking! of four distinct
kinds of "non-plan transfers": the "Tax-Cum- Minor Grants Transfers"
(which were the predominant element! until 1995-6), "191 Non-Plan
Transfers" (which are a resulto! the shifting of several responsibilities to the
LSGIs), "Operational Cost Transfers" (which are a result of shifting assets
to LSGIs), and "Maintenance Transfers" (which we wish to bring into
being).
8.2 At the time of the first Finance Commission, the transfers through these
minor grants, or what the Commission had called "the non-plan, non-
statutory transfers", were many in number, minuscule in amount, and
divided, in addition, into general and specific purpose grants. The
Commission had therefore made a number of suggestions for simplifying
the system and making it more meaningful. One was to make all of them
general purpose grants. The other was to ensure that the total of such
transfers should constitute 1 percent of total state revenue (appropriately
defined for the purpose), and should go into two pools, the rural and the
urban, according to the weights of the rural and urban populations in the
total population of the state. In addition, the rural pool was to have 25
percent of the Basic Tax from panchayat
171
areas, and 25 percent of the Surcharge on Stamp Duty from panchayat areas,
while the urban pool was to have 100 percent of the (newly-proposed) Basic
Tax and 25 percent of the Surcharge on Stamp Duty collected from urban
non-Corporation areas (the Corporations were to be simply given the taxes
collected from their areas). In the event the government accepted the other
suggestions but not the one relating to 1 percent of total state revenue, which
essentially meant retaining the tail without the sting. It accepted the idea of
the rural and urban pools, but these pools could not be nourished by 1 percent
of state revenue.
8.3 Today we once again have a complex and intricate system of "Tax-
Cum-Minor Grants" transfers whose complexity and intricacy is
entirely unnecessary. There is a rural pool, which undoubtedly
had a rationale at the time of the first Finance Commission's
report, but whose rationale is much reduced after the ushering
in of democratic decentralisation. It represents, besides, a rather
meagre sum. To make up this meagre sum, even more meagre
streams from various tax transfers have to be joined together;
and their respective sizes too are determined by elaborate
formulae.
8.4 This is not all. Quite apart from the question of complexity and
intricacy, the whole conception of assigned taxes and shared taxes
is open to question. If the financial relationship between the state
government and the LSGIs is to be characterised by sharing,
then it is not clear why this sharing should take the form of
some particular taxes being destined for LSGIs and others for
the state government, and why the revenue of only some
particular taxes should be shared between the two in certain
ratios. This conception, apart from its complexity and lack of
rationale, is also foreign to the underlying philosophy of
democratic decentralisation. This visualises not a tussle between
the state government and the LSGIs, not an antagonistic
relationship, but a relationship aimed at constituting a total
172
democratic structure more meaningful than what exists now. We are
talking after all of two entities, each of which has ai administration headed
by elected representatives of the people The conception of success of the
overall structure must be defind in terms of the degree of empowerment of
the people. An important component of the index of success of institutions
at one level therefore must be the degree to which they strengths the
institutions at the other level. We have to get over the mindset of
visualising the problem of resource sharing between the tw levels as if two
self-centred, self-absorbed, hedonistic entities an squabbling over shares in
a piece of cake (with the role of the Finance Commission being that of an
arbitrator reconciling thestl conflicting claims). In short the old formulae
for sharing, which meant assigning particular tax revenues to particular
levels, haw to be replaced.
8.5 There is an additional reason for our suggesting this. If we look into the
fiscal future of Kerala, there can scarcely be any doubil that the state will
have no option but to rely increasingly on taxation of the service sector. It
is more than likely that such shift would give a greater buoyancy to the
tax-revenue ofthJ state government, compared to the tax revenue of the
LSGIs, ii the latter continue to depend exclusively on a certain limitcil
number of assigned taxes. An overcoming of this dichotomy will
inevitably come on to the agenda. Sooner or later in other words we have
to move away from the system of basing LSGI financal on a set of
assigned taxes, towards one where the LSGIs and the state government
share the proceeds of the entire tax revenue raised by the latter. If this be
so, then we may as well move toi system of tax-sharing right from now.
We are basing on: recommendations on the existing set of taxes. We hope
that future State Finance Commissions would take into account new taxes
which may get imposed, so that the principle of total tax sharing is
continued.
173
8.6 The magnitudes of non-plan transfers to LSGIs which have occurred under
two of the several heads, viz.191-Transfers and Tax-Minor Grant Transfers,
are given in table 8.1.
Table 8.1
Non-Plan transfers to LSGIs (Rs.Crores)
1995 1996- 1997-8 1998-9 1999- 2000-1

-6 7 00 BE
RE
(i)Under 191 17.1 151.2 178.0 229 236.0* 245.2*
(ii) Others 87.4 148.8 160.4 155.8 199.3 179.7
Ofwhich
a. Basic Tax 5.25 14.2 11.6 16.0 7.0 7.7
b. V.T.C. 20.8 32.8 50.9 50.2 78.9 58.6
c. Surcharge on Duty 54.3 83.5 77.9 75.9 100.0 100.0
on Property Transfer
* See footnote 1.
Source: Budget Documents
Note: Comparison across the years is problematical because of systemic

changes over the period and also because figures for the last two years
represent only estimates.
8.7 The category "others" in Table 8.1 comprises what we have referred to as "Tax-
Cum-Minor Grants Transfers". For the last three years, when the VRM grant
was discontinued, this category consists of the following items:
174
(i) the three main tax sources
(ii) a grant of Rs. 8.4 crores (in 1999-00 and also in 2000-01) to District
Panchayats (who got Rs. 2.3 crores) and Block Panchayats (who got
Rs.6.1 crores) for meeting their revenue expenditures1
(iii) Rs. 3.5 crores as "Grant-in-Aid Assistance to Panchayats", and

several minor grants for the maintenance of minor irrigation, water
supply, railway crossing etc. whichl together came to Rs. 1.49 crores
in 1999-00 and Rs.1.54 crores in 2000-01.
8.8 These figures exclude, as they rightly should, the expenditure

on account of the state government's Panchayat administration at the state and
district levels, and the expenditure on Panchayat
publication and training programmes undertaken by the state
government.
8.9 In view of what has been said above, we recommend that in lieu
of the present arrangement of specifically assigned and shared taxes and of
sundry grants, a certain proportion of the state
government's own tax revenue (excluding its share in central
taxes) should be set aside for transfer to the LSGIs. In the
preceding chapter we have already provided for "Maintenance
Transfers", i.e. non-plan assistance from the state government
to the LSGIs for the maintenance of transferred assets, of old
assets which were with them, and of newly constructed assets
from 1997-8. While doing so the state government need not pay
any VTC to the LSGIs, since the purpose of VTC and VRM was
to finance maintenance expenditure for roads under the
jurisdiction of the LSGIs. Now, if the state government did not
have to pay VTC, then the amount of "Tax-Cum-Minor Grant
1
. Since this particular item also appears under the non-plan expenditure
listed in Appendix 4, in order to avoid double counting we have removes it
from our total of "191 Non-Plan Expenditure". For 1999-2000 and 2000-1
therefore the totals of "191 Non-plan expenditure" do not correspond to the
figures available in published official statistics.
175
Transfers" that it would have made available to the LSGIs during the last six
years is given in Table 8.2
Table 8.2
Tax-Cum-Grants Transfers (Excluding VTC)
Year Tax-Cum- Sate’s Tax- (ii)/(iii) %
Grants Revenue(excluding
Transfers(Rs.Cr) share in Central
taxes)Re.Cr
(i) (ii) (iii) (iv)
1995-96 66.6 3383 1.97
1996-97 116.0 3899 2.98
1997-98 109.5 4501 2.43
1998-99 105.6 4650 2.27
1999-00(RE) 120.4 5472 2.20
2000-01(BE) 121.1 6440 1.88
8.10 The average figure for the percentage of the state's own tax revenue
transferred each year on account of taxes and minor grants comes to 2.29
percent for the entire six-year period. In fact if we leave out 2000-1, for
which we have only budget estimates anyway, then the figure for the
preceding two years is remarkably close to this average. It would appear
then that an amount approximately equivalent to 2 ¼ percent of the state
government's own tax revenue (excluding its share in central taxes) has
been handed over each year, in recent years, to the LSGIs on account of
tax assignments, tax sharing and the minor
176
grants (other than through the VTC). We recommend that 2,51 percent, of
the total tax revenue of the state government (excluding its share in central
taxes), should henceforth be sell aside for distribution to the LSGIs. On the
other hand the government should retain the entire tax proceeds from those
taxes which it either collects on behalf of the LSGIs or shares with them
currently. The reason for our suggesting a slightly higher percentage (2.5 as
opposed to 2.25 ) of own tax revenue for devolution to LSGIs under the
head "Tax-Cum-Minor Grants! Transfers" (which we wish to re-christen as
"General Purpose Transfers" or "General Purpose Grant") will become
clear later, But the increase is marginal. Our main concern is simply a
rationalisation and simplification of the existing system.
8.11 It is more convenient however if the transfer on this score is expressed as

a percentage not of the current year's tax revenue of the state government,
but of the tax revenue of the latest year for which the Actuals are available
(which in effect means the tax revenue two years ago), so that a precise
figure appears in the current year's budget of the state government.
Assuming a 16.8 percent growth rate of own tax revenue (which happens
to be the "norm" prescribed by the CFC for the state), 2,5 percent of the
current year's own tax revenue would amount to 3.5 percent of the own tax
revenue two years ago. Our precise recommendation therefore is that an
amount equivalent to 3.5 percent of the state's tax revenue (excluding its
share in centrA taxes) of the latest year for which certified accounts by the
Accountant General are available should be transferred each yean by the
state government to the LSGIs in lieu of the current system of transfers of
taxes and grants to them.
177
8.12 The Commission's recommendations amount to a radical departure
from assigning and sharing of specific taxes to sharing of revenue from all the
own taxes of the State Government. Of course assigned taxes and specific
shared taxes have a certain sanctity coming out of their long history and
universal practice. And more importantly they are legal entitlements, which
over a period of time have come to be seen as a matter of right for LSGIs
enshrined as legislation and protected by it. The LSGIs have a historic as well
as legal right over these sources of revenue. They have been used to it for so
long that it has become an integral part not only of their fiscal system but also
of their expectations of revenue. Thus any move away from this system has to
be done with caution and care. Not even in the slightest way should there be
any erosion in the legal entitlement of LSGIs. In fact there should be a
strengthening of them. In deciding the quantum as well as in the precedure of
sharing the state taxes there cannot be any discretion whatsoever; it cannot be
in the nature of a grant left to the executive to decide nor can it be left even to
the annual Finance Act. It has to become an unambiguous part of the
Panchayat Raj and Municipal legislation, additionally safeguarded by policy
commitment to allay all misgivings. There fore, when the commission
recommends a shift away from the present system of specific taxes assigned or
shared to a general sharing of all taxes, there need not be any doubt or fear
about the potency of the new entitlement. In fact by suggesting a general
share of all taxes, the entitlements are broadened and deepened. It has the
added symbolic significance suggestive of LSGIs standing shoulder to
shoulder with the State Government in sharing responsibilities and revenue.
It is as if the local governments have grown in importance to claim a general
share of all taxes rather than just three specific taxes.
178
8.13 We recommend the following principle of Inter se distribution of this
amount between the different tiers of the LSGIs. The I District Panchayats
and the Block Panchayats, which have no sources of income as yet, rely
exclusively on state government grant for their house-keeping expenditure.
Since the size of the household to be kept is not uniform their share should
be I determined on a normative basis. The total amount earmarked for them
should be set apart and distributed among them according to their genuine
requirments which should be determined on the basis of prescribed norms.
The share of Municipalities, Corporations, and Village Panchayats, each
taken as a group, should in principle be fixed at the levels which have been
observed in recent years. There is however an important additional
consideration, namely, the significant boundary changes that have taken
place of late. Two new Corporations, Kollam and Thrissur, have been
created out of Municipalities, with the addition of certain Panchayats.
Likewise the Thiruvananthapuram Corporation has been expanded with the
addition of certain Panchayats. And there have been other changes
involving the incorporation of Panchayat areas into Municipalities. In view
of these changes, the distribution of the General Purpose Grant across tiers
can no longer conform to the historically observed shares; suitable
adjustments have to be made. Taking this fact into account we recommend
the following
179
distribution of the General Purpose Grant across tiers2, after setting apart the
share of District and Block Panchayats.
Table 8.3
Proposed Distribution of General Purpose Grant Between Tiers
Tier Share in Total (%)
Grama Panchayats 75.5
Municipalities 8.5
Corporations 13.0
2. The basis of these calculations should be clarified. Since each of these tiers
would be getting a separate grant for the maintenance of their old assets and
transferred assets, there would be no need to transfer VTC to them any longer.
As far as the Municipalities and Corporations are concerned, they get very little
government (non-tax) grants of the sort that Panchayats get. The first Finance
Commission had recommended that urban local bodies too should be eligible
for Basic Tax Grants which should then be put into the urban pool. Though this
suggestion was accepted by the government, appropriate legislation is in the
process of being enacted, so that no actual Basic Tax has yet accrued to the
urban LSGIs either directly or indirectly (via the urban pool). Likewise since
the urban pool has not yet taken shape, the deduction of 25 percent of the
Surcharge on Stamp Duty in urban areas, which is supposed to go into this
pool, has not yet taken place. It follows that for the urban LSGIs, once VTC is
excluded, the surcharge on stamp duty coming their way is the sole form of
"Tax-Cum-Minor Grants Transfer", The budgetary allocations on this score, as
a proportion of the total "Tax-Cum-Minor Grants Transfers" excluding VTC,
were on average about 18 percent over the period since 1997-8, and these were
approximately evenly divided between Municipalities and Corporations. The
observed shares of the different tiers obtained on this basis are then adjusted to
take account of the boundary changes to give us the figures of table 8.3.
180
8.14 As regards the inter sc distribution among tiers, GPs,
Municipalities, and Corporations, our recommendation is the
following. For Municipalities and Corporations the inter se distribution
should be entirely on the basis of population. As
regards Grama Panchayats, out of the total amount earmarked,
Rs.10 crores should go towards filling the deficits of certain
poor GPs in meeting establishment expenses (as is the practice
now). The remainder should be distributed on the basis of
population. For District and Block Panchayats, they may be grouped.
based on requirements, and allocations made on normative basis.
including expenditure ceilings for certain categories like telephon;
charges, P.O.L, travelling allowance and extraordinary items.
8.15 The really novel element in our recommendations in this chapter

is the proposal that the inter se distribution, within the group
of Grama Panchayats, to the individual Panchayats should be on
the basis of population; and the same principle should be adopted
for Municipalities and Corporations. At present, 75 percent of
the basic tax collected in the Panchayat areas is distributed
according to where it is collected from, and only 25 percent goes
into the rural pool from which the criteria of distribution are in
keeping with certain specified norms. The entire surcharge on
stamp duty collected from urban areas is distributed according
to where it is collected from (since the urban pool into which 25
percent of it should go, has not yet come into existence). And
the distribution of VTC is supposed in principle to be in keeping with
maintenance needs. The tax revenues transferred for non-
maintenance purposes at present are therefore distributed, toil
significant extent, on the criterion of place of collection. The
shift to population as the basis of distribution marks a radical
departure. This shift can be justified as follows. Once we move away from
the notion of "assigned taxes", the criterion of place
of collection ceases to be relevant. True we could still mimic that
criterion (as we have implicitly done in fixing the share of
181
Corporations and Municipalities), but the only justification for doing so would
to avoid any sudden financial hardships to any particular local bodies, such as
a sudden shift to a different criterion of distribution would entail. But this is
an argument of pragmatism not of principle. If the pragmatic concerns could
be taken care of in some other way, then we could move to some alternative
criterion which is more reasonable in principle. Since plan assistance which
constitutes the bulk of the transfers is already being distributed according to a
set of complex and carefully-worked out norms, population is the obvious
simple basis for distributing the "General Purpose Transfers".
8.16 But the move to this simple criterion may create hardships for particular
LSGIs in the transitional period. They may suddenly find themselves with
reduced incomes. True, they are getting substantial plan assistance and would
be getting, on our recommendations, a significant amount of funds for the
maintenance of assets. It may therefore be thought that a certain transitional
reduction in incomes should not be a cause for concern. But precisely because
we are of the view that maintenance grants should not be used indiscriminately
for other purposes, and that plan funds should not be used for current
expenditure needs, we feel it necessary to ensure that no income fall occurs in
the period of transition; otherwise we would be condoning, indeed
encouraging, financial impropriety. It is for obviating any such hardships that
we have recommended a small rise in the proportion of "Tax-Cum-Minor
Grant Transfers" (excluding VTC), now christened "General Purpose
Transfers", from its current figure of about 2 ¼ percent of the state's own tax
revenue to 2 l/2 percent. This extra ¼ percent would come to about Rs.15
crores (out of a total own tax revenue estimate of Rs.6440 crores) in 2000-1,
but it would result in a streamlining and simplification of the system in a
relatively painless manner,
182
in the sense that no individual LSGI would experience an absolute
shortfall in its receipts on account of these transfers.
8.17 One consequence of our recommendations is that the rural and the urban
pools would have to go. In fact they would no longei be necessary. The
rationale of having the rural and the urban pools was precisely to provide
some relief from the relentless logic of the "place of collection" criterion in
distributing these tax transfers. Many LSGIs, from whose territorial
jurisdiction not much tax could be collected, required succour, and the pools
were meant to provide such succour. By providing for these pools. the first
Finance Commission had already taken a few steps awan from the "place of
collection" criterion which in turn derives from the logic of "assigned taxes".
We have only taken that movement to its logical conclusion. Of course, a
certain practical awkwardness is introduced in the process. Several
legislations to give effect to the recommendations of the first Finance
Commission have already been enacted or are in the process of being
enacted. Our recommendations being introduced at this stage would make
many of these legislations irrelevant, unnecessary or infructuous. But the
awkwardness here is in parti an inevitable product of the inordinately long
time-lags witlj which Finance Commission's recommendations are
implemented, and in part a result of the peculiarity of any period of
transition, such as what characterises the process of decentralisation ill
Kerala. Many things have happened between the first Finance Commission
and the second, and in taking cognisance of these our report necessarily has
to differ qualitatively in many spheres from that of the first Commission.
But once this remarkable period of transition is over, subsequent Finance
Commissions can build on their predecessors' reports to a greater extent (and
thus provide greater continuity) than we have been able to do.
183
8.18 We now come to the question of "191 Non-Plan Transfers" which
is yet another component of "Non-Plan, Non-Maintenance Transfers". An
idea of what this component covers can be had from Table 8.4 which
gives information on the budgeted expenditure for 2000-1 on some
important items under this head.
Table 8.4
Some Important items of 191 Non-Plan expenditure 2000-1
Item Expenditure (Rs.Crores)

1. Special Pension Scheme for 13.97
Physically and Mentally
handicapped
2. Destitute Pension 19.78
3. Agricultural Workers Pension 37.20
4. Old Age Pension 3..07
5. Mid- day Meals 29.50
6. Unemployment Allowance 70.00
7. Flood Damage Repairs, 23.25
Renewal of Communications
etc
8. Medical materials and 8.40
Supplies
9. Production Incentive to 10.00
Paddy Growers
10. Assistance to BP’s and DP’s 8.40
Total of these items 223.57
Total 191 Non-Plan 253.63
8.19 Clearly the bulk of the 191 non-plan transfers consists of social expenditure
of different kinds, for which the responsibility has now been shifted to the
LSGIs. These, with the sole exception of the "Assistance to BPs and DPs" (for
whom we have made alternative provisions), should continue exactly as
before. We refrain from making any recommendations regarding the
184
minimum provisions on these heads, though the stipulation of such a
minimum is essential to take account of both inflation and the inevitable
increase in the number of intended beneficiaries, in the belief that the
pressure of public opinion would automatically enforce such a minimum.
8.20 The "Operating Cost Transfers", as mentioned earlier, have two

components: the payment of salaries to the staff employed on assets
transferred to LSGIs, and the provision of current input e.g. medicines,
books and consumables in schools, electricity and water charges, rent,
telephone charges etc., for the transferred assets. The salaries, for reasons
discussed in paras 2.9 and 2.10 must continue to be paid by the state
government; we do noil wish to change the current system in any way. As
regards til transfers for current inputs there are at least three separate
problems with the present system: first, in the health anil education sectors,
the transfers to a significant extent are man in kind rather than in cash,
which introduces inflexibility intt the system (and hence irrationality of the
sort where there m; be too much of one kind of medicine and too little of
another ). Secondly, even apart from such micro-level disproportion the
very fact of having to depend on a distant entity, namely tbl state
government department, for supplies, introduce inflexibility into the system
which is undesirable. Thirdly, sine in a whole range of other sectors, the
transfers, though the may not be in kind, are many but minuscule, the
system has, cumbersomeness which is avoidable. Having said all this
however we also recognise that messing about with a system which m
already in place and working with some degree of success, is always a
risky affair. Besides, the transfers in kind, in the health sector at least, have
some rationale in terms of the advantages ofl bulk purchase, and of
providing a centralised direction and thrust to the public healthcare system.
There is also a danger in allowing the state government to wash its hands
completely of vital socid sectors like education and health by entrusting the
task of
185
purchasing current inputs entirely to the LSGIs. Taking all these
considerations into account, we recommend the following with regard to
"Operating Cost Transfers": first, the state government should continue to
provide for medicines and books and consumables in schools exactly the way
it has been doing till now; secondly, the LSGIs should be permitted to make
extra purchases of medicines and books and consumables which they may
consider necessary at any point of time; thirdly, the state government should
be absolved from the responsibility of meeting all other current costs such as
telephone, electricity and water charges, vehicle operating costs and rents in
these two sectors as well as and in other sectors, and for these costs the LSGIs
should make their own provisions; fourthly, these provisions and the extra
expenditure on health and education materials, can be financed, upto a ceiling
of 10 percent, from the "Maintenance Transfers" made available to the LSGIs.
8.21 These recommendations have the virtue of introducing a degree

of flexibility into the system at the margin while retaining its basic existing
structure. They also reduce its cumbersomeness by absolving the state
government from the responsibility of having to meet current costs in a whole
range of sectors, a move which has the additional merit of providing it slight
fiscal relief. Above all however our recommendations are designed to
anticipate a problem that is likely to arise in the future, which has to do with
the operational expenditure on assets that the LSGIs would be constructing
out of their enhanced plan assistance. Until now the newly-constructed assets
of the LSGIs have generally not been of a kind that requires any large-scale
operational expenditure. But this is going to change in the coming years. At
that point not only would some provision have to be made for such
expenditures, but steps taken to ensure that the LSGIs' demand on this score
does not become too heavy: this would require some constraints on their
choice of assets and some fixing of norms to avoid profligacy in operational
expenses for any given
186
choice of assets. An alternative course, more in tune with democratic
decentralisation, might be to have a certain sum, earmarked for operational
expenditures and arrived at according to certain macro norms, distributed
among the LSGIs in the samt ratio as plan assistance. The LSGIs can then
be left free to choo« their assets, i.e. make their plans, keeping two budget
constraints (in the sense of state government assistance) in mind, one
relating to plan assistance, and the other relating to operational assistance,
(Needless to say, they can use their own funds to spend in excess of these
constraints). These issues of course are not of great immediate concern: in
the next five years, which constitute time-horizon, the LSGIs are likely to
continue emphasising the construction of those assets, e.g. roads, bridges,
houses etc, which do not require any significant operational expenditure
(as distinct from maintenance for which we have mad provisions); it is
only future Finance Commissions that woul be exercised over such issues.
Nonetheless we have opened window towards a possible "two-constraints"
solution b allowing LSGIs (for the time being) to spend up to 10 percen of
the Maintenance Transfers for meeting operational costs. Sine
Maintenance Transfers are to constitute approximately 4 percen of the
state government's own tax revenue in any year (which have translated as
5.5 percent of the state government's ownta revenue two years ago), we
are implicitly putting in place a syste where a certain percentage of the
state government's current ow tax revenue (0.4 in this case) is transferred
to LSGIs for meetiti their operational costs. Future Finance Commissions
may we consider building on this foundation while changing the ratios in
question.
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CHAPTER 9
ENHANCING OWN REVENUES OF LSGIs

9.1 As of now, only the Village Panchayats and the ULBs have the
power to levy taxes, fees and fines. Though, theoretically Block
and District Panchayats can realize user charges, donations and
contributions, the scope for raising any significant amount from
these sources is rather limited now. The Commission is not
recommending any additional sources of revenue for these LSGIs
now.
9.2 However there is every reason to improve the revenue-raising

capacity of the Village Panchayats and ULBs, for own income
gives full freedom of use. In order to improve civic services, an
obligatory function of these LSGIs, own funds are essential. Also
own funds could be used to take up innovative programmes,
which may not be possible under Plan guidelines.
9.3 A peculiar feature of the local government legislation of Kerala

is that there is a striking similarity between the Kerala Panchayat
Raj Act 1994 and the Kerala Municipality Act 1994. In fact after
the fundamental amendments made in 1999, there is hardly any
difference between the two Acts. This is true of financial matters
relating to the urban and rural local governments. Therefore the
State Finance Commission would be making recommendations
common to both urban and rural LSGIs, and in those special
cases, which relate only to urban or rural LSGIs, they will be
suitably denoted. The recommendations are arranged in the same order as the
description of the sources of own revenue in Chapter3.
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9.4 TAX REVENUE
9.4.1 (1) Property Tax: With the change over of Property Tax
assessment from rental value calculation to plinth aret based
assessment, it is expected that instances of underassessment and
corruption in assessment would be reduced considerably. Empirical
studies are being done to determiiu the rates, factor values and
suitable methodology assessment; which would then be issued in
the form rules. The Commission would recommend a transparent
system of self-assessment with a proviso that for concealing or
under-reporting of plinth area, there shouk be a penal provision to
collect tax at ten times the normt rate. This penal provision should
be equally applicablelt any misreporting by verifying or inspecting
authorities even if detected later by a supervisory or vigilance
authority.
9.4.1.1 The Commission would urge the Government to complete tin

switch over to the new system latest by 1st June 2001. Early action
is warranted because of the fact that new LSGIs have jus assumed
office and at this point of time they would have th moral authority
to take difficult decisions regarding tax assess ment. The
Commission would suggest the following schemefo classifying
buildings and fixing the tax.
(a) Zone - Four zones based on location.
(b) Type of Building
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(1) Ordinary Building.
(2) Medium Type Building.
(3) Luxury Building
(c) Type of use
(1) Commercial
(2) Non-commercial
(d) The relative weights for Zones could be 1, 1.5, 2,2.5
(e) The relative weights for the types of building could be 1:1.5:2
(f) Relative weights between non-commercial and commercial use

could be in the ratio 1: 3.
(g) The deductions for age and owner occupation may be as provided
for in the Kerala Municipality Act.
9.4.1.2 It is possible that when the changeover happens some of the existing under-
assessed buildings would have to pay taxes several times the existing
amounts. It is also possible that a few of the buildings would have to pay
much less tax than at present. The Commission would strongly recommend
that on no account should there be a cap on increases or limit to decreases in
respect of any building, for what is due as per law has to be paid. Past failures
in assessment cannot be legitimatized when a new system is designed. In
order to avoid unnecessary and ill-informed criticism, it is suggested that
massive publicity campaign be initiated immediately, pointing out the virtues
of a simplified taxation system, which would free the citizen from dependence
on the mercies of the taxing and appellate authorities.
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9.4.3 (3)Entertainment Tax. Here again, the Commission would
reiterate the recommendation of the First SFC to go in for tax
assessment on the basis of seating capacity and occupancy ratio.
Detailed suggestions on the assessment procedure would be given in
the second part of the Report after conducting a quick field study and
after evaluating the systems prevalent in Tamil Nadu and Andhra
Pradesh.
9.4.3.1 In the meanwhile the Commission would suggest implementation of

the recommendation of the First SFC to make Cable TV liable for
Entertainment Tax and also to bring Internet Services within the
definition of entertainment.
9.4.4 (4) Advertisement Tax. The Commission feels that there is much scope
for collection of Advertisement Tax in a state like Kerala where
marketing of consumer goods is quite widespread even in rural areas.
But the collection figures show that this source of tax is not even
partially tapped by the LSGIs. The Commission recommends the
following:
(I) Government may fix the minimum rate of taxation for different types
of advertisement for different locations.
(ii) Advertisement Tax Rules may be issued by Government setting out

the guidelines for the LSGIs to assess the tax,
(iii) Penal provisions for 'escaped tax' should be at least five times the
normal tax.
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Show Tax
The unified Show Tax may be revised as follows

Minimum Tax (in Rupees)
Panchayat ULB
(1) Regular cinematograph 15/- 25/-
exhibitions at licenced theatres
2) Other cinematograph 30/- 40/-
exhibitions
3) Regular shows other than 30/- 40/-
cinemas.
4) Other exhibitions 75/- 100/-
There should be a system of authenticating advertisement by the LSGIs so that

unauthorised advertisements can easily be detected.
9.4.5 (5) Land Conversion Tax. Conversion of land use imposed additional
burden on LSGIs, which have to provided civic services and other basic
amenities. Therefore the Commission recommends expansion of the existing
Conversion Cess into a Land Conversion Tax. For the purposes of this tax
conversion may be defined as change of land use from agriculture to non-
agriculture, which would include conversion for the purpose of house plots,
building construction etc.
9.4.5.1 It is recommended that Conversion Tax, which is essentially a one-time

charge, may be collected on the capital value of the land converted as
indicated by the minimum value to be fixed by the Government. (Till such
time the minimum value is notified, the valuation may be got done by the
Tahsildars). In the case of
193
authorised conversion of paddy fields as per provisions of the Kerala Land
Utilisation Order five percent of the capital value may be realized as
Conversion Tax. However, exemption from the Land Conversion Tax may be
given if the extent of paddy land converted is five cents or less and the
building put up is less than 50 sq. metres in area. If no building is put up
within six months of the conversion, then no exemption need be given.
9.4.5.2 In respect of other kinds of conversion the tax may be fixed as two and a half
percent of the capital value with the same kind of exemption as suggested for
conversion of paddy land.
9.4.6 (6) Service Tax. At present the tax is optional for Village Panchayats and it is
an integral part of the Property Tax in the case of ULBs. In the context of
decentralisation, which enjoins LSGIs to perform certain functions declared as
mandatory. Service Tax should be made compulsory and made an
independent tax. It could be assessed as a percentage of the Property Tax
linked to the recurring cost of performing the mandatory functions.
9.4.7 (7) Surcharges. As per Section 208 of the Kerala Panchayat Raj Act and as
per Section 230 of the Kerala Municipality Act, Village Panchayats and
ULBs are permitted to levy surcharges on Property Tax. Now the upper limit
is statuto-rily fixed as 5% for Village Panchayats and 10 % for ULBs. Since
the surcharge is to be specifically used for taking up new development
projects, it is felt that the ceiling may be removed and the LSGIs be given the
freedom to decide tne percentage which can be varied every year as decided
by them to meet the cost of the selected new projects.
194
9.5 NON-TAX REVENUE
9.5.1 The major items of non-tax revenue in the case of Village

Panchayats and ULBs have been described in Chapter 3.
9.5.2 Non-tax Revenue constitutes 51 percentage of the total own

collected revenue of Village Panchayats, 42.62 percentage, in
the case of Municipalities 24.39 percentage, in the case of Corporation.
(Own revenue here, means own revenue less assigned
and shared taxes and grants-in-aid) It is an important source and it
needs to be enhanced.
9.5.3 The main issues related to the collection of Non-tax Revenn

are:
(1) In the case of ULBs, most of the Non-tax Revenue rote have to be
determined by themselves. This is as Section 492 of the Kerala
Municipality Act. Due to inexperience, lack of awareness and weak
political wl these rates do not often get fixed and even if they fixed
they are pegged at very low levels, f or the Municipality Act or Rules
do not fix a minimum or maximum Another problem is that once fixed
these items are rarek revised.
(2) The problem in the case of Village Panchayats is the reverse one. Here
in most cases the rates are fixed in Rules either as minimum or
maximum or by giving a range between the minimum and maximum.
Since Rules are not fied after receiving proposals from the Director
Panchayats, examining them in the Local Self Government Department
and Law Department and sending them for the views of the Subject
Committee and finally gazetting them, amendment to rules is a
cumbersome process and
195
most of the rates do not get revised. This issue was pointed out by the
First SFC, but solutions have not been fully found.
(3) As regards auctions, which fetch good amounts,

particularly in the case of river sand, gate fees in public
markets and usufructs from local government properties,
the auctioning process is often not very transparent,
resulting in poor competition. In most of the cases the
same person bids during successive years and develops a
permanent interest which is difficult to dislodge due to
practical and humanitarian considerations like efficiency
of operation, labour security, etc. Thus a kind of monopoly
develops.
(4) As far as rent is concerned, in spite of Government in

structions, the fixing of rent amount is not very rational
and does not appear to have any relation to the market
rent or the investment made. A Government circular cap
ping annual increase of rent at 5 percentage has further
compounded the problem. Similarly, fixing of rent for tem
porary occupation is also found to be unreaiistically low.
(5) There is a general unwillingness on the part of LSGIs to

collect user charges or service charges even to the ex
tent of the amount required for routine operation and
maintenance. This affects the sustainability of various
services.
(6) Since LSGIs are very close to the people, there is a natu
ral limitation in imposing penalties and fines. Even if, for
the sake of deterrence, prosecution is to be resorted to,
it is not done due to the cumbersome litigation process,
196
which would take away a lot of valuable time from senior officials of
the LSGIs. This causes laxity in collection of dues.
9.5.4 Against this background the general recommendations of Second SFC

are spelt out as follows:
(i) In the case of ULBs, the Government should take the

responsibility of fixing the minimum fees for various kinds of
licences. This could be done through notifications. Similarly, in
the case of Village Panchayat the Rules may be amended to
ensure that only minimum is fixed; but the minimum should be
fixed in such a way that it is a reasonable one because it noted
that LSCIs tend to take the minimum as the general rate.
(ii) As far as possible the fees, rents etc., are to be to dexed to take
care of inflation. Necessary enabling provisions have to be made
in the Kerala Panchayt Raj Act and the Kerala Municipality Act
to allow for automatic two-yearly increases based on a genm
government notification.
(iii) In the case of Licences and Permits, which need to be renewed

deterrent penal provisions have to be /ncor porated for delayed
renewal. It is suggested that after a period of grace of ten days,
25 percentages the Licence Fee may be collected as fine for
delayed payment. This has to be increased by 25% for every
further fortnight of delay.
(iv) Wherever auctions are held there should be transparent

procedures. The Panchayats and the Municipal
197
ties should disclose the various items which are given by auction, the
likely time of auction and the amount received during the previous
years, during Grama Sabha, Ward Sabha and Ward Committee
meetings. There must be a compulsory display by all LSGls indicating
the various items, which are auctioned, the name of the successful
bidder and the amount. This should be permanently exhibited at the
site like the sand mining place, market, slaughterhouse, shop building
etc. This transparency provision should be enshrined in the Kerala
Panchayat Raj Act and the Kerala Municipality Act and detailed
rules issued.
(v) It is recommended that every year before the end of December all the
Village Panchayats should inform the Deputy Director of Panchayats
the auctions, which they have to conduct in the coming three months.
This should be advertised in at least three newspapers having largest
circulation in the district as a general advertisement. As far as ULBs
are concerned this advertisement could be given for a group of ULBs
in every district. The Joint Director of Municipalities could facilitate
this.
9.5.5 In addition to these general recommendations, the Commission

recommends enhancement and modifications in the following categories of
non-tax revenue.
9.6 LICENCE FEES
9.6.1 Trade Licences. In the case of Village Panchayats licensing of trades is done
as per the Kerala Panchayat Raj D & O Trades Rules. These rules as of now
fix the maximum fees related to turnover. It is suggested that instead of this,
minimum fees alone
198
be fixed by Government. This may be converted into flat rate! based on
the size of the trade as in the case of ULBs, with septl rate rates for large,
medium and small sizes.
9.6.1.1 In urban areas it is the local government, which set the retes under Section
492 (5) of the Kerala Municipality Act. The analysis made by the
Commission shows that most of the ULBs have
fixed relatively low rates and have been tardy in revising them
Since revision does not take place for very long periods of tin
it acts as an inhibitor when a Municipality wants a change, as these
revisions after long intervals would invite protest due to
the inevitable steep increases. The Commission would recomend that the
minimum rates alone should be fixed by the Government through
notification. In ULBs, since milk trade can be licensed under Section 447
there is no need to retain Section 456.
9.6.1.2 The rationale for shifting to trade-wise notification in the case

of Village Panchayats is the difficulties encountered in assessing
turnover of trades, which have resulted in gross under
assessment. A three-fold broad classification conforming
manufacturers, wholesalers and big retailers as Group A, medium
sized trades as Group B and small retailers as Group C is
suggested. This classification has to be made by LSGIs themselve
based on transparent criteria relating to nature of activity, siz/
volume of activity, location, investment, etc.
9.6.1.3 Under Section 448 of the Kerala Municipality Act, rules were
issued in 1966 viz. 'Construction or Establishment of Factorie
and Installation of Plants or Machinery Rules'. But the rates
have not been revised for nearly three and a half decades.
9.6.1.4 The existing rates and the suggested rates for each kind of trade including
factories, plants and machinery are given separately for Village
Panchayats and ULB’s in Annexure 9.2.
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9.6.1.5 In order to get a clear idea of the trade establishments functioning within a
local government area, to keep track of renewal of licences, to serve as a
guide for assessment of profession tax and to help in the discharge of other
local government obligatory functions it is suggested that a separate
numbering system should be adopted for trade establishments. This would be
in addition to the building number assigned for Property Tax assessment.
Every year the new establishments should be given supplementary numbers
before the first of March.
9.6.2 Theatre Licence. Theatre construction and installation of

machinery are governed by the Kerala Cinema Regulation Rules.
It is recommended that the rates be brought on a par with those
given in Kerala Building Rules 1996. The existing and revised
rates are shown in Annexure 9.3.
9.6.3 Private Market licence. Licence fees for private markets

may be revised as indicated in Annexure 9.4 Departing from past
practice it is recommended that the minimum rates be set and
for renewal of licence either the license fee or one-third the gate
collection of the previous year whichever is higher could be fixed.
9.6.4 Licences under Kerala Places of Public Resort Act.The fees for these
licences issued under Rule 28 may be revised and the minimum rates be fixed
as indicated in Annexure9.5.
9.6.5 Private Slaughterhouse. These are regulated under Section

230 of the Kerala Panchayat Raj Act and Section 453 of the Kerala
Municipality Act. The licence fees may be enhanced from the
existing rate of Rs.300/- to Rs.1,000/- per year and for renewal
it can be based on one-third the gate collection of the previous
year or Rs.1,000/- whichever is higher.
200
9.6.6 Licence fee for Brokers, Commission Agents, Weigtmen, Measurers
etc. Licence fee is fixed as per the provisions of Rule 13 of the Kerala
Panchayat Raj Public and Private Market Rules issued under Section 221
and Section 222 of the Kerala Panchayat Raj Act and Section 458 (2)(e) of
the Kerala Municipality Act. It is suggested that the minimum licence fee
should be fixed as Rs.lOO/-per year.
9.6.7 Licensing of premises where animals are kept for commercial

purposes. These licences are issued as per Section 444 of
the Kerala Municipality Act. The minimum suggested rates are given
in Annexure 9.6 Similar provision for licensing may be made in the
Kerala Panchayat Raj Act and the same rates may be made applicable.
9.6.8 Licensing of Butchers, Fishmongers, Poulterers etc, This is done

under Section 469 of the Kerala Municipality Act. It is
suggested that the minimum license fee for butchers may be fixed at
Rs.100/- per year, Fishmongers at Rs.50/- per year and Poulterers at
Rs.30/- per year. The same rates may be made applicable to Village
Panchayats also by including them in the D & O Trade Rules.
9.7 GATE FEES
9.7.1 Market Fee. The various fees for using public markets may
be increased as given in Annexure 9.7.
9.7.2 Public Halting and Parking Places. Fess for the use a public halting
and parking places is levied as per Section 227 d the Kerala Panchayat
Raj Act and Section 472(1) of the Keral Municipality Act. Minimum
rates may be fixed both for Munici palities and Panchayats as given in
Annexure 9.8.
9.7.3 Slaughterhouses. Entry fees to slaughter houses are col-

lected as per Section 229 of the Kerala Panchayat Raj act and
201
Section 452 of the Kerala Municipality Act. The rates may be revised as
suggested in Annexure 9.9.
AUCTIONING OF MEAT STALLS/RIGHT TO FISH IN WATER BODIES etc.

