Sixth Punjab Finance Commission Report

REPORT OF THE SIXTH
PUNJAB FINANCE COMMISSION
MARCH, 2022
SIXTH PUNJAB FINANCE COMMISSION
GOVERNMENT OF PUNJAB
CHANDIGARH
CONTENTS
Contents i-vi
List of Abbreviations vii-x
List of Tables xi-xvii
List of Figures xviii-xxi
List of Boxes xxii-xxiii
CHAPTERS
Title Page No
Chapter 1: Introduction 1-10

Terms of Reference of 6th Punjab Finance Commission 2
Administrative Changes that Occurred during the Tenure of the 4

Commission
Design of the Report 9
Chapter 2: Approach, Issues and Methodology 11-18

Methodology 14
Collection of Information/Data 14
Statistical Tools Used 15
Questionnaire for Seeking Views of Stakeholders 16
Consultations with Stakeholders 17
Constitution of Committees and Study Sponsored 17
Meetings with Chief Minister and Concerned Ministers, Punjab 17
Meetings of Commission 18
Chapter 3: The Economy 19-40

Slowdown of Economic Growth 26
i
Title Page No
Fatigue among Growth Drivers 28
Declining Development Expenditure 29
Declining Per Capita Income 31
Structural Transformation of Economy 33
Future Growth Potential 38
Conclusion 39
Chapter 4: State Finances 41-90

Introduction 41
Assessment of State Finances 42
Public Debt and Its Sustainability 72
State Public Enterprises 74
Public Assets Management 75
Key Insights 76
Emerging Pain Points 79
Roadmap for Fiscal Consolidation 81
Chapter 5: Centre-State Fiscal Relations 91-108

Recent Developments in Centre-State Fiscal Relations 91
Vertical Fiscal Imbalances (Union vs. States)
CFCs’ Horizontal Devolution Criteria: Striving for Equity and 92
Efficiency
State (s) and the 15th CFC 98
Suggested Action by Government of Punjab 107
Chapter 6: A Review of the Status of Decentralised 109-128

Governance and Devolution
Functional Devolution to PRIs 110
Dominance of Parastatal Bodies/Agencies 115
ii
Title Page No
Conclusions and Recommendations 116
Financial Devolution 118
Recommendations 120
Administration Devolution 126
Chapter 7: Finances of Panchayati Raj Institutions 129-160

(PRIs)
Introduction 129
Comparative Analysis of PRIs and Their Finances: Where Punjab 132

Stands?
Key Takeaways 139
Structure and Main Features of PRIs Finances 140
Analysis of Punjab PRI Finances 154
Recommendations 156
Chapter 8: Municipal Finances 161-208

Introduction 161
Present Status of Urban Local Governments 163
Taxation Powers of ULBs in Punjab 164
Structure of Municipal Finances (All-India) 166
Key Takeaways of Municipal Finances (All-India) 170
Comparative Analysis of Municipal Finances: Where Punjab 171

Stands?
Conclusions 181
Structure and Main Features of Municipal Finances in Punjab 183
Analysis and Key Takeaways 188
Recommendations to Improve Financial Position of 193

Municipalities
iii
Title Page No
Chapter 9: Assessment of the Gap in Financial 209-258

Resources and Scheme of Devolution
Assessment of the Gap in Financial Resources 211
Composition of the Divisible Pool 214
Recommendations 218
Quantum of Divisible Pool (Vertical Devolution) 219
Poor Implementation of Recommendations of SFCs 229
Recommendations 232
Horizontal Distribution between PRIs and ULBs 234
Recommendations 240
Grants-in-Aid to Panchayats/Municipalities 244
Summary of Divisible Pool 245
Inter-Se Distribution between Panchayats and Municipalities 246
Recommendations 251
Summary 252
Measures Needed to Improve Financial Position of 256

Panchayats/Municipalities
Chapter 10: Reinventing the Government 259-296

Reinventing Government 259
Unplanned Infrastructure and Human Resource Development 263
Attrition of the Consolidated Fund of the State (CFS) 265
Unlocking Land Values to Finance Urban Infrastructure 267
Low Value Capturing Finance in Punjab 269
Paradigm Change in Urban Planning 270
Budgeting and Fiscal Responsibility Legislation (FRL) 280
iv
Title Page No
Fiscal Responsibility Legislation (FRL) & its Enforcement 285
Strengthening the State Finance Commission 290
Establishment of Punjab Institute of Public Finance and Policy 291

(PIPFP)
Creation of Integrated and Reliable Data Bank 292
Acknowledgements and Thanks 297-299
References 300-307
LIST OF ANNEXURES
Annexure Description Page No
Annexure- A-1
Constitution of the 6th Punjab Finance Commission
1A
Annexure- Extension of the tenure of the 6th Punjab Finance A-3

1B Commission up to March 31st, 2021

1C Commission up to December 31st, 2021

1D Commission up to March 31st 2022
Annexure- Appointment of Dr. G. Vajralingam, IAS (Retd.) as A-6

1E full-time Member Secretary of the Sixth Punjab
Finance Commission
Annexure- Questionnaire for Seeking Views of Concerned A-7

2A Departments/Public Sector Undertakings, Policy
Makers, Experts from Different Fields, Stakeholders
and Public at large for Augmenting Resources and
Improving Delivery and Quality of Services by PRIs
and ULBs in Punjab
Annexure- Constitution of the Metropolitan Planning A-13

6A Committees (MPCs) for the Districts of SAS Nagar,
Amritsar, Bathinda, Ludhiana, Jalandhar, Moga,
Kapurthala and Pathankot to provide for Consistent
and Integrated Planning For Contiguous Geographic
Areas
v
Annexure Description Page No
Annexure- The Present Status of Powers Assigned to the ULBs A-16

6B and Their Implementation
Annexure- ATR Presented by the State Government to State A-20

6C Legislature
Annexure- State-wise Tax and Non-Tax Revenue Handles A-23

7A Assigned to PRIs at each tier
Annexure- Latest Property Tax Rates across Municipal A-40

8A Corporations in Punjab
Annexure- Latest Property Tax Floor Rates across Municipal A-42

8B Councils and Nagar Panchayats in Punjab
Annexure- A-44
Notification of Municipal Corporation, Chandigarh
8C
Annexure- SFCs Major Recommendations and Action Taken A-46

9A Report (ATR) of SFCs of Different States
Annexure- Details of Value Capture Methods Adopted and A-63

10A Used by Major States/ULBs in India
vi
LIST OF ABBREVIATIONS
S. No. Abbreviation Description
1 ADC Additional Deputy Commissioner
2 AICTE All India Council for Technical Education
3 As Actuals
4 ATR Action Taken Report
5 BC Backward Class
6 BEs Budget Estimates
7 CAA Constitutional Amendment Act
8 CAG Comptroller and Auditor General
9 CBO Congressional Budget Office
10 CCL Cash Credit Limit
11 CFC Central Finance Commission
12 CFS Consolidated Fund of State
13 CGR Compound Growth Rate
14 CHC Community Health Centre
15 CRRID Centre for Research in Rural and Industrial Development
16 CSS Centrally Sponsored Scheme
17 DC Deputy Commissioner
18 DDPO District Development and Panchayat Officer
19 EMI Equated Monthly Installment
20 ESO Economic and Statistical Organisation
21 FAR Floor Area Ratio
22 FC Finance Commission
23 FCI Food Corporation of India
24 FDI Foreign Direct Investment
vii
25 FFC Fifteenth Finance Commission
26 FRBM Fiscal Responsibility and Budget Management
27 FRL Fiscal Responsibility Legislation
28 FSI Floor Space Index
29 FY Financial Year
30 GDP Gross Domestic Product
31 GIS Geographic Information System
32 GLADA Greater Ludhiana Area Development Authority
33 GMADA Greater Mohali Area Development Authority
34 GoI Government of India
35 GoP Government of Punjab
36 GP Gram Panchayat
37 GRR Gross Revenue Receipts
38 GSDP Gross State Domestic Product
39 GST Goods and Services Tax
40 GTR Gross Tax Revenue
41 HoD Head of Department
42 HRD Human Resource Development
43 HUDA Haryana Urban Development Authority
44 IAS India Administrative Service
45 IGST Integrated Goods and Services Tax
46 IMF International Monetary Fund
47 IMFR Indian Municipal Finance Report
48 IT Information Technology
49 MFDIS Modernization Fund for Defence and Internal Security
viii
50 MLA Member of Legislative Assembly
51 MP Member of Parliament
52 MPC Metropolitan Planning Committee
53 NABARD National Bank for Agriculture and Rural Development
54 NDP Net Domestic Product
55 NDRMF National Disaster Risk Management Fund
56 NIPFP National Institute of Public Finance and Policy
57 NITI National Institution for Transforming India
58 NREGA National Rural Employment Guarantee Act
59 O&M Operation and Maintenance
60 OBC Other Backward Class
61 OECD Organization for Economic Cooperation and Development
62 OTR Own Tax Revenue
63 PMO Prime Minister’s Office
64 PA Pre-Actual
65 PAN Permanent Account Number
66 PFC Punjab Finance Commission
67 PHC Primary Health Centre
68 PIDB Punjab Infrastructure Development Board
69 PIPFP Punjab Institute of Public Finance and Policy
70 PMA Punjab Municipal Act
71 PMCA Punjab Municipal Corporation Act
72 PPP Public Private Partnership
73 PRI Panchayati Raj Institution
74 PS Panchayat Samiti
ix
75 PSC Punjab Statistical Commission
76 PSU Public Sector Undertaking
77 PUDA Punjab Urban Development Authority
78 PWSSB Punjab Water Supply and Sewerage Board
79 RBI Reserve Bank of India
80 RDF Rural Development Fund
81 REs Revised Estimates
82 SC Scheduled Caste
83 SDG Sustainable Development Goal
84 SDRMF State Disaster Risk Management Fund
85 SFC State Finance Commission
86 SGST State Goods and Services Tax
87 ST Schedules Tribe
88 ToR Terms of Reference
89 TPS Town Planning Scheme
90 UDA Urban Development Authority
91 ULB Urban Local Body
92 UPN Unique Premises Number
93 VAT Value Added Tax
94 VCF Value Capture Finance
95 ZP Zila Parishad
x
LIST OF TABLES
No. Title Page No
Table 3.1 Average Annual Growth Rate of Punjab Economy vs. Indian 27
Economy
Table 3.2 Total Budgetary Expenditure on Revenue Account in Punjab 30

(Rs. Crore)
Table 3.3 Changes in Per Capita GSDP Ranking of Major States 32
Table 3.4 Sector-Wise Percentage Shares in GSDP 33
Table 3.5 Changing Sectoral Composition of Punjab Economy by Major 35

Sectors, 1970-71 to 2020-21 (A)
Table 3.6 Percentage Shares of Different Sectors of Punjab Economy, 36

1970-71 to 2020-21 (A)
Table 3.7 Sector-Wise Composition of GDP/GSDP and Employment (%) 37
Table 4.1 Key Fiscal Indicators - Punjab State vs. General States, 2018- 43
19
Table 4.2 Key Fiscal Indicators of Punjab, 2011-12 to 2020-21 (PA) 44
Table 4.3 Major Fiscal Indicators/Ratios of State Finances in Punjab, 48

2011-12 to 2020-21 (PA)
Table 4.4 Comparative Picture of Fiscal Deficit and Revenue Deficit 53

across Major Indian States
Table 4.5 Comparison of Per Capita Own Tax Revenue and Tax 56
Buoyancy across Major Indian States
Table 4.6 Comparison of Per Capita Revenue Expenditure across Major 60

Indian States
Table 4.7 Comparison of Per Capita Debt and Debt-GSDP Ratio across 65
Major Indian States
Table 4.8 Comparison of Capital Expenditure and Capital Outlay across 68

Major Indian States
Table 4.9 Composition of Outstanding Debt of Punjab by March End of 73

Each Year (Rs. Crore)
xi
No. Title Page No
Table 4.10 Deficit and Debt as Percentage of GSDP in Punjab 77
Table 4.11 Extent of Gross Debt and Servicing of Debt in Punjab 77
Table 4.12 Key Fiscal Indicators - Punjab State vs. General States, 2018- 78
19
Table 4.13 Indicative Deficit and Debt Path of the State Governments 81
(%age of GSDP)
Table 4.14 Revenue Deficit (+)/Surplus (-) of the States 82
Table 4.15 Recommended Fiscal Scenario for Punjab, 2021-22 to 2025-26 85
Table 5.1 Criteria and Weights (%) Used for Horizontal Devolution by 92
Different CFCs
Table 5.2 Changing Pattern of Inter-Se Shares of States during 12th CFC 93
to 15th CFC
Table 5.3 Grants-in-Aid Recommended to Local Bodies by 15th CFC 94

(Rural vs. Urban)
Table 5.4 Growing Share of Cesses & Surcharges in Gross Tax Receipts 99
of Central Government
Table 5.5 Gross Tax Revenue, Non-Tax Revenue and Divisible Pool of 99
Central Government
Table 5.6 Gist of Explanatory Memorandum and Action Taken Report on 104
Recommendations of 15th CFC
Table 6.1 Department-Wise Subjects/Functions Devolved to PRIs in 112

Punjab as Per 11th Schedule
Table 6.2 Size of the Divisible Pool and Actual Release of Funds in 121
Punjab (1st SFC to 5th SFC)
Table 6.3 Status of Compensatory Payments Released to ULBs in Punjab 124

(Rs Crore)
Table 6.4 Number of ULBs by Type, Population Size, Per ULB 127
Population and Area
Table 6.5 Number of PRIs by Type, Population Size, Per PRI Population 128
and Area
xii
No. Title Page No
Table 7.1 Total Numbers of Panchayats across Major States of India, 1st 133
April, 2019
Table 7.2 State-Wise Percentage Distribution of Gram Panchayats by 134

Population Size
Table 7.3 Tier-Wise Expenditure of PRIs across Major States, Average of 135
2012-13 to 2017-18
Table 7.4 Tier-Wise Own Revenue Collections of Panchayats, Average 136

of 2012-13 to 2017-18
Table 7.5 Financing Pattern of Expenditure Incurred by PRIs across 137

Major States, Average of 2012-13 to 2017-18
Table 7.6 Share of Each State in Total Grants-in-Aid Allocated to 138

Panchayats by CFCs, 10th CFC to 15th CFC
Table 7.7 Tier-Wise Finances of Panchayats Raj Institutions in Punjab, 141

2015-16 to 2020-21 (Rs. Crore)
Table 7.8 Revenue Receipts of All Gram Panchayats in Punjab 142

(Rs. Crore)
Table 7.9 Percentage Distribution of Revenue Receipts of All Gram 143

Panchayats in Punjab (%)
Table 7.10 Revenue Receipts of Panchayat Samitis in Punjab (Rs. Crore) 144
Table 7.11 Percentage Distribution of Revenue Receipts of Panchayat 145

Samitis in Punjab (%)
Table 7.12 Revenue Receipts of Zila Parishads in Punjab (Rs. Crore) 146
Table 7.13 Percentages Distribution of Revenue Receipts of Zila Parishads 147

in Punjab (%)
Table 7.14 Distribution of Expenditure Incurred by Gram Panchayats in 148

Punjab, 2015-16 to 2020-21 (Rs. Crore)
Table 7.15 Percentage Shares of Expenditure Incurred by Gram 149

Panchayats in Punjab
Table 7.16 Distribution of Expenditure Incurred by Panchayat Samitis in 150

xiii
No. Title Page No
Table 7.17 Percentage Distribution of Expenditure Incurred by Panchayat 151

Table 7.17 Percentage Distribution of Expenditure Incurred by Panchayat 151

Table 7.18 Distribution of Expenditure of Zila Parishads in Punjab, 2015- 152

16 to 2020-21
Table 7.19 Percentage Distribution of Expenditure Incurred by Zila 153

Parishads (%)
Table 7.20 Per Capita Receipts and Expenditure of PRIs in Punjab (Rs.) 154
Table 8.1 Structure of Urban Local Bodies in Punjab 163
Table 8.2 Number of ULBs by Population Size and Area (Sq. Km.) 164
Table 8.3 Municipal Finance Indicators (% of GDP) 166
Table 8.4 Per Capita Total Municipal Revenue of All ULBs across Major 172
States, 2011-12 to 2017-18 (Rs.)
Table 8.5 Per Capita Own Revenue of All ULBs by Major States, 2011- 173
12 to 2017-18 (Rs.)
Table 8.6 Per Capita Property Tax Revenue of All ULBs by Major States, 174
2011-12 to 2017-18 (Rs.)
Table 8.7 Per Capita Total State Transfers of All ULBs by Major States, 175
2011-12 to 2017-18 (Rs.)
Table 8.8 Per Capita Total Central Transfers of All ULBs by Major 176
States, 2011-12 to 2017-18 (Rs.)
Table 8.9 Per Capita Total Expenditure of All ULBs by Major States, 177
2011-12 to 2017-18 (Rs.)
Table 8.10 Per Capita Revenue Expenditure of All ULBs across Major 178
States, 2011-12 to 2017-18 (Rs.)
Table 8.11 Per Capita Capital Expenditure of All ULBs across Major 179
States, 2011-12 to 2017-18, (Rs.)
Table 8.12 Population, Area, Per Capita Tax Revenue, Per Capita Property 180
Tax and Per Capita Non-Tax Revenue of 24 Municipal
Corporations (>10 Lakh Population) across Different States
xiv
No. Title Page No
Table 8.13 Per Capita Revenue and Capital Expenditures of 24 Municipal 181
Table 8.14 Municipal Finances in Punjab, 2016-17 to 2020-21 183
Table 8.15 Main Components of Total Municipal Revenue in Punjab, 183

2016-17 to 2020-21 (Rs. Crore)
Table 8.16 Percentage Share of Main Components of Total Municipal 184

Revenue in Punjab, 2016-17 to 2020-21 (%)
Table 8.17 Per Capita Municipal Revenue (Rs.) in Punjab by Major 185
Source, 2016-17 to 2020-21
Table 8.18 Arrears of House/Property Tax. Rent/Lease Money and Water 185
Supply & Sewerage Charges
Table 8.19 Total Municipal Expenditure in Punjab by Major Items, 2016- 186
17 to 2020-21 (Rs. Crore)
Table 8.20 Per Capita Municipal Expenditure (Rs.) in Punjab by Major 187
Head, 2016-17 to 2020-21
Table 8.21 Outstanding Debt and Other Liabilities of ULBs in Punjab 187
(Rs. Crore)
Table 8.22 Municipal Finance Indicators in Punjab (%age of GSDP) 188
Table 8.23 O & M Expenditure of Water Supply & Sewerage and Its Cost 191
Recovery, 2016-17 to 2020-21
Table 9.1 Composition of Divisible Pool in Punjab 215
Table 9.2 Composition of Divisible Pool across Major States 216
Table 9.3 Quantum of Divisible Pool in Punjab (1st SFC to 5th SFC) 220
Table Recommended Divisible Pool, Actual Amount Due and Actual 220
9.3(A) Release of Funds to Local Bodies in Punjab (1st SFC to 5th
SFC)
Table Recommended Amount and Actual Release of Share of Excise 221

9.3(B) Duty & Auction Money to Local Bodies in Punjab (1st SFC to
5th SFC)
Table Total Recommended Devolution*, Actual Due, Actual 221

9.3(C) Released and Shortfall in Punjab (1st SFC to 5th SFC)
xv
No. Title Page No
Table 9.4 CFCs’ Recommended Grants-in-Aid, Actual Release and 222

Shortfall in Punjab (10th CFC to 15th CFC (2020-21)
Table 9.5 Total Recommended Devolution by SFCs of Different States 223

(Rs. Crore)
Table 9.6 Recommended Devolution as Percent of States' Own Revenue 224

Receipt
Table 9.7 Recommended Devolution as Percent of States' Own Tax 225

Revenue
Table 9.8 Per Capita Devolution Recommended by SFCs 226
Table 9.9 Devolution Recommended by Different Punjab SFCs and All- 227
States Average
Table 9.10 Ranking of States by Devolution Index (2014-15) and Average 227
Per Capita SFC Devolution (2011-16)
Table 9.11 Recommended Divisible Pool, Actual Amount Due and Actual 229
Release of Funds to Local Bodies in Punjab (1st SFC to 5th
SFC)
Table 9.12 Projected Size of Divisible Pool with Yearly Component-Wise 233
Break Up in Punjab, 2021-22 to 2025-26
Table 9.13 Horizontal Distribution between PRIs and ULBs in Punjab (1st 234
SFC to 5th SFC)
Table 9.14 Horizontal Distribution between PRIs and ULBs (in %) 235
Table 9.15 Criteria Adopted by 14th CFC for Determining Share of States’ 236
Local Bodies
Table 9.16 Criteria Adopted by 15th CFC for Determining Share of States’ 237
Local Bodies
Table 9.17 Horizontal Distribution of Tax Devolution (@3.5% Share of 241

NOTR) between PRIs and ULBs in Ratio of 55: 45 in Punjab
during 2021-22 to 2025-26
Table 9.18 Assignment and Appropriation of Taxes, etc. in Punjab (1st 241
SFC to 5th SFC)
Table 9.19 Assignment and Appropriation of Taxes, etc. in Other States 242
xvi
No. Title Page No
Table 9.20 Horizontal Distribution of Taxes Assignment/ Apportionment 243

between PRIs and ULBs in Punjab (2022-23 to 2025-26)
Table 9.21 Recommended Grant-in-aid to Panchayats and Municipalities 244
Table 9.22 Horizontal Distribution of Recommended Grants-in-Aid 245

between PRIs and ULBs in Punjab (2021-22 to 2025-26)
Table 9.24 Inter-se Distribution of Funds to Different Tiers of PRIs and 247
ULBs in Punjab (1st SFC to 5th SFC)
Table 9.25 Inter-Se Distribution Criteria amongst Different Tiers of PRIs 248
by Major States
Table 9.26 Inter-Se Distribution Criteria amongst Different Tiers of ULBs 249
by Major States
Table 9.27 Inter-Se Distribution Criterion adopted by14th CFC and 15th 250
CFC
Table 9.28 Inter-Se Distribution across GPs 251
Table 9.29 Inter-Se Distribution Between ULBs 252
Table 9.31 Horizontal Distribution of Divisible Pool between PRIs and 254
ULBs in Punjab, 2021-22 to 2025-26
Table 9.32 Inter-Se Distribution across GPs 255
Table 9.33 Inter-Se Distribution Between ULBs 255
Table 10.1 Off-Budget Transactions in Punjab during 2020-21, (Rs. Crore) 266
Table 10.2 Comparison of BE, RE and Actual Budgetary Figures of 280

Punjab, 2011-12 to 2020-21
xvii
LIST OF FIGURES
No. Title Page No
Figure 3.1 Basic Indicators 19
Figure 3.2 Growth Rate of GSDP (at Current Prices, %) 20
Figure 3.3 Per Capita GSDP (at Current Prices) 20
Figure 3.4 GSDP at Current Prices, 2011-12 Series (Rs. Crore) 21
Figure 3.5 Sectoral Contribution to GSDP in Punjab (at Current Prices, 21

%)
Figure 3.6 SDG Index of NITI Aayog (2019) 22
Figure 3.7 Key Social Indicators 22
Figure 3.8 Poverty Reduction (Percentage Points) between FY2005 and 23

FY2012
Figure 3.9 Persons (‘000s) Per Allopathic and AYUSH Doctor 23
Figure 3.10 Persons (‘000s) Per Sub-Centre/PHC/CHC 24
Figure 3.11 Persons (‘000s) Per Nurse/Pharmacist 24
Figure 3.12 Persons (lakh) Per Government Hospital and Persons (‘000) 25
Per Bed
Figure 3.13 Compound Growth Rate of Punjab vs. Indian Economy, 27

1970-71 to 2019-20
Figure 3.14 CGR of Indian Economy vs. Punjab Economy, 1970-71 to 28

2019-2020
Figure 3.15 Percentage Share of Development and Non-Development 31

Expenditures on Revenue Account in Punjab
Figure 3.16 Changes in Per Capita GSDP Ranking of Major States 32

between 12th CFC (Triennium Average Ending 2001-02)
and 15th CFC (Triennium Average Ending 2018-19)
Figure 3.17 Sector-Wise Percentage Shares in GSDP of Punjab 34
Figure 3.18 State Reform Pathway: Reduce Scope, Improve Capability, 40

Increase Effectiveness
xviii
No. Title Page No
Figure 4.1 Deficits (Absolute) and as Proportion of GSDP of Punjab 45
Figure 4.2 Outstanding Debt (Absolute) and as Proportion of GSDP of 45

Punjab
Figure 4.3 Committed Expenditure (Absolute) and as Proportion of 46

Total Revenue Expenditure of Punjab
Figure 4.4 Own-Tax Revenue (Absolute) and as Percentage of GSDP of 46

Punjab
Figure 4.5 Non-Tax Revenue (Absolute) and as Proportion of GSDP of 47

Punjab
Figure 4.6 Capital Expenditure (Absolute) and as Proportion of GSDP 47

of Punjab
Figure 4.7 Central Taxes and Central Grants as Proportion of GSDP 49
Figure 4.8 Total Revenue Receipts as Proportion of GSDP 49
Figure 4.9 Revenue Deficit as Proportion of Fiscal Deficit 50
Figure 4.10 Committed Expenditure as Proportion of Total Revenue 50

Receipts
Figure 4.11 Wages/Salaries, Interest Payments and Pensions as 51

Proportion of Total Revenue Receipts

Proportion of Total Revenue Receipts

Proportion of Own-Tax Revenue
Figure 4.14 Power Subsidy as proportion of Own-Tax Revenue and 52

Power Subsidy as proportion of Own-Tax Revenue and Own
Non-Tax Revenue
Figure 4.15 Comparison of Per Capita Fiscal Deficit across Major States 54
for Year 2011-12 and 2018-19 RE
Figure 4.16 Comparison of Per Capita Revenue Deficit across Major 55

States for Year 2011-12 and 2018-19 RE
Figure 4.17 Comparison of Per Capita Own Tax Revenue across Major 57
xix
No. Title Page No
Figure 4.18 Comparison of Own-Tax Revenue/GSDP Ratio across 58

Major States for the Year 2011-12 and 2018-19 RE
Figure 4.19 Comparison of Own Tax Buoyancy Coefficient across Major 59

States for Year 2001-02 to 2010-11 and 2011-12 to 2018-19
Figure 4.20 Comparison of Per Capita Wages/Salaries across Major 61

States for the Year 2011-12 and 2018-19 RE
Figure 4.21 Comparison Per Capita Interest Payments across Major 62

States for the Year 2011-12 and 2018-19 RE
Figure 4.22 Comparison of Per Capita Pensions across Major States for 63
the Year 2011-12 and 2018-19 RE
Figure 4.23 Comparison of Per Capita Subsidies across Major States for 64
Year 2011-12 and 2018-19 RE
Figure 4.24 Comparison of Per Capita Debt across Major States for the 66
Year 2011-12 and 2018-19 RE
Figure 4.25 Comparison of Debt-GSDP Ratio across Major States for the 67
Year 2011-12 and 2018-19 RE
Figure 4.26 Comparison of Per Capita Capital Expenditure across Major 69

Figure 4.27 Comparison of Per Capita Capital Outlay across Major 70

Figure 4.28 Comparison Capital Outlay/Capital Expenditure Ratio across 71

Major States for Year 2011-12 and 2018-19 RE
Figure 4.29 Revenue Deficit as % of GSDP 86
Figure 4.30 Fiscal Deficit as % of GSDP 86
Figure 5.1 Percentage Differences in Horizontal (Inter-Se) Shares of 95

Major States, 12th CFC vs. 15th CFC
Figure 5.2 Changing Inter-Se Share of Punjab in Tax Devolution from 96

5th CFC to 15th CFC
Figure 5.3 Divisible Pool as Percentage of Gross Tax Receipts (GTR) 100
and Gross Revenue Receipts (GRR)
Figure 8.1 Municipal Revenue and Municipal Expenditure (% GDP) 166
xx
No. Title Page No
Figure 8.2 Municipal Tax Revenue, Non-Tax Revenue and Own 167
Revenue (%)
Figure 8.3 Municipal Own Revenue and Inter-Governmental Transfers 167

(% of Total Municipal Revenue)
Figure 8.4 Per Capita Total Municipal Revenue Receipts: 2017-18 (Rs) 168
Figure 8.5 Per Capita Municipal Own Revenue Receipts: 2017-18 (Rs.) 168
Figure 8.6 CFC Grants Per Capita: 2017-18 (Rs.) 169
Figure 8.7 Per Capita State Transfers to ULBs: 2017-18 169
Figure 8.8 CFCs’ Grants to ULBs in Punjab: Recommended vs. Actual 189
Release (Rs. Crore)
Figure 8.9 SFCs’ Tax Devolution to ULBs in Punjab: Recommended 190

vs. Actual Release (Rs. Crore)
Figure 10.1 Institutional Framework for Better Governance for Service 274
Delivery by State Government
Figure 10.2 Urban Local Government 274
Figure 10.3 Missing Convergence in Urban Planning 275
Figure 10.4 Reforms in Systems of Delivery 275
xxi
LIST OF BOXES
S.No. Description Page No
Box 1.1 Essence of 73rd and 74th CAAs, 1992 5
Box 3.1 Balanced Output and Employment Structure in Punjab 37
Box 4.1 Potential for Additional Financial Resource Mobilization in 88

Punjab
Box 4.2 From Empty Coffers to Zero Pending Bills 89
Box 5.1 Vertical Fiscal Imbalances between Union and State 91

Government, 2018-19
Box 5.2 Rising Vertical Share of States in Divisible Pool 92
Box 7.1 Classification of Functions of Panchayats (29 Subjects) 130

listed in 11th Schedule of the Constitution
Box 7.2 Taxation Powers of Gram Panchayats 131
Box 7.3 Taxation Powers of Panchayat Samitis 132
Box 7.4 Taxation Powers of Zila Parishads 132
Box 8.1 An Indicative List of Municipal Finances in Punjab 194
Box 8.2 Salient Features of Property Tax (February 14, 2021) 197
Box 8.3 Salient Features of Punjab Municipal Outdoor 201

Advertisement Policy-2018
Box 8.4 Current Service Fees/Charges Levied by Department of 205

Local Government
Box 8.5 Template of Services Provided Free by Department of Local 207

Government, Punjab
xxii
S.No. Description Page No
Box 10.1 Basic Features of Reinventing Government 262
Box 10.2 Value Capture Methods, Frequency Incidence and Scale of 268
Intervention
Box 10.3 Reforms in Urban Planning Capacity in India 278
Box 10.4 New Vistas for Urban Planning: Central Budget 2022-23 279
Box 10.5 US Congressional Budget Office (CBO) 285
Box 10.6 Transparency and Reporting Rules Envisaged under State 288
FRLs
xxiii
Chapter 1
Introduction
(73rd and 74th CAAs — Perestroika for improving Local Bodies)
1.1 Government of India enacted 73rd and 74th Constitutional

Amendment Acts (CAAs) during 1992 for Panchayats and Municipalities,
respectively, which is verily considered one of the most significant and
revolutionary steps in the governance history of local bodies. These acts
empower these bodies to function as institutions of self-government in the
matter of making plans, implementation and in all other matters falling in
their purview. These amendments bestow the PRIs and ULBs with
constitutional status; empower them to perform a large number of
developmental and welfare functions; and allow them to raise own
resources through imposing user charges, taxes, duties, tolls and fees, etc.
1.2 These acts, in fact, have the potential to lead these bodies to
the new heights of democratic decentralisation through wide-ranging
provisions for holding regular elections; adequate representation to weaker
sections (SCs/STs, BCs and women); functional autonomy in raising
finances; arrangements for revenue sharing and empowering them to make
socio-economic plans at local levels as per the felt needs and aspirations of
local people/communities. Abiding by these CAAs, all state governments
either enacted the new laws or amended the existing laws for empowering
the local bodies.
1.3 As a follow up of these CAAs, Punjab enacted a
comprehensive law, namely, Punjab Panchayati Raj Act, 1994 for the PRIs
and the Punjab Finance Commission for Panchayats and Municipalities
Act, 1994. In the case of Municipalities, Punjab, instead of enacting a
1
comprehensive new Act, amended the Punjab Municipal Act, 1911 and
Punjab Municipal Corporation Act, 1976 in 1994 to make them compliant
with the provisions of the 74th CAA, 1992.
1.4 Articles 243 (I) and 243 (Y) of Constitution of India provides
for the constitution of State Finance Commission at the expiration of every
fifth year to review the financial position of the Panchayats/Municipalities
and make recommendations to the State Government to strengthen the
financial position of these bodies.
1.5 In pursuance of Articles - 243 (I) and 243 (Y) - as well as the
provisions of Section 3(1) of Punjab Finance Commission for Panchayats
and Municipalities Act, 1994, Government of Punjab, vide Notification No.
1/6th PFC-DFREI-FD-2018/2062 dated 03-07-2018 (Annexure-1A),
constituted the 6th Punjab Finance Commission (6th PFC) for Panchayats
and Municipalities.
I Terms of Reference of 6th Punjab Finance Commission
1.6 The terms of Reference of the 6th Punjab Finance Commission

was notified by the State Government vide Notification No. 1/6 th PFC-
DFREI-FD-2018/2062, dated: 03-07-2018 (Annexure-1A), according to
which the Commission is required to make recommendations relating to the
following matters:
a. the principles which should govern: -
i) the distribution between the State and the Panchayats/

Municipalities of the net proceeds of the taxes, duties, tolls and
fees leviable by the State which may be divided between them
2
and the allocation between the Panchayats/ Municipalities at
all levels 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
/Municipalities; and
iii) the grants-in-aid to the Panchayats/Municipalities from the

Consolidated Fund of the State.
b. the measures needed to improve the financial position of the

Panchayats/ Municipalities.
c. the measures to reduce unproductive revenue expenditure and steps

to improve the quality of administration and technical support for
efficient and effective use of capital resources, and
d. any other matter referred to the Finance Commission by the

Governor in the interest of sound finances of the Panchayats/
Municipalities.
1.7 The Commission was expected to make its recommendations

for five years (2021-22 to 2025-26) commencing 1st April 2021. Originally,
the term of the Commission was upto 31-12-2020, which was later on
extended upto 31-03-2021 vide Notification No. 1/6th PFC-DFREI-FD-
2020/2287, dated 24-09-2020 (Annexure-1B). Due to the reasons listed at
pages 11-13 of the Commission’s report for 2021-22, the term of the
Commission was extended upto 31-12-2021 vide notification No. 1/6th
PFC-DFREI-FD-2021/408 dated 17-02-2021 (Annexure-1C) and further
extended upto 31-03-2022 vide notification No. 1/6th PFC-DFREI-FD-
2022/9 dated 04-01-2022 (Annexure-1D). The Commission submitted its
report for 2021-22 on 29-01-2021 to His Excellency, the Governor of
Punjab for further action in accordance with Articles 243-I(4) and 243-
Y(2) of the Constitution of India. The report for 2021-22 has been suitably
incorporated in this report.
3
II Administrative changes that occurred during the tenure of the
Commission
1.8 In pursuance of Notification No.1/6th PFC-DFREI-FD-

2018/2062, dated: 3rd July, 2018 (Annexure-1A) issued by the Government
of Punjab, Sh. K.R. Lakhanpal, IAS (Retd.) former Chief Secretary of
Punjab was appointed as the Chairman of the Commission, who joined on
16.07.2018. Sh. Roshan Sunkaria, IAS, the then Principal Secretary,
Government of Punjab, Department of Science, Technology and
Environment was given the additional charge of the Member Secretary, 6th
Punjab Finance Commission. Dr. B.S. Ghuman, former Vice Chancellor,
Punjabi University, Patiala was appointed as Expert Member (Part time in
addition to present duty). Financial Commissioner, Rural Development and
Panchayats and Principal Secretary, Local Government were appointed as
Ex-Officio Members of the Commission. Thereafter, vide Notification No.
1/6th PFC-DFREI-FD-2018/363 dated 22-11-2018 (Annexure-1E), Dr. G.
Vajralingam, IAS (Retd.) was appointed as Member Secretary of the 6 th
Punjab Finance Commission, who joined on 22.11.2018. Dr. R.S. Ghuman,
Professor of Economics, Nodal Officer of CRRID, Chandigarh was
appointed as Special Invitee as per the decision taken in the meeting of the
Commission held on 30.08.2018 in the office of CRRID, Sector 19,
Chandigarh. Thereafter, Dr. Sukhwinder Singh, Professor of Economics
(Retd.), Punjabi University, Patiala was appointed as the Consultant, who
joined the Commission on October 01, 2018. Similarly, Shri Chaman Lal
Wason, Retired Director-cum-Joint Secretary from the Welfare Department
and former Director from Planning Department, Government of Punjab was
appointed as Director, who joined on February 22, 2019. Thus, the
Commission started effectively functioning from January, 2019.
4
1.9 Essence of 73rd and 74th CAAs is presented in Box 1.1 below:
Box 1.1
Essence of 73rd and 74th CAAs, 1992
The essence of 73rd and 74thCAAs, 1992, can be highlighted as follows:
Democratising of PRIs and ULBs by bringing regularity in the elections;

reserving seats for the weaker and marginal sections of society; and raising
social and political participation of people which, in turn, will make the PRIs
and ULBs relatively more representative, accessible, and accountable to the
society, particularly to the poor and marginalized sections of society.
Provide better opportunities for promoting grass-root level leadership
through democratic decentralization and peoples’ participation in the
decision making – a very useful feed-stock for leadership at higher levels of
government.
Ensure that the local governance system becomes more responsive and
transparent by virtue of local bodies being closer to the people and under the
watchful eye of the electorate.
Ensure efficient delivery of goods and services to the people, especially in
the field of social sectors such as primary health care, elementary education,
civic amenities and poverty alleviation, along with judicious use and
conservation of natural resources such as land, water, forest, etc.
Enable the local people to articulate their felt-needs and demands to be
addressed easily at the local level. By doing so, the local issues get political
attention and help in channelizing these needs to higher authorities.
Offer a forum and platform to the area people and vouch for free exchange
of ideas and opinions for ordering priorities in the social, cultural and
economic spheres.
Give opportunities to the ordinary citizens to learn to live, operate and
behave in the public domain and practice the art of collective decision-
making, without resorting to intimidation and violence.
Expected to function as a nursery for emerging leadership, which eventually
nurture and prepare the local leaders for higher level institutions. In addition,
these amendments open new vistas for building up a line of energetic
leadership among the SCs/STs, BCs and women.
Expected to speed up the pace of local development and empower the
underprivileged sections of society by delegating them powers and
responsibilities through devolution.
Will impart training to the local participants towards the country’s
mainstream socio-economic development to bring about intended changes in
the economy, polity and society of India.
5
1.10 However, the ground reality, even after three decades of
passage of the 73rd and 74th constitutional amendments, present a stark
contrast to the lofty expectations mentioned in Box 1.1. It is partly due to
the weakness in the constitutional provisions itself as also lack of consensus
on and commitment to the new order among the ruling parties in the state.
The weakness in the constitutional provisions is that, powers, authority and
responsibilities as also the power to impose taxes to the Panchayats and
Municipalities is left entirely to the discretion of the State Legislature by
enacting suitable laws in this behalf. While there is an illustrative list of
responsibilities to be entrusted to them, power to impose taxes does not
have even such a list (Articles 243G, 243H, 243W and 243X, Eleventh and
Twelfth Schedules of the Constitution). No wonder, states have not enacted
such laws because they do not wish to empower them, perceiving them to
be competing centres of power. This underscores the need to strengthen the
constitutional provisions and evolve consensus and commitment to the new
order among the political parties in the state.
1.11 We feel that, the Commission will not be able to do full justice
to its ToR, especially at paras 1.6 ToR (b) and 1(c), without going into the
financial position of the state government and suggesting measures for
augmenting the Consolidated Fund of the State, as the Panchayats and
Municipalities are entirely dependent on transfers from the Centre and State
Governments even to meet their day-to-day running expenditure.
Therefore, to recommend devolution of funds without simultaneously
undertaking measures to improve the fiscal position of the state would only
be a zero-sum game. The Commission has, therefore, gone into the current
state of the government finances in some detail and has suggested an
Improved Fiscal Scenario to be pursued by the State Government over a
period of five years from 2021-22 to 2025-26.
6
1.12 Historically, the state government’s record in implementing
even the accepted recommendations of the previous SFCs is rather poor.
Not only the Explanatory Memorandum and the Action Taken Report
(ATR) is non-specific, even the accepted recommendations of the previous
SFCs have not been implemented. Understandably, it could be due to the
severe fiscal constraints faced by the state government. But the remedy for
that is to improve the state finances, rather than denying funds to the local
bodies. In any case, fiscal constraints should be equitably shared by all
stakeholders and not by Panchayats and Municipalities alone, being soft
targets. Thus, there is a need to put a mechanism in place to ensure that a
healthy convention is set to accept and implement the recommendations of
the SFCs at least on devolution of funds unless, of course, there are weighty
reasons not to do so. Once accepted, these should be fully implemented as
the Commission is of the considered view that, sharing of state revenues
and assignment or apportionment of taxes, tolls, duties and fees by the
Panchayats and Municipalities is their constitutional right arising out of
asymmetry between their responsibilities and functions and sources of
revenue and is on the same footing as that of states having a share in central
taxes.
1.13 It is noted that the state government had put in place a statutory
mechanism for compensating the local bodies for loss of revenue due to
abolition of Octroi. This worked well till the introduction of GST. However,
the new GST law did not provide for compensation. This has rendered
payment of compensation in lieu of loss of revenue susceptible to the
vagaries of state finances, resulting in delayed or even non-payment to these
bodies. The Commission would strongly recommend a statutory back up to
the payment of compensation, not only for the current losses, but also for
the future ones.
7
1.14 Logically, devolution of funds to the local bodies ought to be
based on the gap between their need, determined by responsibilities and
functions assigned to them, and their capacity to raise revenues by using the
powers of taxation conferred on them by the State Legislature. As noted
earlier, the state government has enacted no such law. Even the functions
have been devolved upon them in a mechanical manner, by bodily lifting
the Eleventh and Twelfth Schedules and notifying the same, without
devolving funds or functionaries to enable them to perform these functions.
Nor are there any cost, coverage and quality benchmarks for the functions
they are supposed to perform. Also, there is no reliable data with the line
departments on these important aspects. In such a situation, it is well-nigh
impossible to judge their need, assess their capacity to raise revenues and
logically determine the devolution of funds to them. In this scenario, the
SFCs have been constrained to recommend devolution recognising a huge
imbalance that admittedly exists between their resources and
responsibilities, which is, in no small measure, due to the poor devolution
of funds by the state government to the local bodies. This is neither just nor
desirable. The Commission would, however, endeavour to recommend a
logical formulation for devolution of funds, functions and functionaries to
these bodies, which could be actualized by the future SFCs. At the same
time, the Commission is acutely conscious of the inability of the local
bodies to raise their own resources, which needs to be simultaneously
addressed.
1.15 To conclude, the Commission has made recommendations

regarding vertical and horizontal devolution of funds in discharge of the
core of the ToR. However, unless larger issues including governance
challenges are attended to, mere transfer of financial resources will not take
us very far. The Commission has, therefore, approached its task in a wider
8
perspective, in the sanguine hope that the state government will positively
respond even to its non-financial recommendations. If so, it would be a
giant step forward on the stalled road of democratic decentralization and
toward realising the constitutional objective of making the local bodies self-
governing entities.
III Design of the Report
1.16 Apart from the introductory Chapter, the report comprises of

nine Chapters. Chapter 2 deals with approach, issues and methodology.
Chapter 3 and Chapter 4, which deal with Punjab’s economy and State
Finances, provide a useful backdrop to the Scheme of Devolution in
Chapter 9 of the report. Chapter 5 analyses the evolving centre-state fiscal
relations through the prism of reports of the CFCs. Chapter 6 vividly
portrays states’ journey of Decentralised Governance and Devolution and
its trials and tribulations. Chapter 7 and Chapter 8 present a detailed

analysis of the finances of Panchayats and Municipalities, respectively;
what ails them; and the way forward. Chapter 9 addresses the core TOR of
the Commission and incorporates the Scheme of Devolution. While
drawing up the scheme, the Commission has kept in view the comparative
position of other states, as also the recommendations of our predecessor
Commissions. The Commission has recommended devolution by using all
the three instruments viz (i) sharing of state’s own tax revenues, (ii)
assignment or apportionment of taxes and (iii) Grants-in-aid, as these are
meant to achieve distinct purposes. The scheme of Devolution is also
informed by principles of need, equity and efficiency. Chapter 10, titled as
‘Reinventing the Government’ which is borrowed from an eponymous
book authored by David Osborne and Ted Gaebler, deals with some over-
9
arching governance issues. Arguably, this may not be strictly within our
ToR, but it is borne out of our belief that mere transfer of resources from
the higher levels of government to the local bodies may not be of much
avail unless accompanied by vast improvements in governance at all the
levels. In fact, fiscal reforms and fiscal devolution is only a subset of
governance reforms.
1.17 Though it is customary to provide an executive summary to

the report, the Commission has consciously avoided to do so for the reason
that it might dilute the import of the report and tear apart its
recommendations form the context in which these have been made.
Besides, the Commission has taken an expansive view of its TOR and have
made recommendations on aspects which may not fall into a narrow view
of its remit, but are equally important for governance and public finance of
the state.
1.18 Within given limitations, we have tried to deal with the ToR
of the Commission as exhaustively as possible, yet we are quite conscious
of the fact that it is an ever-evolving task, and conclude in the hope that the
future SFCs will improve upon it.
10
Chapter 2
Approach, Issues and Methodology

(Scientific enquiry helps better policy-making)
2.1 The case for empowering Local Governments to achieve better

governance outcomes rests on the twin principles of solidarity (shared values and
priorities of its community) and subsidiarity (local autonomy, decentralization and
keeping government close to the people) which make them more transparent,
competitive and efficient. Yet, even after three decades of the passage of 73rd and
74th Constitutional Amendment Acts (CAAs), the objective of making local
governments self-governing entities continues to be a mirage. To say so is not to
deny the positive impacts, these amendments have had, on holding regular
elections and empowering the marginalized communities in their governing
structures, but to underscore the importance and complexity of the unfinished task.
Since the onus in this behalf is squarely on the Legislature of a State to endow
these bodies with power and authority by enacting a suitable law (Articles 243G
and 243H for Panchayats and Articles 243W and 243 X for Municipalities), two
pertinent questions that need to be asked in this behalf are:
- Does making Local Governments self-governing entities carry
conviction with the state government?
- Is the state government on course to achieve this objective since the
enactment of the 73rd and 74th CAAs in 1992?
2.2 Unfortunately, the answer to both these questions is a resounding

‘No’ and the onus still remains substantially un-discharged by most of the states,
11
including Punjab. Instead, they have dealt with this important subject in a casual
and mechanical manner, in token compliance of the provisions of the Constitution.
It may, perhaps, be due to the lack of political will and absence of consensus
among political parties ruling the State. Without political ownership and
advocacy, the objective of making local governments self-governing entities may
continue to illude us.
2.3 Another important aspect is the historical role played by, and the
future role that CFCs and SFCs can play toward achieving the constitutional
objective. A perusal of the previous reports of CFCs and SFCs reveals that, they
have mainly focused on financial devolution from the union and state
governments to the local governments and its inter-se distribution between them,
without initiating any meaningful discussion on the structural problems faced by
them and the way out of that. The Commission, therefore, strongly feels that,
without addressing the structural issues, mere transfer of financial resources to
them may not achieve the desired outcomes. Therefore, the Commission would
like to equally emphasize on these issues, in addition to the recommendations on
financial devolution. This calls for an expansive, rather than a literal, view of its
TOR, in keeping with the letter and spirit of the provisions contained in Part IX
and IX A of the Constitution. Illustratively, these issues are: -
- Non-convergence of functional, financial and administrative devolution.
- Segmented and fragmented PRIs and ULBs and their inability to realize
economies of scale and agglomeration.
- Missing mechanisms for transparency, accountability and citizen’s
participation.
- Benchmarks for quality of services being provided by the local
governments.
12
- Total dependence on central and state transfer of funds for survival.
- Outdated and obsolete business processes, resulting in higher costs and

poorer quality of services.
- Outdated budgeting, accounting and auditing systems.
2.4 The Commission is acutely aware of the magnitude and complexity

of these issues and its own limitations in dealing with them with any certitude.
Therefore, we have approached our task as a work-in-progress in the sanguine
hope that, it will pave the way forward in the process of achieving the laudable
objective of making local governments self-governing entities.
2.5 The next decade will be defined by discourse and debate on

governance. Citizens and civil society will become more conscious of their rights,
and hopefully of their responsibilities, and demand far better public services than
what is currently being provided to them. Punjab, at present, has 23 districts and
164 municipalities. Most of the public goods are provided at district and
municipal level. This calls for recasting of not only of Union-State relations, but
also relations between the State and the PRIs/ULBs, focusing on (i) what should
government spend on (ii) which tier of government should spend it (iii) how will
resources be raised (iv) how will the taxable pool be devolved. While some of
these issues are being adjudicated by the GST Council and the Central Finance
Commission between the Union and the States, the third tier of government is
virtually forgotten, which underscores the importance of the State Finance
Commission.
2.6 The Commission would have liked to deeply study and analyze these
issues, by detailed discussions with stakeholders, before making the
recommendations. However, due to the constraint of time, resulting from the
onset of Covid-19, we had to mainly rely on secondary data and documented
literature in framing our recommendations.
13
Methodology
2.7 Keeping in view its core mandate (ToR Para 1.6), the Commission
has examined in-depth : (i) the financial position of the state – both on revenue
and capital accounts–and measures for augmenting the Consolidated Fund of the
State; (ii) the overall position of revenue and expenditure of the Local Bodies; (iii)
the extent of functional, financial and administrative devolution to the Local
Bodies; (iv) the tax efforts made by the State as well as the Local Bodies in the
past; (v) the future tax potential of the State and the Local Bodies; and (vi) suggest
measures to raise own resources by the Local Bodies to improve their financial
position.
In addition to our core ToR, we have also dealt with the following
aspects: -
- Reinventing government.
- The state of Punjab’s economy.
- The state of state’s finances.
- An improved fiscal scenario for the period 2021-22 to 2025-26.
- Statutory mechanism for compensatory payments to local bodies.
- Implementation of the recommendations of SFCs.
- Impact of the recommendations of the 15th CFC on the finances of the
state government and local bodies.
Collection of Information/Data
2.8 Due to non-availability of an authentic and reliable database, the

