Consider, for example, the nature of the power and authority that local authorities have even after the mentioned changes to the constitution. In relation to the much-advertised power of local authorities in the area of economic development and social justice, there is again a structural limitation arising from the constitution itself. The extent of powers which local authorities could enjoy in relation to these subjects depended on the discretion of the respective State Governments.
The fact is that the local bodies can have no say over the state's regulatory functions. Even after the constitutional amendments, the reality is that the local bodies do not form part of the state7 in the true sense of the word. It has incorporated relevant amendments in Article 280 of the Constitution so that the issue of fiscal devolution to the local bodies from the State Consolidated Fund can be duly considered.
One problem with the financing of the local authorities is that there is hardly any reliable information about the existing financial situation of these authorities. The revenues of the local authorities fall into two main categories, namely own revenues and intergovernmental transfers. User fees and charges are the source of revenue in virtually every level of the Local Entities.
But then the income base for the intermediate levels of the PRI is quite narrow.
Fiscal Devolution: Inter Governmental Transfer
In 1992-93, the revenue expenditure for compensation and transfers to local bodies as a percentage of the state's total revenue expenditure had been 1.34 per cent. However, further analysis of the data indicates that there is wide variation between states in terms of interstate transfers to local bodies. A better measure, especially for studying the relative performance, would be the ranking of the states according to the average rank scores on decentralization per population for the period examined.
Rajasthan, Assam and Haryana are the other states in which the per capita transfer from the consolidated state fund did not register significant progress (Table 4). On the other hand, Rajasthan, which ranked second in terms of measure of lack of volatility in period 1, had an average per capita transfer of only Rs 2.78. We will now examine the performance of States on this twin measure.
In fact, such a measure would be a better indicator of the relative importance that local bodies are getting in the disbursement of funds from the respective state governments. It is understood that the weight of local bodies has increased after the reforms, but not at a very high rate. 6(a), there is a clear indication in the all India data that the trend in the percentage of state fund transferred to local bodies should have a break in 1996-97.
If we look at the performance of the states in two different periods in terms of rank average scores in terms of the percentage of state fund transferred to local bodies in a given period, West Bengal's performance appears to have been the best in the pre-reform period (Table 8). Comparing the results from Table 4, it appears that the ranking in terms of per capita deconcentration to local bodies was consistently better than the ranking in terms of percentage of funds transferred from the national budget for some states (Karnataka, Himachal Pradesh and Punjab). The volatility of countries in the matter of fiscal deconcentration can be captured by considering the coefficient of variation of the percentages of decentralization.
West Bengal had the least volatility of deconcentration per capita, but the state ranked 7th in terms of coefficient of variation in percentage of state fund transferred to local bodies. Taking into account the performance of federal states in terms of the percentage of state funds transferred to local authorities, we can analyze the data in Table 9 according to this approach. This highlights the fact that the average percentage transferred to local bodies for different states has not maintained consistency, except in the case of Haryana, which performed poorly in the pre-reform years.
If we consider the performance of the states in terms of average deconcentration per capita over a period and the percentage of state fund transferred to local bodies, it turns out that on the basis of the performance of the states over the entire period of 11 years, Madhya Pradesh should be considered as the "best" among them. It was the country that ranked 3rd in per capita decentralization rate among the 16 major states of India and 4th in per capita coefficient of variation of decentralization.
Concluding Observations
A further analysis of the data indicates that the Constitutional amendments (73rd and 74th) did have a positive impact on the act of financial devolution to the Local Bodies. A trend break in the data is observable by 1996-97 in the case of both per capita deviation and the share of the local bodies in the Consolidated Fund of the State. The data also indicate that the growth rates in the share of the Local Bodies have a tendency to converge (weak but statistically significant).
However, the growth rates of the transferred fund share have developed a tendency towards convergence. Considering the average deconcentration per capita and its coefficient of variation along with the average of the percentages transferred to local bodies over the entire period of 11 years and their coefficient of variation, we observe that the best performing state was Madhya Pradesh. Bihar, Haryana, Assam and Orissa are states where local bodies have not received the benefits of constitutional mandate in the way other states have.
Such a device created many positive externalities, as evidenced by the economy of the East Calcutta wetlands. 5 Following the Amendment Acts, which came into force in 1993, the Provincial Governments in India introduced the Conformational Acts to implement the provisions of the Constitutional Amendment Acts in the functioning of the State Governments with a third tier, i.e. the Local Bodies , to include. However, the predominant option is that the local bodies do constitute a level of government, see Indira Rajaraman, et al.
11 The index had a weight of 20 percent in the formula used to determine the state's share of the annual provision. However, the quality of the baseline data in both studies remained open to criticism. 21 Again, the minimum and maximum rates of such taxes are dictated by States, limiting the freedom of local authorities to levy such taxes.
24 At the time the Eleventh Finance Commission submitted its report, Bihar, Goa, Gujrat and Haryana were the four main states where no SFC 1 report had been submitted at all. The state population for each year (except 2001–2002) was taken based on the estimated population growth rate between 1991 and 2001. As the tax base was expanded, there may have been a need for deconcentration from the consolidated state fund. declined there.
But then Rajasthan is also the state where the revenue expenditure of the local governments as a percentage of the state's revenue expenditure was very poor. Speech at the National Seminar on Panchayati Raj Finance, January 23, 2004, Downloaded PDF file.