9.8
These may be auctioned every year by the concerned LSGIs after giving
adequate publicity.
9.9 SERVICE AND USER CHARGES
LSGIs must broaden and deepen their collection of service/user charges. A list
needs to be made of all services provided and utilities maintained by LSGIs
with the cost of providing/running them. A policy decision may be taken by
each Village Panchayat or ULB on the proportion of the cost to be realized
from the users. Thereafter the users may be classified, and the rates for each
class of users determined. As a rule of thumb full cost may be realized from
commercial concerns and exemption need be given only to the families below
the poverty line. It is suggested that service charges should be collected
compulsorily from users of burial grounds, burning ghats and electric crema-
toria, which are maintained by the LSGIs. In the case of electric crematoria
the fee should be fixed to meet the operation and maintenance cost of the
machinery.
9.10 FINES AND PENALITIES

The data available with the Commission show that realization by way of fines
and penalties is extremely low. Of course at the local government level it
would be rather difficult to exercise regulatory powers with an iron hand.
However in certain cases of public nuisance like pollution, strewing of solid
waste, occupation of public land etc., in the larger public interest, it is neces-
sary to be as strict as possible through realization of fines and even
prosecution.
202
It is seen that there is a discrepancy between the Compounding of
Offences Rules applicable in Village Panchayats and those applicable in
9.10.1
Municipal bodies. It is suggested that the same provisions applicable to
the ULBs could be included in Villagt Panchayat Rules also. This will
bring larger number of offences within the compounding powers of the
Secretary enabling ii mediate punitive action to be taken.
9.11 GROUP RENT FOR FAIRS AND FESTIVELS
Now there is a practice in ULBs to auction right to set up temporary shops

etc. in porambokes as per Section 376 of the Kerali Municipality Act. It is
suggested that a similar practice be followed in Village Panchayats also.
203
CHAPTER 10
STATE FINANCES DURING THE DECADE 1990-2000
10.1 Our Commission has been guided by two major considerations while
analysing the State Finances. Firstly, the issue that we have addressed is
whether the state finances are in a position to accommodate the scale of
transfers that we have suggested in our recommendations. Secondly, we have
also examined whether there are significant pointers that we need to highlight
on the evolving trends in the overall financial position. This becomes
necessary because such movements accumulate to impinge on delivery of
services to the people of the State and thus affect the LSGIs directly. In this
process we would also like to capture broadly what the current trends reflected
by the figures mean for the future development of the State, with reference
particularly to the expenditure on maintenance services on assets, whose
benefits directly accrue to the poor. A snapshot of expenditure and receipts
figures, be it on the revenue or capital side, at the end of a particular year, will
not serve the requirements of such an examination. To facilitate this
discussion on the finances of the State Government, an analysis of the trends
of a reasonably long period becomes necessary.
10.2 We feel that for three reasons, the decade of the nineties would afford
a sufficiently long enough spectrum for the analysis. Firstly, data from this
decade can be expected to capture the years when the world saw liberalisation
and globalisation characterising international economies in general. Secondly,
given the fact that trends in the nineties continue to firm up in various
economies of the world as is reflected by subsequent developments, data from
the nineties may broadly reflect the shape of things at least in the short term,
and expectedly, for the
204
period that will be covered by the Second State Finance Commission,
Finally in the limited arena of the State public finances too, this period has
witnessed a good mix of alternative socio-economic policies and
approaches.
10.3 This Commission has been asked to suggest the measures needed to
improve the financial position of the local governments. However, it
is not in our charter to delve into aspects of financial management of
the State Government itself. Our Commission would, as is required,
strictly choose to stay within the confines of our Terms of Reference,
Hence we do not intend to make this assessment of the State's finances
a prescriptive exercise. Where we may be perceived to trespass this
rule would be only to make an occasional remark on aspects of the
State finances that clearly impinge on the services rendered by the local
bodies. Here we would think that we have a role to play as a linesman
overseeing the interplay of forces and factors having an influence on
the financial relations between the State and the local governments.
10.4 There is perhaps no one 'locus classicus' on the subject of contemporary

State Finances. Every year some light is thrown on the subject in the
Report on Currency and Finance published by the Reserve Bank of
India. The report for the year 1998-99 (Chapter V-7), in this genre,
would serve as a useful reference. Public finance experts, in general,
have been pointing out the inadequacy of receipts of State Governments
in meeting expenditure requirements. This structural imbalance has
been particularly a phenomenon since the mid-eighties. Huge revenue
deficits have become a persistent feature since 1987-88. The resultant
gaps between receipts and expenditure have worsened since the mid-
nineties. States have resorted to financing non-plan expenditure through
cutbacks in their outlay on development. Faced with these constraints,
State Governments have diverted high cost borrowing towards current
expenditure. Hence capital investment programmes of States in general
have suffered from a very acute resource scarcity. This in turn has two
direct and deleterious consequences. Firstly, it prevents potential gains
in output and productivity from being realised. Secondly, it leads to
205
starkly rising internal debt and interest payment liabilities on the borrowing
State. The resource base of States is far too limited to meet growing
expenditure commitments. State Governments account for a third of the
combined receipts of the Union and the States, while they incur three quarters
of the entire social service expenditure and half the economic service
expenditure. Tax receipts in the States have exhibited a certain degree of
rigidity during the nineties as compared to the eighties. States' tax base has
remained narrow with greater dependence on sales tax in particular. States'
own tax revenue receipts finance only 32-34 per cent of the total expenditure.
Losses of the State Public Sector Undertakings (particularly the Electricity
Boards and the Road Transport Corporations) have also contributed to the
pressure on State Finances. Resource gaps are financed by vertical resource
devolution from the Centre apart from direct borrowings by the State
Government and its Public Sector Undertakings. The fiscal consolidation
measures initiated by the Union Government since the early nineties have also
had their effect on state finances. There has been a definite falling trend in the
resource transfer from Central Governments particularly in the form of loans
and advances to States. In the last two decades, debt-SDP ratio of States rose
from an average level of 17.6 per cent in the eighties to 19.4 per cent hi the
nineties. Gross Fiscal Deficit and Revenue Deficit of States have recorded all
time high levels of 4.3 per cent and 2.3 per cent of their State Domestic
Product respectively. The additional expenditure arising out of implementation
of the revised pay scales of the State Government Employees in 1996-97
continues to affect the deficit levels of most State Governments. The gross
expenditure of the States in 1998-99 peaked at an annual growth rate of 22.4
per cent while the average decadal growth rates for the eighties and nineties
have been of the order of 15 per cent only. Development expenditure
accounted for 70.7 per cent of the total expenditure in the eighties. This fell to
65.4 per cent during the nineties. The high level of debt of all the State
Governments put together raises questions about its sustainability, especially
since its utilisation for capital investment is declining.
206
10.5 It is in the general background of the finances of State Governments
that our assessment of the State finances for Kerala is conducted. We first
look at trends in Revenue Receipts and Expenditure, the debt burden of the
State, the Gross Fiscal Deficit, the growth of standard overheads like
Salaries, Pension, Debt Servicing. Finally we trace the patterns of actual
maintenance expenditure in specific services like Health, Education, and
Public Works to help our own understanding of the problem that Local
Bodies would face on maintenance expenditure.
REVENUE RECEIPTS
10.6 Revenue receipts of the State Government consist mainly of tax and
non-tax revenue of Government and receipts from Government of India.
Revenue receipts have registered a growth rate of 14.18 per cent over
the nineties. There has however been a marked decline in the growth
of revenue receipts in the latter half of the nineties. The growth rate
of revenue receipts touched an unprecedented low of 1.12 per cent in
1998-99. Overall, tax revenues of the State registered a healthy growth
of 16.24 per cent per annum in this period. However for the years
after 1995-96 the growth rate is only 11.4 per cent, with a very sharp
drop to 3.3 per cent in 1998-99. Sales tax is the main source of tax
revenue for the State accounting for 70 per cent of the total tax receipts,
Non tax revenue registered an annual average growth rate of 12.36 per
cent from!990-91 to 1999-2000. But here too the growth rate has
shown a downward trend, with a negative figure of (-) 4.05 per cent
for 1996-97. The growth rate has shown an extremely significant
decline over the years 1996-97 to 1999-2000.
10.7 Total transfers from the Central Government consist of transfers under
the Finance Commission award, the Plan grants and the Non Plan
grants. The total transfers have shown an annual growth of around
11.12 per cent alone during the nineties. It is relevant to mention here
that this is much lower than the rate of growth of revenue receipts of
the Government of India. In 1998-99, there was a sharp downward
207
trend of (-) 14.00 per cent in total transfers. This is explained by the fact that
the increase in 1997-98 was on account of the share of proceeds to the State
from the earnings of Government of India under the Voluntary Disclosure
Scheme (VDIS) - which was an isolated and one time revenue enhancing
measure.
10.8 Overall, the own tax revenue of the State (OTR), reckoned as the sum of the
tax and non-tax revenues of the State Government excluding all transfers from
Government of India have grown annually at 15.78 per cent over the decade.
The sharp dip in both tax revenue and non-tax revenue in 1998-99, mentioned
earlier, is reflected in the low growth rate of 3.05 per cent in OTR for that
year.
REVENUE EXPENDITURE
10.9 Revenue expenditure has been growing at a steep rate of 16.82 per cent per
annum over the nineties. The Pay Revision granted by Government for its
employees in 1997-98 led to a sharp spurt with expenditure registering a
sudden jump of 21.4 per cent. Revenue expenditure in the year 1999-2000
increased by 24 per cent. Increase in the salary bill accounted for the major
share of the increase in 1997-98. In 1999-2000, the increases in non-plan
expenditure on account of interest payment (34.99 per cent), pension (56.65
per cent), police (38.35 per cent) and education (33.51 per cent) accounted for
the high increase in revenue expenditure.
10.10 Table 10.1 below shows the salary, interest and pension components of
the State for the period 1991-1999. An average of 60-65 per cent of the
Revenue Expenditure of the State is devoted to meeting interest payments and
paying the employees both serving and retired. Here, we would like to sound a
note of caution. The State's bill on salary, interest and pension has assumed a
level, which does not bode well for the future spending plans of Government.
We have in detailing our approach observed that the State, as demanded by
prudent fiscal
208
considerations, should, as far as possible, refrain from creating in LSGIs
for which it would have to meet the salary commitments. We have
recommended in our award, that future additions to st the LSGIs should be
subjected to a careful scrutiny by the Ombudsman whose role should be
expanded to perform the function of a financial steward and appraiser.
However, it will not be inappropriate for us to remark that Government
might have to seriously curtail the share of its expenditure on employees,
if it is to free resources for development. As far as salaries and pensions
go, this can be done only if the State Government temporarily suspends
its role as a provider of additional employment till it can nurse the public
finances back to health, On interest payment, the only remedy is to be
selective in taking recourse to debt, and progressively limit the use of debt
for capital expenditure alone.
209
REVENUE DEFICIT
10.11 The excess of revenue expenditure over revenue receipts, which is the
revenue deficit, is a good first measure of how well a Government is able to
manage its finances. It is instructive to appreciate the behaviour of the
revenue deficit of a State from year to year. For any given year, let the
revenue expenditure, revenue receipts and revenue deficit be denoted by Et, Rt
and Dt respectively. Let the growth in revenue receipts and revenue
expenditure for the next year be denoted by grt+1 and get+1 respectively. The
Revenue Deficit in the next year Dt+1 will be given by
Revenue Deficit = Revenue Expenditure - Revenue Receipts

D t+1 = Et+1 –R t+1
Hence D+1 = (Et) (1 + get+1) - Rt (1 + grt+1)

=(Rt+Dt)(1+get+1)-Rt(1+grt+1)
= Rt(get+1-grt+1) + Dt (1+get+1)
10.12 The first component Rt(gTt+1 - grt+i) shows the effect of the revenue
mobilisation relative to growth in expenditure. If the growth in revenue
grt+1 equals the growth in expenditure get+1 then this component would
become zero and hence there is no contribution to the revenue deficit.
If the growth in revenue grt+1, exceeds the growth in expenditure get+1,
this would contribute towards decreasing the revenue
deficit. Thus an improvement in this component can result
from either a reduction in expenditure or a growth in
revenue. Hence this may be referred to as the relative
efficiency component.
10.13 Given the deficit Dt in any year, the second component Dt(l + get+1)
solely depends on the growth hi expenditure. If the growth rate gf
can be controlled then this component of revenue deficit can be managed.
Hence this component may be referred to as the expenditure component
of revenue deficit. Reductions in expenditure growth get+1’ directly
result in reductions of this component. Table 10.2 shows these
components for the ten years 1990-2000.
210
TABLE 10.2
(in Rs. Lakhs)

Year Deficit Revenue Expendit Relative Relative get grt get-grt
Receipts ure Efficiency Efficiency
Compon Componen
ent t/
Revenue
Deficit
1 2 3 4 5 6 7 8 9
1989-90 25045 204764 - - - - - -
1990-91 42204 240294 30787.14 11416.86 27.05% 22.3% 17.35% 5.58%
1991-92 36435 285212 48052.69 -11617.69 -31.89 % 13.86 % 18.69% -4.83 %
1992-93 33744 331870 41415.42 -7671.42 -22.75% 13.67% 16.36% -2.69%
1993-94 37160 392176 39625.16 -2465.16 -6.63% 17.42% 18.17% -0.74%
1994-95 39988 455542 43849.97 -3861.97 -9.66% 18.00% 18.99% -0.98%
1995-96 40282 542356 45987.27 -5705.27 -14.14% 15.00% 16.23% -1.22%
1996-97 64303 614507 46931.07 17371.93 27.05% 16.51% 13.30% 3.20%
1997-98 112290 711819 78067.03 34222.97 30.48% 21.40% 15.84% 5.57%
1998-99 202996 719812 125738.36 77257.64 38.06% 11.98% 1.12% 10.85%
1999-00 351561 792668 251703.40 99857.60 28.40% 23.99% 10.12% 13.87%
10.14 The analysis of the revenue deficit figures shows that the relative
efficiency component helped stabilise the revenue deficit in as many as
five out the first six years in the nineties (as indicated by negative signs
in columns 5 and 9). However, thereafter, in the last four years, the
excess of expenditure growth over revenue growth has adversely affected the
revenue deficit.
10.15 We had observed earlier, the very significant dip in OTR, (on
both tax and non tax revenues) of the State in the year 1998-99. It would be
pertinent to remark here, that this is the only year in the decade in which own
tax revenue has declined in real terms, allowing for inflation
211
during the corresponding period. But, what is surprising at the same
time is that there has been no noticeable decline in the growth of SDP
212
during this period. There seems to be an incongruity in this and we fail to
understand how revenue mobilisation and economic growth could exhibit this
kind of a divergence in their growth trends. But, suffice it for us to say, that if
there has been any let up in the efficiency of tax and revenue administration in
the State during the period, then unless such trends are guarded against in
future, these would have very debilitating effects on the State finances.
10.16 It is pertinent to remark here that the data reveal that high revenue
deficit in Kerala in the recent years, is primarily a result of fall in efficiency of
resource mobilisation, and only secondarily because of the growth in
expenditure. It is not the growth rate of expenditure that has shown a marked
increase; it is the growth rate of revenue that has fallen noticeably. This
interpretation of the State's deficit affords fair ground for optimism about the
future of the State finances. Growth in revenue has historically been 18-20 per
cent in the past. Many reasons are ascribed for the general fall in revenue
collection in the second half of the nineties. Several analysts hold the view that
revenue mobilisation has fallen partly on account of the general economic
recession in the country and the slump in prices of agricultural commodities.
The general prices of agricultural commodities grown in the State remain far
from satisfactory and do not yield a reasonable margin to the farmer for
sustaining production. Both Governments, at the State and the Centre, are
seized of this crisis in the agricultural sector. If there is a recovery in the
agricultural sector, then this fact, coupled with some improvements in the tax
and non-tax administration, will push up revenue collections. There already
are positive indications, which suggest a recovery in revenue collections. From
figures available in the Finance Department, the half yearly tax collections
show a growth rate near the 18 per cent mark in 2000-01. Of course, the
absolute figures this year will not be impressive since there has been
considerable erosion in revenue receipts in the years 1997-1999; but signs of a
recovery are there. Even so, the task ahead for the Government in the next few
years is quite formidable.
213
CAPITAL EXPENDITURE
10.17 The outlay on capital expenditure is presented in Table 10.3. The

percentage of capital expenditure as a ratio of total expenditure has been
less than 9 per cent. The figures show a marked decline in the capital
expenditure from 1998-99. However while the capital outlay on the State
Budget has declined, as mentioned elsewhere in this chapter, this could
be, to a great extent, because the capital expenditure from devolved plan
funds by the LSGS get accounted as revenue expenditure. Therefore we
would not like to postulate any inference on the basis of the data. When a
clearer accounting mechanism to classify expenditure by the LSGIs is
evolved, more informed analysis of these figures would be possible.
TABLE 10.3
CAPITAL EXPENDITURE (in Rs. cr.)
Year Capital Growth Revenue CE

(RE+CE)
Expenditure Expenditure
(RE)
1990-91 255.97 2824.98 8.31%
1991-92 286.12 11.78% 3216.47 8.17%
1992-93 277.90 -2,87% 3656.14 7.06%
1993-94 363.33 30.74% 4293.36 7.80%
1994-95 446.01 22,76% 5066.30 8.09%
1995-96 563.47 26.34% 5826.38 8.82%
1996-97 622.52 10.48% 6788.10 8.40%
1997-98 738.87 18.69% 8241.09 8.23%
1998-99 651.63 -11.81% 9228.08 6.60%
1999-00 661.20 1.47% 11442.29 5.46%
214
DEPT AND INTEREST BURDEN OF THE STATE
10.18 In this section we have attempted to present a summary of the debt

situation of the State and the annual interest payments incurred by the State.
Given the high gross fiscal deficit of the State, the entire extra devolution to
the local bodies too would have to be financed by borrowing. It is in this
connection that the picture of the State's debt and its growing interest payment
has to be borne in mind.
10.19 Tables 10.4 to 10.10 show the growth of various components in the
overall debt of the State in the years 1990-1999. Debt of the State arises from
borrowings on account of Internal Debt, Savings and Loans from Government
of India. Internal debt of the state consists of Market Loans borrowed by
Government and Ways and Means Advances received from the Reserve Bank
of India. Debt liabilities on Savings arise from the deposits received in the
Savings Accounts in the Treasuries, the remittances retained in the State
Provident Fund, Money in Insurance and Pension Funds and in trusts and
endowments. Loans received from Government of India include those received
under Central Plan, Non Plan Loans, State Plan Loans and Centrally
Sponsored Schemes. Each of these three streams of the State's debt (viz.
Internal debt, Savings and Loans from Government of India) was subjected to
a detailed analysis. The interest payment on accumulated liabilities in each of
these streams was also examined. We looked at gross retention (defined as the
excess of receipts over disbursements) and net retention (defined as gross
retention less interest payments for that stream of borrowing). This approach
has its limitations: interest payments in a particular year used for reckoning net
retention, would relate wholly or largely to accumulated balances on that
stream of borrowing in the past. Likewise the disbursements in any year would
correspond to the repayment on the principal borrowed in the past. A rigorous
analysis would therefore include an analysis of the lag in the receipts,
disbursements and interest payments over a longer time horizon.
215
10.20 As the detailed accounts on debt for the year 1999-2000 have not yet
been published by the Comptroller and Auditor General, the analysis has been
restricted to the period 1990-1999. Receipts on account of Loans from
Government of India, do not seem to conform to affi definite pattern of growth
(Table 10.4). The fluctuation is explained by the variability of schemes included in
the Government of Indii budget as well as the utilisation and drawal of funds by
the State. Itis significant that in two years towards the latter half of the period
considered, net retention has been negative from this stream even though the gross
retention has been positive.
TABLE 10.4
Loans and Advances from Government of India (in Rs. Cr.)

Year Recipts Disburse Interest Gross Growth Net Growth
ments Retention Rate Retention Rate
1990-91 408.42 138.58 138.33 269.84 131.51
1991-92 575.03 305.91 231.15 269.12 -0.27% 37.97 -71.13%
1992-93 529.55 243.29 237.62 286.26 6.37% 48.64 28.10%
1993-94 595.85 202.67 278.16 393.18 37.35% 115.05 136.47%
1994-95 749.42 137.59 330.70 611.83 55.61% 281.13 144.42%
1995-96 655.45 143.25 418.07 512.20 -16.28% 94-13 -66.52%
1996-97 539.94 165.65 494.16 374.29 -26.93% -119.87 -227.35%
1997-98 567.15 189.18 550.71 377.97 0.98% -172.74 44.11%
1998-99 869.59 211.96 606.54 657.63 73.99% 51.09 -129.58%
10.21 Deposits into the savings accounts in the treasury have been a pillar of
support for the finances of the State. The stream has yielded a positive gross
contribution to financing the State. The State is becoming more dependent on this
source to finance its deficit. This stream has in one year 1995-96 shown a
negative net figure during this period. But borrowing from the savings accounts in
the Treasury has been particularly large in the year 1998-99 and 1994-95, withal
unprecedented jump of 468% in 1998-99. (Table 10.5)
216
TABLE 10.5
Small Savings and Deposits (in Rs. Cr.)

ments Rente Rate Retemtio Rate
ntion n
1990-91 786.85 709.16 23.14 77.69 54.55
1991-92 995.95 905.35 27.37 91.60 17.90% 64.23 17.75%
1992-93 1268.78 1142.05 40.19 126.73 35.34%- 86.54 34.73%
1993-94 1629.29 1504.39 45.79 124.90 1.44% 79.11 -8.59%
1994-95 1880.90 1581.54 103.26 299.36 139.68% 196.10 147.88%
1995-96 1887.17 1824.76 64.62 62.41 -79.15% -2.21 -101.13%
1996-97 1988.28 1809.58 62.46 178.70 186.33% 116.24 -5359.73%
1997-98 1396.71 2168.57 76.70 228.14 27.67% 151.44 30.28%
1998-99 3875.61 2935.66 78.92 939.95 312.01% 861.03 468.56%
10.22 Net accretions from the State Provident Fund have steadily tapered off, and
in some years show negative balances (Table 10.6). Insurance and Pension
funds account only for a very small amount of the total borrowing and hence
separate data for this stream of borrowings are not presented here.
217
TABLE 10.6
State Provident Funds (in Rs. Cr.)
ment Retention Rate Retenti Rate
on
1990-91 382.04 180.41 77.73 201.63 123.90
1991-92 369.22 226.38 89.97 142.84 -29.16% 52.87 -57.33%
1992-93 405.27 337.98 101.92 67.09 -53.03% -34.83 -165.88%
1993-94 692.15 368.82 174.13 323.32 381.92% 149.19 -258.34%
1994-95 773.16 428.20 159.33 344.96 6.69% 185.63 24.43%
1995-96 800.90 513.36 176.04 287.54 -16.65% 111.50 -39.93%
1996-97 880.10 363.32 214.66 243.78 -15.22% 29.12 -73.88%
1997-98 972.17 779.95 253.69 192.22 -21.15% -61.47 -311.09%
1998-99 1128.11 770.01 276.32 358.10 86.30% 81.78 -233.04%
10.23 Internal debt of the State has been rising markedly to finance the State
budget (Table 10.7). This is largely on account of the steady growth in the
annual market borrowing of the State Government, approved b
Government of India as part of its overall credit policy.
218
TABLE 10.7
Internal Debt (in RS. Cr.)

Year Reciept Disbur Interest Gross Growth Net Growth
sement Retention Rate Retention Rate
1990-91 1355.50 1143.87 97.56 211.63 114.07
1991-92 1859.13 1635.48 124.61 223.65 5.68% 99.04 -13.18%
1992-93 2162.62 1831.94 154.98 330.68 47.86% 175.70 77.40%
1993-94 1143.35 1102.81 180.90 40.54 -87.74% -140.36 -179.89%
1994-95 509.32 164.68 216.41 344.64 750.15% 128.23 -191.36%
1995-96 427.64 20.68 253.63 406.96 18.08% 153.33 19.57%
1996-97 623.01 138.44 318.08 484.57 19.07% 166.49 8.58%
1997-98 947.81 333.54 388.50 614.27 26.77% 225.77 35.61%
1998-99 3101.91 2265.67 465.38 839.24 36.62% 373.86 65.59%
10.24 For the limited purpose of this analysis, a discussion on each line of debt
financing in detail may not be called for. But, the stark reality that confronts
us is that with respect to many of the sources of debt financing, outflows
exceed the inflows. The overall picture that emerges is given in Table 10.8.
219
TABLE 10.8
Total debt (L&A from GOI, Small savings and deposits, State Provident Funds and
Internal debt)
(inRs.Cr)
Year Receipts Disburse Interest Gross Growth Net Growth

ment Retention Rate Retention Rate
1990-91 2952.93 2178.00 340.59 774.93 434.34
1991-92 3830.24 3080.46 483.36 749.78 -3.25% 266.42 -38.66%
1992-93 4393.24 3562.68 542.45 830.56 10.77% 288.11 8.14%
1993-94 4089.67 3188.13 687.08 901.54 8.55% 214.47 -25.56%
1994-95 3944.30 2322.09 819.59 1622.21 79.94% 802.62 274.23%
1995-96 3805.79 2513.13 924.05 1292.66 -20.31% 368.61 -54.07%
1996-97 4070.17 2762.81 1103.30 1307.36 1.14% 204.06 -44.64%
1997-98 4930.51 3483.29 1285.97 1447.22 10.70% 161.25 -20.98%
1998-99 9027.21 6195.06 1446.12 2832.15 95.70% 1386.03 759.55%
10.25 Table 10.9 also shows the relative shares of the major streams of
borrowing viz. Internal Debt, L&A from GOI and Small Savings in the
total gross retention, net retention and interest payments. As seen in the
table, the shares accounted for by Internal debt (which comprises mainly
market borrowings) and deposits received in the Treasuries through savings
schemes account for an increasing percentage of the total. It is pertinent to
note that in two years viz. 1994-95 and 1998- 99, the State has leaned more
pronouncedly on amounts mobilised into the treasuries through the savings
scheme. It is understood during this period that the State did face
considerable difficulty in its liquidity management. The share of the State
Provident Fund shows a decreasing trend.
220
TABLE 10.9
GR = Gross Retention, NR = Total Retention, INT = Interest. All figures in %.
Year Internal Debt L&A from GOI Small Savings etc. State Provident Fund
GR/ NR/ INT/ GR/ NR/ INT/ GR/ NR/ INT GR/ NR/ INT
Total Total Total Total Total Total Total Total Total Total Total Total
GR NR INT GR NR INT GR NR INT GR NR INT
9-91 27.36 26.26 28.64 34.82 3028 40.61 10.03 12.56 6.79 26.06 28.53 22.82
91-92 29.83 37.17 25.78 35.89 14.25 47.82 12.22 24.11 5.66 19.05 19.84 18.60
92-93 39.81 60.98 28.57 34.47 16.88 43.80 15.26 30.04 7.41 8.08 -12.09 18.79
93-94 4.50 -65.45 26.33 43.61 53.63 40.48 13.85 36.89 6.66 35.86 69.56 25.34
94-95 21.25 15.98 26.40 37.72 35.03 40.35 18.45 24.43 12.60 21.26 23.13 19.44
95-96 31.48 41.60 27.45 39.62 25.54 45.24 4.83 -0.60 6.99 22.24 30.25 19.05
96-97 37.06 81.50 28.83 28.63 -58.74 44.79 13.67 56.96 5.66 18.65 14.27 19.46
97-98 42.44 140.01 30.21 26.12 -107.13 42.82 15.76 93.92 5.69 13.28 -38.02 19.73
98-99 29.63 26.97 32.18 23.22 3.69 41.94 33.19 62.12 5.46 12.64 5.90 19.11
10.26 Table 10.10 shows the growth of the Debt of the State along with the interest payments
over the period 31.3.1990 to 31.3.2000.
221
TABLE 10.10
DEBT AND INTEREST PAYMENTS FOR THE PERIOD
31.3.1990 TO 31.3.2000
Debt Interest
Growth Rate (90-99) 17.74% 20.88%
Growth Rate (90-95) 17.48% 22.84%
Growth Rate (95-00) 18.00% 18.95%
Annual Period Annual

Growth Growth
Rate in %
Rate in %
As on 31st March 1990 3941.87 1989-90 293.00
As on 31st March 1991 4716.79 19.66 1990-91 340.64 16.26
st
As on 31 March 1992 5466.56 15.90 1991-92 483.42 41.92
As on 31st March 1993 6297.14 15.19 1992-93 542.51 12.22
As on 31st March 1994 7198.67 14.32 1993-94 687.16 16.66
As on 31st March 1995 8820.87 22.53 1994-95 819.67 19.28
As on 31st March 1996 10113.54 14.65 1995-96 924.15 12.75
st
As on 31 March 1997 11420.91 12.93 1996-97 1103.41 19.40
st
As on 31 March 1998 12868.13 12.67 1997-98 1286.09 16.56
As on 31st March 1999 15700.28 22.011 1998-99 1446.26 12.45
As on 31st March 2000 20176.06 28.51 1999-00 1952.27 34.99
222
10.27 The picture of the year-to-year borrowing of the State that emerges is
not encouraging. The data in Tables 10.4 to 10.10 above warrant a critical
look at the advisability of the State's taking increasing recourse to debt. We
feel that drawing up a comprehensive debt strategy for a reasonably long
period ahead, with the assistance of experts would be eminently desirable for
the State at this juncture. We leave this suggestion for the consideration of
Government.
10.28 In the preceding chapters, it was argued that the maintenance of assets
created should be a focal point for action for LSGIs. Given the scale of
transfer of resources to the LSGIs, through Plan devolution from 1995-
96, the State is witnessing an unprecedented surge of activity, which
has led to creation of wealth at the community level, in the form of
buildings, roads and irrigation structures. Besides, institutions that
were hitherto managed by Departments of the State have been
transferred on a large scale to LSGIs. These aspects have been discussed
elsewhere in this report.
10.29 It has been a general experience that the first casualty of a shortage of
funds is the outlay earmarked for maintenance expenditure. This is
not confined to LSGIs or State Governments alone, but seems to be a
universal phenomenon. Successive Finance Commissions have been
seized of this problem and have in their assessment made provisions
for maintenance requirements of the States. The Eleventh Central
Finance Commission in its report (Chapter V Para 5.38) observed as
follows: "It is a matter of concern that our capital assets are languishing
because of poor maintenance". Despite affirmations about the
importance of earmarking adequate provisions for maintenance,
expenditure for this has not been commensurate with the requirements.
The Report of the Eleventh Central Finance Commission further notes:
" This has happened in spite of the fact that successive Finance Commission in
the past have made liberal provisions for maintanance of capital assets in
their assessment of revenue expenditure”.
223
10.30 Table 10.11 gives approximate expenditure on maintenance
requirements in the selected sectors of Health, Education and PubEc
Works for the period 1990-2000. These figures are only approximations.
There would be always some expenditure under various heads of account,
which, at least partly, would fall under the categon of maintenance
expenditure. Thus maintenance outlays are not explicitl] identifiable in the
budget or the Government accounts. As the Table reveals, the total
maintenance expenditure as a percentage of Revenue Expenditure of the
State has been just over 3 per cent. During the three years 1997-2000,
which correspond to a difficult financial peritx for the State Government,
maintenance expenditure, as a percentage o total revenue expenditure, has
shown a decrease. This again confirms the general assertion made in the
last paragraph. Thi finding has been a prime consideration behind ou
recommendation that funds should be adequately earmarks for
maintenance.
TABLE 10.11
MAINTENANCE EXPENDITURE
Year Medical Education Buildings Roads and Total Revenue Total/

Bridges Expen- Revenue
diture Expenditure
1990-91 39.16 11.57 6.10 40.76 97.60 2824.95 3.45%
1991-92 11.02 12.28 6.94 40.94 71.19 3216.46 2.21%
1992-93 38.89 29.35 7.79 45.22 121.25 3656. 13 3.32%
1993-94 48.30 32.43 9.01 61,07 150.80 4293.36 3.51%
1994-95 60.01 34.27 9.46 60.37 164.11 5066.30 3.24%
1995-96 67.09 37.72 12.71 104.17 221.68 5826.38 3.80%
1996-97 85.57 54.02 12.17 116.02 267.78 6788.11 3.94%
1997-98 73.21 28.87 1J.29 136.26 249.64 8241.12 3.03%
1998-99 79.68 36.16 13.41 156.74 285.99 9228.08 3.10%
1999-00 89.66 34.78 25.46 197.18 347.08 11565.96 3.00%
224
GROSS FISCAL DEFICIT OVER THE DECADE 1990-2000
10.31 Data on the growth of the gross fiscal deficit (GFD) of the State and
its components are shown in the Table below. The growth in revenue
deficit accounts for a growing share of the gross fiscal deficit. There
has been a decline in net capital expenditure on the State account,
particularly from 1997-98. This watershed line coincides with the 35-
40 per cent devolution of the total plan to the local bodies in the wake
of decentralised planning. The revenue deficit has grown inordinately
in the second half of the decade, particularly since 1997-98, the first
year in which decentralised planning was introduced. Revenue deficit
accounted for 74 per cent, 82 per cent and 73 per cent of the gross
fiscal deficit in the years 1997-98, 1998-99 and 1999-2000. A partial
explanation for this disproportionate growth in revenue deficit, is that
the entire devolution under Plan to local bodies, is, for accounting
reasons prescribed by the Comptroller and Auditor General, classified
as revenue expenditure. However, the stiff rise in revenue expenditure
on account of the pay revision has also contributed significantly to the
problem.
10.32 There are two ways of assessing the high revenue expenditure.
Government has held the view that as much as 60-70 per cent of the
transfer to local bodies is on capital works, and that there is not much
cause for alarm in the figures of revenue deficit. While it is not possible
to confirm the actual percentage of capital expenditure out of the plan
devolution to local bodies, in the absence of data, it should be conceded
there is a great deal of merit in this argument. Even when final figures
are available, classifying micro-level infrastructure works into two
neat categories of 'revenue' and 'capital' expenditure would pose
problems. By Government's argument thus, the percentage of revenue
deficit in the gross fiscal deficit for the three years would reduce to 25
per cent, 45 per cent and 65 per cent respectively.
225
10.33 On the other hand, if one were to extrapolate the growth rate in capital
expenditure of the first half of the decade i.e. 14.89 per cent over the three
years in question, and apply this to the funds transferred to LSGIs, then the
percentage of revenue deficit in the gross fiscal deficit for the three years
would reduce to only 47 per cent, 62 per cent and 73 per cent respectively.
Gross fiscal deficit has risen at 21 per cent per annum over the decade, and
10.34 at a higher rate of 36 per cent in the second half of the decade, But what is
worrisome is that this gross fiscal deficit has been increasingly used for
financing revenue deficit of the State. In such a situation, these alternative
views on revenue deficit of the State Government would afford little
comfort to any State Government, These figures would point to the inherent
weakness of the financial position of the State, and give an idea of the level
of borrowing that the State Government has to do each year to sustain
spending levels, particularly on account of the revenue expenditure
envisaged in the budget. Table 10.12 gives the picture of the gross fiscal
deficit of the State over the decade 1990-2000.
TABLE 10.12
ROSS FISCAL DEFICIT OVER THE DECADE 1990-2000
(inRs.Cr) REVENUE DEFICIT CAPITAL LOANS AND GROSS

EXPENDITURE ADVANCES OF STATE FISCAL
GOVERNMENT(NET) DEFICIT
GR(90-95) -1.34 14.89 21.50 8.55
GR(95-00) 71.88 4.08 -5.89 35.88
GR(90-00) 26.56 11.12 9.11 21.00
% of Growth % of Growth % of Growth
GFD Rate GFD Rate Growth Rate
GFD
Rate(%)
1990-91 422.02 52.85 255.97 32.05 120.56 15.10 798.55
1991-92 364.34 45.35 -13.67 286.12 35.61 11.78 125.98 19.04 26.89 803.44 0.61
1992-93 337.41 46.09 -7.39 277.9 37.96 -2.87 116.68 15.94 -23.73 731.99 -8.89
1993-94 371.31 39.71 10.05 363.33 38.85 30.74 200.52 21.44 71.85 935.16 27.76
1994-95 399.88 36.07 7.69 446.01 40.23 22.76 262.76 23.70 31.04 1108.65 18.55
1995-96 402.81 30.92 0.73 563.47 43.26 26.34 336.37 25.82 28.01 1302.65 17.50
1996-97 643.03 41.69 59.64 622.52 40.36 10.48 276.93 17.95 -17.67 1542.48 18.41
1997-98 1122.90 46.52 74.63 738.87 30.61 18.69 552.08 22.87 99.36 2413.85 56.49
1998-99 2029.96 67.39 80.78 651.63 21.63 -11.81 330.61 10.98 -40.12 3012.20 24.79
226
1999-00 3515.61 79.16 73.19 661.20 14.89 1.47 264.21 5.95 -20.08 4441.02 47.43
227
FORECAST OF STATE FINANCES 2001-2005
10.35 In this section, we attempt a fairly simple forecast of State Finances

over the period covered by the award of our Finance Commission.
This forecast is aimed at presenting a picture of how the finances are
affected by the aggregate transfer of nine per cent of the Own Tax
Revenue that we have recommended as general and maintenance grants.
We have, while keeping the number of assumptions as few as possible,
looked at the major components of revenue receipts. But we do not
propose to analyse individual components of revenue expenditure. We
have adopted this ground rule, which stems from the observation that
revenue expenditure, as stated earlier, has been far more stable than
revenue receipts in the State. Of course this approach also uses a
major premise, that Government may find it difficult in the medium
term, in the absence of an explicit strategy, to make reductions in
expenditure, beyond the range of 1-2 per cent. At the same time we
note that it can ill-afford to step up expenditure beyond what is being
incurred now. Hence we believe that fine-tuning our efforts to forecast
individual components of the revenue expenditure will not yield
commensurate improvements in the quality of our forecast. The only
disaggregation we use is to look at the interest burden and the rest of
the revenue expenditure separately. For the year 2000-01 we have used
the revised estimates used by Finance Department for its annual
projections. This is justified as these projections are generally fairly
close to those presented in the budget. For the year 2001-02, we
employ the estimates of revenue receipts used for the assessment of the
resources for the annual plan 2001-02. For revenue expenditure, we
use the revised estimate for the year 2000-01 and the forecast for the
year 2001-02; we do the same for interest payments.
10.36 The allocations to local bodies are a part of the revenue expenditure of
the State. As stated earlier, since it is not our intention to prescribe
remedies or measures to improve the State's finances, we have not
attempted to project the capital side of the state finances or the gross
fiscal deficit.
228
10.37 With this background, we attempt a forecast of the revenue account of
the State Government. For this we use the year 2000-01 as the base
year. The accounts are yet to be published by the Accountant General
At this point in time, Finance Department has completed a review of
the half yearly status of revenue collection. We use the buoyancy figures
for the various streams of tax revenue available at the close of the half
year 2000-01.
10.38 The basic assumptions are discussed below:

TAX REVENUE
(1) For any revenue stream, we use the half yearly growth rate for
our forecast, provided there has been a positive growth in the
previous year.
(2) For Sales Tax, we assume that buoyancy will pick up to the leve
in the first half of the nineties. We assume that it will touch the
level of 22 per cent, which was roughly the figure for the early
nineties, before its growth loses momentum to reach 20 percent
in 2008-09.
(3) Taxes on vehicles are expected to touch the average historical

growth rate for the period 1993-99 i.e. 16 per cent by 2003-04
and then stabilise at 14 per cent from 2005-06 to 2008-09.
(4) A proposal to adopt minimum fair value fixation as the basis for
levying stamp duty is under implementation. We expect that it
will take the next financial year for the system to be fully
implemented. Hence we expect the buoyancy to record a
substantial increase in 2002-03 and touch 23 per cent and
subsequently to attain a stable rate of 18 per cent viz. the
projected SDP growth rate by 2008-09
229
(5) However where there has been a decrease or negative growth in either of
the two previous years (i.e. 1998-2000), we take the minimum of the
half yearly buoyancy for 2000-01 and the positive growth rates
registered in 1993-1999.
NON-TAX REVENUE
(1) The major components of this non-tax revenue in the State are
Forests, Miscellaneous Departments and Interest receipts.
Collection from Forests is largely dependent on the revenues
that come out of felling of trees and disposal of timber. With
felling of trees having been brought under more rigorous
guidelines in the recent years, the growth of this line of revenue
has not been as significant as it used to be in the past. For
Forests, we use the half yearly growth rate.
(2) Non Tax Revenues from other departments come largely through
collection of fees and user charges. The Non Tax Revenue Wing
of the Finance Department has submitted proposals for approval
of Government. Decisions are yet to be taken in many of these.
Hence for the years 2001-02 and 2002-03, we assume that there
will be a quicker growth in such revenue and assume this to be 17
per cent per annum. Subsequently we have assumed this to stabilise
at the same rate as the non-interest component of revenue
expenditure viz., at 13 per cent.
(3) Interest receipts are assumed to grow at the average historical rate observed
for the period 1993-1999.
GRANTS IN AID
Grants in aid received from Government of India are for Non Plan, State Plan,
Central Plan, Centrally Sponsored Schemes and Special Plan schemes. The
major share is accounted for by Grants in aid for
230
State Plan and for Centrally Sponsored Schemes. The average historial
growth rate for the period 1993-1999 is used for making the projections.
FISCAL COMMISSION TRANSFERS
On Fiscal Commission Transfers, the projections made by the Eleventh Central

Finance Commission are used.
10.39 The growth rate assumed for each tax is presented in the table below
We have shown the rates for the years 2002-2009 for the reason that it will
be instructive to look at a slightly longer-term period than that covered by
our award. We have not included the year 2001-02 in the table below as we
have based our projections of revenue receipts for 2001-02 on what has
been adopted in the Finance Department for id assessment as in November
2000. The maximum annual growth ratt in the decade 1990-2000 for
selected taxes are also shown in the last column of Table 10.13
TABLE 10.13
GROWTH RATES OF VARIOUS ITEMS
STATE TAX REVENUES
Maximum
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 Growth
Rate for
selsected
Items in
1990-2000
Agricultutal Income 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Land Revenue 10.52% 10.52% 10.52% 10.52% 10.52% 10.52% 10.52% 37.81%
Stamps and Registration 23.00% 22.00% 20.00% 18.00% 18.00% 18.00% 18.00% 28.52%
State Excise 15.00% 1600% 16.00% 16.00% 16.00% 16.00% 16.00% 29.84%
Sales Tax 19.00% 20.00% 21.00% 22.00% 21.00% 21.00% 20.00% 22.58%
Taxes on Vehicles 15.00% 16.00% 15.00% 15.00% 14.00% 14.00% 14.00% 21.83%
Taxes on duties on electricity 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Building Tax 12.00% 12.00% 12.00% 12.00% 12.00% 12.00% 12.00%
Other taxes and duties 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 44.31%
231
10.40 The figures for own revenue, revenue receipts, revenue expenditure and
revenue deficit for the years 2001-02 to 2005-06 arrived in the forecast
exercise are shown in Table 10.14. We have analysed the figures for three
years beyond the period 2005-06. However the general results for the award
period hold also for this extra period. We see a decline in the percentage of
revenue deficit as a share of State Domestic Product from the current level of
3.5 per cent to under 2 per cent, even assuming a comparatively low nominal
growth rate of SDP at 15.94 per cent (the average historical value).
10.41 The State has seen a comparatively steep decline in tax collection over
the last few years. However, if the cycles of economic growth, as reflected in
the eighties and nineties repeat over the next five years, the State is poised for
a faster financial recovery than what we have given in Table 10.14. We have
taken care to recommend a scale of transfers, which therefore would not
impose an unduly difficult target for the financial managers of the State.
232
TABLE 10.14
Projected fiscal scenario with the Commission's recommended transfers

for the Award Period
2001 -02 to 2005-06
10.42 What is important here is the fact that the transfers lie in a narrow
band between 0.18 and 0.22 per cent of estimated State Domestic Product.
The average value for the award period being 0.20 per cent, Given our
assumptions, we feel that there is considerable scope for the finances to
improve over the years, albeit slowly. We do not endeavour to guess the
State Government's response to the Fiscal Responsibility Act under
enactment by Government of India or the ingredients of the financial
reforms under discussion with the Asian Development Bank, We have not
taken into account any deep cuts in expenditure as a part of the financial
reforms of public expenditure that the State Government may undertake.
233
10.43 In our exercise, we have also looked at the behaviour of this difference under
various growth rates of the State Domestic Product for the forecast period.
With our recommended scale of transfers, the average value of transfers as a
percentage of State Domestic Product stabilises with improved economic
growth at around a peak value of 0.2184, as is shown in Chart 10.1. As
mentioned elsewhere earlier, we have assumed that the State Domestic
Product will grow at the average historical value. For alternative growth rates,
Own Tax Revenue has to be correspondingly adjusted for the forecast period.
This has been done by using a simple proportionality factor. It is clear that
with faster growth the transfers that have been recommended by this
Commission will be accommodated better in the fiscal balance of the State:
this is so because revenue deficit as a percentage of SDP declines for
increasing growth rates of SDP (Table 10.15)
Table 10.15 shows the behaviour of Revenue Deficit, post transfers, over the
10.44
forecast period for a few alternative rates of economic growth. The transfers
that have been recommended will not upset fiscal management, since they do
not, by themselves, introduce any spurts in Revenue Deficit as a percentage of
the State Domestic Product.
234
TABLE 10.15
BEHAVIOUR OF REVENUE DEFICIT AS % OF SDP AFTER

TRANSFERS FOR DIFFERENT GROWTH RATES
PROJECTIONS OF THE ELEVENTH CENTRAL FINANCE COMMISSION
10.45 Here, we look at the relevant projections arrived at by the Eleventh

Central Finance Commission and compare these with our own. We also
show the projections of the State Government presented in its
Memorandum submitted to the Eleventh Central Finance Commission,
The CFC has in Annexure V3 assumed a prescriptive growth rate of 16.8
per cent for tax revenue and a growth rate of 14 per cent for the State
Domestic Product. As mentioned earlier, for our projections of the SDP,
we have assumed the average historical growth for the period 1993-94 to
1998-99. We have looked at the buoyancy of the various components of
the Tax and Non Tax Revenue income of the State separately.
235
10.46 We have taken the non plan revenue surplus projected by the Eleventh
Central Finance Commission in Table 10.2. We have also assumed
that the Annual Plan will grow at a rate of 13 per cent per annum over
the award period (at the rate of growth of non-interest component of
revenue expenditure). Given that the revenue component in the Plan
continues to be 70 per cent of the total plan outlay then the revenue
deficit computed is shown in Table 10.16.
10.47 The figures arrived at in our forecast lie between those given in the
report of the CFC and those presented in the State's Memorandum to
the CFC. Generally, memoranda presented by State Governments tend
to overestimate the Expenditure figures. This is largely to prevent the
possibility of the State losing out on non plan assistance in the Award.
The Memorandum's estimate of revenue deficit for the year 1999-2000
for example is Rs.5680 cr. while the audited figures show a revenue
deficit of Rs.3625 cr. Likewise, the Finance Commissions use normative
measures of 'prescriptive' rates for various items particularly on the
expenditure side. As a result the final audited figures at the end of the
award period of the various Finance Commission and the projections
that these commissions have made in their awards differ by a very large
margin. This detracts considerably from the reliability of the
projections, particularly of revenue expenditure by the Finance
Commission.
10.48 In our own forecast, we have adopted figures, which are suggested by
the trends in the past, specifically the period 1993-94 to 1999-2000.
At the same time we neither anticipate any runaway expenditure nor
any unusual momentum in the growth of any revenue stream. At the
end, it is relevant to mention that we have avoided taking into account
the implications of a further pay revision for the employees of the
State Government through the next Pay Commission. We have done
this for two reasons. Firstly there is a recommendation of the last Pay
Commission that pay revisions should be made once in ten years as
against the existing practice of once in five years. As of now, the State
236
Government does not seem to be in favour of adopting this
recommendation of the Pay Commission. But the scales of pay, barring a
few instances, are at present fairly identical with Central Pay scale With
DA announcements reflecting the entire increase in prices, pay revisions
after every five years may cease to be a prevalent practice. Secondly, even
if a pay revision were to be implemented in the award period covered by
our report, the effect will be reflected in the last year of the award period,
which would not alter the forecasts much. In any case, the impact of
transfers suggested by us would remain at an approximately constant level
through the award period.
237
CHAPTER 11
SOME ISSUES RAISED BY THE ELEVENTH CENTRAL