Commission undertook the task of collecting and compiling voluminous
information/data from the concerned departments of the state, namely,
14
Departments of Finance, Planning, Local Government and Rural Development &
Panchayats and various concerned state entities. Obviously, this has been a
voluminous, time-consuming and onerous task.
2.9 For collection of the required data/information, the Commission

requested these departments to appoint Nodal Officers and also prepared the data
formats, statements and notes on specific topics/issues on which the required
information/data were to be supplied. The information/data received were
compiled and carefully analyzed by the Commission.
2.10 Some data have also been extracted from the Statistical Abstract of
Punjab (different years), Economic Survey of Punjab (different years), Budget
Documents of Punjab State, White Paper on State Finances, Punjab (2017),
Punjab Government’s Memorandum to 15th Finance Commission (2019),
websites of Reserve Bank of India (RBI), and other organizations/institutions.
Statistical Tools Used
2.11 Efforts have been made to present the data analysis in the tabular and
graphic forms to the extent possible. For this purpose, simple statistical tools such
as average, percentage, ratio, compound growth rate, buoyancy coefficient, line
graph, bar diagram, pie chart, etc. have been used.
2.12 Efforts have also been made to collect some additional inputs from
national level websites like the Reserve Bank of India, Mumbai; National Institute
of Public Finance and Policy, New Delhi; National Institute of Urban Affairs,
New Delhi; National Institute of Rural Development & Panchayati Raj,
Hyderabad, and of other States.
2.13 The Commission, has also analysed the available literature,

particularly the relevant books, independent research studies/papers, research
studies sponsored by the 15th CFC of India, Reports of CFCs of India (10th to 15th),
15
previous Reports of SFCs of Punjab and of a few other States, especially Kerala,
Karnataka, Tamil Nadu, Maharashtra, West Bengal, Bihar and Punjab’s
neighboring states such as Haryana, Rajasthan and Himachal Pradesh. Two other
research reports, namely, Report on Indian Urban Infrastructure and Services
(March 21, 2011) by Dr. Isher Judge Ahluwalia, et al. (submitted to the Ministry
of Urban Development, Government of India), and Rural-Urban Migration,
Informal Sector Employment and Income/Earning Differentials: Reflections from
Two States – Punjab and Haryana (June, 2018) by Punjabi University, Patiala.
These studies have greatly helped the Commission in crystallizing various issues.
Questionnaire for Seeking Views of Stakeholders
2.14 The Commission prepared a well-designed and a structured

questionnaire (Annexure-2A) for seeking views/suggestions from the
administrators and public in general on the status of devolution of funds, functions
and functionaries in the aftermath of the 73rd and 74th CAA. We also elicited their
suggestions on additional resource mobilization, capacity building and reduction
of unproductive expenditure.
2.15 The Commission also sent this questionnaire to the Chief Minister,
all MPs, Ministers, MLAs, Vice Chancellors of all Universities in the State,
Administrative Secretaries, HODs, Divisional Commissioners, DCs, ADCs,
Registrar, Punjab and Haryana High Court, Heads of Registered Political Parties,
Policy makers, etc.; and through the concerned departments to all Municipal
Commissioners of Municipal Corporations, Executive Officers of Municipal
Committees/Nagar Councils, Mayors of all Municipal Corporations, and
Chairpersons of all Municipal Committees/Nagar Councils, all DDPOs,
Chairpersons of Zila Parishads and Panchayat Samitis, and Sarpanches of all
Panchayats in Punjab for seeking their views/suggestions. The Commission
16
regrettably notes that the response to the questionnaire, at best, has been
lukewarm.
Consultations with Stakeholders
2.16 The Commission very much wished to consult with various experts
and professional bodies at the Central and State levels as also stakeholders and
elected representatives of the PRIs/ULBs, but was handicapped in doing so due to
the Covid-19 pandemic. However, their views/suggestions/inputs have been
sought through 7 Video Conferences held with them, in which we made conscious
effort to listen to them carefully and have given due weightage to their views in
framing our recommendations.
Constitution of Committees and Study Sponsored
2.17 The Commission, in order to make the report more useful and
cohesive, had constituted two committees, one on need for “Creation of Data
Bank for Local Bodies” headed by Dr B.S. Ghuman, former Vice Chancellor,
Punjabi University, Patiala (Expert Member of 6th SFC) and another on “Capacity
Building of Local Bodies” headed by Mr. Jaspal Singh, IAS, former Principal
Secretary, Planning, Government of Punjab. The Commission has also got
conducted a research study, namely, “Internal Resource Mobilisation and
Service Delivery of PRIs and ULBs in Punjab: Current Status and Future
Challenges”, based on the primary survey, through the Economic and Statistical
Organization, Punjab (May 2020). The recommendations of these committees and
research study have been received and useful inputs suitably incorporated in the
report of the Commission.
Meetings with Chief Minister and concerned Ministers, Punjab
2.18 Meetings with the former Chief Minister, Finance Minister, Local
Government Minister, Housing & Urban Development Minister and Rural
17
Development & Panchayats Minister, Punjab were also held by the Commission
in order to seek their guidance on various issues. The suggestions/inputs given by
them have been suitably reflected in the report.
Meetings of the Commission
2.19 The Commission held 21 meetings and around 50 internal meetings

with the Administrative Secretaries and Nodal Officers of the concerned
departments in which various important issues were discussed and concluded.
18
Chapter 3
The Economy
(We do not inherit earth from our ancestors; we borrow it from our children – Lester Brown)
An Overview
3.1 The following graphics present a bird’s eye view of Punjab’s

economy in the national perspective, as also in comparison to the other states. The
basic template of these graphics has been borrowed from the 15th CFC1. We
gratefully acknowledge the guidance provided by 15th CFC.
Figure 3.1: Basic Indicators
FOREST COVER
AREA 3.1%
0.345% of
POPULATION 50,362 sq km 1849 sq km 4.93%
forest area Forest cover
1.53% across all
277,43,338 of the State’s own changed from
of area across all states area is under forest 2018 to 2020
States
2.33%
of population across all

states
FY2019 TFR
PER CAPITA GSDP
TAX-GSDP Ratio CHILDREN PER URBANISATION RATE
Rs. 1,71,907 WOMAN
6.0% 37.48%
Rs. 1,40,422 1.6 31.1%
6.3%
Average across all Average across 2.2 All India Average
States all States Average across all
States
1
15th CFC Report, Volume-IV, The States, pp. PB-4 to PB-5.
19
Figure 3.2: Growth Rate of GSDP (at Current Prices, %)
35
GROWTH RATE OF GSDP OF PUNJAB (AT CURRENT PRICES, %)
30
25
20
11.7 11.52
15 10.27 11.57
9.85 9.46
6.91
10 5.8
5
-2.55
0
-5
-10
-15
Figure 3.3: Per Capita GSDP (at Current Prices)
200
10.22 179 11.00
10.12 172 172
156 10.13
8.43 9.00
150 143
132 8.84
122 8.05
116 7.00
105
95
100 5.00
5.53
4.43
3.00
50
1.00
-1.00
0 -3.81
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021
-3.00
-50 -5.00
Per Capita GSDP (Rs thousand) Per Capita GSDP (Annual Growth)
20
Figure 3.4: GSDP at Current Prices, 2011-12 Series (Rs. crore)
Share (%) of State in GS

State All GS
2011–12 2,66,628 77,44,945 3.44
2012–13 2,97,734 88,27,195 3.37
2013–14 3,32,147 1,00,07,392 3.32
2014–15 3,55,102 1,09,93,257 3.23
2015–16 3,90,087 1,21,91,256 3.20
2016–17 4,26,988 1,37,80,737 3.10
2017–18 4,71,014 1,53,14,299 3.08
2018–19 5,12,511 1,70,75,881 3.00
2019-20 5,55,778 1,86,93,332 2.97
2020-21 5,41,615 1,89,27,710 2.86
Figure 3.5: Sectoral Contribution to GSDP in Punjab (at Current Prices, %)
120
100
5 6 7 7 9 10 9 11 11
11
80
42 43 43 43 43 42 42 41 41
41
60
40 24 23 23 23 23
22 22 22 20
20
20
29 28 27 27 26 26 27 26 28 28
0
FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021
PRIMARY SECONDARY TERTIARY NET TAXES
21
Figure 3.6: SDG Index of NITI Aayog (2019)
Figure 3.7: Key Social Indicators
Indicators Indicators
22
Figure 3.8: Poverty Reduction (Percentage Points) between FY2005 and FY2012
Note: Positive values on Y axis denote reduction in poverty in FY2012 over FY2005
Figure 3.9: Persons (’000s) per Allopathic and AYUSH Doctor
Source: GOI (2019), National Health Profile 2019, 14th Issue, Central Bureau of Health Intelligence, Directorate
General of Health Services, Ministry of Health and Family Welfare, Government of India.
23
Figure 3.10: Persons (’000s) Per Sub-Centre/PHC/CHC
Figure 3.11: Persons (’000s) Per Nurse/ Pharmacist
24
Figure 3.12: Persons (lakh) Per Government Hospital and Persons (’000s) Per Bed
Source: GOI (2019), National Health Profile 2019, 14th Issue, Central Bureau of Health Intelligence,
Directorate General of Health Services, Ministry of Health and Family Welfare,
Government of India.
3.2 Faster economic growth and fiscal health of a developing
economy/region are closely correlated and reinforce each other. Although
improvements in the state finances are largely dependent upon ‘stages of growth’,
measured by rising levels of income, consumption and living standards of people,
yet state’s fiscal position is also influenced by its political economy, robust
taxation and non-taxation policies, people’s cooperation, societal concerns,
business ethics, etc. It is, undoubtedly, true that Punjab economy during the
decades of 1970s and 1980s had experienced impressive economic growth and
steadily rising per capita income compared to all-India average and across the
25
major Indian states. This has brought about much acclaimed prosperity and
affluence to the people of Punjab and also attracted migratory labour from other
states of India.
3.3 These remarkable achievements are largely due to the agricultural-
led growth, in which huge public investment in irrigation (dams and canals),
electricity, rural roads, regulated markets, credit facilities and strategic social
sectors, particularly in the education and health services were made (Singh, 2016).
Stimulated by these public and private initiatives, Punjab economy witnessed a
faster economic progress in the industrial, business and services sectors,
especially of small and medium enterprises resulting in appreciable rise in the per
capita income, education and health related indicators in the state, though, many
researchers viewed these achievements as iniquitous and non-inclusive in nature
(Jain, 2014).
Slowdown of Economic Growth
3.4 No doubt, Punjab economy experienced an impressive economic

growth during the decades of 1970s and 1980s, which slowed down since the mid-
1990s. In the new millennium, Punjab’s average economic growth rate went
further down below the all-India average (Table 3.1). A graphic presentation of
average annual growth rates of Punjab economy in comparison with Indian
economy (Figure 3.13 and Figure 3.14) clearly highlights this divergence.
Paradoxically, when the country’s growth rate accelerated in the post-reforms era,
Punjab economy started witnessing a decline.
26
Table 3.1: Average Annual Growth Rate of Punjab Economy vs. Indian Economy
CGR in State Income by Sector (% Per Annum)

Time/Plan Period
State Primary Secondary Tertiary Overall Base Prices
Punjab 4.3 6.8 5.9 5.1
1970-71 to 1978-79 1970-71=100
India 2.1 5.0 4.8 3.6
Fifth Five Year Plan Punjab 5.6 8.4 8.2 6.8
1970-71=100
(1974-79) India 3.6 6.4 6.5 5.1
Sixth Five Year Plan Punjab 5.3 5.0 5.1 5.3
1980-81=100
(1980-85) India 5.6 6.1 5.4 5.7
Seventh Five Year Plan Punjab 5.2 8.7 5.2 6.0
1980-81=100
(1985-90 India 3.6 6.5 7.4 5.8
Eighth Five Year Plan Punjab 3.1 7.1 5. 8 4.8
1993-94=100
(1992-97) India 3.8 8.3 7.9 6.8
Ninth Five Year Plan Punjab 1.9 4.9 5.8 3.9
1993-94=100
(1997-2002) India 2.2 4.6 8.1 5.5
Tenth Five Year Plan Punjab 2.3 7.7 6.0 5.1
1999-00=100
(2002-07) India 2.7 9.4 9.4 7.8
Eleventh Five Year Plan Punjab 1.9 7.8 8.0 6.9
2004-05=100
(2007-12) India 3.6 7.6 9.7 9.0
Twelfth Five Year Plan Punjab 1.7 4.9 7.3 5.8
(2012-17) India 3.3 6.3 8.7 7.1
Punjab 4.6 6.0 6.8 6.4
2017-18 (R)
India 4.5 7.1 7.0 5.8
2011-12=100
Punjab 1.7 5.7 7.1 6.0
2018-19 (P)
India 2.2 5.8 7.2 6.5
Punjab 1.8 1.1 5.6 4.0
2019-20 (Q)
India 3.3 -1.1 7.2 4.0
Source: Statistical Abstract of Punjab (Different Years).
Figure 3.13: Compound Growth Rate of Punjab vs. Indian Economy, 1970-71 to 2019-20
Growth Rate 1970-2020

Punjab India
8.1
7.8
6.9 7.1
6.8 6.8 6.8
6.4 6.5
6 5.8 5.8 5.8
5.7 5.5
5.1 5.1 5.3 5.1
4.8
3.9 4 4
3.6
Source: GOP, Statistical Abstract of Punjab (Different Years) and GOI, Twelfth Five Year Plan 2012-17, Vol. I.
27
Figure 3.14: CGR of Indian Economy vs. Punjab Economy, 1970-71 to 2019-2020
CGR Of Indian Economy and Punjab Economy 1970-71 to 2019-2020

9
8
7
6
5
4
3
2
1
0
2017-18(R)
1970-71 to 1978-
1974-79
1980-85
1985-90
1992-97
2002-07
2007-12
2012-17
1997-2002
2018-19(P)
2019-20(Q)
79
Punjab India
Source: GOP, Statistical Abstract of Punjab (Different Years) and GOI, Twelfth Five Year Plan 2012-17, Vol. I.
3.5 This slowdown has been observed in all the three segments: primary,
secondary and tertiary. The slowdown in agriculture sector, which is considered
the backbone of Punjab economy, has not only decelerated its overall growth rate
since the mid-1990s, but has also led to many adverse consequences to this sector
as manifested in the stagnating yields, diminishing returns and indebtedness
among the farmers, which ultimately pushed a large proportion of small and
marginal farmers into debt trap (Shergill, 2010) triggering the process of de-
peasantisation in the state (Gill and Singh, 2006; Gill, 2010; Singh and Bhogal,
2014; Singh, et al. 2017).
Fatigue among Growth Drivers
3.6 Till 1980s, the growth drivers of Punjab economy were the
agriculture sector, small scale industries and related businesses, which in
subsequent years, became very weak and faced a fatigue. For instance, cropping
intensity in Punjab has doubled; growth in agricultural output and productivity
reached a plateau; over-exploitation of finite resources (land, water, etc.); dearth
of innovations; and rising input-costs have squeezed the stakeholders’ profits.
28
Side by side, mechanization of agriculture drastically reduced the demand for
hired and family labour, which actually resulted in a smaller number of man-days
for employment. Moreover, Punjab’s intensive agriculture - use of fertilizers,
insecticides and pesticides - has not only increased the costs, but also polluted and
poisoned soils, water, flora and fauna. Prevalence of pesticide residues in the crop
production, particularly the vegetables, is another cause of concern.
3.7 Many researches have posited that the economic surpluses generated
in the state during the decades of 1970s and 1980s could not be invested in most
dynamic sectors of economy. Instead, these surpluses, through the banking
mechanism, were siphoned-off to other parts of the country. Investment-GDP
ratio in the state remained below 20% – the lowest among the fourteen major states
of India (CDEIS, 2012). Capital expenditure in the state remained much below
the desired expectations. Industrial incentives given to the neighbouring hill states
further hit the industrial base of the state very badly. Similarly, state government
could not devise a smart strategy to attract FDI, IT and sunrise industries in
Punjab, despite having rich diaspora connections during the post-reforms’ years.
Declining Development Expenditure
3.8 Further, political turmoil of the 1980s pushed Punjab into a severe
resource-crunch and put the government’s capacity and capability to a severe test.
By the end of 20th century, political populism, ‘freebie culture’ along with strong
rent-seeking practices in the government have set the state’s growth agenda in the
wrong direction, which ruined the state finances to a nadir. An analysis of state’s
public expenditure (Table 3.2) revealed that its development expenditure, in
relative terms, has declined since 1980-81; more sharply since 1990-91. For
instance, share of development expenditure, which remained more than two-thirds
of total revenue expenditure (varied between 65.28% to 72.31%) during 1970-71
to 1990-91, declined to 44.24% in 2000-01, 42.25% in 2005-06, and marginally
29
rose to 43.47% in 2010-11. Since then, it has remained below 50.00% (Figure
3.15).
3.9 On the other hand, non-development expenditure, which is mainly

on the day-to-day running of the government (payment of wages/salaries,
pensions, and interest payments, etc.) rose sharply in Punjab. Though non-
development expenditure has a potential to produce positive externalities such as
peace and order, good governance, etc., yet this expenditure could not contribute
directly to the economic growth of the state, as it is in the nature of high
wages/salaries, pensions and interest payments. This mismatch (development vs.
non-development), in fact, has reduced state’s administrative capacity; weakened
its institutional framework; and resulted in poor governance; which is largely
responsible for the present slowdown.
Table 3.2: Total Budgetary Expenditure on Revenue Account in Punjab

(Rs. Crore)
Total Expenditure (Rs. Crore) Percentage Share

Year Non- Non-
Development Total Development Total
Development Development
1970-71 88.84 47.25 136.09 65.28 34.72 100.00
1975-76 201.23 77.04 278.27 72.31 27.69 100.00
1980-81 396.32 153.20 549.52 72.12 27.88 100.00
1985-86 790.66 372.24 1162.90 67.99 32.01 100.00
1990-91 1664.07 855.84 2519.91 66.04 33.96 100.00
1995-96 2617.33 3017.66 5634.99 46.45 53.55 100.00
2000-01 5182.02 6530.81 11712.83 44.24 55.76 100.00
2005-06 7692.15 10516.27 18208.42 42.25 57.75 100.00
2010-11 14299.50 18597.70 32897.20 43.47 56.53 100.00
2015-16 25360.10 24713.40 50073.50 50.65 49.35 100.00
2016-17 26808.10 28488.00 55296.10 48.48 51.52 100.00
2017-18 28386.40 34078.40 62464.80 45.44 54.56 100.00
2018-19 38827.60 36576.20 75403.80 51.49 48.51 100.00
2019-20 37265.32 38614.35 75870.67 49.11 51.89 100.00
2020-21 PA 43025.33 44071.10 87096.43 49.40 51.60 100.00
Source: Finance Department, Punjab.
30
Figure 3.15: Percentage Share of Development and Non-Development Expenditure on Revenue
Account in Punjab
Percentage Share of Development and Non-Development

Expenditure
80
70
72.12
60 65.28 66.04 55.76 54.56

51.52 51.89 51.6
49.35 48.51
50
50.65 51.49
48.48 49.11 49.4
40 34.72 44.24 45.44
33.96
27.88
30
20
10
0
1970-71 1980-81 1990-91 2000-01 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Percentage Share Development Percentage Share Non-Development
Declining Per Capita Income
3.10 At present, Punjab model of economic development does not attract
anymore and anyone at the national level (Singh, 2015). Punjab’s per capita GSDP
ranking across all major Indian states declined from 1 st rank by the triennium
ending year 2001-02 to 3rd rank by the triennium ending year 2006-07, 6th rank by
the triennium ending year 2012-13 and 9th rank by the triennium ending year 2018-
19 (Table 3.3 and Figure 3.16). Paradoxically, this deterioration in the ranking
has happened, while other states such as Haryana, Maharashtra, Kerala, Gujarat,
Tamil Nadu and many others have experienced a faster growth in their GSDP and
per capita income, especially in the post-reform era.
31
Table 3.3: Changes in Per Capita GSDP Ranking of Major States
Rank Triennium Average of Per Capita GSDP by Ending Year

2001-02 2006-07 2012-13 2018-19
1 Punjab Haryana Haryana Haryana
2 Maharashtra Maharashtra Maharashtra Kerala
3 Haryana Punjab Gujarat Karnataka
4 Kerala Gujarat Tamil Nadu Telangana
5 Gujarat Kerala Uttarakhand Uttarakhand
6 Tamil Nadu Tamil Nadu Punjab Tamil Nadu
7 Karnataka Karnataka Kerala Maharashtra
8 Andhra Pradesh Andhra Pradesh Telangana Gujarat
9 West Bengal Uttarakhand Karnataka Punjab
10 Uttarakhand West Bengal Andhra Pradesh Andhra Pradesh
11 Rajasthan Chhattisgarh Rajasthan Rajasthan
12 Chhattisgarh Jharkhand West Bengal Odisha
13 Madhya Pradesh Rajasthan Chhattisgarh Chhattisgarh
14 Jharkhand Orissa (Odisha) Orissa (Odisha) West Bengal
15 Orissa (Odisha) Madhya Pradesh Jharkhand Madhya Pradesh
16 Uttar Pradesh Uttar Pradesh Madhya Pradesh Jharkhand
17 Bihar Bihar Uttar Pradesh Uttar Pradesh
18 - - Bihar Bihar
Source: CFC Reports (12th CFC to 15th CFC).
Figure 3.16: Changes in Per Capita GSDP Ranking of Major States between 12th CFC
(Triennium Average Ending 2001-02) and 15th CFC (Triennium Average Ending 2018-19)
Per Capita GSDP Ranking of Major States

1 1
2 2
3 3
4 4
5 5
6 6
7 7
8 8
9 9
10 10
11 11
12 12
13 13
14 14
15 15
16 16
17 17
Kerala
Karnataka
Tamil Nadu
Maharashtra
Gujarat
Madhya Pradesh
Andhra Pradesh
Haryana
Odisha
Chhattisgarh
Uttarakhand
Jharkhand
Bihar
Punjab
West Bengal
Rajasthan
Uttar Pradesh
1999-02 2016-19
32
3.11 Further, the difference between per capita income of Punjab vs. all-
India average declined from 56.3% in 1980-81 to 49.3% in 2000-01, and 17.5%
in 2020-21. It shows that, in the post-reforms’ era, Punjab economy paradoxically
has been facing a stagnant growth, whereas the Indian economy has been
experiencing an accelerated growth. Consequently, the state, both in terms of
growth in the GSDP and per capita income, become a laggard. At this rate, it is
only a matter of time that, Punjab’s per capita income will slide below the national
average, which, indeed, will be a tragedy.
Structural Transformation of Economy
3.12 One of the axioms of economic theory states, ‘whenever an economy

grows over a longer period of time, it will certainly witness a structural
transformation’. During the last five decades, Punjab economy has witnessed a
few positive and vibrant structural transformation as revealed by the declining
share of agriculture sector in the GSDP as well as persons employed in this sector.
a. Changing Composition of GSDP
3.13 By analyzing data at Table 3.4 below, structural transformation of

Punjab economy, over a period of fifty years, can be encapsulated (Figure 3.17).
Table 3.4: Sector-Wise Percentage Shares in GSDP
Year Primary Secondary Tertiary Total
1970-71 57.42 15.71 26.87 100.00

1980-81 49.13 20.011 30.86 100.00
1990-91
44.01 23.80 32.18 100.00
2000-01 35.90 22.99 41.10 100.00
2010-11 30.10 26.56 43.34 100.00
2020-21 (A) 31.58 22.68 45.74 100.00
(A) Stands for Advance Estimates.
Source: Economic and Statistical Organisation, Punjab.
33
Figure 3.17: Sector-Wise Percentage Shares in GSDP of Punjab
Sector Wise Percentage Shares in GSDP

100
26.87 30.86 32.18 41.1 43.34 45.74
15.71 20.011
50 23.8
22.99 26.56 22.68
57.42 49.13 44.01 35.9 30.1 31.58
0
1970-71 1980-81 1990-91 2000-01 2010-11 2020-21 (A)
Primary Secondary Tertiary
3.14 An assessment of the relative share of different constituents of GSDP

over five decades (Table 3.5 and Table 3.6) is a pointer to certain positive and
desirable changes. First, though the share of primary sector in GSDP declined in
Punjab, yet it is still high, largely due to the higher productivity of food crops
sown in the state. Consequently, Punjab’s agricultural households reported highest
average monthly income (Rs. 23,133) with Haryana, a distant second (Rs. 18,946)
(NABARD, 2018). Second, within the primary sector, the share of agriculture
(crop production and livestock) is very high compared to a very little contribution
of forestry & logging, and fishing. Mining & quarrying (supposed to be ‘rent-
thick sector’) could not become a ‘rising star’ to generate more revenue for the
state. Third, within the secondary sector, manufacturing sector is contributing a
major share, followed by the construction and electricity, gas & water supply.
However, stagnant share of manufacturing at around 14% of GSDP since 2015-
16 is a worrying aspect. Fourth, within the tertiary sector, the share of trade,
hotels & restaurants first rose from 12.45% in 1970-71 to 13.10% in 1980-81,
13.89% in 1990-91 and 14.39% in 2000-01 and, thereafter, consistently declined
to 9.20% in 2020-21. Interestingly, the share of real estate & ownership of
dwellings; banking & insurance; public administration; transport, storage &
communication; and other services rose sharply over this time. In fact, these
services, associated with rising urbanization, have the capacity to emerge as an
‘engine of growth’ for state’s economy.
34
Table 3.5: Changing Sectoral Composition of Punjab Economy by Major Sectors, 1970-71 to
2020-21 (A) (Rs. Crore)
S. No. Sector 1970-71 1980-81 1990-91 2000-01 2010-11 2020-21 (A)
1 Agriculture & Live Stock 862.52 2421.76 8231.49 26499 63288.62 139761.56
1.1 Agriculture 649.46 1696.42 6116.01 na 44573.37 84776.38
1.2 Live Stock 213.06 725.34 2115.48 na 18715.25 54985.18
2 Forestry & Logging 2.98 44.07 54.01 177.04 4254.14 10330.83
3 Fishing 0.56 1.74 22.18 186.32 516.58 1656.81
4 Mining & Quarrying 0.47 1.04 3.1 4.36 33.3 131.51
Sub-Total: Primary 866.53 2468.61 8310.78 26816.72 68092.64 151880.71
5 Manufacturing 123.01 585.98 2841.52 10780.42 39595.01 59886.2
5.1 Manu-Registered 62.37 336.61 1671.06 6509.68 22787.91 na
5.2 Manu-Unregistered 60.64 249.37 1170.46 4270.74 16807.1 na
6 Construction 98.76 286.77 1034.38 3632.77 16052.07 28194.10
7 Electricity, Gas and Water Supply 15.22 132.73 618.66 2754.44 4422.83 21033.12
Sub-Total: Secondary 236.99 1005.48 4494.56 17167.63 60069.91 109113.42
8 Trade, Hotels & Restaurants 187.92 658.44 2623.18 10743.09 27063.2 44233.17
9 Transport, Storage &Communication 60.16 130.85 684.22 3588.81 12159.24 22104.19
9.1 Railways na na na 431.94 1522.69 2472.09
9.2 Transport by other means na na na 2094.13 7630.72 10824.47
9.3 Storage na na na 142.32 582.63 673.42
9.4 Communication na na na 920.42 2423.2 8134.21
10 Banking & Insurance 23.47 115.71 635.79 3196.73 11462.51 24773.32
11 Real Estate, Ownership of Dwellings 32.17 236.24 478.2 3333.87 12800.32 46181.46
12 Public Administration 31.66 142.95 674.38 3426.23 10588.42 25060.91
13 Other Services 70.09 266.42 981.48 6404.37 23967.83 57632.8
Sub-Total: Tertiary 405.47 1550.61 6077.25 30693.1 98041.52 219985.85
14 Gross State Domestic Product 1508.99 5024.7 18882.59 74677.45 226204.07 480979.98
(A) stands for Advance Estimates.
35
Table 3.6: Percentage Shares of Different Sectors of Punjab Economy,
1970-71 to 2020-21 (A)
S. Percentage Shares
Sector 1970- 1980- 1990- 2000- 2010- 2020-21
No.
71 81 91 01 11 (A)
1 Agriculture & Live stock 57.16 48.20 43.59 35.48 27.98 29.06
1.1 Agriculture 43.04 33.76 32.39 na 19.70 17.63
1.2 Live Stock 14.12 14.44 11.20 na 8.27 11.43
2 Forestry &Logging 0.20 0.88 0.29 0.24 1.88 2.15
3 Fishing 0.04 0.03 0.12 0.25 0.23 0.34
4 Mining & Quarrying 0.03 0.02 0.02 0.01 0.01 0.03
Sub-Total of Primary 57.42 49.13 44.01 35.91 30.10 31.58
5 Manufacturing 8.15 11.66 15.05 14.44 17.50 12.45
5.1 Manu-Registered 4.13 6.70 8.85 8.72 10.07 na
5.2 Manu-Unregistered 4.02 4.96 6.20 5.72 7.43 na
6 Construction 6.54 5.71 5.48 4.86 7.10 5.86
Electricity, gas and water
7 supply 1.01 2.64 3.28 3.69 1.96 4.37
Sub Total of Secondary 15.71 20.01 23.80 22.99 26.56 22.69
8 Trade, Hotels & Restaurants 12.45 13.10 13.89 14.39 11.96 9.20
Transport, Storage
9 &Communication 3.99 2.60 3.62 4.81 5.38 4.60
9.1 Railways - - - 0.58 0.67 0.51
9.2 Transport by other means - - - 2.80 3.37 2.25
9.3 Storage - - - 0.19 0.26 0.14
9.4 Communication - - - 1.23 1.07 1.69
10 Banking & Insurance 1.56 2.30 3.37 4.28 5.07 5.15
Real Estate, Ownership of
11 Dwellings 2.13 4.70 2.53 4.46 5.66 9.60
12 Public Administration 2.10 2.84 3.57 4.59 4.68 5.21
Other Services and Sanitary
13 services 4.64 5.30 5.20 8.58 10.60 11.98
Sub Total of Tertiary 26.87 30.86 32.18 41.10 43.34 45.74
Gross State Domestic
14 Product 100.00 100.00 100.00 100.00 100.00 100.00
(A) stands for Advance Estimates.
b. Changing Composition of Employment
3.15 On the employment front, Punjab economy also witnessed a

structural change as observed from the analysis presented in the Box 3.1 below.
36
Box 3.1
Balanced Output and Employment Structure in Punjab
Amongst the most Indian States, contribution of services sector began to dominate in
States’ GSDP, followed by the manufacturing and agriculture sectors. However, in terms of
employment, distribution of workforce engaged in these sectors found to be skewed towards
agriculture sector. At the national level, a stark mismatch in the proportionate shares of output
and employment across these sectors has been observed. For instance, agriculture sector’s
share in India’s GDP stood at 18.0% during 2017-18, while this sector employed almost two
and half times higher share (44.1%) of India’s labour force. It means that, at national level,
more labour force is employed in agriculture sector with a low per labour output. In contrast,
services sector employed 31.0% of the total labour force and contributed 52.8% of India’s
GDP in 2017-18.
Table 3.7: Sector-Wise Composition of GDP/GSDP and Employment (%)
Sector Share in Employment Share in GDP/GSDP (2017-

(2017-18) 18)
Punjab
Agriculture & Allied Activities 26.0 29.0
Industry 33.1 24.7
Services 40.9 46.3
India
Agriculture &Allied Activities 44.1 18.0
Industry 24.8 29.2
Services 31.0 52.8
Source: National Income Accounts 2020, Annual Report of Period Labour Force Survey (PLFS), 2017-18 and
Economic & Statistical Organization, Punjab.
In a contrasting trend, composition of GSDP and employment in Punjab, across the

three sectors, is relatively more balanced. Agriculture and allied activities, by contributing
29% share of GSDP in 2017-18, employed 26.0% share of state’s workforce. In fact,
application of farm machinery, mono-cropping pattern, expensive inputs such as seeds and
agro-chemicals have pushed many farmers and agriculture labourers out of agriculture sector,
which indicate that a strong trend of de-peasantisation have started in Punjab. The services
sector, with 46.7% share of Punjab’s GSDP in 2017-18, employed 40.9% of workforce in the
state. Punjab, thus, have a more balanced distribution of workforce and higher per labour
output across all sectors of economy in comparison to the national level trends.
3.16 Another important aspect of employment scenario in Punjab is

that most of the workers are employed in the informal sector, either as self-
employed or as wage labourers. Large chunks of workers in Punjab, from
rural agricultural labourers to industrial workers, construction workers,
migrant workers, etc., are working as informal wage workers and earning
their livelihoods on a daily basis. Like agriculture sector, where most of
37
cultivators and agricultural labourers did not find work round the year, more
than one-half of workforce engaged in Punjab’s non-agrarian sectors (51.8%)
are working on daily wages basis as informal workers. These informal
workers did not enjoy security of work, paid holidays, etc. and are facing
many types of hardships such as low wages, irregular work, no social security,
etc. In fact, Covid-19 induced lockdowns and other uncertainties are affecting
their livelihoods adversely, thereby, lowering their standard of living and
denial of access to basic necessities (GoP, 2020).
Future Growth Potential
3.17 The foregoing analysis points out that the earlier growth drivers
(intensive agriculture, small scale industry and business activities) of Punjab
economy became very weak. For instance, its agricultural output and
productivity reached a plateau. Its mono-cropping pattern alone have limited
capacity to grow as explained by ‘limits to growth theory’ (Meadows et al.,
1972). This sector, in fact, became an enterprise of ‘diminishing return’.
Further, such cropping pattern is facing a severe existential crisis of ‘arrested
development syndrome’. In this scenario, this sector cannot become an ‘engine
of growth’ until some radical reforms such as crop diversification, livestock
improvements, horticulture promotion, fishing sector, etc., are promoted.
3.18 In the industrial sector, dominance of small-scale industry,

distance from the ports, lack of skilled labour, obsolete labour laws, and
outdated technologies are the major obstacles in the state’s faster industrial
development and stagnant share of manufacturing in the GSDP. These forces,
in fact, kill the competitiveness of industrial products produced in the state.
Punjab’s industrial sector is basically catering to the local demand through
three simple routes – supplying inputs to agriculture, processing outputs of
agriculture, and meeting demand of consumer goods in the state. In such a
38
scenario, there is need to promote and establish large scale anchor units in
industrial segments where Punjab enjoys competitive advantage such as agro-
industries, modern machine tools and light engineering, IT industries and foot-
loose industries like pharmaceuticals. For this, the state government must
aggressively promote industrial culture and provide conducive ecosystem by
heavily putting down rent seeking from industry and businesses and enhance
their competitive advantage.
3.19 Like India, services sector in Punjab has the capacity to become
a leading sector both for the income and employment generation. Within the
services sector, each sub-sector such as trade, hotels& restaurants, real estate
& ownership of dwellings; banking & insurance; public administration;
transport, storage & communication; and other services, has capacity to grow.
In fact, growth in the services sector should be led by promoting 3-4 urban
industrial corridors, with social and physical infrastructure benchmarked
against the best in the country.
Conclusion
3.20 It is not our remit to provide a blueprint for the economic revival
of the state. However, it is in order to observe that, socio-economic progress
of a state/region hinges heavily on the quality of governance. Economic and
fiscal reforms are, but a sub-set of good governance and cannot be viewed in
isolation. However, emerging trends in state's political economy have been
negatively impacting governance for nearly three decades. This, in turn, has
taken a heavy toll of state finances and its socio-economic progress. While
Punjab's per capita cost of running the government is higher than any state of
the country, its socio-economic outcomes are nowhere commensurate with the
costs. Therefore, the state, in the medium term – next 5 to 10 years –, should
aim at:
39
• Drastically reducing the carrying cost of government and improving
outcomes. State reform pathway has been figuratively captured by Ajay
Chhibber of the George Washington University (Figure 3.18).
Figure 3.18: State Reform Pathway: Reduce Scope, Improve Capability,

Increase Effectiveness.
Source: Ajay Chhibber, India’s Interventionist State, IIEP-WP-2021-02, January 2021, George
Washington University, Washington, D.C., USA.
• Pushing the growth rate of GSDP and per capita GSDP above the national
average.
• Becoming one of the top five states in achieving the Sustainable Development
Goals (SDGs).
In short, Punjab has lost its mojo. It is time, we regain it. Sooner, the better!
40
Chapter 4
State Finances
(Every time you are borrowing money, you are robbing your future self – Nathan Morris)
Introduction
4.1 Theoretically, the fiscal policy instruments, especially the taxation,

public expenditure and debt financing, greatly influence economic development
and distributive justice at the state level by (i) encouraging investment in the
desirable key sectors; (ii) establishing better socio-economic infrastructure; and
(iii) creating conducive eco-system. These steps are, basically, for creating
enabling infrastructure/ environment to reduce the production costs, improve
productivity and profitability of an enterprise (Sen, 2016), and for boosting the
economic development of a region/state.
4.2 One of the major objectives of 6th SFC is to recommend adequate

finances to the local bodies to enable them to perform their assigned functions
efficiently, and making them self-sufficient governance units. For this purpose,
devolution of resources (ToR a i to iii) from the state government to these bodies
is a critical source for improving their financial health. Besides, Article 280 (3)
(bb and c) of the Constitution enjoins upon the CFC to suggest measures needed
to augment the Consolidated fund of a State to supplement the resources of the
Panchayats/Municipalities in the State on the basis of the recommendations made
by the Finance Commission of the State.
4.3 In this view of the situation, it is necessary for the 6th SFC to analyze
the financial position of the State to suggest measures to augment the
Consolidated Fund of the State while designing a realistic and doable model for
41
devolution of resources to these bodies, which will (a) ensure them need-based
and predictable funds to deliver the services entrusted to them and (b) encourage
these bodies to strive for additional revenue from their own sources.
Assessment of State Finances
4.4 No doubt, the first sign of fiscal stress was observed in 1984-85,
when, for the first time, the state clocked in a revenue deficit. However, the real
shift in emphasis from socio-economic development toward maintenance of
public peace and order occurred from eighties to mid-nineties in the wake of
prolonged civil strife that the state suffered. Cumulatively, this fed into the
economic crisis, manifested in agrarian distress, shrinking economic
opportunities and outward migration to foreign lands. As a result, state’s rate of
growth and per capita income started slipping in comparison to other similarly
bracketed states.
4.5 The state government, instead of applying necessary, albeit
unpopular, correctives, continued to slip into fiscal profligacy, as evident from
the unchecked increase in unproductive revenue expenditure, freebies and
unmerited subsidies, virtual collapse in the capital and social sector investments
vital for future growth, and non-realization of its potential of tax and non-tax
revenues. Consequently, the current fiscal indicators of the states are, probably,
the worst in the country, pushing it deeper into a debt trap, as is evident from the
Table 4.1:
42
Table 4.1: Key Fiscal Indicators - Punjab State vs. General States, 2018-19
Fiscal Indicators (2018-19) Punjab General States

Per Capita GSDP Per Year (Rs.) 171,907 141,099
Indicators as %age of GSDP
Total Revenue Receipt (TRR) 11.9 13.4
Own Tax Revenue (OTR) 6.0 6.4
Own Non-Tax Revenue (ONTR) 1.4 1.1
Central Taxes (CT) 2.3 -
Central Grants (CG) 2.1 -
Total Expenditure (TE) 15.0 16.1
Economic Services (ES) 3.4 3.1
Social Services (SS) 3.5 5.4
General Services (GS) 6.9 4.7
Grants-in-Aid to Local Bodies 0.4 -
Committed Expenditure 8.9 5.8
Capital Expenditure 0.7 2.5
Revenue Deficit (RD) 2.5 0.2
Fiscal Deficit (FD) 3.1 2.5
Outstanding Debt (OD) 40.3 25.0
*Committed Expenditure includes wages/salaries, interest payments and pensions.

Source: 15thCFC, Vol. IV, The States, page PB-5.
4.6 What follows, after the above broad comparative picture, is a graphic
presentation of the State’s major fiscal indicators (Table 4.2 and Table 4.3) in a
template borrowed from the report of 15th CFC (Volume IV: The States, pages
PB-4 to PB-5), and updated over a period of ten years from 2011-12 to 2020-21
(Pre-Actuals). We gratefully acknowledge the guidance provided by 15th CFC.
43
Table 4.2: Key Fiscal Indicators of Punjab State, 2011-12 to 2020-21 (PA)
2011- 2013-
Variable 2012-13 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 (PA)
12 14
PB-3A: Revenue Deficit as % of GSDP
Revenue Deficit (Rs. Crore) 6810.91 7406.79 6537.14 7590.64 8550.11 7310.63 9455.28 13134.62 14284.89 18100.53
Revenue Deficit/GSDP Ratio (%) 2.55 2.49 1.97 2.14 2.18 1.69 2.01 2.52 2.49 2.98
PB-3.B: Fiscal Deficit as % of GSDP
Fiscal Deficit (Rs. Crore) 8490.90 9345.84 8790.07 10841.67 17359.41 52839.71 12494.20 16059.21 16825.76 23388.24
Fiscal Deficit/GSDP Ratio (%) 3.18 3.14 2.65 3.05 4.42# 12.18^ 2.66 3.08 2.93 3.86
PB-3.C: Outstanding Debt as % of GSDP
102236.
Outstanding Debt (Rs. Crore) 83099.0 92281.0 112367.0 128836.0 182526.0 195152.0 211917.0 229353.7 258010.6
0
Outstanding Debt/GSDP Ratio (%) 31.17 30.99 30.78 31.64 32.83 42.09 41.51 40.61 39.90 42.54
PB-3.D:Committed Expenditure as % of Total Revenue Expenditure
Committed Expenditure* (Rs. 24001.2 28594.2
26524.90 32544.08 35119.00 42143.98 48753.40 50719.05 52544.23 54606.37
Crore) 2 9
Committed Expenditure*/TRE 72.63 67.22 68.67 69.82 70.13 76.22 78.05 67.26 69.27 59.26
PB-3.E: Own Tax Revenue as % of GSDP
18841.0 24079.2
Own Tax Revenue (Crore) 22587.56 25570.20 26690.48 27746.66 30423.24 31574.28 29994.79 30052.67
1 0
OTR/GSDP (%) 7.07 7.59 7.25 7.20 6.80 6.40 6.47 6.05 5.22 4.95
PB-3.F: Non-Tax Revenue as % of GSDP
Non-Tax Revenue (Crore) 1398.45 2629.20 3191.49 2879.73 2650.27 5863.21 4318.38 7582.29 6654.08 4152.03
NTR/GSDP (%) 0.52 0.88 0.96 0.81 0.68 1.35 0.92 1.45 1.16 0.68
PB-3.G: Capital Expenditure as % of GSDP
Capital Expenditure (Rs Crores) 1774.73 2113.35 2365.74 3388.70 9028.01 45710.42 3112.12 3773.27 17827.73 4382.31
CE/GSDP (%) 0.67 0.71 0.71 0.95 2.30# 10.54^ 0.66 0.72 3.10 0.72
*Committed Expenditure includes wages/salaries, interest payments, and pensions.

#This ratio is high due to the UDAY Loan.
^This abnormal rise in ratio is due to the CCL Loan.
Source: State Finance Accounts and Budget Documents (Various years).
44
Figure 4.1: Deficits (Absolute) and as Proportion of GSDP of Punjab
14
Deficit Indicators of Punjab
12.18
12
10
6
4.42
3.86
4 3.18 3.14 3.05 2.… 3.08 2.93
2.65
2 2.98
2.55 2.49 2.14 2.18 2.52 2.49
1.97 1.69 2.01
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
(PA)
Revenue Deficit as % of GSDP Fiscal Deficit as % of GSDP
Figure 4.2: Outstanding Debt (Absolute) and as Proportion of GSDP of

Punjab
Outstanding Debt of Punjab

300000 42.09 41.51 42.54 45
40.61 39.9
40
250000
32.83 35
31.17 30.99 30.78 31.64
200000 30
25
150000
20
100000 15
10
50000
5
0 0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
(PA)
Outstanding Debt Outstatnding Debt as % of GSDP
45
Figure 4.3: Committed Expenditure (Absolute) and as Proportion of Total Revenue
Expenditure of Punjab
Committed Expenditure of Punjab

Committed Expenditure Committed Expenditure as % of Total Revenue Expenditure
80000 90
76.22 78.05
70000 72.63 80
68.67 69.82 70.13 69.27
67.22 67.26
70
60000
59.26
60
50000
50
40000
40
30000
30
20000
20
10000 10
0 0
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
2019-20
2020-21(PA)
Figure 4.4: Own-Tax Revenue (Absolute) and as Percentage of GSDP of

Punjab
Own-Tax Revenue of Punjab

7.59
55000 7.25 7.2 8
7.07
6.8
6.4 6.47 7
45000 6.05
5.22 6
4.95
35000
5
25000 4
3
15000
2
5000
1
-5000 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 0
(PA)
Own Tax Revenue Own Tax Revenue as % of GSDP
46
Figure 4.5: Non-Tax Revenue (Absolute) and as Proportion of GSDP of
Punjab
Non-Tax Revenue of Punjab

8000 1.45 1.6
1.35
7000 1.16 1.4
6000 1.2
0.96 0.92
5000 0.88 1
0.81
0.68 0.68
4000 0.8
0.52
3000 0.6
2000 0.4
1000 0.2
0 0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
(PA)
Non-Tax Revenue Non-Tax Revenue as % of GSDP
Figure 4.6: Capital Expenditure (Absolute) and as Proportion of GSDP of

Punjab
Capital Expenditure of Punjab

100
10000
Logarithmic Scale with base 10
10.54
10
1000
3.1
2.3
100
0.95
0.71 0.71 0.66 0.72 0.72 1
10
1 0.1
Capital Expenditure Capital Expenditure as % of GSDP
47
Table 4.3: Major Fiscal Indicators/Ratios of State Finances in Punjab,
2011-12 to 2020-21 (PA)
2020-
2011- 2012- 2013- 2014- 2015- 2016- 2017- 2018- 2019-
Ratio (%) 21
12 13 14 15 16 17 18 19 20
(PA)
OTR/GSDP 7.07 7.59 7.25 7.20 6.80 6.40 6.47 6.05 5.22 4.95
ONTR/GSDP 0.52 0.88 0.96 0.81 0.68 1.35 0.92 1.45 1.16 0.68
OTR+ONTR/GSDP 7.59 8.47 8.21 8.01 7.48 7.75 7.39 7.50 6.38 5.64
Central Taxes/GSDP 1.33 1.36 1.33 1.32 2.04 2.21 2.26 2.30 1.80 1.75
Central Grants/GSDP 0.92 0.93 1.02 1.65 1.06 1.10 1.63 2.13 2.54 3.98
Central Tax+Grants/GSDP 2.25 2.30 2.36 2.98 3.10 3.31 3.89 4.43 4.34 5.75
TRR/GSDP 9.84 10.77 10.57 10.99 10.58 11.07 11.28 11.93 10.71 11.38
RD/FD 80.21 79.25 74.37 70.01 49.25 13.84 75.68 81.79 84.90 77.39
Committed Expenditure*/TRR 91.49 82.76 81.46 83.40 84.58 87.83 91.97 81.45 85.33 79.14
i. Wages/Salaries/TRR 45.99 42.83 41.30 41.86 42.16 45.28 43.79 39.06 40.09 31.56
ii. Interest Payment/ TRR 23.94 21.31 22.28 22.96 23.56 24.26 28.93 26.19 28.53 27.76
iii. Pensions/TRR 21.56 18.61 17.88 18.58 18.86 18.28 19.26 16.20 16.72 19.83
Committed
127.39 117.43 118.75 127.27 131.58 151.89 160.25 160.63 175.18 181.70
Expenditure*/OTR
i. Wages/Salaries/OTR 64.03 60.78 60.20 63.88 65.58 78.31 76.29 77.04 82.29 72.75
ii. Interest Payment/OTR 33.33 30.24 32.48 35.04 36.65 41.96 50.40 51.64 58.57 63.73
iii. Pensions/OTR 30.03 26.41 26.07 28.35 29.35 31.62 33.55 31.95 34.32 45.52
Power Subsidy/OTR 16.98 22.40 20.00 18.15 18.16 20.19 21.62 27.85 31.32 32.44
Power Subsidy/OTR+ONTR 15.81 20.06 17.66 16.32 16.52 16.66 18.93 22.46 25.63 28.50
Capital Expenditure/GSDP 0.67 0.71 0.71 0.95 2.30# 10.54^ 0.66 0.72 3.10 0.72
Deficits
Revenue Deficit/GSDP 2.55 2.49 1.97 2.14 2.18 1.69 2.01 2.52 2.49 2.98
Fiscal Deficit/GSDP 3.18 3.14 2.65 3.05 4.42# 12.18^ 2.66 3.08 2.93 3.86
Primary Deficit/GSDP 0.83 0.84 0.29 0.53 1.93 9.50^ -0.60 -0.05 -0.13 0.70
Debt/GSDP 31.17 30.99 30.78 31.64 32.83 42.09 41.51 40.61 39.90 42.54
GSDP at Current Prices 266628 297734 332147 355102 392411 433660 470137 521861 574760 606530
Note: *It includes wages/salaries, interest payments, and pensions.
#This ratio is high due to the UDAY Loan.
^This abnormal rise in ratio is due to the CCL Loan.
(-) Minus sign before Primary Deficit means positive figure.
Source: Finance Department and RBI.
48
Figure 4.7: Central Taxes and Central Grants as Proportion of GSDP
Central Taxes and Central Grants as Proportion of

GDSP
4.5
3.98
4
3.5
3
2.54
2.21 2.26 2.3
2.5 2.04
1.65 1.75
2
1.33 1.36 1.33 2.13
1.5 1.8
1.63
1 1.32
1.02 1.06 1.1
0.5 0.92 0.93
Central Taxes/GSDP Central Grants/GSDP
Figure 4.8: Total Revenue Receipts as Proportion of GSDP
Total Revenue Receipts as Proportion of GSDP

14
11.93
10.99 11.07 11.28 11.38
12 10.77 10.57 10.58 10.71
9.84
10
TTR/GSDP
49
Figure 4.9: Revenue Deficit as Proportion of Fiscal Deficit
Revenue Deficit as Proportion of Fiscal Deficit

90
80 84.9
80.21 81.79
79.25 77.39
70 74.37 75.68
70.01
60
50
49.25
40
30
20
10
13.84
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
(PA)
RD/FD
Figure 4.10: Committed Expenditure as Proportion of Total Revenue

Receipts
Committed Expenditure as Proportion of Total Revenue Receipts

95
91.49 91.97
90 87.83
85.33
84.58
85 82.76 83.4
81.46 81.45
79.14
80
75
70
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
(PA)
Committed Expenditure/TRR
50
Figure 4.11: Wages/Salaries, Interest Payments and Pensions as Proportion
of Total Revenue Receipts
Components of Committed Expenditure as Proportion of Total Revenue

Receipts
50 45.99 45.28
42.83 41.86 42.16 43.79
45 41.3 40.09
39.06
40
35 31.56
28.93 28.53 27.76
30 24.26 26.19
23.94 22.28 22.96 23.56
25 21.31
20
15 21.56 19.83
18.61 17.88 18.58 18.86 18.28 19.26
10 16.2 16.72
5
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
(PA)
Wages/Salaries as proportion of TRR Interest Payment as proportion of TRR
Pensions as proportion of TRR

of Total Revenue Receipts
Committed Expenditure as Proportion of Own Tax Revenue

200
181.7
175.18
180
160.25 160.63
160 151.89
140 127.39 127.27 131.58

117.43 118.75
120
100
80
60
40
20
Committed Expenditure/Own tax Revenue
51
of Own-Tax Revenue
Components of Committed Expenditure as Proportion of Own Tax

Revenue
90 82.29
78.31 76.29 77.04
80 72.75
70 64.03 63.88 65.58 63.73
60.78 60.2 58.57
60 51.64
50.4
50 41.96
35.04 36.65
40 33.33 32.48 45.52
30.24
30
33.55 31.95 34.32
30.03 29.35 31.62
20 26.41 26.07 28.35
10
0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
(PA)
Wages/Salaries/OTR Interest Payment/OTR Pensions/OTR
Figure 4.14: Power Subsidy as proportion of Own-Tax Revenue and Power Subsidy as
proportion of Own-Tax Revenue and Own Non-Tax Revenue
Power Subsidy
35 31.32 32.44
27.85
30
25 22.4 21.62 28.5
20 20.19
18.15 18.16 25.63
20 16.98
22.46
20.06 18.93
15 17.66
15.81 16.32 16.52 16.66
10
5
0
Power Subsidy as proportion of Own Tax Revenue

Power subsidy as proportion of Own Tax Revenue and Own Non Tax Revenue
52
4.7 Granular details of some important aspects of state finances
comparative to major states, presented in Table 4.4 to Table 4.8, paint even a
grimmer picture.
Table 4.4: Comparative Picture of Fiscal Deficit and Revenue Deficit across
Major Indian States
S. Per Capita Fiscal Deficit and Per Capita Revenue Deficit
No.
Fiscal Deficit (Rs.) Revenue Deficit (Rs.)
Major States
2018- 2011- 2018-19
2011-12 Rank Rank Rank Rank
19 RE 12 RE
1 Andhra Pradesh 1395 10 3657 11 +291 11 1268 7
2 Bihar 381 14 2006 15 +607 12 +747 14
3 Chhattisgarh +160 16 6241 4 +1317 15 2109 6
4 Gujarat 2494 3 4567 8 840 5 +198 13
5 Haryana 2863 1 7005 2 1084 4 2902 4
6 Jharkhand 1467 9 1932 16 43 7 +1822 15
7 Karnataka 1749 7 5855 5 +683 13 +28 12
8 Kerala 2314 4 6823 3 1100 3 3753 2
9 Madhya Pradesh 726 12 3397 12 +942 15 +16 10
10 Maharashtra 1678 8 4430 9 53 8 1182 8
11 Odisha 157 15 2989 14 +931 14 +2264 17
12 Punjab 2575 2 5733 6 1906 1 3872 1
13 Rajasthan 602 13 3934 10 +154 9 3103 3
14 Tamil Nadu 2307 5 5618 7 378 6 2384 5
15 Telangana - - 7443 1 - - +19 11
16 Uttar Pradesh 863 11 1893 17 +176 10 +2041 16
17 West Bengal 2140 6 3210 13 1893 2 743 9
All 17 States 1405 - 4244 - +116 - 98 -

Source: Calculated from the data given in RBI, Handbook of Statistics on Indian States
(various years).
53
Figure 4.15: Comparison of Per Capita Fiscal Deficit across Major States for Year 2011-12 and 2018-19 RE
Comparison of Per Capita Fiscal Deficit across Major States

10000 7005 6823 7443
5733 5618 5855 6241
4567 4430 3934
3210 3657 3397
2863 2575 2989
2494 2314 2307 2140
1749 1932 1893 2006
1678 1467 1395
863
1000 726
602
381
157 160
100

10
Fiscal Deficit for 2011-12 Fiscal Deficit for 2018-19 RE
54
Figure 4.16: Comparison of Per Capita Revenue Deficit across Major States for Year 2011-12 and 2018-19 RE
Comparison of Per Capita Revenue Deficit across Major States
10000
3872 3753
2902 3103
2384 2041 2264 2109
1906 1893 1822
1182 1268 1317
1100 1084 942
840 931
1000 743 747 683
607
378
291
198 176
154
100
53
43

28
19
16
10
Revenue Deficit for 2011-12 Revenue Deficit for 2018-19 RE
55
Table 4.5: Comparison of Per Capita Own Tax Revenue and Tax Buoyancy across Major Indian States
Per Capita Own Tax Revenue (Rs.) Own Tax Revenue/GSDP Ratio (%) Own Tax Buoyancy Coefficient
S.
Major States
No. 2018-19 2001-02 to 2011-12 to
2011-12 Rank Rank 2011-12 Rank 2018-19 RE Rank Rank Rank
RE 2010-11 2018-19
1 Andhra Pradesh 5337 8 6384 12 14.11 1 6.80 8 1.50 1 1.01 9
2 Bihar 948 16 2637 17 4.85 14 6.23 14 0.99 8.5 1.26 3
3 Chhattisgarh 3525 9 7583 10 7.54 6 7.50 3 1.30 2 1.07 7.5
4 Gujarat 6012 7 11977 7 6.97 9 5.55 17 0.86 15.5 0.69 17
5 Haryana 6623 2.5 17459 1 6.44 11 6.97 6 0.87 14 0.99 10
6 Jharkhand 1809 15 5608 16 4.69 15 7.32 4 0.86 15.5 1.42 2
7 Karnataka 6297 5 14066 5 9.37 2 6.25 13 1.06 5 0.74 16
8 Kerala 6502 4 15630 3 8.24 3 6.94 7 0.95 10 0.85 12
9 Madhya Pradesh 2949 11 6265 13 8.13 5 6.52 11 1.13 3.5 0.77 14
10 Maharashtra 6677 1 14931 4 7.15 8 7.18 5 0.89 13 0.97 11
11 Odisha 2667 12 6445 11 5.67 13 6.10 15 1.02 6 1.15 5
12 Punjab 6066 6 10743 8 7.44 7 6.28 12 0.94 11 0.80 13
13 Rajasthan 3028 10 7738 9 6.14 12 6.57 10 0.99 8.5 1.07 7.5
14 Tamil Nadu 6623 2.5 13598 6 8.17 4 6.76 9 0.93 12 0.75 15
15 Telangana - - 17168 2 - - 7.69 2 - - 1.51* 1
16 Uttar Pradesh 2070 14 5963 15 6.89 10 8.28 1 1.13 3.5 1.10 6
17 West Bengal 2315 13 6085 14 4.58 16 5.65 16 1.01 7 1.22 4
All 17 States 3819 - 8896 - 7.06 - 6.77 - 1.13 - 1.01 -
Source: Calculated from the data given in RBI, Handbook of Statistics on Indian States (various years).
56
Figure 4.17: Comparison of Per Capita Own Tax Revenue across Major States for Year 2011-12 and 2018-19 RE
Comparison of Per Capita Own Tax Revenue across Major States

100000
14931 17459 15630 17168

13598 14066 11977
10743
10000 6677 6623 6623 6502 7583 7738 6445
6297 6066 6012 53376384 6265 6085 5963 5608
3525 3028 2949 2667 2315 2637
2070 1809
948
1000
100

10
Per Capita Own Tax Revenue (Rs.) 2011-12 Per Capita Own Tax Revenue (Rs.) 2018-19 RE
57
Figure 4.18: Comparison of Own-Tax Revenue/GSDP Ratio across Major States for Year 2011-12 and 2018-19 RE
Comparison of Own-Tax Revenue/GSDP Ratio across Major States

16
14.11
14
12
10 9.37
8.24 8.13 8.17 8.28

8 7.54 7.5 7.44 7.69
7.32 7.157.18
6.8 6.97 6.97 6.94 6.76 6.89
6.44 6.52 6.57
6.23 6.25 6.1 6.28 6.14
6 5.55 5.67 5.65
4.85 4.69 4.58
0
0
Own Tax Revenue/GSDP Ratio (%) 2011-12 Own Tax Revenue/GSDP Ratio (%) 2018-19 RE
58
Figure 4.19: Comparison of Own Tax Buoyancy Coefficient across Major States for Year 2001-02 to 2010-11 and
2011-12 to 2018-19
Comparison of Own Tax Buoyancy Coefficient across Major States

1.6
1.4
1.2
0.8
0.6
0.4
0.2
Own Tax Buoyancy Coefficient 2001-02 to 2010-11 Own Tax Buoyancy Coefficient 2011-12 to 2018-19
59
Table 4.6: Comparison of Per Capita Revenue Expenditure across Major Indian States
Wages/Salaries (Rs.) Interest Payments (Rs.) Pensions (Rs.) Subsidies (Rs.)
S. 2019-
Major States 2011- 2018- 2011- 2018- 2011- 2018- 2018-
No. Rank Rank Rank Rank Rank Rank Rank 20 Rank
12 19 12 19 RE 12 19 RE 19
(RE)
1 Andhra Pradesh 2771 6 3562 14 1144 7 1556 11 1136 5 1663 11 256 15 675 11
2 Bihar - - 1668 17 415 16 859 17 590 14 1264 17 664 11 611 13
3 Chhattisgarh 2509 10 5795 7 469 15 1293 16 709 11 1539 13 2768 5 3531 4
4 Gujarat 2626 8 4393 11 1593 3 2923 6 956 6.5 2264 9 2481 7 2620 7
5 Haryana 3755 2 6571 3 1309 6 4724 3 1220 4 2832 5 2917 4 2883 6
6 Jharkhand - - 3130 15 655 14 1411 13 555 15 1448 16 - - - -
7 Karnataka 1815 13 4635 10 923 10 2273 10 666 12 2551 7 3401 3 3690 3
8 Kerala 3356 4 9419 1 1703 2 4501 2 1726 2 5528 1 476 14 492 15

9 Madhya Pradesh 1830 12 3612 13 695 13 1453 12 519 16 1504 15 - - - -
10 Maharashtra 3742 3 6339 5 1392 5 2681 9 791 9 1641 12 2165 8 3465 5
11 Odisha 2563 9 5436 9 729 11 1255 15 956 6.5 2405 8 554 13 558 14
12 Punjab 4412* 1 7901 2 1988 1 5299 1 1914 1 3331 3 4340 2 4544 2
13 Rajasthan 2126 11 6244 6 1075 9 2717 8 751 10 2577 6 2692 6 2335 9
14 Tamil Nadu 3303 5 6484 4 1101 8 3543 4 1631 3 3482 2 9614 1 10642 1
15 Telangana - - 5520 8 - - 3031 5 - - 3032 4 1633 9 2387 8
16 Uttar Pradesh - - 2128 16 711 12 1377 14 631 13 2057 10 607 12 673 12
17 West Bengal 2733 7 4103 12 1514 4 2878 7 885 8 1511 14 989 10 938 10
All 17 States 1801 - 4374 - 994 - 2226 - 850 - 2143 - 1993 # - 2281 # -
*Year 2011-12. #15 States.

60
Figure 4.20: Comparison of Per Capita Wages/Salaries across Major States for Year 2011-12 and 2018-19 RE
Comparison of Per Capita Wages/Salaries across Major States

10000
9419
9000
7901
8000
7000 6571
6339 6484
6244
6000 5795
5436 5520
5000 4635
4412 4393
4103
4000 3755 3742 3612
3562
3356 3303
3130
3000 2771 2733 2626 2563 2509
2126 2128
1830 1815 1668
2000
1000
0 0 0 0
0
Wages/Salaries (Rs.) 2011-12 Wages/Salaries (Rs.) 2018-19
61
Figure 4.21: Comparison Per Capita Interest Payments across Major States for Year 2011-12 and 2018-19 RE
Comparison Per Capita Interest Payments across Major States

6000
5299
5000 4724
4501
4000
3543
3031
2923 2878
3000 2717
2681
2273
1988
2000
1703
1593 1514 1556
1392 1377 1453 1411
1309 1255 1293
1144 1101 1075
923 859
1000 729 711 695 655
469 415
0
0
Interest Payments (Rs.) 2011-12 Interest Payments (Rs.) 2018-19 RE
62
Figure 4.22: Comparison of Per Capita Pensions across Major States for Year 2011-12 and 2018-19 RE
Comparison of Per Capita Pensions across Major States

6000
5528
5000
4000
3482
3331
3032
3000 2832
2577 2551
2405
2264
2057
1914
2000 1726 1631 1663 1641
1511 1539 1448 1504
1220 1264
1136
956 956 885
1000 791 751 709 666 631 590 555 519
0
0
Pensions (Rs.) 2011-12 Pensions (Rs.) 2018-19 RE
63
Figure 4.23: Comparison of Per Capita Subsidies across Major States for Year 2011-12 and 2018-19 RE
Comparison of Per Capita Subsidies across Major States

100000
10642
9614
10000 4544
4340
34013690 29172883 3531 3465
2768 26922335 24812620 2387
2165
1633
989 938
1000 664 611 607 673 675
554 558 476 492
256
100
Logarithmic scale with base 10

10
Subsidies (Rs.) 2018-19 Subsidies (Rs.) 2019-20 (RE)
64
Table 4.7: Comparison of Per Capita Debt and Debt-GSDP Ratio across
Major Indian States
Debt-GSDP Ratio (%)

Per Capita Debt (Rs.)
S.
Major States 2018- Rank Rank 2018-
No. 2011- 2011-
Rank 19 19 Rank
12 12
RE RE
11 1
1 Andhra Pradesh 16494 7 29673 43.6 31.6 6
17 6
2 Bihar 6108 16 13445 31.2 31.8 5
15 16
3 Chhattisgarh 6672 15 22677 14.3 22.4 12
6 9
4 Gujarat 23662 3 42819 27.4 19.8 15
3 15
5 Haryana 18262 6 62814 17.8 25.1 9
16 12
6 Jharkhand 8578 14 21542 22.2 28.1 8
7 11
7 Karnataka 15295 9 40602 22.8 18.0 16
2 5
8 Kerala 25134 2 68597 31.8 30.5 7
14 8
9 Madhya Pradesh 10401 13 23750 28.7 24.7 10
10 13
10 Maharashtra 20523 5 34988 22.0 16.8 17
13 10
11 Odisha 11205 12 23908 23.8 22.6 11
12 Punjab 26955 1 68960 1 33.1 4 40.3 1

9 7
13 Rajasthan 14512 10 38376 29.4 32.6 4
5 14
14 Tamil Nadu 15866 8 44653 19.6 22.2 13
15 Telangana - - 47438 4 - - 21.3 14
16 Uttar Pradesh 11507 11 24321 12 38.3 3 33.8 3
17 West Bengal 21136 4 39548 8 41.9 2 36.7 2
All 17 States 14621 - 33416 - 27.0 - 24.4 -

Source: Calculated from the data given in RBI, Handbook of Statistics on Indian States
(various years).
65
Figure 4.24: Comparison of Per Capita Debt across Major States for Year 2011-12 and 2018-19 RE
Comparison of Per Capita Debt across Major States

80000
68960 68597
70000
62814
60000
50000 47438
44653
42819
39548 40602
40000 38376
34988
29673
30000 26955
25134 24321 23908
23662 23750 22677
21136 20523 21542
20000 18262
16494 15866 15295 14512 13445
11507 11205 10401
8578
10000 6672 6108
0
0
Per Capita Debt (Rs.) 2011-12 Per Capita Debt (Rs.) 2018-19 RE
66
Figure 4.25: Comparison of Debt-GSDP Ratio across Major States for Year 2011-12 and 2018-19 RE
Comparison of Debt-GSDP Ratio across Major States

50
45 43.6
41.9
40.3
40 38.3
36.7
35 33.8 33.1
32.6
31.6 31.8 31.8
30.5 31.2
29.4 28.7
30 28.1
27.4
24.7 25.1
25 23.8
22.6 22.8 22.2 22 22.2 22.4
21.3
19.8 19.6
20 18 17.8
16.8
14.3
15
10
0
0
Debt-GSDP Ratio (%) 2011-12 Debt-GSDP Ratio (%) 2018-19 RE
67
Table 4.8: Comparison of Capital Expenditure and Capital Outlay across Major Indian States
Per Capita Basis
S. Capital Expenditure (Rs.) Capital Outlay (Rs.) Capital Outlay/Capital Expenditure (%)
Major States
No. 2011- Rank 2018-19 2011- 2018-19 2011- 2018-19
Rank Rank Rank Rank Rank
12 RE 12 RE 12 RE
1 Andhra Pradesh 2613 2 3892 16 1315 6 2219 16 50.33 15 57.01 12
2 Bihar 1200 15 3371 17 883 13 2706 13 73.58 4 80.27 3
3 Chhattisgarh 1648 10 4582 14 1156 9 4086 6 70.15 5 89.18 1
4 Gujarat 2344 5 7034 4 1602 3 4514 5 68.34 7 64.17 9
5 Haryana 2416 4 7924 2 1590 5 5446 2 65.81 9 68.73 8
6 Jharkhand 1897 8 4670 12 1295 7 3369 8 68.27 8 72.14 5
7 Karnataka 2930 1 7543 3 2186 1 5236 3 74.61 5 69.42 7
8 Kerala 1826 9 5769 7 1007 12 2826 12 55.15 14 48.99 16
9 Madhya Pradesh 2071 7 4656 13 1212 8 3235 11 58.52 12 69.48 6
10 Maharashtra 2109 6 5672 8 1599 4 3285 9 75.82 1 57.92 11
11 Odisha 1592 11 6176 5 1021 10 5073 4 64.13 10 82.14 2
12 Punjab 1501 12 4624 11 859 14 1583 17 57.23 13 34.23 17
13 Rajasthan 1288 14 4906 10 766 15 2633 14 59.47 11 53.67 15
14 Tamil Nadu 2490 3 5972 6 1724 2 3233 10 69.24 6 54.14 13
15 Telangana - - 10909 1 - - 6968 1 - - 63.87 10
16 Uttar Pradesh 1347 13 5045 9 1015 11 3824 7 75.35 2 75.80 4
17 West Bengal 923 16 4522 15 244 16 2411 15 26.44 16 53.32 15
All 17 States 1750 - 5350 - 1145 - 3493 - 65.43 - 65.29 -
68
Figure 4.26: Comparison of Per Capita Capital Expenditure across Major States for Year 2011-12 and 2018-19 RE
Comparison of Per Capita Capital Expenditure across Major States

100000
10909
10000 7543 7924 7034
5972 5672 5769 6176
4656 4670 4582 4624 5045 4906 4522
3892 3371
2930 2613 2490 2416 2344 2109 2071 1897 1826 1648 1592 1501 1347 1288 1200
923
1000

100
10
Capital Expenditure (Rs.) 2011-12 Capital Expenditure (Rs.) 2018-19 RE
69
Figure 4.27: Comparison of Per Capita Capital Outlay across Major States for Year 2011-12 and 2018-19 RE
Comparison of Per Capita Capital Outlay across Major States

10000 6968
5236 5446 5073
4514 4086
3285 3369 3824
3233 3235 2826 2706 2633 2411
2186 2219
1724 1602 1599 1590 1583
1315 1295 1212 1156 1021 1015 1007 883 859 766
1000
244
100

10
Capital Outlay (Rs.) 2011-12 Capital Outlay (Rs.) 2018-19 RE
70
Figure 4.28: Comparison Capital Outlay/Capital Expenditure Ratio across Major States for
Year 2011-12 and 2018-19 RE
Comparison of Capital Outlay/Capital Expenditure Ratio across Major States (%)
100
90
80
70
60
50
40
30
20
10
Capital Outlay/Capital Expenditure (%) 2011-12 Capital Outlay/Capital Expenditure (%) 2018-19 RE
71
II Public Debt and its Sustainability
4.8 An in-depth analysis of Punjab Government’s outstanding

debt stock at the end of 2021 leads to the following conclusions: -
(a) An exponential increase in the outstanding debt stock from a

modest Rs. 83,099 crore in 2011-12 to a whopping Rs. 258,011
crore at the end of 2020-21 (PA), an increase of 211% over a span
of 10 years, clocking in an average annual growth of 21.05% over
the same period. Against this, state’s nominal GSDP returned an
average annual growth of 13.66%. This casts a long shadow of
debt overhang over the future fiscal performance of the state.
(b) Radical change in the composition of the outstanding debt stock:
Change in the composition of outstanding debt in 2011-12 over

2001-02 and in 2020-21 over 2011-12 is presented in Table 4.9.
The change in the composition of outstanding debt is vividly
captured by a sharp increase in the share of market borrowings
from 8.92% in 2001-02 to 58.79% in 2020-21 (PA) and sharp
decline in the share of loans and advances from the central
government from 44.70% to 1.80% over the same period. As
most of the current debt comprises of commercial loans,
Provident Funds, Reserve Funds and Deposits, it has become
difficult for the State to seek debt relief or debt restructuring,
even though it used to be a very prominent feature of the
recommendations of the Central Finance Commission upto the
13thCFC.
72
Table 4.9: Composition of Outstanding Debt of Punjab by March end of
Each Year (Rs. Crore)
Internal Debt Public Debt Other Liabilities
Total Outstanding Debt

Other Bonds (UDAY)
Loans and Advances
(6+7+8+9)
Compensation Loan
Total Internal Debt
Loans from SBI &
Reserve Funds &

Compensation &
Provident Funds
Market Loans
Loan of GST
Other Banks
(1+2+3+4+5)
from Centre
Loans from
NABARD
Deposits
Year
NSSF
1 2 3 4 5 6 7 8 9 10 11
2000-
2,596 320 713 1,941 4,042 9,612 13,008 - 5,210 1,269 29,099
01
% 8.92 1.10 2.45 6.67 13.89 33.03 44.70 - 17.90 4.36 100.00
2011- -
34,504 2,095 736 1,343 22,222 60902 3,259 12,997 5,940 83,099
12
% 41.52 2.52 0.89 1.62 26.74 73.29 3.92 - 15.64 7.15 100.00
2019- -
1,28,218 1808 15651 27,304 16,694 189674 4,671 22,995 12,050 2,29,390
20
% 55.90 0.79 6.82 11.90 7.28 82.69 2.04 - 10.02 5.25 100.00
2020-
1,51,685 1,929 15,628 26,296 14,856 2,10,394 4,641 8,359 22,150 12,467 2,58,011
21 PA
% 58.79 0.75 6.06 10.19 5.76 81.54 1.80 3.24 8.58 4.83 100.00
Note: Minor Variations due to rounding-off.
Source: State Finance Accounts and Budget Documents (various years).
(c) Weighted average cost of outstanding debt at 7.33% per annum

works out to 22.17% higher than the current bond yields which
are sub-6% per annum. It makes a compelling case for a debt
swap, at least for highly debt-stressed states like Punjab.
(d) Net debt inflow [gross debt - (interest & repayment)] of Punjab
which was in the positive territory for long, has now become either
negative or negligible. In other words, the gross debt raised by
the state every year falls short even to pay interest and repayment.
It is a classical debt trap.
(e) An analysis of the maturity profile of the outstanding debt shows
that, the state govt. will have to bear a heavy burden of interest
and repayment every year for the next 10 years upto 2029-30,
73
thereafter it may taper depending upon fresh debt that the govt.
might incur during this period.
(f) Debt–GDP ratio stood at 42.54 during 2020-21, which is likely to
reach at 48.34% by the end of 2021-22 (BE), but it does not fully
reflect the gravity of the debt trap, especially in the context of
Punjab state. A better data point will be the debt stock and debt-
servicing charges as a percentage of total revenue receipts of the
state. Currently (2020-21), it is 373.95% and 46.50%,
respectively, which is way above prudent debt management
levels. In the coming years, it is expected to be deteriorated more
and more!
(g) Economic theory states that debt is sustainable if the rate of
growth of nominal GSDP is more than the rate of interest and the
primary balance is positive. However, this thesis does not hold
good in respect of states like Punjab, which carry a huge interest
burden of accumulated historical debt and has a low tax buoyancy.
No wonder, despite fulfilling both conditions during 2017-18,
2018-19 and 2019-20, Punjab’s debt woes only multiplied.
III State Public Enterprises
4.9 Punjab has made a huge investment of around Rs. 60,000

crore in its public enterprises, with virtually zero return. Most of these
PSUs are running in losses. Overall, these enterprises never earned more
than Rs. 5 crore per annum as dividends/profits during 2011-12 to 2020-
21. The final report of 15thCFC recorded that Punjab has 33 working PSUs
(29 Companies and 4 Statutory Corporations) and another 20 inactive
companies. Most of the working PSUs did not update their latest books of
accounts.
74
4.10 These enterprises have been established over a period of time,
without ever having looked into their necessity, viability and sustainability,
which is long overdue. Most of the PSUs (boards, corporations, etc.) are
not headed by professionals and suffered from over-staffing. In fact, these
bodies have become a parking lot for henchmen of the ruling party. There
is an urgent need to review their utility and viability in the present context
(Sen, 1994) by a third-party professional. Pending this review, it is
suggested that there should be (i) no further investment in them; (ii) no
recruitment of new staff; and (iii) no appointment of non-officials to the
Boards/Corporations and no pay revision for their staff by infusion of funds
by the state government.
4.11 After carrying out the suggested review, the enterprises which
are unnecessary should be closed down, and those which are absolutely
necessary, potentially viable and sustainable should be granted functional
and financial autonomy, with strong accountability and transparency
mechanisms. In the meanwhile, their assets and liabilities should be vested
in a state government holding company, which should be tasked with their
optimal management and future investment, if any.
IV Public Assets Management
4.12 Yet another untapped source, having immense potential for

garnering revenues for the government, is large public assets owned by the
government and its entities. Currently, these are either poorly managed or
even mismanaged to an extent that, the government does not have authentic
record of these assets with a clear title. As a result, these valuable assets
are being grabbed by influential persons or are being disposed of by the
government departments and its entities in a sub-optimal manner causing
a revenue loss running into tens of thousands of crores. This makes a
75
compelling case for setting up a Department of Investment and Public
Assets Management (DIPAM) with Chief Minister as minister-in-charge
and the Chief Secretary as its administrative secretary. The mandate of the
proposed department should be to create an authentic inventory of such
public assets and their disposal in an optimal manner with a view to value
maximisation and investment of proceeds thereof either to retire expensive
debt or for creation of productive capital assets.
4.13 On the intangible plane, fast-paced urbanisation has sent land

values sky-rocketing. However, the state government has not been able to
capture even a fraction of it for mobilising much-needed resources for
urban infrastructure and renewal. Rather, it is property sharks who have
cornered most of the value to the exclusion of the government, and the end
users. It is time that, Urban Development Authorities, Municipalities,
Improvement Trusts and other infrastructure development bodies are
enabled by the state government to substantially capture the appreciation
in land value by framing uniform and holistic policies for levy of Change
of Land Use charges, conversion charges, development charges, impact
fee, increase in FAR, etc. and offering tradeable development rights and
hold them accountable for strict implementation of these policies. For
conceptual clarity, see the section relating to value capture finance (VCF)
of Chapter 10, paras 10.14 to 10.18 of the report.
V Key Insights
4.14 In a broader sense, Punjab’s economic decline and

fiscal crisis stem from its political economy that emerged over the last
thirty years, with a negative impact on governance. The Punjab has ceased
to be a ‘development state’ and has morphed into a ‘security state’. There
is a compelling case for change in direction toward investing in its future
76
progress and prosperity, which, in turn, is predicated upon government’s
ability to wriggle out of the current fiscal morass.
4.15 The foregoing analysis of state finances does not present a

pretty picture. The state’s fiscal suffers from a deep-rooted structural
malaise manifested in prolonged and persistent high debt and deficits as
depicted in the Table 4.10.
Table 4.10: Deficit and Debt as Percentage of GSDP in Punjab
Indicator 2011-12 2020-21 PA

Revenue Deficit as % of GSDP 2.55 2.98
Fiscal deficit as % of GSDP 3.18 3.86
Primary deficit as % of GSDP 0.83 0.70
Public Debt as % of GSDP 31.17 42.54
- The State is in the classical debt trap in as much as that, the annual gross
debt contracted by the government is mostly applied toward repayment
of the old debt and funding its revenue deficit and not for the future
development and prosperity of the State, as is evident from Table 4.11.
Table 4.11: Extent of Gross Debt and Servicing of Debt in Punjab

Variable 2011-12 2020-21
Gross Debt/Borrowings (Rs. Crore) 11966 32,258
Repayment of Principal (Rs. Crore) 2675 12928
Interest Payments (Rs. Crore) 6280 19152
Debt Servicing* (Rs. Crore) 8955 32080
Net Debt (Rs. Crore) 3011 178
*It is a sum total of repayment of principal and interest payments.
- Another way of looking at the debt trap is the worsening debt service
ratio (ratio of interest to state’s own revenue receipts). It was 33.33%
in 2011-12 and is 63.73% in 2020-21 (PA).
77
- Not only the debt and deficits are high, most of the debt raised by the
government is being used to fund its revenue deficit, which, on an
average, constituted 70% of fiscal deficit during the period 2011-12 to
2020-21.
- Fiscal straight jacket, with no fiscal space, as committed expenditure on
salaries/wages, interest payments and pensions ranged as high as
91.49% to 79.14% of the total revenue receipts of the state during 2011-
12 and 2020-21, respectively.
- Consequently, capital expenditure ranged between 0.67% to 0.72% of
the GSDP, probably the lowest amongst states, during 2011-12 to 2020-
21, respectively.
- Regressive and untargeted power subsidy, which ate up 16.98% of
state’s own tax receipts in 2011-12 and 32.44% % in 2020-21.
- State government’s per capita expenditure on salaries/wages, pensions
and interest payments is the highest among major states, even though
its per capita income across 18 major states has slid from the 1st rank in
2002-03 to 10th rank in 2018-19 and 2019-20.
- The state has a plethora of PSUs and other unnecessary and unviable
government entities, which, not to speak of giving any return on a huge
investment of over 60,000 crores, are an onerous burden on a fragile
fiscal.
- No wonder, Punjab’s lead fiscal indicators are, probably, the worst of
all the General States, as the following Table 4.12 will reveal:
Table 4.12: Key Fiscal Indicators - Punjab State vs. General States, 2018-19
Fiscal Indicators as %age of GSDP Punjab General States

Total Revenue Receipts (TRR) 11.9 13.4
Own Tax Receipts (OTR) 6.0 6.4
Total Expenditure (TE) 15.0 16.1
Economic Services (ES) 3.4 3.1
Social Services (SS) 3.5 5.4
General Services (GS) 6.9 4.7
Committed Expenditure 8.9 5.8
Capital Expenditure 0.7 2.5
Revenue Deficit (RD) 2.5 0.2
Fiscal Deficit (FD) 3.1 2.5
Outstanding Debt (OD) 40.3 25.0
*Committed Expenditure includes salaries/wages, interest payments and pensions.
Source: 15thCFC, Vol. IV, page PB-5.
78
VI Emerging Pain Points
4.16 Financial position of the state is likely to worsen in future due

to the emerging pain points, unless prompt remedial measures are taken.
These are:
- Gap in CCL and value of food stocks. The state government in March
2017, in undue hurry, agreed to square up the accumulated gap of nearly
Rs. 31,000 crores by raising a loan bearing 8.25% interest with an EMI
of Rs. 270 crore per month to be paid over the next 18 years (September,
2034). This had the dual impact of absolving the central government of
any responsibility for this gap and the state procurement agencies of any
malfeasance, despite the admitted fact that, the gap is due to the
systemic reasons, non-existence of a level playing field between FCI
and state procurement agencies and non-conforming to the principles of
procurement incidentals by the state procurement agencies. Cognizant
of this fact, it was agreed, in a meeting in the P.M.O., to fairly apportion
this gap between the central government, state government and the
banks and broad apportionment was also agreed to. For the reasons best
known to the state government, they never took up this matter with the
GOI and, instead, hurriedly agreed to raise a whopping loan of Rs.
30,584 crore to square up the account, thus pushing the substantive
issues under the carpet. The matter also went to the 15th CFC for a
suitable recommendation to resolve the issue, which, in turn, appointed
a committee chaired by Prof Ramesh Chand, Member, NITI Aayog and
15th CFC, which is learnt to have recommended a relief of Rs. 6156
crore to the state, but with no recommendation of the 15th CFC. As the
principle of fair apportionment of gap has been conceded right upto the
level of Prime Minister of India, it will be worthwhile to take up this
79
matter with the GOI, failing which even to agitate it in a court of
competent jurisdiction.
In the meanwhile, pitch for procurement of food grains for the
Central Pool by the state procurement agencies has been further queered
by reducing the procurement incidentals by as much as about Rs.150/-
per quintal. This would result in a loss of Rs.4000 crore to Rs.5000 crore
per annum, unless the Govt. of Punjab is able to recover it from other
stakeholders. This is for the state govt. to take a call on.
- GST compensation to the states is expiring on the 30 th June, 2022.
Punjab is one of the highest recipients of GST compensation. If it is not
extended beyond the stipulated date, the state government would be
staring at a loss of nearly Rs. 10,000/-crore per annum, unless, it
smartens up GST administration and ratchets up the SGST & IGST
revenue correspondingly in the meanwhile.
- Revenue deficit grants recommended by the 15th CFC has provided a
badly needed cushion to the states’ fiscal. Unflatteringly, the state is one
of the highest recipients of this grant. However, it is going to taper and
phase out by 2024-25, thereafter, the state government will have to do
without it by mobilising additional resources of their own.
- The State Government has already received the Report of the 6th Punjab
Pay Commission and has decided on its implementation. However, its
present implications are not yet known. In any case, it is the 1st round
of implementation. The state government has already constituted a
group of ministers and a group of officers for overseeing of its
implementation. The state government may keep the precarious
financial position of the state in view while implementing the
recommendations of the 6th Punjab Pay Commission.
- The state government has no authentic information as to what are its
outstanding liabilities. However, anecdotal evidence reveals that they
80
will add up to a huge amount. It is time that the state government makes
an assessment of these liabilities as, sooner or later, these will have to
be paid.
VII Roadmap for Fiscal Consolidation.
4.17 Confronted with the problem of high debt and deficits, the Union
Government enacted the Fiscal Responsibility and Budget Management
(FRBM) Act, 2003. Most States, including Punjab, followed suit. The Act
mandated the governments to achieve prescribed levels of revenue deficit, fiscal
deficit and public debt (as a percentage of GDP) over a period of time. The
Punjab FRBM Act was implemented in 2003 and has been amended in the years
2005, 2007, 2011 and 2018. The Union Government has also been amending
its FRBM Act from time to time. Thus, it would be seen that, the FRBM Act
has been followed more in breach than in compliance.
4.18 The 15th CFC has recommended the following Deficit and Debt Path
for the State Governments.
Table 4.13: Indicative Deficit and Debt Path of the State Governments (%age
of GSDP)
15thCFC 15thCFC (2021-22 to 2025-26)

Variable
2020-21 2021-22 2022-23 2023.24 2024-25 2025-26
Revenue Deficit* -0.1 -0.5 -0.8 -1.2 -1.7 -2.5
Fiscal Deficit 4.5 4.0 3.5 3.0 3.0 3.0
Total Liabilities 33.1 32.6 33.3 33.1 32.8 32.5
*Negative values indicate surplus and positive values indicate deficit.
Source: 15thCFC, Report for 2021-26, Vol. I.
4.19 The 15th CFC has also recommended carry-over of the un-utilized
borrowing limit of the states to be utilized by them by 2025-26, beside
incentive-based Extra Borrowing Space for the States.
81
4.20 We are of the considered view that a uniform Deficit and Debt Path,
as recommended by the 15th CFC, is not feasible of implementation, as deficit
and debt levels widely vary across the States, as would be seen from the
following Table 4.14.
Table 4.14: Revenue Deficit (+)/Surplus (-) of the States
2019-20 RE
Indicators
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18
2018-19
Number of
States with 10 6 6 11 15 10 10 10 10 15
revenue deficit
Revenue deficit
as % of all-State 0.59 0.40 0.38 0.48 0.84 0.56 0.77 0.65 0.68 1.00
GSDP*
Number of
States with 18 22 22 17 14 19 19 19 19 13
revenue surplus
Revenue surplus
-
as % of all-State -0.63 -0.69 -0.60 -0.38 -0.45 -0.51 -0.49 - 0.50 -0.23
0.55
GSDP*
Aggregate
revenue
deficit/surplus as -0.04 -0.29 -0.22 0.10 0.39 0.04 0.28 0.15 0.13 0.77
% of all-State
GSDP
Aggregate fiscal
deficit as % of 2.4 2.0 2.1 2.3 2.9 3.2 3.6 2.5 2.5 3.2
all-State GSDP
*Revenue deficit refers to aggregate revenue deficit of States that had revenue deficit, and Revenue surplus refers
to aggregate revenue surplus of States that had revenue surplus.
Note: Total number of States during 2010-11 to 2013-14 is twenty-eight because Telangana was not a separate
State at that time. The number of States in 2019-20 is twenty-eight because Jammu & Kashmir ceased to be a
State.
Source: 15th CFC, Vol. I, page 365.
82
4.21 Besides, the fiscal consolidation path specified by the Fifteenth
Finance Commission (FFC) has already been overtaken by events. The FRBM
Act, 2018 also had certain deficiencies. Specifically, there is inconsistency in the
Debt and Deficit levels specified by the 15th FC for the States and the FRBM Act,
2018, as they talk of fiscal deficit and debt as a percentage of GDP, whereas the
more relevant indicator for the states is the revenue deficit. In view of the ongoing
economic uncertainty, the 15th FC has recommended the constitution of a high-
powered inter-governmental group to reconsider this whole issue. Therefore, the
state government may await constitution of such a group and make a case for a
realistic and relevant fiscal consolidation path for the state. While doing so, the
following suggestions may be kept in view:
(i) The combined debt-GDP ratio target may be fixed at 70%.
(ii) Centre’s debt-GDP ratio may be fixed at 40%.
(iii) States’ debt-GSDP ratio may be fixed at 30%, however,

differentiating between states on the basis of their current debt
levels.
(iv) The states may achieve revenue balance or become revenue positive
by 2025-26.
4.22 Therefore, for the present, the Commission would recommend the
following Fiscal Consolidation Path for Punjab, having regard to its peculiar
fiscal situation. We would, therefore, recommend as under: -
83
- The state government to achieve balance on revenue account by the end
of 2025-26. In other words, achieve zero/positive revenue deficit. The
state government may fix yearly targets, if they so desire, at its own level.
- As the borrowing limit of the States is fixed by the Union Government
under Article 293 of the Constitution, fiscal deficit target may be derived
from the same.
- Debt to GSDP ratio may be reduced to from 48.34% of GSDP at the end
of 2021-22 to 43.71% at the end of 2025-26.
4.23 We refrain from making any detailed forecast of receipts and
expenditure for the state, as such an exercise will be entirely theoretical. At the
end of the day, the reality will be starkly different from such a forecast as
vouched by the past such exercises, both by the CFC and SFC. Even the forecast
made by the Department of Finance and the 15thCFC are at a wide variance with
each other. Instead, we would recommend a broad Fiscal Scenario to be
pursued by the state during 2021-22 to 2025-26, based on the Fiscal
Consolidation Path at para 4.22 above.
4.24 To do so, the Commission has followed a consultative
approach. For this purpose, five alternative scenarios were discussed with the
departments of Finance and Excise & Taxation. On the basis of these
discussions, the Commission would recommend the following fiscal scenario
for the state government.
84
Table 4.15: Recommended Fiscal Scenario for Punjab from 2021-22 to 2025-26
Sr. Item 2021-22 2022-23 2023-24 2024-25 2025-26 Remarks for Projected Figures
No. (BE) (P) (P) (P) (P)
1 2 3 4 5 6 7 8
1 Revenue Receipts 95259 89406 85193 90203 97878 -
1.1 Share of Central Taxes 12027 13239 14897 16924 19382 As per 15th FC Report
RD Grant, SDRF and LB Grant as per 15th FC Report;
1.2 Grants-in-aid from Centre 38038 28989 17759 14759 13299
5% Growth on other CSS Grants
Assuming Tax Buoyancy higher than unity and improved
1.3 State's Own Tax Revenue 37435 41499 46007 51009 56559
compliance
Assuming 15% Growth Rate (Excl Misc General
1.4 State's Own Non-Tax Revenue 7758 5679 6531 7511 8637
Services); Increasing the rates of levies/penalties
2 Total Revenue Expenditure 103880 97356 96509 96757 97763
Salaries and Wages (including 6% Growth on Salary (incl Pay Commission prospective
2.1 27714 32188 34053 36031 38127
GIA) burden and Arrears)
Pension & Other Retirement 3% Growth on Pensionary charges (incl Pay Commission
2.2 11767 15763 16185 16620 17067
Benefits prospective burden and Arrears)
Using Debt Swaps, prepayment of expensive loans and
2.3 Interest Payments 20316 21331 22398 23518 24694
raising low-cost debt
Phasing out Power Subsidy sequentially at the rate of
2.4 Power Subsidy 10621 7966 5974 4481 3361
25% Per Annum
As per 15th FC Report (Local Bodies/Health Sector
2.5 Devolution to Local Bodies 4059 4219 4393 4629 4757
Grants) & 5% on PMF and Others
2.6 Other Revenue Expenditure 29404 15888 13505 11479 9757 Austerity Measures @ 15% curtailment of expenditure
3 Revenue Deficit (2-1) 8621 7950 11315 6555 -115 -
4 Capital Expenditure 14134 10000 8950 15600 24400 Adjusted to keep within the FRBM Norms
Loans and Advances
5 1483 1000 1050 1100 1150 On the basis of past trends
(Advances-Recovery)
6 Fiscal Deficit (3+4+5) 24239 18950 21315 23255 25435 -
Including Annual Permitted NB (FY22) and Carry
7 Outstanding Debt 277342 300260 321587 344828 370239
Forward Borrowing in FY22 (5966 Crs)
BE=Rs 607594 crore; However, GSDP as per MoF (2021-
8 GSDP 573763 654792 710901 774699 847059
22) has been taken and as per 15th FC Report (2022-26)
9 RD as %GSDP 1.50 1.21 1.59 0.85 -0.01 Revenue Surplus
10 FD as % GSDP 4.22 2.89 3.00 3.00 3.00 -
Outstanding Debt as % -
11 48.34 45.86 45.24 44.51 43.71
GSDP
85
The same is graphically presented below:
Figure 4.29: Revenue Deficit as % of GSDP
RD as %GSDP
1.80
1.59
1.60 1.50
1.40
1.21
1.20
1.00 0.85
0.80
0.60
0.40
0.20
-0.01
0.00
2021-22 (BE) 2022-23 (P) 2023-24 (P) 2024-25 (P) 2025-26 (P)
-0.20
Figure 4.30: Fiscal Deficit as % of GSDP
FD as % GSDP
4.50
4.00 4.22
3.50
3.00
3.00 3.00 3.00
2.89
2.50
2.00
1.50
1.00
0.50
0.00
2021-22 (BE) 2022-23 (P) 2023-24 (P) 2024-25 (P) 2025-26 (P)
86
The above scenario is based on the following assumptions: -
- Assuming Tax Buoyancy higher than Unity and improved

compliance.
- Assuming 15% growth rate on State Own Non-Tax Revenue
excluding miscellaneous general services and increase in rate of
levies over penalties.
- Assuming use of debt swaps by prepayment of expensive loans and
raising low-cost debt.
- Assuming phasing out Power Subsidy sequentially @25% per
annum.
- Assuming 15% curtailment in other revenue expenditure.
Note: It may be seen that even by the recommended fiscal scenario, the outstanding
liabilities of the state are projected to be at an elevated level of over 40% of GDP,
which makes a compelling case for debt swapping and debt reduction.
4.25 We are also not recommending any specific measures by way of

fiscal reforms for achieving the milestones recommended by us in the suggested
Roadmap for Fiscal Consolidation and the Fiscal Scenario because we feel that
the same is best left to the genius of the government of the day. However, a
detailed diagnosis of State’s fiscal presented by us in the foregoing pages and the
emerging pain points offer a wide bouquet of corrective measures that the
government may consider taking in this behalf. Besides, the assumptions
underlying the Fiscal Scenario are sufficiently suggestive of the fiscal measures
that are required to be undertaken for its implementation.
4.26 Besides, a synopsis of suggestions made in this behalf by Dr. R.S