FINANCE COMMISSION
1.1 Our report is being prepared at a time when the Eleventh Central
Finance Commission has just submitted its report to the President. The Eleventh
Central Finance Commission's report has given rise to a lively controversy on
the appropriate criteria for the inter sc distribution of resources between the
different states. These issues are outside the sphere of our concern; but the CEC
has made a number of important suggestions regarding the setting up and
functioning of State Finance Commissions, and has expressed its views on a
number of questions relating to decentralisation, on which we feel we must give
our opinion.
The CFC has pointed to an anomaly which has been exercising us as well.
This consists in the following. Article 280(3)(bb) and (c) of the
Constitution states that the CFC must make recommendations as to the
measures needed to augment the Consolidated Fund of a State to
supplement the resources of Panchayats and Municipalities in the State "on
the basis of the recommendations made by the Finance Commission of the
Stattf* (emphasis added). But the timing of the setting up of the crop of
First State Finance Commissions happened to be such that their reports
could not be made available to the Tenth Central Finance Commission and
appeared almost immediately afterwards. The only SFC reports available to
the Eleventh CFC therefore are almost five years old and hence at the end
of their time-frame of reference, they cannot conceivably be of any use
238
to the CFC in formulating its recommendations. Besides, since both CFCs
and SFCs are constituted once every five years, this problem will recur
with every CFC. In the case of Kerala for instance the first SFC's report
was submitted in February 1996 and was supposed to cover the period
1996-7 to 2000-1. This can hardly form the basis of the recommendation of
the Eleventh CFC whose report is supposed to cover the period 2000-1 to
2004-5. Thus the only SFC report available to the CFC is one whose time-
frame of reference has nearly ended; it can not possibly form the basis of
the CFC's recommendations.
11.3 The first SFC of Kerala had drawn attention to this problem.lt
had suggested that the SFCs should be constituted on a date
early enough, such that their reports could be made available six
to nine months before the CFC submits its report. It had also
drawn attention to the discrepancy that while Article 280 of the
Constitution empowered the President to appoint a CFC after
five years or "at such earlier times as the President considers
necessary" there was no such leeway provided in Article 243 (I)
dealing with the appointment of the SFCs; clearly a removal of
this discrepancy allowing for the appointment of SFCs earlier
than at the "expiration of the fifth year" can resolve the problem,
11.4 The Eleventh CFC has suggested precisely this, namely

Constitutional Amendment which merely adds "or earlier" to
"the expiration of the fifth year" in Article 243(1), making it
exactly analogous to the provision regarding the appointment of
CFCs. While we agree with the spirit of this suggestion, there is
a practical problem here, namely that such an amendment would
open up the possibility of a state government appointing a Finance
Commission whenever it fancies. This danger already exists in
the wording of the provision governing the appointment of tht
CFC; it would now get generalised to the case of the SFCs as
well. A more suitable amendment therefore would be to say that
SFCs have to be appointed "two years before the expiry of the
239
total picture regarding state finances, including what the states themselves
are being called upon to devolve to LSGIs. (Since the latter is governed by
the recommendations of the SFCs, the Constitution talks of the CFC’s
making its own recommendations "on the basis of the recommendations
made by the Finance Commission of the State"). This is an eminently
reasonable provision. What is more, it constitutes an anti-thesis of the "top-
down" approach and an expression of commitment to the primacy of
LSGIs: instead of SFCs taking the devolution from the Centre as a datum in
their decision-making it is the CFC that is supposed to take the devolution
to LSGIs as the datum in its decision-making. The needs of LSGIs, as
reflected in the SEC recommendations, have a primacy and constitute a
constrain within which the CFC must operate, rather than having to adjust
to what the CFC decides to devolve. An amendment deletinj this provision
therefore is not just unwarranted; it amounts to an overturning of a basic
principle.
11.6 Indeed it seems to us that the two Constitutional amendment suggested by

the CFC would undermine each other's rationale i.e. the second
Constitutional amendment suggested by the CF would undermine the
rationale of its first Constitutions amendment, and vice versa. If CFC
recommendations are a longer to be linked constitutionally to those of the
SFCs the the need for synchronising the two, so that the latter comes befor
the former, disappears. On the other hand if the Constitution to be amended
to ensure synchronisation, then the exercise t doing so would be futile if at
the end of it the CFC is no long required to take SFC recommendations as
the basis on which it makes its own awards. To be sure, it may be argued
that SK recommendations, if available to the CFC, would be useful for it,
even though the latter may not recommend on the basis of them. But the
case for synchronisation would lose much of its compelling power if
convenience alone is invoked in support of it. And in any case the argument
that the second proposed
240
amendment would remove some of the Constitutional shackles on the CFC
would still remain. There may be a case for adding "and other relevant
factors" to "on the basis of the recommendations made by the Finance
Commission of the State", but none in our view for deleting the latter.
11.7 There is however an implication of Article 280(3)(bb) and (c) which has gone
generally unnoticed. In stating that the CFC should make recommendations
regarding augmenting the Consolidated Fund of a State to supplement the
resources of the Panchayats and Municipalities on the basis of the SFC
recommendations, the Constitution implicitly suggests that the
recommendations of the SFC would be more or less binding on the state
government. There would be no point in the CFC taking the SFC
recommendations as the basis of its own award, if the latter recommendations
amounted to no more than mere pious wishes which the state government
could accept or reject at will, or, in the case of those it accepts, could give
effect to at a time of its own choice. In short, in enjoining on the CFC the need
to heed the SFC recommendations, the Constitution accords the latter a degree
of sanctity. Unfortunately, state governments have been quite cavalier in their
treatment of SFC recommendations. The CFC itself quotes instances of Action
Taken Reports on SFC recommendations not being presented to state
legislatures even two to three years after the submission of the SFC report. In
Kerala too some of the recommendations of the First SFC were rejected by the
government (e.g. the provision regarding 1 percent of State revenue,
appropriately defined, going towards the Rural and Urban Pools); and, even
with regard to the others, the necessary legislation has taken an inordinately
long time. Of course the total devolution from the state government to the
LSGIs in Kerala has been impressive and unprecedented, and has in fact gone
beyond the prevailing conception at the time of the first Finance Commission
report. This fact however was never advanced as the reason for the partial
acceptance of the SFC
241
report. We welcome the CFC's suggestion that the Action Taken Report on
the SFC's recommendations should be placed before the state legislatures
within six months of the submission of the SFC report, and urge greater
regard on the part of the state government for the spirit of the Constitutional
provision in I dealing with the recommendations of the SFC.
11.8 The CFC's suggestions for augmenting the Consolidated Funds

of the States are welcome, and in particular the suggestion that
Parliament should be empowered to raise the ceiling on the
Profession tax without going in for a Constitutional Amendment
each time. This is a matter that has also exercised us, especially
since in Kerala LSGIs have been empowered to levy Profession
tax, and it constitutes an important source of their revenue. The
scope for raising revenue from Profession tax is very large, given
the weight of the service sector in Kerala's economy, provided
its rate as well as coverage could be increased. Specific suggestions
regarding ways of extending its coverage (as well as garnering
revenue through other means) have been made in Chapter 9,
which also highlight the constraint placed by the Constitutional
ceiling. We welcome the addition of the CFC's voice to ours for
overcoming this constraint.
11.9 Of the annual amounts of Rs.1600 crores for Panchayats and

Rs.400 crores for Municipalities which the CFC would be
transferring for an improvement in civic services, Kerala's share
would be Rs.65.92 crores for distribution among Panchayats,
and Rs.15.05 crores for distribution among Municipalities. The
criteria for inter se distribution within each of these categories
have been left to the SFCs. We recommend that these sums be
distributed entirely on the basis of the population criterion among
the Panchayats and among the Municipalities. Since this sum
according to the CFC "should be over and above the normal flow
of funds to the local bodies from the States, and the amounts
that would flow from the implementation of SK
242
recommendations", its availability makes no difference to the rest of our
report. These funds, it must be emphasised too, should not be included in the
Plan funds which have a completely distinct existence. It is suggested that
these grants should be devolved in one instalment.
11.10 A perusal of the CFC report however makes it clear that the
process of decentralisation in Kerala has gone way beyond what
the CFC, looking perhaps at the average picture among states,
visualises. The CFC had commissioned a study by the NIRD on
rural local bodies and by NIPFP on urban local bodies. According
to the CFC, "The Study done by the NIRD reveals that the 73rd
amendment has not significantly altered the functional domain
of the panchayats at various tiers. Few states have been serious
in vesting the panchayats with the necessary powers, funds and
staff to enable them to perform the functions assigned to them
under the statutes. The Centre as well as the States have
sponsored schemes for rural people without associating
panchayats in planning and implementation." The picture in
Kerala is vastly different: not only were a whole array of assets
transferred to the LSGIs in 1995 together with staff and funds
to meet operating costs, but, under the stimulus of the Peoples'
Plan Campaign, over 35 percent of plan outlay has been given to
LSGIs to spend on projects of their choice. Precisely because of
this unique status of Kerala, the index of decentralisation
prepared by the CFC (which has to do with criteria such as when
the SFCs were set up and the extent of action on their report,
matters that have become secondary in a context where over
Rs.1000 crores are handed over every year as plan grants to
LSGIs) does not do justice to Kerala.
11.11 The use of such criteria in the preparation of an index of

decentralisation is in any case questionable, since it elevates form
over substance. Any such index has to be based on substantive
criteria such as the proportion of actual devolution from the state
243
government to LSGIs, or the magnitude of assets actually transferred to
LSGIs, since this is the essence of the process of decentralisation, as
envisaged in the Constitutional Amendments, Looking only at the SFC
recommended devolution, which has in most states, for no convincing
reason (and certainly not for any Constitutionally-specified reason),
excluded plan funds from its purview, is inadequate to start with. But not
taking into account the actual devolution even with regard to the non-plan
part, but concentrating only on the state government's formal' response to
the SFC recommendations, increases further the inadequacy of the index. It
is in fact a symptom of the inadequacy of the index that a state like Kerala,
with its unique record of decentralisation, performs so poorly according to
it.
11.12 There is however a more basic sense in which Kerala's remarkable essay in
democratic decentralisation which is qualitatively different, conceptually,
from the average picture among the States in India, has not elicited the
response it deserved from the CFC. The CFC does "not find adequate
justification in the demand that a certain percentage of the funds transferred
by the States to the panchayats and municipalities be provided by the
Finance Commission". The reason is the following. On the one hand, the
mere transfer of plan schemes to LSGIs should not lead to any additional
expenditure liability on the States; on the other hand the additional financial
burden falling on the State for implementing the SFC recommendations has
to be built into the expenditure stream of the State which the CFC is already
cognisant of. (And any transfer to LSGIs over and above SFC
recommendations is outside its purview anyway). It follows then that the
CFC has to take no special note of the devolution to LSGIs by the State
government. This argument might have some cogency in the "normal"
situation, but not in the context of the democratic decentralisation
experiment in Kerala. The reasons are obvious, and are as follows.
244
11.13 With the devolution of plan funds to LSGIs, there has been a significant change
in the composition of plan investment. In particular there has been a massive
increase in road length. This change in composition is nothing to frown upon;
on the contrary, if decentralised planning is really meaningful, then it must be
reflected in some change in the composition of plan investment, for otherwise
the need to shift away from paternalistic planning would appear
correspondingly weaker. Roads in particular, and similar investments in local
infrastructure in general, require, as discussed in an earlier chapter, high levels
of maintenance expenditure. If plan funds are not to be frittered away on
maintenance expenditure (and the whole effort in Kerala at the present juncture
must be to educate the people not to fritter away plan outlays for current uses,
for which the temptation would be almost irresistibly high), then adequate
provision must be made for maintenance. The argument can be advanced, and
our Commission in fact has advanced it and accepted it in an earlier chapter,
that the State government which has transferred the plan outlay should also
meet the maintenance expenditure, since if the same outlay had been spent
through departments, it would have provided for the maintenance of the assets
anyway. Now, the CFC's argument amounts to saying that if the state
government transfers plan schemes to LSGIs and meets their maintenance
requirements, then its overall expenditure obligations do not increase. But this
presumption is incorrect since the change in the composition of plan
investment also raises the maintenance expenditure, and hence the overall
expenditure obligation of the state government. It is certainly true that in so far
as this additional obligation gets reflected in the SFC report, it would be taken
cognisance of by the CFC. But that would be almost five years from now.
Meanwhile, maintenance expenditure needs have to be met immediately, since
the roads constructed in 1997-8, the first year of enhanced plan devolution,
would be already due for re-topping (a very expensive operation) in the
coming fiscal year itself; and subsequent fiscal years would only
245
see an escalation in such expenditure. By the time the Twelfth CFC makes
some arrangement to help the state, it would already have carried a big
fiscal burden. The Eleventh CFC regrettably, in concentrating on the
average picture, has provided little succour to a state like Kerala (the
amount coming to the state from the CFC's provision for civic services is
too meagre relative to the state's requirement, which, to repeat, is highly
specific). Our Commission nonetheless has enjoined upon the state
government the task of meeting the maintenance expenditure in full. This
is an obligation which cannot be shirked merely because the Eleventh
Central Finance Commission chose not to recognise its existence.
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CHAPTER 12
PROCEDURAL SAFEGUARDS
12.1 In the context of the considerable devolution of funds both Plan and non-Plan
suggested by this Commission, it is felt that strong procedural safeguards are
necessary both ways to ensure that the Government and the LSGIs perform
their fiscal responsibilities fair and straight. The Government has to accept the
financial entitlements of LSGIs and honour their due claim promptly. The
LSGIs have to show utmost diligence and care in utilizing public money. The
Commission would be dwelling at length on issues related to fiscal
responsibility and financial management of LSGIs in the second part of the
Report. However the Commission feels that certain procedural safeguards be
adopted immediately and would recommend the following.
12.2 LEGISLATIVE PROVISIONS
12.2.1 There should be new sections introduced in the Kerala Panchayat

Raj Act, 1994 and the Kerala Municipality Act, 1994, to the
effect that LSGIs are entitled to nine percent of State's own tax
revenue defined as the sum of the amounts received by way of
Sales Tax, Excise, Motor Vehicles Tax, Stamp Duty, Basic Tax,
Building Tax and other taxes and surcharge imposed by the State
and reckoned on the basis of the latest accounts certified by the
Accountant General.
12.2.2 Once this principle of general sharing of taxes is accepted and

implemented, simultaneously the existing assigned taxes of
Basic Tax, and Surcharge on Stamp Duty and the shared Motor
247
Vehicles Tax would move out of the financial domain of LSGIs and become
state taxes. For this, appropriate amendments to the Kerala Panchayat Raj
Act, Kerala Municipality Act and Kerala j Motor Vehicles Taxation Act and
the relevant rules are needed.
12.2.3 This nine percent has to be split up into two groups viz., the General
Purpose Grant and Maintenance Grant, getting 3.5 percent and 5.5 percent
shares respectively. LSGIs should be free to spend the General Purpose
Grant for establishment expenses as well as for performing the obligatory
and other functions; the Maintenance Grant should be used exclusively for
maintenance and well-defined related requirements only. It should be made
non-divertible. Similarly the Plan funds should be used exclusively for
development purposes and again should be totally non-divertible. While
General Purpose Grant would be released fully as per entitlement and would
be allowed to be transferred to PD Accounts permitting unlimited carry
over; for the other two grants, unspent funds would lapse.
12.3 SAFEGUARD AT GOVERNMENT LEVEL
12.3.1 (1) Flow of Funds. Now Plan Funds flow to LSGIs in four quarterly
instalments. For claiming each instalment the concerned LSGI has to make
an application, to the Deputy Director in the case of Village Panchayats, to
the Heads of Department in the case of Block Panchayats and Municipalities
and to the Government in the case of District Panchayats and Corporations,
Every time an instalment is to be released prior general approval of the
Finance Department is required. This system has been found to be
cumbersome and slow since there is considerable time lag between the
preferring of a claim and the actual crediting of funds to the LSGI account. It
often happens that funds cannot be accessed when most needed.
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12.3.1.1 In respect of sponsored schemes, both Plan and Non-plan, the
funds flow to LSGI from the Heads of Department either directly
or through district level officers. Normally it is given in one
instalment; but sometimes the release is made rather late in the
financial year. Also, there is some communication gap between
the department and the LSGI on how exactly some of the funds
can be spent, with the result that there are substantial unspent
funds lying with LSGIs from sponsored schemes.
12.3.1.2 As per the existing system, LSGIs are permitted to carry over 25
percent of their allotted Plan funds to the next financial year.
This is justified on two counts:- Firstly due to delayed releases
the last quarter get credited only towards the end of the financial
year with the result that it is not possible to spend it and carryover
becomes inevitable; secondly, the first instalment of the
succeeding year also gets delayed as various procedures are to be
followed and this necessitates LSGIs to have carry over funds so
that their expenses during the early months of the financial year
could be met. This system of carryover has not been very efficient.
12.3.1.3 The Finance Department has a letter of credit system in vogue

for regulating expenditure by cheque drawing departments like
the Public Works, Irrigation and Forest Departments. Also there
is a practice of issuing monthly and quarterly ceilings for
regulating the expenditure of major departments. These were
put in place for regulating outflows from the treasury. Drawing
elements from these systems, in order to get over the problems
outlined above, the Commission recommends an entitlement
approach in the case of Plan Grants, Maintenance Grants and
General Purpose Grants by the LSGIs. This would mean that
the instalments would be automatically credited to the LSGIs.
For the release of Plan Grants and Maintenance Grants, giving
due consideration to the need of the Government to manage the
ways and means position and to the right of LSGIs to get a free
flow of funds, the following procedure is recommended.
249
(1) The Director of Panchayats (in the case of Village
Panchayats), the Commissioner of Rural Development (in
the case of Block Panchayats and District Panchayats) and
the Director of Municipalities in the case of Municipalities
and Corporations) would be declared as the Controlling
Officers of these grants for the LSGIs serviced by them.
(2) These Controlling Officers would, as soon as the Budget

is passed, issue annual allotment letters giving LSGI-wise
allocation to the District Collectors. (Normally in the state
only the Vote on Account is passed. However, since the
withdrawals would be allowed only on a quarterly basis,
the question of exceeding the Vote on Account does not
arise.)
(3) At the district level, the District Collector would issue

allotment letters to individual LS&Is. This is to be done in
four quarterly instalments. This would mean that on the
first day of April, July, October and January, the LSGIs
would get as their entitlement in the treasuries one-fourth
of the annual allotment. This system would negate the need
for claims, allotments and transfer crediting. Based on the
allotment order of the District Collector funds would
automatically move into the account of the LSGIs. For
discharging this function, District Collector would be
supported by the Deputy Director of Panchayats, Assistant
Development Commissioner (General) and the Joint
Director of Municipal Administration.
(4) In the interest of free flow of funds, even while facilitat-

ing liquidity management and avoiding the possibility of ex-
cessive lumping of expenditure, LSGIs would be authorized
to carry over a fixed percentage of funds from the quar-
terly allotment as follows:
250
From the first quarter 50 percent
40 percent of the quarterly allotment plus
From the second quarter
the carried over amount
From the third quarter 30 percent of the quarterly allotment and
the carried over amount
From the fourth quarter
Nil
Even if the LSGIs were to use this flexibility to the maximum the
quarterly percentage of expenditure would not exceed the following:
First quarter 25 percent

Second quarter 37.5 percent
Third quarter 40.0 percent
Fourth quarter 37.0 percent
This arrangement would restrict runaway expenditure towards the end of the
financial year.
(5) In this system since the Plan Grants and Maintenance

Grants would be drawn against bills presented in the
treasuries the question of carrying over any amount at
the end of the financial year does not arise. In other
words, unspent funds would lapse on the 31st of March.
(6) The District Collector would issue two sets of allotments

to each LSGI. The first set can be called "regular
allotment" to be issued just before the beginning of the
year immediately after the Budget is approved. Against
251
this 'regular allotment' expenditure can be permitted subject only to
the condition that the maximum permissible amount should not
exceed one-third of the quarterly allotment in the first month and
two-third of the quarterly allotment in the first two months together.
This is to regulate too much of outflow from the treasury in any
given month.
(7) The second allotment can be called "authorization to use

carryover funds". This is also to be done quarterly,
However this would not be automatic and a system of
certification by the LSGI Secretary and elected head with
counter signature from the Treasury Officer would be
insisted on. This authorization could be given within a
fortnight of LSGI submitting their utilization certificates.
In order to curb the possibility of false claims, invariably, false

certification should be treated as a crime resulting in prosecution
and loss of job for the persons certifying.
(8) For the Treasury to monitor drawal of funds against

allotments a kind of appropriation account needs to be
maintained.
12.3.1.4 For devolution of the General Purpose Grant, a monthly allotment is

suggested; i.e. 12 equal monthly instalments would be automatically
credited on the first of each month. The above procedure may be followed
mutatis mutandis, with the only difference being that there will be no
requirement to spend a prescribed minimum of funds and there would be no
lapsing of funds. Also the LSGI would be able to transfer credit its allotment
to its Personal Deposit account in the treasuries as soon as it is received.
252
The Eleventh Finance Commission grant could be given in one instalment in
the first quarter of the year in the same manner as above. LSGIs can
transfer-credit the amount. Releases in subsequent years could be linked to
expenditure.
The elaborate procedures explained above would ensure that the objective of
liquidity management of government is fully met even while simplifying the
mechanism of flow of funds.
12.3.2 (2) Calculation of entitlements: For the purpose of calculating the share
of taxes due to the local governments, the accounts of the year previous to the
last one should be taken so that the accounts certified by the Accountant
General can be used.
12.3.3 (3) Assessment of maintenance requirement:Government should

carry out a proper survey of assets transferred to LSGIs as well as assets
owned by them. And using this data it should calculate Standard Spending
Assessment for maintenance purposes for each LSGI as per existing norms.
Thereafter allotments of maintenance grants can be made in proportion to the
assessed amount, according to the availability of funds.
12.3.4 (4) Separate Budget Document. Through an appropriate entry in

the Kerala Panchayat Raj Act and the Kerala Municipality Act, it should be
ensured that Grants-in-Aid to LSGIs are shown in a separate budget
document. It should show LSGI-wise distribution of funds in respect of three
streams of Grants-in-Aid - Plan, Maintenance and General Purposes. In the
case of other kinds of Grants-in-Aid, for pensions, as well as noon feeding in
schools, the allocations may be shown indicating the entitlements of
different types of LSGIs and formulae for devolving funds to individual
LSGIs.
253
12.4 REISTRATION ON CREATION OF NEW STAFF
12.4.1 In the context of transfer of responsibilities it is only natural

that LSGIs would be demanding creation of more posts both for
institutions/offices transferred to them as well as for expanding
their traditional staff strength. The Government may also want
to create new staff for the institutions/offices transferred to
LSGIs either on normative considerations or in response to
pressures from employees or LSGIs. The Commission would like
to reiterate the principle enunciated by the Committee on
Decentralisation of Powers that there should not be any net
addition to the staff due to decentralisation of functions and
powers.
12.4.2 An analysis of the State finances shows that there is need for
utmost care and caution in expanding the staff strength in view
of the severe financial crunch. For practical reasons, salaries and
pensions end up as the first charge on government revenues and
when the revenues are not enough, borrowing is resorted to meet
these commitments. This has dangerous implications; for, it fully
eats away the allocations for maintenance, which is so essential
for the optimum use of the good social infrastructure, which
Kerala has built up over the years. Therefore there is every reason
to economize on creation of staff and allot more resources for
the upgradation and upkeep of the assets created.
12.4.3 Of course the transferred staff are paid for by the Government; but if the
staff costs increase the first squeeze will be on funds recommended to be
earmarked to LSGIs for maintenance and probably even for Plan purposes.
Also, in the not too distant future, LSGIs would have to take on the full
responsibility of meeting the establishment costs. So too much of staff can
later prove to be a burden for the LSGIs themselves. In this context the
Commission would put forward certain basic suggestions to contain the
salary and related commitments.
254
12.4.4 Firstly any proposal by Government to create staff in institutions/ offices
transferred to LSGIs should be formulated in consultation with the concerned
LSGIs. Secondly it would be advisable to let the LSGI bear the additional cost
due to the staff creation. Thirdly it is necessary to have an independent
institutional mechanism to thoroughly analyse proposals for staff creation
either from LSGIs or Government, relating to both own staff as well as
transferred staff. What is required is a kind of Expenditure Ombudsman. Since
Kerala already has an excellent organisation in the form of a multi-member
Ombudsman created with the primary responsibility of controlling
maladministration in LSGIs, it is felt that this body could take on the
responsibility of vetting all proposals for staff creation. Since unnecessary
expenditure on staff is a kind of maladministration there is logical justification
for the Ombudsman to handle this task. Therefore the Commission would
recommend that Ombudsman for LSGIs be authorised to approve every
proposal for creation of staff either from LSGIs or from Government, in
institutions/offices transferred to LSGIs or in the original offices/institutions of
LSGIs. The approval could be based on the reasonableness of the request with
reference to need and existing norms, sustained affordability of the proposal on
the part of the State Government as well as LSGIs, implications for future,
possibility for redeployment from other local governments or from
Government, possibility of out-sourcing, potential for streamlining existing
work etc. The Council of Ministers could then take an informed decision based
on the recommendations of the Ombudsman. This institutional mechanism
would ensure that while absolutely unavoidable posts get created, there would
be an effective check on uncontrolled, ad-hoc expansion of bureaucracy. It
could bring reliability in staff creation and over a period of time give push to
efficiency and economy in the administration of LSGI responsibilities.
255
12.4.5 Alongside, Government may set up a one-time Local Government Staff
Commission, which could go into the question of scientific reallocation of
staff among LSGIs and redeployment from government to LSGIs subject to
the condition that no creation of staff would be recommended. In the latter
report it could take off from where the Committee on Decentralisation of
Powers has stopped and fully operationalise the principle of "work and
worker going together". It could also suggest measures for improving office
management through the use of modern techniques and technologies as well
as through retraining the existing staff. It could explore the possibility of
outsourcing certain kinds of work as also pooling of human resources for
access by a group of LSGIs. This Staff Commission could give its
recommendations in about a year.
12.5 SAFEGUARDS AT LEVEL
1. All LSGIs should have a maintenance plan, which will spell out
both the maintenance needs and the intended expenditure for
each item.
2. In order to prevent inflating of expenditure by writing out

cheques which are cashed after the end of the financial year
it is suggested that all cheques issued by local government
after 31st December should carry a stamped statement to the
effect that the cheques would be valid only up to 31st of March
of that financial year.
3. Unpermitted diversion of funds should invite automatic penalty

by way of interest at 2 percent per month for the fund
diverted and should be recovered from the persons
responsible.
4. All LSGIs should have a single account for crediting all their
256
entire collected income other than grants-in-aid from State or Central
Government or other agencies.
5. In respect of Maintenance Grants and Plan Grants, the existing PD Account

system where funds are drawn by cheques may be replaced by a system
where Bills are prepared and presented with appropriate certification
regarding the bonafides and admissibility of the Bill. For the sake of
convenience, to help easy distinguishing of Bills presented by various
LSGIs it is suggested that separate colours could be used for Village
Panchayats, Block Panchayats, District Panchayats, Municipalities and
Corporations.
12.6 COMMITTEE TO FOLLOW-UP ACCEPTED RECOMMENDATIONS
12.6.1 Once the recommendation of the Commission are accepted by

Government, there has to be a system of quickly operationalising
them, at any rate within three months. There would be need for
amending Acts and Rules and issue of orders by Local Self
Government Department, Finance Department and other
Departments. This process takes a lot of time. As has been pointed
out, many of the accepted recommendations of the First State
Finance Commission are yet to be operationalised.
12.6.2 Therefore the Commission would recommend the setting up of

an Empowered Committee under the Chief Secretary consisting
of the following members:
1. Secretary (Finance)
2. Secretary (Law)
3. Director of Panchayats
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4. Director of Municipal Administration
5. Secretaries of Departments which have to carry out the

recommendations
6. Secretary (LSGD)_ - Convener.
12.6.3 This Committee would have the task of preparing amendments to Acts and
Rules and monitoring the issue of notifications and general orders. It should
prepare the Action Taken Report to be submitted to the Legislature. This
Committee could be serviced by the SFC Cell of the Finance Department.
12.7 SFC CELL
12.7.1 The first SFC had recommended setting up of a Special Cell and
accordingly as per G.O.(MS)564/97/Fin dated 4-6-1997 a Cell
has been set up in the Finance Department. Unfortunately this
Cell has not been able to discharge its functions very effectively
with the result that there have been delays in operationalising
the recommendations of the first SFC. The fact that the second
SFC had really to struggle and spend a lot of time to get the
data and details, which could have been gathered and analysed
regularly by the SFC Cell without much difficulty, further
reinforces the need to have a small but efficient regular set up.
12.7.2 Accordingly the Commission recommends the setting up of a cell

under the joint control of Secretary (Finance) and Secretary
(LSGD) consisting essentially of an officer from the Finance
Department and an officer from the Panchayat and Municipal
Wings of LSG Department, an officer from the Statistical
Department competent in use of Computers and analysis of data.
This could be supported by a small team consisting of two
ministerial staff, two Data Entry Operators, one Stenographer
258
and the required class IV staff, driver etc. The Commission would like to
underline the fact that it is not suggesting any level for the posts. It is felt that
the accent should be on the quality of the person rather than his rank in the
official hierarchy.
12.7.3 The mandate of this Cell would be -
(i) Follow up the accepted recommendations of the First Finance

Commission and co-ordinate them to their logical conclusions.
(ii) Process the recommendations of the Second Finance Commission for

decision at appropriate levels and operationalise them fully.
(iii) Design formats for monitoring resource mobilization at the local level
and resource flow from Government to the LSGIs, obtain periodical
reports in the formats, collate them, analyse them and prepare
monthly statements and annual reports. This monitoring system could
be used by LSGD for taking necessary remedial action wherever
required.
(iv) Play the nodal role in organizing training programmes for LSGIs in
respect of recommendations of this Commission relating to new
systems of Budgeting, Accounting, Auditing etc.
(v) Serve as a resource center on local government finances.
(vi) Search, collect and store information on local government finances from
both within the State and outside the State.
(vii) Create a data bank for the use of future State and Central Finance
Commissions.
259
SUMMARY OF RECOMMENDATIOS
1. The important recommendations of the Second SFC are summarised below:

2.
DEVOLUTION OF FUNDS
(1) Government may devolve to the LSGIs, Plan funds not less
than one-third the annual size of the State Plan as fixed by
the Planning Commission. This Fund is to be used by LSGIs
for planning and implementing locally relevant projects. The
secotral ceilings if any within this grant may be fixed by
Government from time to time.
(2) Five and a half percent of the annual own tax revenue of
the State Government may be devolved to the LSGIs as
Grant-in-aid for maintenance of assets under the control
of the LSGIs including the transferred assets. This
percentage may be determined on the figures certified by
the Accountant General, which normally relates to the
financial year two years before the Budget year. All
expenses related to running of institutions except wages,
supply of medicines to health institutions, educational
concessions / scholarships to students, supply of books and
consumables to schools, equipments, conducting noon-
feeding in schools, shall be borne by the LSGIs. This should
include payment of rents, repair of equipment including
vehicles, and meeting of telephone charges and vehicle
operating expenses.
260
(3) Three and a half percent of the own tax revenue of the State Government
based on the figures certified by the Accountant General could be devolved
to LSGIs as Genera Purpose Grant in lieu of assigned taxes, shared taxes and
various statutory and non-statutory grants-in-aid, both specific purpose and
general purpose. This grant-in-aid would subsume under it Basic Tax Grant,
Surcharge on Stamp Duty, Vehicle Tax Compensation, Rural Pool Grants,
the specific purpose and general purpose grants to Urban Local Bodies and
all other non-plan grants-in-aid devolved to LSGIs from the Local Self
Government Department.
3. It has to be noted that Kerala has become highly vulnerable in the context of
liberalization and globalisation. How the poor get affected by this process
needs to be specially studied.
4. The Eleventh Finance Commission grants to LSGIs should be passed down

as such over and above the grants suggested above.
5 For the above three streams of grants-in-aid the devolution formula and the
distribution formula are as suggested below:
(a) Plan Grant-in-Aid. The existing devolution formula as well as the

distribution formula may continue. However up to ten percent of the
non-SCP/TSP Funds may be distributed as an incentive for increased
own revenue mobilization by the Village Panchayats and the Urban
Local Bodies. The actual percentage to be distributed as incentive
grant-in-aid should be the same as the percentage of Village Panchayats
and Urban Local Bodies showing an increase in own revenue. And this
amount could be shared as per the formula given below:
261
qi = ri Pi / a ri Pi
qi - share for LSG1 i
ri - percentage increase in its revenue
Pi - Population of the LSGI i
The date of effect of the incentive system may be indicated to LSGIs well in
advance.
(b) Maintenance Grant. The maintenance grants should be based on the
current cost of replacement and the initial norms (which has to be updated
periodically) may be as follows:
i. Maintenance of buildings constructed before 1-4- 3% of capital cost

1967
ii. Maintenance of buildings constructed after 1-4-1967 2% of capital cost
iii. Current construction cost. Rs.400/-per Sq.ft.
iv. Frequency of resurfacing ofblack-top/WBM Roads Once in five years
v. Annual repair expenditure of Blacktop roads. Rs.25,000/-per K.M
vi. Annual repair expenditure ofWBM roads Rs.23,000/-per K.M.
vii. Annual repair expenditure ofunsurfaced roads Rs.2,000/-per KM.
viii.Cost of re-surfacing black-top roads(3.8 Metre Rs. 1.65 lakhs per K.M.
width)
ix. Cost of resurfacing WBM roads (3.8 Metre width) Rs. 1.84 lakhs per K.M
262
6 The distribution of the maintenance grant could be as follows:
(1) On the basis of a price index work out what Rs.140 crores
at 2000-2001 prices would amount to for the year for which
the provision is being made. The deflator for the construc
tion sector can be utilized for this purpose.
(2) One-seventh of this amount may be kept aside for the Dis
trict and Block Panchayats and divided between them in the
ratio 19 : 1. The share of the Block Panchayat should be
divided equally among them. As regards District Panchayats,
half the share should be divided according to the ratio of
distribution of the transferred village roads and other dis
trict roads and the other half based on norms for repair of
non-road assets in their control (other than those created
after 1995)..
(3) Seven-eighth of the share of the Village Panchayats and

Municipalities is to be distributed among the Village
Panchayats, Municipalities and Corporations in the same ra
tio as VTC is currently divided; one-eighth of the share of
the Village Panchayats and Municipalities should be distrib-
uted according to the maintenance needs of non-road as
sets, own and transferred, (other than those created after
1995) - as determined by norms.
(4) The division formula mentioned above needs to be corrected

by a series of iterations.
(5) The remaining portion of the maintenance grant i.e. the ex-
cess over Rs.140 crores at 2000-01 prices may be distrib-
uted exactly in the same manner as Plan 6rant-in-aid.
263
c) General Purpose Grant. The Government may determine as a one-time
exercise, the share of District Panchayats and Block Panchayats in the
General Purpose Grant, based on normative assessment of their
establishment cost and office expense requirements. The remaining
amount may be distributed as follows:
Village Panchayats 78.5 percentage
Municipalities 8.5 percentage
Corporations 13.0 percentage
7. The inter se distribution among the Municipalities and Corporations should be

entirely on the basis of population. As regards Village Panchayats, a corpus of
Rs.10 crore may be set apart and be used as per a gap filling formula - to fill the
gap between obligatory expenditure (reckoned as establishment expenses, street
light and water supply charges) and the revenue usable for these purposes
(calculated as the sum of own collected revenue and the share of the Village
Panchayat from the General Purpose Grant). The entire gap could be filled up
in the case of Second and Third Grade Village Panchayats, 50 percentage of the
gap in the case of First Grade Village Panchayats and 25 percentage of the gap
in the case of Special Grade Panchayats. The remaining portion may be
distributed according to the population criterion.
8 In order to avoid hardships during transition period, it is recommended that no

Village Panchayat or ULB should experience a real shortfall in its receipts on
account of these transfers compared to the previous year.
264
d) Eleventh Finance Commission grants may be devolved on the basis of
the population criterion in one instalment.
9
OWN RESOURCES MOBILISATION BY LSGIs
(1) For Property Tax the recommendations of the First SFC may be
operationalised and the following scheme is suggested for classifying
buildings and fixing the tax.
(i) Location Zone - Four Zones.
(ii) Type of building - (a) Ordinary Building.
(b) Medium type building.
( c) Luxury building.
(iii) Type of use: - (a) Commercial use.
(b) Non-commercial use.
(iv) The relative weights for the Zone could
b - 1 : 1.5 : 2 : 2.5
(v) The relative weights for the type of building
could be - 1 : 1.5 : 2
(vi) The relative weights between non-commercial and

commercial use could be - 1 : 3
(vii) Deduction for age and owner occupation may be as provided

for in the Kerala Municipality Act.
265
(2) On no account should there be a cap on increase or a limit to decrease
when the new system is introduced.
(3) A dual system of numbering is suggested so that incomplete buildings can

get a provisional number and their completion tracked properly.
(4) Presumptive Profession Tax may be introduced to bring certain self

employed occupational groups into the tax net.
(5) Entertainment Tax may be introduced for Cable and Internet.
(6) In the case of Advertisement Tax the Government may fix the minimum
rates for taxation for different kinds of advertisement for different types of
locations by issuing Advertisement Tax Rules, which could set out the
guide lines for LS6Is to assess the tax.
(7) There should be a system of authenticating advertisements to avoid

unauthorized advertisements. Penal provisions for unauthorized
advertisement should be at least five times the normal tax.
(8) Conversion Tax may be realized at the rate of five per cent of the capital
value in the case of conversion of paddy lands. Half this rate may be made
applicable for other kinds of conversions. In the case of conversions
without prior permission a severe penalty of ten times the Conversion
Tax should be realized in the case of conversion of paddy land and an
amount equivalent to the Conversion Tax could be realized in other cases.
266
(9) The Service Tax should be made compulsory and be linked to the cost
of performing obligatory functions and calculated as a percentage of
Property Tax.
(10) The ceiling on Surcharges may be removed.
(11) In the case of Non-tax Revenue the Government should fix the
minimum fees for various kinds of licences in the case of
Municipalities and Corporations through notification. In the case of
Village Panchayats only the minimum amount may be fixed in the
rules.
(12) In the case of licences and permits, which are renewed periodically,
25% of the licence fee may be collected as fine for delay beyond a
grace period of ten days; this pen alty may be increased by 25% for
every additional fort night of delay.
(13) There must be compulsory display by LSGIs on the spot for various
items of revenue and in the case of auctions a district level public
notice should be given in December about to all the forthcoming
auctions.
(14) For trade licences the present practice in Village Panchayats of

calculation based on turnover may be done away with and for both
Village Panchayats and Urban Local Bodies, Government could notify
the minimum rates for each trade with separate rates in each category
for small, medium and large establishments.
(15) A separate numbering system should be adopted for trade

establishments.
(16) The following fees may be enhanced.
(i) Building fee for Theatres.
267
(ii) Licence fee under the Kerala Places of Public Resort Act.
(iii)Licence fee for Private Markets.
(iv) Licence fee for Private Slaughter Houses.
(v) Licence fee for Brokers, Commission Agents, Weigh men and Measurers.
(vi) Licence fee for Butchers, Fishmongers, Poulterers.
(vii)Licence fee for premises where animals are kept for commercial purposes.
(viii)Market fee.
(ix) Cate fee for public halting and parking places, (x) Cate fee for
slaughterhouses.
(xi) User charges for burial grounds, burning ghats and electric crematoria.
(17) The meat stalls and the right to fish in water bodies may be auctioned every year
by the concerned LSGIs after giving due publicity.
(18) Village Panchayats may auction the right to set up temporary shops in public land
just as Urban Local Governments are doing so under Section 376 of the Kerala
Municipality Act.
268
10 FOLLOW UP OF FIRST SFC RECOMMENDATIONS
(1) Rules for levy of Advertisement Tax in Village Panchayats and

ULBs may be issued immediately.
(2) Steps to finalise minimum land value for use in registering

sales may be completed at the earliest,
(3) Tax mapping may be done immediately and unique premises

numbering system introduced.
(4) A single financing agency for LSGIs may be set up by merging

KUDFC and the Rural Development Board..
(5) 50% of building exemption fees and regularization fees may

be given to the concerned Village Panchayats and ULBs.
(6) The question of Village Panchayats and ULBs levying daily fee
for use of poramboke may be examined and decided by Gov
ernment without further delay.
(7) Rationalisation of revenue village and Village Panchayat/ULB

boundaries may be done in such a way that no revenue village
would lie within more than one Village Panchayat or ULB.
(8) Shortfall in devolution of assigned and shared taxes vis-a-vis the accepted
level may be made good by Government.
11 PROCEDURAL SAFEGUARDS
(1) Necessary amendments to the Kerala Panchayat Raj Act and the Kerala
269
Municipality Act may be made to specify the minimum shares of LSGIs, of
the Plan Grant, Maintenance Grant and General Purpose Grant.
270
(2) LSGIs should get automatic allocations at the beginning of every month.
(3) A survey of assets transferred to LSGIs as well as assets

owned by them may be carried out to calculate the standard
spending assessment for maintenance purposes and the re
sult of the study should be utilized for devolution of mainte
nance funds.
(4) A separate Budget document indicating LSGI-wise distribu

tion of the three streams of grants-in-aid, grants-in-aid for
pensions and for noon feeding. For other grants-in-aid, dis
trict-wise figures may be indicated along with formula for de
volving them to individual LSGIs.
(5) A legislative provision may be introduced for indexing non

tax revenue items, and taxes like Property Tax, Advertise
ment Tax and Service Tax. Two-yearly revisions are recom
mended for non-tax licence items and Advertisement Tax
based on Consumer Price Index for non-manual workers for
Thiruvananthapuram in the case of Urban Local Bodies and
Consumer Price Index for agricultural labourers for the state
in the case of Village Panchayats; four-yearly revision may be
done for Professional Tax and Service Tax.
(6) All proposals for staff creation should be cleared by the Ombudsman.
(7) A Local Government Staff Commission may be set up to sug

gest redistribution of staff among LSGIs as well as from Gov
ernment to LSGIs.
271
(8) All LSGIs should prepare annual maintenance Plans.
(9) Unpermitted diversion of funds should be penalized by charg

ing a penalty of two percent per month from the persons re
sponsible.
(10) Village Panchayats, Municipalities and Corporations should have

a single account for crediting all their own collected revenues
(11) In the case of Plan 6rant-in-aid and Maintenance 6rant-in-

aid, bill system of drawing from treasuries should be intro
duced in the place of PD Accounts.
(12) An Empowered Committee under the Chief Secretary may be

set up to follow-up the accepted recommendations and imple
ment them fully.
12 A Cell under the joint control of Finance and Local Self Government Departments
may be created for concurrent monitoring of all financial matters of LSGIs
PRABHAT PATNAIK
Chairman
K.M. ABRAHAM S.M. VIJAYANAND

Member Member
Thiruvananthapuram
8th January, 2001
272
Annexure I.I
GOVERNMENT OF KERALA
Finance (State Finance Commission Cell) Department
NOTIFICATION
No.33384/SFC.Al/99/Fin. Dated, Thiruvananthapuram, 23rd June 1999
S.R.O.No.543/99.— Under clause (1) of Article 243-1 of the Constitution of India and
section 186 of the Kerala Panchayt Raj Act, 1994 (13 of 94), read with clause (1) of
Article 243-—Y of the Constitution of India, and section 205 of the Kerala
Municipalities Act, 1994 (20 of 1994), the Governor of Kerala is pleased to constitute a
Finance Commission consisting of Sri.Prabhat Patnaik, Professor, Jawaharlal Nehru
University, New Delhi as the Chairman and the following two other persons as
members, namely.—(1) Dr.K.M.Abraham, Secretary to Government, Finance
(Resources) Department
(2) Sri.S.M.Vijayanand, Secretary to Government, Local Administration Department.
2. The Chairman and other members of the Commission shall hold office for a
period of one year from the date of this notification.
3. The Finance Commission shall review the financial position of the Panchayat
and the Municipalities and make recommendations as to -
(a) the principles which should govern, -
(i) the distribution between the State, Panchayats and the
Municipalities of the net proceeds of the taxes, duties, tolls and
fees leviable by the State, which may be divided between
them, under Part IX and part IX - A of the Constitution and the
allocation between the Panchayat at all levels and
Municipalities of their respective shares of such proceeds;
(ii) the determination of the taxes, duties, tolls and fees which may
be assigned to or appropriated by, the Panchayats and the
Municipalities;
273
(iii) the grants-in-aid to the Panchayats and the Municipalities from
the Consolidated fund of the State.
(b) the measures needed to improve the financial position of the Panchayats
and the Municipalities with reference to, -
(i) the scope for local bodies to raise institutional finance, and
suggest a framework for local self governments to take
recourse to such sources along with procedures to be followed
and limits, if necessary, to raising such resources;
(ii) need for sharing the cost of maintenance of assets and
institutions transferred to local self governments, and evolving
criteria for it, with due regard to the fiscal position of the State
Government and the local self- governments;
(iii) steps necessary for efficient financial management with
particular reference to efficiency in resource mobilization and
economy in expenditure;
(iv) settlement of claims and dues of Panchayats and Municipalities
vis-a-vis Government and Governmental agencies;
(v) procedures to be followed for smooth flow of funds to local self
Governments and ensuring proper financial accountability,
Orders regarding the terms and conditions of appointment of the Chairman and
other members of the Commission will be issued separately.
By Order of the Governor

VINOD RAI,
PRINCIPAL SECRETARY(Financc)
274
Annexure 1.2
GOVERNMENT OF KERALA
Finance (Administration - A) Department
NOTIFICATION
No.48596/Admn.Al/2000/Fin. Dated, Thiruvananthapuram, 26'" July 2000
S.R.O.No.766/2000.— Under clause (1) of Article 243-1 of the Constitution of India

and section 186 of the Kerala Panchayt Raj Act, 1994 (13 of 1994), read with clause (1)
of Article 243—Y of the Constitution of India, and section 205 of the Kerala
Municipalities Act, 1994 (20 of 1994), the Governor of Kerala is pleased to extend the
term of the Finance Commission constituted as per Notification
No.33384/SFC.Al/99/Fin , dated 23"' June, 1999, published as S.R.O.No.543/99 in the
Kerala Ga/ette Extraordinary No.1239 dated 23rd June, 1999, up to 22nd June 2001 and
consequently the following amendment to the said Notification, namely:-
AMENDMENT
In the said Notification, for the 2nd paragraph, the following paragraph shall be
substituted, namely:-
"2. The Chairman and other members of the Commission shall hold office up to
the 22nd day of June 2001."
By Order of the Governor

VINOD RAI,
PRINCIPAL SECRETARY (Finance)
275
Annexure 1.3
VISIT OF THE COMMISSION TO LOCAL SELF GOVERNMENT

INSTITUTIONS OF EACH TYPE
As part of the study the Commission visited the following LSGIs and had
detailed discussions with the elected representatives and officials.
Grama Panehayat, Karakulam
Block Panchayat, Anchalummood
District Panchayat, Kollam
Punalur Municipality
Corporation of Thiruvananthapuram
Annexure 1.4
COMMISSION'S DISCUSSION WITH ASSOCIATIONS
22nd November,A.N, 1999 Discussion with the office bearers of Association

representing Village Panchayats.
24th November, AN 1999 Meeting with Block Panchayats Presidents.

Hon'ble Minister for Local Self Government
Institutions was present
25th November, AN, 1999 Meeting with the Chamber of Municipal

Chairmen.
Annexure 1.5
COMMISSION'S DISCUSSIONS WITH SECRETARIES AND HEADS OF

DEPARTMENTS
24th November, AN, 1999 Discussion of the Commission with the Chief
Engineer (Building &Local Works) and Deputy
Chief Engineer (Roads).
25th November, AN, 1999 Discussion of the Commission with Secretaries,

LSGD Rural and Urban, Director of
Municipalities and Director of Panchayats.
276
Annexure 3.1
Municipalities having Entertainment Tax and Additional

Entertainment Tax Exceeding Property Tax Collection - 1998-99
Rupees in Thousands
SI. No. Name of Municipality Property Tax Entertainment
Tax
1 Kollam 12580 16087
2 Perinthalmanna 2504 3275
3 Thodupuzha 3822 4503
4 Palakkad 10934 19597
5 Alappuzha 7016 10405
6 Kunnamkulam 3510 5113
7 Kodungallur 2098 7065
8 Guruvayoor 3988 4488
9 Kottayam 12206 14297
10 Chalakudy 2304 5637
11 Shornur 1952 3839
12 Pala 3334 6644
13 Changanassery 5762 7621
14 Thalassery 7688 10471
15 Mavelikara 2386 2596
16 Aluva 4484 6712
17 Pathanamthitta 3034 3388
18 Vadakara 7924 8052
19 Cherthala 2315 2399
20 Tirur 3054 8794
21 Thrissur 9588 20144
Source SFC Survey 2000
277
Annexure 3.2
USE OF PENAL PROVISIONS BY ULBS - A STATUS REPORT
The Kerala Municipality Act gives ample powers to the various authorities in
the administrative hierarchy to regulate private behaviour in public places for
common good. The Commission made a study to find out whether the Municipalities
are making full use of their authority. It was found that of the 55 Municipalities and
three Corporations only a very few have utilised the provisions sampled out. The
details are presented below:-
l). Section 335: Improper disposal of carcasses, rubbish and filth. According to
the existing provisions, the Municipality can charge a fine of Rs.500/- for this. The
details of enforcement are given below: -
Name of the Municipality Amount Collected

1998-1999 1999-2000
1. Thiruvalla Rs. 70007- Rs.80007-
2. Mavelikara Rs. 46007- Rs. 170007-
For 42 Municipalities the collection was 'Nil'. Fourteen of them did not give
any reply.
2). Section 336: Allowing rubbish or filth to accumulate on premises for more
than 24 hours. The Municipality can charge up to Rs.10007-. The details of
penalties collection arc given below: -

1998-1999 1999-2000
1. Thiruvalla Rs. 100007- Rs.80007-
278
2. Mavelikara Rs. 124007- Rs. 170007-
279
For 42 Municipalities the collection was 'Nil'. Fourteen of them including
Thiruvanathapuram and Cochin Corporations did not give any reply
3) Section 337: Allowing filth to flow in streets. The Municipality can
charge up to Rs.2500/-. The details of collections are shown below: -

1998-1999 1999-2000
1. Kollum Rs.1750/- Rs.1000/-
2. Thiruvalla Rs.2000/- Rs.2000/-
3. Palai Rs.135/- —
4. Vadakara Rs.500/- —
5. Kozhikode Corporation — Rs.500/-
For 39 Municipalities the collection was 'Nil'. Fourteen of them did
not give any reply.
4).Section 340: Throwing rubbish or filth into public places. The Municipality
can charge up to Rs.2000/-. The details are given below: -

1998-1999 999-2000
1. Kollam Rs.10250/- Rs.l 5250/-
3. Palai Rs.500/- —
4. Changanassery Rs.250/- —
5. Tirur RS.1500A Rs.750/-
6. Quilandy Rs.500/- --
7. Mattannur Rs.250/-
280
8. Kannur Rs. 1750/- Rs. 1250/-
9. Kozhikode Corporation Rs.500/- Rs.3250/-
10.Palakkad — Rs. 1850/-
1 l.Manjeri — Rs.250/-
12.Vadakara — Rs.5750/-
The collection is 'Nil' for 32 Municipalities. Fourteen Municipalities
did not give any reply.
5). Section 357: Protection of appurtenances and materials of street. The
Municipality can charge up to Rs.5000/-. The collection details are as follows: -

1998-1999 1999-2000
1 Kollam Rs.5250/- Rs.7500/-
3. Pathanamthitta Rs.610/- Rs. 1350/-
The collection is 'Nil' for 41 Municipalities. Fourteen Municipalities did not give
any reply,
6).Section 369: Erecting of structures or fixtures causing obstruction in public
streets. The Municipality can charge up to Rs. 10, 0007-. The fines collected are as
given below:
Name of the Municipality. Amoun Collected
1998-1999 1999-2000
1. Thiruvalla Rs. 10007- Rs. 1000/-
2. North Parur Rs.185/- Rs.170/-
281
3. Vadakara Rs.40250/- Rs.48275/-
4. Mattannur Rs.250/- --
5. Changanaserry — Rs.100/-
6 Guruvayoor — Rs.510/-
7. Kannur — Rs.3380/-
In respect of 37 Municipalities the collection is 'Nil'. Fourteen Municipalities did not
give any reply.
7). Section 370: Deposits etc. of things on Public Street. The Municipality can
charge up to Rs. 1000/-. The details of penalties collection are noted below: -

1998-1999 1999-2000
1 . Varkala Rs. 1375/- Rs.2250/-
2. Mavelikara Rs.78000/- Rs.90000/-
3. Kayamkulam Rs.3250/- Rs.7450/-
4. Changanaserry Rs.750/- —
5. Guruvayoor Rs.3755/- Rs.22225/-
6. Chalakudy Rs.5270/- Rs.7350/-
7. Manjeri Rs.5495/- Rs.8756/-
8. Tirur Rs.6500/- Rs.7250/-
9. Kanhangad Rs.500/- —
10.Kozhikode Corporation Rs.7320/- Rs.5735/-
1 l.Paravoor -- Rs.380/-
12.Kalamassery — Rs.100/-
13. Kannur — Rs. 1670/-
14.Kasargod — Rs.4800/-
15. Palai Rs.1065/- —
282
1 6.Thiruvalla Rs.1000/- Rs.1000/-
283
The collection is 'Nil' in respect 28 Municipalities. Fourteen did not respond.
8). Section 41 1(1) Structures in ruinous State dangerous to passers-by or to the
occupiers of neighbouring structures. The Municipality can charge up to
Rs.5000/-The details are noted below: -

1998-1999 1999-2000
1 . Thiruvalla Rs.12000/- Rs.21000/-
3. Guruvayoor Rs.3987/- —
4. Palakkad Rs.10000/- Rs.15000/-
5. Kottayam — Rs.815/-
6. Changanssery Rs.765/- —
The Municipalities in which the collection is 'Nil' are 38 in number. No reply was
received from fourteen municipalities.
9).Section 412 (1) Tree or branch of a tree likely to fall and cause danger to
persons or any structure. The Municipality can charge up to Rs.2()()0/-. The
details arc noted below: -

1998-1999 1999-2000
1. Kollam Rs.1500/- Rs.2000/-
3. Irinjalakuda Rs.300/- —
The collection is 'Nil' in respect of 40 Municipalities. Fourteen of them did not give
284
any reply.
285
10).Section 414: Dangerous quarrying. The Municipality can charge up to
Rs.5000/-.
Out of the 58 Municipalities, Thriuvalla Municipality alone has collected an amount
of Rs.4000/- during 1998-99 and Rs.5000/- during 1999-2000.
11). Seel ion 426: Untenanted building or land, which becomes a resort of idle and
disorderly persons. The details are noted below: -

1998-1999 1999-2000
1 . Thiruvalla Rs.1000/- Rs.7000/-
2. Mavclikara Rs.4500/- Rs.l0300/-
any reply.
12).Section 427: Non-removal of filth or noxious or wild vegetation. The
Municipality can charge up to Rs.500/-. The details of amounts collected are noted
below:-

1998-1999 1999-2000
1, Thiruvalla Rs.2000/- Rs.3000/-
2. Mavclikara Rs.31000/- Rs.38000/-
any reply. 13).Section 428: Non-securing of trees adjacent to house or well.
The Municipality can charge up to Rs.1000/-. The details are noted below: -
286
1998-1999 1 999-2000
1 . Thiruvalla Rs.1000/- Rs.18000/-
any reply.
14.Section 436: Keeping of animals causing nuisance or danger. The
Municipality can charge up to Rs.500/-. The details are given below: -
Name of the Municipality Amoun t Collected

1998-1999 1999-2000
1 . Thiruvalla Rs. 170007- Rs.2000/-
2. Changanssery Rs.250/- —
3. Kottayam Rs.l9300/- Rs.8500/-
4. Kothamangalam Rs.3630/- Rs.5580/-
In respect of 40 Municipalities the collection is 'Nil'
The following are Municipalities / Corporations which did not furnish the
details.
(!) Neyyattinkara, (2)Punalur, (3)Adoor, (4) Chegannur, (5) Cherlhala,
(6)Thodupuzha, (7)AIuva, (8)Kodungallur, (9)Kunnamkulam, (10)Ponnani.
(11) Piiyyannur, (12)Thalassery, (13)Thiruvananthapuram Corporation and
(l4)Kochi Corporation.
287
Annexure 3.3
Details of Plan Provisions to Panchayat_Raj /Nagarapalika
Institutions
STATE SPONSORED SCHEMES - 2000-01
(Rs.in lakhs)
implementing
LSGIs
Aariculture & Other Services
1 Strengthening of Veterinary Services 490.00 VP
10.00 Munici
Total 500.00
2 Expansion of cross-breeding facilities 2.00 VP
D
3 oultry farms & expansion of poultry production 2.00 DP
4 ntensive Pig Development Schemes 1.00 DP
5 Strengthening of goat farms 1.00 DP
6 Special Livestock Breeding Programme 95.00 VP
310.00 DP
Total 405.00
Fisheries
7 Setting up of Matsyabhavans 80.00 VP
8 Social Fishery 40.00 DP
9 Janakeeya Matsyaknshi 50.00 VP
10 Assistance for Fish Marketing and
Fish selling booths 130.00 VP
11 Education and Training 50.00 DP
12 Sanitation in Fishermen houses 80.00 VP
13 Theerajyothi in Fishermen houses 80.00 VP
14 Supply & service scheme, Alternate
Ornamental Fish Culture 20.00 VP
Total 530.00
Forestry & Wild Life
15 Enhanced Contribution of Forest to Community
Welfare
Community Development and Panchavat Rai 50.00 VP
16 Strengthening of Block Administration 100.00 BP
17 Solid Waste Disposal problem in Panchayats 215.00 VP
18 Kudumbasree 350.00 VP
Total 665.00
Irriqation and Flood Manaqement
19 Minor Irrigation Class - II 300.00 VP
200.00 DP
Total 500.00
288
(Rupees in Lakhs)
implementing
LSGIs
Drainaae & Flood Manaqement
20 Contingency Plan for flood Management 500.00 DP

Welfare of 50,51 & OBC
Development of Scheduled Castes

21 Boarding Grants 21.01 BP
8.00 Munici.
1.00 Corpn.
Total 30.01
22 Tuition system in pre-metric hostels 31.63 BP
7.62 Munici.
0.75 Corpn.
Total 40.00
23 Development Programme for the 1 1 1 .00 BP
Vulnerable Groups 13.80 Munici.
Total 124.80
24 32.00 DP
7.00 Munici.
Better Education facilities to SC Students 1.00 Corpn.
Total 40.00
25 26.10 VP
3.20 Munici.
Pre-prirnary Education to SC children 0.70 Corpn.
Total 30.00
Development of Scheduled Tribes 12.00
Better Education facilities to ST Students
26
Assistance for marriage of ST Girls
27
Note: Provisions for Special Component
Plan and Tribal Sub Plan are shown under
Rural Development Sector
28 Urban Environmental
29 Improvements Solid waste
289
Annexure 3.4
DETAILS OF NON-PLAN SPECIFIC PROGRAMMES 2000-2001
implementing
LSGIs
1 Renewal of Transport 1159.00 DP
2 Ordinary Repairs of Roads and Bridges 347.70 DP
3 Special repairs to roadside bridges 579.50 DP
4 Flood damage repairs 231.79 DP
5 Mid-day meals 2500.00 VP
150.00 DP
150.00 MP
150 00 Corpn
Total 2950.00
6 Free supply of writing aids and text books to Primary Students 20.00 VP
7.00 2.50 MP
Corpn.
Total 29.50
6277.00 VP
506.00 MP
Unemployment allowance
7 217.00 Coprn.
Total 7000.00
8 1193.59 VP
137.50 MP
Pension Scheme for Physically handicapped, disabled and mentally 66.00 Corpn.
retarded persons-
Total 1397.09
155.59 DP
9 17.00 MP
Orphanage grant-in-aid 21.00 Corpn.
Total 193.59
10 Financial help to widows towards marriage expenses of daughters 77.00 VP
22.00 MP
11.00 Corpn.
Total 110.00
11 1675.47 VP
208.15 MP
Destitute pension 94.07 Corpn.
Total 1977.69
3437.13 VP
12
260.40 MP
Agricultural Workers' Pension
22.47 Corpn.
Total 3720.00
268.70 VP
13 28.00
MP
10.28
National old age pension scheme Corpn.
Total 306.98
14 Production incentive to Paddy Growers VP
1014.20 MP
47.60 Corpn.
Total 1061.80
290
15 Maintenance of Village roads by Community Development
Department VP
202.00
16 Grant -in- aid to TVPM Corporation Towards Addl. Expenditure
on lighting the 12.00 Corpn.
Highways in the City
291
Annexure 3.5 -2
ABSTRACT OF TOTAL RECEIPTS OF VILLAGE PANCHAVATS UNDER OWN REVENUE
ITEM 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
Amount PTR Amount PTR Amount PTR Amount PTR Amount PTR Amount PTR
1. Direct Tax 424833 36.01 508497 41.00 514801 37.15 598555 28.51 640555 26.54 725875 27.94
2. Assigned Tax 312397 26.48 290215 23.40 273655 19.75 524871 25.00 443871 1839 445450 17.15
3.Shared tax 90790 7.70 25040 2.02 216874 15.65 329101 15.68 382328 15.84 364809 14.04
4. Non Tax Revenue 206235 17.48 235087 22.99 310105 22.38 464567 22.13 605721 25.10 749003 20.83
5.General purpose grant 26785 2.27 29438 2.37 23475 206 28714 1.37 0 0.00 0 0.00
6.Specific Purpose grant 118370 10.03 101567 8.19 41436 2-99 153001 7.29 175162 7.26 15200 0-59
Total 1179411 99.98 1239845 99.98 1385347 9998 2098810 99.97 2247636 93.12 2300337 88.55
Amount - In Rupees PTR Percentage to Total Revenue
Annexure 3.5 - 3
PERCENTAGE SHARE OF TAXES TO DIRECT TAXES ( VILLAGE PANCHAYATS)
ITEM 1993-94 1994-95 1996-97 1997-98 1998-99

Amount PDT Amount PDT Amount PDT Amount PDT Amount PDT Amount PDT
i. Property Tax 222671 52.41 265503 52.21 256590 49.84 293864 49.10 296160 46.23 344370 47.44
ii. Prolession tax 27.98 148522 29.21 159679 31.02 190383 31.81 220324 34.40 259089 35.69
iii. Ent & Add. Ent. Tax 65186 15.34 73027 14.36 79458 15.43 89976 15.03 99585 15.55 97114 13-38
iv. Advertisement Tax 1134 0.27 810 0.16 395 0.03 876 0.15 1960 0.31 939 0.13
v. Service tax 10987 259 14368 2.83 12647 2.46 14428 2.41 16546 2.58 18192 2.51
vi. Show tax & surcharge on 2661 0.63 3376 0.66 3142 0-61 4653 0.78 3409 0.53 3832 0.53
vii. Land conversion 695 0.16 418 0.08 262 0-05 80 0.01 155 0.02 64 0.01
viii. Surcharges 541 0.13 622 0.12 543 0.11 555 009 559 0.09 530 0.07
ix Land cess 2089 0.49 1850 0.36 2085 0.41 3741 0.63 1857 0.29 1746 0.24
Total 424833 100 508497 100 514801 100 598555 100 640555 100 725875 100
Amount - In Rupees PDT -Percentage of direct tax
PERCENTAGE INCREASE OF TAXES OVER PREVIOUS YEAR (VILLAGE PANCHAYATS)
Annexure 3.5 -4
% Over
ITEM 1995-96 1996- 93-94
1993-94 1994-95 97 1997-96 1998-99
Amount Amount % Amount % Amount % Amount % Amount %
i.Property Tax 222671 265503 19.24 256590 -3.36 293864 14.53 296160 0.78 344370 16.28 54.65
ii.Profession tax 118869 148522 24.95 159679 7.51 190383 19.23 220324 15.73 259089 1759 11.96
iii.Ent: & Add' Ent. 65186 73027 12.03 79458 8.81 89976 13.24 99585 10.68 97114 -2.48 48.98
iv.Advertisement Tax 1134 810 395 -51.29 876 122.05 1960 12370 939 -52.11 -17.20
v.Service tax 10987 14368 30.77 12647 -11.98 14428 14.09 16546 14.68 18192 9.94 65.58
vi.Show tax & 2661 3376 26.87 3142 -6-95 4653 48.10 3409 -26.74 3832 12.42 44.01
surcharge on ST
vii. Land conversion 695 418 -39.85 262 -37.31 80 -69.65 155 94.68 64 -58.39 -90.73
viii.Surcharges 541 622 15.02 543 -12.68 555 2.17 559 0.78 530 -2,02
ix.Land cess 2089 1850 2085 12.71 3741 79.39 1857 -50.36 1746 -5.98 -16,44
Total 424833 509497 1969 514801 1 .24 598555 16.27 640555 7.02 725875 13.32 70.86
294
Annexure 3.5-5
PERCENTAGE INCREASE OF OWN REVENUE OVER PREVIOUS YEARS (VILLAGE PANCHAYATS)
ITEM 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

Amount Amount % Amount % Amount % Amount % Amount % % Over
93-94
1 Direct Tax 42483 508497 19.69 514801 1.24 598555 16.27 640555 7.02 725875 13.32 70.80
2. Assigned Tax 312397 290215 -7.10 273655 -5.71 524871 91.80 443871 -15.43 445450 0.36 42.59
3. Shared tax 90790 25040 -72.42 216874 766.10 329101 51.75 382328 16.17 364809 4.58 301.82
4. Non Tax Revenue 20623 285087 38.23 310105 8.78 46456 49.81 605721 30.38 749003 23.65 263.18
5. General Purpose grant 26785 29438 9.91 28475 -3.27 28714 0.84 0 0
6. SpecificPurpose grant 118370 101567 -14.20 41436 -5920 153001 269.25 175162 14.48 15200 -91.32 -87.16
Total 1179411 1239845 5.12 1385347 11.74 2098810 51.50 2247636 7.09 2300337 234 95.04
SHARE OF DIRECT TAXES IN TOTAL OWN REVENUE (VILLAGE PANCHAYATS)

ITEM 1993-94 193-1-95 1995-96 1996-97 1997-98 1998-99
Amount PTOR Amount PTO Amount PTOR Amount PTOR Amount PTOR Amount PTOR
(1) Properly Tax 222671 18.88 265503 21.41 256590 18.52 293864 14.00 296160 13.18 344370 14.97
(ii) Profession tax 118869 10.08 148522 11.98 159679 11.53 190383 9.07 220324 9.80 259089 11.26
(iii) Ent: & Add Enl: Tax 65186 5.53 73027 5.89 79458 5.74 89976 4.29 99585 4.43 97114 4.22
(iv| Advertisement Tax 1134 0.10 810 0.07 395 0.03 876 0.04 1960 0.09 939 0.04
(v) Service tax 10987 0.93 14368 1.16 12647 0.91 14428 0.69 16546 0.74 18192 0.79
(vi ) Show tax 8 surcharge 2661 0.23 3376 0.27 0.23 4653 0.22 3409 0.15 3832 0.17
(vii) Land conversion 695 0.06 418 0.03 262 0.02 80 0.00 155 0.01 64 0.00
(viii) Surcharges 541 0.05 622 0.05 543 0.04 555 0.03 559 0.02 530 0.02
(ix) Land cess 1089 0.18 1850 0.15 2085 0.15 3741 0.18 1857 0.08 1746 0.08
Total (Direct taxes) 425 0.04 508 0.04 515 0.04 599 0.03 641 0.03 726 0.03
Total 1179411 100.00 1239845 100.00 1385347 100.00 20988110 100.00 2247636 100.00 2300337 100.00
Amount - In Rupees PTOR - Percentage of Total Own Revenue
SHARE OF ITEMS UNDER OWN REVENUE (VILLAGE PANCHAYATS)
ITEM 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

Amount POR Amount POR Amount POR Amount POR Amount POR Amount POR
1. Direct Tax 424833 36.02 508497 41.01 514801 37 .16 598555 28.52 640555 28.50 725875 31.56
2. Assigned Tax 312397 2649 290215 23.41 273655 19.75 524871 25.01 443871 19.75 445450 19.36
3. Shared tax 90790 7.70 25040 2.02 216874 15.65 329101 15.68 382328 17.01 364809 15.86
4. Non Tax Revenue 206235 17.49 285087 22.99 310105 22.38 464567 22.13 605721 26.95 749003 32.56
5. General Purpose grant 26785 2.27 29438 2.37 28475 2.06 28714 1.37 0 0.00 0 0.00
6. Specitic Purpose grant 118370 10.04 101567 8.19 41436 299 153001 7.29 175162 7.79 15200 0.66
Total 1179411 100.00 1239845 100.00 1385347 100.00 2098810 100.00 2247636 100.00 2300337 100.00
Amount - In Rupees POR - Percentage on Own Revenue
295
Annexure 3.5 -8
TOTAL EXPENDITURE OF VILLAGE PANCHAYATS - YEAR
WISE (Excluding expenditure under People's Plan Campaign)
ITEM 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
AM PTE AM PTE AM PTE AM PTE AM PTE AM PTE
1.GENERAL 870709 983411 1070639 1461619 1837705 1880212
ACCOUNT
1.Management &
Collection
i.Salary / Honararium 32442 2.52 31216 2.11 57160 3.55 108938 5.16 109589 3.78 163645 6.01
etc. of Office bearers
ii.Establishment of cost 329140 25.59 365379 24.73 408694 25.40 462937 21.91 513570 17.72 604873 22.21
of secretaries & staff
iii. Other Office expense 46793 3.64 73448 4.97 63586 3.95 84656 4.01 112838 3.89 132814 4.88
2. Education &
Culture
i. Salary and other 6539 0.51 7113 0.48 8302 0.52 10773 0.51 12004 0.41 14307 0.53
expenses
ii.Other charges 21924 1.70 23151 1.57 24254 1.51 26252 1.24 36591 1.26 36540 1.34
3. Public Works
i. Establishment Cost 6914 0.54 7617 0.52 8648 0.54 9843 0.47 13471 0.46 17493 0.64
ii. Maintanance 217762 16.93 248689 16.83 262953 16.34 388736 18.40 496238 17.12 381123 13.99
4. Irrigation
i.Maintanance 8904 0.69 10518 0.71 8404 0.52 12800 0.61 14477 0.50 10306 0.38
5.Core Function
(a).Sanitation &
drainage
i.Establishment Charge 20364 1.58 21061 1.43 27266 1.69 35521 1.68 37541 1.30 35775 1.31
ii.Maintanance 7260 0.56 7095 0.48 7905 0.49 16617 0.79 17515 0.60 16737 0.61
(b) Water Supply
i.Maintanance 13451 1.05 19627 1.33 25695 1.60 64588 3.06 68397 2.36 55819 2.05
ii.Other petty works 4201 0.33 4413 0.30 5216 0.32 9346 0.44 10962 0.38 8953 0.33
(c) Street Lighting
i.Current Charge 77290 6.01 79930 5.41 80874 5.03 92422 4.37 109083 3.76 106777 3.92
ii.Other Charge 2769 0.22 2591 0.18 3326 0.21 6558 0.31 10657 0.37 8708 0.32
6.Medical Service
i.Establishment Charge 766 0.06 798 0.05 798 0.05 815 0.04 889 0.03 1039 0.04
ii. Operational Cost 316 0.02 207 0.01 504 0.03 502 0.02 802 0.03 1192 0.04
iii. Maintanance Charge 733 0.06 1187 0.08 1041 0.06 1155 0.05 1063 0.04 1084 0.04
iii. Other Charges 1865 0.14 1649 0.11 2320 0.14 3711 0.18 4802 0.17 8319 0.31
7. Ferry Service
i. Establishment 2079 0.16 2150 0.15 2627 0.16 3357 0.16 3820 0.13 3940 0.14
ii. Other Charges 1140 0.09 1007 0.07 1115 0.07 1650 0.08 2768 0.10 11562 0.42
8. Remunarative
Enterprises
i. Establishment 159 0.01 163 0.01 415 0.03 2062 0.10 1572 0.05 1973 0.07
Charge
ii.Maintanance` 502 0.04 584 0.04 50 0.00 366 0.02 1137 0.04 1782 0.07
iii.Other Charges 1422 0.11 835 0.06 958 0.06 939 0.04 2562 0.09 13840 0.51
9. Social welfare
i.Family welfare etc 4918 0.38 4644 0.31 4340 0.27 11641 0.55 12488 0.43 13377 0.49
ii. Housing 22240 1.73 28941 1.96 28912 1.80 40969 1.94 76356 2.63 39168 1.44
iii. Other Charges 5168 0.40 5989 0.41 6685 0.42 12884 0.61 29660 0.93 26375 0.97
10. Town Planning
i. Establishment 184 0.01 289 0.02 41 0.03 2062 0.10 3820 0.13 3940 0.14
Charges
ii. Maintanance 1406 0.11 1155 0.08 1851 0.12 213 0.01 2349 0.08 609 0.02
iii.Other Charges 1658 0.13 1509 0.10 1319 0.08 1466 0.07 3518 0.12 2762 0.10
11.Land Development
i. Land Development 1324 0.10 847 0.16 1877 0.12 2103 0.10 6686 0.23 997 0.04
ii. Other Charges 29069 2.26 29611 2.00 23499 1.46 47618 2.25 26718 4.37 158027 5.80
II CAPITAL 345501 26.86 396272 26.82 431665 26.83 558158 26.41 854837 29.50 522240 19.17
ACCOUNT
1.Management 36913 2.87 43267 2.93 40343 2.51 42441 2.01 63918 2.21 71183 2.61
2. Public Works 262142 20.8 296495 20.05 327224 20..34 437309 20.70 703454 24.57 366445 13.45
3.Remurative Asset 7042 0.55 8463 0.5 11486 0.71 13694 0.65 14924 0.51 12468 0.46
296
4. Creation of asssets 1834 0.14 1315 0.09 2456 0.15 5940 0.28 7834 .027 9079 0.33
to govt dept
5. Others 4079` 0.32 8446 0.57 6551 0.41 9575 0.45 11448 0.40 13475 0.49
6. Loan refund 33491 2.60 38586 2.61 43605 2.71 49198 2.33 53260 1.84 49593 1.82
III. DEBT HEADS 70172 5045 97624 6.61 106673 6.63 93299 4.42 205624 7.09 321382 11.80
1. Refund of Deposit
i Shop Rooms 39951 3.07 40129 2.72 2176 2.62 51814 2.45 61987 2.14 65084 2.39
ii. Buildings 1979 0.15 1391 0.09 1639 0.10 1972 0.09 1572 0.05 4128 0.15
iii. Others 6742 0.52 8191 0.55 9111 0.57 9526 0.45 18807 0.65 33794 1.24
2. Library Cess 2428 0.19 2868 0.19 2260 0.14 8975 0.42 11348 0.39 8258 0.30
3. Surcharge to 69 0.01 113 0.1 33 0.00 123 0.01 172 0.01 1185 0.04
block/district
4. Sales tac etc 6985 0.54 6634 0.45 6001 .0.37 7805 0.37 9951 0.34 11681 0.43
5. Others 12417 0.97 38299 2.5* 75452 2.82 13085 0.62 101788 3.51 197253 7.24
Total 1286376 100.00 1477307 100.00 1608975 100.00 2113076 100.00 2898166 100.00 2723834 100.00
NB:- date of 976 Village Panchayats
AM:- Rupees in Thousand
PTE:- Percentage to Total Expenditure
PERCAPITA EXPENDITURE OF VILLAGE PANCHAYATS-YEAR WISE
(Excluding expenditure under People’s Plan Campaign) Annexure 3.5-9
ITEM 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

I.GENERAL ACCOUNT AM PC AM PC AM PC AM PC AM PC AM PC
1. Management & Collection 870703 33.97 983411 37.77 1070638 40.47 1461619 54.36 1837705 67.22 1880212 67.63
(i) Salary /Honararium etc of
Office beares 32442 1.27 31216 1.20 57160 2.15 108938 4.05 109589 4.01 163645 5.89
(ii) Establishment of cost of
secretaries & staff 329140 12.84 365379 14.03 408694 15.45 462937 17.22 513570 18.79 604873 21.76
(iii) Other office expenses 46793 1.83 73448 2.82 63586 2.4 84656 3.15 112838 4.13 132814 4.78
2. Education & Culture
(i) Salary and other expenses 6539 0.26 7113 0.27 8302 0.31 10773 0.4 12004 0.44 14307 0.51
(ii) Other Charges 21924 0.86 23151 0.89 24254 0.92 26252 0.98 36591 1.34 36540 1.31
3. Public Works
(i) Establishment Cost 6914 0.27 7617 0.29 8648 0.66 9843 0.37 13471 0.49 17493 0.63
(ii) Maintanance 217762 8.5 248389 9.55 262953 9.94 388736 14.46 496238 18.15 381123 13.71
4. Irrigation
(i) Maintanance 8904 0.35 10518 0.4 8408 0.32 12800 0.48 14477 0.53 10306 0.37
5. Core Function
(a) Sanitation & drainage
(i) Establishment Charges 20364 0.79 21061 0.81 27266 1.03 35521 1.32 37541 1.37 35775 1.29
(ii) Maintanance 7260 0.28 7095 0.27 7905 0.3 16617 0.62 17515 0.64 16737 0.6
(b) Water Supply
(i) Maintanance 13451 0.52 19627 0.75 25695 0.97 64588 2.4 68397 2.5 55819 2.01
(ii) Other petty works 4201 0.16 4413 0.17 52156 0.2 9346 0.35 10962 0.4 8953 0.32
(c) Street lighthing
(i) Current Charge 77290 3.02 79930 3.04 8074 3.06 92422 3.44 109083 3.99 106777 3.84
(ii) Other Charges 2769 0.11 2591 0.1 3326 0.13 6558 0.24 10657 0.39 8708 0.31
6. Medical Service
(ii) Operational Cost 316 0.01 207 0.01 504 0.02 502 0.02 802 0.03 1192 0.04
(iii) Maintanace Charge 733 0.03 1187 0.05 1041 0.04 1155 0.04 1063 0.04 1084 0.04
(iv) Other Charges 1865 0.07 1649 0.06 2320 0.09 3711 0.14 4802 0.18 8319 0.3
7. Ferry Service
(ii) Other Charges 1140 0.04 1007 0.04 1115 0.04 1650 0.13 2768 0.1 11562 0.42
8. Remunarative Enterprises
297
(ii) Maintanance 502 0.02 584 0.02 50 0.00 366 0.01 1137 0.04 1782 0.06
(iii) Other Charges 1422 0.06 835 0.03 958 0.04 939 0.03 2562 0.09 13840 0.5
9. Social Welfare
(i) Family Welfare etc 4918 0.19 4644 0.18 4340 0.16 11641 0.43 12488 0.46 13377 0.48
(ii) Housing 22240 0.87 28941 1.11 28915 1.09 40969 1.52 76356 2.79 39168 1.41
10. Town Planning
(ii) Maintanance 1406 0.05 1155 0.04 1851 0.07 213 0.04 2349 0.09 609 0.02
11. Land Development
(i) Land development 1324 0.05 847 0.03 1877 0.07 2103 0.08 6686 0.24 997 0.04
(ii) Other cahrges 29069 1.13 29611 1.14 23499 0.89 47618 1.77 126718 4.64 158027 5.68
II. CAPITAL ACCOUNT 345501 13.48 396272 15.22 431665 16.32 558158 20.76 854837 31.27 522240 18.78
1. Management 36913 1.44 43267 1.66 40343 1.52 42441 1.58 36918 2.34 71183 2.56
2. Public Works 262142 10.23 296195 11.38 327224 12.37 437309 16.26 703454 25.73 366442 13.18
3. Remunarative Assets 7042 0.27 8463 0.33 11486 0.43 13694 0.51 14925 0.55 12468 0.45
4. Creation of assets to govt
dept 1834 0.07 1315 0.05 2546 0.09 5940 0.22 7834 0.29 90790 0.33
5. Others 4079 0.16 8446 0.32 6551 0.25 9575 0.36 11448 0.472 13475 0.48
6. Loan Refund 70172 2.74 97624 3.75 106673 4.03 93299 3.47 205624 7.52 321382 11.56
III. DEBT AHEADS
1 Refund of Deposits
(i) Shop rooms 39551 1.54 40129 1.54 42176 159 51814 1.93 61987 2.27 65084 2.34
(ii) Buildings 1979 0.28 1391 0.05 1639 0.06 1972 0.07 1475 0.06 4128 0.15
(iii) Others 6742 0.26 8191 0.31 9111 0.347 9526 0.35 18807 0.69 33794 1.22
2. Librarary cess 2428 0.29 2868 0.11 2260 0.09 8975 0.33 11348 0.42 8258 0.3
3. Surcharge to block /district 69 0.00 113 0.00 33 0.00 123 0 172 0.01 1185 0.04
4.Sales Tax etc 6985 0.00 6634 0.00 6001 0.00 7805 0 9951 0.00 11681 0.00
5. Others 12417 0.00 38299 0.00 45450 0.00 13085 0 101788 0.00 197253 0.01
TOTAL 1286376 50.19 1477307 56.74 1608975 60.82 2113076 78.58 2898166 106.02 2723834 97.98
NB :- data 976 Village Panchayat

Am:- Rupees in Thousand
PC :- Percapita Annexure 3.6-1
TOTAL RECEIPTS OF MUNICIPALITIES 1993-94 TO 1998-99

1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
Item AM PTR AM PTR AM PTR AM PTR AM PTR AM PTR
I. TAX REVENUE 385328 43.45 432978 44.97 539012 48.1 599103 33.72 624836 40.42 680383 41.62
A. DIRECT TAX 308939 34.84 335818 34.88 381514 34.04 433350 24.39 479749 31.03 503622 30.97
(i) Propety & serivce Tax 134679 15.19 144739 15.03 158677 14.16 182536 10.27 202952 13.13 223292 13.66
(iii) Advertisement Tax 1854 0.21 2002 0.21 2499 0.22 2922 0.16 3034 0.2 3641 0.22
(iv) Ent& Add Ent.Tax 148690 16.77 160865 16.71 189353 16.9 209251 11.78 233000 15.07 230395 14.09
(v) Show Tax & SC on ST 822 0.09 837 0.09 961 0.09 962 0.05 975 0.06 915 0.06
(vi) Land Conversion 215 0.02 49 0.01 293 0.03 850 0.05 200 0.01 373 0.02
(vii)Timber Tax 0.00 0 0 0 0 0
(viii) Tax on animals & vehicles 16 0 0 27 0 1 0 0 2 0
B.ASSIGNED TAX .
(i) Duty on transfer of property 47789 5.39 89498 9.3 69998 6.25 101774 5.73 96439 6.24 100452 6.15
C. SHARED TAX
Vahicle Tax Compensation 28600 3.23 7662 0.8 87500 7.81 63979 3.6 48648 3.15 73609 4.5
II. NON-TAX REVENUE 186008 20.98 190354 19.77 223789 19.97 270592 15.23 341315 22.08 376156 23.01
298
A.LICENCE FEES 16486 1.86 20884 2.17 25049 2.24 29167 1.64 30401 1.97 37579 2.3
(i) D&O Licence 5517 0.62 5805 0.6 6224 0.56 6610 0.37 9183 0.59 12222 0.75
(ii) P F A 309 0.03 363 0.04 355 0.03 347 0.02 386 0.02 374 0.02
(iii) Cinematograph 102 0.01 113 0.01 955 0.01 98 0.01 100 0.01 136 0.01
(iv) Place of public resort 71 0.01 100 0.01 93 0.01 126 0.01 134 0.01 110 0.01
(v) Private slaughter house 20 0 200 0.02 79 0.01 745 0.04 189 0.01 590 0.04
(vi)Private market 28 0 29 0 25 0 25 0 434 0.03 779 0.05
(vii) Ocupation of purampoke 248 0.03 695 0.07 472 0.04 475 0.03 833 0.05 470 0.03
(viii) Cart stand/halting places 508 0.06 811 0.08 979 0.09 470 0.03 783 0.05 799 0.05
(ix) Dogs & Pigs 7 0 39 0 1 0 3 0 10 0 724 0.04
(x) Building permits 9676 1.09 12729 1.32 16725 1.49 20268 1.14 18349 1.19 21375 1.31
B. RAGISTRATION FEES 286 0.03 262 0.03 417 0.04 390 0.02 620 0.04 612 0.04
(i) Private hospital 2 0 4 0 5 0 5 0 29 0 54 0
(ii) Private paramedical Intn 0 4 0 4 0 6 0 29 0 46 0
(iii) Tutorial & parallel colleges 0 0 0 0 0 3 0
(iv) Contractors regn 149 0.02 90 0.01 145 0.01 101 0.01 112 0.01 184 0.01
(v) Births & death regn 84 0.01 86 0.01 97 0.01 112 0.01 120 0.01 200 0.01
(vi) Arch:/ engineers regn 51 0.01 78 0.01 166 0.01 166 0.01 330 0.02 125 0.01
C.GATE FEES 24160 2.72 28505 2.96 32316 2.88 47554 2.68 42008 2.72 46517 2.85
(i) Private market 10361 1.17 11180 1.16 13638 1.22 14856 0.84 16448 1.06 16544 1.01
(ii) Public slaughter houses 1298 0.15 1672 0.17 1645 0.15 1865 0.1 1787 0.12 2092 0.13
(iii) Cart stand bus stand 8267 0.93 9712 0.01 10035 0.9 12357 0.7 13320 0.86 15362 0.94
(iv) Comfort station 1307 0.15 2212 0.23 2635 0.24 3333 0.19 3645 0.24 3960 0.24
(v) Cloak room 165 0.93 4 0 0 63 0 93 0.01 163 0.01
(vi) River sand 2762 0.15 3725 0.39 4363 0.39 15080 0.85 6717 0.43 8396 0.51
D.USER CHARGES 82610 0.02 82756 8.6 94165 8.4 107035 6.02 126105 8.16 140513 8.6
(i) Search fee 118 0.31 204 0.02 135 0.01 230 0.01 163 0.01 211 0.01
(ii) Extract fee 282 8.19 280 0.03 291 0.03 333 0.02 361 0.02 416 0.03
(iii) Service cahrges 4522 0.01 4998 0.52 5540 0.49 6718 0.38 8249 0.53 9294 0.57
(iv) Municipal property 67587 0.03 76172 7.91 87073 7.77 97466 5.49 113828 7.36 125519 7.68
(v) Water charge 91 0.51 1053 0.11 1126 0.1 2288 0.13 3504 0.23 5073 0.31
(vi) Connetion Charge 10 7.62 49 0.01 0 0 0 0
E.OTHER SOURCES 72466 0.01 57947 6.02 71842 6.41 86446 4.86 142181 9.2 150735 9.23
(i) Conrtib & donation 74 0 0.46 953 0.09 6102 0.34 31843 2.06 46136 2.82
(ii) Endowment & Interest on End. 13068 8.17 4406 0.8 5611 0.5 7936 0.45 7159 0.46 4691 0.29
(iii) Fine & Penalitite 3466 0.01 7726 0.02 7557 0.67 5163 0.29 7724 0.5 9099 0.56
(iv) Cattle Pound 83 1.47 145 0 184 0.03 129 0.01 100 0.01 129 0.01
(v) Fishing 0.39 0.04 0 159 0.01 74 0 3 0
(vi) Usufructs 434 0.01 425 0.25 424 0.04 201 0.01 178 0.01 80 0
(vii) Lease of land 2243 0 2426 0.03 3378 0.3 4539 0.26 4338 0.28 5933 0.36
(viii) Library 229 0.05 244 0.01 377 0.03 339 0.02 341 0.02 338 0.02
(ix) Ferry service 126 0.25 91 4.41 77 0.01 100 0.01 133 0.01 119 .0.01
(x) Others 52743 0.03 42484 9.38 53281 4.75 61778 3.48 90291 5.84 84407 5.61
III. GRANT IN AID* 105014 0.01 90322 0.74 121428 10.83 676410 38.07 274702 17.77 206479 12.63
(i) General purpose grant 7138 5.95 7131 0.75 7131 0.64 6449 0.36 6442 0.42 6451 0.39
(ii) Specific purpose grant 6585 11.84 7175 1.14 6453 0.58 7827 0.44 10985 0.71 9880 0.6
(iii) Other grants 16243 0.8 10971 2.15 7483 0.67 20757 1.17 19440 1.26 17702 1.08
(iv) State sponsered schemes 26006 0.74 20661 4.61 30386 2.71 547804 30.83 58650 3.79 21041 1.29
(v) Centrally sponsered schemes 49042 1.83 44384 9.79 69975 6.24 93573 5.27 179185 11.59 151405 9.26
IV. LOANS 88955 2.93 94301 2.17 65144 5.81 49877 2.81 72845 4.71 94255 5.77
(i) Government 27825 5.53 20865 7.62 36722 3.28 29015 1.63 33182 2.15 7494 0.46
(ii) Others 61130 10.03 73406 16.08 28422 2.54 20865 1.17 39663 2.57 86761 5.31
V. DEBT 120940 3.14 154832 9.15 171788 15.33 181804 10.22 233413 15.1 278121 17.01
(i) Deposit 66177 7.46 88122 1.99 94556 8.44 89276 5.02 119039 7.7 161974 9.91
(ii) Advance 17017 1.92 19121 0.15 17573 1.57 17102 0.96 21825 1.41 24266 1.48
(i) LIbrary Cess 1264 0.14 1453 3.14 5929 0.53 7485 0.42 8651 0.56 9830 0.6
299
(ii) Provident fund/ pension fund 25774 2.91 30248 1.65 38431 3.43 45809 2.58 52583 3.4 61336 375
(iii) Sales tax/Income tax etc 10708 1.21 15888 100 15299 1.37 21932 123 31315 2.03 20715 1.27
TOTAL 886245 100 962787 1121161 100 1777586 100 1547111 100 1635394 100
AM:-Amount PTR:- Percentage to total revenue * Excluding gratn in aid for people’s campaign
300
Annexure3.6- 2
ABSTRACT OF TOTAL RECEIPTS OF MUNICIPALITIES UNDER OWN REVENUE
Itern 1393-94 1994-95 1995-96 1996-97 1997-98 1998-99
AM PTR AM PTR AM PTR AM PTR AM PTR AM PTR