Ghuman, Special Invitee to the Commission; and an appreciation of the State's
Fiscal Position in an article titled " From Empty Coffers to Zero Pending Bills"
by Sh. Manpreet Singh Badal, Former Finance Minister is presented in Box 4.1
and Box 4.2, respectively. Can there be more contrasting perceptions state’s
fiscal than at the two boxes below:
87
Box 4.1
Potential for Additional Financial Resource Mobilization in Punjab
• Punjab is passing through a serious financial crisis reflected in rising debt-GSDP ratio,
rising interest payments & other committed expenditure liabilities and hardly any
capital expenditure.
• Under mobilization of financial resources (reflected in low own tax-GSDP ratio), their
injudicious & discretionary use, irrational and untargeted freebies & subsidies (even to
the rich), financial mismanagement and misplaced development priorities are further
accentuating the problem.
• This has been aptly reflected in Punjab's decelerated growth rate for the last about 30
years far below the national average; and its per capita income rank slid down from 1st
till the end of 1990s to 19th amongst all 28 States of India during 2019-20.
• A plethora of election promises (including free electricity, old age pension and
financial benefits to women and a lot more) would further aggravate the financial
crisis; impair the governance and economic growth in the state.
• Paradoxically, all political parties indulge in such populism−ambit instead of following
a credible road map to raise GSDP growth rate and mobilizing additional financial
resources (even in the face of Rs. 2.82 lakh crore outstanding debt of the state in 2021-
22 (likely to cross Rs.3 lakh crore by 31 March 2022, interest payments ate away
nearly two-third share of its own tax receipts).
• Scope for additional financial resources:
a. There is a scope for increasing own tax revenue by Rs. 16012 crore in 2020-21, by
adherence to own tax-GSDP ratio of 2004-05 in the state.
b. Additional financial resources to the tune of Rs. 28500 crore annually can be
mobilized without imposing any additional taxes/duties. The break-up is as
follows: Rs. 5000 crore excise duty; Rs. 9000 crore GST; Rs. 2000 crore stamp
and registration; Rs. 3000 crore mining; Rs. 3000 crore property tax; Rs. 1500
crore professional tax; Rs. 1500 crore power theft; Rs. 2500 crore transport and
cable; and Rs 1000 crore pilferage in the social welfare schemes.
c. Another Rs. 10000 crore can be added to it by rationalizing the tax regime,
subsidies and discretionary spending by Chief Minister, Ministers and MLAs.
d. Strong political-will and merger of Finance and Taxation Ministries into one
ministry may be of some help.
e. Every penny should be first brought into the Consolidated Fund of State and the
entire expenditure should be approved by the State Legislature.
f. It is time to follow an acclaimed book ‘Good Economics for Hard Times’.
Source: An abridged version of the Note titled ‘Potential for Additional Financial Resource
Mobilization in Punjab submitted by Professor (Dr.) Ranjit Singh Ghuman, Economist and
Special Invitee to 6th SFC.
88
Box 4.2
From Empty Coffers to Zero Pending Bills
• In 2017, Punjab was on a fiscal precipice — its coffers were virtually empty,
and hardly any resource left for public welfare schemes.
• The previous government left pending liabilities of Rs. 13000 crore for the
expenditure already incurred, including unpaid liability of Atta-Dal scheme,
dearness allowance and power subsidy.
• RBI stopped honouring payments of state government during the month of
March, 2017 (State Treasury was closed during last few days of March,
2017).
• Conversion of CCL Gap of Rs. 30584.11 crore as a long-term loan in March
2017; and its interest payments to be paid for next 15 years inflicted severest
blow to the state’s fiscal.
• Primary Deficit stood at Rs. 41,198 crore in 2016-17.
• Major fiscal achievements of Punjab during 2017-18 to 2021-22 are:
a. Zero pending bills for payments;
b. Achieving a Primary Surplus equivalent to Rs. 741 crore during 2019-
20;
c. Zero funding gap for two consecutive years, i.e., 2020-21 and 2021-22;
d. Borrowings from open market negotiated at lesser interest rate than most
comparative states;
e. Adopted a proactive cash management and leakages as well as
profligacy were checked through Punjab Transparency in Public
Procurement Act, 2019.
f. All receipts of PIDB are now routed through the Consolidated Fund of
the State;
g. State invested Rs, 2000 crore in Consolidated Sinking Fund of the state;
h. GSDP has also grown handsomely at 11.50% in 2018-19 and 9.41% in
next year;
i. State’s per capita has also gone up from Rs, 1.28 lakh per annum in 2016
to Rs 1.67 lakh in 2020;
j. Punjab got Rs. 40,000 crore as Revenue Deficit grants from the 15th CFC
(2021-26);
k. Rising share of Punjab in Tax Devolution from 1.577 (14th CFC) and
1.877 (15th CFC) was stated as an achievement;
• In the end, the FM states that he ‘inherited a poisoned chalice deficit — fiscal
as well as emotional — a sluggish economy, a precarious financial situation’,
but leaving Punjab as much improved situation.
• In end, he also states ‘If the people repose trust in me again, I can tell you I
will be back in whatever role the people of my magnificent state want me’.
•
Source: An abridged version of article titled as ‘From Empty Coffers to Zero

Pending Bills’ by Sh, Manpreet Singh Badal, Former Finance Minister,
Punjab and published in The Tribune, March 09, 2022.
89
4.27 In conclusion, we would like to say that the first step toward
solving a problem is to acknowledge its existence and, thereafter, to muster
the will to exercise hard budget options to reverse the ever-deteriorating
direction that the State’s fiscal has taken. It is more a reform of a kind and
not of a degree. In other words, a reversal of direction, which brooks no
further delay.
90
Chapter 5
Centre-State Fiscal Relations

(Navigating the centralizing tendencies)
5.1 India is a ‘Union of States’. The Constitution, in it’s Seventh

Schedule, lays down separate and concurrent responsibilities shared by the union
government and states. Over a period of time, however, these boundaries have
been blurred. Successive central governments have let their centralizing impulse
a free run through central schemes on the state subjects.
Recent Developments in Centre-State Fiscal Relations
Vertical Fiscal Imbalances (Union vs. States)
5.2 All previous CFCs, including 15th CFC, tried to address the vertical
fiscal imbalances in India’s federal structure, in which (i) the Union government
enjoys very high and more buoyant taxation and revenue raising powers; and (ii)
the States are endowed with very few taxation powers, but with higher
expenditure responsibilities (Box 5.1). The CFCs, since the 12th CFC, have tried
to reduce States’ fiscal imbalance by raising States’ shares in the divisible pool
comprised of net proceeds of all taxes (Box 5.2).
Box 5.1
Vertical Fiscal Imbalances between Union and State Government, 2018-19
Source: 15th CFC Report, Vol. I, p. 150.
91
Box 5.2
Rising Vertical Share of States in Divisible Pool

11th CFC 12th CFC 13th CFC 14th CFC 15th CFC
Variable (2000-01 to (2005-06 to (2010-11 to (2015-16 to (2021-22 to
2004-05) 2009-10 2014-15) 2019-20) 2025-26)
States’ Share in
29.5 30.5 32.0 42.00 41.0*
Divisible Pool
*Vertical share for 28 States as the erstwhile State of Jammu & Kashmir bifurcated into the two Union Territories:
(i) Jammu & Kashmir, and (ii) Ladakh. However, 14th CFC’s Award was for 29 States.
Source: 15th CFC Report, Vol. I, p. 151.
CFCs’ Horizontal Devolution Criteria: Striving for Equity and

Efficiency
5.3 In India’s federal structure, horizontal devolution to the States, since
the 12th CFC, has been mainly driven by considerations of need, equity and
performance; although balancing equity and efficiency has never been an easy
task. A few important features of the criteria used, weights assigned, inter-se
shares of States and recommended grants-in-aid to the local bodies are presented
in the following Tables 5.1 to 5.3. A comparison of changing inter-se shares of
major States from the 12th CFC to the 15th CFC and that of Punjab since 5th CFC
has been presented in Figure 5.1 and Figure 5.2.
Table 5.1: Criteria and Weights (%) Used for Horizontal Devolution by
Different CFCs
12th CFC 13th CFC 14th CFC 15th CFC
Purpose of
Criteria (2005-06 to (2010-11 to (2015-16 to (2021-22 to
Criteria
2009-10 2014-15) 2019-20) 2025-26)
Population (1971) 25.0 25.0 17.5 -
Population (2011) - - 10.0 15.0 Need and
Cost
Area (Adjusted) 10.0 10.0 15.0 15.0 Disability
Forest Cover - - 7.5 10.0
Income Distance 50.0 - 50.0 45.0
Fiscal Capacity Equity
- 47.5 -
Distance
Tax Efforts 7.5 - - 2.5
Fiscal Discipline 7.5 17.5 - - Performance
Demographic
- - - 12.5
Performance
Total 100.0 100.0 100.0 100.0 -
th
Source: 15 CFC Report, Vol. I, pp. 157 and 163.
92
Table 5.2: Changing Pattern of Inter-Se Shares of States during 12th CFC to
15th CFC
12th CFC
13th CFC 14th CFC 15th CFC
S. (2005-06 to
(2010-11 to 2014-15 (2015-16 to 2019-20) (2021-22 to 2025-26)
No State 2009-10)
. Inter-Se Inter-Se  (-) Inter-Se  (-) Inter-Se
 (-)  (+)
Share* (%) Share* (%)  (+) Share* (%)  (+) Share (%)
Major States
1 Andhra Pradesh 7.356 6.937  4.305 4.047 

2 Telangana - - - 2.437 2.102 
3 Haryana 1.075 1.048  1.084  1.093 
4 Karnataka 4.459 4.328  4.713  3.647 
5 Kerala 2.665 2.341  2.500  1.925 
6 Orissa 5.161 4.779  4.642  4.528 
7 Uttar Pradesh 19.264 19.677  17.959  17.939 
8 Bihar 11.028 10.917  9.665  10.058 
9 Chhattisgarh 2.654 2.470  3.080  3.407 
10 Gujarat 3.569 3.041  3.084  3.478 
11 Jharkhand 3.361 2.802  3.139  3.307 
12 Madhya Pradesh 6.711 7.120  7.548  7.850 
13 Maharashtra 4.997 5.199  5.521  6.317 
14 Punjab 1.299 1.389  1.577  1.807 
15 Rajasthan 5.609 5.853  5.495  6.026 
16 Tamil Nadu 5.305 4.969  4.023  4.079 
17 Uttaranchal 0.939 1.120  1.052  1.118 
18 West Bengal 7.057 7.264  7.324  7.523 
Small and Special Category States
1 Assam 3.235 3.628  3.311  3.128 
Arunachal   
2 0.288 0.328 1.370 1.757
Pradesh
3 Goa 0.259 0.266  0.378  0.386 
Himachal  
0.522 0.781 0.713  0.830
4 Pradesh
5 Manipur 0.362 0.451  0.617  0.716 
6 Meghalaya 0.371 0.408  0.642  0.767 
7 Mizoram 0.239 0.269  0.460  0.500 
8 Nagaland 0.263 0.314  0.498  0.569 
9 Sikkim 0.227 0.239  0.367  0.388 
10 Tripura 0.428 0.511  0.642  0.708 
Jammu &  
11 1.297 1.551 1.854 - -
Kashmir
100.000 100.000 - 100.000 - 100.000 -
*Share of all sharable taxes excluding Service Tax.
Source: Reports of respective CFCs.
93
Table 5.3: Grants-in-Aid Recommended to Local Bodies by the 15th CFC (Rural vs. Urban)
Rural Local Bodies Urban Local Bodies Grants (Rs. Crore)*
Sr. Share of Per Share of
States Share of Share Per Capita
no. Rural Capita Urban
Rank Recommende Rank Rank Rank Recommende Rank Grants Rank RLBs ULBs
Population Grants Population
d Grants (%) d Grants (%) (Rs.)
(%) (Rs.) (%)
1 Andhra Pradesh 4.24 10 4.32 10 2930 18 4.15 10 4.32 10 3548 17 10231 5231
Arunachal
0.13 25 0.38 21 8418 1 0.09 27 0.38 21 14644 1 900 459
2 Pradesh
3 Assam 3.26 12 2.64 15 2335 27 1.24 18 2.64 15 7285 4 6253 3197
4 Bihar 11.19 2 8.26 3 2124 28 3.3 12 8.26 3 8525 3 19561 9999
5 Chhattisgarh 2.38 15 2.39 16 2892 20 1.67 17 2.4 16 4885 8 5669 2900
6 Goa 0.07 26 0.12 27 5314 3 0.26 21 0.12 27 1644 28 293 149
7 Gujarat 4.21 11 5.26 9 3592 9 7.24 5 5.26 9 2476 24 12455 6367
8 Haryana 2.01 18 2.08 18 2982 16 2.49 14 2.08 18 2857 20 4929 2520
9 HP 0.75 20 0.71 20 2712 23 0.19 23 0.71 20 12415 2 1673 855
10 Jharkhand 3.04 13 2.78 13 2630 24 2.23 15 2.78 13 4246 13 6585 3367
11 Karnataka 4.57 7 5.3 8 3339 12 6.64 6 5.29 8 2718 21 12539 6409
12 Kerala 2.12 16 2.68 14 3634 6 4.49 9 2.68 14 2035 27 6344 3242
13 Madhya Pradesh 6.39 5 6.56 5 2955 17 5.65 7 6.56 5 3957 15 15527 7938
14 Maharashtra 7.48 4 9.59 2 3690 5 14.32 1 9.59 2 2284 25 22713 11611
15 Manipur 0.23 23 0.29 24 3632 7 0.23 22 0.29 24 4294 12 690 353
16 Meghalaya 0.29 22 0.3 23 3001 15 0.17 24 0.3 23 6100 6 711 363
17 Mizoram 0.06 27 0.15 26 6843 2 0.16 25 0.15 26 3292 18 362 185
18 Nagaland 0.17 24 0.21 25 3454 10 0.16 25 0.21 25 4340 11 486 249
19 Odisha 4.25 9 3.72 11 2518 25 1.97 16 3.72 11 6429 5 8800 4498
20 Punjab 2.11 17 2.28 17 3124 14 2.93 13 2.28 17 2661 23 5410 2764
21 Rajasthan 6.27 6 6.36 6 2921 19 4.81 8 6.36 6 4506 9 15053 7696
22 Sikkim 0.06 27 0.07 28 3619 8 0.04 28 0.07 28 5536 7 165 84
23 Tamil Nadu 4.52 8 5.94 7 3780 4 9.85 3 5.94 7 2056 26 14059 7187
24 Telangana 2.6 14 3.04 12 3366 11 3.83 11 3.04 12 2706 22 7201 3682
25 Tripura 0.33 21 0.32 22 2753 22 0.27 20 0.31 22 3965 14 746 381
26 Uttar Pradesh 18.86 1 16.05 1 2450 26 12.53 2 16.05 1 4370 10 38012 19432
27 Uttarakhand 0.85 19 0.95 19 3187 13 0.87 19 0.95 19 3704 16 2239 1145
28 West Bengal 7.56 3 7.26 4 2765 21 8.21 4 7.26 4 3018 19 17199 8792
All States 100.00 - 100.00 - 2879 - 100.00 - 100.00 - 3410 - 236805 121055
Ranks to shares have been assigned by the 6th SFC. *15th CFC Report, Vol. II, p. 281.
Source: Reddy, G. R. (2021), ‘Fifteenth Finance Commission’s Recommendations on Local Bodies: Fat too Many Concerns’ Economic and Political Weekly, Vol. LVI (51), December 18, pp.
17-20.
94
Figure 5.1: Percentage Differences in Horizontal (Inter-Se) Shares of Major States, 12th CFC vs. 15th CFC
1.50 1.32
1.14
1.00
0.75
0.51 0.48
0.50 0.42
0.18
0.02
0.00
-0.09 -0.05
-0.50
-0.63
-0.74
-1.00 -0.81
-0.97
-1.21 -1.23
-1.50 -1.33
Differencs
Source: Chakraborty, P. (2021), ‘Covid-19 Context and the Fifteenth Finance Commission: Balancing Fiscal Need and Macroeconomic Stability’,
Economic and Political Weekly, Vol. LVI (33), pp. 33-39.
95
Figure 5.2: Changing Inter-Se Share of Punjab in Tax Devolution from
5th CFC to 15th CFC
Inter-Se Share of Punjab in Tax Devolution
2.6 2.45 SHARE OF PUNJAB IN DISTRIBUTION OF TAXES

2.38
2.4
2.181
2.2
2
1.807
1.713 1.724
1.8
1.532 1.577
1.6
1.389
1.4 1.299
1.147
1.2
1
FC V FC VI FC VII FC VIII FC IX FC X FC XI FC XII FC XIII FC XIV FC V
Source: (i). GoP (2019), Memorandum to 15th Finance Commission, Government of Punjab, p. 102.
(ii). 15th CFC Report, Vol. I, p. 164.
5.4 Key takeaways of vertical and horizontal distribution criteria

adopted by various CFCs are presented below: -
- Vertical fiscal imbalance between the Union and State Governments is

still prevalent despite States’ share having risen from 29.5% during the
11th CFC to 30.5% during the 12th CFC, 32.0% during the 13th CFC and
42.0% during the 14th CFC. The 15th CFC recommended 41% share of
divisible pool for 28 states, by adjusting 1% share for the newly carved
out two UTs, namely, Jammu & Kashmir and Ladakh (Box 5.1 and Box
5.2).
- The horizontal devolution formulae and weights designed by the
different CFCs indicate that the recommended devolution of funds to
the States, to some extent, had made an attempt to achieve certain
objectives such as (i) bridging vertical ﬁscal imbalances of the States; (ii)
providing horizontal equity (by allocating higher share to the poorer
96
States); (iii) equalizing ﬁscal capacities of States (revenue
equalization); and (iv) covering cost differentials among States
(expenditure equalization) for providing basic public services to the
citizens (Table 5.1).
- A comparison of horizontal (inter-se) shares of major states (12th CFC
vs. 15th CFC) has clearly highlighted the gainer and loser states (Figure
5.1). Further, Punjab’s inter-se share had declined from 2.450% during
5th CFC to 1.147% during 11th CFC, then found to be rising to 1.807%
during 15th CFC (Figure 5.2) largely due the slipping of Punjab’s rank
in the per capita GSDP across various States (Chapter 3, para 3.10).
- A perusal of grants-in-aid recommended to the local bodies (Table 5.3)
by the 15th CFC, by assigning 90% weightage to population and 10% to
area, illustrates that the share of ULBs in the grants-in-aid is lower
amongst the states having higher proportion of urban population, even
with a progressive increase in allocation to the ULBs during the period
(2021-22 to 2025-26)2.
- In fact, this criterion ignores the differences in urbanisation levels across
the states resulting in an anomalous situation of a least urbanized state
getting a higher per capita urban grant and vice versa. For instance,
Bihar’s ULBs, having just 11.3% share of urban population as compared
to Tamil Nadu’s share of urban population at 48.4%), are allocated Rs.
9,999 crore as compared to Rs. 7,187 crore for Tamil Nadu’s ULBs.
However, the grants recommended to Bihar’s ULBs, on a per capita
basis, works out to Rs. 8,525 as compared to Rs. 2,056 in the case of
Tamil Nadu’s ULBs.
2
Each state’s share in the recommended grants-in-aid to local bodies has been distributed between RLBs and
ULBs the ratio of 67: 33 during 2021–22 and 2022-23, 66: 34 during 2023-24 and 2024-25 and 65: 35
during 2025-26, respectively.
97
- Paradoxically, the ranks assigned to the per capita grants-in-aid to the
ULBs in highly urbanized states [Goa (28 th rank), Tamil Nadu (26th
rank), Kerala (27th rank), Maharashtra (25th rank), Gujarat (24th rank),
and Punjab (23th rank)] found to be at lower end. Similarly, the RLBs
of the states with a higher share of rural population are deprived of their
due share.
State (s) and the 15th CFC
5.5 In 2015, three structural reforms sought to fundamentally reset the
terms of centre-state fiscal relations. First, the 14th CFC enhanced the share of
states in the divisible pool, thereby constraining the fiscal space for the Centre to
direct expenditure through centrally sponsored schemes. Second, the Planning
Commission was dismantled and with it the practice of discretionary transfer of
plan–funds to the states. Third, with the roll-out of the Goods and Services Tax
(GST), states traded fiscal autonomy for expected revenue enhancement and
deeper cooperation with the Centre (Cooperative Federalism).
5.6 In fact, these structural changes created new sites of tension and, in
the ensuing tug-of-war, the Centre secured the upper-hand. It retained fiscal
space by increased reliance on cesses and surcharges (not shareable with states),
thus reducing the size of the divisible pool (Table 5.4 and Table 5.5). The
divisible pool, currently (2020-21), accounts for 72.36% of Centre’s gross tax
revenue (GTR) and just 65.64% of gross revenue receipts (GRR) as presented in
Figure 5.3. The practice of centrally sponsored schemes continued, and indeed
expanded, and simultaneously, the state’s share increased.
98
Table 5.4: Growing Share of Cesses & Surcharges in Gross Tax Receipts of
Central Government
Total Cesses & Surcharges as: As % of Gross Tax Receipts

Indirect GST Of which:
Year Total
Direct Taxes Compens GST
Total Cesses &
Taxes (excl. ation Compensation
Surcharges
GST) Cess Cess
2011-12 29,143 63,394 0 92,537 10.41 -
2012-13 48,862 72,545 0 121,407 11.72 -
2013-14 63,883 77,387 0 141,270 12.41 -
2014-15 81,543 86,417 0 167,960 13.49 -
2015-16 40,468 137,482 0 177,950 12.22 -
2016-17 58,840 172,224 0 231,064 13.47 -
2017-18 53,433 150,529 62,612 266,574 13.89 3.26
2018-19 1,57,318 1,76,070 95,081 4,28,467 20.59 4.57
2019-20 1,33,278 1,97,620 95,553 4,26,451 21.22 4.75
2020-21 4,58,110 85,192 5,43,302 26.80 4.20
Source: (i) 15th CFC Report, Vol. I, p. 67 (2011-12 to 2017-18).
(ii) Annual Financial Statement of Central Government, Ministry of Finance, Government
of India (Relevant Years).
Table 5.5: Gross Tax Revenue, Non-Tax Revenue and Divisible Pool of Central Government
Figures in Rs. Crore

Divisible Pool as
Total Divisible Pool*
Year Gross Tax Non-Tax %age of:
Revenue (Net Tax
Revenue Revenue
Receipts Revenue) GTR GRR
2011-12 889177 121672 1010849 789501 88.79 78.10
2012-13 1036235 137357 1173592 907076 87.54 77.29
2013-14 1138733 198870 1337603 988999 86.85 73.94
2014-15 1244886 197857 1442743 1067333 85.74 73.98
2015-16 1455648 251260 1706908 1267049 87.04 74.23
2016-17 1715822 272831 1988653 1471758 85.78 74.01
2017-18 1919008 192745 2111753 1637072 85.31 77.52
2018-19 2080465 235704 2316169 1635461 78.61 70.61
2019-20 2010059 327157 2337216 1566784 77.95 67.04
2020-21 2027104 207633 2234737 1466782 72.36 65.64
*Gross Tax Revenue minus (-) Tax Collection Charges minus (-) All Cesses and Surcharges.
Source: Annual Financial Statement of Central Government, Ministry of Finance, Government of India
(Relevant Year).
99
Figure 5.3: Divisible Pool as Percentage of Gross Tax Receipts (GTR)
and Gross Revenue Receipts (GRR)
Source: Data given in Table 5.2.
5.7 However, the final victory was in drafting the Terms of Reference
(ToR) of the 15th CFC, which is a radical departure from ToR of it’s predecessors.
Specifically, ToR required the 15th CFC to:
- take into account 2011 population when used in the devolution
formula.
- examine if revenue grants should be provided at all.
- factor in the impact of substantially enhanced devolution to the states
following the recommendations of the 14th CFC on the fiscal situation
of the Union.
- reckon the imperative of the National Development Programmes,
including New India 2022.
- examine whether a separate mechanism for funding of defence and
national security ought to be set up, and if so, how such a mechanism
can be operationalized.
- consider proposing measurable performance-based incentives for
states, at the appropriate level of government in specified areas.
100
5.8 No doubt, the ToR of the 15th CFC is far more comprehensive than
any of its predecessors. It is also gratifying to note that, the Commission is
cognizant of some important differentiating features in its milieu and
circumstances, which include (i) abolition of the Planning Commission, (ii)
imperative of the pursuit of high and inclusive growth, combined with
macroeconomic stability, (iii) challenges of structural reforms like
implementation of GST, and (iv) renewed emphasis on fostering Cooperative
Federalism. However, the fact remains that, the Constitution itself provides ToR
to the Commission, which reflect the federal spirit, and hence remain neutral.
Article 280 requires the Commission to recommend the share of the states in the
net tax revenues of the Union government, the formula for inter-se distribution of
state’s share among them and measures to augment the Consolidated Fund of the
states to supplement the resources of the local governments and Article 275
provides for grants-in-aid to the states. Article 280 (3) (d) of the Constitution
states that, the Union government may refer any other matter to the Finance
Commission in the interest of sound finance.
Using this provision, Union government has been including in the
ToR to the successive Finance Commissions what reflects the Union
government’s view of the states’ fiscal situation. The ToR to the 15 th CFC has
gone far beyond the constitutional provisions, which is not only against the core
of Cooperative Federalism, but, perhaps, tantamount to Unilateral Federalism.
However, the 15th CFC has done a credible job of navigating this controversial
ToR. In doing so, it has not only re-enacted the centralization-decentralization
tug-of-war, but has opened newer sites of contestation at the local level.
5.9 First, consider the two key recommendations on vertical devolution.
To its credit, the 15th CFC has retained vertical devolution at 41% of the divisible
pool. It has also well navigated the controversy over using the 2011 population
census rather than the 1971 population census as the base for determining the
101
revenue share by incorporating the demographic performance in its devolution
formula. The 15th CFC has also artfully avoided dipping into the divisible pool
while recommending the creation of a non-lapsable Defence Fund.
But, in the fine print, the centre has ample room to maintain, indeed
deepen, the status quo. The 15th CFC has cosseted the centre by accommodating
the practice of using cess and surcharge to retain revenue for its exclusive use.
Rather, by its own calculation, cess/surcharge will increase during the award
period. No doubt, the 15the CFC is clear on the reform of central schemes, but
in the garb of performance-based sectoral grants to the states, it has given a
convenient handle to the centre to push its own agenda, thus reinforcing the status
quo.
5.10 Second, on states vs. local governments, the 15the CFC has
recommended generous grants to the local governments. But the nature of these
recommendations reflects the tensions inherent in the refusal of state
governments to fulfill their constitutional obligation to local governments. As
Raja Chelliah famously observed that, everyone wants decentralization, but only
until his level. With rare exceptions, states have deprived local governments of
funding, reducing them to mere implementing agents. In responding to this
failure, the 15th CFC has imposed conditions on states. No local government
grants will be released if the states do not set up SFCs and implement their
recommendations by March, 2024. It is unclear as to what incentives states have
102
to comply with this stipulation. If not complied with, the local governments will
become even more dependent on states than hithertofore. Moreover, funds to
local governments are carefully directed to achieve central priorities, rather than
allowing them to fulfill their role as elected governments responding to the needs
of their electorate.
5.11 Further, the 15th CFC’s observations on the federal structure
raise important questions for the future of fiscal federation. The 15th CFC rightly
calls out the fundamental tension in India’s fiscal relations—the growing central
intervention in the State and Concurrent subjects. In an interview, the 15th CFC
Chairman N. K. Singh has argued for re-visiting the Seventh Schedule. What
this, however, misses is the fundamental reality of a politics that incentivizes
centralization. Addressing this requires an institutional arrangement to negotiate
centre-state dynamic. Ironically, in dismantling the overly centralizing Planning
Commission, the only available space for these negotiations has been lost. More
than re-visiting the Seventh Schedule, we need mechanisms for institutionalized
deliberations with states. The 15th CFC has opened this debate. How will the
governments, wedded to the centralization, respond will determine the future
shape of fiscal relations between the three tiers of the government.
5.12 Finally, the real taste of pudding is in eating it, i.e.,
implementation by the central government the recommendations of the 15 th CFC.
Explanatory Memorandum as to the action taken on the recommendations made
103
by the 15th CFC in its final report by the Central Government is summarized in
Table 5.6.
Table 5.6: Gist of Explanatory Memorandum and Action Taken Report

on the Recommendations of the 15th CFC
Sr. Description Action Taken

No.
The Government has accepted the
1. Sharing of Union Taxes
recommendation of the Commission
Grants-in-aid of Revenues of States
2. under Article 275 of the
recommendations of the Commission.
Constitution-Revenue Deficit Grants.
3. Local Bodies Grants.
recommendations of the Commission.
Disaster-related Grants-State
Disaster Risk Management Fund The Government has accepted these
4.
(SDRMF) and the National Disaster recommendations of the Commission.
Risk Management Fund (NDRMF)
Government will give due consideration to
sectors identified by the Commission while
5. Grants to States for Specific Sectors formulating and implementing existing and
new Centrally Sponsored and Central
Sector Schemes.
Keeping in view the untied resources with
the State Governments and the fiscal
6. State Specific Grants commitments of the Central Government,
due consideration will be given to this
recommendation.
The Government has accepted in-principle
the creation of non-lapsable fund for
Modernization Fund for Defence and
7. Defence in the Public Account of India.
Internal Security (MFDIS)
Sources of funding and modalities will be
examined in due course.
The Government accepts in-principle, the
recommendations in respect of the quantum
(as a per cent of GSDP) of net borrowing
8 Fiscal Roadmap ceilings for the States. Other
recommendations related to the fiscal road
map for the States and amendments to the
FRBM Act will be examined separately.
The Government will examine these
9 Other recommendations recommendations of the Commission in due
course.
Source: GoI (2021), Explanatory Memorandum as to the Action Taken on the Recommendations of the
Fifteenth Finance Commission, Ministry of Finance, Government of India.
104
5.13 Following are the key takeaways from the foregoing analysis: -
- Even though the 15th CFC has artfully negotiated some of its
controversial ToR, the direction unmistakably continues to be
centralizing. This is less due to the award of various CFCs and more
because of the tendency of the union and state governments to
incentivise politics of centralisation.
- The Union government has agreed to the recommendations of FFC
relating to sharing of Union taxes, grants-in-aid, grants to local bodies
and disaster-related grants, and at the same time, kept away nearly
1/3rd of its gross tax revenues out of the divisible pool, through the
strategm of cess and surcharge, which, by 15th CFC's own calculation,
are likely to go up during the award period.
- Barring revenue deficit grant to the states, a major portion of other
grants are either conditional or performance- based with respect to the
flagship programmes of the Central government. This will further
strengthen the centralizing status quo.
- Grants to local bodies are not only conditional, but also subject to
fulfillment of certain thresh-hold conditions, which are not within
their powers, as according to the existing constitutional scheme,
action thereof lies with the state government Going by their track
record, the states have no incentive to fulfill these conditions. In such
105
an eventuality, the local bodies will be deprived of the 15th CFC grants
and will become even more dependent on the state government. To
illustrate, local bodies in Punjab may be deprived of almost 2/3 rd of
the recommended grants, if they fail to fulfill the stipulated conditions.
- With respect to sector-specific and state-specific grants recommended
by the 15th CFC, the ATR only speaks of giving due consideration by
the central government subject to certain conditions. This leaves a
wide scope to the central government to subject the release of these
grants to promoting its own agenda, or worse, not to release them at
all.
- In so far as the recommendation regarding Modernization Fund for
Defence and Internal Security is concerned, it has been agreed to only
in principle. Sources of funding and other modalities will be decided
by the central government later on. While doing so, there is every
possibility of its dipping into the shareable pool.
- Similarly, regarding Fiscal Consolidation Roadmap, the central
government has accepted, in principle, the recommendation in respect
of the quantum (as a percent of GSDP) of net borrowing ceilings for
the States. Other recommendations relating to the fiscal roadmap for
the states and amendments to the FRBM Act, will be examined
separately.
106
Suggested Action by Government of Punjab
5.14 In conclusion, the 6th SFC recommends the following actions
by the Government of Punjab: -
(a) It must forcefully contest continuing centralizing tendency of the
Union government, especially the attrition of the shareable pool by
levy of cess and surcharge; enlarging the central sphere through
increasing resort to the centrally-sponsored schemes; and taking
unilateral decision on important issues impinging upon centre-state
fiscal relations.
(b) The Union government must be urged to stick to constitutional
provisions contained in Articles 275 and 280 of the Constitution,
while drawing up the ToR of the CFC and not use Article 280(3) to
enlarge its own ambit.
(c) The government of Punjab must carefully examine the threshold and
other conditions attached to the grants-in-aid for local bodies and
ensure their fulfillment, lest the local bodies are deprived of these
grants.
(d) The state government must take up with the Union government to
correct the criteria adopted by the 15th CFC which allocates low share
of grants-in-aid recommended to the ULBs of highly urbanized five
states including Punjab.
107
(e) Similarly, the state government must ensure that it has the flexibility
when the Union government finally decides on the state-specific,
sector specific schemes and the Fiscal Consolidation Roadmap.
(f) Stress upon the Union government that, funding of Modernization
Fund for Defence and Internal Security should not be by dipping into
the shareable pool of the states.
108
Chapter 6
A Review of the Status of Decentralised Governance

and Devolution
(Still dreaming of convergence between functions, funds and functionaries)
6.1 One of the major objectives of 73rdand 74thCAAs, enacted in 1992

for the Panchayats and Municipalities, respectively, is to accord these bodies a
constitutional status; functional autonomy in raising own finances; arrangements
for revenue sharing from the state; and powers to make socio-economic plans as
per the needs and aspirations of local people/communities. These amendments
also enjoin upon the Legislature of a State to endow these bodies, by law, with
powers, authority and responsibility to function as institutions of self-government
(Article 243G, 243H, 243W and 243X).
6.2 Further, CAAs also mandate to constitute the State Finance

Commission to review the financial position of these bodies (Article 243-I for the
Panchayats and Article 243-Y for the Municipalities) and make recommendations
to the Governor as to—
(a) the principles which should govern—
(i) the distribution between the State and the Panchayats/

Municipalities of the net proceeds of the taxes, duties, tolls and
fees leviable by the State, which may be divided between them
under this part and the allocation between the
Panchayats/Municipalities at all levels 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/Municipalities;
(iii) the grants-in-aid to the Panchayats/Municipalities from the
Consolidated Fund of the State;
109
(b) the measures needed to improve the financial position of the
Panchayats/Municipalities;
(c) any other matter referred to the Finance Commission by the Governor in
the interests of sound finance of the Panchayats/Municipalities
(Article 243-I and Article 243-Y).
6.3 Abiding by these CAAs, all state governments, including Punjab,

either enacted new law/s or amended existing law/s to give practical shape to
these acts and their implementation at the ground level. Government of Punjab
enacted the ‘Punjab Panchayati Raj Act 1994’ and amended the ‘Punjab
Municipal Act 1911’and ‘Punjab Municipal Corporation Act 1976’in 1994 to
give effect to these constitutional amendments.
6.4 In the following paragraphs, we have dwelt upon the constitutional

provisions and statutory/administrative actions taken by the state government to
implement the constitutional mandate relating to the democratic decentralisation
and devolution of functions, functionaries and funds to these bodies over the last
about three decades since enactment of these CAAs. However, to complete the
picture, it is necessary to examine the policy actions taken by the state
government in this behalf and their implementation at the ground level. Despite
patchy response of the line departments, we have made an earnest attempt to do
so.
Functional Devolution to PRIs
6.5 Punjab, following the73rd CAA, enacted the ‘Punjab Panchayati

Raj Act 1994’, which provides for a three-tier governance system at village level
(Panchayat), at block level (Panchayat Samiti) and at district level (Zila Parishad)
for the PRIs. This act provides an exhaustive list of functions to be performed by
each-tier of PRIs, legal powers and authority to impose taxes, fees, tolls, etc., and
making plans for economic development and social justice in their respective
domains that would equip them to work more effectively and efficiently as
110
institutions of self-governance. This Act also provides for holding timely and
regular elections, fixed five years’ tenure, and adequate reservation of seats for
women, SCs, and other under-privileged sections of society to ensure their active
participation in the decision making.
6.6 A perusal of the ‘Punjab Panchayati Raj Act, 1994’reveals that, it

did not list 29 subjects/functions as listed in the Eleventh Schedule of the
Constitution. Rather, it gives an exhaustive list of functions, in major heads
numbering 20, 27 and 22, to be performed by the Panchayats, Panchayat Samitis,
and Zila Parishads, respectively (Punjab Panchayati Raj Act, 1994). These
functions are further divided, into sub-heads, to impart more clarity and
transparency.
Though the legal powers and authority to impose taxes, fee, toll, etc., and
making plans for economic development and social justice at local levels find a
place of prominence in the Act, yet these powers and authority require prior
permission of the state government before the Panchayats at various levels are
able to exercise them. Besides, functions to be performed are stated in broad
generic terms, perhaps, because of the legal provisions being enabling in nature.
However, so stated, the Panchayats are either expected to do everything or will
end up doing nothing. Thus, there is a need to categorise the functions to be
performed by various levels of Panchayats into obligatory, desirable and
discretionary to be feasible of implementation. Regarding seeking prior approval
of the state government to exercise the powers of taxation, this is bound to be so,
unless the constitutional provisions are amended to include a Local Bodies List
on par with the Central List, the Concurrent List and the State List.
6.7 To implement the foregoing statutory provisions, the Government of

Punjab issued a few notifications regarding functional devolution since October
16, 2003 onwards, and transferred 13 subjects/functions (7 key departments)
111
mentioned in the Eleventh Schedule, with partial or limited control, to the PRIs
(Table 6.1). For want of devolution of funds and functionaries, implementation
of these remained weak at the ground level. For example, in September, 2014, the
transfer of 5752 rural primary schools, and 581 rural veterinary hospitals were
reverted back to their parent departments (Table 6.1). This shows that Punjab’s
track-record in functional devolution to the PRIs is not only very weak, but also
regressive in nature.
Table 6.1: Department-Wise Subjects/Functions Devolved to PRIs in Punjab

as Per 11th Schedule
Name of Department Date of No. and Notification S. No. of Subjects Devolved to PRIs
Cabinet Date
Decision
1. Social Security, 25. Women and Child development.
11/133/2001-6ss/159
Women and Child 16-10-2003 26. Social Welfare including welfare of
dated 09-01-2004
Development handicapped and mentally retarded.
2. Welfare of Scheduled 27. Welfare of weaker sections and in
9/15/2002-WC-6/50,
Castes and Backward 16-10-2003 particular of the Scheduled Caste and the
dated 14-01-2004
Classes Scheduled Tribes.
13/49/2003-5 B&R-
3. Public Health 16-10-2003 11. Drinking Water
II/149, dated 13-01-2004
10. Rural Housing
20. Libraries
4. Rural Development 6/20/94/G-1/2003/37013-
16-10-2003 21. Cultural Activities
and Panchayats 37223, dated 12-11-2003
22. Markets and Fairs
23. Maintenance of Community Assets
23. Health and Sanitation including
2/135/3-3HB6/160, dated
5. Health and Family Hospitals, PHCs and Dispensaries (1186
16-10-2003 13-01-2004 and 08-12-
Welfare dispensaries transferred to the PRIs).
2005
24. Family Welfare.
SO/PA9/94/SC, 30, 31, 17. Education including Primary and
16-10-2003 119, 120 & 180/2003, Secondary School (Education
6. School Education and dated 12-01-2004, dated Department transferred 5752 primary
18-02-2006 03-03-2006 and 10-11- schools along with 13034 posts of ETT
2006, etc. Teachers*)
4. Animal Husbandry (Department
32/27/06-AH-7/4652,
7. Animal Husbandry NA transferred 581 rural veterinary
dated 04-08-2006
hospitals*)
*The recruited staff, however, reverted back to their parent departments on 19-09-2014.
Note: Department of Rural Development & Panchayats claimed that the letters were also written to the
Administrative Secretaries of Govt. of Punjab to devolve functions relating to their departments to the PRIs, but
no action has been taken as yet by these departments.
Source: Department of Rural Development & Panchayats, Punjab.
6.8 In contrast, many other states have devolved a large number of

functions to the PRIs. For example, Kerala and Tamil Nadu devolved 29
functions, followed by West Bengal (28), Bihar (26), Jharkhand (26),
Chhattisgarh (25), Madhya Pradesh (19), Maharashtra (18), and UP (16). Even,
112
some smaller states such as Sikkim and Manipur transferred 25 functions and 24
functions, respectively, to their PRIs (Singh and Singh, 2015).
Functional Devolution to ULBs
6.9 As stated earlier (Para 6.3), Punjab amended the Punjab Municipal
Act, 1911 in 1994 and spelt out the functions of the municipalities (Municipal
Councils and Nagar Panchayats) by adding Section 50(A) and Section 50(B).
Section 50(B)(1) states that the State Government may, by notification, endow
the Municipalities with such powers and authorities as may be necessary to enable
them to function as institutions of self-government, subject to such conditions as
may be specified therein, with respect to-
(i). The preparation of plans for economic development and social

justice;
(ii). The performance of functions and implementation of the schemes

which may be entrusted to them including the functions detailed in
section 50(B), which is just a copy of the subjects/functions listed in
the Twelfth Schedule of the Constitution.
Section 50(B)(2) states that ‘nothing contained in the provisions of this

section shall be construed to divest the municipalities of various powers and
functions vested in them under various provisions of this Act, rules and bye-laws
made thereunder’.
6.10 In the case of Municipal Corporations, no such provisions were

added, as the Punjab Municipal Corporation Act, 1976 had already listed out 21
obligatory functions and 29 discretionary functions to be performed by them.
These functions, in addition to 18 functions listed in the Twelfth Schedule, also
include some more functions to be performed by the Municipal Corporations.
113
6.11 As already stated, government of Punjab incorporated all provisions
of the 74th CAA (1992) either by inserting new sections or by amending old ones
of the PMA, 1911 and PMCA, 1976 in 1994 itself. In subsequent years, sporadic
attempts were made by the state government to accord its ULBs a constitutional
status. These are: (a) regularity in their elections, (b) primacy of directly elected
members, (c) fixed five-years’ tenure, (d) reservation of seats for the marginalised
sections (SCs, OBCs, and women), (e) constitution of SFC for devolving funds
to them, (f) an independent State Election Commission for holding and
supervising elections and (g) powers to make plans for economic development
and social justice, etc.
6.12 However, many important provisions relating to formation of district

planning committee, ward committees, metropolitan planning committees,
functional devolution, powers to impose taxes, etc., despite finding a prominent
mention in state laws, are virtually missing at the implementation level. Further,
Punjab government has also enacted (i) Punjab District Planning Act, 2005; (ii)
Punjab District Planning& Metropolitan Planning Act, 2012; and (iii) Punjab
Community Participation in Municipalities Act, 2013. But these acts have not
been implemented owing to (i) absence of clarity in the roles of three-tiers of
government in respect to certain functions drawn from the Concurrent List
(planning for economic development and social justice, protection of
environment and promotion of ecology, urban poverty alleviation, slum
development and upgradation, etc.); and (ii) reluctance of state government to
transfer such functions (like urban planning including town planning or urban
poverty alleviation, etc.) to the ULBs on the ground that these functions have
inter-jurisdictional implications.
6.13 Punjab government vide Notification No. 7/14/2004-5Edu.4/469-

71, dated March 03, 2006, and Notification No. 5/14/2006-3Edu.7/29593 dated
November 10, 2006 transferred 232 primary schools and 76 primary schools,
114
respectively, to the Department of Local Government, Punjab for management
and running by the ULBs. Even, the Punjab Municipal Primary Teacher
(Recruitment and Conditions of Service) Service Rules, 2006 were framed and
published in the Punjab Government Gazette (Extraordinary) dated April 15,
2006 and dated September 19, 2006 to recruit teachers in these schools. However,
on September 02, 2014, the government decided to transfer back the control of
201 schools from the ULBs to the Department of Education, which shows how
regressive the state government has been when it comes to devolving functions
to the ULBs.
6.14 Department of Local Government vide Notification No.

14/167/2012-5LG1/2916 (Annexure-6A) also constituted the Metropolitan
Planning Committees (MPCs) for the districts of SAS Nagar, Amritsar,
Bathinda, Ludhiana, Jalandhar, Moga, Kapurthala and Pathankot to provide for
consistent and integrated planning for contiguous geographic areas. The
jurisdiction of an MPC shall be all the Municipal Corporations and the ULBs in
the district. A plain reading of the notification reveals that the state government
has totally misunderstood the purpose of MPCs by including in their territorial
jurisdiction all grades of municipalities in the district, which may not be
contiguous and hence incapable of integrated planning and realising economies
of agglomeration. Besides, MPCs exist only on paper and are entirely missing on
the ground.
Dominance of Parastatal Bodies/Agencies
6.15 We also observed that, some parastatal bodies/agencies (PWSSB,

PUDA, Improvement Trusts, etc.) and Departments of Education, Health &
Family Welfare, Water Supply & Sanitation, and Town & Country Planning are
performing, executing and controlling many important functions, particularly
relating to creation of infrastructure that has been assigned to the ULBs in Punjab.
115
The rationale behind this arrangement is that these bodies are better positioned in
terms of funds, infrastructure, expertise, and manpower to perform these
functions/services. However, this results in overlaps and lack of accountability,
which puts a serious question mark over decentralized governance in the state.
The present status of powers assigned to the ULBs and their implementation is at
Annexure-6B.
Conclusions and Recommendations:
6.16 The foregoing analysis of democratic decentralization relating

to the functional devolution to local bodies and its implementation, may be
concluded with the following recommendations: -
- No doubt, the state government has amended the municipal laws and
enacted ‘The Punjab Panchayati Raj Act, 1994’, thereby creating a legal
framework to comply with the CAAs, 1992. These provisions, being
enabling, are bound to be generic in nature. However, various
notifications/orders, issued from time to time, to give effect to these
laws hardly offer any clarity. These are generic, overlapping and non-
differentiating between local bodies, having regard to their varying
needs, resource base and capacity to deliver. It is, therefore,
recommended that the relevant laws, notifications and orders issued
with respect to functional devolution to the local bodies be re-issued to
align them with the letter and spirit of the constitutional provisions and
by differentiating local bodies by their size, needs, resources and
capacity to implement.
- Implementation of laws and notifications regarding functional
devolution to local bodies is weak, possibly due to vagueness and
overlaps in functional devolution not only inter local bodies, but also
between them and the parastatals. In addition, lack of will on the part of
the ruling establishment to bestow functional devolution to the local
116
bodies is the major contributory factor for the present state of affairs.
This needs to be sorted out at the earliest, with loci of the functions
assigned to the local bodies remaining with them.
- It is regrettably noted that, not to speak of sorting out existing glitzes in
the extant legal and administrative framework governing functional
devolution to local bodies, the state government took certain regressive
steps to roll back the functions already devolved on them as discussed
at paras 6.7, 6.12 to 6.14 of this Chapter. For, whatever reasons may be
adduced to do so, the real reason appears to be the turf war between
various government departments and reluctance of the ruling
establishment to empower the local bodies due, perhaps, to the
imagined fear that, “empowering them would result in disempowering
itself”.
- It appears that, most of the legal and administrative framework that the
state government has created post-passage of the CAAs, 1992, is only
in token compliance and most of it is either poorly implemented or is a
mere dead letter of the law. The Commission has identified quite a few
laws, notifications and orders, which are just decorative and missing in
implementation on the ground due to one or all the foregoing reasons.
These are listed at paras 6.3, 6.5 and 6.6 and paras 6.9 and 6.10 of this
Chapter. This needs an urgent fix.
- The Commission has been seriously handicapped in its work in the
absence of an authentic, reliable and comparable data, overtime and
space, on the working of the local bodies, specially relating to norms,
coverage, quality and cost of performing various functions devolved on
them. It is, to no small measure, due to the generic, vague and
undifferentiated devolution. The Commission recommends creation of
a Data Bank for local bodies relating to important aspect of their
functioning in real time and rules of its accessibility to the stakeholders.
117
- The extant laws and administrative mechanism also do not provide for
transparency and accountability; ombudsman for ensuring that public
services are delivered by local bodies as per norms and in a corruption-
free manner; and peoples participation. In fact, the existing
legal/administrative framework governing the local bodies is not only
insufficient to translate the constitutional mandate to make them self-
governing entities, but is also totally out of sync with the times and is
hopelessly outdated. Nothing short of a thorough overhaul will do.
However, left to the respective line departments, it will never come
about. Therefore, the Commission will strongly recommend
constitution of an inter-disciplinary expert group; headed by a person
of stature and strong credentials in this field, to draw up afresh the
legal/administrative framework for local bodies, inter alia,
incorporating the foregoing recommendations, which may be enacted
into a new law governing them, latest by 31st March, 2023.
Financial Devolution
6.17 Public finance theory suggests that, finance should follow the
functions (NIPFP, 2011). As per this axiom, the local bodies must be endowed
with enough fiscal and legal powers in consonance with their expenditure
assignments. At present, major sources of income of local bodies are (i) own tax
receipts (taxes, duties, tolls, and fees), (ii) non-tax receipts (user charges, etc.),
and (iii) transfers from the State and Central governments.
6.18 All local bodies, across states, are financially weak and need an
assured, predictable and steady flow of funds to enable them to discharge their
assigned functions to function as institutions of self-government. An OECD
study (2000) listed solidarity (shared values and priorities of its community) and
subsidiarity (local autonomy, decentralization and keeping government close to
118
the people) as the two basic underlying principles to make the local bodies
financially viable, more competitive and efficient. Without adequate devolution
of funds, these goals are impossible to achieve. The quest for solidarity and
autonomy, however, in a country as diverse as ours, remains the driving force
behind the decentralized governance and devolution. No wonder, it continues to
be a journey rather than a destination.
6.19 Constitutionally, the onus for achieving decentralized governance
and fund devolution squarely rests upon the Legislature of a State to endow these
bodies, by enacting a suitable law/act, with such powers, authority and
responsibilities, which may enable them to function as institutions of self-
governance, and ensure adequate devolution of powers and responsibility, with
respect to (i) preparation of plans for economic development and social justice;
and (ii) implementation of such schemes including those in relation to the matters
listed in the Eleventh and Twelfth Schedules (Articles 243-G and Article 243-W
for Panchayats and Municipalities, respectively).
6.20 Article 243 (H) and Article 243 (X) for Panchayats and
Municipalities, respectively, mandate the State Legislature to, by laws,(i)
authorise a Panchayat/Municipality to levy, collect and appropriate such taxes,
duties, tolls and fees in accordance with such procedure and subject to such limits;
(ii) assign to a Panchayat/Municipality such taxes, duties, tolls and fees levied
and collected by the State Government for such purposes and subject to such
119
conditions and limits; (iii) provide for making such grants-in-aid to the
Panchayat/Municipality from the Consolidated Fund of the State; and (iv) provide
for constitution of such funds for crediting all money received, respectively, by
or on behalf of the Panchayat/Municipality and also for the withdrawal of such
money therefrom, as may be specified in the law.
6.21 Similarly, Article 243-I (Panchayats) and Article 243-Y
(Municipalities) mandate the states to constitute a State Finance Commission
(SFC), once in every five years, to review and strengthen the financial position
of these bodies (Para 6.2 of ToR), on the pattern of CFCs. This underscore the
critical role that the SFC is expected to play in ensuring assured, predictable and
need-based flow of funds to the local bodies so as to enable them to discharge the
functions assigned to them effectively.
Recommendations
6.22 From the foregoing analysis, it can be safely concluded that financial
devolution to local bodies is insufficient, uncertain and unpredictable. By way of
remedial action, the Commission will like to make the following
recommendations.
- No doubt, the state government has dutifully incorporated the
constitutional mandates in its respective laws, governing local bodies.
However, non-existence of a comprehensive state law on the subject and
poor implementation of the existing laws have reduced this arrangement
120
to a token compliance of the constitutional provisions. It is, therefore,
recommended that a comprehensive law, as mandated by Articles 243
(H) and 243 (X) of the Constitution, may be enacted. In fact, the
suggested law could form a part of a comprehensive law recommended
at para 6.22 ante.
- No doubt, the state government has been very prompt in constituting the
SFC as required by Articles 243 (I) and 243 (Y) of the Constitution to
recommend devolution of funds from the state to the local bodies.
However, it is regrettably noted that, the Punjab is, perhaps, the solitary
state in the country to have not implemented SFCs’ recommendations
despite accepting the same and presenting the Explanatory Memorandum
and Action Taken Report (ATR) thereof to the State Legislature as is
evident from the Table 6.2 below: -
Table 6.2: Size of the Divisible Pool and Actual Release of Funds in Punjab (1st SFC
to 5th SFC)
Amount (Rs. Crore)

Due as Relative
Absolute
SFC recommended Actual Shortfall
Shortfall
(4% Share of Release (%)
(2-3)
NOTR)
1 2 3 4
1st SFC (1996-97 to 2000-01) 540.48 # 159.67 380.81 70.46
2nd SFC (2001-02 to 2005- 80.64
1217.32 235.71 981.61
06)
3rd SFC (2006-07 to 2010- 95.68
2150.90 92.91 2057.99
11)
4th SFC (2011-12 to 2015-16) 5218.00 6.35 5211.65 99.88
5th SFC (2016-17 to 2020-21)
2016-17 1242.00 7.00 1235.00 94.44
2017-18 1339.00 0.00 1339.00 100.00
2018-19 1445.00 0.00 1445.00 100.00
2019-20 1561.00 0.00 1561.00 100.00
2020-21 1687.00 0.00 1687.00 100.00
Total 7274.00 7.00 7267.00 99.90
#20% Share of Net Proceeds of Five Taxes levied by the State Government.
Source: Reports of 1st to 5th SFCs and Finance Department, Punjab.
121
This is an avoidable embarrassment. State government may,
therefore, evolve a mechanism to ensure that recommendations of SFCs
are implemented once these are accepted by the state government.
- In the context of implementation of 6th SFC Report for 2021-22, it is
pertinent to draw attention to the ATR presented by the state government
to State Legislature, which is at Annexure-6C. It may be noted
therefrom that, the state government while accepting other
recommendations, has referred the main recommendation relating to
devolution of 4% of its own net tax revenue to a group of ministers. Such
an ATR is not in accord with the constitutional provisions. The ATR, in
Commission’s view, should be specific as to the final decision on various
recommendations of the SFC.
- It is in this very context of non/tardy implementation of SFCs’
recommendations by the state governments that the Fifteenth Finance
Commission (FFC) has stipulated the following entry level condition for
the state’s local bodies to qualify for receiving grants-in-aid
recommended by the FFC after 2023-2024.
The 15th CFC recommends “that all States, which have not done so
far, must constitute SFCs, act upon their recommendations and lay
the Explanatory Memorandum as to the ATR thereon before the
122
State Legislature on or before March 2024. After March 2024, no
grants should be released to a State that has not complied with the
Constitutional Provisions in respect of the SFC and these
conditions. The MoPR will ensure compliance of all Constitutional
Provisions by a State in this respect before the release of their share
of grants for 2024-25 and 2025-26”.
The state government need to take a serious note of the above
stipulation, failing to fulfil which, may deprive the state’s local bodies of
grants-in-aid amounting to Rs. 4339 crore for the years 2024-2025 and
2025-2026.
- We are happy to note that, the state government has continued with the
long-established practice of compensating the Urban Local Bodies for
loss of revenue on abolition of octroi in general and octroi on electricity
by assigning them 11% of state’s revenue from GST and sharing with all
local bodies tax on petrol, diesel and liquor in the ratio of consumption
in their respective jurisdictions. In its absence, local bodies would have
drawn a blank by way of transfer of funds from the state government.
However, there has been delays in and denials of disbursements on this
account depending upon vagaries of state finances as depicted in the
Table 6.3.
123
Table 6.3: Status of Compensatory Payments Released to ULBs in Punjab (Rs Crore)
Amount Due as recommended* Actual Release** Shortfall (-)/Surplus (+)
Year
Total
Total
Total
GST)
or 11%
or 11%
2- Col. 8)
Both (VAT/
VAT @10%
VAT @10%
(Col. 3-Col. 9)
and Electricity
and Electricity
and Electricity
Octroi on POL
Octroi on POL
Octroi on POL
Grant in lieu of
Grant in lieu of
Grant in lieu of
(Col. 4 -Col. 10)
Grant from GST

(Col. 5 - Col. 11)
Octroi on Liquor
Octroi on Liquor
Octroi on Liquor
VAT + GST (Col.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
4th SFC (2011-12 to 2015-16)
+31.92 -21.64 +0.65 +10.93
2011-12 907.66 195.62 71.25 1174.53 939.58 - 939.58 173.98 71.90 1185.46
(3.52) (11.06) (0.91) (0.93)
+78.97 -102.89 -49.38 -73.30
2012-13 1033.33 232.48 71.25 1337.06 1112.30 - 1112.30 129.59 21.87 1263.76
(7.64) (44.26) (69.31) (5.48)
+71.47 -160.91 +37.02 -52.42
2013-14 1176.39 276.29 71.25 1523.93 1247.86 - 1247.86 115.38 108.27 1471.51
(6.08) (58.24) (51.96) (3.44)
+136.74 -224.77 -35.16 -123.19
2014-15 1339.26 328.36 71.25 1738.87 1476.00 - 1476.00 103.59 36.09 1615.68
(10.21) (68.45) (49.35) (7.08)
-74.70 -272.17 +30.95 -315.92
2015-16 1524.69 390.24 71.25 1986.18 1449.99 - 1449.99 118.07 102.20 1670.26
(4.90) (69.74) (43.44) (15.91)
+244.40 -782.38 -15.92 -553.90
Total 5981.33 1422.99 356.25 7760.57 6225.73 - 6225.73 640.61 340.33 7206.67
(4.09) (54.98) (4.47) (7.14)
th
5 SFC (2016-17 to 2020-21)
-109.89 +0.99 +118.57 +9.67
2016-17 1674.47 109.09 177.43 1960.99 1564.58 - 1564.58 110.08 296.00 1970.66
(6.56) (+0.91) (+66.83) (+0.49)
+8.49 -72.03 +9.76 -53.78
2017-18 1774.94 111.33 177.43 2063.70 1048.99 734.44 1783.43 39.30 187.19 2009.92
(+0.48) (64.70) (+5.50) (2.61)
-46.70 -32.31 -34.47 -113.48
2018-19 1881.43 113.61 177.43 2172.47 634.73 1200.00 1834.73 81.30 # 142.96 2058.99
(2.48) (28.44) (19.43) (5.22)
-452.69 -49.77 -177.43 -679.89
2019-20 1994.32 115.94 177.43 2287.69 128.06 1413.57 1541.63 66.17 # 0.00 1607.80
(22.70) (42.93) (100.00) (29.72)
-154.39 -24.15 5.20 -183.74
2020-21 2113.98 118.31 177.43 2409.72 0.00 1959.59 1959.59 94.16 # 172.23 2225.98
(7.30) (20.41) (2.93) (7.62)
-755.18 -177.27 -88.77 -1021.22
Total 9439.14 568.28 887.15 10894.57 3376.36 5307.60 8683.96 391.01 798.38 9873.35
(8.00) (31.19) (10.01) (9.37)
Source: *4th SFC and 5th SFC (Table 9.1 and Table 11.4). ** Department of Local Bodies. #It includes Municipal Tax imposed on electricity in lieu of Octroi subsumed in GST.
124
The Commission, therefore, recommends a statutory backup for
this arrangement to ensure full and timely disbursal to the local bodies.
- Departments of Finance and the line departments of local bodies have
drawn the attention of the Commission to the substantial release of
funds by the state government to the local bodies under various
schemes year-after-year. However, it does not discharge the
constitutional mandate of devolving funds to the local bodies in an
assured, predictable and equitious manner. Besides, it is not free from
arbitrariness.
- The Commission has also noted that functional and financial
devolution to local bodies widely varies across states. This is partly
explained by differentiated functional devolution and composition of
divisible pool. To a degree, it is desirable, for one-size-does-not-fit-
all. But, it cannot take away from the fact that, the Punjab scores very
poorly, both in terms of functional and financial devolution. This
needs to be remedied.
- Yet another weak link in the chain of financial devolution to local
bodies is their total reluctance to raise own resources. This has been
abetted by the absence of an appropriate legal/administrative
framework for the purpose and state government’s policies of revenue
sacrifice. It is also felt that increasing grants-in-aid to local bodies
125
under the aegis of the CFC, beginning with the 10th CFC, seems to have
also made the local bodies and the state government complacent and
to hunger for more central grants, rather than mobilising their own
resources. Given a very low expenditure by local bodies, less than 1%
of GSDP, central grants alone will not suffice either to provide better
public services or to create infrastructure benchmarked with better
performing states in the country. It is strongly recommended that the
state government may put a strong policy framework in place, which
incentivizes own resource mobilization and punishes laxity in doing so
by the local bodies.
Administrative Devolution
6.23 The position of administrative devolution is worse even than that
of functional and financial devolution. As presently constituted, local bodies
are unprofessional, lack technical expertise and are centralized to the teeth.
Besides, they continue with the age-old staffing structures that have been
rendered redundant by huge technological advances in this field and are totally
unsuitable for rising to the expectations of an aspirational citizenry.
Resultantly, their costs far outweigh their benefits.
6.24 However, the underlying cause for such a state of affairs is the
multitude of local bodies, which by their size, population and resource base are
simply not viable entities. To illustrate this point, the following Tables 6.4
126
and 6.5 give the comparative population size, number of local bodies and per
local body population.
Table 6.4: Number of ULBs by Type, Population Size, Per ULB Population
and Area
Density of Population per Sq. Km.

Population (2011 Census) Present Area (Sq. Km.)
Type of No. of
ULB ULBs
Range Mean Range
Total Mean Total
(S – L)* (S – L)*
98,916 17.47
Municipal 54,93,942 (Kapurthala) (Phagwara) –
13 422,611 761 58.54 7219
Corporation (55.75) – 16,18,879 159.37
(Ludhiana) (Ludhiana)
16,254
Municipal (Anandpur 9.00 (Anandpur
20,39,795
Council 26 78,454 Sahib) – 568 21.83 Sahib) – 3593
(20.70)
(Class-I) 135,316 44.00 (Lalru)
(Malerkotla)
12,815
Municipal 2.82 (Bhucho
12,76,001 (Bhogpur) –
Council 45 28,356 485 10.77 Mandi) – 2632
(12.95) 66,847 (Tarn
(Class-II) 28.40 (Sirhind)
Taran)
2,744
Municipal 1.50 (Dera Baba
398,390 (Sangat) –
Council 28 14,228 170 6.08 Nanak) – 10.00 2341
(4.04) 24,916
(Class-III) (Tapa)
Machhiwara)
5,162
1.00 (Maluka
Nagar 646,283 (Panjtoor) –
51 12,672 375 7.36 and Kothaguru) 1722
Panchayat (6.56) 50,755 (Naya
– 25.00 (Mudki)
Gaon)
98,54,411
Total 163 60,457 - 2359 14.47 - 4177
(100.00)
*S stands for smallest value and L stands for largest value.
Source: Culled from the data supplied by Department of Local Bodies, Punjab.
127
Table 6.5: Number of PRIs by Type, Population Size, Per PRI Population and Area
Density of Population
Population (2011 Census) Present Area (Sq. Km.)
per Sq. Km.

Type of PRI No.
Range Mean Range
Total Mean Total
(S – L)* (S – L)*
378,432 899
Zila (Pathankot)– (Pathankot)
22 1,73,44,392 788,381
14,29,031
48,966 2226 –3643
Parishad
(Ludhiana) (Ludhiana) 354
23,259 (Bamiaal)
Panchayat
151 1,73,44,292 114,863 – 214,720 48,966 324 na
Samiti (Ludhiana)
300 (na) – 13959
Gram
13262 1,73,44,292 1308 (Ramsara, Dist. na na na na
Panchayat Bathinda)
Source: Culled from the data supplied by Department of Rural Development & Panchayats, Punjab.
6.25 We are, therefore, of the view that, no meaningful administrative
reform is possible without remedying this structural flaw in the local bodies.
As a first step, the Commission will recommend restructuring these bodies in
the crucible of functional, financial and administrative viability. Therefore, a
model HRD Plan for each set of these bodies, having regard to their size,
functions and resource base, may be drawn up and implemented. Needless to
say, that the recommended HRD Plan must be informed by professionalism,
technical expertise, and functional autonomy. Broadly, managerial cadres may
be administered by the state government and worker cadres by the respective
local bodies. Such a plan has to be dynamic and subject to be reviewed every
five years to keep it abreast with times.
128
Chapter 7
Finances of Panchayati Raj Institutions (PRIs)

(‘Little Republics’ starving for functional autonomy)
Introduction
7.1 ToR of the Commission, inter alia, mandates it to suggest:
i. The measures needed to improve the financial position of the

Panchayats.
ii. The measures to reduce unproductive revenue expenditure and

steps to improve the quality of administration and technical
support for efficient and effective use of capital resources.
7.2 Before specifically addressing the above TOR, it is essential to

have an idea of (i) the functional domain of the PRIs; (ii) the sources of funding
various functions assigned to them - their adequacy or otherwise; and (iii) the
organizational and technical capacity to effectively discharge these functions.
Without contextualizing these issues in the prevalent ground realities, any
exercise regarding finances of PRIs is bound to be theoretical. Naturally, in
doing so, it is equally relevant to know the comparative position of other states
in the country.
7.2 Boxes 7.1, 7.2, 7.3, and 7.4 detail the functional domain and
taxation powers of different tiers of PRIs as enshrined in the Constitution and
the Punjab Panchayati Raj Act, 1994
129
Box 7.1
Classification of Functions of Panchayats (29 Subjects)
Listed in 11th Schedule of the Constitution
Core Functions:
• Drinking water.
• Roads, culverts, bridges, ferries, waterways and other means of communication.
• Rural electrification, including distribution of electricity.
• Health and sanitation, including hospitals, primary health centres and dispensaries
• Maintenance of community assets.
Welfare Functions:
• Rural housing.
• Non-conventional energy sources.
• Poverty alleviation programme.
• Education, including primary and secondary schools.
• Technical training and vocational education.
• Adult and non-formal education.
• Libraries.
• Cultural activities.
• Family welfare.
• Women and child development.
• Social welfare, including welfare of the handicapped and mentally retarded.
• Welfare of the weaker sections, and in particular, of the Scheduled Castes and the
Scheduled Tribes.
• Public distribution system.
Agriculture and Allied:
• Agriculture, including agricultural extension.
• Land improvement, implementation of land reforms, land consolidation and soil
conservation.
• Minor irrigation, water management and watershed development.
• Animal husbandry, dairying and poultry.
• Fisheries.
• Social forestry and farm forestry.
• Minor forest produce.
• Fuel and fodder.
• Markets and fairs.
Industries:
• Small scale industries, including food processing industries.
• Khadi, village and cottage industries.
Note: This classification of the functions, as enumerated in the 11th Schedule of Constitution, has
been made by the 11th CFC.
130
Box 7.2
Taxation Powers of Gram Panchayats
Under Section 88 of the Punjab Panchayati Raj Act, 1994, the Gram
Panchayats, subject to any rules and regulations approved by the State
Government, can levy/impose: -
a. Tax on lands and buildings within the local limits.
b. Tax on professions, trades, callings and employments
other than agriculture within the local limits.
c. Duty in the shape of additional stamp duty on all payments
for admission to any entertainment.
d. Duty on transfers of property, in the form of surcharge
on duty imposed by or under the Indian Stamp Duty
Act, 1899, on instruments of sale, gift and mortgage
with possession of immovable property situated in its
jurisdiction at such rate as may be fixed by the state
government not exceeding two percentum on as the
case may be.
Under Section 88(4) the Punjab Panchayati Raj Act, 1994, the Gram
Panchayats, subject to such maximum rates as prescribed by state
government, can levy the following fees and rates, which include: -
a. Fee on the registration of vehicles;

b. Fee for providing sanitary arrangements at places of
worship/pilgrimage, fairs, melas, etc;
c. Water rate on supplying water for drinking, irrigation or any other
purpose;
d. Lighting rate for lighting of public streets and places; and
e. Conservancy rate for cleaning latrines, urinals and cesspools.
131
Box 7.3
Taxation Powers of Panchayat Samitis
Section 149 of the Punjab Panchayati Raj Act, 1994 provides vast powers to the Panchayat Samitis for
levying of taxes, duties, cess and fees, which include the following: -
a. Tolls on persons, vehicles or animals or any class of them at any toll-bar
established by it on any road other than a kutcha road or any bridge vested in or
under its management;
b. Tolls on any ferry established by it or under its management;
c. Levy the following fees and rates, namely, on: -
• Fees on the registration of vehicles other than those registered under the Motor
Vehicle Act, 1988;
• Fee for providing sanitary arrangement at places of worship or pilgrimage, fairs
and melas within its jurisdiction as may be specified by the state government by
notification;
• Fee for licence for a market and for any other licence;
• Water rate, where arrangement for the supply of water for drinking, irrigation or any other purpose
is made by the Panchayat Samiti within its jurisdiction; and
• Lighting rate, where arrangement for lighting of public streets and places is made by
the Panchayat Samiti within its jurisdiction.
•
Source: The Punjab Panchayati Raj Act, 1994.

Box 7.4
Taxation Powers of Zila Parishads
Under Section 189 of Punjab Panchayati Raj Act, 1994, the state government on the
recommendation of SFC constituted under Article 243-I of the Constitution of India or otherwise
may allow a Zila Parishad to levy a tax, duty, fee, toll and cess which has not been levied by any
Gram Panchayat or Panchayat Samiti, and thereupon the Zila Parishads have the powers to impose,
collect and appropriate such tax, toll, duty cess or fee to its kitty.
Source: The Punjab Panchayati Raj Act, 1994.
Section-II
Comparative Analysis of PRIs and Their Finances: Where Punjab

Stands?
7.3 Tables 7.1 to 7.6 detail some important features of PRIs structure
and finances across major states of the county and present a comparative
picture.
132
Table 7.1: Total Numbers of Panchayats across Major States of India, 1st April 2019
Number of Panchayats by Level Rural Population Served Per Rank of Population Served Per
Sl.
State/UT
No.
District* Block** Village*** Total ZP PS VP ZP PS GP
1 Andhra Pradesh 13 660 13042 13715 2833,029 55,802 2824 15 2 7

2 Bihar 38 534 8386 8958 2616,655 186,204 11,857 14 13 15
3 Chhattisgarh 27 146 10978 11151 733,304 135,611 1804 1 7 3
4 Gujarat 33 248 14292 14573 1120,881 149,149 2588 5 9 6
5 Haryana 21 126 6197 6344 881,243 146,874 2986 3 8 9
6 Jharkhand 24 263 4370 4657 1138,865 103,927 6255 6 4 13
7 Karnataka 30 176 6021 6227 1317,150 224,514 6563 9 16 14
8 Kerala 14 152 941 1107 3319,358 305,730 49,385 16 17 17
9 Madhya Pradesh 51 313 22817 23181 1033,725 168,434 2311 4 10 5
10 Maharashtra 34 351 27869 27869 1862,294 180,393 2272 11 12 4
11 Odisha 30 314 6798 7142 1192,904 113,972 5264 7 5 12
12 Punjab 22 147 13271 13440 805,272 120,517 1335 2 6 1
13 Rajasthan 33 295 9892 10220 1536,941 171,929 5127 10 11 11
14 Tamil Nadu 31 385 12523 12939 1275,992 102,742 3159 8 3 10
15 Telangana 9 438 13057 13504 2503,950 51,451 1726 13 1 2
16 Uttar Pradesh 75 822 58791 59688 2231,359 203,591 2847 12 14 8
17 West Bengal 22 342 3340 3704 3415,538 219,713 22498 17 15 16
Total 17 States 507 5712 232585 238419 1675,976 148,761 130,801 - - -
All States/UTs 630 6613 253380 260623 1456,437 138,750 3621 - - -
*Known as Zila Parishad or Zila Panchayat. **Known as Panchayat Samiti/Taluka Panchayat/ Mandal Parishad, etc. ***Known as Village/Gram Panchayat.
Source: Culled from ‘Financial Matrix for Empowerment: Design of Inter-Governmental Fiscal Transfers in India to Rural Local Governments’ – A Report submitted to
the Fifteenth Finance Commission by Indian Institute of Public Administration, June 2019.
133
Table 7.2: State-Wise Percentage Distribution of Gram Panchayats by
Population Size
S.
No.
Population Size
States
<=2000 2001--5000 5001-10000 >=10001 Total
1 Andhra Pradesh 52.18 36.47 8.64 2.72 100.00
2 Bihar 9.98 8.63 20.21 61.18 100.00
3 Chhattisgarh 72.59 26.36 0.97 0.07 100.00
4 Gujarat 53.49 36.44 8.53 1.54 100.00
5 Haryana 57.19 32.49 8.53 1.79 100.00
6 Jharkhand 5.90 18.60 73.57 1.92 100.00
7 Karnataka 8.63 24.11 59.80 7.46 100.00
8 Kerala 15.07 2.19 2.61 80.13 100.00
9 Madhya Pradesh 55.49 41.35 2.94 0.23 100.00
10 Maharashtra 63.47 29.85 5.08 1.60 100.00
11 Odisha 14.82 38.75 42.17 4.26 100.00
12 Punjab 79.95 17.09 2.62 0.34 100.00
13 Rajasthan 22.44 37.41 37.11 3.03 100.00
14 Tamil Nadu 39.03 45.38 13.61 1.98 100.00
15 Telangana 55.68 36.39 6.08 1.85 100.00
16 Uttar Pradesh 57.06 36.21 5.73 1.00 100.00
17 West Bengal 0.21 1.37 3.96 94.47 100.00
Total 50.18 32.82 11.51 5.49 100.00
All India 55.24 29.30 10.38 5.08 100.00
Source: GoI (2019), Ministry of Panchayati Raj, Basic Statistics of Panchayati Raj Institutions,
134
Table 7.3: Tier-Wise Expenditure of PRIs across Major States (Average of
2012-13 to 2017-18)
Per Capita
S. Tier-Wise Expenditure of PRIs (Rs. Crore)
State Expenditure
No.
ZPs PSs GPs All Rs. Rank
Andhra Pradesh 300.8 5210.7 465.4 5976.9
1 1622.9 6
% 5.03 87.18 7.79 100.00
2 Bihar na na na na na na
Chhattisgarh 5256.2 1433.5 787.4 7477.0
3 3776.4 4
% 70.30 19.17 10.53 100.00
Gujarat 6532.3 8601.1 1304.7 16438.2
4 4444.1 3
% 39.74 52.32 7.94 100.00
Haryana 62.2 72.6 1398.4 1533.2
5 828.5 10
% 4.06 4.74 91.21 100.00
Jharkhand 234.6 151.8 383.1 769.5
6 281.5 13
% 30.49 19.73 49.79 100.00
Kerala 701.6 1345.5 4688.9 6736.0
7 1449.5 7
% 10.42 19.97 69.61 100.00
Karnataka 9238.3 11864.2 5164.2 26266.7
8 6647.4 1
% 35.17 45.17 19.66 100.00
9 Madhya Pradesh na na na na na na
Maharashtra 32550.0 272.7 3773.1 36595.8
10 5779.7 2
% 88.94 0.75 10.31 100.00
Odisha 283.8 819.3 2809.7 3912.8
11 1093.3 9
% 7.25 20.94 71.81 100.00
Punjab 21.3 114.5 468.3 604.1
12 341.0 11
% 3.53 18.95 77.52 100.00
13 Rajasthan na na na na na na
Tamil Nadu 232.8 1384.2 3499.6 5116.6
14 1293.5 8
% 4.55 27.05 68.40 100.00
15 Telangana na na na na na na
Uttar Pradesh 1096.5 379.1 3690.6 5166.3
16 308.7 12
% 21.22 7.34 71.44 100.00
West Bengal 2225.7 3688.2 7582.8 13496.6
17 1796.2 5
% 16.49 27.33 56.18 100.00
All 13 States 58736.1 35337.4 36016.2 130089.7
2083.0 -
% 45.15 27.16 27.69 100.00
Note: na stands for not available.
Source: Culled from ‘Financial Matrix for Empowerment: Design of Inter-Governmental Fiscal Transfers in
India to Rural Local Governments’ – A Report submitted to the Fifteenth Finance Commission by
Indian Institute of Public Administration, June 2019.
135
Table 7.4: Tier-Wise Own Revenue Collections of Panchayats, Average of 2012-13
to 2017-18
Tier-Wise Own Revenue Collections Per Capita Own
S. (Rs. Crore) Revenue
State
No.
ZPs PSs GPs Total Rs. Rank
Andhra Pradesh 61.7 18.3 326.0 406.0
1 110.2 8
% 15.20 4.51 80.30 100.00
2 Bihar 0.0 0.0 0.0 0.0 0
Chhattisgarh 0.1 2.9 44.5 47.5
3 24.0 11
% 0.21 6.11 93.68 100.00
Gujarat 709.1 68.0 312.6 1089.6
4 294.6 2
% 65.08 6.24 28.69 100.01
Haryana 0.0 0.0 246.8 246.8
5 133.3 5
% 0.00 0.00 100.00 100.00
Jharkhand 28.8 4.9 8.8 42.5
6 15.5 12
% 67.76 11.53 20.71 100.00
Kerala 181.5 16.2 390.8 588.5
7 126.7 6
% 30.84 2.75 66.41 100.00
Karnataka 0.0 0.0 454.2 454.2
8 114.9 7
% 0.00 0.00 100.00 100.00
9 Madhya Pradesh 0.0 0.0 0.0 0.0 0
Maharashtra 6192.1 148.1 1205.9 7546.1
1191.8 1
10 % 82.06 1.96 15.98 100.00
Odisha 0.0 0.0 29.2 29.2
11 8.2 13
% 0.00 0.00 100.00 100.00
Punjab 30.6 72.4 306.4 409.4
12 231.1 3
% 7.47 17.68 74.84 100.00
13 Rajasthan 0.0 0.0 0.0 0.0 0
Tamil Nadu 1.1 183.8 642.7 827.6
209.2 4
14 % 0.13 22.21 77.66 100.00
15 Telangana 0.0 0.0 0.0 0.0 0
Uttar Pradesh 1226.9 0.0 12.4 1239.3
74.1 10
16 % 99.00 0.00 1.00 100.00
West Bengal 400.6 54.1 178.1 632.8
17 84.2 9
% 63.31 8.55 28.14 100.00
All 13 States 8832.5 568.7 4158.4 13559.5
159.6
% 65.14 4.19 30.67 100.00
Source: Culled from ‘Financial Matrix for Empowerment: Design of Inter-Governmental Fiscal Transfers in India to
Rural Local Governments’ – A Report submitted to the Fifteenth Finance Commission by Indian Institute of
Public Administration, June 2019.
136
Table 7.5: Financing Pattern of Expenditure Incurred by PRIs across Major States,
Average of 2012-13 to 2017-18
Financing of Expenditure Incurred
by Panchayats Percent Share Ranks to % Shares
(Rs Crore)
S.
Other Sources
Other Sources
Other Sources
Own Income
Own Income
Own Income
Expenditure
No State
Both
.
1 Andhra Pradesh 5976.9 406.0 5570.9 6.79 93.21 100.00 7 7
2 Bihar 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
3 Chhattisgarh 7477.0 47.5 7429.5 0.64 99.36 100.00 13 1
4 Gujarat 16438.2 1089.6 15348.5 6.63 93.37 100.00 8 6
5 Haryana 1533.2 246.8 1286.4 16.10 83.90 100.00 5 9
6 Jharkhand 769.5 42.4 727.1 5.51 94.49 100.00 9 5
7 Kerala 6736.0 588.6 6147.4 8.74 91.26 100.00 6 8
8 Karnataka 26266.7 454.2 25812.6 1.73 98.27 100.00 11 3
9 Madhya Pradesh 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
10 Maharashtra 36595.8 7546.1 29049.7 20.62 79.38 100.00 3 11
11 Odisha 3912.8 29.2 3883.5 0.75 99.25 100.00 12 2
12 Punjab 604.1 409.4 194.7 67.77 32.23 100.00 1 13
13 Rajasthan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
14 Tamil Nadu 5116.6 827.6 4289.0 16.17 83.83 100.00 4 10
15 Telangana 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
16 Uttar Pradesh 5166.3 1239.3 3927.0 23.99 76.01 100.00 2 12
17 West Bengal 13496.6 632.7 12863.9 4.69 95.31 100.00 10 4
Total 13 States 130089.7 13559.4 116530.2 10.42 89.58 100.00 - -

Source: Culled from ‘Financial Matrix for Empowerment: Design of Inter-Governmental Fiscal Transfers in India to Rural Local
Governments’ – A Report submitted to the Fifteenth Finance Commission by Indian Institute of Public
Administration, June 2019.
137
Table 7.6: Share of Each State in Total Grants-in-Aid Allocated to Panchayats by CFCs, 10th CFC to 15th CFC
10th CFCs 11th CFCs 12th CFCs 13th CFCs 14th CFCs 15th CFCs
S.
States (1995-96 to 1999-00) (2000-01 to 2004-05) (2005-06 to 2009-10) (2010-11 to 2014-15) (2015-16 to 2019-20) (2021-22 to 2025-26)
No.
Share (%) Rank Share (%) Rank Share (%) Rank Share (%) Rank Share (%) Rank Share (%) Rank
Major States
1 Andhra Pradesh 8.01 3 9.50 3 7.94 5 8.29 3 4.32 10 4.32 10
2 Bihar 11.58 2 9.81 2 8.12 4 7.86 4 10.49 2 8.26 3
3 Chhattisgarh 3.08 13 2.65 13 2.62 15 2.39 16
4 Gujarat 4.38 11 4.35 10 4.66 9 3.7 11 4.31 11 5.26 9
5 Haryana 1.89 15 1.84 15 1.94 16 1.72 17 1.94 18 2.08 18
6 Jharkhand - - - 2.41 15 2.41 15 3.02 12 2.78 13
7 Karnataka 5.06 8 4.93 9 4.44 10 7.14 5 4.64 7 5.3 8
8 Kerala 4.08 12 4.12 12 4.93 8 3.09 12 2.01 17 2.68 14
9 Madhya Pradesh 7.96 4 8.94 4 8.32 3 6.52 7 6.77 6 6.56 5
10 Maharashtra 7.92 5 8.21 5 9.92 2 8.72 2 7.51 3 9.59 2
11 Odisha 4.59 10 4.32 11 4.02 12 4.11 10 4.42 8 3.72 11
12 Punjab 2.36 14 1.93 14 1.62 17 1.78 16 2.04 16 2.28 17
13 Rajasthan 4.84 9 6.14 7 6.15 7 6.25 8 6.81 5 6.36 6
14 Tamil Nadu 6.56 7 5.83 8 4.35 11 4.89 9 4.38 9 5.94 7
15 Telangana - - - - - - - - 2.68 14 3.04 12
16 Uttar Pradesh 17.34 1 16.49 1 14.64 1 15.52 1 17.86 1 16.05 1
17 West Bengal 7.61 6 7.22 6 6.36 6 6.57 6 7.09 4 7.26 4
Sub-Total 94.18 - 93.63 - 92.9 - 91.22 - 92.91 - 93.87 -
Small States including North Eastern/Hill States
18 Arunachal Pradesh 0.1 23 0.35 19 0.34 21 0.43 24 0.41 22 0.38 21
19 Assam 3.04 13 2.92 13 2.63 14 2.5 14 2.7 13 2.64 15
20 Goa 0.13 21 0.12 23 0.09 27 0.14 28 0.07 25 0.12 27
21 Himachal Pradesh 0.73 17 0.82 17 0.74 20 0.88 20 0.9 21 0.71 20
22 Manipur 0.21 19 0.23 21 0.23 24 0.35 25 0.1 24 0.29 24
23 Meghalaya 0.20 20 0.32 20 0.25 23 0.52 21 - - 0.3 23
24 Mizoram 0.07 24 0.1 24 0.1 26 0.32 26 - - 0.15 26
25 Nagaland 0.11 22 0.16 22 0.2 25 0.48 22 - - 0.21 25
26 Sikkim 0.04 25 0.07 25 0.07 28 0.29 27 0.07 25 0.07 28
27 Tripura 0.32 18 0.36 18 0.29 22 0.47 23 0.17 23 0.32 22
28 Uttarakhand - - - - 0.81 19 0.94 19 0.94 20 0.95 19
29 Jammu & Kashmir 0.86 16 0.93 16 1.41 18 1.46 18 1.73 19 - -
Sub-Total 5.81 - 6.38 - 7.16 - 8.78 - 7.09 - 6.13 -
All States 100 - 100 - 100 - 100 - 100 - 100 -
Note: Ranks to the shares of states have been assigned by the 6th SFC.
Source: Reports of Different CFCs
138
Key Takeaways
• Structure of PRIs, though having three-tiers across all major

States/UTs of India, vary widely in terms of numbers, population size
and representation to various social-groups. There are 630 Zila
Parishads/Panchayats, 6613 Block/Taluka/Mandal Panchayats and
253,380 Gram Panchayats in the country (Table 7.1).
• Having regard to its population, Punjab has the highest number of

Gram Panchayats (GPs) even though the number of Panchayat
Samitis (PSs) and Zila Parsihads (ZPs) is comparable to the states in
the similar population bracket. Consequently. 80% of GPs in Punjab
serve population of <2,000. This has an important bearing on scope
for capacity building and devolution of functions and funds for
various tiers of PRIs (Table 7.2).
• Punjab ranks 3rd among major states in own per capita revenue
collection by PRIs, which is solely due to assignment of a share of
additional excise duty on liquor and auction money from liquor. Net
of this transfer, which is compensatory in nature, PRIs own income
is mainly from the rent from land and properties owned by them and
very negligible from tax or non-tax revenue. This makes it
incomparable not only between states, but also inter-se different tiers
of PRIs (Table 7.2).
• Tier-wise expenditure of PRIs showed wide variations across major

Indian states. For instance, the GPs of 8 states, namely, Haryana,
Punjab, Odisha, UP, Kerala, Tamil Nadu, West Bengal and
Jharkhand, spent more than one-half of total expenditure of the PRIs;
whereas in Maharashtra and Chhattisgarh, Zila Parishads spent more
than 70% of PRIs’ total expenditures. However, in Andhra Pradesh,
139
Gujarat and Karnataka, Panchayat Samitis are spending greater
proportion of PRIs’ total expenditures (Table 7.3).
• There exist very wide variations in terms of per capita expenditure of

PRIs across major Indian states. For instance, Karnataka ranked 1 st,
followed by Maharashtra (2nd), Gujarat (3rd), Chhattisgarh (4th) and
West Bengal (5th). Punjab, however, with per capita PRI expenditure
at Rs. 341.0, was ranked 11th amongst the 13 Indian States (Table
7.3).
• Financing pattern of expenditure incurred by the PRIs showed few

interesting trends. First, own income of PRIs just financed 10.42% of
total expenditure of PRIs of 13 major Indian states. Second, the rest
of PRIs expenditure was financed by other resources which came to
different tiers of PRIs through transfer payments from the higher
levels of government (Table 7.5).
• Punjab’s share in allocation of grants-in-aid by CFCs to PRIs has

ranged between 1.62% (12th CFC) and 2.36% (10th CFC). In the 15th
CFC, Punjab’s share was 2.28%. This is against Punjab’s share in
rural population of the country being 2.35%. The state has been able
to keep its share intact mainly because it has closed its distance with
the national income (Table 7.6).
Section-III
Structure and Main Features of PRIs Finances
7.4 Broad structure and main features of PRIs finances, for the period
2015-16 to 2020-21, are presented in Table 7.7 to Table 7.19.
140
Table 7.7: Tier-Wise Finances of Panchayats Raj Institutions in Punjab, 2015-16 to 2020-21 (Rs. Crore)
Gram Panchayats (GPs) Panchayat Samitis (PSs) Zila Parishads (ZPs) All Tiers All Tiers
Year
GSDP
Income
Income
Income
Income
Unutilized
Unutilized
Unutilized
Expenditure
Expenditure
Expenditure
Expenditure
% of GSDP
% Unutilized
% Unutilized
% Unutilized
% Over-Utilized
Over-Expenditure
Total Expenditure as
Total Income as % of
2015-16 1045.23 805.39 239.84 22.95 213.42 165.20 48.21 22.59 111.18 130.81 -19.63 -17.65 1369.83 1101.40 268.43 19.60 0.33 0.26
2016-17 2339.37 1713.65 625.71 26.75 413.22 254.61 158.61 38.38 131.64 142.10 -10.46 -7.95 2884.22 2110.37 773.86 26.83 0.67 0.49
2017-18 951.25 920.43 30.82 3.24 307.36 198.27 109.09 35.49 125.59 115.72 9.88 7.86 1384.21 1234.42 149.79 10.82 0.29 0.26
2018-19 1124.65 898.25 226.40 20.13 275.95 197.80 78.15 28.32 147.45 144.89 2.56 1.74 1548.05 1240.94 307.11 19.84 0.30 0.24
2019-20 1647.87 1416.73 231.14 14.03 310.07 208.10 101.97 32.89 324.05 347.15 -23.10 -7.13 2281.99 1971.97 310.02 13.59 0.40 0.34
2020-21 1807.44 1330.73 476.71 26.37 390.90 364.02 26.88 6.88 174.82 390.48 -215.66 -123.36 2373.16 2085.23 287.93 12.13 0.39 0.34
Source: Department of Rural Development and Panchayats, Punjab.
141
Table 7.8: Revenue Receipts of All Gram Panchayats in Punjab (Rs. Crore)
Type of Revenue 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Tax Revenue
i Taxes on Building and Land 6.50 6.27 9.50 6.83 12.77 8.64
ii Other Taxes 0.01 0.02 0.05 0.18 0.02 0.02
Sub-Total 6.52 6.29 9.55 7.01 12.79 8.65
Non-Tax Revenue
i User Charges, Fees and Fines 0.17 0.25 0.10 0.18 0.05 0.06
ii Interest Income 2.15 3.17 3.42 2.69 3.49 3.10
iii Rent from Buildings 0.22 0.29 0.31 0.36 0.37 0.38
iv Shamlat Land 282.24 299.33 309.78 325.56 366.19 379.65
v Other Receipts 26.55 47.88 44.66 44.05 52.74 41.07
Sub Total 311.32 350.91 358.27 372.84 422.84 424.26
State Transfers
Share of Assigned Taxes
i 3.34 4.81 6.97 5.55 7.42 6.39
(Liquor tax)
ii Share in State Taxes (SFC) 0.00 0.00 0.00 0.00 0.00 0.00
General/Special Purpose
iii 35.30 209.91 11.34 25.56 48.15 109.29
Grants
iv Cattle Fair Grant 10.87 19.74 26.52 25.47 7.81 12.46
Discretionary Grants by CM/
v 18.55 28.14 3.90 14.89 15.29 18.84
Ministers
vi RDF 62.05 392.99 9.98 97.30 77.72 21.37
vii PIDB 238.58 730.76 1.31 4.91 4.25 5.49
viii Punjab Nirmaan 0.12 6.31 9.36 0.16 4.48 85.67
ix Others (specify) 21.48 67.83 5.95 13.38 18.72 47.73
Sub-Total 390.29 1460.48 75.34 187.23 183.83 307.23
Central Transfers
Transfers by Finance
i 258.56 422.43 431.97 405.78 917.88 964.43
Commission
Transfers for Agency
ii 18.59 29.06 23.81 25.24 49.07 58.66
Functions
iii BADP 13.09 10.95 14.61 32.67 14.00 8.19
iv MPLAD 22.88 38.29 18.83 21.33 13.10 6.82
v Others 23.98 20.96 18.86 72.56 34.37 29.20
Sub-Total 337.11 521.69 508.08 557.57 1028.41 1067.30
Grand Total 1045.23 2339.37 951.25 1124.65 1647.87 1807.44
142
Table 7.9: Percentage Distribution of Revenue Receipts of All Gram
Panchayats in Punjab (%)
Type of Revenue 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Tax Revenue
i. Taxes on Building and Lands 0.62 0.27 1.00 0.61 0.77 0.48
ii. Other Taxes 0.00 0.00 0.01 0.02 0.00 0.00
Sub-Total 0.62 0.27 1.00 0.62 0.78 0.48
Non-Tax Revenue
iii Rent from buildings 0.02 0.01 0.03 0.03 0.02 0.02
iv Shamlat Land 27.00 12.80 32.57 28.95 22.22 21.00
v Other Receipts 2.54 2.05 4.70 3.92 3.20 2.27
Sub Total 29.78 15.00 37.66 33.15 25.66 23.47
State Transfers
Share of Assigned Taxes
i
(Liquor tax) 0.32 0.21 0.73 0.49 0.45 0.35
ii Share In State Taxes (SFC) 0.00 0.00 0.00 0.00 0.00 0.00
iii General/Special Purpose Grants 3.38 8.98 1.19 2.27 2.92 6.05
v
Ministers 1.77 1.20 0.41 1.32 0.93 1.04
vi RDF 5.94 16.80 1.05 8.65 4.72 1.18
vii PIDB 22.83 31.24 0.14 0.44 0.26 0.30
Sub-Total 37.34 62.43 7.92 16.65 11.16 17.00
Central Transfers
Transfers by Finance
i
Commission 24.74 18.06 45.41 36.08 55.70 53.36
ii Transfers for Agency Functions 1.78 1.24 2.50 2.24 2.98 3.25
iii BADP 1.25 0.47 1.54 2.90 0.85 0.45
iv MPLAD 2.19 1.64 1.98 1.90 0.79 0.38
v Others 2.29 0.90 1.98 6.45 2.09 1.62
Sub-Total 32.25 22.30 53.41 49.58 62.41 59.05
Grand Total 100.00 100.00 100.00 100.00 100.00 100.00
143
Table 7.10: Revenue Receipts of Panchayat Samitis in Punjab (Rs. Crore)
Type of Revenue 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Tax Revenue
i Taxes on Building and Lands 0.48 0.54 0.59 0.63 0.63 0.68
ii Other Taxes 0.22 0.26 0.85 0.89 0.74 1.13
Sub-Total 0.70 0.81 1.43 1.52 1.37 1.81
Non-Tax Revenue
iii Rent from buildings 5.17 5.82 5.90 6.30 6.50 6.84
iv Panchayat lands 7.01 7.18 8.65 10.23 11.41 9.01
v Other Receipts 66.50 75.54 109.10 100.69 114.62 119.68
Sub Total 81.58 91.36 127.08 120.39 136.02 139.18
State Transfers
Share of Assigned Taxes (Liquor
i 50.20 53.34 50.37 41.98 42.78 53.54
tax)

Discretionary Grants by
v 7.57 8.28 3.86 6.45 5.54 10.83
CM/Ministers
vi RDF 0.89 70.05 1.47 20.09 10.08 1.23
vii PIDB 0.45 82.91 13.48 0.00 0.00 0.00
Sub-Total 65.83 231.58 78.64 82.24 66.59 94.22
Central Transfers
i Transfers by Finance Commission 47.62 59.24 85.55 43.78 81.28 92.06
ii BADP 6.06 5.53 6.05 7.05 8.36 6.38
iv MPLAD 4.15 14.06 4.86 15.92 11.89 3.66
v Others 2.12 6.92 1.33 2.73 0.84 47.00
Sub-Total 65.30 89.47 100.21 71.80 106.09 155.70
Grand Total 213.42 413.22 307.36 275.95 310.07 390.90