1. DirectTax 308939 34.84 335818 34.88 381514 34.04 433350 24.39 479749 31.03 506322 30.97
2. Assigned Tax 47789 5.39 89498 9.30 59998 6.25 101744 5.73 96439 6.24 100452 6.15
3. Shared Tax 29600 3.23 7662 0.80 87500 7.81 63979 3.60 48648 3.15 73609 4.50
4. Licence Fees 16486 1.86 20884 2.17 25043 2.24 29167 1.64 30401 1.97 37579 2.30
5. Registration Fees 286 0.03 262 0.03 417 0.04 390 0.02 620 0.04 612 0.04
6. Gate Fees 24160 2.72 28505 2.96 32316 2.88 47554 2.68 42008 2.72 46517 2.85
7. User Charges 72610 8.19 82756 8.60 94165 8.40 107035 6.02 126105 8.16 140513 8.60
8. Other Sources 72466 8.17 57946.5 602 71842 6.41 86446 4.86 142181 9.20 10935 9.23
9. General Purpose Grant 7133 0.80 7131 0.74 7131 0.64 6449 0.36 6442 0.42 6451 0.39
10. Specific Purpose Grant 6585 0.74 7175 0.75 5453 0.58 7827 044 10985 0.71 9880 0.60
Total 585059 66.02 637638 66.23 776385 G9.25 883971 45.73 983578 63.58 1072870 65.60
AM:- Amount in Rs. Thousand PTR - Percentaae to total revenue
Annexure3.6-3
PERCENTAGE SHARE OF TAXES TO DIRECT TAX (MUNICIPALITIES)
Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
Amount PDT Amount PDT Amount PDT Amount PDT Amount P DT Amount
A. DIRECT TAX
(I) Property & service Tax 134679 43.59 144739 43,10 158677 41 59 182536 42.12 202952 42.30 223292 44 .10
(M) Prolesslon tax 22663 7.34 27326 8.14 29704 7.79 36828 8.50 39588 8.25 47704 9.42
(IN) Advertisement Tax 1854 0.60 2002 0.60 2499 0.66 2922 0 67 3034 0.63 3641 0.72
(iv) Ent: 8 Add: Ent: Tax 148690 48.13 160865 47.90 189353 49 63 209251 46.29 233000 48.57 230395 45.50
(v) Show tax & S C on ST 822 0.27 837 0.25 961 0.25 962 0 22 975 0.20 915 0.18
(vi) Land conversion 215 0.07 49 0,01 293 0.08 850 0.20 200 0.04 373 0.07
(vii) Timbertax 0.00 0.00 0.00 0.00 0 00 0.00
(viii) Tax on animals & vehicles 16 0.01 0,00 27 0.01 1 0.00 0.00 2 0.00
Total 308939 100.00 335818 100.00 381514 100.00 433350 100.00 479749 100.00 506322 100.00
AM -Amount In Rs.Thousand
Anncxure 3.6-4
PERCENTAGE INCREASE OF TAXES OVER PREVIOUS YEAR (MUNICIPLITIES)
Items 1993- 1994- % 1995- % 1996- % 1997- % 1998- % % Over
94 95 96 97 98 99 93-94
(I) Property & service Tax 134679 144739 7.47 158677 9.63 182536 15.04 202952 11.18 223292 10.022 65.80
(II) Profession tax 22663 27326 20.58 29704 C.70 36828 23.98 39588 7.49 47704 20.50 110.49
(III) Advertisement Tax 1854 2002 7.98 2499 24.83 2922 16.93 3034 3.83 3641 20.01 96.39
(iv) Ent: & Add: Ent: Tax 148690 160865 8.19 189353 17.71 209251 10.51 233000 11.35 230395 -1.12 54.95
(vi)l Show tax & surcharge 822 837 1.82 961 14.81 962 0.10 975 1.35 915 -6.15 11.31
on ST
(vi) Land conversion 215 49 293 497.96 850 190.10 200 -76.47 373 96.50 73.49
(vii)Timbertax
(viii)Tax on animals & 16 -100.00 27 1 -96.30 -100.00 2 -87.50
vehlcles
Total 308939 335818 8. 70 381514 13.61 433350 13.59 479749 10.71 506322 5.54 63.89
301
Annexure 3.6-5
PERCENTAGE INCREASE OF OWN REVENUE OVER PREVIOUS YEAR (MUNICIPALITIES)
Item 1993- 1994- % 1995- % 1996- % 1997- % 1198- % °° over 93-
94 95 96 97 98 99 94
1.Direct Tax 308939 335818 8.70 38154 13.61 433350 13.59 479749 10.71 506322 5.54 63.89
2. Assigned Tax 47789 89498 87.28 69998 -21.79 101774 45.40 96439 -5.24 100452 4.16 10.20
3. Shared Tax 28600 7662 -73.21 87500 1042.00 63979 -26.88 48648 -23.96 73609 51 31 157.37
4. Licence Fee 16486 20884 26.68 25049 19.94 29167 16.44 30401 4.23 37579 23,61 127.94
5. Registration Fee 286 262 -8 39 417 59.16 390 -6.47 620 58.97 612 -1.29 113.99
6. Gate Fees 24160 28505 17.98 32316 13.37 47554 47.15 42008 -11.66 46517 10.73 92.54
7. User Charges 72610 82756 13.97 94165 13.79 107035 13.67 126105 17. 82 140513 1 43 93.52
8. Other Sources 72466 57946. -20.04 71842 23.98 86446 20.33 142181 64.47 150935 6. 6 108.28
9. General Purpose Grant 7138 71315 -0.10 7131 0.00 6449 -9.56 6442 -0.11 6451 0.14 -9.62
11. Specific Purpose Grant 6585 7175 8.96 6453 -10.06 7827 21.29 10985 40.35 9880 - 0.06 50.04
Total 585059 637638 89S 776385 21.76 883971 13.86 983S78 11.27 1072870 9.08 83.38
Annexure 3.6- 6
SHARE OF DIRECT TAXES IN TOTAL OWN REVENUE (MUNICIPALITIES)
Items 1993-94 1994-95 1995-96 1996-97 1997-96 1998-99
AM PTOR AM PTOR AM PTOR AM PTOR AM PTOR AM PTOR
1.Property & Service 134679 2302 144739 22.70 158677 20.44 182536 20.65 202952 20.63 223292 20.81
2.Professional Tax 22663 3.87 27326 4.29 29704 3.63 36828 4.17 39588 4.02 47704 4.45
3.Advertisement Tax 1854 032 2002 0.31 2499 0.32 2922 0.33 3034 0.31 3641 0.34
4. Ent & Add.Ent tax 148690 25.41 160865 25.23 189353 24.39 209251 23.67 233000 23.69 230395 21.47
5. Show Tac & SC on ST 822 0.14 837 0.13 961 0.12 962 0.11 975 0 10 915 0.09
6. Land Conservation 215 004 49 001 293 0.04 850 0.10 200 0,02 373 0.03
7. Timber Tax 000 000 0.00 0.00 0 00 0.00
8. Tax on Animals & 16 0.00 000 27 0.00 1 0.00 0.00 2 0,00
Vehicles
9.(Direct Taxes) 308939 5280 335818 52.67 381514 49.14 4333SC 4902 479749 48.78 506322 47.19
Own Revenue 535053 10000 63763? 100.0C 776385 100.0C 883971 100.0C 983570 100.00 1072870 100.00
AM:- Amount in Rs Thousand
PTOR:- Percantege of Total Own Revenue
Annexure 3.6-7
SHARE OF ITEMS UNDER OWN REVENUE (MUNICIPALITIES)
Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
AM POR AM POR AM POR AM POR AM POR AM POR
1. Direct Tax 308939 52.8 335818 52.67 381514 49.14 43350 49.02 479749 48.78 506322 47.19
2. Assigned Tax 47789 8.17 89498 14.04 69998 9.02 101774 11.51 96439 9.8 100452 9.36
3. Shared Tax 28600 4.89 7662 1.2 87500 11.27 63979 7.24 48648 4.95 73609 6.86
4. Licence Fees 16486 2.82 20884 3.28 25049 3.23 29167 3.3 30401 3..09 37579 3.5
6.Gate Fees 24160 4.13 28505 4.47 32316 4.16 47554 5.38 42008 4.27 46517 4.34
7. User Charges 72610 12.41 82756 12.98 94165 12.13 107035 12.11 126105 12.82 140513 13.1
8. Other Sources 72466 12.39 57947 9.09 71842 9.25 86446 9.78 142181 14.46 150935 14.07
10. Specific Purpose Grant 6585 1.13 7175 1.13 6453 0.83 7827 0.89 10985 1.12 9880 0.92
Total 585059 100 637638 100 776385 100 883971 100 983578 100 1072870 100
AM:- Amount in Rs Thousand
POR:- Percantege on Own Revenue
302
Annexure 3.6-8
TOTAL EXPENDITURE OF MUNICIPALITIES 1993-94 TO 1998-99
(Excluding expenditure under People’s Plan Campaign)
Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
Amount PTE Amount PTE Amount PTE Amount PTE Amount PTE Amount PTE
I. GENERAL ACCOUNT 387917 51.17 446416 51.16 508447 52.85 606807 48.26 671257 45.52 729958 48.68
(1) Salary /Honararium etc Office 6608 0.87 6491 0.74 9675 1001 15574 1.24 16229 1.1 23157 1.54
(2) Establilshment Cost of
Secretaries & Staff 75241 9.92 86791 9.95 92776 9.64 111423 8.86 128501 .8.71 137448 9.17
(3) Other expenses 18989 2.5 21374 2.45 25596 2.66 33077 2.63 42133 2.86 36266 2.42
2. Public Work 81951 10.81 96520 11.06 112849 11.73 127719 10.16 135121 9.16 142749 9.52
(1) Establishment charge 31960 4.11 34572 3.96 39077 4.06 45200 3.59 51721 3.51 53934 3.6
(2) Maintanance of
Roads.Bridges,Park& Gardens 37255 4.91 49280 5.65 58773 6.11 66094 5.26 67379 4.57 75097 5.01
(3) Contigenies 12736 1.68 12668 1.45 14999 1.56 16425 1.31 16021 0.09 13720 0.91
3.(a) Town Planning 5878 0.78 7200 0.83 16800 1.75 8347 0.66 10273 0.7 12580 0.84
(2) Other Charges 60 0.01 334 0.04 7759 0.81 304 0.02 585 0.04 888 0.06
3.(b) Land Development 1236 0.16 2411 0.28 1062 0.11 6872 0.55 3723 0.25 18634 1.24
(1)Town survey establishment cost 302 0.04 1495 0.17 743 0.08 1069 0.09 784 0.05 449 0.03
(2) Other Charges 934 0.12 916 0.1 319 0.03 5803 0.46 2939 0.2 18185 1.21
4. Education & Culture 4355 0.57 5255 0.6 5857 0.61 6864 0.55 7739 0.52 8393 0.56
(2) Other Charges 1909 0.25 2298 0.26 2563 0.27 2843 0.23 3399 0.23 3487 0.23
5. Water Supply 4923 0.65 24955 2.86 27958 2.91 38863 3.09 30966 2.1 36738 2.45
(1) Establishment cost 1254 0.17 1210 0.14 1379 0.14 1555 0.12 2134 0.14 1131 0.08
(2) Maintanace 2738 0.36 22210 2.55 23258 2.42 33667 2.68 23583 1.6 31998 2.13
(3) Other Petty Works 931 0.12 1535 0.18 3321 0.35 3641 0.29 5249 0.36 3609 0.24
6. Public Health 139900 18.45 140857 16.14 159736 16.6 192105 15.28 216960 14.71 226853 15.13
(2) Operational Cost 12556 1.66 9673 1.11 12975 1.35 22508 1.79 15774 1.07 16580 1.11
(3) Maintanance Charge 34 0 215 0.02 323 0.03 366 0.03 124 0.01 271 0.02
(4) Other Charges 4143 0.55 2877 0.32 2827 0.29 3578 0.28 3655 0.25 4928 0.33
7. Street Lighthing 27930 3.68 31270 3.58 31911 3.32 37085 2.95 42409 2.94 45721 3.05
(2) Current Charge 25415 3.35 28421 3.26 29862 3.1 31316 2.49 34742 2.36 35883 2.39
(3) Other Charges 2359 0.31 2727 0.31 1757 0.18 4635 0.37 7197 0.49 8758 0.58
8. Municipal Properties 4023 0.53 4416 0.51 3894 0.4 3889 0.55 8151 0.55 9408 0.63
(1) Establishment charge 1743 0.23 1602 .0.18 1684 0.18 1950 0.16 3365 0.23 3368 0.22
(2) Maintanance 2280 0.3 2814 0.32 2210 0.23 4939 0.39 4786 0.32 6040 0.4
9. Other Expenditure 9347 1.23 11986 1.37 11900 1.24 10037 0.8 17110 1.16 15168 1.01
(1) Audit Fee 619 0.08 409 0.05 1726 0.18 461 0.04 1316 0.09 2354 0.16
(2) Interest on borrowings' 8728 1.15 11577 1.33 10174 1.06 9576 0.76 15794 1.07 12814 0.85
10 . Extra Ordinray Items 7536 0.99 6890 0.79 8433 0.88 11952 0.95 10942 0.74 16843 1.12
(1) Reception to important 622 0.08 1556 0.18 1145 0.12 2687 0.21 2245 0.15 2949 0.2
(2) Grants, Awards etc 6914 0.91 5334 0.61 7288 0.76 9254 0.74 8697 0.59 13894 0.93
II CAPITAL ACCOUNT 268270 35.38 291591 33.41 317510 33.01 470273 37.4 565250 38.33 493510 32.91
1. Management 24299 3.21 19772 2.27 22392 2.33 25510 2.03 37730 2.56 30519 2.04
2. Loan Repayment 37057 4.89 41106 4.71 44864 4.66 55774 4.44 52692 3.57 51437 3.43
3. Plan Schemes 185452 24.46 201361 23.07 228505 23.75 355479 28.27 429708 29.14 369832 24.66
(a) Communication 81486 10.75 87739 10.05 108802 11.31 178455 14.19 221366 15.01 177216 11.82
(b) Town Improvement 65510 8.64 63901 7.32 58672 6.1 85398 6.79 88243 5.98 73303 4.89
Govt.Sponsered Programmes 0 0 0 0 0 0
(a) Town Improvement Scheme 19027 2.51 22582 2.59 41219 4.28 51323 4.08 68126 4.19 63368 4.23
303
(b) Poverty Allevation 19429 2.56 27139 3.11 19812 2.06 40303 3.21 58273 3.95 55945 3.73
4. Education 1230 0.16. 2149 0.25 1505 0.16 1407 0.11 4521 0.31 1189 0.08
5. Water Supply &drainage 12054 1.59 13422 1.24 8079 0.84 14271 1.13 23856 1.62 20638 1.38
(a) New water supply schemes 1559 0.21 863 0.1 2028 0.21 4491 0.36 8052 0.55 4137 0.28
(b) Deposits to water authority 456 0.06 3440 0.39 1648 0.17 1433 0.11 3182 0.22 2114 0.14
(c) Surface Darinage 10039 1.32 9119 1.04 4403 0.46 8347 0.66 12622 0.86 14387 0.96
6. Public Health 1760 0.23 4895 0.56 3600 0.37 6509 0.52 7553 0.51 5727 0.38
(a) Building &Vehicles, equipment 1302 0.17 4081 0.47 3111 0.32 6440 0.51 7440 0.5 5107 0.34
(b) Solid Waste Management 458 0.06 811 0.09 489 0.05 69 0.01 113 0.1 620 0.04
8. Endowment and Investments 1553 0.2 4833 0.55 1619 0.17 2810 0.22 1862 0.13 2167 0.14
III. DEBT HEADS 101962 13.45 134656 15.43 136033 14.14 180290 14.34 238199 16.15 276128 18.41
(1) Refund of Deposit 33848 4.46 47102 5.4 42408 4.41 47539 3.78 65832 4.46 104204 6.95
(2) Advance Recoverd 16605 2.19 18742 2.15 20809 2.16 23001 1.83 25406 1.72 20052 1.34
(3) PF/Pension fund 34591 4.56 41457 4.75 44812 4.66 72242 5.75 73475 4.98 90184 6.01
(4) Sinking Fund 3103 0.41 3829 0.44 3608 0.38 5310 0.42 10689 0.72 5953 0.4
(5) Library Cess 1497 0.2 12794 1.47 8248 0.86 5582 0.44 6858 0.47 6967 0.46
(6) Sales Tax 6569 0.87 6135 0.7 8300 0.86 15402 1.22 30649 2.08 32240 2.15
(7) Others 5749 0.76 4597 0.53 7848 0.82 11214 0.89 25300 1.72 16528 1.1
TOTAL 758149 100 872663 100 961990 100 1257370 100 1474706 100 1499596 100
Annexure 3.6-9
PERCAPITA EXPENDITURE OF MUNICIPALITIES
Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

Amount PC Amount PC Amount PC Amount PC Amount PC Amount PC
I. GENERAL ACCOUNT 387917 141.1 446416 160..59 508447 180..85 606807 213.39 671257 233.34 729958 250.8
(1) Salary /Honararium etc Office 6608 2.4 6491 2.34 9675 3.44 15574 5.48 16229 5.64 23157 7.96
Secretaries & Staff 75241 27.37 86791 31.22. 92776 33 111423 39.18 128501 44.67 137448 47.22
(3) Other expenses 18989 6.91 21374 7.69 25596 9.1 33077 11.63 42133 14.65 36266 12.46
2. Public Work 81951 29.81 96520 34.72 112849 40.14 127719 44.91 135121 46.97 142749 49.05
(2) Maintanance of
(3) Contigenies 12736 4.63 12668 4.56 14999 5.34 16425 5.78 16021 5.57 13720 4.71
3.(a) Town Planning 5878 2.14 7200 2.59 16800 5.98 8347 2.94 10273 3.57 12580 4.32
(2) Other Charges 60 0.02 334 0.12 7759 2.76 304 0.11 585 0.2 888 0.31
(1)Town survey establishment cost 302 0.11 1495 0.54 743 0.26 1069 0.38 784 0.27 449 0.15
(2) Other Charges 934 0.34 916 0.33 319 0.11 5803 2.04 2939 1.02 18185 6.25
(1) Establishment charge 2446 0.89 2975 0.06. 3594 1.17 4021 1.41 4240 1.51 4906 1.69
(2) Other Charges 1909 0.69 2298 0.83 2563 0.91 2843 1..00 3399 1.18 3487 1.2
5. Water Supply 4923 1.79 24955 8.98 27958 9.94 38863 13.67 30966 10.76 36738 12.62
(1) Establishment cost 1254 0.46 1210 0.44 1379 0.49 1555 0.55 2134 0.74 1131 0.39
(2) Maintanace 2738 1..00 22210 7.99 23258 8.27 33667 11.84 23583 8.2 31998 10.99
6. Public Health 139900 50.89 140857 50.67 159736 56.82 192105 67.55 216960 75.42 226853 77.94
304
(3) Maintanance Charge 34 0.01 215 0.08 323 0.11 366 0.13 124 0.04 271 0.09
(4) Other Charges 4143 1.51 2877 1..00 2827 1.01 3578 1.26 3655 1.27 4928 1.69
(2) Current Charge 25415 9.25 28421 10.22 29862 10.62 31316 11.01 34742 12.08 35883 12.33
(3) Other Charges 2359 0.86 2727 0.98 1757 0.62 4635 1.63 7197 2.5 8758 3.01
(2) Maintanance 2280 0.83 2814 1.01 2210 0.79 4939 1.74 4786 1.66 6040 2.08
(1) Audit Fee 619 0.23 409 0.15 1726 0.61 461 0.16 1316 0.46 2354 0.81
10 . Extra Ordinray Items 7536 2.74 6890 2.48 8433 3..00 11952 4.2 10942 3.8 16843 5.79
(1) Reception to important 622 0.23 1556 0.56 1145 0.41 2687 0.94 2245 0.78 2949 1.01
(2) Grants, Awards etc 6914 2.52 5334 1.92 7288 2.59 9254 3.26 8697 3.02 13894 4.77
1. Management 24299 8.84 19772 7.11 22392 7.96 25510 8.97 37730 13.12 30519 10.49
2. Loan Repayment 37057 13.48 41106 14.79 44864 15.96 55774 19.61 52692 18.32 51437 17.67
3. Plan Schemes 185452 67.47 201361 72.44 228505 81.28 355479 125.01 429708 149.37 369832 127.1
(a) Communication 81486 29.64 87739 31.56 108802 38.7 178455 62.75 221366 76.95 177216 60.89
(b) Town Improvement 65510 23.83 63901 22.99 58672 20.87 85398 .30.03 88243 30.67 73303 25.19
Govt.Sponsered Programmes 0..00 0..00 0..00 0..00 0..00 0..00
(a) Town Improvement Scheme 19027 6.92 22582 8.12 41219 14.66 51323 18.05 68126 21.49 63368 21.77
4. Education 1230 0.45 2149 0.77 1505 0.54 1407 0.49 4521 1.57 1189 0.41
(a) New water supply schemes 1559 0.57 863 0.31 2028 0.72 4491 1.58 8052 2.8 4137 1.42
(b) Deposits to water authority 456 0.17 3440 1.24 1648 0.59 1433 0.5 3182 1.11 2114 0.73
6. Public Health 1760 0.64 4895 1.76 3600 1.28 6509 2.29 7553 2.63 5727 1.97
(a) Building &Vehicles,equipment 1302 0.47 4081 1.47 3111 1.11 6440 2.26 7440 2.59 5107 1.75
(b) Solid Waste Management 458 0.17 811 0.29 489 0.17 69 0.02 113 0.04 620 0.21
8. Endowment and Investments 1553 0.56 4833 1.74 1619 0.58 2810 0.99 1862 0.65 2167 0.74
III. DEBT HEADS 101962 37.09 134656 48.44 136033 48.39. 180290 63.4 238199 82.8 276128 94.87
(3) PF/Pension fund 34591 12.58 41457 14.91 44812 15.94 72242 25.4 73475 25.54 90184 30.99
(4) Sinking Fund 3103 1.13 3829 1.38 3608 1.28 5310 1.87 10689 3.71 5953 2.05
(5) Library Cess 1497 0.54 12794 4.6 8248 2.93 5582 1.96 6858 2.38 6967 2.39
(6) Sales Tax 6569 2.39 6135 2.21 8300 2.95 15402 5.42 30649 16.65 32240 11.08
(7) Others 5749 2.09 4597 1.65 7848 2.79 11214 3.94 25300 8.79 16528 5.68
TOTAL 758149 275.8 872663 313.9 961990 342.2 1257370 442.16 1474706 512.63 1499596 515.2
305
Annexure 3.6-10
Total receipts and expenditure of Municipalities at a glance

(Rs in lakhs)
Receipt
1993-94: 1994-95 1995-96 1996-97 1997-98 1.998-99
A. General Account 6013.26 6488.42 7840.69 9043.58 10028.89 10897.9
B. Capital Account 1640.03 1593.46 1655.05 6912.54 3106.80 2667.01
Total (A+B ) 7653.29 8081.88 9495.74 15956.12 13135.69 13564.91
C. Debt Head 1209.40 1548.32 1717.88 1816.04 2334.13 2781.21
Total (A + B + C) 8862.69 9630.20 11213.62 17772.16 15469.82 16346.12
Expenditure
Total ( A+B ) 6561.87 7380.07 8259.57 10770.80 12365.07 12234.68
C. Debt Head 1019.62 1346.56 1360.33 1802.90 2381.99 2761.28
Total (A + B + C) 7581.49 8726.63 9619.90 12573.70 14747.06 14995.96
Closing balance 1281.20 903.58 1593.72 5198.47 722.76 1350.16
Annexure 3.7-1
TOTAL RECEIPTS OF MUNICIPAL CORPORATIONS 1993-94 to 1998-99
(Rupees in Tthousands)
1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
Item AM PTR AM PTR AM PTR AM PTR AM PTR AM PTR
I. TAX REVENUE 312021 67.55 357217 62.04 460147 66..30 413807 48.82 461215 55.16 555297 61.41
A. DIRECT TAX 232958 50.44 249079 43.26 294470 42.43 310926 36.68 340361 40.71 397340 43.94
(i) Propety & serivce Tax 137017 29.66 147600 25.63 182092 26.24 189803 22.39 197693 23.64 241597 26.72
(iii) Advertisement Tax 1527 0.33 1885 0.33 2216 0.32 2889 0.34 4265 0.52 4242 0.47
(iv) Ent& Add Ent.Tax 81746 17.1 81059 14.08 90033 12.97 97357 11.49 114014 13.64 117888 13.04
(v) Show Tax & SC on ST 521 0.11 341 0.06 377 0.05 337 0.04 509 0.06 389 0.04
(vi) Land Conversion 202 0.02 180 0.02
(vii)Timber Tax 391 0.08 177 0.03 281 0.04 126 0.01 93 0.01 97 0.01
(viii) Tax on animals & vehicles 1 2
B.ASSIGNED TAX
(i) Duty on transfer of property 69063 14.95 58138 10.1 125677 18.11 72881 8.6 94554 11.31 120457 13.32
C. SHARED TAX
Vahicle Tax Compensation 10000 2.17 50000 8.68 40000 5.76 30000 3.54 26300 3.15 37500 4.15
II. NON-TAX REVENUE 76691 16.6 93751 16.28 100026 14.41 116111 13.7 149774 17.91 128229 14.18
A.LICENCE FEES 16003 3.46 16431 2.85 30364 4.37 34817 4.11 35097 4.2 38783 4.29
(i) D&O Licence 2863 0.62 3021 0.52 5848 0.84 6343 0.75 8351 1..00 9272 1.03
(ii) P F A 123 0.03 119 0.02 242 0.03 250 0.03 284 0.03 332 0.04
(iii) Cinematograph 20 22 48 21 21 21
(iv) Place of public resort 63 0.01 62 0.01 76 0.01 83 90 0.01 96 0.01
306
(v) Private slaughter house 1 9 6 2 1
(vi)Private market 1365 0.3 9
(vii) Ocupation of purampoke 9 16 28 35 46 59
(viii) Cart stand/halting places 5
(ix) Dogs & Pigs 2
(x) Building permits 11556 2.5 13181 2.29 24113 3.47 28079 3.31 26303 3.15 29000 3.21
B. RAGISTRATION FEES 67 0.01 220 0.04 217 0.03 263 0.03 373 0.04 339 0.04
(i) Private hospital 10 4
(ii) Private paramedical Intn 1 5
(iii) Tutorial & parallel colleges
(iv) Contractors regn 19 29 27 25 27 70
(v) Births & death regn 40 155 0.03 139 0.02 113 0.01 260 0.03 172 0.02
(vi) Arch:/ engineers regn 8 36 51 125 0.01 75 88
C.GATE FEES 4542 0.98 7454 1.31 7446 1.07 9436 1.11 12911 1.54 11898 1.32
(i) Private market 2333 0.51 4086 0.71 3848 0.55 5185 0.61 6984 0.84. 5818 0.64
(ii) Public slaughter houses 1125 0.02 419 0.07 790 0.11 629 0.07 770 0.09 978 0.11
(iii) Cart stand bus stand 1652 0.36 1710 0.3 1220 0.18 1962 0.23 3309 0.4 2973 0.33
(iv) Comfort station 139 0.03 1046 0.18 1344 0.19 1400 0.17 1541 0.18 1722 0.19
(v) Cloak room 306 0.07 284 0.05 244 0.04 260 0.03 307 0.04 407 0.05
(vi) River sand
D.USER CHARGES 21881 4.74 27740 4.82 30447 4.39 32981 3.89 37229 4.45 39065 4.32
(i) Search fee 43 34 35 34 36 50
(ii) Extract fee 114 0.02 74 0.01 106 0.02 77 222 0.03 107 0.01
(iii) Service cahrges 188 0.04 386 0.07 571 0.08 561 0.07 746 0..09 932 0.1
(iv) Municipal property 21529 4.66 23109 4.01 29726 4.28 32308 3.81 36225 4.33 37976 4.2
(v) Water charge 7 6 9 1
(vi) Connetion Charge 4131 0.72
E.OTHER SOURCES 34198 7..40 41815 7.26 31552 4.55 38614 4.56 64164 7.67 38144 4.22
(i) Conrtib & donation 18 30 58 0.16 15591 1.86 5144 0.57
(ii) Endowment & Interest on End. 1 1340 1
(iii) Fine & Penalitite 761 0.16 2489 0.43 2437 0.35 15 0.16 2195 0.26 2260 0.25
(iv) Cattle Pound 26 34 15 15 16
(v) Fishing
(vi) Usufructs 45 67 0.01 100 0.01 60 93 0.01 143 0.02
(vii) Lease of land 2025 0.44 4008 0.7 5088 0.73 4873 0.57 5344 0.64 5286 0.58
(viii) Library 488 0.07 968 0.11 1126 0.13 1158 0.13
(ix) Ferry service 1935 0.42 2114 0.37 2117 0.31 2524 0.3 2761 0.33 2632 0.29
(x) Others 29388 6.36 33073 5.74 21248 3.06 27466 3.24 37038 4.43 21535 2.38
III. GRANT IN AID* 17416 3.77 46857 8.14 51676 7.45 250167 29.51 62733 7.5 63332 7..00
(i) General purpose grant 3181 0.69 3017 0.52 3017 0.43 3017 0.36 3017 0.36 3017 0.33
(ii) Specific purpose grant 4710 1.02 7082 1.23 6799 0.98 8842 1.04 5104 0.61 1350 0.15
(iii) Other grants 8678 1.88 2400 0.42 14810 2.13 23752 2.8 3028 0.36 7032 0.78
(iv) State sponsered schemes 847 0.18 29856 5.18 5758 0.83 175786 20.74 4482 0.54 3000 0.33
(v) Centrally sponsered schemes 4502 0.78 21292 3.07 38770 4.57 47102 5.63 48933 5.41
IV. LOANS 5845 1.27 9337 1.62 7694 1.11 9997 1.18 58261 6.97 22461 2.48
(i) Government 714 0.15 1333 0.16 253 0.03 126 0.01
(ii) Others 5131 1.11 9337 1.62 7694 1.11 8664 1.02 58008 6.94 22335 2.47
V. DEBT 49848 10.79 68916 11.97 77922 11.23 77405 9.13 103891 12.42 134679 14.89
(i) Deposit 6651 1.44 7731 1.34 4277 0.62 3989 0.47 5387 0.64 8400 0.93
(ii) Advance 10285 2.23 8603 1.49 16399 2.36 18683 .2.20 13963 1.67 12267 1.36
(i) LIbrary Cess 953 0.21 863 0.15 5608 0.81 5976 0.7 7099 0.85 15008 1.66
(ii) Provident fund/ pension fund 18063 3.91 34459 5.98 37795 5.45 28055 3..31 46487 5.56 55306 6.12
(iii) Sales tax/Income tax etc 13896 3.01 17260 3 13843 1.99 20702 2.44 30955 3.7 43698 4.83
TOTAL 461821 100 576078 100 697465 100 867487 102 835874 100 903998 100
AM -Amount
PTR - Percentage to total revenue
* Excluding grant in aid for peoples' plan campaign
307
Annexure 3.7-2
ABSTRACT OF TOTAL RECEIPTS OF MUNICIPAL CORPORATIONS UNDER OWN REVENUE
Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

AM PTR AM PTR AM PTR AM PTR AM PTR AM PTR
1. Direct Tax 232958 50.44 249079 43.26 294470 42.43 310926 36.68 340361 40.71 397340 43.94
2. Assigned Tax 69063 14.95 58138 10.1 125677 18.11 72881 8.6 94554 11.31 120457 13.32
3. Shared Tax 10000 2.17 50000 8.68 40000 5.76 30000 3.54 26300 3.15 37500 4.15
4. Licence Fees 16003 3.46 16431 2.85 30364 4.37 34817 4.11 35097 4..20 38783 4.29
5. Registration Fees 67 0.01 220 0.04 217 0.03 263 0.03 373 0.04 339 0..04
6.Gate Fees 4542 0.98 7545 1.31 7446 1.07 9436 1.11 12911 1.54 11898 1.32
7. User Charges 21881 4.74 27740 4.82 30447 4.39 32981 3.89 38229 4.45 39065 4.32
8. Other Sources 34198 7.4 41815 7.26 31552 4.55 38614 4.56 64164 7.67 38144 4.22
9. General Purpose Grant 3181 0.69 3017 0.52 3014 0.43 3017 0.36 3017 0.36 3017 0..33
10. Specific Purpose Grant 4710 1.02 7082 1.23 6799 0.98 8842 1.04 5104 0.31 1350 0.15
Total 396603 85.88 461067 80.04 569989 81.72 541777 62.45 619110 74.07 687893 76.09
AM :- Amount in Rs.Thousand PTR:- Percentage to Total revenue
PERCENTAGE SHARE OF TAXES TO DIRECT TAX (MUN CORPORATIONS) Annexure 3.7-3

Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
AM PDT AM PDT AM PDT AM PDT AM PDT AM PDT
A. DIRECT TAX
(I) Property & service Tax 137017 58.82 174600 59.26 182092 61.84 189803 61.04 197693 58.08 241597 60..80
(M) Prolesslon tax 11756 5..05 18017 7.23 19471 6.61 20413 6.57 23483 6.9 32947 8.29
(IN) Advertisement Tax 1527 0.66 1885 0.76 2216 0.75 2889 0.93 4365 1.28 4242 1.07
(iv) Ent: 8 Add: Ent: Tax 81746 35.09 81059 32.54 90033 30.57 97357 31.31 114014 33.5 117888 29.67
(v) Show tax & S C on ST 521 0.22 341 0.14 377 0.13 337 0.11 509 0.15 389 0.1
(vi) Land conversion 0..00 0..00 0..00 0..00 202 0.06 180 0.05
(vii) Timbertax 391 0.17 177 0.07 281 0.1 126 0.04 93 0.03 97 0.02
(viii) Tax on animals & vehicles 0..00 0..00 0..00 1 0..00 2 0..00 0..00
Total 232958 100 249079 100 294470 100 310926 100 340361 100 397340 100
AM :- Amount in Rs.Thousand PDT:- Percentage of direct tax
PERCENTAGE INCREASE OF TAXES OVER PREVIOUS YEAR (MUN CORPORATIONS) Annexure 3.7-4
(Rs. in Thousand)
Items 1995- 1996- 1997- 1998-
1993-94 1994-95 % 96 % 97 % 98 % 99 % & Over
(I) Property & service Tax 137017 147600 7.72 182.92 23.37 18980 4.23 19769 4.16 24159 22.21 76.33
(II) Profession tax 11756 18017 53.26 19471 8.07 20413 4.84 23483 14.04 32947 40.3 180.3
(III) Advertisement Tax 1527 1885 23.44 2216 17.56 2889 30.37 4365 51.09 4242 -2.82 177.8
(iv) Ent: & Add: Ent: Tax 81746 81059 -0.84 90033 11.07 97357 8.13 11401 17.11 11788 3.4 44.21
(vi)l Show tax & surcharge on ST 521 341 -34.55 377 10.56 337 -10.61 509 51.04 389 -23.58 -25.34
(vi) Land conversion 202 180 -10.89
(vii)Timbertax 391 177 -54.73 281 58.76 126 -55.16 93 -26.19 97 4.3 -75.19
(viii)Tax on animals & vehlcles 1 2 100.00
Total 232958 249079 6.92 294470 18.22 31092 5.59 34036 9.47 39734 16.74 70.56
308
Annexure 3.7 -5
PERCENTAGE INCREASE OF OWN REVENUE OVER PREVIOUS YEAR (MUN CORPORATIONS)
(Rs in Thousands)
Item 1993-94 1994-95 % 1995-96 % 1996-97 % 1997-98 % 1998-99 % % Over

1. Direct Tax 232958 249079 6.92 294470 18.22 310926 5.59 340361 9.47 397340 16.74 70.6
2. Assigned Tax 69063 58138 -15.82 125677 116.17 72881 -42.01 94554 29.74 120457 27.39 74.4
3. Shared Tax 10000 50000 400 40000 -20 30000 -25 26300 -12.33 37500 42.59 275
4. Licence Fees 16003 16431 2.67 30364 84.8 34817 14.67 35097 0.8 38783 10.5 142.3
5. Registration Fees 67 220 228.36 217 -1.36 263 21.2 373 41.83 339 -9.12 406
6.Gate Fees 4542 7545 66.12 7446 -1.31 9436 26.73 12911 36.83 11898 -7.85 162
7. User Charges 21881 27740 26.78 30447 9.76 32981 8.32 38229 12.88 39065 4.93 78.5
8. Other Sources 34198 41815 22.27 31552 -24.54 38614 22.38 64164 66.17 38144 -40.55 11.5
9. General Purpose Grant 3181 3017 -5.16 3014 0..00 3017 0..00 3017 0..00 3017 0..00 -5.2
10. Specific Purpose Grant 4710 7082 50.36 6799 -4 8842 30.05 5104 -42.28 1350 -73.55 -71.3
Total 396603 461067 16.25 569989 23.62 541777 -4.95 619110 14.27 687893 11.11 73.4
Annexure 3.7 -6
SHARE OF TAXES IN TOTAL OWN REVENUE (MUN CORPORATIONS)
Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

AM PTOR AM PTOR AM PTOR AM PTOR AM PTOR AM PTOR
(I) Property & service Tax 137017 34.55 174600 32.01 182092 31.95 189803 35.03 197693 31.93 241597 35.12
(M) Prolesslon tax 11756 2.96 18017 3.91 19471 3.42 20413 3.77 23483 3.79 32947 4.79
(IN) Advertisement Tax 1527 0.39 1885 0.41 2216 0.39 2889 0.53 4365 0.71 4242 0.62
(iv) Ent: 8 Add: Ent: Tax 81746 20.61 81059 17.58 90033 15.8 97357 17.97 114014 18.42 117888 17.14
(v) Show tax & S C on ST 521 0.13 341 0.07 377 0.07 337 0.06 509 0.08 389 0.06
(vi) Land conversion 0..00 0..00 0..00 0..00 202 0.03 180 0.03
(vii) Timbertax 391 0.1 177 0.04 281 0.05 126 0.02 93 0.02 97 0.01
(viii) Tax on animals & vehicles 0..00 0 0..00 1 0..00 2 0..00 0..00
Total (Direct Tax) 232958 58.74 249079 54.02 294470 51.66 310926 57.39 340361 54.98 397340 57.76
OWN REVENUE 396603 100 461067 100 569989 100 541777 100 619110 100 687893 100
AM - Amount in Rs Thousand
PTOH - Percentage of Total Own Hevenue
Annexure 3.7 -7
SHARE OF ITEMS UNDER OWN REVENUE (MUN. CORPORATIONS)
Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

AM POR AM POR AM POR AM POR AM POR AM POR
1. Direct Tax 232958 58.74 249079 54.02 294470 51.66 310926 57.39 340361 54.98 397340 57.76
2. Assigned Tax 69063 17.41 58138 12.61 125677 22.05 72881 13.45 94554 15.27 120457 17.51
3. Shared Tax 10000 2.52 50000 10.84 40000 7.02 30000 5.54 26300 4.25 37500 5.45
4. Licence Fees 16003 4.04 16431 3.56 30364 5.33 34817 6.43 35097 5.67 38783 5.64
6.Gate Fees 4542 1.15 7545 1.64 7446 1.31 9436 1.74 12911 2.09 11898 1.73
7. User Charges 21881 5.52 27740 6.02 30447 5.34 32981 6.09 38229 6.01 39065 5.68
8. Other Sources 34198 8.62 41815 9.07 31552 5.54 38614 7.13 64164 10.36 38144 5.55
309
10. Specific Purpose Grant 4710 1.09. 7082 1.54 6799 1.19 8842 1.63 5104 0.82 1350 0.2
Total 396603 100 461067 100 569989 100 541777 100 619110 100 687893 100
AM - Amount in Rs Thousand
POR - Percentage on Own Revenue
Annexure 3.7-8
TOTAL EXPENDITURE OF MUNICIPAL CORPORATIONS 1993-94 TO 1998-99
(Excluding expenditure under People’s Plan Campaign)
Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99
Amount PTE Amount PTE Amount PTE Amount PTE Amount PTE Amount PTE
I. GENERAL ACCOUNT 260.85 62.13 265454 47.58 328938 52.38 376970 52.93 412640 53.05 435910 48.82
(2) Establilshment Cost of Secretaries
& Staff 32213 7.69 39428 7.07 45628 7.27 49428 6.94 55124 7.09 64526 7.23
(3) Other expenses 8944 2.13 10355 1.86 13621 2.17 15619 2.19 15799 2.03 15970 1.79
2. Public Work 61604 14..70 53078 9.51 56747 9.04 77498 10.88 83569 10.74 91439 10.24
(1) Establishment charge 16398 3.91 19130 3.43 20804 3.31. 26168 3.67 34238 4.4 33514 3.75
(2) Maintanance of Roads.Bridges
,Park& Gardens 38313 9.14 29820 58.34 33320 5.31 48184 6.76 45177 5.81 49096 5.5
(3) Contigenies 6893 1.64 4128 0.74 2623 0.42 31146 0.44 4154 0.53 8829 0.99
3.(a) Town Planning 2986 0.71 2830 0.51 5452 0.87 4262 0.6 5446 0.7 6892 0.77
(2) Other Charges 329 0.08 167 0.03 2037 0.32 377 0.05 446 0.06 1661 0.19
(1)Town survey establishment cost 30 0.01 7 0..00 644 0.1 657 0.09 17 0..00 22 0..00
(2) Other Charges 258 0.07 25 0..00 23 0..00 35 0..00 157 0.02 1435 0.16
(1) Establishment charge 701 0.17. 851 0.15 807 0.13 787 0.11 1082 0.14 1026 0.11
(2) Other Charges 229 0.05 230 0.04 619 0..10 473 0.07 650 0.08 1702 0.19
5. Water Supply 5759 1.37 19708 3.53 43660 6.95 26293 3.69 37688 4.85 42883 4.8
(1) Establishment cost 188 0.04 0 0 745 0.12 744 0.1 555 0.07 705 0.08
(2) Maintanace 50 0.01 15007 2.69 31666 5.04 18401 2.58 29593 3.8 31410 3.52
(3) Other Petty Works 5521 1.32 4701 0.84 11249 1.79 7148 1 7540 0.97 10768 1.21
6. Public Health 120689 28.8 112549 20.17 126053 20.07 166633 23.39 164081 21..10 160925 18.02
(3) Maintanance Charge 210 0.05 109 0.02 95 0.02 151 0.02 158 0.02 503 0.06
(4) Other Charges 2616 0.62 419 0.08 934 0.15 24644 3.46 814 0.1 906 0.1
(2) Current Charge 16685 3.98 15243 2.73 18621 2.96 15282 2.15 17872 2.3 15363 1.72
(3) Other Charges 228 0.05 1095 0.2 7896 1.26 365 0.05 10245 1.32 1750 0..20
(2) Maintanance 2862 0.68 4735 0.85 3357 0.53 4190 0.59 11142 1.43 7803 0.87
(1) Audit Fee 0 0..00 397 0.07 490 0.08 0 0..00 4322 0.56 506 0.06
10 . Extra Ordinray Items 0 0..00 2131 0.38 2332 0.37 10549 1.48 1321 0.17 1390 0.16
(1) Reception to important 0 0..00 20 0..00 0 0..00 412 0.06 0 0..00 349 0.04
(2) Grants, Awards etc 0 0..00 2111 0.38 2332 0.37 10137 1.42 1321 0.17 1041 0.12
1. Management 18371 4.38 20322 3.64 27556 4.39 39694 5.57 36987 4.76 25176 2.82
2. Loan Repayment 3916 0.93 6187 1.11 5352 0..85 5664 0.80. 5272 0.68 2697 0.3
3. Plan Schemes 45458 10.85 205817 18.97 78676 12.53 84068 11.8 117402 15.09 223492 25.03
310
(a) Communication 30222 7.21 78514 14.02 41993 6.69 63038 8.85 89749 11.54 92667 10.38
(a) Town Improvement Scheme 0 0..00 0 0..000 7900 1.26 3693 0.52 4267 0.55 33403 3.74
4. Education 2674 0.64 1353 0.24 4970 0.79 1313 0.18 2653 0.34 5338 0.6
5. Water Supply &drainage 19319 4.61 26795 4..80 41341 6.58 45121 6.33 49970 6.42 43516 4.87
(a) New water supply schemes 0 0..00 724 0.13 478 0.08 439 0.06 1610 0.21 1738 0.19
(b) Deposits to water authority 160 0.05 118 0.02 9387 1.49 97 0.01 119 0.02 0 0..00
6. Public Health 835 0.2 7729 1.39 10068 1.6 16075 2.26 19203 2.47 3895 0.44
(b) Solid Waste Management 0 0..00 2191 0.39 530 0.08 8364 1.07 6130 0.79 735 0.08
8. Endowment and Investments 0 0..00 3 0..00 1145 0.18 0 0..00 1 0..00 0 0..00
III. DEBT HEADS 58583 13.98 115224 20.65 121162 19.29 119119 16.72 115590 14.86 136337 15.27
(3) PF/Pension fund 28034 6.69 51459 9.22 62853 10.01 54256 7.62 616642 7.93 72086 8.07
(4) Sinking Fund 561 0.13 2652 0.48 72 0.01 0 0..00 43 0.01 128 0.01
(5) Library Cess 382 0.09 500 0.09 800 0.13 700 0.1 1000 0.13 0 0..00
(6) Sales Tax 653 0.16 1274 0.23 2315 0.37 4410 0.62 5189 0.67 4322 0.48
(7) Others 10625 2.54 14476 2.59 24992 3.98. 24650 3.46 22355 2.87 20221 2.26
TOTAL 419114 100 557959 100 628036 100 712268 100 777763 100 892978 100
Annexure 3.7-9
PERCAPITA EXPENDITURE OF MUNICIPAL CORPORATIONS
Item 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99