Source: Department of Rural Development and Panchayats, Punjab
144
Table 7.11: Percentage Distribution of Revenue Receipts of Panchayat
Type of Revenue 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Tax Revenue
ii Other Taxes 0.10 0.06 0.28 0.32 0.24 0.29
Sub-Total 0.33 0.20 0.47 0.55 0.44 0.46
Non-Tax Revenue
iii Rent from Buildings 2.42 1.41 1.92 2.28 2.10 1.75
iv Panchayat Lands 3.29 1.74 2.81 3.71 3.68 2.31
v Other Receipts 31.16 18.28 35.50 36.49 36.97 30.62
Sub Total 38.23 22.11 41.35 43.63 43.87 35.60
State Transfers
Share of Assigned Taxes (Liquor
i 23.52 12.91 16.39 15.21 13.80 13.70
tax)

v 3.55 2.00 1.26 2.34 1.79 2.77
Ministers
vi RDF 0.42 16.95 0.48 7.28 3.25 0.31
vii PIDB 0.21 20.06 4.38 0.00 0.00 0.00
Sub-Total 30.84 56.04 25.59 29.80 21.48 24.10
Central Transfers
iii BADP 2.84 1.34 1.97 2.56 2.70 1.63
iv MPLAD 1.95 3.40 1.58 5.77 3.84 0.94
v Others 0.99 1.67 0.43 0.99 0.27 12.02
Sub-Total 30.60 21.65 32.60 26.02 34.21 39.83
Grand Total 100.00 100.00 100.00 100.00 100.00 100.00
145
Table 7.12: Revenue Receipts of Zila Parishads in Punjab (Rs. Crore)
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Type of Revenue
Tax Revenue
ii Other Taxes 0.0 0.0 0.0 0.0 0.0 0.0
Sub-Total 0.0 0.0 0.0 0.0 0.0 0.0
Non-Tax Revenue
iii Rent from Buildings, etc. 3.02 3.15 3.32 4.03 3.51 3.92
iv Other Receipts 0.76 1.94 2.92 4.24 5.7 7.29
Sub Total 4.53 6.07 6.94 9.24 10.69 11.90
State Transfers
i Share of Assigned Taxes (Liquor tax) 12.24 14.41 19.85 17.34 16.63 16.25
ii Share In State Taxes (SFC) 0.00 0.00 0.00 0.00 0.00 0.00
v Discretionary Grants by CM/ Ministers 0.00 0.00 0.00 0.00 0.00 3.82
vi RDF 0.00 0.00 0.00 5.20 0.00 0.00
vii PIDB 0.00 0.00 9.00 0.00 0.00 0.00
Sub-Total 12.24 14.41 28.85 22.54 16.63 21.63
Central Transfers
iii BADP 0.00 0.00 0.00 0.00 0.00 0.00
iv MPLAD 2.00 2.20 2.25 2.68 2.10 2.50
v Others 0.00 0.00 0.00 0.00 0.00 0.00
Sub-Total 94.40 111.16 89.80 115.67 296.73 141.30
Grand Total 111.18 131.64 125.59 147.45 324.05 174.82
146
Table 7.13: Percentages Distribution of Revenue Receipts of Zila Parishads
in Punjab (%)
2019-
Type of Revenue 2015-16 2016-17 2017-18 2018-19 2020-21
20
Tax Revenue
ii Other Taxes 0.00 0.00 0.00 0.00 0.00 0.00
Sub-Total 0.00 0.00 0.00 0.00 0.00 0.00
Non-Tax Revenue
iii Rent from buildings, etc. 2.71 2.40 2.64 2.73 1.08 2.24
iv Other Receipts 0.69 1.48 2.32 2.87 1.75 4.17
Sub Total 4.08 4.61 5.52 6.27 3.30 6.80
State Transfers
i Share of Assigned Taxes (Liquor Tax) 11.01 10.95 15.81 11.76 5.13 9.30
v Discretionary Grants by CM/ Ministers 0.00 0.00 0.00 0.00 0.00 2.19
vi RDF 0.00 0.00 0.00 3.53 0.00 0.00
vii PIDB 0.00 0.00 7.17 0.00 0.00 0.00
vii
Punjab Nirmaan 0.00 0.00 0.00 0.00 0.00 0.00
i
ix Others 0.00 0.00 0.00 0.00 0.00 0.00
Sub-Total 11.01 10.95 22.97 15.29 5.13 12.37
Central Transfers
iii BADP 0.00 0.00 0.00 0.00 0.00 0.00
iv MPLAD 1.80 1.67 1.79 1.82 0.65 1.43
v others 0.00 0.00 0.00 0.00 0.00 0.00
Sub-Total 84.91 84.44 71.51 78.45 91.57 80.83
Grand Total 100.00 100.00 100.00 100.00 100.00 100.00
147
Table 7.14: Distribution of Expenditure Incurred by Gram Panchayats in
Type of Expenditure 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
Revenue Expenditure
Administration (pay and

i 33.63 42.96 43.50 40.07 61.80 50.32
allowances)
ii Contingency 15.90 32.21 18.12 18.34 25.20 23.87
iii Civic Functions

59.47 91.80 46.29 75.24 84.76 98.69
a. Water Supply 24.33 31.58 20.66 27.94 31.05 43.10
b. Street Lighting 7.91 25.81 6.72 11.58 10.92 9.68
c. Sanitation 23.36 24.90 14.37 25.08 35.25 33.28
d. Solid Waste Disposal 3.87 9.52 4.54 10.64 7.53 12.63

Expenditure on Maintenance of
iii 49.22 107.46 58.46 57.32 69.42 50.49
Community Assets
Expenditure on Scheme Assigned
iv 56.25 84.67 102.89 97.22 164.32 139.08
by the Central Governments
v Other expenditure 1.22 13.82 5.60 2.65 2.63 2.85
Sub-Total 215.69 372.92 274.86 290.84 408.13 365.30
Capital Expenditure
i Schools/Education 13.39 34.88 27.98 17.22 30.33 28.39
ii Drinking Water 19.61 60.08 30.47 36.73 58.06 67.45
iii Streets and Drains 353.01 602.79 349.77 302.98 519.36 452.42
iv Community Centres/Dharamshala 39.06 78.59 38.01 40.74 69.58 67.30
v Playground and Parks 16.64 43.21 9.93 17.84 37.99 24.07
vi Health, Women and Child 12.80 30.16 16.37 13.20 23.75 23.84
vi
Vet and Arboriculture 2.18 3.49 5.20 1.17 2.40 2.30
i
vi Sanitation/Liquid and Solid Waste
25.33 52.14 41.89 34.91 52.39 76.72
ii Management
ix Street Lighting 4.39 21.47 4.49 7.52 15.09 10.82
x Other Community Assets

103.29 413.94 121.48 135.11 199.65 212.13
Sub-Total 589.70 1340.75 645.59 607.42 1008.6 965.44
805.39 1713.65 920.43 898.25 1416.73 1330.73

Grand Total
148
Table 7.15: Percentage Shares of Expenditure Incurred by Gram
Panchayats in Punjab
Revenue Expenditure 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21
i 4.18 2.51 4.73 4.46 4.36 3.78
allowances)
ii Contingency 1.97 1.88 1.97 2.04 1.78 1.79
iii Civic Functions 7.38 5.36 5.03 8.38 5.98 7.42
a. Water Supply 3.02 1.84 2.24 3.11 2.19 3.24
c. Sanitation 2.90 1.45 1.56 2.79 2.49 2.50
iv 6.11 6.27 6.35 6.38 4.90 3.79
Community Assets
v 6.98 4.94 11.18 10.82 11.60 10.45
by Central Governments
vi Other Expenditure 0.15 0.81 0.61 0.29 0.19 0.21
Sub-Total 26.78 21.76 29.86 32.38 28.81 27.45
Capital Expenditure 0.00 0.00 0.00 0.00 0.00 0.00
vii Vet and Arboriculture 0.27 0.20 0.56 0.13 0.17 0.17
vii Sanitation/Liquid and Solid Waste

3.14 3.04 4.55 3.89 3.70 5.77
i Management
x Other Community Assets 12.82 24.16 13.20 15.04 14.09 15.94
Sub-Total 73.22 78.24 70.14 67.62 71.19 72.55
Grand Total (Expenditure) 100.00 100.00 100.00 100.00 100.00 100.00
149
Table 7.16: Distribution of Expenditure Incurred by Panchayat
Samitis in Punjab, 2015-16 to 2020-21 (Rs. Crore)
Revenue Expenditure
i Administration (pay and allowances) 103.87 122.30 126.44 131.04 141.40 162.04
ii Contingency 10.81 12.85 12.29 12.35 13.16 15.02
a. Water Supply 0.89 1.25 0.77 0.53 0.86 4.89
c. Sanitation 0.03 0.04 0.05 0.03 0.04 5.08

iv 1.87 21.72 0.80 1.12 2.87 6.50
Community Assets
Expenditure on Scheme Assigned by
v 11.69 19.88 13.77 14.88 17.56 16.70
the Central Governments
Sub-Total 132.35 182.25 157.34 163.44 179.82 230.91
Capital Expenditure
Sanitation/Liquid and Solid Waste
viii 0.00 0.00 0.00 0.00 0.00 0.00
Management
x Other Community Assets

17.16 41.64 27.6 21.27 21.57 56.88
Sub-Total 32.85 72.36 40.93 34.37 28.28 133.11
150
Table 7.17: Percentage Distribution of Expenditure Incurred by
Panchayat Samitis in Punjab (%)
Revenue Expenditure
i Administration (pay and allowances) 62.88 48.03 63.77 66.25 67.95 44.52
ii Contingency 6.55 5.05 6.20 6.25 6.32 4.13
a. Water Supply 0.54 0.49 0.39 0.27 0.41 1.34
c. Sanitation 0.02 0.02 0.02 0.01 0.02 1.39
iv Expenditure on Maintenance of 1.13 8.53 0.40 0.57 1.38 1.78

Community Assets
v Expenditure on Scheme Assigned by the 7.08 7.81 6.95 7.52 8.44 4.59
Central Governments
Sub-Total 80.12 71.58 79.36 82.63 86.41 63.43
Capital Expenditure
viii Sanitation and Solid Waste Management 0.00 0.00 0.00 0.00 0.00 0.00
Sub-Total 19.88 28.42 20.64 17.38 13.59 36.57
151
Table 7.18: Distribution of Expenditure of Zila Parishads in Punjab,
2015-16 to 2020-21 (Rs. Crore)
Revenue Expenditure

i 15.66 16.89 21.56 21.22 19.86 17.71
allowances)
ii Contingency 1.45 2.01 1.46 1.46 1.46 1.58
iv 0.00 0.00 0.00 0.00 0.00 2.70
Community Assets
v 91.07 101.44 67.92 106.50 288.16 303.15
108.20 120.36 90.96 129.19 309.48 327.86

Sub-Total
Capital Expenditure

viii
Management 0.15 0.16 1.70 1.80 2.00 5.99
Sub-Total 22.61 21.74 24.76 15.70 37.66 62.62
152
Table 7.19: Percentage Distribution of Expenditure Incurred by Zila
Parishads (%)
Revenue Expenditure

i 11.98 11.88 18.63 14.65 5.72 4.53
allowances)
ii Contingency 1.11 1.42 1.26 1.01 0.42 0.40
iv 0.00 0.00 0.00 0.00 0.00 0.69
Community Assets
v 69.62 71.39 58.70 73.50 83.01 77.64
Sub-Total 82.71 84.70 78.60 89.16 89.15 83.96
Capital Expenditure

viii 0.11 0.11 1.47 1.24 0.58 1.54
Management
17.28 15.30 21.40 10.84 10.85 16.04

Sub-Total
100.00 100.00 100.00 100.00 100.00 100.00

Grand Total (Expenditure)
153
Table 7.20: Per Capita Receipts and Expenditure of PRIs in Punjab (Rs.)
Receipts/Expenditure 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Per Capita Receipts
1. Own Tax Revenue 4 4 6 5 8 6
2. Non-Tax Revenue 221 247 269 273 307 308
of which: Shamlat Land 161 170 175 184 206 211
3. State Transfers 260 941 100 159 144 226
4. Central Transfers 276 398 382 405 772 730
of which: CFC Grants 221 326 331 306 697 640
Total Receipts (1+2+3+4) 761 1590 757 841 1230 1270
Per Capita Expenditure
1. Revenue Expenditure 253 372 286 317 484 494
2. Capital Expenditure 358 791 389 357 579 621
Total Expenditure (1+2) 611 1163 675 674 1063 1115
Note: Per capita receipts/expenditure has been worked out by dividing total receipts/expenditure by estimated
population of that year.
Analysis of Punjab PRI Finances
7.5 From an analysis of the various data sets, presented in the

foregoing pages, the Commission has drawn the following conclusions:
- PRIs aggregate income and expenditure have stagnated <0.40% of

the state’s GSDP during 2017-18 to 2020-21. However, during 2016-
17 (Year of Election to the State Assembly), PRIs income was 0.67%
of GSDP and expenditure was 0.49% of GSDP. This is woefully
inadequate to meet the legitimate expectations of citizens for
improved infrastructure and services (Table 7.7).
- Table 7.7 also shows that, at the end of year, unutilized amount (as a
percentage of total income) varied widely between 3.24% in 2017-18
to 26.37% in 2020-21 in the case of Gram Panchayats, and between
38.38% in 2016-17 to 6.68% in 2020-21 in the case of Panchayat
Samitis. Curiously, the Zila Parishads spent more than their income.
154
Lest it conveys an erroneous impression that PRIs have funds surplus
to their requirements, it is clarified that unutilized amount is mainly
due to late/bunched release of funds, lack of capacity and dilatory
processes for the award of work contracts, procurements, etc. (Table
7.7).
- PRIs continue to heavily depend on transfers from higher

governments, especially the central transfers through CFCs and
CSSs. Paradoxically, while the CFCs recommended grants to the
PRIs have consistently shown a rising trend since the 12 th CFC, the
SFCs recommended grants have not only declined, but also have
altogether disappeared during the period covered by the 4 th and 5th
SFCs (Table 7.8, Table 7.10 and Table 7.12).
- It is claimed that even though no funds were released on the basis of

recommendations of the 4th and 5th SFCs, substantial amounts of
grants, through RDF, PIDB, Cattle Fair, etc., have been disbursed to
all tiers of PRIs, particularly to the GPs, by the state government. But
such transfers are neither substantial nor a substitute for the
constitutionally mandated transfers under Article 243-I (Panchayats).
Moreover, such transfers are neither assured and predictable nor
equitious nor free from an element of subjectivity (Table 7.8, Table
7.10 and Table 7.12).
- A major part of revenue receipts of all tiers of PRIs is comprised of

transfers from the Central and State governments ( 61.23% in the
case of Gram Panchayats;  55.82% in the case of Panchayat Samitis;
and  94% in the case of Zila Parishads). Correspondingly, their own
revenues, mostly are the rent from land and properties owned by them
(averaged to 25% in the case of Gram Panchayats; 6% in the case of
155
Panchayat Samitis and 3% in the case of Zila Parishads), whereas the
tax and non-tax revenue is very negligible (Table 7.8 to Table 7.12).
- It is noted that the state government not only disbursed any amount
to the local bodies even after accepting the recommendations of the
4th and 5th SFCs, but the disbursements in lieu of abolition of
additional excise duty on liquor and share of auction money were
partially released, if not altogether denied (Table 7.8 to Table 7.12).
- Quality of PRIs expenditure appears to be better as their capital

expenditure is over 70% of the total expenditure incurred by the Gram
Panchayats (Table 7.15), compared to about 33% in respect of ULBs.
However, there is negligible capital expenditure incurred by the
Panchayat Samitis and Zila Parishads (Table 7.17 and Table 7.19).
- State's performance in terms of major panchayat finance indicators is

also unflattering and has shown a decline during 2016-17 to 2020-21
(Table 7.7). Per capita own tax receipts of PRIs are abysmally low-
never more than Rs. 8 during 2015-16 to 2020-21 (Table 7.20).
Recommendations
7.6 The analysis of PRI Finances may be concluded by observing that;

(i) PRIs are neither self-governing nor self-financing; (ii) their current income
and expenditure, as a percentage of State's GSDP, is woefully inadequate to
discharge their statutory functions or provide services to the expectations of
citizens; (iii) they are totally dependent on Central/State transfers for their
survival; (iv) they are functioning largely as agencies of the Central/State
governments; (v) their own revenues are negligible; and (vi) they are woefully
lacking in organizational capacity and technical/professional expertise. In a
156
nutshell, PRIs need to be built up in all these aspects from a scratch (Jena and
Gupta, 2008).
7.7 In this backdrop, the Commission makes the following specific

recommendations to improve the finances of PRIs and make them evolve into
self-governing entities: -
- At present, despite passage of conformity law, namely, the Punjab

Panchayati Raj Act, 1994, the functional domain of PRIs
continues to be fuzzy and undifferentiated between various levels
of PRIs. It is essential to classify the functions assigned to them
into ‘core’, ‘welfare’, ‘developmental’, ‘regulatory’ and 'agency'
functions and clearly provide as to which level of PRIs is
responsible for performing various services. Functions so
assigned may be broken up into activities that will need to be
undertaken to effectively perfume these functions.
- The state government may prescribe coverage, quality and cost
benchmarks in respect of the assigned functions to be reviewed
every five years. In the absence of such benchmarks, it is
impossible to assess the gap between the assigned functions and
funds and functionaries at their disposal. Any scheme of
devolution in the absence of such benchmarks is bound to be
adhoc and borne out of the general belief that these bodies are
starved of funds and are wanting in capacity to deliver.
- Transfer of functions alone will not be enough. It must be
matched with transfer of adequate funds and functionaries
(capacity building). Their own sources of funds being extremely
limited and skewed in favours of PRIs that are endowed with
ownership of land and properties, therefore, central and state
transfers will pay a major role in this behalf.
157
- The state government should fully avail of the grants-in-aid
recommended by the 15th CFC by fulfilling the various conditions
and closely monitor their utilization.
- As the state finances are constrained, another major source of
funds for PRIs is the various flagship centrally-sponsored
schemes. It is observed that the State government’s past
performance in this behalf is not satisfactory due to the late
release of funds and the inability of the state government and PRIs
to contribute their shares, poor execution and lack of conforming
policies. These obstacles should be overcome and the state
government must fully avail of its rightful share in the CSSs.
- As noted at para 6.22 of Chapter 6, the state government has been
delaying and, at times, denying compensatory payments in the
absence of any statutory backup. It is, therefore, recommended
that disbursements in lieu of additional excise duty on liquor and
share of auction money be embedded in law along with any such
payments to be made in future.
- A major source of own revenue of PRIs is the ‘Shamlat land’
owned by them. Rent from such land can increase substantially if
the GPs, which own such land, are given electric power
connections for tubewells on priority basis. It is accordingly
commended to the state government.
- Surprisingly, more than one-half of Gram Panchayats did not
have any ‘Shamlat land’. The Commission recommends that such
Gram Panchayats be given special attention while recommending
grants-in-aid to perform their assigned function effectively.
- Nevertheless, the importance of PRIs own sources of revenue
cannot be ignored (Babu, 2018). Though there are statutory
158
provisions enabling PRIs to raise their own resources, yet none of
these have been actually implemented. The Commission has
endeavoured to map out various sources of tax and non-tax
revenues being tapped by major states of the country in
Annexure-7A. The state government may pick up such measures
out of these for implementation.
- House/Property Tax: At present, the revenue collected from the
taxes on land and buildings by the PRIs is negligible. The
Commission suggests that the house tax/property tax be enhanced
in the rural areas. The 15th CFC has estimated a revenue potential
of Rs. 1652 crore per annum from this source alone3.
- Entertainment Tax: The state government should explore
possibility of imposing this tax, as a local tax, on the cable
networks, and other new forms of entertainment such as internet
cafes, pubs, gaming facilities, and amusement parks.
- Mobile Service Tax: State government should allow the PRIs to
levy local tax on mobile services such as mobile tower, mobile
lines, and mobile connections falling in rural areas.
- Profession Tax: This tax, as a local tax, has wider scope to
generate resources for the PRIs. However, there is need to amend
Article 276(2) for increasing ceiling limit (Rs. 2500 per annum),
as suggested by last three CFCs, from Rs.2500 to Rs.12000 per
annum, and 20% rise every five years thereafter. In the
meanwhile, the Commission has recommended the assignment of
this tax to the Panchayats @20% of total proceeds of professional
tax as at Table 9.12, Chapter 9 of the report.
3
Annex 5.3 of Report of the 15th CFC, Vol. II, p. 269.
159
- The Commission also noticed that about 1% and 15%-20%
income of Gram Panchayats from ‘Shamlat land’ has been
appropriated by Departmental Headquarter at Chandigarh and
block level authorities, respectively. This reverse devolution
practice, whatever may be the reason/s, adopted by the
Department of Rural Development and Panchayats, must be
stopped immediately.
- Electricity charges for drinking water schemes and schemes for
sewage treatment, etc is being charged on commercial tariff basis,
which is neither fair nor just. It is, therefore, strongly,
recommended that these services be charged no more than the
domestic tariff.
160
Chapter 8
Municipal Finances
(‘Get what you pay for’ – An American Motto)
Introduction
8.1 ToR of the Commission, inter alia, mandates it to recommend: -
iii. The measures needed to improve the financial position of the

Municipalities.
iv. The measures to reduce unproductive revenue expenditure and steps

efficient and effective use of capital resources.
8.2 As the above ToR suggests, the Municipal Governance and

Municipal Finances are intertwined and the latter is only a subset of the former.
"Our ability to build cities of tomorrow will require not only large investments in
urban infrastructure, but also a fundamental shift in the mechanisms of service
delivery. Indeed, financing the large sums required to meet the investment needs
of urban infrastructure is crucially dependent on the reform of institutions which
are responsible for service delivery and revenue generation. This requires
technical skills to manage the delivery of urban services as well as provide a
socio-economic environment in which the industry and services sectors become
globally competitive. Large expenditures will, therefore, have to be combined
with better governance structures, strong administrative and political will to
collect taxes and user charges and improved capacity to deliver. Cities must be
empowered, financially strengthened and efficiently governed to respond to the
needs of their citizens" (Report on Indian Urban Infrastructure and Services).
8.3 It is in the above context that, Michael A. Cohen, in a paper titled

‘Municipal Finance Matters’, contributed for the Indian Municipal Finance
161
Report (IMFR), envisages the importance of Municipal Finance in the national
development framework with the following key features:
- India’s large and growing population.

- Continuing growth of the urban share of total population.
- A large poverty population, particularly in rural areas, with expectations
of continued rural to urban migration.
- Significantly higher rates of economic growth since early 1990s.
- Shifting composition of economic growth towards increasingly urban-
based economic activities.
- Continuing and increasing global competition in the goods and services
produced by India.
- Growing official and civic awareness of constraints on growth of
productivity, employment and income due to limitations of urban
infrastructure.
- Increasing vulnerability of climate-induced changes and disasters for
urban populations.
- Concern about the effectiveness of the institutions responsible for urban
governance.
8.4 In the above telling, Municipal Finance plays a pivotal role, not only
in financing basic civic amenities such as water supply, sewerage, sanitation,
solid waste management and urban roads and transport, but also acts as a powerful
catalyst for attracting investment for national/state development, poverty
alleviation, disaster management and mitigation of effects of climate change.
India has been among the fastest growing economies in the world for more than
two decades. The rapid growth has been driven dominantly by non-agricultural
sectors, particularly services, in economic clusters, closer to India's 70 largest
urban centres, even though officially termed as ‘rural' areas. Thus, there is clearly
a need to position our cities as drivers of the structural transformation of the
economy. Therefore, the urban local governments will need to be empowered by
162
the state government to create and to operate and maintain the infrastructure with
good governance practices to ensure adequate and better delivery of public
services. The state government will also have to provide an enabling environment
in which urban local governments can manage to do so.
8.5 Do Punjab's urban local governments measure up to this challenge?

There are no two views that, our ULBs are amongst the weakest in the country in
terms of fiscal autonomy and also their capacity to deliver civic infrastructure and
services to meet the demands of growing urbanisation and rapid economic
growth. Punjab cities also face a huge mismatch between their growing
responsibilities and deteriorating finances, constraining their capacity to act as
engines of growth.
Section-I
Present Status of Urban Local Governments

8.6 As stated earlier (Chapter 6), Punjab adopted three tier-structure of
municipalities, i.e., Municipal Corporations, Municipal Councils and Nagar
Panchayats. At present, there are 164 elected ULBs in Punjab, which are
classified, on the basis of their income level (Table 8.1), population size and area
(Table 8.2):-
Table 8.1: Structure of Urban Local Bodies in Punjab

Type of ULBs Income Level* (Rs.) Number
Municipal Corporation More than 15 crore 13
Municipal Council (Class-I) Above 10 crore 27
Municipal Council (Class-II) Above 2 crore, but less than 10 crore 47
Municipal Council (Class-III) Up to 2 crore 24
Nagar Panchayat Up to 2 crore 53
Total Number of ULBs 164
*For calculating income, the share of state taxes received, amount of loans/grants, income from sale
of land/other property, redemption of investments, etc. shall not be included.
Note: Population as a criterion used earlier for classification has now been removed.
Source: Culled from the data supplied by Department of Local Bodies, Government of Punjab.
163
Table 8.2: Number of ULBs by Population Size and Area (Sq. Km.)
Type of ULB Population (2011 Census) Present Area (Sq. Km.) Population
No. Range Range Density
Total Mean Total Mean
(S – L)* (S – L)* per sq. km.
Municipal 54,93,942 98,916 - 17.47 –
13 422,611 761 58.54 7219
Corporation (55.75) 16,18,879 159.37
Municipal 20,39,795 16,254 – 9.00 –
27 78,454 568 21.83 3593
Council-Class-I (20.70) 135,316 44.00
Municipal 12,76,001 12,815 – 2.82 –
47 28,356 485 10.77 2632
Council-Class-II (12.95) 66,847 28.40
Municipal 398,390 2,744 – 1.50 –
24 14,228 170 6.08 2341
Council-Class-III (4.04) 24,916 10.00
646,283 5,162 – 1.00 –
Nagar Panchayat 53 12,672 375 7.36 1722
(6.56) 50,755 25.00
98,54,411
Total 164 60,457 - 2359 14.47 - 4177
(100.00)
Source: Culled from the data supplied by Department of Local Bodies, Government of Punjab.
Taxation Powers of ULBs in Punjab
8.7 Section 90(1) of the Punjab Municipal Corporation Act, 1976 lists
the following taxes, tolls, fees and duties that a Municipal Corporation may
levy:
❖ Tax on lands and buildings;

❖ Octori4;
❖ Tax on vehicles and animals;
❖ Property tax/house tax;
❖ Tax on advertisements other than advertisements published in
newspapers;
❖ Tax on buildings payable along with the application for sanctioning the
building plan; and
4
Now, additional excise duty levied in lieu of Octroi on liquor, under any other provision of
law, shall continue to be levied (Section 113 of PMC Act, 1976).
164
❖ Development tax on the increase in urban land value caused by the
execution of any develop.
Under Section 90(2), subject to the prior approval of the
Government, a Municipal Corporation may, in addition to the taxes
specified in sub-section (1), levy:
❖ A tax on professions, trades, callings and employments; and
❖ Any other tax which the State Legislature has power to impose under
the Constitution.
Important Note: The taxes specified in sub-section (1) and sub-section (2) shall be
levied at such rates as may, from time to time, be specified by the state government
by notification and shall be assessed and collected in accordance with the provisions
of this act and the bye-laws made thereunder.
8.8 Section 61 of Punjab Municipal Act 1911 (amended from time to time)
lists the following taxes tolls, fees and duties that a Municipality may levy:
❖ Tax on buildings and land;
❖ Tax on profession, art, trades and calling;
❖ Tax on vehicles (other than motor vehicles) and animals;
❖ Tax on menial domestic servants (payable by the employer);
❖ Scavenging tax (payable by the occupier);
❖ Tax on building plans (now building application fee);
❖ Tax on advertisements other than advertisements published in
newspapers.
8.9 These provisions, by law, authorized the ULBs to levy these taxes or
revise them, and to levy or revise user charges for the services provided by them.
However, the exercise of these powers is subject to obtaining prior approval of
the state government.
165
Section-II
Structure of Municipal Finances (All-India)
8.10 Some important aspects of municipal finances in India are
presented in the Table 8.3 and Figures 8.1 to 8.7 on the next pages:
Table 8.3: Municipal Finance Indicators (% of GDP)

2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017-
Name of Indicator
11 12 13 14 15 16 17 18
Municipal Own Revenue 0.48 0.49 0.53 0.52 0.51 0.51 0.47 0.43
• Tax Revenue 0.30 0.31 0.32 0.30 0.30 0.30 0.28 0.25
• Non-TaxRevenue 0.18 0.18 0.20 0.21 0.21 0.21 0.19 0.18
Central Transfers 0.07 0.07 0.08 0.09 0.08 0.10 0.13 0.12
• CFC Grants 0.03 0.03 0.04 0.05 0.04 0.05 0.08 0.07
• Other CentralTransfers 0.04 0.04 0.04 0.04 0.04 0.04 0.05 0.05
State Transfers 0.28 0.30 0.34 0.35 0.35 0.34 0.34 0.33
Borrowings/Loans 0.04 0.03 0.02 0.03 0.03 0.03 0.03 0.02
Other Sources 0.07 0.09 0.08 0.08 0.09 0.08 0.08 0.10
Total Municipal Revenue 0.94 0.98 1.05 1.06 1.05 1.06 1.05 1.00
Total Municipal Expenditure 0.82 0.81 0.83 0.83 0.86 0.86 0.81 0.78
Source: Ahluwalia, I. J., et. al. (2019), State of Municipal Finances in India: A Study Prepared for the
Fifteenth Finance Commission.
Figure 8.1: Municipal Revenue and Municipal Expenditure (% of GDP)

1.10
1.05
1.00
0.95
0.90
0.85
166
Figure 8.2: Municipal Tax Revenue, Non-Tax Revenue and Own Revenue (%)
0.55 0.53 0.52

80 0.51 0.51
0.48 0.49
0.47 0.50
70 0.43
60 0.40
% of Own Revenue
50
Own Revenue (% of GDP)

0.30
40
0.20
20
0.10
10
0.00
2007-08 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Tax Revenue Non-Tax Revenue Own

revenue (% % of Own Revenue) (% of Own Revenue) (% of GDP)
Note: Own revenue has been plotted as %age of GDP on the right vertical axis. Tax and non-tax
revenue are plotted as %age of own revenue on the left vertical axis.
Figure 8.3: Municipal Own Revenue and Inter-Governmental Transfers (% of Total Municipal
Revenue
60
55
50
45
40
167
Figure 8.4: Per Capita Total Municipal Revenue Receipts: 2017-18 (Rs.)
10000
8772
9000
7491
8000
5782
7000 5212 5143
India: 4624
5000
4000 3972 3822 3584
3311 3030
3357 2897 2894 2894
2549 2542 2505 2224
3000
1466
2000 626
1000
Figure 8.5: Per Capita Municipal Own Revenue Receipts: 2017-18 (Rs.)
Per Capita Municipal Own Revenue Receipts: 2017-18 (Rs)

7000
6000 5730
5000
4000 3533
3000 2470 2373

1762 1683 1595
India: 1975
2000 1393
1184 1024
965 941 886 832
1000 388 348 322 264 256
139
0
Municipal Own Revenue Per Capita 2017-18
168
Figure 8.6: CFC Grants Per Capita: 2017-18 (Rs.)
800
713
700
600 548 534
500 468 461 456

419 397
371 369
356 354 351 330 India: 332
400 315
300
216
200 174 169
78
100
Figure 8.7: Per Capita State Transfers to ULBs: 2017-18 (Rs.)
Per Capita State Transfers to ULBs: 2017-18 (Rs)

3500 3247
3000
2636
2443
2500
2073 2005
1939
2000 1768 1689
1517 1446 1352 1276 India: 1496
1500
1070
1000 841 772
469 402
500 238
84 48
0
State Transfers per capita
169
Key Takeaways of Municipal Finances (All-India)
8.11 Followings are the key takeaway from the foregoing facts and
figures:
• Municipal revenue continues to be a small share of India’s GDP,

and stagnated around 1% of GDP during 2010-11 to 2017-18
(Table 8.3 and Figure 8.1); whereas this ratio was much higher
in other countries such as Poland (4.5% for), South Africa (6.0%),
Brazil (7.4%), United Kingdom (13.9%) and Norway (14.2%)
during 2010 (Mohanty, 2016).
• Municipal expenditures, constrained by municipal finances, also

remained less than 1% of GDP during 2010-11 to 2017-18, and
this ratio has also declined from 0.82% in 2010-11 to 0.78% of
GDP in 2017-18 (Table 8.3 and Figure 8.1) — not keeping pace
with rising needs and aspirations of the people.
• Municipal own tax receipts, mainly contributed by the property

tax, lack buoyancy, as its ratio to GDP has declined from 0.30%
in 2010-11 to 0.25% in 2017-18 (Table 8.3 and Figure 8.2). In
fact, introduction of GST (July 2017) which subsumed many local
taxes such as Octroi, entry tax, advertisement tax, etc., have
resulted in further deterioration of municipal finances across the
States.
• Municipal non-tax receipts, comprise mainly of user charges, fees

and rentals from municipal property etc. Its share in their own
revenues increased from 38% in 2010-11 to 41% in 2017-18
(Figure 8.2).
• Municipalities are heavily dependent on transfers from higher

levels of government (centre/states) as manifested by rising share
170
of the inter-governmental transfers in their total revenues (Figure
8.3). Notwithstanding their rising importance vis-à-vis own
revenues in municipal finances, inter-governmental transfers to
the ULBs still account for a very small and a declining share of
the GDP (Table 8.3).
• Large disparities also exist in the municipal finances across

different states. Maharashtra, Gujarat, and Madhya Pradesh have
the highest per capita municipal revenue as also the highest per
capita own revenue (Figure 8.5). Paradoxically, Punjab ranked
14th in terms of per capita municipal revenue at Rs. 2894 in 2017-
18 (Figure 8.4). and ranked 4th in terms of per capita own revenue
at Rs. 2373 in 2017-18 (Figure 8.5), mainly due the compensatory
payments in lieu of loss due to abolition of Octroi.
• Among the major states, Punjab (Rs. 216) along with Maharashtra (Rs.
174), Tamil Nadu (Rs. 169) and Telangana (Rs. 78) had one of the
lowest per capita CFC grants given to the ULBs in 2017-18 as
compared to all-India average of Rs. 332, West Bengal (Rs. 713) and
Kerala (Rs. 534) (Figure 8.6).
• In terms of per capita state transfers, Punjab ranked at the bottom (Rs.
48) during 2017-18, as compared to all-India average of Rs. 1496 and
Rs. 3247 for Karnataka, Rs. 2636 for Gujarat, Rs, 2433 for Madhya
Pradesh and Rs. 2073 for Kerala and Rs 2005 for Haryana (Figure 8.7).
Section-III
Comparative Analysis of Municipal Finances: Where Punjab Stands?
8.12 A comparative picture of Municipal Finances of major states is

presented in the following Tables (Table 8.4 to Table 8.13): -
171
Table 8.4: Per Capita Total Municipal Revenue of All ULBs across Major States, 2011-12 to 2017-18 (Rs.)
S. 2013-
State 2011-12 Rank 2012-13 Rank Rank 2014-15 Rank 2015-16 Rank 2016-17 Rank 2017-18 Rank
No. 14
Andhra
1 1279.3 14 1450.3 15 1499.4 15 2174.9 11 2238.9 13 2645.6 14 2541.7 14
Pradesh
2 Bihar 1091.3 15 1452.0 14 1525.1 14 1866.0 15 1957.6 16 2015.6 16 2224.1 16
3 Chhattisgarh 388.1 17 1398.7 16 1408.9 16 1374.6 17 2151.6 14 3089.4 10 3357.1 8
4 Gujarat 3415.1 3 3992.6 3 5239.6 2 5490.0 2 5370.2 2 6260.6 2 7490.9 2
5 Haryana 2319.3 7 2544.4 7 1946.8 13 1541.4 16 2246.2 12 3043.9 12 3311.1 9
6 Jharkhand na na 1242.1 17 1010.7 17 2308.7 9 3145.3 8 3487.6 8 3030.4 10
7 Karnataka 3888.6 2 4056.4 2 4348.9 3 4742.6 3 5112.1 3 5142.0 4 5211.6 4
8 Kerala 2749.8 5 2189.4 9 2639.4 8 2846.7 8 3441.4 7 3786.7 6 3822.0 7
Madhya
9 1478.1 12 3036.4 5 3693.6 4 3694.6 5 4981.1 4 5555.2 3 5781.9 3
Pradesh
10 Maharashtra 6285.4 1 7288.5 1 7771.0 1 8299.3 1 9066.4 1 9092.3 1 8772.4 1
11 Odisha 1532.0 11 1854.7 12 2533.9 9 2180.2 10 2843.1 9 2810.1 13 2505.2 15
12 Punjab 2340.2 6 2372.0 8 3063.0 6 2976.2 7 2715.2 10 3230.4 9 2893.5 11
13 Rajasthan 1564.8 10 2077.7 11 2309.5 10 2169.7 12 2600.7 11 3056.4 11 2893.5 12
14 Tamil Nadu 2077.1 8 2571.0 6 2840.0 7 3199.9 6 3513.6 6 3630.2 7 3971.7 6
15 Telangana 1780.7 9 2152.0 10 1991.6 12 1939.9 14 1670.3 17 1686.7 17 1466.1 17
16 Uttar Pradesh 1421.6 13 1608.9 13 2095.7 11 2032.8 13 2047.3 15 2323.2 15 2549.3 13
17 West Bengal 3013.9 4 3245.6 4 3417.2 5 3796.9 4 4116.3 5 4528.6 5 5143.2 5
No. of States in
16 - 17 - 17 - 17 - 17 - 17 - 17 -
Ranking
India (All States) 2703.2 - 3212.1 - 3581.6 - 3813.8 - 4162.4 - 4479.5 - 4624.2
Source: Ahluwalia, I. J. et al. (2019), State of Municipal Finances in India: A Study Prepared for the Fifteenth Finance Commission, Indian Council for Research on
International Economic Relations (ICRIER), New Delhi.
172
Table 8.5: Per Capita Own Revenue of All ULBs by Major States, 2011-12 to 2017-18 (Rs.)
S. 2013-
No. 14
Andhra
1 839.7 7 977.1 7 1000.5 8 1132.7 7 1245.3 7 1489.6 6 1595.3 6
Pradesh
2 Bihar 43.4 15 57.7 17 66.8 17 211.3 16 77.9 17 96.0 17 138.9 17
3 Chhattisgarh NA - 860.3 10 1020.6 7 1119.4 8 1608.5 5 1655.6 5 1761.9 5
4 Gujarat 1232.2 3 1324.0 4 1600.0 4 1841.2 3 1940.9 4 2159.6 4 3533.1 2
5 Haryana 689.5 11 626.5 13 657.2 13 358.3 13 746.1 13 768.2 13 832.5 13
6 Jharkhand NA - 118.1 16 106.8 16 166.9 17 211.7 16 306.5 16 263.9 15
7 Karnataka 814.1 8 1052.5 6 1062.2 6 1203.5 6 1256.0 6 1410.1 7 1393.3 7
8 Kerala 848.7 6 650.0 12 702.8 12 741.3 12 801.0 12 883.5 11 885.7 12
Madhya
9 907.8 5 1345.7 3 1632.5 3 1606.3 4 1979.4 3 2161.9 3 2470.4 3
Pradesh
10 Maharashtra 5119.4 1 6056.7 1 6395.6 1 6849.1 1 7322.8 1 6849.1 1 5730.4 1
11 Odisha 206.9 13 204.7 15 231.7 14 242.7 15 286.4 15 356.7 15 255.7 16
12 Punjab 1757.2 2 1902.3 2 2237.6 2 2106.9 2 2131.6 2 2274.8 2 2373.2 4
13 Rajasthan 606.7 12 926.4 8 988.0 9 790.8 11 883.5 11 826.1 12 940.9 11
14 Tamil Nadu 762.8 9 851.8 11 977.0 10 1025.6 9 1089.1 9 1073.5 8 1184.4 8
15 Telangana 1039.1 4 1274.1 5 1297.3 5 1230.6 5 1090.4 8 1056.9 9 965.0 10
16 Uttar Pradesh 205.0 14 225.0 14 225.6 15 298.2 14 321.1 14 356.8 14 348.4 14
17 West Bengal 755.5 10 911.1 9 897.0 11 861.1 10 935.8 10 975.3 10 1024.2 9
No. of States in
15 - 17 - 17 - 17 - 17 - 17 - 17 -
Ranking
India (All States) 1345.9 1615.4 1744.0 1849.2 1994.1 1993.0 1975.0
173
Table 8.6: Per Capita Property Tax Revenue of All ULBs by Major States, 2011-12 to 2017-18 (Rs.)
S. 2013-
No. 14
Andhra
1 383.3 4 467.2 5 454.3 4 492.4 4 552.2 4 570.7 4 618.0 5
Pradesh
2 Bihar 9.7 15 12.9 17 9.6 17 9.9 17 13.6 17 18.1 17 62.8 17
3 Chhattisgarh NA - 184.0 12 257.8 9 223.5 10 547.7 5 638.1 3 679.1 4
4 Gujarat 357.4 5 375.7 6 440.3 5 465.7 5 489.1 6 560.1 6 1911.5 1
5 Haryana 135.3 11 257.5 8 335.9 8 109.6 13 486.3 7 531.2 7 76.4 16
6 Jharkhand NA - 23.0 16 20.8 16 51.1 16 57.0 16 163.8 14 144.4 13
7 Karnataka 442.6 3 660.1 2 636.2 3 762.7 2 859.7 2 946.8 2 949.0 3
8 Kerala 271.6 8 213.0 9 229.0 11 251.6 8 267.0 11 286.9 11 310.9 10
Madhya
9 154.4 10 209.0 10 227.2 12 241.6 9 290.8 10 371.7 10 506.6 7
Pradesh
10 Maharashtra 1103.3 1 1148.9 1 1215.8 1 1359.5 1 1656.0 1 1633.2 1 1512.2 2
11 Odisha 91.3 13 65.4 14 70.3 14 88.3 14 89.8 15 129.6 15 95.7 15
12 Punjab 178.9 9 193.0 11 239.9 10 163.0 11 219.3 12 193.7 12 214.6 11
13 Rajasthan 39.5 14 43.4 15 46.0 15 61.8 15 101.8 14 96.5 16 100.7 14
14 Tamil Nadu 310.8 7 353.4 7 377.4 7 403.8 6 411.0 9 447.4 9 487.4 9
15 Telangana 563.4 2 647.5 3 697.1 2 656.7 3 606.6 3 561.6 5 522.4 6
16 Uttar Pradesh 99.3 12 107.0 13 108.4 13 153.8 12 166.0 13 173.0 13 168.9 12
17 West Bengal 326.6 6 468.7 4 377.8 6 392.5 7 446.9 8 453.4 8 499.9 8
No. of States in
15 - 17 - 17 - 17 - 17 - 17 - 17 -
Ranking
India (All States) 361.5 421.8 444.0 483.5 572.7 599.0 688.2
174
Table 8.7: Per Capita Total State Transfers of All ULBs by Major States, 2011-12 to 2017-18 (Rs.)
S. 2013-
No. 14
1 Andhra Pradesh 272.9 13 305.5 14 352.9 15 444.0 14 511.6 14 502.9 14 468.8 14
2 Bihar 799.8 8 1064.2 6 1089.4 8 1262.8 9 1314.6 9 1325.2 10 1352.5 10
3 Chhattisgarh 33.1 15 93.2 16 48.3 16 45.6 17 54.1 16 90.2 16 83.5 16
4 Gujarat 1615.4 2 2003.4 2 2532.4 2 2488.7 2 2210.8 2 2652.3 2 2635.7 2
5 Haryana 1422.1 3 1696.3 3 1007.3 9 992.0 11 1305.8 10 1857.3 6 2004.5 5
6 Jharkhand NA - 981.8 9 714.6 12 1291.2 8 1962.0 3 1708.3 8 1517.2 8
7 Karnataka 2710.1 1 2598.4 1 2716.5 1 3095.0 1 3381.9 1 3065.1 1 3246.8 1
8 Kerala 861.2 5 960.5 10 1172.3 7 1349.5 7 1835.5 6 2096.5 4 2073.0 4

Madhya
9 312.3 12 1287.6 4 1554.1 3 1666.7 4 1922.5 4 2109.1 3 2442.8 3
Pradesh
10 Maharashtra 241.3 14 289.8 15 444.7 14 278.2 15 576.1 13 936.3 13 771.7 13
11 Odisha 797.4 9 1063.1 7 1408.5 4 1353.8 6 1610.0 7 1761.0 7 1689.3 7
12 Punjab 10.9 16 61.5 17 29.0 17 49.6 16 25.4 17 55.2 17 48.3 17
13 Rajasthan 700.9 10 789.7 12 826.7 11 1079.8 10 1165.2 11 1273.3 11 1275.5 11
14 Tamil Nadu 831.4 6 983.4 8 916.7 10 957.0 12 916.7 12 1002.8 12 1070.4 12
15 Telangana 552.8 11 719.6 13 543.1 13 660.0 13 436.1 15 376.8 15 401.8 15
16 Uttar Pradesh 806.0 7 940.2 11 1378.2 5 1506.4 5 1355.3 8 1383.9 9 1445.6 9
17 West Bengal 1039.2 4 1189.0 5 1367.1 6 1748.4 3 1877.6 5 1909.4 5 1939.5 6

No. of States in
16 - 17 - 17 - 17 - 17 - 17 - 17 -
Ranking
India (All States) 837.6 1029.5 1165.0 1269.3 1344.2 1462.2 1496.7
175
Table 8.8: Per Capita Total Central Transfers of All ULBs by Major States, 2011-12 to 2017-18 (Rs.)
S. 2013-
No 14
Andhra
1 43.3 14 NA - NA - 438.3 5 225.1 14 407.5 13 330.2 15
Pradesh
2 Bihar 248.1 5 330.1 5 368.9 5 391.9 7 565.1 5 594.4 7 732.8 5
3 Chhattisgarh 215.8 7 241.6 6 230.8 9 120.0 14 294.1 12 899.2 3 902.7 3
4 Gujarat 84.2 13 133.9 15 179.6 12 237.1 10 390.0 8 670.6 6 601.6 6
5 Haryana 207.8 8 221.6 8 282.3 8 191.0 12 194.3 15 418.3 12 474.1 10
6 Jharkhand NA - 138.9 14 188.8 11 816.8 2 968.8 2 1393.5 2 1234.4 2
7 Karnataka 274.6 4 347.3 4 407.7 4 319.1 8 390.8 7 568.5 8 476.4 9
8 Kerala 963.0 1 578.9 2 764.3 3 755.9 3 804.9 4 806.7 4 863.3 4
Madhya
9 101.0 12 152.2 13 127.0 16 8.5 17 328.2 11 421.0 11 397.0 13
Pradesh
10 Maharashtra 218.5 6 238.3 7 154.0 13 274.8 9 154.6 16 276.7 15 230.9 16
11 Odisha 434.0 3 482.9 3 766.1 2 481.4 4 807.5 3 530.5 9 427.4 12
12 Punjab 32.0 16 197.3 10 150.2 15 433.7 6 349.6 9 264.2 16 389.8 14
13 Rajasthan 170.3 10 221.4 9 289.6 7 177.0 13 421.1 6 788.6 5 526.9 8
14 Tamil Nadu 138.2 11 159.5 11 203.4 10 207.3 11 332.5 10 525.7 10 531.4 7
15 Telangana 188.8 9 158.3 12 151.2 14 49.3 16 143.8 17 253.0 17 99.2 17
16 Uttar Pradesh 40.6 15 125.6 16 304.8 6 50.5 15 237.7 13 334.1 14 461.0 11
17 West Bengal 598.6 2 823.8 1 974.9 1 938.8 1 1112.5 1 1434.5 1 1972.5 1
No. of States in
16 - 16 - 16 - 17 - 17 - 17 - 17 -
Ranking
India (All States) 200.6 248.0 295.8 282.8 377.9 548.1 554.0
176
Table 8.9: Per Capita Total Expenditure of All ULBs by Major States, 2011-12 to 2017-18 (Rs.)
S. 2013-
No 14
Andhra
1 1590.1 9 1446.7 12 1532.2 13 1685.5 14 2168.2 9 2402.7 9 2540.4 10
Pradesh
2 Bihar 258.8 14 344.3 15 427.2 15 395.8 16 648.9 16 897.0 16 1113.4 15
3 Chhattisgarh NA - 2560.2 3 3181.5 3 3312.3 4 2690.1 7 2511.3 8 2672.6 8
4 Gujarat 2609.2 2 3384.6 2 3818.5 2 4303.0 2 4580.8 2 4332.4 2 4785.3 2
5 Haryana NA - NA - NA - NA - NA - NA - NA -
6 Jharkhand NA - 298.6 16 361.7 16 769.4 15 962.6 15 1322.9 15 845.2 16
7 Karnataka 2309 4 2516.6 4 2582.4 7 2634.5 8 2792.4 6 3202.3 5 3198.1 6
8 Kerala 2216.2 5 1225.8 13 1591.2 12 1749.0 13 1576.0 14 1586.3 13 2583.9 9
Madhya
9 2115.6 7 2319.2 7 2684.8 6 2909.9 5 3263.1 4 3837.2 3 4190.9 3
Pradesh
10 Maharashtra 5646.4 1 6411.4 1 6430.2 1 7239.1 1 7542.9 1 7823.9 1 7854.2 1
11 Odisha 1158.6 12 1566.9 10 2029.5 10 1896.0 10 2124.0 10 2321.7 10 1982.1 13
12 Punjab 2188.9 6 2259.7 8 2863.7 5 2836.9 6 2654.4 8 3133.1 6 2746.5 7
13 Rajasthan 943.3 13 1496.6 11 2171.4 9 1896.5 9 1949.4 12 2023.0 12 2299.4 11
14 Tamil Nadu 1866.4 8 2339.2 6 2897.4 4 3518.1 3 4325.7 3 3607.0 4 3455.1 5
15 Telangana 1536.9 10 1637.9 9 1714.8 11 1885.0 11 1794.1 13 1428.0 14 1454.1 14
16 Uttar Pradesh 1185.9 11 1159.3 14 1384.2 14 1758.6 12 2078.0 11 2046.6 11 2228.8 12
17 West Bengal 2544.4 3 2377.8 5 2539.8 8 2731.1 7 2949.5 5 3094.1 7 3497.7 4
No. of States in
14 - 16 - 16 - 16 - 16 - 16 - 16 -
Ranking
India (All States) 2221.9 2542.6 2793.4 3117.6 3377.5 3429.4 3569.9
177
Table 8.10: Per Capita Revenue Expenditure of All ULBs across Major States, 2011-12 to 2017-18 (Rs.)
S. 2013-
No 14
Andhra
1 809.5 12 829.7 13 903.5 13 1037.5 13 1164.0 12 1300.0 10 1400.9 10
Pradesh
2 Bihar 192.3 15 255.9 15 332.0 15 307.1 15 529.9 15 725.6 15 929.5 13
3 Chhattisgarh NA - 1029.6 11 1137.0 10 1145.9 10 1179.3 11 1182.2 12 1258.1 11
4 Gujarat 1452.8 4 1619.2 2 1735.1 2 1873.0 3 2064.1 2 2168.9 2 2457.9 2
6 Jharkhand NA - 118.2 16 177.3 16 238.4 16 232.9 16 279.8 16 73.2 16
7 Karnataka 1171.7 7 1277.7 5 1599.7 5 1663.5 5 1378.5 7 1798.5 6 1702.9 7
8 Kerala 1651.8 2 1045.8 9 1313.4 7 1437.5 7 1271.6 10 1213.2 11 1892.5 6
Madhya
9 1070.1 9 1173.1 7 1315.3 6 1440.3 6 1612.5 5 1952.0 4 2127.0 3
Pradesh
10 Maharashtra 3616.3 1 4210.5 1 4177.9 1 4730.1 1 4967.5 1 5482.2 1 5262.8 1
11 Odisha 455.7 13 1031.5 10 1241.8 9 1208.9 9 1316.3 8 1491.2 7 1246.4 12
12 Punjab 1466.0 3 1610.2 3 1722.2 3 1875.5 2 1929.0 4 2059.4 3 2057.6 5
13 Rajasthan 428.4 14 607.1 14 660.0 14 690.6 14 742.6 14 775.9 14 776.1 14
14 Tamil Nadu 1136.8 8 1305.0 4 1609.9 4 1771.8 4 1947.0 3 1922.7 5 2092.0 4
15 Telangana 1026.0 10 1071.3 8 1004.8 11 1069.6 11 1073.9 13 991.8 13 771.8 15
16 Uttar Pradesh 832.4 11 859.8 12 919.2 12 1061.8 12 1278.9 9 1330.8 9 1441.4 9
17 West Bengal 1331.2 56 1200.2 6 1255.7 8 1297.4 8 1448.5 6 1383.7 8 1471.9 8
No. of States in
14 - 16 - 16 - 16 - 16 - 16 - 16 -
Ranking
India (All States) 1335.4 1506.0 1614.2 1783.2 1900.4 2061.6 2106.0
178
Table 8.11: Per Capita Capital Expenditure of All ULBs across Major States, 2011-12 to 2017-18, (Rs.)
S. 2012-
State 2011-12 Rank Rank 2013-14 Rank 2014-15 Rank 2015-16 Rank 2016-17 Rank 2017-18 Rank
No 13
Andhra
1 780.6 6 617.0 10 628.6 12 648.0 13 1004.2 9 1102.7 9 1139.5 9
Pradesh
2 Bihar 66.4 14 88.4 16 95.2 16 88.7 16 119.0 16 171.4 16 183.9 16
3 Chhattisgarh NA - 1530.6 3 2044.5 3 2166.4 3 1510.8 5 1329.1 7 1414.5 7
4 Gujarat 1156.3 3 1765.4 2 2083.5 2 2430.1 2 2516.7 2 2163.5 2 2327.4 2
6 Jharkhand NA - 180.4 14 184.5 15 531.0 14 729.7 12 1043.1 11 772.0 11
7 Karnataka 1137.3 4 1238.9 4 982.7 9 971.0 8 1413.9 7 1403.7 6 1495.2 6
8 Kerala 564.5 10 180.0 15 277.7 14 311.5 15 304.4 15 373.1 15 691.4 13
Madhya
9 1045.4 5 1146.1 6 1369.5 5 1469.5 5 1650.6 4 1885.2 3 2063.9 3
Pradesh
10 Maharashtra 2030.1 1 2200.8 1 2252.3 1 2509.0 1 2575.4 1 2341.7 1 2591.5 1
11 Odisha 702.9 9 535.4 12 787.7 10 687.1 12 807.7 10 830.5 12 735.7 12
12 Punjab 722.8 8 649.5 9 1141.5 8 961.4 9 725.4 13 1073.7 10 688.9 14
13 Rajasthan 514.9 11 889.5 8 1511.4 4 1205.9 7 1206.8 8 1247.1 8 1523.3 5
14 Tamil Nadu 729.6 7 1034.3 7 1287.5 6 1746.3 4 2378.7 3 1684.4 5 1363.1 8
15 Telangana 511.0 12 566.6 11 710.0 11 815.4 10 720.2 14 436.3 14 682.3 15
16 Uttar Pradesh 353.5 13 299.5 13 465.0 13 696.8 11 799.1 11 715.8 13 787.4 10
17 West Bengal 1213.2 2 1177.6 5 1284.1 7 1433.7 6 1501.1 6 1710.4 4 2025.7 4
No. of States in
14 - 16 - 16 - 16 - 16 - 16 - 16 -
Ranking
India (All States) 886.5 1036.6 1179.3 1334.4 1477.0 1367.8 1464.0
179
Table 8.12. Population, Area, Per Capita Tax Revenue, Per Capita Property Tax and Per Capita Non-Tax Revenue of 24 Municipal Corporations (>10Lakh Population) across
Different States
Tax Revenue Property Tax Non-Tax Revenue
Rank
Rank
Rank
Urban
(million)
Municipal
Population
Rank
Rank
Rank
Rank
Rank
Rank
Area (sq.km)
Corporation
2012-13
2017-18
2012-13
2017-18
2012-13
2017-18
Share in State
Population (%)
Surat 4.46780 1 335.82 2 17.38 2 1018.6 9 1622.9 9 414.6 12 659.6 9 416.6 13 557.9 13
Pune 3.12446 2 249.29 7 6.15 13 4940.4 2 3536.6 2 1377.5 1 2634.9 1 3507.6 1 2894.8 1
Nagpur 2.40567 3 217.56 8 4.73 19 2601.0 3 892.3 13 682.0 3 748.2 7 622.1 8 764.0 9
Indore 1.96409 4 130.17 18 9.79 10 1015.5 10 1573.9 10 613.1 6 896.3 5 602.8 10 886.2 6
Bhopal 1.79822 5 285.88 4 8.96 11 372.5 18 1894.0 6 315.8 14 926.0 3 343.0 15 707.7 11
Patna 1.68422 6 107.62 21 14.36 7 140.1 21 251.2 21 139.8 19 245.6 19 38.0 23 38.7 24
Vadodara 1.67081 7 166.23 13 6.50 12 1104.1 8 2080.6 5 650.1 4 911.2 4 920.5 6 811.0 8
Ludhiana 1.61888 8 159.37 14 15.58 5 2561.0 4 3052.0 3 544.4 8 385.6 15 317.8 16 426.5 16
Nashik 1.48605 9 259.13 6 2.92 21 5283.5 1 6011.6 1 415.2 11 431.6 13 706.6 7 851.9 7
Faridabad 1.41405 10 204.00 10 16.03 4 221.0 20 317.7 20 140.5 18 251.3 18 198.6 18 170.5 20
Rajkot 1.28668 11 110.84 20 5.00 18 628.6 14 759.2 15 527.9 9 627.9 10 960.4 5 1748.0 3
Vasai-Virar 1.22239 12 319.39 3 2.40 23 1763.5 5 778.1 14 411.2 13 438.6 12 1883.9 2 1357.8 5
Srinagar 1.18057 13 278.10 5 34.58 1 98.4 22 118.7 23 0.7 24 1.4 24 45.7 22 61.9 22
Aurangabad 1.17512 14 138.50 16 2.31 24 814.2 12 703.3 16 631.0 5 540.3 11 539.1 12 722.7 10
Dhanbad 1.16247 15 207.00 9 14.66 6 25.6 24 61.0 24 25.6 22 61.0 22 6.3 24 58.0 23
Amritsar 1.13238 16 136.00 17 10.90 9 1181.7 6 1649.4 8 159.9 16 149.6 21 302.2 17 291.7 18
Ranchi 1.07343 17 175.12 11 13.54 8 57.2 23 338.8 19 57.2 20 315.7 17 158.3 19 249.2 19
Jabalpur 1.05553 18 129.20 19 5.26 16 612.1 15 1671.0 7 477.7 10 668.9 8 572.4 11 461.9 15
Gwalior 1.05442 19 173.68 12 5.26 16 464.6 17 600.3 18 155.8 17 420.4 14 1753.4 3 2442.1 2
Coimbatore 1.05072 20 105.60 22 3.01 20 1126.0 7 2505.4 4 1013.8 2 2259.0 2 1714.5 4 1614.2 4
Jodhpur 1.03376 21 75.50 23 6.05 14 270.9 19 194.6 22 50.5 21 165.1 20 73.2 21 516.5 14
Madurai 1.01787 22 51.96 24 2.91 22 697.0 13 899.1 12 600.9 7 784.0 6 607.0 9 705.9 12
Raipur 1.01043 23 147.50 15 17.02 3 514.6 16 649.0 17 244.1 15 374.7 16 348.8 14 384.2 17
Kota 1.00169 24 527.03 1 5.86 15 913.1 11 1249.2 11 14.7 23 27.7 23 99.3 20 121.6 21
No. of MCs
24 24 24 24 24 24 24 24 24
Ranked
Total (37 MCs) 83.398303 8255.48 23.28* 2277.1 2160.2 998.3 1485.7 1524.7 1909.7
Municipal Corporations of Mumbai, Bengaluru, Hyderabad, Ahmedabad, Chennai, Kolkata and Delhi, being large-sized, are not taken into account.
*Share in India’s Urban population.
Source: ICRIER (2019), Finances of Municipal Corporations in Metropolitan Cities of India: A Study Prepared for the Fifteenth Finance Commission.
180
Table 8.13. Per Capita Revenue and Capital Expenditures of 24 Municipal
Populatio Revenue Expenditure Capital Expenditure

MCs Rank
n (million) 2012-13 Rank 2017-18 Rank 2012-13 Rank 2017-18 Rank
Surat 4.46780 1 2220.0 9 3415.8 8 2589.5 4 2707.6 7
Pune 3.12446 2 4880.7 1 6329.3 1 3886.6 1 4016.2 3
Nagpur 2.40567 3 2476.8 6 4019.8 5 1390.6 11 2796.1 6
Indore 1.96409 4 2051.3 10 3198.2 9 1667.5 10 1581.4 11
Bhopal 1.79822 5 1158.6 17 2127.9 13 2213.1 5 1490.5 12
Patna 1.68422 6 602.1 21 1295.0 19 25.1 23 1481.9 13
Vadodara 1.67081 7 3380.9 4 4802.2 3 2919.1 2 3205.3 4
Ludhiana 1.61888 8 2589.8 5 3492.7 7 703.7 15 615.3 19
Nashik 1.48605 9 3666.0 2 4024.7 4 2663.4 3 2431.7 9
Faridabad 1.41405 10 na na na na na na na na
Rajkot 1.28668 11 2340.3 7 3783.2 6 1723.5 8 2801.5 5
Vasai-Virar 1.22239 12 1598.9 14 2538.3 11 1211.0 12 1676.2 10
Srinagar 1.18057 13 742.1 20 937.2 20 352.8 20 1210.5 14
Aurangabad 1.17512 14 2277.4 8 2955.5 10 610.1 16 1092.1 15
Dhanbad 1.16247 15 32.2 23 146.7 23 86.4 22 533.8 21
Amritsar 1.13238 16 1566.7 15 1808.9 15 290.5 21 805.1 17
Ranchi 1.07343 17 242.7 22 515.5 22 483.5 18 4953.5 1
Jabalpur 1.05553 18 1663.9 13 1338.8 17 1712.3 9 508.1 22
Gwalior 1.05442 19 1819.1 12 2015.3 14 918.0 13 568.8 20
Coimbatore 1.05072 20 3468.6 3 4895.5 2 1760.7 7 4571.1 2
Jodhpur 1.03376 21 1072.9 18 1333.8 18 591.0 17 316.2 23
Madurai 1.01787 22 1829.6 11 2471.2 12 841.5 14 2564.2 8
Raipur 1.01043 23 1543.7 16 1627.1 16 1902.5 6 789.8 18
Kota 1.00169 24 827.5 19 733.0 21 473.4 19 899.5 16
No. of MCs
24 - 23 - 23 - 23 - 23 -
Ranked
Total (37
83.398303 - 3288.0 - 4083.9 - 1864.7 - 2368.9 -
MCs)
Source: ICRIER (2019), Finances of Municipal Corporations in Metropolitan Cities of India: A Study
Prepared for the Fifteenth Finance Commission.
Conclusions
8.13 A comparative analysis of Municipal Finances highlighted wide

variations across states. The key takeaways emerging from it are as under: -
❖ Punjab, with per capita municipal revenue at Rs. 2340.2, ranked 6 th in

2011-12, and its rank declined to 11th in 2017-18. Similarly, in terms of
per capita own revenue, even though Punjab ranked a high 2 nd during
2011-12, it slid to the 4th rank during 2017-18 and that too due to the
compensatory payments equivalent to 11% share of VAT/GST given
by the state government to the ULBs in lieu of loss due to the abolition
of Octroi in 2006.
181
❖ In terms of per capita property tax, Punjab’s performance went down
from the 9th rank in 2011-12 to the 12th in 2016.17 and the 11th in 2017-
18. All-India average, at Rs. 361.5 in 2011-12, was twice higher than
that of Punjab’s at Rs. 178.9 in 2011-12; and all-India average, at Rs.
688.2 in 2017-18, was three-times higher than that of Punjab’s Rs.
214.6 in 2017-18.
❖ Punjab’s performance seems to be the worst amongst major states

(ranked 16th in 2011-12 and 17th in 2017-18), in terms of per capita state
transfers, mainly due to the non-implementation of the
recommendations of the SFCs during these years.
❖ Central transfers, through CFCs, showed an erratic trend, perhaps, due

to state’s inability to avail of the conditional grants recommended by
the 13th CFC and 14th CFC and non-utilisation of grants already
released.
❖ However, Punjab improved its rank from 13th in 2011-12 to 8th in 2017-
18, when we take into account the per capita central transfers other than
CFC’s grants, thanks to the flagship schemes initiated by the central
government.
❖ In terms of per capita capital expenditure of ULBs, Punjab’s rank went

down considerably from 8th in 2011-12 to 14th in 2017-18; whereas per
capita total municipal expenditure and per capita revenue expenditure
did not show any rank deterioration. This was mainly due to the high
cost of wages/salaries and other establishment costs.
❖ In a nutshell, Punjab’s municipalities are heavily dependent on the

central transfers, with miniscule own resources. Revenue expenditure
virtually eats away the entire revenues, leaving little for creating new
infrastructure and improving existing infrastructure.
182
Section-IV
Structure and Main Features of Municipal Finances in Punjab
8.14 Broad structure and main features of Municipal Finances of Punjab,

for the period 2016-17 to 2020-21, are presented in the following Table 8.14 and
Table 8.15.
Table 8.14: Municipal Finances in Punjab, 2016-17 to 2020-21
Rs. Crore
Year Unutilised (%)
Total Income Total Expenditure Unutilised
2016-17 3658.92 3575.83 83.09 2.27
2017-18 3378.09 3222.10 155.99 4.62
2018-19 4021.07 3403.04 618.03 15.37
2019-20 4591.26 3502.00 1089.26 23.72
2020-21 5662.41 3874.58 1787.83 31.57
Source: Department of Local Bodies, Government of Punjab.
Table 8.15: Main Components of Total Municipal Revenue in Punjab, 2016-17 to 2020-21
(Rs. Crore)
S.
Source 2016-17 2017-18 2018-19 2019-20 2020-21
n.
1 Compensatory Payments 1970.66 2009.92 2058.99 1607.8 2225.98
a. 11% of VAT/GST (Grants) 1564.58 1783.43 1834.73 1541.63 1959.59
b. Others* 406.08 226.47 224.26 66.17 266.39
2 Own Tax Receipts 246.28 275.93 295.67 326.59 295.98
a. House Tax/Property Tax 221.13 251.29 270.63 303.8 270.25
b. Other Taxes/Fees 24.5 24.64 25.04 22.79 25.73
3 Own Non-Tax Revenue 439.33 508.53 583.78 626.73 631.05
a. Water Rate and Sewerage Charges 135.98 159 139.29 150.98 174.33
b. Building Application Fee, Composition
138.33 194.07 228.99 229.58 280.4
Fee, Malba Fee, CLU,EDC/UDC, etc.
c. Rent Receipts/Lease Money, etc. 165.02 155.46 215.5 246.17 176.32
Own Capital Receipts (Sale of
4 Municipal Assets e.g. shops, plots 88.81 27.42 10.04 28.29 13.61
etc.)
5 Own Revenue Receipts (1+2+3+4) 2745.08 2821.8 2948.48 2589.41 3166.62
6 Borrowings / Loans 549.3 42.24 200 795.35 0.00
7 Total Own Revenue (5+6) 3294.38 2864.04 3148.48 3384.76 3166.62
8 Grants-in-Aid/Transfers 364.54 514.05 872.59 1206.5 2495.79
a. SFC Devolution 7 0 0 0 0
b. State Schemes 49.97 29 88.45 21.14 285.53
c. CFC Grants 161.99 253.95 355.51 851.91 913.82
d. CSS, etc. 145.58 231.1 428.63 333.45 1296.44
Grand Total 3658.92 3378.09 4021.07 4591.26 5662.41
*In lieu of abolition of Octroi on POL & Electricity, Liquor, etc. Source: Department of Local Government, Government of
Punjab.
183
Table 8.16: Percentage Share (%) of Main Components of Total
Municipal Revenue in Punjab. 2016-17 to 2020-21
S 2016- 2017- 2018-

Source 2019-20 2020-21
N 17 18 19
1 Compensatory Payments 53.86 59.5 51.21 35.02 39.31
a. 11% of VAT/GST
42.76 52.79 45.63 33.58 34.61
(Grants)
b. Others* 11.1 6.7 5.58 1.44 4.7
2 Own Tax Receipts 6.73 8.17 7.35 7.11 5.23
3 Own Non-Tax Revenue 12.01 15.05 14.52 13.65 11.14
a. Water Rate and
3.72 4.71 3.46 3.29 3.08
Sewerage Charges
b. Building Application
Fee, Composition Fee,
3.78 5.74 5.69 5 4.95
Malba Fee,
CLU,EDC/UDC, etc.
c. Rent Receipts/Lease
4.51 4.6 5.36 5.36 3.11
Money, etc.
Own Capital Receipts
(Sale of Municipal
4 2.43 0.81 0.25 0.62 0.24
Assets e.g. shops, plots
etc.)
Own Revenue Receipts
5 75.02 83.53 73.33 56.4 55.92
(1+2+3+4)
6 Borrowings / Loans 15.01 1.25 4.97 17.32 0
7 Total Own Revenue (5+6) 90.03 84.78 78.3 73.72 55.92
8 Grants-in-Aid/Transfers 9.96 15.22 21.7 26.28 44.08
a. SFC Devolution 0.19 0 0 0 0
b. State Schemes 1.37 0.86 2.2 0.46 5.04
c. CFC Grants 4.43 7.52 8.84 18.56 16.14
d. CSS, etc. 3.98 6.84 10.66 7.26 22.9
Grand Total 100 100 100 100 100
*In lieu of abolition of Octroi on POL & Electricity, Liquor, etc.
Source: Department of Local Government, Government of Punjab.
184
Table 8.17: Per Capita Municipal Revenue (Rs.) in Punjab by Major Source, 2016-17 to 2020-21.
S. Source 2016-17 2017-18 2018-19 2019-20 2020-21

n.
Source 1689.16 1683.64 1685.53 1286.25 1740.31
1
Compensatory Payments 1341.09 1493.92 1501.95 1233.31 1532.04
a. 11% of VAT/GST (Grants) 348.07 189.71 183.58 52.94 208.27
b. Others* 211.10 231.14 242.04 261.27 231.40
2
Own Tax Receipts 189.54 210.50 221.54 243.04 211.29
3
Own Non-Tax Revenue 116.56 133.19 114.03 120.79 136.29
a. Water Rate and Sewerage
118.57 162.57 187.46 183.67 219.22
Charges
b. Building Application Fee,
Composition Fee, Malba Fee, 141.45 130.22 176.41 196.94 137.85
CLU,EDC/UDC, etc.
c. Rent Receipts/Lease Money,
76.12 22.97 8.22 22.63 10.64
4 etc.
Municipal Assets e.g. shops, 2352.96 2363.73 2413.68 2071.55 2475.72
5 plots etc.)
Own Revenue Receipts
470.84 35.38 163.72 636.29 0.00
6 (1+2+3+4)
Borrowings / Loans 2823.80 2399.11 2577.41 2707.83 2475.72
7
Total Own Revenue (5+6) 312.47 430.60 714.32 965.21 1951.25
8
Grants-in-Aid/Transfers 6.00 0.00 0.00 0.00 0.00
a. SFC Devolution 42.83 24.29 72.41 16.91 223.23
b. State Schemes 138.85 212.73 291.03 681.53 714.44
c. CFC Grants 124.78 193.58 350.89 266.76 1013.58
Grand Total 3136.26 2829.71 3291.73 3673.04 4426.97
*In lieu of abolition of Octroi on POL & Electricity, Liquor, etc.
Source: Department of Local Government, Government of Punjab.
Table 8.18: Arrears of House/Property Tax. Rent/Lease Money and Water Supply & Sewerage
Charges
Arrear Amount (Rs. Crore)
S. Water Supply
Description House/Property Rent/Lease
No. & Sewerage All
Tax Money
Charges
1 Arrears as on 31.03.2016 251.20 10.30 321.63 583.13
Demand Assessed during
2 1277.25 228.17 1001.65 2507.07
2016-17 to 2020-21
3 Total (1+2) 1528.45 238.47 1323.28 3090.20
4 Amount Realized 1317.10 192.46 759.58 2269.14
5 Arrears at the end of 2020-21 211.35 46.01 563.70 821.06
Amount Realized (Col. 4 as
6 86.17% 80.71% 57.40% 73.43%
%age of Col. 3)
Source: Department of Local Bodies, Punjab.
185
Table 8.19: Total Municipal Expenditure in Punjab by Major Items,
2016-17 to 2020-21 (Rs. Crore)
Expenditure Item 2016-17 2017-18 2018-19 2019-20 2020-21

1. Revenue Expenditure 2389.89 2469.16 2533.15 2471.44 2586.20
% 66.83 76.63 74.44 70.57 66.75
i. Administrative, Establishment and
1450.37 1528.72 1579.46 1498.80 1590.02
Wages/Salaries
% 40.56 47.44 46.41 42.80 41.04
ii. O & M 796.15 784.94 801.24 810.67 821.45
% 22.26 24.36 23.54 23.15 21.20
iii. Loan Repayment (Interest
39.50 55.25 45.23 59.81 62.84
Payments)
% 1.10 1.71 1.33 1.71 1.62
iv. Other Expenditures (other than
salaries, O&M or interest 103.87 100.25 107.22 102.16 111.89
payment)
% 2.90 3.11 3.15 2.92 2.89
2. Capital Expenditure 1185.94 752.94 869.89 1030.56 1288.38
% 33.17 23.37 25.56 29.43 33.25
i. Developmental Works
195.55 260.10 517.08 354.59 654.25
(Central/State Specific Schemes)
% 5.47 8.07 15.19 10.13 16.89
ii. Loan Repayments (Principal
87.43 101.96 92.67 108.94 126.98
Amount)
% 2.45 3.16 2.72 3.11 3.28
iii. Other Capital Expenditure 902.96 390.88 260.14 567.03 507.15
% 25.25 12.13 7.64 16.19 13.09
Total Expenditure (1+2) 3575.83 3222.10 3403.04 3502.00 3874.58
% 100.00 100.00 100.00 100.00 100.00
Total Expenditure as %age of
0.82 0.69 0.65 0.61 0.64
GSDP
Source: Department of Local Government, Punjab.
186
Table 8.20: Per Capita Municipal Expenditure (Rs.) in Punjab by Major Head, 2016-17 to 2020-21
Expenditure Item 2016-17 2017-18 2018-19 2019-20 2020-21
1. Revenue Expenditure 2048.51 2068.33 2073.69 1977.17 2021.94
i. Administrative, Establishment and
1243.19 1280.56 1292.98 1199.05 1243.11
Wages/Salaries
ii. O & M 682.42 657.52 655.91 648.54 642.22
iii. Loan Repayment (Interest
33.86 46.28 37.03 47.85 49.13
Payments)
iv. Other Expenditures (other than
salaries, O&M or interest 89.03 83.98 87.77 81.73 87.48
payment)
2. Capital Expenditure 1016.53 630.71 712.11 824.46 1007.28
i. Developmental Works
167.62 217.88 423.29 283.67 511.50
(Central/State Specific Schemes)
ii. Loan Repayments (Principal
74.94 85.41 75.86 87.15 99.28
Amount)
iii. Other Capital Expenditure 773.98 327.43 212.96 453.63 396.50
Total Expenditure (1+2) 3065.04 2699.04 2785.80 2801.62 3029.21
Table 8.21: Outstanding Debt and Other Liabilities of ULBs in Punjab (Rs. Crore)
S. N. Description 2016-17 2017-18 2018-19 2019-20 2020-21
A. Loans/Interest
Financial Institutions
297.03 240.34 252.18 1046.18 948.70
1 (HUDCO Loan Taken by
(25.65) (22.67) (20.82) (51.87) (47.43)
PMIDC)
83.89
2 Government Loans - - - -
(7.24)
Other Loans (PUDA Loan 221.63 221.63 221.63 221.63 221.63
3
Taken by PMIDC) (19.14) (20.91) (18.30) (10.99) (11.08)
602.55 461.97 473.81 1267.81 1170.33
Sub-Total (A)
(52.03) (43.58) (39.13) (62.86) (58.51)
B. Other Liabilities
120.57 163.41 237.48 259.15 389.28
4 Street Light / Tubewell Bills
(10.41) (15.42) (19.61) (12.85) (19.46)
Pension Fund Contribution 47.19 51.37 56.12 63.65 143.72
5
(NPS, etc.) (4.08) (4.85) (4.63) (3.16) (7.19)
104.56 129.34 142.16 119.68 67.19
6 G.P. Fund Dues of Employees
(9.03) (12.20) (11.74) (6.93) (3.36)
Gratuity / Leave Encashment 43.21 46.25 45.86 73.77 57.52
7
& Other Retirement Dues (3.73) (4.36) (3.79) (3.66) (2.88)
158.26 123.15 166.04 135.17 57.72
8 Contractor Payments
(13.67) (11.62) (13.71) (6.70) (2.89)
81.69 84.53 89.49 97.73 114.36
9 Others*
(7.05) (7.97) (7.39) (4.85) (5.72)
555.48 598.05 737.15 749.15 829.79
Sub-Total (B)
(47.97) (56.42) (60.87) (37.14) (41.49)
1158.03 1060.02 1210.96 2016.96 2000.12
Grand Total (A+B)
(100.00) (100.00) (100.00) (100.00) (100.00)
*It includes audit fees, CA fees, Advocate fees, Guarantee fees, LTC, medical reimbursements, TA/DA, earnest
money, directorate charges, etc.
187
Table 8.22: Municipal Finance Indicators in Punjab (%age of GSDP)
S. N Source 2016-17 2017-18 2018-19 2019-20 2020-21

A. Municipal Revenue
1 VAT/GST (11%)* 0.45 0.43 0.39 0.28 0.37
2 Own Tax Revenue 0.06 0.06 0.06 0.06 0.05
3 Own Non-Tax Receipts 0.10 0.11 0.11 0.11 0.10
4 0.02 0.01 0.00 0.00 0.00
Municipal Assets, e.g., shops, plots, etc.)
Revenue from Own Sources
5 0.63 0.60 0.56 0.45 0.52
(1+2+3+4)
6 Borrowings / Loans 0.13 0.01 0.04 0.14 0.00
Total Revenue (5+6)
7 0.76 0.61 0.60 0.59 0.52
(Excluding grants-in-aid)
8 Grants-in-Aid 0.08 0.11 0.17 0.21 0.41
a. SFC Devolution 0.002 0.00 0.00 0.00 0.00
b. State Schemes 0.01 0.01 0.02 0.00 0.05
c. CFC Grants 0.04 0.05 0.07 0.15 0.15
d. CSS, etc. 0.03 0.05 0.08 0.06 0.21
Total Municipal Revenue 0.84 0.72 0.77 0.8 0.93
B. Municipal Expenditure
1 Revenue Expenditure 0.55 0.53 0.49 0.43 0.43
2 Capital Expenditure 0.27 0.16 0.17 0.18 0.21
Total Municipal Expenditure 0.82 0.69 0.65 0.61 0.64
*Known as Compensatory Payment in lieu of abolition of Octroi (Statutory Transfers under Punjab
Municipal Fund Act, 2005).
Analysis and Key Takeaways
8.15 From an analysis of the various data sets presented in the foregoing
pages, the Commission has drawn the following conclusions relating to Punjab’s
municipal finances: -
- In the aggregate, municipal revenue and municipal expenditure have

stagnated around 1% of the state’s GSDP over a long period of time. It
compares poorly not only with some emerging economies, but also
some of the states in our own country. This is also woefully inadequate
to meet the legitimate expectations of citizens for improved
infrastructure and services.
188
- Table 8.14 shows that the year-end unspent amount as a percentage of
total expenditure has risen from 2.27% in 2016-17 to 31.57% in 2020-
21. Lest it conveys an erroneous impression that municipalities have
funds surplus to their requirements, it is clarified that it is mainly due to
late/bunched release of funds, lack of capacity and dilatory processes
for the award of contracts and procurement.
- Municipalities continue to heavily depend on transfers from higher

governments, especially the central transfers through CFC and CSS.
Paradoxically, however, while CFC grants to the ULBs have shown
consistent increase since the 10th CFC, transfers by SFC have not only
declined, but have been virtually reduced to zero during the period
covered by the 4th and 5th SFCs. This paradox is graphically presented
below: -
Figure 8.8: CFCs’ Grants to ULBs in Punjab: Recommended vs. Actual

Release (Rs, Crore) 2102.84 (-14.27%)
CFCs' Grants to ULB: Recommended vs Actual Release (10th CFC TO 15th CFC 2020-21
10000 Year)
2452.95
533.45 (-15.13%)
668 (0.00%)
628.57
154.76 (-9.50%)
668
1000
61.66 (+12.72%)
171
17.21 (-43.76%)
Logarithmic Scale with Base 10
54.7
100
30.6
10
1
10th CFC (1995-96 11th CFC (2000-01 12th CFC (2005-06 13th CFC (2010-11 14th CFC (2015-16 15th (2020-21)
to 1999-2000) to 2004-05 to 2009-10) to 2014-15) to 2019-20) Annual Report
Recommended Grants (Rs Crore) Actual Release (Rs. Crore) (Shortage%)
189
Figure 8.9: SFCs’ Tax Devolution to ULBs in Punjab, Recommended vs. Actual
Release (Rs. Crore)
SFCs' Tax Devolution to ULBs in Punjab, Recommended and Actual

Release
(1st SFC to 5th SFC)
4546.25
Logarithmic Scale with Base 10
1695.85
860.36
53.75 (-93.75%)
95.37 (-76.9%)
78.04 (-56.8%)
10000
412.92
180.65
6.35 (-99.61%)
1000
7 (-99.85%)
100
10
1
1st SFC (1996-97 2nd SFC (2001- 3rd SFC (2006-07 4th SFC (2011-12 5th SFC (2016-17
to 2000-01) 02 to 2005-06) to 2010-11) to 2015-16) to 2020-21)
Recommended Devolution @4% Share of NTR (Rs.Crore) Actual Release (Rs.Crore) (Shortage %)
- Regrettably, the argument that, even though no funds were released on

the recommendations of the 4th and 5th SFCs, substantial amounts have
been disbursed by the state government to the municipalities, especially
in the last two years is not acceptable to the Commission, it being no
substitute for the constitutionally mandated transfers under Article
243Y. Besides, such transfers are neither assured/predictable nor free
from an element of subjectivity. Besides, such disbursements are not
all that substantial as claimed which is evident from the Table 8.15.
- A plain look at Table 8.5 presents a false picture of municipal own

revenues. The state is ranked high (2nd/4th) amongst major states during
2011-12 to 2017-18 because of the compensatory payments made by
the state government to the municipalities, which are reflected in
municipal own revenues during the period 2016-17 to 2020-21 (Table
8.15).
190
- The core own municipal revenues are mainly comprised of property tax
and user charges. While the state’s per capita property tax collection at
Rs. 214.6 in 2017-18 compares poorly with major states, averaging Rs.
688.2 (Table 8.6).
- There is a wide gap between the cost and recovery in provisioning of

services such as water supply and sewerage as is clear from the
following tabulation in Table 8.23.
Table 8.23: O & M Expenditure of Water Supply & Sewerage and

Its Cost Recovery, 2016-17 to 2020-21
O & M Expenditure (Rs. Crore)
Total Income from
Wages Cost Recovery of O &
Year Other Water Supply &
and Total M (%)
Expenditures Sewerage Charges
Salaries
2016-17 203.58 328.49 532.07 135.98 25.56
2017-18 211.93 345.43 557.36 159.01 28.53
2018-19 231.26 371.90 603.16 139.29 23.09
2019-20 230.95 352.18 583.13 150.98 25.89
2020-21 248.60 403.19 651.79 174.33 26.75
Total 1126.32 1801.19 2927.51 759.59 25.95
- Per capita collection of property tax at Rs. 178.9 during 2011-12 and
Rs. 214.6 during 2017-18 is woefully low, as indicated at Table 8.6,
with Punjab ranking 10th or 11th amongst the major states. Per capita
property tax is also low even in two municipal corporation towns
(Ludhiana and Amritsar) of Punjab compared to 24 municipal
corporation towns across different states of India (Table 8.12)
- Even the compensatory payments to the municipalities have been either

delayed or not fully disbursed consequent upon the cessation of
statutory backup in the aftermath of implementation of GST, as is
evident from the data presented in Tables 8.15 and 8.16.
- Per capita total municipal revenue has remained stagnant or has

declined since 2013-14 as is evident from Table 8.4.
191
- Per capita municipal expenditure, both revenue and capital, has shown
a declining trend between 2016-17 to 2020-21 as is evident from Table
8.20.
- Quality of municipal expenditure is also poor, as the state ranked a high

2nd/3rd in per capita revenue expenditure, while it was virtually at the
bottom in per capita capital expenditure, with a rank of 8 th to 14th
amongst major states during 2011-12 to 2017-18 (Table 8.10 and
Table 8.11).
- Even the municipal corporation towns of Ludhiana and Amritsar lagged

behind in terms of per capita capital expenditure, with a rank of 19 th and
17th amongst 23 municipal corporation towns across major states
(Table 8.12)
- State's performance in terms of major municipal finance indicators is

also unflattering and has shown a decline during 2016-17 to 2020-21
(Table 8.22).
- Recoverable amounts on various counts have also witnessed an

increasing trend between 2016-17 and 2020-21, as indicated in Table
8.18.
- Outstanding loans and liabilities have also shown a significant increase

during 2019-20 and 2020-21, when these jumped from Rs. 1158.03
crore in 2016-17 to Rs. 2016.96 in 2019-20 and Rs. 2000.12 crore in
2020-21 (Table 8.21). As the market borrowings by municipalities is
negligible, outstanding liabilities appear to be on account of deposits,
unpaid amounts of contractors and suppliers and the loans contracted
by parastatals on behalf of the municipalities.
192
8.16 To sum up, municipal finances of Punjab have shown either a
stagnant or a declining trend manifested by low per capita revenues and
expenditure, high dependency ratio, poor quality of expenditure and
increasing outstanding loans and liabilities. Even in comparison to some major
states, Punjab municipal finances fare no better. In a nutshell, present state of
Punjab’s municipal finances is woefully inadequate either to empower the
ULBs to become self-governing entities or to provide services to match the
expectations and aspirations of the citizens.
Section-V
Recommendations to Improve Financial Position of Municipalities
8.17 The Commission’s approach towards its recommendations for

measures to improve municipal finances has been determined by the following
factors:
- Introduction of GST has left an indelible imprint on the revenue

scenario in India's federal tax regime. By this structural reforms,
municipal finances have been worst hit.
- In token compliance of CAA 1992, the state government have assigned
most of the functions listed in the 12th Schedule to the municipalities in
a mechanical manner, without enacting a law empowering them to levy
taxes, tolls and duties to raise revenues and to enhance their capacity
and capability to perform these functions effectively.
- In the past, also, notwithstanding the fact that, the Government of India
Act 1919, the Local Finance Enquiry Committee (1951) and the
Taxation Enquiry Commission (1953-54) have made recommendations
for reserving several taxes such as taxes on land and property, transfer
of property, Octroi, tax on trade professions, trades and callings, tax on
193
consumption/sale of electricity, entertainment tax and motor vehicles
tax for urban local governments, the ground reality, however, is that
over the years, the states have been appropriating these taxes.
8.18 At present, the existing system of levy of taxes, tolls, fees and duties
by the ULBs, even at their optimal capacity, is unable to generate adequate
income that would deliver the assigned services at some reasonable norms.
Most of these taxes, tolls, fees and duties (Box 8.1), except the property tax,
are either obsolete or less productive or facing lot of inefficiencies. Even some
other taxes that meet the immobility test, e.g., land-based taxes, are
appropriated by state level development authorities. Further, system of fund
transfers to the ULBs from the State/Central Government also suffers from
rigid conditionalities and lack of transparency.
Box 8.1
An Indicative List of Municipal Finances in Punjab
- Exclusive Taxes:
o Property Tax/House Tax.
o Tax on Land and Buildings.
o Tax on Vehicles (non-motorized) and Animals.
o Advertisement Tax (other than Published in Newspapers).
o Tax on Building Plans.
o Development Tax.
o Tax on Professions, Trades, Callings and Employments.
o Scavenging Tax.
- Shared State Taxes:

o 11% Share of VAT/GST.
o Assigned Taxes (partly or wholly).
o SFC’s Recommended Tax Share/Grants.
- Non-Tax Revenue:
o User Charges
o Trade Licensing fee
o FAR Charges/Betterment Charges/Impact Fee/Development
Charges, etc.
Source: PMC Act, 1976 and PMA, 1911.
194
8.19 Viewed in the above scenario, following is the mainstay of
municipal finances:
a. Augmentation of the Consolidated Fund of the State through the

divisible pool and grants-in-aid by the CFC under Article 280 (3)
(bb & c).
b. Transfers by the state government on the basis of recommendations

of the SFC under Article 243Y; and
c. Improvement in their own finances.
While we have dealt with ‘a’ and ‘b’ above in Chapter 9 relating to
‘Assessment of the Gap in Financial Resources and Scheme of
Devolution’, in this section, we deal with measures to improve own finances
of the municipalities.
Recommendations
- The Commission strongly recommends enactment of a new law governing

ULBs, as amendments to more than a century old the Punjab Municipal
Act, 1911 and nearly half a century old the Punjab Municipal Corporation
Act, 1976 do not suffice to fulfill the Constitutional mandate of making
ULBs self-governing entities. Apart from ensuring convergence between
functions, funds and functionaries, the suggested law may also incorporate
suitable provisions for ensuring transparency, accountability, auditing and
peoples’ participation in the functioning of ULBs.
- Currently, compensation in lieu of loss due to abolition of Octroi is the
mainstay of municipal finances, constituting nearly 60% and 39% of
Municipal Revenues during 2017-18 and 2020-21, respectively. When the
195
Octroi was abolished in 2006, ULBs were statutorily granted a right to
compensation for the loss suffered by enacting the Punjab Municipal Fund
Act, 2006. However, in the aftermath of implementation of GST, the above
statutory backup has become dormant, as a result of which the
compensation to ULBs is either delayed or denied, which is borne out by
the data in Table 8.15 and Table 8.16. It is, therefore, recommended that
the statutory backup to compensate ULBs for loss of revenue due to the
abolition Octroi be restored by enacting a new law on the lines of the
Maharashtra Goods and Services Tax (Compensation to the Local
Authorities) Act, 2017 or by amending the Punjab Municipal Fund
Act, 2006.
- The second most important source of Municipal Finances is the property

tax. This tax has generally not realised its full potential across various
Indian states. A study based on a survey of 36 largest cities in India shows
that the major factors contributing to poor realization from property tax are
(i) poor assessment rate (only 56% of the properties covered); (ii) weak
collection efficiency (37% of the demand raised); (iii) flawed methods of
property valuation; (iv) loss on account of exemptions (11.7%); and (v)
poor enforcement (Mathur, et al., 2009).
- The Commission is happy to note that the state government, vide
Notification No. 3/1/21-1lg3/350/1 dated 14th February, 2021 for the
Municipal Corporations and vide Notification No. 3/2/21-1lg3/351/1 dated
14th February, 2021 for the rest of the municipalities, have introduced a
new capital value-based system of property tax. Its salient features are
presented in the Box 8.2 below: -
196
Box 8.2
Salient Features of Property Tax (February 14, 2021)
• Adopted Capital Valuation System that links the property assessment rates to
the prevailing collector rates.
• Simple formula to calculate Property Tax Value = (Tax Base x Multiplicative
Factor)*.
• Cities having Municipal Corporation are classified as ‘A Category cities’
(Amritsar, Jalandhar, Ludhiana, Patiala and SAS Nagar) and ‘B Category
cities’ (all other cities).
• Cities having Municipal Councils and Nagar Panchayats are classified as ‘B
Category cities’ (All Class I & II Municipal Councils) and ‘C Category cities’
(All Class III Municipal Councils and Nagar Panchayats).
• Area of each city having ‘A Category’ Municipal Corporations is classified
as Area-1 (posh area), Area-2 (less posh/developed area) and Area-3 (balance
area); and of ‘B Category’ Municipal Corporations is classified as Area-1
(posh area), Area-2 (less posh/developed area), strictly on the basis of
collector rates.
• Area of each city with ‘B Category and C Category’ Municipal
Councils/Nagar Panchayats is classified as Area-1 (posh area) and Area-2
(balance area), strictly on the basis of collector rates.
• These classifications be finalized by a Committee** for each city within a
fortnight from the date of issue of this notification, which shall be published
in the Punjab newspaper and also on notice boards at various places falling
in the Municipal area.
• All properties in each city/town are differentiated as residential, commercial
and industrial based on collector rates (per sq. yard/per sq. foot) and property
tax rates are reproduced in Annexure-8A and Annexure-8B.
• Property tax rates are to be increased by 5% annually and to be reviewed
every 3 years.
• Simplify property tax filing returns through online calculation, digital
payments, assisted assessment via CFC Centres and Sewa Kendras. Door-to-
door collection is also being introduced.
• Applicable from the year 2021-22.
*Tax Base = [(Plot Area in sq. yards x Collector Rate per sq. yard) + (Build-up Area x
Replacement Construction Cost)]; and the Multiplication Factor is 0.02% for
residential and 0.1% for commercial and industrial properties.
**consisting of Secretary/Principal Secretary Local Government, Director, Local Government
(Conveyer of meeting), Mayor of concerned city, Commissioner of the concerned
Municipal Corporation and Deputy Commissioner of the concern district for
Municipal Corporations; and consisting of Director, Local Government, President
or Administrator of concerned Municipality, Executive Officer of concerned
Municipality and concerned Reginal Deputy Director, Local Government
(conveyer of Committee) for Municipal Councils and Nagar Panchayats.
Source: Notification No. 3/1/21-1lg3/350/1 and Notification No. 3/2/21-1lg3/351/1 dated 14th
February, 2021.
197
8.20 After a careful scrutiny of the new system of property tax and
discussions with the line department, the Commission has identified the
following gaps that need to be plugged:
(i) One-size-fits-all system of property tax may neither be equitous nor

capture diverse socio-economic features of large cities. It may,
therefore, be advisable to have independent property tax Bye Laws
for large corporation cities.
(ii) Exempting single-storey houses built on land area up to 125 sq. yards
will take more than 50% of the residential properties out of the
purview of property tax, seriously impairing its revenue buoyancy.
The Commission is of the view that such exemptions should be the
exception, rather than the rule, and will strongly advise that all
properties be subjected to property tax and exemptions should be rare
and only for really deserving of people.
(iii) There is no mechanism for the periodic revision of tax base and tax
rates and a minimum annual buoyancy, which needs to be built into
the policy.
(iv) In most of the states, the Commission has looked into, vacant
land/plots are also subject to tax not only to augment municipal
revenues, but also to check speculation and increase stock of built-up
properties. This ought to be done by Punjab as well.
(v) As property tax incidence is jointly and severally on the owner and
occupier, the so-called unauthorized or illegally built-up properties
should be brought into the tax net.
(vi) Even though the properties owned by the Central/State governments
and their entities are constitutionally exempted from the levy of
property tax, such properties ought to be subjected to service charges,
198
as done by the Kolkata Municipal Corporation, on the explicit logic
that they enjoy the common infrastructure and amenities provided by
the ULBs.
(vii) Notified schemes of property tax also do not have provisions for
assessing mixed properties, both by use and by occupancy, which
needs to be provided for.
(viii) There is lot of confusion about the authority which is legally
empowered to levy and collect property tax. Even within municipal
areas, different entities such as Improvement Trusts, Urban
Development Authorities, Industries Deptt./PSIEC have developed
real/industrial estates for different uses. However, pending their
formal transfer to ULBs, these areas are not subjected to the property
tax by the latter. As a ULB is primarily responsible for providing
infrastructure in its territorial jurisdiction, it should be the sole agency
for the levy and collection of property tax, irrespective of the fact
whether the real estate so developed has been formally transferred to
the respective ULBs. This will also go a long way in integrating the
city’s trunk infrastructure, which is currently fragmented between
different authorities.
(ix) For common citizens, new property tax levy and assessment system
is fairly complicated and needs to be simplified. It is recommended
199
that the department of local government may prepare a guide for
citizens to enable them to understand the system and comply with it,
which may, inter alia include examples of assessment and
computation of property tax as also the methodology of online filing
and payment. It may also be useful for the municipalities to hold
discussions with groups of citizens to solve their problems and to
clear their doubts, including prompt resolution of disputes.
(x) Optimum revenue realization will call for a lot of preparatory action
like GIS-based survey of properties, geo-tagging and assigning
unique premises number (UPN) to them and updating the register of
properties in real time. Even though the new system was notified on
14th February, 2021, the progress in this behalf appears to be slow,
which needs to be expedited.
8.21 Without plugging the above gaps, revenue buoyancy of

this important source of revenue is bound to be sub-optimal.
- Advertisement Tax: Yet another source of tax revenue which has not
been subsumed in the GST, and is still within the preview of
municipalities, is the Advertisement Tax (other than published in
newspapers). The Commission is happy to note that the state
government has formulated a comprehensive scheme (Punjab
Municipal Outdoor Advertisement Policy, 2018 and subsequent
Bye-Laws, 2018) for levy of Advertisement Tax and has issued the
200
same vide Notification No. CTP(LG)-2018/953, dated March 21, 2018.
The main features of the scheme are presented in the Box 8.3.
Box 8.3
Salient Features of Punjab Municipal Outdoor Advertisement Policy-2018
o Aims to maximise revenue gains of ULBs from outdoor advertisements
within municipal jurisdiction.
o Takes into account the emerging global practices of advertisements.
o Ensures to maintain cultural and heritage character of cities/towns.
o Aims to reduce ‘visual clutter’ by unorganised placement of
advertisements.
o Ensures wider coverage to all means of displaying advertisements.
o Allow outdoor advertisements at prominent places such as commercial,
industrial, recreational and institutional areas.
o Provides permissibility of different categories of advertising devices (D-
1 to D-4) and advertising places.
o Provision of Advertisement Regularity Committee at each ULB level.
o Provides for indemnity and public liability insurance policy at the cost
and expenses of licensee for any kind of accidents losses, etc.
o Allows self-regularity controls within the advertisement industry that
enforce minimum advertising standards.
o Discourages advertisements in residential areas, and at places to
minimize drivers’ distraction level.
o Provides for a negative list of advertisements (18 types) portraying
nudity; racial/caste, community or ethnic differences; promoting drugs,
alcohol, cigarettes or tobacco items; propagating exploitation of women
or children; having sexual overtone; depicting cruelty to animals;
casting aspersion; and many more.
Source: Punjab Municipal Outdoor Advertisement Policy, 2018.
- Even though the Notification in this behalf has been issued more than
three years ago (March 20, 2018), its revenue effects are yet to crystalize
and need to be carefully watched and timely course corrections made.
- Entertainment Tax: Though the entertainment tax has been

subsumed in the GST, yet the state government should explore
possibility of imposing this tax, as a local tax, on the cable
networks, and other new forms of entertainment such as internet
cafes, pubs, gaming facilities, and amusement parks.
- Mobile Service Tax: State government should allow the ULBs to
201
levy local municipal tax on mobile services such as mobile towers
and mobile lines falling in their jurisdictions. Recently, proposed
budget of Municipal Corporation, Panchkula (having population
of 5.61 lakh) for the year 2022-23 has estimated income of Rs. 15
crore each by fee from the mobile towers and mobile lines. One
can expect higher income from such a tax in the big Municipal
Corporations like Ludhiana.
- Shared Income of Urban Development Authorities: It is yet

another important source of revenue for the ULBs, where the
various UDAs like Improvement Trusts, PUDA, GLADA,
GMADA, etc. must share a part of their income (to be determined
by the state government) with the ULBs to build and maintain
infrastructure in the urban areas. The proposed budget of
Municipal Corporation, Panchkula for 2022-23 shows an income
Rs. 20 crore as a share from the HUDA.
- Profession Tax: This tax, as a local tax, has wider scope to

generate resources for the ULBs. However, there is a ceiling of Rs.
2500 per annum as stated under Article 276(2) of Constitution.
There is need to amend Article 276(2) for increasing ceiling limit,
as suggested by last three CFCs, from Rs. 2500 to Rs. 12000 per
annum, and 20% rise every five years thereafter. In the meanwhile,
the Commission has recommended the assignment of this tax to
the local bodies in Table 9.12, Chapter 9 of the report.
- Scavenging & Sanitation Tax: It is noted that unlike some other