Amount PC Amount PC Amount PC Amount PC Amount PC Amount PC
I. GENERAL ACCOUNT 260.85 168.46 265454 170.35 328938 209.38 376970 238.01 412640 258.41 435910 270.77
Secretaries & Staff 32213 20.84 39428 25.3 45628 29.04 49428 31.21 55124 34.52 64526 40.08
(3) Other expenses 8944 5.79 10355 6.65 13621 8.67 15619 9.86 15799 9.89 15970 9.92
2. Public Work 61604 39.86 53078 34.06 56747 36.12 77498 48.93 83569 52.33 91439 56.8
(2) Maintanance of
(3) Contigenies 6893 4.46 4128 2.65 2623 1.67 31146 1.99 4154 2.6 8829 5.48
3.(a) Town Planning 2986 1.93 2830 1.82 5452 3.47 4262 2.69 5446 3.41 6892 4.28
(2) Other Charges 329 0.21 167 0.11 2037 1.3 377 0.24 446 0.28 1661 1.03
(1)Town survey establishment cost 30 0.02 7 0..00 644 0.41 657 0.41 17 0.01 22 0.01
(2) Other Charges 258 0.18 25 0.02 23 0.01 35 0.02 157 0.1 1435 0.89
4. Education & Culture 930 0.6 1084 0.69 1426 0.91 1260 0..80 1732 1.08 2728 1.69
(1) Establishment charge 701 0.45 851 0.55 807 0.51 787 0..50 1082 0.68 1026 0.64
(2) Other Charges 229 0.15 230 0.15 619 0.39 473 0..30 650 0.41 1702 1.06
5. Water Supply 5759 3.73 19708 12.65 43660 27.79 26293 16.6 37688 23.6 42883 26.64
311
(1) Establishment cost 188 0.12 0 0..00 745 0.47 744 0.47 555 0.35 705 0.44
(2) Maintanace 50 0.03 15007 9.63 31666 20.16 18401 11.62 29593 18.53 31410 19.51
6. Public Health 120689 78.08 112549 72.23 126053 80.24 166633 105.21 164081 102.76 160925 99.96
(3) Maintanance Charge 210 0.14 109 0.07 95 0.06 151 0.1 158 0..10 503 0.31
(4) Other Charges 2616 1.69 419 0.27 934 0.59 24644 15.56 814 0.51 906 0.56
7. Street Lighthing 16997 11..00 16388 10.52 26645 16.96 15718 9.92 28190 17.65 17162 10.66
(2) Current Charge 16685 10.79 15243 9.78 18621 11.85 15282 9.65 17872 11.19 15363 9.54
(3) Other Charges 228 0.15 1095 0.7 7896 5.03 365 0.23 10245 6.42 1750 1.09
(2) Maintanance 2862 1.85 4735 3.04 3357 2.14 4190 2.65 11142 6.98 7803 4.85
(1) Audit Fee 0 0..00 397 0.25 490 0.31 0 0..00 4322 2.71 506 0.31
10 . Extra Ordinray Items 0 0..00 2131 1.37 2332 1.48 10549 6.66 1321 0.83 1390 0.86
(1) Reception to important 0 0..00 20 0.01 0 0..00 412 0.26 0 0..00 349 0.22
(2) Grants, Awards etc 0 0..00 2111 1.35 2332 1.48 10137 6.4 1321 0.83 1041 0.65
1. Management 18371 11.89 20322 13.04 27556 17.54 39694 25.06 36987 23.16 25176 15.64
2. Loan Repayment 3916 2.53 6187 3.97 5352 3.41 5664 3.58 5272 3.3 2697 1.68
3. Plan Schemes 45458 29.41 205817 67.91 78676 50.08 84068 53.08 117402 73.52 223492 138.83
(a) Communication 30222 19.55 78514 50.19 41993 26.73 63038 39.8 89749 56.21 92667 57.56
(a) Town Improvement Scheme 0 0..00 0 0..000 7900 5.03 3693 2.33 4267 2.67 33403 20.75
(b) Poverty Allevation 6458 4.18 2869 5.31 2198 1..40 4966 3.14 2974 1.86 3120 1.94
4. Education 2674 1.73 1353 0.87 4970 3.16 1313 0.83 2653 1.66 5338 3.32
(a) New water supply schemes 0 0..00 724 0.46 478 0.3 439 0.28 1610 1.01 1738 1.08
(b) Deposits to water authority 160 0.12 118 0.08 9387 5.98 97 0.06 119 0.07 0 0..00
6. Public Health 835 0.54 7729 4.96 10068 6.41 16075 10.15 19203 12.03 3895 2.42
(b) Solid Waste Management 0 0..00 2191 1.41 530 0.34 8364 5.28 6130 3.84 735 0.46
8. Endowment and Investments 0 0..00 3 0..00 1145 0.73 0 0..00 1 0..00 0 0..00
III. DEBT HEADS 58583 37.9 115224 73.94 121162 77.12 119119 75.21 115590 72.39 136337 84.69
(3) PF/Pension fund 28034 18.14 51459 33.02 62853 40.01 54256 34.26 616642 38.62 72086 44.78
(4) Sinking Fund 561 0.36 2652 1.7 72 0.05 0 0..00 43 0.03 128 0.08
312
(5) Library Cess 382 0.25 500 0.32 800 0.51 700 0.44 1000 0.63 0 0..00
(6) Sales Tax 653 0.42 1274 0.82 2315 1.47 4410 2.78 5189 3.25 4322 2.68
(7) Others 10625 6.87 14476 9.29 24992 15.91 24650 15.56 22355 14..00 20221 12.56
TOTAL 419114 271.15 557959 358.06 628036 399.76 712268 449.7 777763 487.07 892978 554.69
Annexure 3.7 -10

Total receipts and expenditure of Municipal Corporations
at a glance
(Rs in lakhs)
Receipt
1993-94 1 994- 1995-96 1996-97 1997-98 1998-99
Total (A+B ) 4120.38 5072.84 6199.32 7904.89 7322.70 7696.25
C. Debt Head 498.48 689.16 779.22 774.05 1038.91 1346.79
Total (A + B + C) 4618.86 5762.00 6978.54 8678.94 8361.61 9043.04
Expenditure
Total (A+B ) 3605.31 4427.35 5068.74 5931.49 6621.73 7566.41
C. Debt Head 585.83 1152.24 1211.62 1191.19 1155.90 1363.37
Total (A + B + C) 4191.14 5579.59 6280.36 7122.68 7777.63 8929.78
Closing balance 427.72 182.41 698.18 1556.26 583.98 113.26
313
Annexure 4. I
DETAILS OF TRANSFER OF INSTITUTIONS AND STAFF TO LSGIs
A. Institutions and posts transferred to Grama Panchavats
1. Agriculture Department Krishi Bhavans of the respective places.
2. Animal Husbandry Department Veterinary sub-centre, Veterinary

Dispensary/Hospitals of respective places
3. Dairy Development Department One Dairy Extension Officer and
Auxiliary posts (this unit should be
transferred to one of the Grama Panchayats
in the Block and this should cover all the
Grama Panchayats in the block).
4. Fisheries Department One Fisheries Sub Inspector (in the Grama
Panchayat wherever necessary)
5. Rural Development Department Two Village Extension Officer posts
(including lady V.E.O) (if it is not possible
to deploy two posts for a Grama Panchayat
from a Rural Development Block one post
can be deployed for the present and
additional post can be deployed as and
when necessary subject to availability)
6. Social Welfare Department Day care centres and Anganwadis of the
respective places.
7. S.C. Development Department Balawadies, Balawady-cum-feeding centre,
seasonal day care centre and dormitories of
the respective places.
8. Tribal Development Department Balawadies, Medical unit, Nursery

schools, Midwifery centres & Ayurvedic
dispensaries of the respective places.
9. Health Services Department (Allopathy) Primary Health Centres and Government
Dispensaries
10.Health Department (Indian System of Government Ayurvedic Dispansaries and
Medicine) Hospitals of the respective places.
11.Health Department (Homoeo) Government Homoeo Dispensaries and
Hospitals of the respective places.
12.General Education Department Government Lower Primary Schools of
the respective places.
13.Public Works Department One Public Works Overseer post (this
post should be given to a Grama
Panchayat in which there are no
engineering posts and the incumbent
should work in three similar Grama
Panchayats.
314
B. Institutions and Posts transferred to Block Panchavats.
1. Agriculture Department One post of Assistant Director and

Auxiliary posts
2. Industries Department One post of Industries Extension Officer.
3. Rural Development Department The post of Block Development Officer

and other posts of Block Development
Office.
4. Social Welfare Department Care Homes, Old-age Homes and similar

respective places.
5. S.C. Development Department (1) Pre-matric Hostels of the respective

places.
(2) The post of Block Extension Officer
(his services should be made available to
all Grama Pnchayats in the Block
6. ST Development Department Tribal Extension Officer (his services
should be made available to all Grama
Panchayats in the Block)
7. Health Services Department(Allopathy) Block level Primary Health

Centre/Community Health Centre,
Taluk Hospitals/Government Hospitals.
8. Health Department (Indian System of Taluk Hospitals of the respective
Medicine) places.
9. Health Department (Homoeo) Taluk Hospitals of the respective places
315
C. Institutions and posts transferred to District Panchavats
1. Agriculture Department (i) Two posts of Deputy Director and auxiliary posts.
(ii) The post of District Soil Conservation officer and
auxiliary posts.
(iii)One Assistant Executive Engineer and connected posts.
(iv) Soil Testing Laboratory of the respective places.
(v) Mobile Soil Testing Laboratory. (vi)District Sales
Counter
(vii) District Agriculture Farm/Coconut nursery (These
institutions which are transferred to District Panchayat
should serve other districts also where such institutions do
not exist).
2. Animal Husbandry Veterinary Polyclinic, ICDP area office, Mobile Veterinary
Department Dispensary, Mobile Farm Unit, Clinical Laboratories not
attached to District Veterinary Centres, (the services of
mobile units and clinical laboratories should be extended to
urban areas also)
3. Fisheries Department The fisheries Schools of respective places.
4. Minor Irrigation One section consisting of one

Department Assistant Engineer and connected staff.
5. Industries Department From the District Industries Centre,
one Manager post and connected staff
6. Rural Development One post of Assistant Development Commissioner and the
Department District Women's Welfare Officer and Auxiliary staff.
7. General Education (i) The Upper Primary Schools and High
Department Schools of the respective places.
(ii) One Section from the Deputy Director's Office.
8. Technical Education (i) Tailoring and Garment making
Department Training Centre of the respective places.
(ii) Tailoring Trade Centres of the respective places.
9.Co-operation Department One post of Assistant Registrar and one post of Clerk.
10. Public WorksDepartment One division consisting of Executive Engineer and

auxiliary staff, (from among Local Works Division,
Special Division, Building Division)
Now all the District level officers have been transferred to the District Panchayats
along with staff. District Hospitals arealso with the District Panchayats
NB. Through follow-up government orders, majority of beneficiary oriented welfare

and development schemes were transferred to the PRIs. Of special interest is the
fact all the centrally-sponsored anti-poverty programmes including SGSY, IAY,
and EAS have been fully transferred to them. Likewise all the pension/social
assistance Schemes - for the Destitutes and Old aged, Handicapped, Widows,
Agriculture Labourers, Unemployed are implemented by the Village Panchayats.
316
D. Institutions and posts transferred to Municipal Councils/Municipal
Corporations
1. Agriculture Department (i) Krishi Bhavans of respective places.

(ii) One post of Deputy Director of
Agriculture, (this post should be under the
Municipality of District headquarters but
his services should be extended to all
Municipalities of the District).
2. Animal Husbandry The Veterinary Polyclinie, Sub-centre.
Department Dispensary of the respective places
3. Fisheries Department One post of Fisheries Sub Inspector, (to

the Municipalities wherever necessary)
4. Industries Department One post of Industries Extension
Officer.
5. Health Services Community Health Centres,
Department (Allopathy) Government Hospitals, Taluk
Hospitals of the respective places.
6. Health Department Taluk Hospitals of the respective
(Indian System of places.
Medicine)
7. Health Department Taluk Hospitals of the respective places.

(Homoeo)
8. General Educalion Government Primary Schools and

Department High Schools of the respective places.
9. Co-operative One post of Senior Co-operative

Department Inspector (this post should be under the
Municipal Council of District Head
Quarters and the concered officer will
attend to tha works in all the
Municipalities of the District.)
317
Annexure 4.2.1
PHYSICAL ACHIEVEMENT OF THE PROJECTS EXECUTED BY THE
PANCHAYATS UNDER PEOPLE'S PLAN CAMPAIGN
ltem Village Panchyat Block Panchayat District Panchayat

1997-98 1998-99 1999-2000 1997-98 1998-99 1999- 1997-98 1998-99 1999-2000
Fallow land made cultivable(in 1500214.738 91948.859 70324 12045.9 15956.76 18093.35 2725 9320.277 5239.53
hectres)
No.of new tractors in agriculture 1166 539 732 10 91 5 6 20 2
No. of new trillers for agnculture 209 25 S 822 74 64 48 11 32 3
No. of calves distributed 48414 27017 16217 3 1 60 835 463 1622 0
No.of lambs distributed 1053 84 27550. 178 1 1892 6408 441 840 188 119 0
No. of chiks distributed 1064028 228223 175715 12269 1600 280f 15467 804. I 5500
No. of cattle sheds constructed 19657.99 22477 27879 2052 361 153 284 1201 600
No.of tailoring machines distributed 26728 13031 2959 4323 516 209.7 575 74 1
No of industrial units stalled 2464.85 3529 2018 724.4047 720 348 69 349 99
No. of persons newly employed in 9774 16193 12321 3481 4073 3859 610 340 421
industrial
No. of house-sites provided Tor 3273 3458 4406 92S 1338.27 1436 114 1 165 497
weaker sections
No. of houses constructed for 3495 1 37017 904 1 3 8834 13408 34068 7987 7970 62197
weaker sections
No. of houses of weaker sections 31189.96 20201 3 1 555 4860 1729 1879 2008 120 822
repaired
No.of toilets constructed 114294.3 89179 100217 11849.62 9865 8659 3052 294 340
No. of houses electrified 31232 25825 -24516 4774 1133 2459 626 46 0
No.of wells newly constructed 21636 22366 25097 2546 1585 1868 694 0 91
No. of new street taps installed 6673 7252 7931 1165 715 1719 607 210 843
No.of private taps installed 4034 1658 2375 308 107 175 16 0 15
No.of street lights installed 19670 1 35 81 42471 386 1515 211 693 23 39
No.of tanks renovated 4796 2309 1660 109.73 176 16 36 4
No.of pump sets installed 15261 16541 16573.00 2082 558 216 96 16 20
Length of new roads constructed (a) Earthern Roads
318
(I) 8 metres wide 47890.15 37696.963 52332 6739.85 8608.52 4230.76 3085.31 61 104.55
(ii) 6 to 8 metres wide 71738.903 101178.16 63095 1482.17 5314.91 5509.68 2657.83 895.715 2117.8
(iii) less than 6 metres wide 155221.205 120720.36 2812661.00 5799.02 3123.08 3198.92 8587.8 102.691 5.6
(b) Metalled Road
(I) 8 metres wide 50899 55317.432 32075 848.19 3729.76 1335.39 3124.2 2753.2 17472
(ii) 6 to 8 metres wide 80481.94 86742.408 72607 52.35.27 6546.53 1861.48 995.69 143.61 1.01
(iii) less than 6 metres wide 88568.971 74H43.774 11105.83 5563 577.64 371.8 23218 30.02 5910
(c) Tarred Roads
(I) 8 metres wide 43059.41 140131.49 63 1 73 12645.2 13353 14747.71 872.79 14515.7 345.48
(ii) 6 to 8 metres wide 104653.612 121529.54 172892 5876.51 10534.65 7821.1 534.9 289.98 41.6
(iii) Less than 6 metres wide 124699.883 139311.75 141308 6669.56 2833.88 1549.31 213151 287.755 18974.24
No. of new culverts constructed 5921.415 1355.928 1279 255 432 355 61 31200.5 48
No. of bridges constructed 339 601.05 416 27 57 7 89 26
No. of Institutions registered under 249.25 52 186 23 73 22 0 52 0
charitable
Plinth Area of School Building
constructed 13755.13 24395.06 26761 7328.55 14183.17 17870.69 22137.51 0 7812.08
No. of Annanavadi Buildings 2091 729 1830 115 325 134 23 77198.81 54
constructed
Plinth Area of Hospital Building 28985.06 66067.53 38113 106868.87 7200.04 19416.39 339.49 58 2846
constructed
Plinth Area of Office Building 10642.21 36039.02 225419 6005.42 13429.7 20668.5 4986 917 2951.8
constructed
Plinth Area of Marketting Complex 92135.52 11417.95 44558 149.5 3252.52 1450.52 0 12187 600
constructed
Area of land acquired (in Hectres) 6992.5711 2322.7751 10412 .666 199.43 23470.54 79.85 3.23 2189.61 3.2
319
Details of physical achievements under Peoples' Plan Compaign (Municipalities)
SI 1997-98 Total 1998-99 Total 1999-2000 Total
No Items GS SCP TSP Total GS SCP TSP Total GS SCP TSP Total
I Fallow land made cultivable (in hectres) 1860 252 0 2112 109 4 0 1141 154 49 0 159
2 Distribution of Seedings (Number of beneficiaries) 137874 7203 50 14512 59750 438 10 64140 3445 1 105 10 35566
Distribution of Fertilizers/Insecticides
3 (Numberof beneficiaries) 43558 2803 62 46423 15327 474 15 15816 34818 677 2 35516
4 No of new tractors for agriculture 11 0 0 11 4 0 0 4 4 0 0 4
5 No. of new trillers for agriculture 7 1 0 8 9 0 0 9 18 1 0 19
6 No. of coconut trees cut and removed due lo
disease (Financial assistance given only) 35823 1757 30 37610 17064 1921 43 19028 16593 572 14 17179
7 No. of calves distributed 2624 1068 1 3693 787 690 6 1483 631 195 0 826
8 No of lambs distributed 7347 1664 12 9023 458 245 0 703 296 90 0 386
9 No. of chiks distributed 100581 14177 6 114764 31888 2546 24 34458 11105 485 0 11590
10 No. of cattle pound constructed 1204 245 0 1449 1744 239 0 1983 1069 65 0 1134
11 No. of tailoring machines distributed 1071 1205 0 2276 217 30 0 247 155 10 0 165
12 No. of industrial units started 6461 39 0 6500 301 32 334 245 29 0 274
13 No of persons newly employed in industrial units 777 202 12 991 1746 315 14 2075 842 63 1 906
14 No.of house-sites provided for weaker sections 119 138 8 265 248 151 59 453 355 295 35 685
15 No. of houses constructed for weaker sections 2006 1905 91 4002 4150 1995 14 6159 9218 2795 23 12036
16 No.of houses of weaker sections repaired 1760 1710 27 3497 3386 771 34 4191 5279 1597 10 6886
17 No. of toilets constructed 3853 4288 42 8183 4556 956 27 5539 5878 1112 25 7015
18 No. of houses electrified 968 2355 14 3337 2227 819 13 3059 1898 760 6 2664
19 No of smokeless chulas distributed 5808 601 0 6409 493 75 0 568 409 52 0 461
20 No. of wells newly constructed 705 200 1 906 1249 203 14 1466 1847 327 0 2174
21 No of new street taps installed 595 111 4 710 793 47 2 842 1876 2Q 0 1914
22 No. of private taps installed 122 31 0 153 342 167 0 509 610 55 0 665
23 No. of street lights installed 1563 90 0 1653 2614 125 0 2739 3801 220 10 4031
11
24 No. of tanks renovated 39 0 48 133 3 1 137 94 33 1 128
25 No.of pump sets installed 572 51 0 623 693 56 0 749 1022 42 1 1065
26 (ii) 6 to 8 metres wide 3702 7 1 3710 1084 17 1 1102 3107 2 1 3110
27 (I) 8 metres wide 42 9 1 52 37 6 1 44 350 14 0 364
28 (iii) less than 6 metres wide 4135 5 0 4140 262 0 0 262 1852 741 0 2593
29 (I) 8 metres wide 31 9 0 40 23 5 0 28 884 10 0 894
30 (ii) 6 to 8 metres wide 37 17 0 54 170 3 0 173 20 1 0 21
320
32 (I) 8 metres wide 26 3 0 29 31 6 0 37 33 4 0 37
33 (ii) 6 to 8 metres wide 213 1 0 214 25 3 0 28 168 0 0 168
35 No. of new culverts constructed 62 2 0 64 38 3 0 41 41 2 0 43
36 No of bridges constructed 2 0 0 2 3 1 0 4 5 1 0 6
37 No. of Co-operative Societies for which
financial assistance rendered 24 3 1 28 24 6 1 31 18 5 1 24
38 No. of Institutions registered under charitable 7 3 0 10 5 3 0 8 9 1 0 10
39 Plinth Area of School Building constructed (plinth 3898 0 2 3900 6705 0 0 6705 5671 0 0 5671
40 No. of Anganavadi Buildings constructed 60 3 0 63 43 4 0 47 195 2 0 197
41 Plinth Area of Hospital Building constructed
including extension (in sq.m.) 2984 0 0 2984 4096 0 0 4096 9645 0 0 9645
42 Plinth Area of Office Building constructed including 200 0 0 200 3274 0 0 3274 5220 8000 0 13220
43 Plinth Area of Marketting Complex
constructed in sq m) 0 0 0 0 5382 0 0 5382 9225 0 0 9225
44 Area of land acquired (in Hectres) 81 48 0 129 185 0 0 185 122 72 0 194
Details of Physical achivements under People’s Plan Campaign (Corporations) Annexure 4.2.3
1997-98 Total 1998-99 Total 1999-00 Total

Sl.No Items GS SCP TSP Total GS SCP TSP Total GS SCP TSP Total
1 Fallow land made cultivable (in hectres) 0 0 0 0 0 0 0 0 0 0 0 0
Distribution of Seedings (Number of
2 beneficiaries) 38042 1600 0 39642 4822 1650 0 6472 10580 3350 1650 15580
Distribution of Fertilizers/Insecticides
3 (Numberof beneficiaries) 0 0 0 0 0 0 0 0 0 0 0 0
4 No of new tractors for agriculture 0 0 0 0 0 0 0 0 0 0 0 0
5 No. of new trillers for agriculture 0 0 0 0 0 0 0 0 0 0 0 0
No. of coconut trees cut and removed due to
6 disease (Financial assistance given only) 0 0 0 0 0 0 0 0 0 0 0 0
7 No. of calves distributed 129 0 0 129 144 0 0 144 149 35 0 184
8 No of lambs distributed 983 0 0 983 1230 0 0 1230 5830 2360 0 8190
9 No. of chiks distributed 44835 0 0 44835 31570 0 0 31570 8080 0 0 8080
10 No. of cattle pound constructed 90 0 0 90 298 0 0 598 166 0 0 169
11 No. of tailoring machines distributed 590 0 0 785 0 0 0 0 209 0 0 209
12 No. of industrial units started 0 180 15 0 1 0 0 1 78 0 0 78
13 No of persons newly employed in industrial 0 0 0 0 90 17 1 90 267 0 0 267
321
units
No.of house-sites provided for weaker
14 sections 0 0 0 51 0 454 0 18 0 22 0 27
No. of houses constructed for weaker
15 sections 413 51 0 886 2041 393 2 2495 1776 251 0 2028
16 No.of houses of weaker sections repaired 228 468 5 411 2100 428 3 2495 2340 435 0 2780
17 No. of toilets constructed 1485 173 10 2188 1307 48 1 1738 1198 350 0 1550
18 No. of houses electrified 540 683 20 611 183 0 0 232 0 41 0 41
19 No of smokeless chulas distributed 1375 71 0 1397 0 33 0 0 0 0 0 0
20 No. of wells newly constructed 19 20 2 19 40 0 0 73 15 5 0 20
21 No of new street taps installed 0 0 0 0 27 150 20 27 0 0 0 0
22 No. of private taps installed 968 0 0 1200 810 0 0 980 40 0 0 40
23 No. of street lights installed 750 230 2 750 744 0 0 744 131 0 0 131
24 No. of tanks renovated 0 0 0 0 0 0 0 0 0 0 0 0
25 No.of pump sets installed 340 0 0 340 0 0 0 0 0 0 0 0
26 (ii) 6 to 8 metres wide 0 0 0 0 0 0 0 0 1800 0 0 1800
27 (I) 8 metres wide 0 0 0 0 0 0 0 0 0 0 0 0
29 (I) 8 metres wide 0 0 0 0 0 0 0 0 800 0 0 800
30 (ii) 6 to 8 metres wide 0 0 0 0 0 0 0 0 0 0 0 0
32 (I) 8 metres wide 0 0 0 0 265 0 0 265 7462 0 0 7462
33 (ii) 6 to 8 metres wide 7260 0 0 7260 5385 0 0 5385 2775 0 0 2775
35 No. of new culverts constructed 12 0 0 12 10 0 0 10 11 0 0 11
36 No of bridges constructed 0 0 0 0 0 0 0 0 0 0 0 0
No. of Co-operative Societies for which
37 financial assistance rendered 14 1 0 15 3 0 0 3 38 0 4 42
No. of Institutions registered under charitable
38 societies act 0 0 0 0 0 0 0 0 0 0 0 0
Plinth Area of School Building constructed
(plinth area in sq.m.)
39 816 0 0 816 546 0 0 546 4380 0 0 4380
40 No. of Anganavadi Buildings constructed 37 0 0 37 6 0 0 6 4 0 0 4
Plinth Area of Hospital Building constructed
41 including extension (in sq.m.) 300 0 0 300 0 0 0 0 200 0 0 200
Plinth Area of Office Building constructed
42 including extension (in sq.m) 1000 0 0 1000 0 0 0 0 0 0 0 0
Plinth Area of Marketing Complex constructed
43 in sq.m) 0 0 0 0 520 0 0 520 287 0 0 287
322
44 Area of land acquired (in Hectres) 4 0 0 4 5 0 0 5 3 0 0 3
323
Annexure 4.3
FUNCTIONS OF LOCAL SELF GOVERNMENT INSTITUTIONS
1. VILLAGE PANCHAYAIS
A. Mandatory functions of Village Panchayats
1. Regulation of building construction.
2.Protection of public land from encroachment
3.Protection of traditional drinking water sources.
4. Preservation of ponds and other water bodies
5. Maintenance of water-ways and canals under their charge
6. Collection and disposal of solid waste and control of liquid waste disposal.
7. Storm water drainage
8. Maintenance of environmental hygiene
9. Management of markets
10. Vector control
11. Regulation of slaughtering of animals and sale of meat, fish and other
perishable food items.
12. Regulation of eating establishments
13. Prevention oj food adulteration,
14. Maintenance of roads and other public assets
15. Street lighting and their maintenance.
16. Immunization
17. Carrying into effect national and State level strategies and
programmes for disease prevention and control.
18. Opening and maintenance of burial and burning grounds.
19. Licensing of dangerous and offensive trades
20. Registration of births and deaths.
21. Provide bathing and washing ghats
22. Providing ferries,
23. Provide parking space for vehicles
24. Provide waiting-sheds for travelers
25. Provide toilet facilities in public places
26. Regulate conduct of fairs and festivals.
27. Licensing of pet dogs and destroying strav dogs.
B. General functions
1. Collection and updating of essential statistics.
2. Organising voluntary labour and contribution for community works.
3. Carrying out campaigns for thrift.
4. A warencss building on control of social evils like drinking, consumption of
narcotics, dowry and abuse of women and children.
5. Ensuring maximum people's participation in all stages of development.
6. Organising relief during natural calamities.
7. Inculcating environmental awareness and motivating local action
for environmental npgradalion.
8. Promoting co-operatives.
9. Enhancing communal harmony.
10. Mobilizing local resources in cash and in kind, including free surrender of
land for development purposes.
11. Spreading legal awareness among the weaker sections.
12. Campaigning against economic crimes
13. Organising neighbourhood groups and self-help groups with focus on the
poor.
14. Awareness building on civic duties
324
Sector-wise distribution o responsibilities
I. AGRICULTURE
1. Bring into cultivation waste lands and marginal lands
2. Bring ahoiit an optimum utilisation of land
3. Soil conservation
4. Production of organic manure.
5. Establishment of nurseries.
6. Promotion of co-operative and group farming.
7. Organising self-help groups among cultivators
8. Promotion of horticulture and vegetable cultivation,
9. Fodder development
10. Plant protection.
11. Seed production
12. Farm mechanisation.
13. Management of Krishi Bhavans.
II. ANIMAL HUSBANDRY AND DAIRY

1. Cattle improvement programmes.
2. Dairy farming.
3. Poultry farming, bee keeping, piggery development, goat rearing,
rabbit rearing.
4. Running or veterinary dispensaries.
5. Running of 1C DP suh-centres.
6. Preventive health programmes for animals
7. Prevention of cruelty to animals.
8. Fertility improvement programmes.
9. Control of diseases of animal origin.
III. MINOR IRRIGATION

All minor irrigation schemes within the area of a Village Panchayal.
1. All micro irrigation schemes.

2. Water conservation.
IV. FISHERIES
1.Development of fisheries in ponds and fresh water and brackish water
fish culture, mari culure.
2. Fish seed production and distribution.
3. Distribution of fishing implements.
4. Fish marketing assistance.
5. Provision of basic minimum services for the families of fishermen
6. Welfare schemes for fishermen.
V. SOCIAL FORESTRY
/. Raising of fodder, fuel and fruit trees
2. Organising campaigns for tree planting and environmental
awareness.
3. Afforestation of waste lands.
VI. SMALL SCALE INDUSTRIES
/. Promotion of cottage and village industries
2. Promotion of handicrafts
325
3. Promotion of traditional and mini industries
VII. HOUSING
1. Identification of homeless people and poramboke dwellers and
provide house sites and houses.
2. Implementation of rural housing programmes.
3. Implementation of shelter upgradation programmes.
VIII. WATER SUPPLY

1. Running oj water supply schemes covering one village panchayat.
2. Setting iiji of water supply schemes covering one village
panchnyat.
IX. ELECTRICITY AND ENERGY
/. Street lighting
2. Promotion of bio-gas.
X. EDUCATION
/. Management of Government pre-primary schools and Government
primary schools.
2. Literacy programme's.
XL PUBLIC WORKS
/. Construction and maintenance of village roads within the village
panchayat,
2. Construction of buildings for institutions transferred.
XII. PUBLIC HEALTH AND SANITATION

/. Management oj dispensaries and primary health centres and sub-
centres (in all systems ofmedicine).
2. Management of child welfare centres and maternity homes.
3. Immttnisation and other preventive measures.
4. Family Welfare
5. Sanitation.
XIII. SOCIAL WELFARE

/. Running of anganwadies.
2. Sanctioning and distribution of pensions to destitute, widows,
handicapped and agricultural labourers.
3. Sanctioning and distribution of unemployment assistance,
4. Sanctioning of assistance for marriage of the daughters of widows.
5. Management of group insurance scheme for the poor.
XIV. POVERTY ALLEVIATION
/. Identification of the poor.
2. Self employment and group employment schemes for the poor
especially women.
3. Providing community assets of continuing benefit to the poor.
XV. SCHEDULED CASTES AND SCHEDULED TRIBES
DEVELOPMENT
1. Beneficiarv oriented schemes under SCP and TSP.
2. Management oj nursery school for Scheduled Castes and
Scheduled Tribes.
3. Provision of basic amenities in Scheduled Castes and Scheduled
Tribes habitats.
4. Assistance to Scheduled Castes and Scheduled Tribes students.
326
5. Discretionary assistance to Scheduled Castes and Scheduled
Tribes in need.
XVI. SPORTS AND CULTURAL AFFAIRS

Construction of play grounds.
XVII. PUBLIC DISTRIBUTION SYSTEM

/. Examination of complaints against the public distribution
system and taking oj remedial measures.
2. Organisation of campaigns against weights and measures offences.
3. General supervision and guidance of ration shops and maveli
stores and other public distribution centres and if necessary
starting new public distribution centres.
XVIII. NATURAL CALAMITIES RELIEF

/. Management of relief centres
2. Organisation of relief works
3. (Repair works to assets will he divided and carried out by the
Panchayat in charge of the assets)
XIX. CO-OPERATIVES
/. Organisation of co-operatives within the jurisdiction of the
Panchayat.
2. Payment oj Government grams and subsidies within the jurisdiction.
II. BLOCK PANCHAYA IS
A. General functions of Block Panchayats

1. Pool technical expertise both Government and non-government at
the Block level.
2. Provide technical services to Village Panchavats.
3. Prepare plans after taking into account the plans of Village
Panchayat to avoid duplication and provide the backward and
forward linkages.
B. Sector-wise distribution of responsibilities.

1 AGRICULTURE
1. Faemers' training for the programmes implemented at the village
level.
2. Arrangements of agricultural inputs required for schemes at the
village level.
3. Condiict of agricultural exhibitions.
4. Integrated watershed management in watersheds falling within
Block Panchayat area.
5. Mobilize agricultural credit.
6. Sericulture.
II. ANIMAL HUSBANDRY AND DAIRY

/. Running of Veterinary Polyclinics and Regional Artificial
Insemination Centres.
2. Provide specialily services in Animal Husbandry.
327
3. Conduct cattle and poultry shows.
III. MINOR IRRIGATION

All lift irrigation schemes and minor irrigation schemes
covering more than one village Panchayat.
IV. FISHERIES
Development of traditional landing centres.
V. SMALL SCALE INDUSTRIES

1. Selling up of mini industrial estates.
2. Promotion of industries with investment limit of one-third of SSI.
3. Self employment schemes in industrial sector.
VI. HOUSING
1. Popularisation of low cost housing.
2. Promotion of housing co-operative soeielies.
VII. ELECTRICITY AND ENERGY

Promotion of non-conventional energy sources.
VIII. EDUCATION
Management of Industrial Training Institutes.
IX. PUBLIC WORKS

1. Construction and maintenance of all village roads
connecting more than one Village Panchayal and other
District Roads within the block Panehayat.
X. PUBLIC HEALTH AND SANITATION
Management of community health centres and taluk hospitals within
the Bloek Panehayat area in all systems ol medicine.
XI. SOCIAL WELFARE

Management of ICDS.
XII. POVERTY ALLEVIATION
1. Planning and implementation of Employment
Assurance Schemes in eo-ordination with the Village
Panehayats.
2. Skill upgradalion of the poor for self employment and wage
employment for people below poverty line.
XIII. SCHEDULED CASTES AND SCHEDULED TRIBES

DEVELOPMENT
1. Management of pre-matric hostels.

2. Promoting Scheduled Castes and Scheduled Tribes Co-operatives.
XIV. CO-OPERATIVES
1. Organisation of co-operatives within
the jurisdiction of Block Panchayat.
2. Payment of Government grants and subsidies within the jurisdiction.
III. DISTRICT PANCHAYATS
328
A. General functions of District Panchayats
1. Mobile the technical expertise available from
government and non-government institutions.
2. Provide technical service to the Block Panehayats and Village
Panchayats and the Municipalities,
3. Prepare plans after taking into account the plans of (he Village
Panehayats and Block Panehayats lo avoid duplication and to provide
backward and forward linkage.
B. Sector-wise distribution of responsibilities

AGRICULTURE
1. Running of agricultural farms other than regional farms and
research centres and establishment of new farms.
2. Integrated watershed management in watersheds covering more
than one Block Panehayat area.
3. Provision of agricultural inputs.
4. Soil lesting.
5. Pest control.
6. Marketing of agricultural produce.
7. Cultivation of ornamental plants.
8. Promotion of agricultural co-operatives.
9. Promotion of commercial crops.
10. Biotechnology applications.
11. Field trials and pilot projects to popularise innovation.
12. Locally appropriate research and development.
ANIMAL HUSHANDRY AND DAIRY
1. Management of district level veterinary hospitals and laboratories.
2. Management of dairy extension service units.
3. Promotion of milk co-operatives.
4. Management of farms oilier than regional farms, breeding farms and
research centres.
5. District level training.
6. Implementation of disease prevention programmes.
7. Field trials and pilot projects on innovative practces.
8. Locally relevant research and development.
MINOR IRRIGATION
1.Development of ground water resources.
2.Construction and maintenance of minor irrigation schemes
covering more than one Block Panchayat
3.Command area development.
FISHERIES
1. Arrangements for marketing offish.
2. Management of Fish Farm Development Agency.
3. Management of district level hatcheries, net making units, lish
markets, feed mills, ice plants and cold storages.
4. Management of fisheries schools.
5. Introduction of new technologies.
6. Provide inputs required for fishermen.
7. Promotion of fishermen's co-operatives.
329
SMALL SCALE INDUSTRIES
1. Management of District Industries Centre.
2. Promotion of small scale industries.
3. Selling up of industrial estates.
4. Arranging exhibitions for sale of products.
5. Entrepreneur development programmes.
6. Marketing of products.
7. Training.
8. Input service and common facility centres.
9. Industrial development credit planning.
I. HOUSING
1. Housing complex and infrastructure development.
2. Mobilizing housing finance.
II. WATER SUPPLY

1. Running of water supply schemes covering more than one Village
Panchayat.
2. Taking up of water supply schemes covering more than one Village
Panchayat.
III. ELECTRICITY AND ENERGY

1. Taking up of micro-hydcl projects.
2, Determining priority areas for extension of electricity.
[V. EDUCATION
1. Management of Government high schools (including LP section and
UP section attached to high
schools)
2. Management of Government higher secondary schools.
3. Management of Government technical schools.
4. Management of vocational training
centres and polytechnics.
5. Management of vocational Higher
Secondary schools.
6. Management of District Institute for Education and Training.
7. Co-ordinate centrally and Stale sponsored programmes related to
education.
V. PUBLIC WORKS
1. Construction and maintenance of all district roads other than State
Highways, National Highways
and Major District Roads.
VI PUBLIC HEALTH AND SANITATION
!. Management of district hospital in all systems of medicine.
2. Selling up of centres lor care of special categories of disabled and
mentally ill people.
3. Co-ordination of centrally and State Sponsored programme at the
district level.
VII. SOCIAL WELFARE
I' Payment of grants to orphanages.

330
2. Shilling of welfare institutions for the disabled, destitutes etc.
VIII POVERTY ALLEVIATION

Providing infrastructure for self-employment programmes.
IX. SCHEDULED CASTES AND SCHEDULED TRIBES
DEVELOPMENT
1. Management of post matric hostels.
2. Management of vocational training centres for Scheduled Castes and
Scheduled Tribes.
X. SPORTS AND CULTURAL AFFAIRS

Construction of stadiums.
XI. CO-OPERATIVES
1. Organisation of co-operatives within the jurisdiction of District
Panchayats.
2. Payment of Government grants and subsidies toco-operatives within
the jurisdiction."
IV. MUNICIPALITIES AND MUNICPAL CORPORATIONS
A. Mandatory functions of Municipalities
1. Regulation of building construction
2. Protection of public land from encroachment
3. Protection of traditional drinking water sources
4. Preservation of ponds and other water
bodies
5. Maintenance of water-ways and canals under their charge
6. Collection and disposal of solid waste and control of liquid waste
disposal
7. Storm water drainage
8. Maintenance of environmental hygiene
9. Management of markets
10. Vector control
11. Regulation of slaughtering of animals and sale of meat, fish and
other perishable food items
12. Regulation of eating establishments
13. Prevention of food adulteration
14. Maintenance of roads and other public assets
15. Street lighting and their maintenance
16. Immunisation
17. Carrying into effect national and State-level strategies and
programmes for disease prevention and control
18. Opening and maintenance of burial and burning grounds
19. Licensing of dangerous and offensive trades and industries
20. Registration of births and deaths
21. Provide bathing and washing ghats
22. Provision of ferries
23. Provide parking space for vehicles
24. Provide waiting-sheds for travellers
331
25. Provide toilel facilities in public places
26. Regulate conduct of fairs and festivals
27. Licensing of pet dogs and destroying stray dogs
28. Provision of basic minimum service in slums
29. Amenities for pedestrians including foot path and road crossing
facilities
30. Preparation of detailed town plans and action,plan for,phased
implementation
B. GENERAL FUNCTIONS
1.Collection and updating of essential statistics
2.Organising voluntary labour and contribution for community works
3.Carrying out campaigns for thrift
4.Awareness building on control of social evils like drinking,
consumption of narcotics, dowry and abuse of women and
children
5.Ensuring maximum people's participation in all
stages of development
6. Organising relief during natural calamities
7. Including environmental awareness and motivating local action
for environmental upgradation .
8.Promoting co-operatives
9.Enhancing communal harmony
10. Mobilising local resources in cash and in kind, including free
surrender of land for development purposes
11. Spreading legal awareness among the weaker sections
12. Campaigning against economic crimes
13. Organising neighborhood groups and self-help groups with focus
on the poor.
14. Awareness building on civic duties
XV. C . SECTOR-WISE DISTRIBUTION OF RESPONSIBILITIES
XII AGRICULTURE
1. Bring into cultivation wastelands and marginal lands
2. Bring about an optimum utilisation of land
3. Soil conservation
4. Production of organic manure
5. Establishment of nurseries
6. Promotion of co-operative and group farming
7. Organising self-help groups among cultivators
8. Promotion of horticulture and vegetable cultivation
9. Fodder development
10.Plant protection
11.Seed production
12.Farm mechanisation
13.Management of Krishi Bhavans.
14.Conduct of agricultural exhibitions
XIII. ANIMAL HUSBANDRY AND DAIRY

1. Cattle improvement programmes
2. Dairy farming
3. Poultry farming, bee keeping, piggery development, goat
rearing, rabbit rearing,
4. Running or veterinary dispensaries
5. Running of ICDP sub-centres
6. Preventive health programmes for animals
7. Prevention of cruelty to animals
8. Fertility improvement programmes
332
9. Control of diseases of animal origin
10.Running of veterinary poly clinics and Regional Artificial
Insemination Centres
11. Provide speciality services in animal husbandry
12.Conduct cattle and poultry shows
XIV MINOR IRRIGATION

I. All minor irrigation and lit't schemes within the area of a
Municipality
2. All micro irrigation schemes
3. Water conservation
4.Development of ground waster resources
IV. FISHERIES
333
1.Development of fisheries in ponds and fresh waster and brackish waster
fish culture
2.Fish seed production and distribution
3.Distribution of fishing implements
4.Fish marketing assistance
5.Provision of basic minimum services for the families of fishermen
6.Welfare schemes for fishermen
7.Development of traditional landing centres
8.Management of fisheries schools
V.SOCIAL FORESTRY
1. Raising of fodder, fuel and fruit trees
2. Organising campaigns for tree planting and environmental awareness
3. Afforestation of waste lands
VI. SMALL SCALE INDUSTRIES
1. Promotion of cottage and village industries

2. Promotion of handicrafts
3. Promotion of traditional and mini industries
4. Setting up of mini industrial estates
5. Promotion of industries with investment limit of one-third of SSI
6. Self employment schemes in industrial sector
7. Promotion of small scale industries
8. Entrepreneur development programmes
VII. HOUSING
1. Identification of homeless people and porambokc dwellers and provide
house sites and houses
2. Implementation of rural housing programmes
3. Implementation of shelter upgradation programmes
4. Popularisation of low cost housing
5. Promotion of housing co-operative societies
6. Housing complex and infrastructure development
7. Mobilising housing finance
VIII. WATER SUPPLY

1. Running of water supply schemes covering one Municipality
2. Setting up of water supply schemes covering one Municipality
IX. ELECTRICITY AND ENERGY
1. Street lighting
2. Promotion of bio-gas
3. Promotion of nonconventional energy sources
334
V. EDUCATION
1.Management of Government pre-primary schools. Government primary
schools and Government High Schools.
2. Literacy programmes
3. Management of Industrial Training Institutes in the municipal area
4.Management of Government higher secondary schools in the municipal area
5.Management of Government technical schools in the municipal area
6.Management of vocational training centres and poly technics in the municipal
area
7.Management of vocational higher secondary schools in the municipal area
XL PUBLIC WORKS
I. Construction and maintenance of roads within the Municipality other
than National Highways. State Highways and Major Districts Roads
2. Construction of buildings for institutions including those got
transferred from Government
XII.PUBLIC HEALTH AND SANITATION

1. Management of dispensaries and .primary health centres and sub-centres
in all systems of medicine)
2. Management of child welfare centres and maternity homes
3. Immunisation and other preventive measures
4. Family welfare
5. Sanitation
6 Management of community health centres and taluk hospitals within the
municipal area in all systems of medicine
XIII. SOCIAL WELFARE

1. Running of anganwadies
2. Sanctioning and distribution of pensions to destitutes, widows,
handicapped and agricultural
labourers
3. Sanctioning and distribution of unemployment assistance
4. Sanctioning of assistance for marriage of the daughters of widows
5. Management of group insurance scheme for the poor
335
6. Payment of grants to orphanages
7. Staring of welfare institutions for the disabled,.destitutes, clc.
XIV. POVERTY ALLEVIATION
1. Identification of the poor
2. Self employment and group employment schemes for the poor
especially women
3. Providing community assets of continuing benefit to the poor
4. Sill upgradation of the poor for self employment and wage employment
for people below poverty line
5. Providing infrastructure for self-employment programmes
XV. SCHEDULED CASES AND SCHEDULED TRIBES DEVELOPMENT
1. Beneficiary oriented schemes under SCP and TSP
2. Management of nursery school for Scheduled Castes and Scheduled
Tribes
3. Provision of basic amenities in Scheduled Castes and Scheduled Tribes
4. Assistant to Scheduled castes and Scheduled Tribes Students
5. Discretionary assistance to Scheduled Castes and Scheduled
Tribes in need
6. Management or pre-matric hostels in the municipal area
7. Promoting Scheduled Castes and Scheduled Tribes co-opcralives
8. Management of post matrie hostels in the municipal area
9. Management of vocational training centres for Scheduled Castes and
Scheduled Tribes in the municipal area
XVI. SPORTS AND CULTURAL AFFAIRS
I Construction of play grounds and stadiums
XVII. PUBLIC DISTRIBUTION SYSTEM
1 Examination of complaints against the public distribution system
and taking of remedial measures
2 Organisation of campaigns against weights and measures offences
3 General supervision and guidance of rational shops and maveli
stores and other public distribution centres and if necessary starting
new public distribution centres
XVIII. NATURAL CALAMITIES RELIEF

1. Management of relief centres
2. Organisation of relief works (Repair works to assets will be divided and
carried out by the
Municipality in charge of the assets)
XIX.CO-OPERA TIVES
1. Organisation of co-operatives within the jurisdiction of the
Municipality
2. Payment of Government grants and subsidies within the jurisdiction.
336
Annexure 5.1
Status of implementation of the recommendations of the First SFC
1) Relating to Devolution of Funds
RECOMMENDATION STATUS OF IMPLEMENTATION

I . Basic Tax rates to be doubled and the
additional amount distributed among the
District Panchayats and Block Panchayats
in the ratio 3:2.
The Urban Local Bodies (ULBs) to be All these recommendations accepted and
eligible for Basic Tax grant. Also implemented except the one on minimum
minimum land tax to be fixed at Rs.5/- in rates. Urban Local Bodies have not yet
Rural areas, Rs.7.50 in Municipalities and been-given their share of the Basic Tax
Rs.10/- in Corporations. grant.
2 Village Road Maintenance Grant to be

merged with Vehicle Tax Compensation Reduced amount of 20% of net collection
and 25% of the net collection of Motor of Motor Vehicles Tax accepted and
Vehicle Tax to be fixed as share of implemented in full.
Village Panchayats and ULBs.
Though accepted, the recommendation has
3 Building exemption fee to be shared become infructuous with Government
equally with local governments. doing away with giving exemptions from
Building Rules.
4 Building Tax to be assigned to Village Accepted but not yet operationalised.
Panchayats and Municipalities. Amendment to the Building Tax Act is
necessary.
5 25% of income from sale of Court Fee Accepted but not yet operationalised.
Stamps to be earmarked to the LSGIs.
6 25% of funds for centrally sponsored anti- Accepted. The entire funds are given to
poverty programmes to be at the disposal the LSGIs.
of LSGIs.
7 One per cent of State Revenues to be Not accepted.
distributed among urban and rural pools.
8 Maintenance grants calculated at current Not accepted.
replacement cost and suitably scaled up for
price escalation to be given to LSGIs.
9 50% of trie maintenance cost to be sought The II11 Finance Commission'has not
from Government of India. agreed to it.
The 1llh Finance Commission has not
agreed to it. Share of LSGIs has been
10. 5% (if the Central revenues to go to LSGIs. fixed at about 3 % of Central revenues.
337
2) Relating to augmentation of resource mobilization by LSGIs
. Cable TV Operators to be liable for annual

1 Accepted - not operationalised.
licence fee as well as Entertainment Tax
2. Central Government buildings to be - This has been rejected by the
brought under Property Tax with 11th Finance Commission.
Government of India's consent.
3. District Panchayat to levy one per cent of First accepted, then rejected.
tax on sale price of immovable properties
where the sale price is more than
Rs.25,000/-
4 The Library Cess collected by local Not accepted.
governments to be used for improving
infrastructure of educational institutions.
Accepted. The modified rules for
Village Panchayats yet to be
5 Service Tax to become an independent tax. issued. (Under consideration gf the
Subject Committee). For ULBs no
change has been initiated.
6Two per cent penal interest to be charged on Implemented.
delayed payment.
7 Profession Tax to be uniform for urban and Implemented. New slabs notified
rural areas to be unified and new slabs to be only for Village Panchayats but not
notified. for ULBs.
8 Slab rates of Profession Tax to be notified Accepted - not yet
for self employed professionals like operationalised. Amendment to
Doctors, Lawyers, Accountants etc. the Rules required.
9 Government to fix minimum Accepted - Amendments to the
Advertisement Tax rates. Acts brought about. Rules and
byelaws yet t be issued.
10 Licence Fees to be enhanced. Only Implemented for most of the items.
minimum licence fee to be specified. Bu the principle of fixing the
minimum alone has not been
11 . Municipalities and Village Panchayats to The matter is being examined
collect daily fee from persons using road by Government,
poromboke without conferring any right on
these persons.
12 Local Development Fund to be created. Accepted - but not
operationalised. (More or less
infructuous now.)
Power of attorneys to be registered and

Examined by Government and
13 this Stamp Duty given to local
rejectee
governments
338
3) Relating to rationalization of fiscal systems of LSGIs.
a) General points.
I . Government to revert to the old

system of automatic credit of
Implemented.
surcharge of Stamp duty to local
governments.
2. LSGI to decide on utilization of non-
plan grants. Implemented.
3. Formula based allocation for CFC
grant and Rural and Urban Pool. K5%
of CFC grant to be earmarked
for Village Panchayats and the
remaining 15% distributed among Implemented with a simplified formula.
Block & District Panchayats in the
ratio 3:2. Plan funds and other grants
to be distributed with 90% wcightage
for population and 10% for area.
4. Additional Entertainment Tax and
Entertainment Tax to be merged into a Implemented.
single tax.
5. Show tax and surcharge on Show
Implemented.
tax to be merged into one.
.6. Enabling provision for levying Enabling provision introduced in the
Entertainment Tax based on seating Entertainment Tax Act but Rules not yet
capacity. framed.
7. Heads of office to furnish details of
employees to Village Panehayats and Implemented.
ULBs.
. 8. Land Cess to be abolished if tax on Land Cess has been abolished but tax on
sale of property is introduced. sale of property has not been introduced.
. 9. Minimum land value to be fixed in
Accepted - but not yet finalised.
consultation with local governments.
10. Urban Pool and Rural Pool to be
Rural pool created;
created.
11. Increase in ceiling rate
of surcharge to be brought down Accepted- not implemented.
from 5 to 4%
12. All local governments to do tax
Accepted. But operational instructions
mapping and go in for unique
not issued.
premises numbering.
339
b) Rationalisation of Property Tax.
1. Unauthorised buildings to be
Legal provision brought into the
brought under the Property Tax
Panchayat Raj Act. Rules not prepared.
net.
Necessary modifications have been made

2. Minimum Property Tax to be in the Kerala Municipality Act 1994.
fixed. Enabling provision brought into the KPR
Act but Rules not yet amended.
Introduced into the Panchayat Raj Act and

3. Prescribe time limit for revisions enabling provision is there in the
and appeals. Municipality Act for which rules are to be
framed.
4. Round off annual and half yearly
payment of tax to nearest
Implemented.
rupee.
5. Residential buildings to be The Acts have been amended to introduce

charged property tax based on plinth area based assessment for all
plinth area with rebates of 10% buildings both residential and non-
for buildings below 25 years and residential, But the Rules have not been
20% for those above 25 years framed.
and with a surcharge of 25% for
rented buildings.
Buildings less than 20 sq. metres
with mud walls and thatched roof
to be exempted from payment of
tax.
For commercial properties the
system of assessment based on
rental value to continue with
rebate of 10% for owner
occupied commercial building.
6. Revision of Property Tax to be made

every four years.
Necessary provisions made in the Kerala Municipality Act. In the case of

Village Panchayats, Rules are to be amended.
340
4) Miscellaneous Issues.
Implemented
I. Creation of a special Cell in
.
Finance Department.
2. Untied funds to taper Implemented

off. .
Expert Group to go into format of The task has been entrusted to Institution-
budget and /elated matters auditing of Public Auditors of India.
and
including accounting.
4. LSGIs to be empowered to Implemented as part of People's Planning
execute Civil works without Campaign.
intervention of Government
agency.
5. The Rural Development Board Necessary amendments to the Act made.
should only be a funding
agency.
6. Rural Development Board and Accepted - but not operationalised.
KUDFC to have soft loan
windows.
7. Kerala Water Authority to write Accepted. Being operationalised. Write

off arrears before 1.4.1984 and off has not been done. Part of the
to recover arrears for the arrears has been adjusted.
remaining period by
adjustment.
8.Village Panchayats and ULBs to

be empowered for fixing special
kinds of lamps in streets and the Accepted. Maintenance responsibility
responsibility for maintenance handed over to local governments.
and replacement be given to Metering of energy consumption is to be
willing local governments. Also implemented.
energy charges to be collected
on metercd basis.
1. Reorganise Revenue This is under examination.

Villages in such a way that
no village falls in more than
one Panchavat/ULB.
2. Statutory authority to give Chief Secretary has been made

Annual Report to the the Statutory Authority.
Governor on the quantum of
devolution to LSGIs.
341
Annexure 6.1
Proposed Formula for Inter Se Distribution of Plan Funds
In 1998-99 the Government of Kerala transferred a total sum of Rs. 950 crores
to the local bodies as plan grants. Of the total plan grants, 75.37 per cent was
allocated to the general sector, 20.53 per cent as the special grants for scheduled
castes and 4.10 per cent as special grants for the scheduled tribes. In the general
sector, the rural local bodies were given Rs. 426 crores and urban local bodies
were given Rs. 107 crores. The general sector component of grant was
distributed on the basis of the following five criteria suggested by the Working
Group on Evolving Formula for Inter-se Distribution of Plan Grants to Local
Bodies (also see Table 3.29, Chapter 3).
1. 65 per cent of the grant was divided in proportion of the Non-SC/ST

population.
2. 15 per cent of the grant was divided in proportion of the population of
agricultural workers, and people engaged in livestock, fishing and forestry.
3. 5 per cent of the grant was divided in proportion of the geographical area of
trie panchayat.
4. 5 per cent of the grant was divided in proportion of the area under paddy
field.
5. 10 per cent of the grant was divided in the inverse proportion of the
difference between own income and the highest income of any panchayat.
We have proposed inclusion of an additional criterion in the calculation

of inter se distribution of plan funds. It is recommended that a part of the grant
that is given on the basis of population, up to a maximum of 10 per cent of the
total grant, be divided only among the panchayats that increase their own
revenue over the previous year. The fund distributed by the revenue effort
criterion is distributed among local bodies of a particular tier by the following
formula:
ARj = (Pj.rj/Σ(Pj.rj))R
where ARj is the allocation by the resource effort criterion for j local
body, R is the total amount allocated by the revenue effort criterion, PJ is
the population of 11th panchayat and rj is the percentage increase in own
revenue of the jth panchayat with an upper limit. Set j includes only
those local bodies that increased their own revenue in the previous year.
This exercise calculates the inter se distribution of plan funds for year
1998-99 for gram panchayats, municipalities and municipal corporations using
the proposed formula and compares the pattern of allocation with the
allocations based on the existing formula.
The concept of the revenue effort criterion and the method of

computation are explained in detail in Chapter 6. It has been recommended that
an upper limit be applied in the calculation of increase in own revenue (rj); all
local bodies with an increase higher than the upper limit must be considered to
have had an increase equal to the upper limit. This upper limit is required to
avoid a skewed distribution of this grant in favour of a few local bodies that
might be able to make a large increase in own revenue because of certain
342
specific circumstances.
343
As mentioned before, a lower limit of zero per cent increase is applied to the
local bodies that show a reduction in their own revenue over the previous
year.
It is noteworthy that the allocation by the proposed formula requires

that a local body with non-SC/ST population pi must at least increase its
own revenue by Σ (pi.ri)/ Σ pi (ri being the percentage increase in the own
revenue with an upper and lower limit) so as to maintain its plan grant at the
level of the allocation by the existing formula. This implies that not only the
local bodies that do not increase their own revenue but also the local bodies
that increase their own revenue by an extent lower than Σ (pi.ri)/ Σ pi would
get a lower plan grant under ihe proposed arrangement. It must however be
clarified that this reduction is not because these local bodies are being
penalised for not increasing their revenue by the desired extent but merely
because of a smaller amount of funds being allocated by the population
criterion. In case of the local bodies for which the increase in Own revenue
is positive but less than Σ (pi.ri)/ Σ pi the reward for increasing the own
revenue is outweighed by an overall decline in the grant distributed on the
basis of population. The local bodies that show a reduction in own revenue
are considered to have a zero increase (and not a negative increase! in the
calculation of allocation by revenue effort criterion.
The simulations in this exercise use data on 973 panchayats (out of a

total of 990). 55 municipalities and 3 municipal corporations. Seventeen
panchayats thai did not furnish complete data on sources of revenue and
resource mobilisation had to be excluded from this exercise. It may also be
noted that these simulations use data on the increase in own revenue
between 1998-99 and '1997-98 for calculation of the grants given by the
revenue effort criterion for 1998-99. In practice; however, the grants would
be estimated using the increase in the previous year over the year before
that. That is, for example, the estimation of grants for 2001-02 will be based
on the increase in own revenue between 2000-01 and 1999-2000.
Gram Panchayats:
In this exercise the proposed formula was applied for estimating the
allocations for 973 panchayats for which data are available for 1998-99.
Table I shows the amount of plan grant for the gram panchayats for 1998-99
divided on the basis of the existing formula and on the basis of the proposed
formula. In comparison with the own revenues in 1997-98, 896 panchayats
registered an increase in their own revenues. Therefore, as per the proposed
revenue effort criterion, 8.96 percent of the plan funds (Rs. 3582 lakhs)
would have been divided only among the 896 panchayats that increased
their revenue. Correspondingly, 56.04 per cent of the plan grant (Rs. 22403
lakhs) would have been divided on the basis of population criterion.
For the purpose of this exercise, we tried three levels of upper limits
011 the extent of increase in own revenue (r,): 20 per cent. 25 per cent and
30 per cent. Table 2 compares the estimated plan grants with the grants as
per the existing formula. When the upper limit on increase in own revenue
was assumed to be 30 per cent, a total of 835 panchayats were rewarded for
344
increasing their n\\n revenue. Given the non-SC/ST populations and extent
of increase of own ivu'nue of different panchayats in 1998-99. a panchayat
needed to increase its
345
revenue hy at least 18.1 percent Σ (pi.ri)/ Σ pi) to maintain its level of plan
grants. There were 138 panchayats that did not increase their own revenues in
1998-99 hy ihis extent. This includes 77 panchayats showing a decline in the
own revenue and 61 panchayats that increased the revenue hut hy less than
26.76 percent. The revision of formula lor inler-se distribution led to an
increase in plan granl for S3 5 oin of 973 panchayats. The median change in
the plan grants because of the revision in the formula was an increase of 0.39
lakhs. The highest increase in the plan grants was 1.21 lakhs and the highest
reduction was 7.68 lakhs. In proportional terms, the highest increase in plan
grants was 1.40 per cent and the highest reduction was I 1.54 per cent.
Table I Plan grants for gram panchayats distributed by the Working

Group formula and the proposed formula
(Rs.Lakhs)
Items Working Formula Proposed formula
Group Weightage Amount
Weightage Amount
Total Grant Distributed for
973 panchayats takenup for
the estimation*
Amount divided on the basis

of: Population
65 25985.8 56.04 22403.8
Population of agricultural 15 5996.7 15.00 5996.7
labour and persons engaged
in forestry, livestock,
Fisheries
Geographical area 5 1998.9 5.00 1998.9
Area under paddy cultivation 5 1998.9 5.00 1998.9
Panchayat's own income 10 3997.8 10.00 3997.8

(inverse)
Revenue effort -- -- 8.96 3582.0
Sources: GoK 1998-99 Appendix IV. Budget for 1998-9
Notes: The lotal amount of grants used here was computed by adding the
actual grants of these 973 panchayats. From this amount Rs. 25
lakhs corresponding to the special grants given to the pilgrim centers
was deducted.
The upper limits of increase in own revenue at 20 per cent and 25 per cent
gave similar results. When the upper limit was kept at 20 per cent, a
panchayal needed to increase its revenue by 18.1 percent to maintain its
level of plan grants. As a result, plan allocations increased for 857
panchayats. When the upper limit was kept at 25 per cent, a panchayat
needed to increase its revenue hy at leasi 22.45 percent to maintain its level
of plan grants. In this case, plan allocations increased for 842 panchayats
346
because of inclusion of a revenue effort criterion.
347
Table 3. Comparison of plan grants to gram panchayats allocated by the
proposed formula with the allocations by the Working Group formula lor the
year 1998-99 (10 per cent allocation by revenue effort criterion)
Difference in plan grants Upper limit of increase in
own revenue
20 per 25 per 30 per-
cent cent cent
Median (Rs. lakhs) 0.34 0.37 0.39
Maximum increase (Rs. lakhs) 1 .05 1.14 1.21
Maximum proportional increase (percent) 1.25 1.31 1.40
Maximum decline (Rs. lakhs) 7.68 7.68 7.68
Minimum proportional decline (percent) 11.54 1 1 .54 11
Coefficient of variation of per capita grants (cov .190697 .19075 .190861
for allocations by existing formula = 0.189144)
No. of panchayats with lower grants 116 131 138
Number of panchayats with increase in revenue but 39 54 61
lower grants
Minimum percentage increase in own revenue for 18.10 22.45 26.76
a panchayat to maintain the level of its plan grant
in comparison with the existing criterion
Number of panchayats with an increase in 851 838 822
revenue greater than the upper limit
It would be important to look at the characteristics of the panchayats

that would have faced reduced plan grants to ensure that the resource
constrained panchayats do not suffer because of the inclusion of revenue
effort criterion. Table 4 gives the summary statistics for per capita own
revenue of all the panchayats and the panchayats that face reduction in plan
grants as a result of inclusion of the revenue effort criterion. It is clear from
the table that the average own revenue of the panchayats for which the grants
would have been reduced is in fact more than the average own revenue of all
the panchayats. Figure I shows ihc distribution of panchayats by extent of
increase in plan allocation due to inclusion of a revenue effort criterion and
per capita own revenue of the panchayats. It is clear that the panchayats that
face reduced grants are scattered across the spectrum of the per capita own
revenue of the panchayats and do not primarily constitute the low-income
panchayats.
Table 4. Per capita own revenue of the panchayats

All Panchayats with reduced grants when upper limit
panchayats of increase in own revenue is fixed at
30 per cent 25 per cent 20 per cent
Mean 191.85 208.48 207.66 195.05
Median 1 60.40 169.78 167.95 164.16
COV 0.66 0.73 0.75 0.63
348
Figure I. Distribution of panchayats by extent of inerease in plan
allocations and per capita own revenue
-9.00 -8.OO -7.00 -6.00 -5.00 -4.00 -.3.OO -2.00 -1.00

Increase in plan allocations (Rs. laklis)
Note: Based on 30 per cent upper limit on the extent of increase in own
revenue.
Urban Local Bodies:
A revenue effort criterion similar to the panehayats has also been

proposed for the formula for inter se distribution of plan funds among the
urban local bodies. A maximum of 10 percent of the total plan grant is to be
distributed only among the municipalities and municipal corporations that
show an increase in ihe own revenue over the previous year. The actual
amount to be distributed by !he revenue effort criterion will he calculated as:
R= (0. l())p.n/N, where P is the total plan grant for a particular tier, n is the
number of municipalities/municipal corporations showing
an increase in the own revenue over the previous year, and
N is the total number of municipalities/municipal
corporations.
A similar exercise as done for the panehayats was also carried out for
the urban local bodies to see the pattern of plan allocations for municipalities
and municipal corporations for the year 1998-99.
Municipalities:
Table 5 gives the amount of grants for municipalities in year 1998-99

divided on the basis of Ihe existing formula and the proposed formula. Of the
55 municipalities, 45 municipalities increased their own revenue during
349
1998-99. As a ivsnll. 8.18 per cent (-10x45/55 per cent) of the total plan
grant (Rs. 581.43 lakhs) would be allocated by the revenue effort criterion.
350
Table 5: Plan grants for municipalities distributed by the Working Group
formula and the proposed formula
Working Group Formula Proposed Formula

Weightage ' Amount Weightage Amount
(Rupees (Rupees
lakhs) lakhs)
Population( non SC/ST) 75 5340.96 66.82 4759.53
Area 5 353.40 5.00 355.40
Houses without latrines 20 1421.59 20.00 14421.59
and houses without
electricity
Revenue effort - 8.I8 581.43
Total 1 00 7117.9? 100.00 7 1 1 7.95
The plan grants for the municipalities were estimated with upper
limit on the increase in own revenue at 10 per cent, 20 per cent, 25 per cent
and 30 per cent. When the upper limit on the increase in own revenues was
assumed to be at 30 per cent, the municipalities that increased their revenues
more than 9.74 per cent were rewarded on account of the revenue effort
criterion. This benefited a total of 30 municipalities. The plan allocations of
the rest of the 25 municipalities decreased correspondingly. The
municipalities that faced a reduction in plan allocation include 18
municipalities whose own revenues declined in 1Q98-99 over the previous
year and 7 municipalities that increased their revenue by less than 9.74 per
cent. The highest reward in plan grant of a municipality was about Rs. 29.9
lakhs. Among the municipalities that did not increase their revenue, the
highest decline in plan grants was Rs. 9.98 lakhs. In proportional terms, the
highest increase was 27.66 per cent and highest reduction was 9.98 per cent.
Lowering the upper limit on increase in own revenue to 25. 20 or 10

per cent reduces the reward given for increasing own revenue, and therefore
the incentive to do so. The minimum increase in own revenue required to
maintain the level of the plan allocation was 8.86 percent when the upper
limit \\as kept at 20 percent and 9,37 percent when the upper limit vvas kept
at 25 per cent. There were 15 municipalities that showed a positive increase
that was smaller than the minimum required and therefore faced a reduction
in plan allocation,
Table 7 shows the summary statistics of per capita own "revenue of

the municipalities that would have faced a reduction in plan grant on
account of the revenue effort criterion. It is clear that the municipalities
whose grants were reduced had higher-than-average per capita own revenue.
Figure 2 shows the diMnbution of municipalities by the extent of increase in
plan allocations and per capita own revenue of the municipalities. The graph
shows that the municipalities thai iaeed reduction in the plan allocations
\\ere not the most resource constrained of the municipalities.
351
Table 6. Comparison of plan grants to municipalities allocated by the
proposed formula with the allocations by the Working Group formula for the
year 1998-99 (10 per eenl allocation hy revenue effort criterion)
Upper limit of increase in
own revenue
30 per 25 pei- 20 pei- 10 pei-
cent cent cent cent
Difference In plan grants
Median (Rs. lakhs) 1.07 1.37 1.82 3.16
Maximum increase (Rs. lakhs) 29.9 25.60 20.75 15.08
Maximum proportional increase 27.66 1 3.67 1 1.08 6.24

(percent)
Maximum decline (Rs, lakhs) 39.73 39.73 39.73 39.73
Maximum proportional decline (percent) 9.98 9.98 9.98 9.98
Coefficient of variation of per capita .14014 . 1 3502 . 1 3042 . 1 1 762

plan grants (cov for allocations by
existing formula = 0.10188}
No, of Municipalities with lower grants 25 25 25 17
Number of Municipalities with increase 15 15 15 7

in revenue but lower grants
Minimum percentage increase in own 9.74 9.37 8.86 6.12
revenue for a municipality to maintain
the level of its plan grant in comparison
with
Number of municipalities with an 0 4 9 29
increase in revenue greater than the
Table 7. Per capita own revenue of the municipalities
All Municipalities Municipalities with reduced grants when

upper limit of increase in own revenue is
25 per cent 20 per cent 10 percent
Mean 36 1 .4 369.54 369.54 411.31
Median 309.0 329.58 329.58 35 1 .95
COV .793 0.598 0.598 0.502
352
Figure 2. Distribution of municipalities by extent of increase in plan
allocations and per capita own revenue
Municipal Corporations:
Of the three municipal corporations in the state, two corporations increased their
revenue in 1998-99 over the previous year. Therefore, allocation by the proposed formula
would require that 6.67 per cent of the total plan grant (-10x2/3 per cent, 241.59 lakhs) be
distributed by the revenue effort criterion onlv to these two corporations.
Table 8. Plan grants for municipal corporations distributed by the Working Group formula
and the proposed formula
Working Group Formula Proposed Formula
Weightage Amount (Rupees Weightage Amount
lakhs) (Rupees
lakhs)
Population(non SC/ST) 75 2716.54 68.33 2474.95
Area 5 181.10 5.00 181.10
Houses without latrines' and 20 724.41 20.00 724.41
houses without electricity
Revenue effort -- - 6.67 241.59

Total 3622.05 3622.05
The increase in the own revenue of both of these corporations was about 13 per
cent. Therefore, for an upper limit higher than 10 per cent, r, would have been equal to the
actual increase in the own revenue of these corporations. In that case, the plan grants of
these corporations would have increased by Rs. 31.1 lakhs and Rs. 39.3 lakhs. The
municipal corporation showing a decline in the own revenue would have faced a decline of
70 lakhs in the plan grant. Fixing the upper limit of r, at 10 per cent changes this pattern
only marginally.
353
Annexure 9.1
PROPOSED RATE OF PRESUMPTIVE PROFESSION TAX IN RESPECT OF SELF EMPLOYED PERSONS EXCERSING
PROFESSION/ TRADE/ ART/CALLING
Class of Profession/Trade/Art/Callings Half yearly Tax(Rs)

Panchayat/Municipality
/Corporation
1 Legal practitioner(below 5 years practices) 120
2 Legal practitioner (above 5 years and Notaries) 1000
3 Private Medical practitioner of Allopathy(below 5years practices) 120
4 Private Medical practitioner of Ayurvedha (above 5years practices) 1000
5 Private Medical practitioner of Allopathy(below 5years practices) 120
6 Private Medical practitioner of Allopathy(above 5years practices) 1000
7 Private Medical practitioner of Homeothy (below 5years practices) 120
8 Private Medical practitioner of Homeothy (above 5years practices) 1000
9 Private Medical practitioner of Sidha / Unani 60
10 Person engaged in other similar Medical Professions or calling of a paramedical 120
nature (below 5 years practice)
11 Person engaged in other similar Medical Professions or Calling of a paramedical 1000
12 Private Engineer/Private Architect/Private Engineering Supervisors(below 5years 120
13 Private Engineer/Private Architect/Private Engineering Supervisors(above 5years 1000
14 Charterd Accountant (below 5 years practice) 120
15 Charterd Accountant (above 5 years practice) 1000
16 Owner/Lessess Film Producer 1250
17 Film Distributor 1000
18 Performing Artist
(a) Leading Cine Artist who have at least one film in a year 1250
(b) Dramaartist/Circus performer/Magician/Dancer etc 120
19 Music Troupers 300
20 Writer/Artist who does not come under any of the categories mentioned above 300
21 Owners of Professional Drama Truopes/Dance Truopes 600
22 Holder of permit for Transport Vehicles
(a) Taxi car 300
(i) Upto 2 Vehicles 60
(ii) For each Vehicle exceeding 2 Vehicles
(b) Lorry truck/Bus 480
(c) Three wheelers passenger/Godds Vehicle 300
23 Contractor
(a) Taking work of Rs.10 lakhs and above in a year 1250
(b) Taking work of Rs.5 lakhs but less than Rs.10 lakhs in a year 600
(c) Taking work of 2 lakhs and above but less than 5 lakhs in a year 300
(d) Others 120
24 Tution Master
(a) Professional course 240
(b) Other Academic courses 120
25 Owner of Tutorial/Parallel college/Coaching Centre 300
26 Person consducting Real Estate business 1250
27 Planter
(a) Agriculturist holding land below 2 acres 120
(b) Agriculturist holding land above 2 acres 300
28 Catere/Supplier 60
29 Cable T.V Operator 300
30 Persons conducting video/audio cassette centre/photo studio/Xerox centre/DTP 300
centre/Typewriting institute/STD booth
354
31 Document Writter 60
32 LIC Agent 120
33 Unit trust agent 120
34 Stock and share agent 120
35 Other Professionals not specified above 60
36 Trader/Dealer/Firm coming under the dangerous and offensive trades and factories rules
Category A 1250
Category B 300
Category C 60
37 Campaies registred under Indian Companies Act engaged in Profession or Trade 1250
(those not coming undet item 35 above)
38 Banking Companies as defined in the Banking Regulation Act (Scheduled banks, 1250
their branches and other bankers, their branches)
39 (a) State level and District level Co-Operative Societies registred undet the Co-operative 1250
Socities Act and engaged in any provision trade or calling (including State
Co-operative Bank, District Co-operative Banks,Urban Banks etc, and their branches
(b) Other Co-operative Societies (below State and Distirct Levels) 600
PROPOSED LICENCE FEE FOR TRADERS Annexure9.2

S.232 of Kerala Panchayat Raj Act 1994 and
S.447 of the Kerala Municipality Act 1994
Proposed
Proposed minimum minimum rate in Proposed minimum rate in
rate in panchyat municipality Corporation
Category Category Category
Items to be classified A B C A B C A B C
Areted waters-Manufactering 100 75 50 200 150 75 300 200 100
Aloe fibre and yearn-Storing,Packaging,Pressing,Cleansing, 100 75 50 120 100 60 200 150 100
Preparing or manufacturing by any process whatsover
Aluminium -Manufacturing Storing, Selling 150 100 50 200 150 100 500 300 175
Ammunition- storing,Packaging,Pressing,Cleansing 1000 750 500 3000 2000 1000 5000 3000 2000
,Preparing or manufacturing by any process whatsover
Arecanuts-Soaking of 100 50 25 100 75 50 300 150 75
Articles made of flour-Baking,Preparing,Keeping, Storing for
human consumption 100 75 50 200 150 100 300 200 150
(for other than domestic or sifting)
Ahses storing,packing,pressing,cleaning,preparing or
manufacturing by any process 75 50 25 100 75 50 150 100 75
whatever dumping or sifting
Audio Cassette- Recording,storing.selling 300 200 150 300 200 150 500 300 200
Automobile oil and lubricants-Mixing ,storing,selling 300 200 150 300 200 150 500 300 200
Automobile Spare parts-Manufacturing,storing, selling 300 225 175 500 300 200 750 500 250
Automoblie tyre and tube-Manufacturing,storing,selling 400 300 200 400 300 200 600 400 250
Bamboos-Storing for sale,hire or manufacture 75 50 25 100 75 50 150 100 75
Bathis-Manufacture,storing,selling 100 75 50 125 100 75 200 150 100
Bettals-Storing,.selling 75 50 25 75 50 25 100 75 50
Battery- Manufacturing,storing,selling 300 200 100 500 300 150 600 400 200
Biscuts-Baking,preparing,keeping,or storing for human
consumption(other than for domesticuse 150 100 50 450 300 150 600 400 200
Blood-Storing,packing,pressing,cleaning,preparing,or
manufacturing by any process whatsoever 75 50 25 100 75 50 125 100 75
Bones-Storing,crushing,selling 350 250 150 400 300 200 600 350 250
Book- Manufacturing,storing,selling 500 300 150 500 300 150 600 400 200
Bread-Baking,preapring,keeping,storing for human
consumption (other than domestic use) 150 100 50 150 100 50 150 100 50
Bricks- Manufacturing, atoring for sale 300 200 100 300 200 100 500 300 150
Beuty Parlour- Management 500 450 400 600 500 450 750 600 500
Building meterial-Manufacturing, storing,selling 300 200 100 400 250 150 750 500 200
355
Camphor -Storing,packing,pressing,cleaning,preapring or
manufacturing by any process 35 25 15 75 50 24 150 100 50
whatsover or bolling
Candles-Packing,pressing,cleaning,manufacturing, by any
process whatsoever 75 50 25 100 70 40 150 100 50
Carpets-Manufacturing, storing for sale 150 100 75 300 200 100 500 300 150
Cashewnuts and its Kernel-Storing,packing,preparing or
Cattle feeds-Manufacturing,mixing,packing,storing selling 150 100 50 300 200 100 500 300 150
Cat gut-Storing, packing,pressing, cleansing,preapring 125 100 75 150 125 100 200 150 125
Cable TV Opreation 500 300 150 750 500 250 1000 750 500
Cement-Manufacturing,packing,storing 500 250 150 500 250 150 750 500 250
Charcoa-Dumping, sifting,selling or storing 150 100 50 250 150 75 300 200 100
Chemicals- Storing,packing,pressing,cleansing,preapring or
manufacturing for processwhatsoever 200 125 75 250 175 100 500 200 150
Chillies,Corriamdum,Turmeric, etc-Granting by mechinary 300 250 200 300 250 200 500 300 250
Chillies,Corriamdum,Turmeric, etc-(dried)-
Storing,packing,sellling (tried) 300 250 200 300 250 200 500 300 250
Clorite mixture-Storing,paking,pressing,cleansing,preparing
or manufacturing by any process whatsoever 150 100 75 300 200 100 500 250 150
Cinders-Storing,packing,pressing,cleansing,preapring or
Cloths- Dyeing,storing,selling 400 300 200 500 350 250 1500 1000 50
Coal-Dumping,sifting,selling or storing 150 100 50 250 125 75 300 200 100
Cocont fibre-Storing,packing,pressing,cleansing preparing or
Cocont husks and cadjan leaves-soaking of 200 125 75 300 150 100 500 300 150
Coconut shells-Storing 200 150 75 300 200 100 500 300 150
Coffee- Processing, grinding,packing,storing, selling 175 150 125 200 175 150 500 300 200
Coir yarn-Storing,packing, pressing, cleansing, preparing or
Combusite meterials- Storing 500 400 200 750 500 250 1000 750 500
Comsumables-Baking,Preapring,keeping ,or storing for
human consumption(othet than for doemsticuse) 150 125 75 300 150 100 500 250 150
Condiments- Manufacturing 150 100 50 150 100 50 300 150 100
Confectionary-Baking,preparing,keeping, or storing for
human consumption(otherthan domestic use) 300 200 100 500 300 150 750 400 200
Copra-Preparing,or storing or selling wholesale 200 125 75 300 150 100 500 300 150
Cotton,cotton refuse,cotton seed-
Storing,packing,pressing,cleaning, prearing or
Cow-dung cakes-
Storing,packing,pressing,cleansing,prearing or manifacturing
by any proces whatsoever 75 50 25 150 100 50 150 100 50
Proposed minimum rate Proposed minimum Proposed minimum

in panchyat rate in municipality rate in Corporation
Crockery-Manufacturing,storing,selling 300 150 100 500 300 150 750 500 250
Cutlery-Manufacturing,storing,selling 200 150 100 500 300 150 750 500 250
Cycle-Manufacturing,Assembling,storing,selllung,reparing 400 200 100 400 200 100 500 300 150
DTP Centre(including typewriting,xerox copies, institute
managament)Running and Management 200 150 100 500 300 150 750 2000 250
Dry cleaning-Management 250 200 150 300 250 200 400 400 250
Dyes-Packing,pressing, cleansing,preparing or
Egg-Storing,selling 400 200 100 500 300 150 750 500 250
Electrical appliances-Manufacturing, storing,selling 500 300 150 600 400 200 1000 750 250
Explosives-Storing,selling 1000 500 250 1500 1000 500 3000 2000 1000
Fast food-Preaparing or selling 300 200 100 500 300 150 600 400 200
Fibre-Selling or storing 150 125 75 200 150 100 500 300 150
356
Fat-Storing,packing,pressing,cleansing,preparing or
Fire wood-Selling or storing 150 100 75 300 200 100 750 500 250
Fire works-Storing ,packing,pressing,cleansing,preparing or
Fish-Storing ,packing,pressing,cleansing,preparing or
Fish oil -Storing ,packing,pressing,cleansing,preparing or
Flax-Storing ,packing,pressing,cleansing,preparing or
Fileshing-Storing ,packing,pressing,cleansing,preparing or
Flour -Storing ,packing,pressing,cleansing,preparing or
Flowers-Storing,processing,selkling 250 150 75 300 200 100 400 250 150
Frozen food- Storing or sellling 250 1775 125 500 250 150 600 400 200
Fuel-Using for any industrial purpose 350 200 125 500 250 150 600 400 200
Fulminate of mercury- Storing,packing,cleansing,preparing
Fruits- Using for any industrial purpose 300 200 100 500 300 150 600 350 250
Furniture-Making or storing for sale or lending 300 200 100 600 400 200 750 500 250
Gas- Storing ,packing,pressing,cleansing,preparing or
Ghee- Storing ,packing,pressing,cleansing,preparing or
Gold-Refining,storing,selling 2000 1000 500 4000 2500 1000 5000 3000 1500
Grain- Storing,selling 300 150 100 500 300 150 600 400 200
Grass-Storing 150 100 50 200 150 100 250 200 150
Gram-Husking by mechinary 125 100 75 200 150 100 250 200 150
Grioundbut-Selling or storing 100 75 50 150 100 75 200 150 100
Gum Ctotton- Storing ,packing,pressing,cleansing,preparing
Gunny bag- Storing ,packing,pressing,cleansing,preparing or
Gum powde keeping ,packing,pressing,cleansing,preparing
Hair-Storing,packing,cleaning, preparing or manufacturing
ybbbb6 sny process whatsoceevee 125 100 75 250 150 100 300 175 124
Hard ware- manufcaturing. storing.selling 600 400 200 750 500 250 1000 600 300
Hay-Selloing or storing 125 100 50 150 125 100 175 150 124
Haides- Manufacturing,storing.packing.pressing,cleansing 300 200 100 400 300 150 500 350 200
Hemp- Storing,packing,pressing, cleansing,preparing or
Hoops-Storing,packing,pressing, cleansing,preparing or
Honey-Storing,selling 100 75 50 100 75 50 125 100 75
Horns-Storing,packing,pressing, cleansing,preparing or
Hospitals-Running,storing,tincture,phrarmacutical items 2500 1500 750 3000 2000 100 5000 3000 1500
Ice-Manufacturing 400 200 125 500 300 150 750 400 200
Imation gold-Manufacturing, storing,selling 400 250 150 600 400 200 750 500 250
Jaggery-Storing,packing,pressing, cleansing,preparing or
Jewels-Manufacturing,storing,selling 1500 1000 500 1500 1000 500 3000 2000 1000
Jute-Storing,packing,pressing, cleansing,preparing or
Kakhi- Preparing 150 125 75 200 150 100 250 200 150
Lac-Storing,packing,pressing, cleansing,preparing or
Lead- Melting 150 125 75 200 150 100 250 200 150
Leather-Storing,packing,pressing, cleansing,preparing or
357
Proposed minimum rate in Proposed minimum Proposed minimum
panchyat rate in municipality rate in Corporation
LIme-Storing,selling,packing,pressing,cleaning,preapring or
Lime Shells-
Storing,selling,packing,pressing,cleaning,preapring or
Manure-Storing,selling,packing,pressing,cleaning,preapring
Machinary-Using for any industrial purpose 600 400 200 750 500 250 1000 750 500
Marbles-Manufacturing,storing,selling 750 500 250 800 600 300 1200 800 600
Matches-Storing,selling,packing,pressing,cleaning,preapring
Meat-Storing,selling,packing,pressing,cleaning,preapring or
Metals- Including precious metals-
beating,breaking,hammering,castig 250 150 75 350 200 150 500 400 200
Medicine- Manufacturing, storing,selling 350 250 150 400 300 200 500 350 250
Metal Crushing- Crushing,storing, selling 3000 2000 1000 3000 2000 1000 5000 3000 1500
Milk and milk product-Storing,manufacturing,selling 400 200 100 500 300 150 750 500 250
Molases-Storing,selling,packing,pressing,cleaning,preapring
,manufacturing 200 150 100 250 200 150 400 300 200
Mosaic-Manufacturing,polishing,storing,selling 750 500 200 800 600 300 1200 800 600
Motor car-Storing,selling,servicing,reapiring,paintinf 750 500 200 900 600 300 1000 800 400
Motor car electrical appliances-Manufacturing,storing,selling 300 200 100 400 300 200 500 350 250
Motor car paint and accessaries-Manufacturing,storing,
selling 300 200 100 400 300 200 500 350 250
Microphone and loud speaker-Manufacturing,storing,selling 400 300 200 500 400 300 600 450 350
Musical Instruments- Manufacturing,selling,storing 200 150 100 300 200 150 500 300 200
Notrocompund-Storing
,selling,packing,pressing,cleaning,preapring or
Notro-glycrine-
Nitro-mixture-
Offal-Storing,selling,packing,pressing,cleaning,preapring or
Oil-Storing,selling,packing,pressing,cleaning,preapring or
Office equippments-Manufacturing,packing,storing,selling 400 251 150 500 350 250 600 400 300
Optical-Manufacturing,storing , polishing,selling 500 300 200 600 400 300 750 450 350
Paddy-Boiling or husking by machinery 300 200 150 400 300 200 500 350 250
358
Paper-,packing,pressing,cleaning,preapring or
Paints-Manufacturing,storing,selling 600 400 200 750 500 250 1000 600 300
Plantain leaves- Storing, selling 75 50 25 100 75 50 125 100 75
Pesticides-Manufaturing,mixing, storing,selling 400 250 150 500 350 250 750 600 300
Petrolium products-
Pitch-Storing,selling,packing,pressing,cleaning,preapring or
Pottery-Storing,selling,packing,pressing,cleaning,preapring
Photoghraph meterial-Manufacturing,precessing,storing 400 250 150 500 350 250 600 400 300
Photo frame and laminating-
Manufacturing,preapairing,storing,selling 400 300 200 500 350 250 600 400 300
Plastic meterials-Manufcaturing,. storing,selling 600 400 150 800 500 250 1000 750 300
Private hospitals/Paramedical Institutions&Lab-Management 800 600 400 1000 750 500 1500 1000 750
Radio- Manufacturing, Assembling,servicing,and repairing 600 400 200 750 500 250 1000 750 500
reddy made Garments- Manufacturing, storing ,selling 250 150 75 400 250 100 500 300 150
Resin(including rosin)-
Storing,selling,packing,pressing,cleaning
,preapring or manufacturing by any process whatsoever 200 100 75 300 150 100 400 250 150
Refrigerator-Storing,repairing,selling 750 500 300 1000 750 500 1500 1000 750
restorant,Canteen,Coffee,hotel,Tea shop(including cool bar) 750 500 250 1000 750 500 2000 1500 1000
Rose water-manufacturing,storing,selling 75 50 25 100 75 50 150 100 75
Rubber goods-Manufacturing, storign,selling 300 250 150 400 300 200 50 350 250
Rubber stamp- Manufacturing,storing,selling 200 100 75 250 150 100 300 200 150
Rugs-Storing,selling,packing,pressing,cleaning,preapring or
Sago-Manufacturing, or distilling 150 125 75 250 150 100 400 250 150
saltpeter- toring,selling,packing,pressing,cleaning,preapring
Sandal-Processing,storing,selling 600 4000 200 750 500 250 1000 750 500
Sanitary and plumbing meterials-
Manufacturing,storing,selling 600 4000 200 750 500 250 800 600 300
Seekai-Powedering,storing,selling 300 200 100 500 300 150 600 400 200
Shellac-Storing,selling,packing,pressing,cleaning,preapring
Silks-Storing,selling,packing,pressing,cleaning,preapring or
Skins-Storing,selling,packing,pressing or manufacturing by
any process whatsoever 200 150 100 250 200 150 300 250 200
Soap-,packing,pressing or manufacturing by any process
whatsoever 400 250 150 600 400 250 750 500 300
Soft drink- Manufacturing, Storing,selling 150 100 75 200 150 100 250 175 125
Spirit/Foriegn liquid-Storing,selling,packing,pressing or 1500 1000 750 2000 1500 1000 5000 3000 1500
359
manufacturing by any process whatsoever
Stainless steel- manufacturing,.storing,selling 400 300 200 500 350 250 600 400 300
Steel-Manufacturign,storing,selling 600 400 250 750 550 460 1000 750 600
Stiching-Tailoring,manufacturing 125 100 75 150 125 100 250 200 150
Stiching meterials-Manufacturing,storing,selling 125 100 75 150 125 100 750 200 150
Sugar-Storing,selling,packing,pressing or manufacturing by
any process whatsoever 400 300 200 500 400 0.3 500 500 400
Sugar-candy-Packing,pressing ,cleansing,prepairing or 350 250 150 400 300 200 750 350 250
Sulphur-Storing,selling,packing,pressing or manufacturing
by any process whatsoever 400 300 200 500 400 300 750 500 400
Surki-Storing,selling,packing,pressing or manufacturing by
Sweet-meats-Baking,preparing,keeping or storing, for
human consumption (other than domestic use) 300 200 150 350 300 250 400 400 300
Tallow-Storing,selling,packing,pressing or manufacturing by
Tar-Storing,selling,packing,pressing or manufacturing by
Tea- Processioning.packing,storing,selling 300 200 150 400 300 200 2000 350 250
Television set,VCP,VCR-Storing,selling.lending
reapiring,Tatching meterials storing or selling 1500 1000 750 1500 1000 750 800 1500 1000
Textile-Manufacturing,storing.selling 600 400 200 750 500 250 500 600 300
Tachting meterial 250 200 150 300 250 200 2500 300 250
Three Wheelers and two wheelers-
Manufacturing,storing,selling,serving ,repairing 2000 1500 1000 2000 1500 1000 8000 2000 1500
Tiles-Manufacturing 5000 3000 2000 5000 3000 2000 2000 5000 3000
Timber-Selling or storing 1000 750 500 1000 750 500 500 1500 1000
Tobao(including snuff,cigerates,ciggerates and beedies)-
Storing,selling,packing,pressing or manufacturing by any
process whatsoever 400 300 200 400 300 200 150 3530 250
Tuber crops-Storing,selling,preparing 100 75 50 125 100 75 250 125 100
Trupentine-Storing,selling,packing,pressing or
Tyre-Manufacturing,storing,sellingretreadings,vuclanizing 600 500 400 700 600 500 600 750 600
Umberlla-Manufacturign,storing,selling 350 200 100 500 250 150 500 300 200
Upholstery meterials- Manufacturing,storing,selling 300 250 150 400 300 200 600 350 250
Vegetables-Storing,selling 400 250 100 500 300 150 600 350 200
Vedio Cassette-Recording,storing,selling 400 300 200 500 350 250 600 400 300
Watch-manufacturing,storing,selling,lending 400 250 150 500 300 200 500 400 250
Wooden Carvings-Manufacturing,polishing,storing,selling 300 250 150 400 300 200 500 350 250
Wool 300 250 150 400 300 200 500 350 250
Yarn-Dyeing 100 150 100 250 200 150 500 300 200
Guiding or electro-plating 150 100 50 200 150 75 300 200 100
Keeping a shaving or hair dressing saloon 75 50 25 75 50 25 100 75 50
Keeping and maintaning Kalyanamandapam or Auditorium
or hall where marriages are conducted with provision for
catering 5000 4000 3000 6000 5000 4000 7500 6000 5000
360
Keepign together pigs,or ten or more sheep or goats ro two
or more buffalloes or ten or more head of cattle 150 100 50 150 100 50 200 150 100
Manufacturing articles from which offensive or unwhole-
some smells,fume,dust or noise arise 400 350 250 500 400 300 600 450 350
Washing soiled cloths and keeping soiled cloths for purpose
of washing them and keeping washed clothes 125 100 75 150 125 100 250 200 150
EXISTING AND PROPOSED FEE FOR PERMISSION FOR THE INSTALLATION OF

MACHINERY OR MANUFACTURING PLANT
S. 233 of Kerala Panchayat Raj Act 1994
S. 448 Kerala Municipality Act 1994
Minumum rate Proposed

Item Existing Rate in Existing Rate in Panchyat Municipality/Corp
panchayat Municipality/Corporat oration
ion
(A) Installation ot Marlimerv Controlled hv Electric Power
Installation of rectifier and transformer in all places including Cinema
25 15 35 50
theatres irrespective of HP
Installation not exceeding one HP 10 3 15 25
Installalion not exceeding five HP 50 15 75 100
Installalion exceeding live HP hut not exceeding ten HP 100 50 150 200
Inslallation exceeding ten HP hut not exceeding iwenty HP 200 75 300 350
Inslallatkin exceeding twenty HP hut not exceeding fifty HP existing

- 100 - -
in Municipality)
Installalion exceeding twenty HP hut not exceeding thirty HP 300 - 500 750
Installation exceeding thirty HP hut not exceeding forty HP 400 - 600 900
Inslallalinn exceeding forty HP hut not exceeding fifty HP 500 - 750 1 250
retaliation exceeding fifty HP hut not exceeding hundred HP 1000 150 1 500 2250
Installation exceeding hundred HP (existing in Municipality - 200 - -
Installation exceeding hundred HP hut not exceeding two hundred HP 2000 - 3000 4500
Installation exceeding two hundred HP hut not exceeding five hundred HP - - 4500 6000
For each HP exceeding five hundred HP - 25 30

(B Installation of Machinery Controlled by Power other than
Electric Power
Installation for Domestic purposes Nil
Installation for Domestic purposes exceeding two HP - 3 5
Installation for not exceeding one HP 5 5 10 15
Installation exceeding one HP but not exceeding five HP 25 25 50 75
Installation exceeding live HP hut not exceeding ten HP 50 50 75 100
Installation exceeding len HP hut not exceeding twenty HP 100 75 125 150
Installation exceeding twenty HP hut not exceeding thirty HP 150 100 200 250
Installation exceeding thirty HP hut not exceeding forty HP 200 125 250 300
Installation exceeding forty HP hut not exceeding hundred HP 500 - - -
Installation exceeding forty HP hut not exceeding fifty HP - 150 400 600
Installation exceeding fifty HP hut not exceeding hundred HP - 200 750 1000
Installation exceeding hundred HP hut not exceeding Iwo hundred HP 250 1000 1500
361
Installation exceeding two hundred HP hut not exceeding five hundred HP 2000 4000
For each HP exceeding five hundred HP 15 20
362
Annexure 9.3
EXISTING AND PROPOSED FEE FOR PERMISSION FOR CONSTRUCTION
AND RECONSTRUCTION OF BUILDINGS, INSTALLATION OF MACHINERY
etc. FOR CINEMATOGRAPHIC EXHIBITIONS
S. 6 of the Kerala Cinemas (Regualtion) Act, 1958 read with Rule 1901 of The Kerala
Cinemas (Regulation) Rules, 1988
Existing Rate Proposed Rate

Item Rs
Rs
Municipality/
Type of
Village Corporation
Construction
Panchayat
Temporary
Rs. 5007- Thatched / Tiled Re. 1 / M2 Re. 1 /M2
Theatre
A. Single storied
Permanent
Rs. 10007- concreate buildings
Theatre upto 150 M2
i) Cellar or basement
loor and ground floor Rs. 1.50/M2 Rs. 2.50/M2
ii) First floor Rs. 2 / M2 Rs. 2.50/M2
Iii) Second floor Rs. 3/M2 Rs. 4 / M2

B. Buildings of
area exceeding 150
M2 of any number of
floors
1) Cellar or basement Rs. 6/M2 Rs. 7/M2
floor and ground
floor
(ii) First floor Rs. 8/M2 Rs. 10 /M2
(iii) Second floor Rs. 12 /M2 Rs. 15 /M2

(iv) Third floor and
upto and inclusive Rs. 40 / M2 Rs. 50 / M2
of Sixth floor
(v) Above sixth floor Rs. 75 / M2 Rs. 100/M2
C Accessory
Building Rs. 15 /M2 Rs. 25 / M2
D Well Rs. 75 / Unit Rs. 100 /Unit

E Bath Room Rs. 75 /Unit Rs. 100 /Unit
F Compound Wall Re. 1 /1 Re. 2/1
or Fense including Meter. Meter.
gate and grill length length
363
G Conversion of
Rs. 30 /M2 Rs. 50 / M2
Poof
364
Annexure 9.4
EXISTING AND PROPOSED LICENCE FEE FOR PRIVATE MARKETS
S.222(4) Kerala Panchayat Raj Act 1994

S. 460 of the Kerala Municipality Act 1 994
Item Existing Rate in Existing Rate in Minimum Rate
Panchyat Mun icipality / Proposed for Panchayat
Corporation / Municipality /
Corporation
(1) For openig new Market
Area not exceeding 0.1
hectare Minimum of Rs. 200 Minimum of Rs. 50 Rs. 2000
Area not exceeding 0.2 Minimum of Rs. 400 Minimum of Rs. 100 Rs. 4000
hectare
Area exceeding 0.2 hectare Minimum of Rs. 500 Minimum of Rs. 150 Rs. 5000
(II) Renewal of existing Not exceeding one Not exceeding one Not exceeding one thirc
licence third of the income third of the income of the income that the
that the licensee has that the licensee licensee has earnec
earned from the has eamec from from the market during
market during the the market during the the previous year
previous year previous year subject to the minimum
of Rs. 2000 in the case
of market area not
exceeding 0.1 hectare,
Rs. 4000 in case of
market area not
exceeding 0.2 hectare
and Rs. 5000 in the
case of market
exceeding 0.2 hectare
365
Annexure9.5
EXISTING AND PROPOSED LICENCE FEE UNDER THE PLACES OF PUBLIC
RESORT ACT
Kerala Places of Public Resort Act 1963 read with Rule 28 of Kerala Places of Public Resort Rules 1965
: Item Existing Rate Rs Proposed Minimum Rate Rs
Township/
Municipality/
Municipality/Corp Panchayst Panchayat
Corporation
oration
1. For the grant or renewal of licence for one year in respect
of Perrnanent building
a) For an area of 100 Sq. meters or less 75 20 2000 1500
b) For every additional 50 Sq. meters or fraction
37.50 10 1000 750
there of
2. For the grant or renewal of temporary licence in respect of
permanent building
Rs. 850 per
3s 900 per mensem or mensem or
Rs. 20 per mensem mensem or Re. Rs. 30 per day 29 per day
a) For an area of 100 Sq. meters or less
or Rs. 21- per day subject o a minimum ubject to a
00 minimum of
00
Rs. 7.50 per Rs. 3 per
b) For every additional 50 Sq. meters or fraction 3s. 450 per mensem Rs. 425 or
mensem or Re. 1 mensem or Ps.
there of or Is. 15 per day Rs 4 per day
per day 50 per day
3. For the grant or renewal of a temporary licence in
a temporary building
Rs. 750 per
3s. 800 per mensem mensem or
Rs. 75 per mensem Rs. 27 per day 25 per day
a) For an area of 100 Sq. meters or less mensem or Re.
or Rs. 2 per day subject o a minimum subject to a
100 minimum of
100
b) For every additional 50 Sq. meters or fraction Rs. 37. 50 per Rs. 10 per Rs. 375 per
Rs. 400 per mensem
mensem or Re mensem or Ps. mensem or
thereof 1 per day 50 per day or 3s. 14 per day
Rs. 13 per
4. For the grant or renewal of a licence for one year in
t
of an enclosure without any roof or superstructure
a) For an area of 100 Sq. meters or less 75.00 750 600 500
b) For every additional 50 Sq. meters or fraction 7.50 3.75 300 250
thereo
5. For the grant or renewal of a temporary licence for an
enclosure without any roof or superstructure
Rs. 300 per
Rs. 7.50 per Rs. 3.50 per 1 0 per day

Rs. 400 per mensem o subject to a
a) For an area of 100 Sq. meters or less mensem or Rs. 2 mensem or Re
Rs. 14 per day minimum of
per day 1 per day
R
1 00 per day
b) For every additional 50 Sq meters or fraction Rs. 3.75 per Rs. 1.75 per Rs. 150 per
Rs. 200 per mensem o
mensem or Re. 1 mensem or Ps. mensem or
thereof pe day 50 per day Rs. 7 per day Rs. 5 per day
366
Annexure 9.6
RATE OF LICENCE FEES FOR KEEPING ANIMALS FOR COMMERCIAL PURPOSES
S. 444 of Kerala Municipality Act
Similar provision proposed in the Kerala Panchayat Raj Act
Proposed Minimum
Existing Rate in Rate for Panchayat /
Item Municipality/ Municipality/
Corporation Corporation
1. Stable, veterinary, infirmary, stand, shed,

yard or other place for keeping goats, sheep,
pigs and dogs
Rs. 25
Between 2 and 10 numbers Council fixes the
rate as it is not Rs. 50
Above 10 numbers prescribed in the
Act
2. Stable, veterinary, infirmary, stand, shed,
yard or other place for keeping cattle and other
animals Rs. 35
Between 2 and 10 numbers
Rs. 70
Above 10 numbers
367
Annexure 9.7
EXISTING AND PROPOSED RATE OF GATE FEE FOR PUBLIC AND PRIVATE MARKETS
S. 221 and 223 of the Kerala Panchayat Raj Act 1994
S. 452 of the Kerala Municipality Act 1994
Item Existing Rate in Existing Rate in Minimum Rate

Panchayat Municipality/ Proposed for
Corporation Panchayat /
Municipality/
1. Fee for entry on Vehicles or pack animals
or on persons.
Hand load Nil Nil
Head load 1 3
3 10
Cycle load Cart load / Goods
15 Council fixes the rate as is 25
Auto Moped Motor Vehicle
Nil not prescribed in the Act 15
load (Lorry)
40 100
Jeep / Car / Van / Mini lorry load Nil 50
Load or goods in valloms of one meter or less girth 15 25
Loads of goods in Valloms of more than one meter

20 50
of girth
Cattle, Horse or Ass load 5 10
2. Fee for Space Occupied
Occupying space-having area of 1 Sqm. 2 5
Occupying space-having area of more than 1 Sqm.

8 15
but not more than 5 Sqm.
Occupying space-having area of more than 5 Sqm.

10 25
but not more than 10 Sqm.
Occupying space-having area of more than 1 0

25 50
Sqm. but not more than 20 Sqm.
Occupying space having an area of more than 20

1 5
Sqm., for every additional 1 Sqm.
3. For use of Shops, Stalls, Pens or Stands on Market
days (excluding the rent for permanent use)
Having plinth area of 10 Sqm. or less 10 20
Having a plinth area of above 1 0 Sqm. but upto

15 30
20 Sqm.
Having a plinth area of above 20 Sqm. but upto
30 50
30 Sqm.
For every additional plinth area of 1 Sqm.
1 5
Exceeding 30 Sqm.
4. Fee on Animals brought for sale into or sold
Sheep, Goat 2 5
Ass, Pig 3 5
Cow bull, buffalo 5 25
368
Poultry (grown up fowls) 1 1
369
Annexure 9.8
EXISTING AND PROPOSED RATE FOR PUBLIC HALTING AND PARKING
PLACES
S. 227 and 228 Kerala Panchayat Raj Act 1994 S. 472 of Kerala Municipalities
Act 1994
Minimum Rate
Existing Rate in Proposed for
Item Existing Rate in Panchayat Municipali ty/ Panchayat /
Corporation Municipality /
Corporation
Maximum fee Maximum fee
for a period for a period nut
not exceeding exceeding 24
24 hrs hrs
(a) Fee for use of Halting place/Cart stand if no if amenities, if amenities
amenities are are provided are provided
provided or not
Council fixes
the rate as it
(i) For Every hand - drawn Cart rickshaws, Cycle is not
or Cycle rickshaws 1 2 5
prescribed in
the Act
(ii) Auto rickshaws 2 3 10
(iii) For every Cart or Vehicle drawn by one or

more animals 2 4 5
(iv) For every Mini bus. Tempo, Trucker, Mini 4 8 15
lorry
(v) For every Bus. Lorry 6 10 25
(vi) For every horse, mule, bull, bullock, cow
1 2 3
or buffalo
b) Fee for a single halt Minifnum Rate
Motor boat or steam launch 3 6 Council fixes 10
the rate as it is
no prescribed in
the Act
Steam or motor tug 4 10 15

Cabin boat 1 2 15
Valloms of capacity or one lone or less 1 2 2
Valloms of above 1 tones upto 5 tones 1 2 5

Valloms of above 5 tones upto 10 tones 4 6 10
Valloms of above 1 0 tones 8 12 12
Changadom (Thangara) 1 2 3
Timber heaps upto 20 tones 8 12 15
Timber heaps above 20 tones for every 1 2 2
additional
(c) Fee for Storing any Goods Rate fixed
Charges per day for storing goods in open space per 5 10

100 Sqft
Rental charges per day
A) Single Room 25 35
370
b) Double Room 40 50
(d) Fee for stay per day 5 15
Annexure 9.9
EXISTING AND PROPOSED RATE OF RENT AND FEE FOR SLAUGHTERING ANIMALS IN
PUBLIC AND PRIVATE SLAUGHTER HOUSES
S.229 and 230 of Kerala Panchayt Raj Act 1994

S.452 of Kerala Municiapality Act 1994
Item Existing Rate Existing Rate in Minimum Rate Proposed
in Panchayat Municipality/Corporation for
Panchayt/Municipality/Cor
poration
Bullock, Cow, Buffalo 10 Council fixes the rate as it is 20
Sheep, Goat, Pig 5 not precribed in the Act 10
371
ACTION TAKEN REPORT ON THE FIRST
PART OF THE REPORT OF THE SECOND
STATE FINANCE COMMISSION.

ACTION TAKEN REPORT ON THE FIRST PART OF THE
REPORT OF THE SECOND STATE FINANCE COMMISSION.
Recommendation No.2:
Devolution of Funds:
Recommendation No.2(1)
"Government may devolve to the LSGls, Plan funds (excluding State Sponsored Schemes)
not less than one-third the annual size of the State Plan as fixed by the Planning Commission. This fund
is to be used by LSGIs for planning and implementing locally relevant projects. The sectoral ceilings,
if any, within this grant may be fixed by Government from time to time"
Action Taken:
The State Government has decided that the question of transferring one third of the
State's plan funds to LSGIs may be deferred for further examination. Nevertheless the State
Government has been making substantial allocations. For example, out of the State plan
outlay for the current year (2OO4-O5) ofRs.480O crore (including loan from the ADB), an
amount of Rs.l35O crore has been provided in the Budget for devolving among LSGIs as Plan
Grant This is one of the highest percentages for any state.
"Five and a half percent of the annual own tax revenue of the State Government may be
devolved to the LSGIs as Grant-in-aid for- maintenance of assets under the control of the LSGIs
including the transferred assets. This percentage may be determined on the figures certified by the
Accountant General, which normally relates to the financial year two years before the Budget year.
All expenses related to running of institutions except wages, supply of medicines to health institutions,
educational concessions / scholarships to students, supply of books, equipments and consumables to
schools and conducting noon-feeding in schools, shall be borne by the LSGIs. This should include
payment of rents, repair of equipment including vehicles, and meeting of telephone charges and
vehicle operating expenses."
Action Taken:
This recommendation has been accepted by Government From 1-4-2OO4
separate provision has been made in the Budget towards maintenance grant For
2004-05, the provision is Rs.273.66 crore for Panchayats and Rs.52.13 crore for
Recommendation No. 2(3)
''Three and a half percent of the own tax revenue of the State Government based on the figures
certified by the Accountant General could be devolved to LSGIs as General Purpose Grant, in
lieu of assigned taxes, shared taxes and various statutory and non-statutory grants-in-aid, both
specific purpose and general purpose. This grant-in-aid would subsume under it Basic Tax Grant.,
Surcharge on Stamp Duty, Vehicle Tax Compensation, Rural Pool Grants, the specific purpose and
general purpose grants to Urban Local Bodies and all other non-plan grants-in-aid devolved to
LSGIs from the Local Self Government Department."
Action Taken;
The recommendation has already been accepted by the Government From 1-4-2OO4
separate provision has been made in the Budget towards Genera/ Purpose Grant. For
20O4-O5 the provision is Rs. 174.15 crore for Panchayats and Ks.31.17 crore for
Recommendation No.3
"The Eleventh Finance Commission grants to LSGIs should be passed down as such, over and above
the grants suggested above."
Action Taken:
The recommendation has been accepted with the modification that the grant due for
LSGIs may be devolved as part of plan grant but shown separate/y for each LSGI.
Recommendation No.4 (a)
Plan Grant-in-Aid:
" The existing devolution formula as well as the distribution formula may continue. However up to
ten percent of the non-SCP/TSP Funds may be distributed as an incentive for increased own revenue
mobilization by the Village Panchayats and the Urban Local Bodies. The actual percentage to be
distributed as incentive grant-in-ajd should be the same as the percentage of Village Panchayats
and .Urban Local Bodies 'showing an increase in own revenue. And this amount could be shared
as per the formula given below:
0i = ri . P i /I ri . Pi
0i - share for LSG1 i
ri - percentage increase in its revenue
Pi - Population of the LSGI
The date of effect of the incentive system may be indicated to LSGls well in advance."
Action Taken:
The recommendation has been accepted. This will be reflected in the 2005-O6 allocation
to LSGIs,
Recommendation No.4(b)
Maintenance Grant:
"The maintenance grants should be based on the current cost of replacement" and the
initial norms (which has to be updated periodically) may be as follows:
i) Maintenance of buildings constructed before 1-4-1967 - 3% of capital cost.
ii) Maintenance of buildings constructed after 1-4-1967 - 2% of capital cost
iii) Current construction cost - Rs.400/- per Sq.ft.
iv) Frequency of resurfacing of black-top/WBM Roads - Once in five years,
v) Annual repair expenditure of Blacktop roads - Rs.25,0007- per K.M.
vi) Annual repair expenditure of WBM roads - Rs.23,000/-per K.M.
vii) Annual repair expenditure of Unsurfaced roads - Rs.2000 per K.M
viii) Cost of re-surfacing black-top roads (3.8 Metre width) - Rs.1.65 lakhs per K.M
ix) Cost of resurfacing WBM roads (3.8 Metre width) - Rs.1.84 lakhs per K.M."
Action Taken;
Recommendation has been accepted.
Recommendation No.6;
"The distribution of the maintenance grant could be as follows:
1. On the basis of a price index work out what Rs.140 crores at 2000-
2001 prices would amount to for the year for which the provision is
being made. The deflator for the construction sector can be utilized
for this purpose.
2. One-seventh of this amount may be kept aside for the District and
Block Panchayats and divided between them in the ratio 19:1. The
share of the Block Panchayat should be divided equally among them.
As regards District Panchayats, half the share should be divided
according to the ratio of distribution of the transferred village roads
and other district roads and the other half based on norms for repair
of non-road assets in their control (other than those created after
1995).
3. Seven-eighth of the share of the Village Panchayats and

Municipalities is to be distributed among the Village Panchayats,
Municipalities and Corporations in the same ratio as VTC is currently divided;
one-eighth of the share of the Village Panchayats and Municipalities should be
distributed according to the maintenance needs of non-road assets, own and
transferred (other than those created after 1995) - as determined by norms.
4. The division formula mentioned above needs to be corrected by a

series of iterations.
5. The remaining portion of the maintenance grant i.e. the excess over
Rs,140 crores at 2000-01 prices may be distributed exactly in the
same manner as Plan Grant-in-aid."
Action Taken;
Recommendations has been accepted.
Recommendation No.6 (c)
General Purpose Grant;

'The Government may determine as a one-time exercise, the share of District
Panchayats and Block Panchayats in the General Purpose Grant, based on normative
assessment of their establishment cost and office expense requirements. The remaining
amount may be distributed as follows:
Village Panchayats - 78.50%
Municipalities - 8.50%
Corporations 13.00%"
Action Taken:
Recommendation No. 7
"The inter se distribution among the Municipalities and Corporations should be

entirely on the basis of population. As regards Village Panchayats, a corpus of Rs.10 crore
may be set apart and be used as per a gap filling formula - to fill the gap between obligatory
expenditure (reckoned as establishment expenses, street light and water supply charges) and
the revenue usable for these purposes (calculated as the sum of own collected revenue and the
share of the Village Panchayat from the General Purpose Grant). The entire gap could be filled
up in the case of Second and Third Grade Village Panchayats, 50% of the gap in the case of
First Grade Village Panchayats and 25% of the gap in the case of Special Grade Panchayats.
The remaining portion may be distributed according to the population criterion."
Action Taken:
Suggestion has been accepted.
Recommendation No.8
"In order to avoid hardships during transition period, it is recommended that no Village
Panchayat or ULB should experience a real shortfall in its receipts on account of these transfers
compared to the previous year."
Action Taken:
Recommendation No.8 (d)
EFC Grants:
"Eleventh Finance Commission grants may be devolved on the basis of the population criterion
in one instalment"
Action Taken:
Recommendation has been accepted. The devolution will be subject to release of
grant from Gort. of India. The formula will be the same as for Plan Grant.
-*
Recommendation No.9:
Own Resource Mobilization by LSGIs:
Recommendation No.9 (1)
"For Property Tax the recommendations of the First SFC may be operationalised
and the following scheme is suggested for classifying buildings and fixing the tax.
(i) Location Zone - Four Zones,
(ii) Type of building -

(a) Ordinary Building.
(b) Medium type building.
(c) Luxury building.
(iii) Type of use: - (a) Commercial use
(b) Non-commercial use
(iv)The relative weights for the Zone could be - 1 : 1.5 : 2 : 2.5
(v) The relative weights for the type of building could be - 1 : 1.5 : 2
(vi)The relative weights between non-commercial and commercial use could b 1 : 3
(vii) Deduction for age and owner occupation may be as provided for in the Kerala
Municipality Act."
Recommendation No. 9 (2).

"On no account should there be a cap on increase or a limit to decrease when the new system is
introduced."
Action Taken,-
Since the L5GO has a/ready initiated action for implementation of the
recommendation of the Ist SFC relating to Property Tax reforms, these
recommendations (9(1) and 9(2) ) need not be pursued as such. However, early steps will
be taken to amend the relevant provisions of the Act and to frame Rules,
"A dual system of numbering is suggested so that incomplete buildings can get a provisional
number and their completion tracked properly."
Action Taken

"Presumptive Profession Tax may be introduced to bring certain self employed occupational
groups into the tax net"
Action Taken:
Recommendation has been accepted, ft has also been decided that Annexure 9(1)
of the Report will be made exhaustive by incorporating the following items also:
Item HalfyeartyRate(P
anchayat,
Municipalities
and Municipal
Corporations)
Rs
1. Members of Stock Exchange 1000
2. Directors (other than those nominated by Govt.) of companies 1250

registered under the Indian Companies Act
3. Persons engaged m the Films/T. V industry
(a) Writers, Cameramen, Still Photographers 600
(b) Lyricists, Directors. Playback Singers, Recordists, editors 1000

1250
4. Cinema Theatre - Owner/ Licensee
125O
5. Money-lenders Iicensed under the law relating to money lending
1250
6. Individual/ Private Institutions conducting chitties under
Chitties Act
1000
7. Air Travel Agents
600
8. Each partner of firms engaged in any profession, trade or calling
750
9. Advertising firms/ Agencies
45O
10. Courier Service, Internet cafe, Computer Training Institute
1250
11. Educational Institutions including self- financing Institutions
other than those owned and aided by State or Central Govt
450
12. Driving Schools
1250
13. Owners of Kalyanamandapams/Halls other than those owned by
religious institutions
6OO
14. Beauty Parlours / Dry cleaners
75O
15. Tax Practitioners
Entertainment Tax may be introduced for Cable and Internet."
Government has decided that Entertainment Tax be introduced only for cable and
not for internet. Action to amend the Entertainment Tax Act and Rules is being taken by the
Local Self Government Department
"In the case of Advertisement Tax the Government may fix the minimum rates for taxation
for different kinds of advertisement for different types of locations by issuing Advertisement Tax
Rules, which could set out the guidelines for LSGIs to assess the tax."
Action Taken.
Suggest/on has been accepted. Rules are being amended.
"There should be a system of authenticating advertisements to avoid unauthorized

advertisements. Penal provisions for unauthorized advertisement should be at least five times
the normal tax."
Action Taken
Recommendation has been accepted. Rules are being amended.
"Conversion Tax may be realized at the rate of five per cent of the capital value in the case of
conversion of paddy lands. Half this rate maybe made applicable for other kinds of conversions. In
the case of conversions without prior permission a severe penalty of ten times the Conversion Tax
should be realized in the case of conversion of paddy land and an amount equivalent to the
Conversion Tax could be realized in other cases."
Action Taken:
Recommendation has been accepted. However, it has been made clear that the
rate specified in the Recommendation will be the post-conversion rate. Relevant Act
(including KLU Act) and Rules will be amended.
"The Service Tax should be made compulsory and be linked to the cost of performing obligatory
functions and calculated as a percentage of Property Tax."
Action Taken:
Recommendation has been accepted. Changes in Act and Rules are required.
This will be pursued.
"The ceiling on Surcharges may be removed."
Action taken:
Recommendation has been accepted. Act and Rules have to be amended for which
action is in progress.
In the case of Non-tax Revenue the Government should fix the minimum fees for various
kinds of licences in the case of Municipalities and Corporations through notification. In the case of
Village Panchayats only the minimum amount may be fixed in the rules."
Action Taken:
It is observed as per Annexure 9.2 that storing and selling of various items In a single
premises attracts levy of fees for each of the items. This may lead to difficulty in fixing
license fees in the case of large shops like Margin Free shops/Departmental stores
etc. Margin Free shops/Departments/ stores are premises where most of the items under
provisions and stationery are stored and sold. Therefore, items which are coming under
provisions and stationery, hardwares including plumbing, sanitary items, building
materials etc. cart be grouped together in two groups and single license fees
according to the size of the trade can be levied. It has been decided that the
following shall be the classifications:
Provisions & Stationery: Chillies, Corriander, grains, tea, coffee, sugar, jaggery, flour
items, turmeric, edible oils, spices, common salt, potato, onion, cattle feeds, cashew nuts
etc. Soap, Talcum powder, Cosmetics, Plastic items, biscuits/ sweets, meats, squash,
polythene item, candles, disinfectants etc. Baby food, fancy goods, matches, cigarettes,
beedies, snuff, toys, rubber goods, bathies, office equipments, paper, rose water, batteries
other than for motor vehicles etc. The rate applicable to them may be as follows:
A B C
Panchayats- Rs.1500 Rs.lOOO Rs.500
Municipality - Rs.2000 Rs.1500 Rs.1000
Municipal Corporations -Rs.25OO RS..2OOO Rs.1500
Hardwares including plumbing materials, steel and steel rods, wash basin, closet,
paint, turpentine, AC sheet, light roof sheet, PVC/ Tin/Aluminium sheet, Fibre sheet,
glazed tiles etc.
The following rates may be made applicable to them.
A B C
Panchayats - Rs.l500 Rs.1200 Rs.800
Municipality - Rs.2250 Rs.1500 Rs.lOOO
Municipal Corporations- Rs.2800 Rs.2OOO Rs.1200
In other cases, the licence fees as recommended vide Annexure 9.2 of the SFC Report has
been accepted.
Recommendation No:9(12)
"In the case of licences and permits, which are renewed periodically, 25% of the licence
fee may be collected as fine for delay beyond a grace period often days; this penalty may be
increased by 25% for every additional fortnight of delay."
Action Taken:
Recommendation No:9 (13)
"There must be compulsory display by LSGIs on the spot for various items of revenue and in
the case of auctions a district level public notice should be given in December about all the
forthcoming auctions."
Action Taken:
"For trade licences the present practice in Village Panchayats of calculation based a turnover
may be done away with and for both Village Panchayats and Urban Local Bodies, Government
could notify the minimum rates for each trade with separate rates in each category for small,
medium and large establishments."
Action Taken:
"A separate numbering system should be adopted for trade establishments."
Action Taken:
"The following fees may be enhanced,

(i) Building fee for Theatres.
(ii) Licence fee under the Kerala Places of Public Resort Act.
(iii) Licence fee for Private Markets
(iv) Licence fee for Private Slaughter Houses.
(v) Licence fee for Brokers, Commission Agents, Weigh men and Measurers
(vi) Licence fee for Butchers, Fishmongers, Poulterers.
(vii) Licence fee for premises where animals are kept for commercial purposes.
(viii) Market fee.
(ix) Gate fee for public halting and parking places.
(x) Gate fee for slaughterhouses.
(xi) User charges for burial grounds, burning ghats and electric crematoria
Action Taken:
Proposal has been accepted.
"The meat stalls and the right to fish in water bodies may be auctioned every year by the concerned
LSGIs after giving due publicity."
Action Taken:

" Village Panchayats may auction the right to set up temporary shops in public land just as
Urban Local Governments are doing so under Section 376 of the Kerala Municipality Act. "
Action Taken:
Recommendation has been accepted. It has also been decided that the maximum
period for occupation shall be limited to 15 days during each fair/festival taking
place in the local limit without any right over the land. Auction shall be for individual
shops. Permission for occupation of the land will be allowed only on furnishing a written
agreement in stamp paper of appropriate value to the effect that the temporary structure if any
put up by the licensee shall be removed by him. Failure to comply with this shall entail
removal of the structure by the local body concerned forfeiting his security amount and at
his risk and cost.
Recommendation No: 10:
Follow up of First SFC Recommendations.
Recommendation No.10(1):
"Rules for levy of Advertisement Tax in Village Panchayats and ULBs may be issued immediately"
Action Taken:
Recommendation has been Accepted (See decision 9(6) ). Local Self
Government Department is taking action.

"Steps to finalise minimum land value for use in registering sales may be completed at
the earliest."
Action Taken:
"Tax mapping may be done immediately and unique premises numbering system
introduced."
Action Taken:
Recommendation has been accepted. Local Self Government Department is taking
further action.
"A single financing agency for LSGIs may be set up by merging KUDFC and the Rural
Development Board."
Action Taken:
Recommendation has been accepted. Action is being taken by the Local Self
Government Department.

"50% of building exemption fees and regularization fees may be given to the concerned
Village Panchayats and ULBs."
Action Taken:
Recommendation has been accepted. Details are being worked out
''The question of Village Panchayats and ULBs levying daily fee for use of poramboke may be
examined and decided by Government without further delay."
Action Taken:
Recommendation has been accepted. Further action is being taken by the Revenue
Department.
"Rationalisation of Revenue Village and Village Panchayat/ULB boundaries may be done

in such a way that no revenue village would lie within more than one Village Panchayat or ULB."
Action Taken:
Government feels that the recommendation of the Commission can be Implemented
even without reducing the total number of villages. It has been accepted accordingly.
Further action will be taken by Revenue Department
"Shortfall in devolution of assigned and shared taxes vis-a-vis the accepted level may be made
good by Government."
Action Taken:
Recommendation has been accepted. Since the arrears have been almost cleared
further action is not necessary.
Recommendation No.11
Procedural Safeguards
Recommendation No. 11(1) :
"Necessary amendments to the Kerala Panchayat Raj Act and the Kerala Municipality Act may
be made to specify the minimum shares of LSGIs, of the Plan Grant, Maintenance Grant and General
Purpose Grant."
Action Taken:
Recommendation has been accepted. At present, the charges for noon-feeding for
pupils are met from the pro vision set apart under the head of account for Education
Department and the purchases are from Civil Supplies Corporation. Since difficulties are
being experienced both in the Education Department and LSGIs to settle accounts with the
Civil Supplies it has been decided that the fund may devolve to LSGIs. They may decide the
source of purchase subject to observation of rules.
Recommendation No.ll(2)
"LSGIs should get automatic allocations at the beginning of every month."
Action Taken:
It has been decided that the recommendation need not be pursued since Orders have
already been issued for ensuring automatic release of funds to the LSGIs by the Local Self
Government Department
"A survey of assets transferred to LSGIs as well as assets owned by them may be carried out
to calculate the standard spending assessment for maintenance purposes and the result of the study
should be utilized for devolution of maintenance funds."
Action Taken:
"A separate Budget document indicating LSGI-wise distribution of the three streams of
grants-in-aid and grants-in-aid for pensions and for noon feeding may be prepared. For other grants-
in-aid, district-wise figures may be indicated along with formula for devolving them to individual
LSGIs.
Action Taken;
Recommendation has been accepted. Planning Department is taking further action.
" A legislative provision may be introduced for indexing non-tax revenue items, and taxes
like Property Tax, Advertisement Tax and Service Tax. Two-yearly revisions are recommended
for non-tax licence items and Advertisement Tax based on Consumer Price Index for non-manual
workers for Thiruvananthapuram in the case of Urban Local Bodies and Consumer Price Index for
agricultural labourers for the state in the case of Village Panchayats; four-yearly revision may be
done for Professional Tax and Service Tax."
Action Taken:
"All proposals for staff creation should be cleared by the Ombudsman."
Action Taken:
It has been decided that this recommendation need not be pursed in view of the fact
that the size of Ombudsman has been reduced to one.
"A Local Government Staff Commission may be set up to suggest

redistribution of staff among LSGIs as well as from Government to LSGIs."
Action taken
"AH LSGIs should prepare annual maintenance Plans."
Action Taken:

"Unpermitted diversion of funds should be penalized by charging a penalty of two percent per
month from the persons responsible."
Action Taken:
"Village Panchayats, Municipalities and Corporations should have a single account for
crediting all their own revenues."
Action Taken:
Recommendation has been accepted,
"In the case of Plan Grant-in-aid and Maintenance Grant-in-aid, bill system of drawing from
treasuries should be introduced in the place of PD Accounts."
Action Taken:
On the basis of the decision of the Council of Ministers in agenda item No. 2O96
dated 2-7-2003 orders have already been issued in G. O(P) 381/2003/Fin dated 9-7-20O3 for
introducing bill system in the LSGIs with effect froml-4-2OO4. For 20O4-05, a special
dispensation has been made from June 2O04 till 30-9-2004.
"An Empowered Committee under the Chief Secretary may be set up to follow-up the accepted
recommendations and implement them fully."
Action Taken:
Recommendation No.12
"A Cell under the joint control of Finance and Local Self Government Departments may be
created for concurrent monitoring of all financial matters of LSGIs."
Action Taken:
"A Cell in the Finance Department is already monitoring all financial matters
of LSGL The Local Self Government Department will also be associated for
concurrent monitoring ".

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The Second State Finance Commission Report (2001), Kerala

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SECOND STATE FINANCE COMMISION

His Excellency the Governor of Kerala, Thiruvananthapuram

The State Finance Commission was constituted by Government of Kerala in their

Chapter 3 Overview of Local Government Finances

Chapter 5 The First State Finance Commission

Chapter 6 The Devolution and Inter Sc

Chapter 9 Enhancing Own Revenue of Local Self

Chapter 10 State Finances during the

Chapter 12 Procedural Safeguards

1. The State Finance Commission was appointed by Government of Kerala

in a notification dated 23rd June 1999. The Commission desires to submit

2. The State Finance Commission was ably assisted by a Secretariat headed

by Sri.V.Manikantan Nair, as its Secretary. The Commission extends

its thanks to the following officers of the secretariat of the Commission.

I. Shri.V.Manikantan Nair Secretary

2.Shri.M.V.Haridas Joint secretary

3. Shri.L.Sanal Kumar Joint Director (Panchayats)

4. Smt.A.K.Sasikala Joint Director (Municipalities)

5. Shri.RI.Raveendran Under Secretary

6. R.S.Rajan Nair Accounts Officer

7. Shri.K.G.Sadasivan Section Officer

15. Shri.B.Mohanan Typist

16. Shri.B.Rajendran Nair Typist

17. Smt.K.Ambika Confidential Assistanat

18. Shri.K.Thankappan Peon

19. Smt.C.Kumari Peon

20. Shri.P.B.Ajithkumar Peon

3. The Commission gratefully acknowledges the support it received from

Sri. S. Parameswaran Nair, Consultant, Municipalities and

Sri.K.Pushparajan , Consultant, Panchayats. The Commission has

greatly benefited from the experience and expertise of the consultants.

State Government and its various Departments and senior officials by

way of information, suggestions and valuable advice.

5. The Commission likes to offer special thanks to Smt.Shaheena, Assistant

Professor, Kerala Agricultural University and Dr. Vikas Rawal, Centre

econometric analysis of a vast volume of data and for the simulation

exercises they have done for the Commission. Dr.K.N.Harilal of

M.G.University, Kottayam, was kind enough to spare time for a number

of very helpful discussion.

6. The Commission also wishes to thank Dr. I.S.Gulati, Dr.T.M..Thomas

valuable suggestions, advice and guidance given by them.

7. The Commission likes to record its appreciation of the commendable work

DR. PRABHAT PATNAIK,

3.1 Distribution of population - Village Panchayats

3.7 Property Tax rates in ULBs

3.26 Grant-in-aid given to local governments for running Libraries

3.27 Loans availed by ULBs

10.4 Loans and Advance from Government of India 1990-91 to

1.2 Notification No. 48596/Admn.AI/2000/Fin, dated 26.7.2000

1.3 Visit of the commission to LSGIs of each type

1.4 Commission's discussions with Associations

1.5 Commission's discussions with Secretaries and Heads of

3.3 Details of Plan provisions to Panchayat Raj /

3.5.1 Total receipts (excluding grant-in-aid for peoples' plan

3.5.7 Share of each item under own revenue- Village Panchayats

3.5.8 Total expenditure of Village Panchayats for the years 1993-

3.6.1 Total receipts (excluding grant-in-aid for peoples' plan

1.1 Kerala has been following a unique trajectory of decentralisation

1.2 The First State Finance Commission for Kerala as envisaged

Dr. K.M. Abraham, Secretary to Member

Shri S.M.Vijayanand, Member

1.4 The Terms of Reference of the Commission as given in the

"The Finance Commission shall review the financial position of the