ULBs, Municipalities in Punjab do not levy any Scavenging and
Sanitation Tax, thereby losing an important source of revenue. Closer
home, Municipal Corporation, Chandigarh levies such a tax as garbage
202
collection charges (Annexure-8C). The Commission recommends levy
of this tax/fee by all municipalities in Punjab.
- Mutation Fee on Property Transfer: It is noted that municipalities in

Punjab levy, if at all, only a nominal charge for the transfer of property
consequent upon sale, gift or inheritance, etc. while in municipalities of
some states, such a tax/fee is being levied. For example, in Telangana,
mutation fee on the transfer of property is being levied by all
municipalities. It's main features are as under: -
- ‘Auto Mutation’ whenever there is a transaction of any
immoveable property;
- ‘Auto Mutation’ coincides with the process of registration done
by the Sub-Registrar concerned;
- Allows all municipalities to collect such fee at the time of
registration of immovable property by way of sale, gift, etc. “@
0.1% of the registration value of the property transferred or Rs.
1000/- in Municipalities and Rs. 3000/- in Municipal
Corporations, whichever is higher” (Source: Government of
Telangana).
It is recommended that mutation fee may be levied at the time of
registration of immoveable property in all municipal jurisdictions of
the state.
- User Charges: Yet another important source of revenue for the ULBs
is user charges for such civic amenities whose benefits can be allocated
to specific beneficiaries such as water supply, sewerage and solid waste
management. In this context, it is sad that, even though the own tax
revenue of ULBs is much below their potential, the performance with
respect to the user charges is as bad, if not worse. The core local
financing principle suggests that users, beneficiaries, polluters and
203
congesters must pay. The hard budget constraint must be pressed in to
instill fiscal discipline. However, the position in this behalf is totally
unsatisfactory in as much as that only 26% of the O&M cost of such
services is recovered by way of user charges, as is evident from Table
8.23.
8.22 The Commission recommends as under: -
User charges for services such as water supply, sewerage and solid
waste management be revised in a calibrated manner so as to fully
recover the cost by 2025-26, with a provision for periodic revision to
reflect the increase in cost.
- Charge 50% higher rates for provision of these services to
the commercial establishments such as hotels, restaurants,
marriage palaces, amusements parks, gyms, etc.
- While the state government may fix the floor rates of such
charges, with a provision for periodic revision and higher
charges for commercial establishments, municipalities may
be given the freedom to fix charges above the floor rates.
- Levying of Service Fees, etc: Apart from the user charges,
the ULBs are also charging fee for various administrative
and regulatory services being rendered by them. An
illustrative list of such services is in the Box 8.4 given
below: -
204
Box 8.4
Current Service Fees/Charges Levied by Department of Local Government
Change of Title of Water &

1 Sewerage Bill / Water & Rs. 200 – Rs. 7000
Sewerage Bill Amendment
2 Collection of property tax Rs. 1.00 – Rs. 15.00 (per Sq Ft)
Issuance/ Renewal of Trade
License by Municipal Rs. 50 – Rs. 10000 (Varies per item or no. of
3
Committees and Municipal items)
Corporations
4 Issue of Bus Pass (for buses Rs. 25 – Rs. 50
operated by the ULB)
5 Issue of NOC for Fire Safety Rs. 2000 – Rs. 20000
6 Sanction of Change of Land Use Range of CLU Fee for the various uses of land
is: Rs 4 Lacs/Acre – Rs. 106 Lacs/Acre
Sanction of Water Supply/
7 Sewerage Connection in M.C. Rs. 100 – Rs. 200
Towns
Sanction of Water Supply/
8 Sewerage Connection in Rs. 100 – Rs. 500
Corporation Cities
Sanction of Water
9 Supply/Sewerage connection in Rs. 100 – Rs. 200
the Improvement Trusts
Granting Road Cutting
10 Permission including checking Rs. 100 – Rs. 500
of site
Verification of proper road
restoration Rs. 3.00 – Rs. 30.00 (Katcha Roads).
11 • For Katcha Roads: Rs. 100 – Rs. 600 (CC Roads).
• For CC Roads: Rs. 100 – Rs. 800 (For Bitume n Roads)
• For Bitumen Roads:
Scrutiny Fee: Rs. 2.5 per sft for residential and
Govt. buildings / Charitable hospital buildings
and Rs. 5.0 for commercial and other buildings.
Sanction of Building Plans/ Malba fee: Rs. 500 for covered area upto
Revised Building Plans (Other 500 sft on all floors; Rs. 1000 for covered
than Residential) in Municipal area 501 sft upto 1000 sft on all floors; Rs.
12 Corporation Cities: 1500 for covered area 1501 sft upto 2000 sft
• Scrutiny Fee: on all floors; Additional Rs.0.50 for every
• Malba Fee: square foot additional covered area on all
• Boundary Wall: floors.
Boundary Wall Fee: Rs. 2.5 per running foot
for residential and Govt. buildings / Charitable
hospital buildings and Rs. 5.0 per running foot
for commercial and other buildings.
Sanction of Building Plans/ Scrutiny Fee: Rs. 2.5 per sft for residential and
Revised Building Plans Govt. buildings / Charitable hospital buildings
13
(Residential)-in Municipal and Rs. 5.0 for commercial and other buildings.
Corporation Cities: Malba Fee: Rs. 500 for covered area upto
205
• Scrutiny Fee: 500 sft on all floors; Rs. 1000 for covered
• Malba Fee: area 501 sft upto 1000 sft on all floors Rs.
• Boundary Wall Fee: 1500 for covered area 1501 sft upto 2000 sft
on all floors; Additional Rs.0.50 for every
square foot additional covered area on all
floors.
Boundary Wall Fee:
Rs. 2.5 per running foot for residential and
and Rs. 5.0 per running foot for commercial and
other buildings
Malba Fee: Rs. 500 for covered area upto
Sanction of Building Plans/ 500 sft on all floors; Rs. 1000 for covered
Revised Building Plans (Other area 501 sft upto 1000 sft on all floors Rs.
Than Residential)- In 1500 for overed area 1501 sft upto 2000 sft
14 Improvement Trust Areas: on all floors; Additional Rs.0.50 for every
• Scrutiny Fee: square foot additional covered area on all
• Malba Fee: floors.
• Boundary Wall Fee: Boundary Wall Fee:
Rs. 2.5 per running foot for residential and
and Rs. 5.0 per running foot for commercial and
other buildings
Malba fee: Rs. 500 for covered area upto
Sanction of Building Plans/
500 sft on all floors; Rs. 1000 for covered
Revised Building Plans
area 501 sft upto 1000 sft on all floors; Rs.
(Residential) – In
1500 for covered area 1501 sft upto 2000 sft
15 Improvement Trust Areas: on all floors. Additional Rs.0.50 for every
• Scrutiny Fee: square foot additional covered area on all
• Malba Fee: floors.
• Boundary Wall Fee: Boundary Wall Fee:
Rs. 2.5 per running foot for residential and Govt.
buildings / Charitable hospital buildings and Rs.
5.0 per running foot for commercial and other
buildings
8.23 Most of these services are being charged nominally as evident

from the above presentation in Box 8.4. It is also not known when such
charges were fixed/revised. Therefore, revenue realization/potential on this
count cannot be estimated with a degree of precision. It is noted that some
206
important services are being provided by the municipalities even free of
cost. An illustrative list of such services is given in the Box 8.5 below:
Box 8.5
Template of Services Provided Free by Department of Local Government,
Punjab
S. Govt. Fee
Name of Service
No. (Rs.)
1 Approval for time extension for building plans 0.00
2 Approval of Additional Construction 0.00
3 Approval of Sewerage Disconnection/Reconnection 0.00
4 Approval of Water Disconnection/Reconnection 0.00
5 Conveying the Assessment regarding Property Tax 0.00
6 Issuance of Allotment Letters 0.00
7 Issuance of Possession Letters 0.00
Issue of Conveyance Deed in Municipal Committees and
8 0.00
Municipal Corporations
Issue of Completion / Occupation Certificate for
9 0.00
Buildings (All Categories)
Issue of Completion/ Occupation Certificate for
10 0.00
Buildings (All Categories)
11 Issue of Conveyance Deed 0.00
12 Issue of No Due Certificate 0.00
Issue of No Objection Certificate / Duplicate Allotment /
13 0.00
Re-allotment Letter
14 Issue of Permission for Mortgage 0.00
15 License for Slaughter House 0.00
16 Removal of Solid Waste from Streets/Roads 0.00
17 Replacement of Street Lights 0.00
19 Transfer of Property in Case of Death (uncontested) 0.00
20 Transfer of Property in Case of Sale 0.00
21 Water Pipes Leakages/ Sewerage/ Blocked/ Over Flow 0.00
8.24 The Commission, therefore, recommends mapping of various

administrative and regulatory services being provided by the ULBs,
fixation of charges thereof afresh, with a provision for revision once in
every three years. It is also recommended that a fair amount of fee/charge
may be levied on the polluters as well as on the congesters like green fee,
207
entry fee, parking fee, etc., at least, in the big, high pollution, and high
congestion cities/towns to begin with.
8.25 The Commission noticed that a part of income (not exceeding

1% income of concerned body during the last year) of the Committees
under the Punjab Municipal Act, 1911 [Section 52 (1) (b)] has been
appropriated by the State Government towards the cost of such Local Self-
Government Board or Inspectorate as the State Government may establish,
for the purpose of advising, assisting and supervising the work of
Municipal Committees and other local bodies. This legal provision which
results in reverse devolution from the local bodies to the state government
should be repealed.
8.26 It is also noted that the ULBs are spending a substantial

amount of their income by way of paying electricity charges for the
facilities like drinking water, sewerage treatment, effluent treatment plants,
solid waste management and street lighting, because of these being charged
commercial tariff. This is neither just nor fair. The Commission, therefore,
recommends that ULBs be charged no more than the domestic tariff for
supplying electricity for such services.
8.27 The Commission is conscious of the fact that it has not made
any specific recommendation for reducing municipal expenditure. It is
mainly due to the fact that most of the expenditure being incurred by the
ULBs is in the nature of committed expenditure on salaries and wages and
operation and maintenance. There is a vast scope for economizing on this
expenditure, but this would involve pursuit of governance reforms by the
municipalities on a continuous basis. The Commission has endeavored to
provide a cohort of good governance measures in Chapter 10 -
Reinventing the Government -, which the state government may suitably
take up for implementation.
208
Chapter 9
Assessment of the Gap in Financial Resources

and Scheme of Devolution
(Local Bodies can deliver something to everybody)
Section-I
The Constitutional Mandate and the ToR of the Commission.
9.1 By its Constitutional mandate, as incorporated in Articles 241-I and

243-Y of the Constitution and its ToR, the Commission is mandated to:
(a) recommend the principles which shall govern -
i. The distribution between the State and the

Panchayats/Municipalities of the net proceeds of the taxes,
duties, tolls and fees leviable by the State which may be divided
between them and the allocation between the
Panchayats/Municipalities at all levels 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/Municipalities;
and
iii. The grants-in-aid to the Panchayats/Municipalities from the
Consolidated Fund of the State.
(b) the measures needed to improve the financial position of the
Panchayats/ Municipalities.
209
(c) the measures to reduce unproductive revenue expenditure and steps
efficient and effective use of capital resources, and
(d) any other matter referred to the Finance Commission by the
Governor in the interest of sound finances of the Panchayats/
Municipalities.
Read with Article 280 (3) (bb) for Panchayats, and Article 280 (3) (c) for
Municipalities, the CFC is also required to recommend measures to augment the
Consolidated Fund of a State to supplement the resources of the Panchayats and
the Municipalities, on the basis of the recommendations made by the Finance
Commission of the State.
Further, under Article 243-I(4) and 243-Y(2) of the Constitution, the

Governor shall cause every recommendation made by the Commission under this
Article together with an explanatory memorandum as to the action taken thereon
to be laid before the Legislature of the State.
However, the delay in submission of report by the SFCs along with the
delay in placing the Action Taken Reports (ATRs) by state governments
effectively mean that there is very little time left for the CFC to be guided by the
recommendations of SFCs. A study by NIPFP reveals that, out of the 25 SFCs
considered for the study, SFCs in 6 states submitted their report before the
commencement of their award period. If one were to include the time taken by
state governments to table the ATR in the legislature, only 3 States’ SFCs report
and ATRs were submitted before the commencement of their award period.
Our understanding of the Constitutional mandate is as follows:
- The CFC and SFC are on par with each other in their Constitutional
mandate.
210
- While the CFC is required to address the vertical gap in resources and
expenditure responsibilities, respectively, of the Union and the States,
the SFC is required to address a similar gap between the State and the
Local Bodies.
- There is a symbiotic relationship between the CFC and SFC by virtue
of Article 280 (3) of the Constitution.
- Sharing resources between the State and local bodies is not optional,
but obligatory.
- While SFC has a critical role to play in the assured, predictable and
need-based transfer of resources from the state government to the local
bodies, the centrality of the state government in this behalf is equally
important.
Assessment of the Gap in Financial Resources.
9.2 Intergovernmental transfers are one of the principal sources of local

government revenue the world over. According to the IMF’s Government
Finance Statistics, the revenue structure of local governments (sample of 68
countries) comprised 38.8% of own revenues, 42.6% of transfers, and the balance
18.6% as other revenues, comprising social contributions, user charges and
others. In India, the corresponding averages are 42.7% as own resources, 51.6%
as transfers, and 5.7% as miscellaneous. In Punjab, local governments are
transfer-dependent, which account for 70% to 80% of the total revenues of local
governments. This underscores the need for such transfers to be predictable and
formula-based, rather than discretionary.
Logically, Divisible Pool ought to be determined by an objective

assessment of revenue resources and expenditure responsibilities of the state
government and the local bodies. However, the Commission has been seriously
handicapped in making such an assessment due to non-availability of reliable data
211
and norms relating to coverage, quality and cost of various services, the local
bodies are required to provide. This task is further compounded by the fact that,
there is no clarity about the precise services the local bodies, at different levels,
are required to provide and the state government has also not endowed them, by
law, with power and authority to do so, including raising their own revenues by
taxes, tolls and fees. Therefore, in determining the Divisible Pool of resources for
the local bodies, the Commission has been guided by (i) The recommendations
of its predecessors (ii) The comparative position in other states, (iii) The
recommendations of the 14th&15th CFCs, (iv) The state’s track record in
implementing the SFCs’ recommendations and, of course (v) The Fiscal Scenario
of the state.
For this purpose, it may also be appropriate to see this issue in the national
perspective. The annual spend of our central government is about Rs. 34 lakh
crore and of 28 state governments is about Rs. 40 lakh crore. But the 15th CFC
estimates that, our 2.5 lakh plus local bodies only spend Rs. 3.70 lakh crore
annually. This makes a compelling case for substantially scaling-up the Divisible
Pool, in a calibrated manner, having regard to a large population of un-served,
under-served and poorly served people, both in the rural and urban areas.
9.3 No doubt, the core mandate of the SFC is to recommend division of

resources between the State and Local Bodies. However, while doing so, the
Commission needs to take into account the prevailing macro-economic situation,
fiscal trends and expenditure needs of both levels of government. The covid-19-
induced uncertainties made the assessment of fiscal needs a challenging task.
Even so, the Commission has endeavored to draw up a broad fiscal scenario for
the state government (Chapter 4, para 4.24). For doing so, the Commission
discussed 5 alternative fiscal scenarios with the concerned departments of the
state government, and recommended a fiscal scenario that is neither informed by
current pessimism on the fiscal front, nor is overly optimistic, as to be unfeasible
212
of achievement. In fact, it is quite doable. Indeed, it is imperative to stem the
ever-rising tide of fiscal decline and deterioration, the state is suffering from for
more than 20 years.
As stated earlier, the core ToR of the Commission enjoins it to make

recommendations as to the principles which shall govern (i) the taxes, duties, tolls
and fees leviable by the State that should be shared between the state government
and local bodies; (ii) The taxes, duties, tolls and fees that should be assigned to
or appropriated by the local bodies; and (iii) the grants-in-aid to the local bodies.
The Commission has, therefore, kept the following principles in view while
framing its recommendations regarding (i) The Composition of Divisible Pool,
(ii) The Quantum of Divisible Pool, (iii) The division of Divisible Pool between
Panchayats and Municipalities, (iv) The inter-se distribution of the respective
local bodies, and (v) The grants-in-aid to the local bodies: -
- Adherence to the constitutional mandate and addressing the ToR within

that mandate.
- A broad assessment of resources available to the state government and
the local bodies and their respective expenditure needs.
- Ensuring assured, predictable and need-based flow of funds to the Local
Bodies.
- Promoting equity and efficiency in the distribution of resources amongst
the Local Bodies.
- Convergence of functions, funds and functionaries for the Local Bodies
to the extent possible.
- Identification of own sources of income for the Local Bodies to enable
them to perform their basic and obligatory functions.
- Optimal realization of resources and their efficient use with advanced
technology applications by the local bodies.
213
- Scope for out-sourcing delivery of services, including the PPP mode, to
better quality and to reduce costs.
- Adequate provision for and maintenance of the capital assets to keep
them in serviceable condition.
- Scope of user charges for such services whose users can be easily
identified and appropriate pricing mechanisms for them.
- Promotion of transparency, accountability and citizen participation in the
provision of services.
9.4 The following paragraphs incorporate our recommendations relating

to (i) Composition of Divisible Pool (ii) Quantum of Divisible Pool (iii) Division
of Divisible Pool between the Panchayats and Municipalities (iv) Inter-se
distribution of their respective share between the Panchayats and Municipalities
and (v) Measures to improve the finances and quality of services being provided
by the Panchayats and Municipalities.
Section-II
Composition of the Divisible Pool
9.5 The Constitution mandates the Divisible Pool of transfers of

resources from the State government to the local bodies to comprise of share in
state’s tax/non-tax revenue, assignment or apportionment of specific state taxes
to the local bodies and grants-in-aid to them from the CFS.
9.6 As noted earlier, the core task of the SFCs is to make

recommendations regarding “distribution between the State and the Local Bodies
of the net proceeds of taxes, duties, tolls and fees leviable by the State which may
be divided amongst them under Part IX and Part IX A of the Constitution and
214
allocation between them their respective shares of such proceeds” (Vertical and
Horizontal Devolution).
9.7 The composition of Divisible Pool of Resources for the Local

Bodies, as recommended by the previous 5 SFCs of Punjab, is tabulated in the
Table 9.1.
Table 9.1: Composition of Divisible Pool in Punjab
SFC and Year Composition

20% share of net proceeds of five Taxes* levied
1st SFC (1996-97 to 2000-01)
by the State
4% share of net proceeds of taxes levied by the
2nd SFC (2001-02 to 2005-06)
State.
3rd SFC (2006-07 to 2010-11) do
4th SFC (2011-12 to 2015-16) do
5th SFC (2016-17 to 2020-21) do
*These are (i) Stamp Duty, (ii) Electricity Duty (iii) Motor Vehicles Tax (iv) Entertainment Tax and
(v) Entertainment (Cinematograph shows) Tax.
Source: Reports of 1st to 5th SFCs.
9.8 From a study conducted by the National Institute of Public Finance

and Policy (NIPFP), New Delhi for the 15th CFC, it is noted that despite the core
ToR of all SFCs remaining more or less the same, SFCs have not been uniform
in their approach towards the definition of divisible or shareable pool of
resources.
9.9 In determining vertical devolution, many SFCs have recommended

devolving a share of own tax revenues of the state, while others have
recommended sharing own revenues (own tax and non-tax revenues, including
GST compensation). In another set of states, SFCs have recommended devolving
a share of total revenues of the state, including of share in central transfers and in
some states, they did not specify the Divisible Pool, but devolution was
recommended based on a gap filling approach. Thus, the Commission notes that
the composition of Divisible Pool varies considerably across SFCs, which make
215
comparison of their awards across states difficult, as is evident from the Table
9.2 given below: -
Table 9.2: Composition of Divisible Pool across Major States

Share of Net Own Share of Net Own Tax Share of Share of Own No Specific
Tax Revenue (net of Revenue (net of cost of Total Revenues Receipts Recommendation/
cost of collection collection and other taxes/ Revenues Criteria
only) charges) Receipts
1. Kerala (5th): 1. Bihar (5th): 1. Gujarat 1. Karnataka (4th): 1. Andhra Pradesh
20% of the State’s 8.5% of State’s NOTR (2nd): 48% of non-Loan (3rd):
NOTR in 2016- (net of collection cost & 10% of net own revenue Assessed the needs
17; for entertainment tax) in State’s receipt of Local Bodies to
subsequent years 2015-16 and 9% in 2016- total (NLNORR) arrive at devolution.
increase by 1% 17 to 2019-20. revenue inclusive of GST Devolution is by way
every year. 2. Chhattisgarh (2nd): receipts. compensation of per capita grants
2. Madhya Pradesh 8% of NOTR of the state but excludes 14th and assignment.
(4th): plus net of land revenue, CFC grants. 2. Himachal Pradesh
1st interim report: tax on goods and 2. Maharashtra (5th):
5% of the State’s passengers and other (4th): Adopted a gap filling
NOTR for 2015- taxes on commodities At least 40% of approach. Funds to
16; 2nd& final and services. state’s own tax be devolved derived
interim report: 7.5 3. Haryana (5th): and non-tax by including salaries
% of State's 7% of State’s own tax revenue. of staff, honorarium
NOTR (90%) for revenue, net of cost of 3. Uttar Pradesh of members, office
remaining 4 years. collection, VAT and 2% (4th): expenses, TA/DA
3. Punjab (5th): of Stamp Duty and 15% of State’s expenses.
4% of NOTR of Registration Fees tax and non-tax
the State. collected on behalf of revenues (net of
4. Tamil Nadu urban bodies. collection cost).
(5th): 4. Odisha (4th):
10% of State’s 3% of NOTR of the State
own tax revenue and net of entry tax,
2017-22 (SOTR- motor vehicle tax and
net of surcharge entertainment tax.
on stamp Duty of 5. Rajasthan (4th):
RLBs/ULBs and 5% of State’s NOTR and
other surcharges. net of entry tax and land
5. West Bengal revenue. In addition,
(4th): 100% of land revenue,
2.5% of State’s own 25% of entry tax, 3% of
tax revenue. royalty on minerals, 2%
cess on excise duty and
10% surcharge on stamp
duty also to be devolved.
Original Source: SFC Reports of respective States.
Source: Gupta, Munish and Chakraborty, Pinaki (30-April 2019), State Finance Commissions: How
successful have they been in Empowering Local Governments? NIPFP Working Paper Series
No. 263.
9.10 Back home in Punjab, the Divisible Pool of resources for the Local
Bodies is comprised of 4% share of net own tax revenue of the State (from 2 nd
SFC to 5th SFC) and a share in excise duty and auction money. Besides, ULBs
have been provided funds by way of compensation for loss of revenue due to
abolition of Octroi in 2006 including Octroi on liquor, electricity, petrol and
216
diesel. Compensation to ULBs for loss of revenue and their share in the Divisible
Pool of resources stand on a different footing and ought to be treated differently.
The Commission is of the considered view that, while the share in Divisible Pool
is in the nature of inter-governmental transfers, compensation is the own revenue
of the ULBs, which they had to forgo, consequent upon abolition of Octroi, and
the Commission has treated the same accordingly.
9.11 As observed earlier, the composition of the Divisible Pool of

Resources for the Local Bodies is not only different across SFCs, but it is also
riven by ambiguity and lack of clarity. The Commission will, therefore, like to
clarify the position in this behalf as follows:
- Even though the ToR permits net proceeds of both own tax revenues and
non-tax revenues to be a part of shareable pool of resources, SFCs have
included share of net proceeds of only own tax revenues and other SFCs
have included not only the total revenues of their respective states, but also
their share of central taxes in the definition of the Divisible Pool. It is
clarified that as per ToR and the constitutional provisions on the subject,
the definition of Divisible Pool includes net proceeds of both the states own
tax and non-tax revenues.
- As per ToR, the shareable pool of resources comprises of three elements,
namely, (i) sharing of state’s own tax and non-tax revenues; (ii) taxes,
duties, tolls and fees which may be assigned to or appropriated by the Local
Bodies; and (iii) Grants-in-aid to the Local Bodies from the Consolidated
Fund of the State. However, most SFCs, including Punjab, have included
only (i) above in the shareable pool. However, these elements are contra-
distinct and serve different purposes. While the sharing of tax revenues of
the state by local bodies is aimed at mitigating the vertical imbalance
between their sources of revenue and expenditure responsibilities, the
assignment or apportionment is aimed at placing at the disposal of Local
217
Bodies revenue handles, which, in the past were in their domain, but were,
over a period of time, taken over by the state government. The grants-in-
aid can be used for putting in place a regimen of incentives to reward
performance in specified areas/sectors. Doing so will also impart flexibility
to the shareable Pool of Resources. Therefore, all the above three elements
are being considered for determining the composition of the Divisible Pool.
- In case of Punjab, ULBs are being compensated for loss of revenue due to
abolition of Octroi in 2006. Such transfer of funds to the ULBs should not
form part of the shareable pool. Therefore, shareable pool will be net of the
compensatory payments as at present, as also in the future.
- State’s own net tax revenues ought to be inclusive of it’s share in IGST and
compensation for loss of revenue due to introduction of GST, and will
include net proceeds of new tax and non-tax levies that may be imposed
during the period of the 6th SFC.
9.12 In view of the foregoing discussion, the Commission will like to

recommend as under in regard to the composition of the Divisible Pool.
Recommendations
- As provided by the Constitution, the composition of the Divisible Pool may

include all the three elements viz (i) sharing of own tax revenues; (ii)
assigning to or appropriation of the state’s own tax revenues, by the Local
Bodies and (iii) grants-in-aid to the Local Bodies.
- Weights accorded to the different elements will be at the discretion of the
relevant SFC.
- If composition of Divisible Pool includes sharing net OTR of the state
government, the same will be as per the following formula: -
Shareable Net Own Tax Revenue (t) = Gross Own Tax Revenue,
including share in the IGST and Compensation for loss of revenue
218
due to the GST (t-1) – Actual Cost of Tax Collection (t-1) –
Compensatory Payments for revenue loss of ULBs on account of
Abolition of Octroi (t-1).
Note: 1. These tax revenues presently mean gross tax revenue from GST, Stamp
Duty, Registration Fee, State Excise Duty, VAT/Sales Tax (POL),
Vehicles Tax, Electricity Duty/Tax, Land Revenue and other taxes
and duties (Entertainment Tax, Luxury Tax, Betting Tax etc.).
2. (t) stands for current year (e.g., 2021-22) and t-1 stands for previous
year (e.g., 2020-21).
- The present and future compensatory payments to local bodies for loss of
revenue due to policy decisions of the state government, will not form part
of the Divisible Pool and shall be treated as own resource of the local
bodies.
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
- Section-III
Quantum of Divisible Pool (Vertical Devolution)
9.13 The rationale behind transfer of resources from the state government
to the local bodies is to correct the imbalance between their sources of revenue
and functions they are required to perform. Ideally, this should be based on the
normative assessment of their resources and expenditure responsibilities.
However, for reasons already recorded, the Commission is seriously handicapped
in doing so. Primarily, it is due to the missing benchmarks of revenue/
expenditure and reliable data in this behalf. Therefore, apart from the principles
stated at para 9.3, the Commission has been specifically guided by parameters at
para 9.2 ante in determining the quantum of Divisible Pool. These are tabulated
in following Tables.
219
Table 9.3: Quantum of Divisible Pool in Punjab (1st SFC to 5th SFC)
Quantum of Divisible Pool
Money@
Net Own
Recomm
Receipts
Recomme
Share of
Share of
Amount
Auction
SFC/Time Period
Duty &
Amount
Excise
ended
Tax
nded
i. 10% of Add. Excise Duty on
Country Liquor (April 01,1997);
1st SFC 20% Share ii. 16% of the Add. Excise Duty on
540.48** 509.5
(1996-97 to 2000-01) of 5 Taxes* IMFL;
iii. 7% of Auction Money from
liquor vends.
i. 16% of Additional Excise Duty on
2nd SFC IMFL & Beer;
4% Share 1217.32 616.48
(2001-02 to 2005-06) ii. 10% of Auction Money from
liquor vends.
3rd SFC
4% Share 2150.90 - do - 724.43
(2006-07 to 2010-11)
4th SFC
4% Share 5218.00 - do - 1286.24
(2011-12 to 2015-16)
5th SFC
4% Share 7274.00 - do - 1474.81
(2016-17 to 2020-21)
@Distribution be in the proportion to collections from the respective areas. *These are Stamp duty, Motor Vehicle tax,
Electricity Duty, Entertainment Tax & Cinematography Shows. ** Actual amount collected from these five taxes.
Source: Reports of 1st SFC to 5th SFC and Department of Finance, Punjab.
Table 9.3(A): Recommended Divisible Pool, Actual Amount Due and Actual Release
of Funds to Local Bodies in Punjab (1st SFC to 5th SFC)
(Rs. Crore)
Share of Net Own
Tax Receipts
Shortfall (Col. 4
Actual Amount
OTR - Accounts)
Actual Release
Due (as per Net
Recommended
minus Col. 5)
(4% Share of
SFC/Time Period
Due as
NOTR)
Amount
%age
1 2 3 4 5 6 7
1st SFC 20% Share
540.48 # 540.48 # 159.67 380.81 70.46
(1996-97 to 2000-01) of 5 Taxes*
2nd SFC
4% Share 1217.32 1277.05 235.71 1041.34 81.54
(2001-02 to 2005-06)
3rd SFC
4% Share 2150.90 2313.97 92.91 2221.06 95.98
(2006-07 to 2010-11)
4th SFC
4% Share 5218.00 4629.12 6.35 4622.77 99.86
(2011-12 to 2015-16)
5th SFC
4% Share 7274.00 5902.24 7.00 5895.24 99.88
(2016-17 to 2020-21)
*These are Stamp duty, Motor Vehicle tax, Electricity Duty, Entertainment Tax & Cinematography Shows. #1 st SFC did not
estimated the recommended amount of Divisible Pool, these are the account accounts figures collected from these 5 taxes.
220
Table 9.3(B): Recommended Amount and Actual Release of Share of Excise Duty &
Auction Money to Local Bodies in Punjab (1st SFC to 5th SFC)
(Rs. Crore)
Shortfall
Recommended
Actual Release
Share of Excise Duty & Auction (Col. 3 - Col. 4)
Amount
SFC/Time Period
Money@
Amount
%age
1 2 3 4 5 6
i. 10% of Add. Excise Duty on Country

Liquor (April 01,1997);
1st SFC
ii. 16% of the Add. Excise Duty on 509.50 337.02 172.48 33.85
(1996-97 to 2000-01)
IMFL; and iii. 7% of Auction Money
from liquor vends.
i. 16% of Additional Excise Duty on
2nd SFC IMFL & Beer;
616.48 596.26 20.22 3.28
(2001-02 to 2005-06) ii. 10% of Auction Money from liquor
vends.
3rd SFC
- do - 724.43 724.43 0.00 0.00
(2006-07 to 2010-11)
4th SFC
- do - 1286.24 849.62 436.62 33.95
(2011-12 to 2015-16)
5th SFC
- do - 1474.81 1071.21 403.60 27.37
(2016-17 to 2020-21)
@Distribution be in the proportion to collections from the respective areas.
Table 9.3 (C): Total Recommended Devolution*, Actual Due, Actual

Released and Shortfall in Punjab (1st SFC to 5th SFC)
(Rs. Crore)
Shortfall
SFC/Time Period
Recommended Amount Actual Release (Col. 2 - Col. 3)
Amount %age
1 2 3 4 5
1st SFC
1049.98 496.69 553.29 52.70
(1996-97 to 2000-01)
2nd SFC
1833.80 831.97 1001.83 54.63
(2001-02 to 2005-06)
3rd SFC
2875.33 817.34 2057.99 71.57
(2006-07 to 2010-11)
4th SFC
6504.24 855.97 5648.27 86.84
(2011-12 to 2015-16)
5th SFC
8748.81 1078.21 7670.60 87.68
(2016-17 to 2020-21)
Note: Total Recommended Devolution includes (i) 4% share of NOTR; and (ii) share of additional
excise duty and auction money from liquor.
221
Table 9.4: CFCs’ Recommended Grants-in-Aid, Actual Release and Shortfall in Punjab
(10th CFC to 15th CFC (2020-21)
CFC and Grants-in-Aid Recommended by CFCs (Rs. Crore)

Time Grants Actual %age Conditions Applied for Utilization of Grants- Reason for
Period Shortfall
Recommended Release Shortfall in-Aid Shortfall*
10th CFC i. Provide matching contribution by raising i. Punjab govt.
(1995-96 resources at the level of local bodies. did not send
133.95 62.42 71.53 53.40
to 1999- ii. Grant not to be used for payment of UC in time.
2000) wages/salaries.
i. Grants’ release linked to maintaining
accounts & audit, developing financial i. Pending grant
database; and efforts of the local bodies to of 10th CFC
raise own revenues released
11th CFC
ii. Use of grants linked to maintenance of core during 11th
(2000-01
209.35 300.36 +91.01 +43.47 services (such as primary education, primary CFC period.
to 2004-
health care, safe drinking water, street ii. State was
050
lighting, sanitation, and public conveniences, unable to send
etc.). UC in time,
iii. Grants not to be used for paying
wages/salaries;
i. First priority of grants’ utilization was given
to the creation of financial database and Punjab was unable
maintenance of accounts of local bodies. to send the UC in
12th CFC
ii. For Panchayats, grants for improving water time for availing
(2005-06 105.17
495.00 389.83 21.23 supply & sanitation with O&M cost recovery grants-in-aid due
to 2009-
(50% recovery by user charges; to non-compliance
10)
iii. For ULBs, grants for the solid waste of conditions.
management –PPP mode and GIS mapping,
etc.
i. Grants to the
local bodies
i. Recommends grants to local bodies as a
were part of
specified %age of divisible pool;
Divisible Pool
ii. Introduce the Performance Grants;
13th CFC realized during
iii. For accessing these grants, PRIs have to fulfil
(2010-11 1367.5 the previous
1753.73 386.18 22.02 6 conditions and ULBs 9 conditions;
to 2014- 5 year.
iv. All these conditions have to be met in each
15) ii. Conditions for
year of award period;
assessing
v. 4 conditions are to fulfil for getting special
performance
area basic and performance grants.
grants were
not fulfilled.
14th CFC (2015-16 to 2019-20)
i. Recommends the basic and performance
2015-16 677.10 675.67 1.44 0.21
grants to duly constituted Panchayats/
1027.5 Municipalities;
2016-17 1114.00 86.47 7.76 ii. Out of the PRIs grants, weightage of basic
3
1150.0 grant (90%) and of performance grant (10%); i. No
2017-18 1282.94 132.86 10.36 iii. Out of the ULBs grants, weightage of basic performance
8
grant (80%) and of performance grant (20%); grant was
2018-19 1479.89 810.03 669.86 45.26 iv. For getting performance grant, PRIs and ULBs allocated
must show an increase in their own source during 2015-
1686.2 revenue and also submit audited annual 16.
2019-20 1990.16 303.92 15.27
4
accounts; ii. Conditions for
v. The ULBs, in addition, have to publish service release of
level benchmarks of basic urban services each performance
year; grants were
5349.5 vi. Panchayats have to complete GP development not fulfilled.
Total 6544.09 1194.55 18.25 plan, display sector-wise expenditure on a
5
dashboard and assigning score/s to GP by
viewing (a) %age increase in their own source
of revenue, (b) ODF status, and (c) level of
immunisation of GP.
15th CFC (Interim Report for 2020-21
2020- 2056.0
2056.00 2056.00** 100.00 i. No Condition was imposed. No Shortfall.
21Year 0
*Extracted from the Reports of respective CFCs. **Oral information provided by the concerned officials on
mobile.
Source: Reports of CFCs, SFCs and Finance Department, Punjab.
222
Table 9.5: Total Recommended Devolution by SFCs of Different States (Rs. Crore)
Year and Rank Average
S. 2015-
No States 2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017- 2018- 2019- 2010-11 16 to
. R R R R R R R R R R R R
11 12 13 14 15 16 17 18 19 20 to 2014- 2019-
15 20
1 AP (3rd) 2112.28 7 2112.28 6 2112.28 6 2112.28 6 2112.28 6 - - - - - - - - - - 2112.28 6 - -
Bihar (3rd- 1 1 1 1 1
2 482.69 542.02 608.58 683.24 766.97 12 2475.00 6 3230.00 5 3985.00 4 4930.00 4 6105.00 4 616.70 4145.00 5
4th-5th) 2 2 2 2 3
Chhattisga 1 1 1 1 1
3 472.48 556.16 866.36 993.94 9 1138.07 9 1303.08 9 1492.03 8 - - - - - - 805.40 1397.56
rh (1st-2nd) 3 1 1 1 0
Gujarat
4 2544.75 6 - - - - - - - - - - - - - - - - - - - - -
(2nd)
Haryana 1 1 1 1 1 1
5 654.25 499.79 595.10 705.22 819.64 11 953.37 1932.00 7 2182.00 6 2465.00 6 2785.50 6 654.80 2063.57 8
(3rd-4th-5th) 1 3 3 1 1 2
HP (3rd- 1 1 1 1 1 1 1 1 1 1 1
6 94.15 100.93 126.03 131.37 178.77 13 191.05 231.73 254.90 317.03 345.31 126.25 268.00
4th-5th) 5 4 4 3 3 2 0 0 0 4 3
Karnataka 13846.0 15768.0 17961.0 23964.0 28276.0 31884.0 36588.0 41119.0 43221.0 47346.0 19963.0 40031.6
7 1 1 1 1 1 1 1 1 1 1 1 1
(3rd-4th) 0 0 0 0 0 0 0 0 0 0 0 0
Kerala 10105.9 11850.4 13868.5 10363.1
8 3001.00 5 3827.21 5 4746.99 5 5631.62 4 6490.58 4 7391.27 7 8599.48 3 2 2 2 4739.48 5 3
(3rd-4th) 4 4 9 4
th
9 MP (4 ) - - - - - - - - - 1955.15 7 3225.98 6 3546.63 5 3903.45 5 4293.75 5 - - 3384.99 7
Maharasht 12500.0 11281.6 13181.9 12321.2
10 2 2 2 - - - - - - - - - - - - - - 2 - -
ra (3rd) 0 7 4 0
Odisha 1 1 1 1
11 896.17 9 896.17 8 896.17 9 896.17 896.17 10 658.37 658.37 658.37 9 658.37 9 658.37 9 896.17 9 658.37
(2nd-3rd-4th) 0 2 1 2
Punjab
1 1 1 1 1
12 (3rd-4th- 430.18 801.00 906.00 8 1027.00 8 1164.00 8 1320.00 8 1242.00 1339.00 8 1445.00 8 1561.00 8 865.64 1381.40
4 0 0 0 1
5th)
Rajasthan
13 1330.64 8 1714.62 7 2098.47 7 2278.91 5 2761.32 5 3271.81 5 3689.66 4 - - - - - - 2036.79 7 3480.70 6
(3rd-4th)
TN (3rd- 10062.2 11148.1 10051.2 11425.2 12796.2 11096.6
14 3929.83 4 4467.39 3 6360.82 3 7408.22 3 8631.91 2 2 2 2 3 3 6159.63 4 2
4th-5th) 5 9 2 2 5 0
UP (3rd-
15 4383.49 3 4208.87 4 6244.65 4 9777.72 2 8139.48 3 9630.07 3 - - - - - - - - 6550.84 3 9630.07 4
4th)
WB (3rd- 1 1 1
16 896.00 896.00 9 896.00 1123.93 7 1258.80 7 1103.80 1269.37 9 1459.77 7 1678.74 7 1930.55 7 1014.15 8 1488.45 9
4th) 0 0 0
No. of States
15 States 14 States 14 States 13 States 13 States 13 States 12 States 10 States 10 States 10 States 14 States 13 States
Ranked
Total of All
43644.1 47672.1 57600.4 56733.6 62634.0 72199.2 73306.8 74701.8 81894.3 91690.3
Ranked States 58862.3 89389.5
Average 2909.6 3405.2 4114.3 4364.1 4818.0 5553.8 6108.9 7470.2 8189.4 9169.0 4204.5 6876.1
Source: Chakraborty, P, Gupta, M. and Singh, R. K. (October 2018), Overview of State Finance Commissions, National Institute of Public Finance and Policy (NIPFP) New Delhi.
223
Table 9.6: Recommended Devolution as Percent of States' Own Revenue Receipt
Sr. 2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017- 2018-
States R R R R R R R R R
No 11 12 13 14 15 16 17 18 19
1 AP (3rd) 3.78 9 3.25 11 2.78 10 2.65 11 5.55 5 - - - - - - - -
rd th th
2 Bihar (3 -4 -5 ) 4.45 7 4.01 7 3.50 9 3.18 9 3.44 9 8.96 5 12.35 3 11.43 3 13.91 3
3 Chhattisgarh (1st 2nd) 3.68 10 3.77 9 4.91 6 5.11 5 5.51 6 5.85 7 6.06 6 - - - -
nd
4 Gujarat (2 ) - - - - - - - - - - - - - - - - - -
5 Haryana (3rd-4th-5th) 3.24 11 1.99 12 2.11 12 2.31 12 2.54 12 2.67 10 4.80 8 3.92 6 4.08 6
rd th th
6 HP (3 -4 -5 ) 1.86 13 1.68 13 2.10 13 1.90 13 2.23 13 2.24 12 2.65 10 2.68 9 3.10 8
7 Karnataka (3rd-4th) 33.10 1 31.18 1 31.12 1 35.96 1 37.77 1 39.41 1 41.23 1 44.49 1 41.56 1
8 Kerala(3rd-4th) 12.69 2 13.52 2 13.85 2 14.99 2 15.27 2 15.59 2 16.58 2 16.69 2 16.26 2
th
9 MP (4 ) - - - - - - - - - - 4.01 9 6.05 7 6.35 5 5.95 5
10 Maharashtra (3rd) - - - - - - - - - - - - - - - - - -
nd rd th
11 Odisha (2 -3 -4 ) 5.61 5 4.51 6 3.88 7 3.55 8 3.21 10 2.11 13 2.13 12 1.85 10 1.69 10
12 Punjab (3rd-4th-5th) 1.94 12 3.96 8 3.59 8 3.77 7 4.09 8 4.50 8 3.70 9 3.30 7 2.74 9
rd th
13 Rajasthan (3 -4 ) 4.92 6 4.96 5 4.92 5 4.84 6 5.32 7 6.10 6 6.59 5 - - - -
14 TN (3rd-4th-5th) 7.49 4 6.85 3 8.17 4 8.92 4 9.92 3 11.26 3 11.63 4 9.85 4 10.27 4
rd th
15 UP (3 -4 ) 8.34 3 6.71 4 8.79 3 11.78 3 8.65 4 9.24 4 - - - - - -
16 WB (3rd-4th) 3.81 8 3.41 10 2.58 11 2.97 10 3.07 11 2.49 11 2.62 11 3.00 8 3.45 7
No. of State Ranked 13 States 13 States 13 States 13 States 13 States 13 States 12 States 10 States 10 States
All State Average 9.69 9.65 9.93 11.00 11.20 11.42 12.84 13.57 13.21
All State Average (without
7.69 7.13 7.54 7.24 7.06 7.43 7.81 7.60 7.71
Karnataka)
Source: Gupta, Munish and Chakraborty, Pinaki (30-April 2019), State Finance Commissions: How successful have they been in Empowering Local Governments?
NIPFP Working Paper Series No. 263.
224
Table 9.7: Recommended Devolution as Percent of States' Own Tax Revenue
Sr. States
2010-11 R 2011-12 R 2012-13 2013-14 R 2014-15 R 2015-16 R 2016-17 R 2017-18 R 2018-19 R
No
1 AP (3rd) 4.68 9 3.96 10 3.53 10 3.29 10 4.92 7 - - - - - - - -
2 Bihar (3rd-4th-5th) 4.89 8 4.30 8 3.74 9 3.42 9 3.70 10 9.73 5 13.60 3 12.45 3 15.90 3
3 Chhattisgarh (1st 2nd) 5.25 7 5.19 7 6.65 6 6.93 5 7.25 5 7.63 7 7.88 - - - - -
4 Gujarat (2nd) - - - - - - - - - - - - - - - - - -
5 Haryana (3rd-4th-5th) 3.90 11 2.45 13 2.53 13 2.76 12 2.97 13 3.08 10 5.68 8 4.88 6 5.02 6
6 HP (3rd-4th-5th) 2.80 12 2.46 12 2.72 12 2.57 13 3.01 12 2.85 12 3.29 10 3.45 8 3.84 7
7 Karnataka (3rd-4th) 35.99 1 33.93 1 33.41 1 38.28 1 40.29 1 42.20 1 44.11 1 48.04 1 45.11 1
8 Kerala(3rd-4th) 13.82 2 14.88 2 15.78 2 17.60 2 18.42 2 18.95 2 20.39 2 20.70 2 20.23 2
9 Maharashtra (3rd) - - - - - - - - - - - - - - - - - -
10 MP (4th) - - - - - - - - - - 4.86 9 7.30 7 7.65 5 7.14 5
11 Odisha (2nd-3rd-4th) 8.01 5 6.67 6 5.96 7 5.31 7 4.52 9 2.92 11 2.88 11 2.48 10 2.31 10
12 Punjab (3rd-4th-5th) 2.56 13 4.25 9 4.01 8 4.27 8 4.55 8 4.95 8 4.48 9 3.77 7 3.52 9
13 Rajasthan (3rd-4th) 6.41 6 6.76 5 6.88 5 6.81 6 7.14 6 7.66 6 8.32 - - - - -
14 TN (3rd-4th-5th) 8.22 4 7.51 4 8.93 4 10.05 4 10.97 3.5 12.50 3 12.97 4 11.01 4 11.43 4
15 UP (3rd-4th) 10.00 3 8.00 3 10.75 3 14.69 3 10.97 3.5 11.87 3 - - - - - -
16 WB (3rd-4th) 4.24 10 3.59 11 2.73 11 3.14 11 3.19 11 2.60 13 2.79 12 3.21 9 3.71 8
No. of Ranked States 13 States 13 States 13 States 13 States 13 States 13 States 12 States 10 States 10 States
All State Average 11.59 11.18 11.53 13.08 13.19 13.43 15.02 15.85 15.66
All State Average
9.17 8.33 8.84 8.77 8.45 8.87 9.29 9.01 9.31
(Without Karnataka)
Source: Gupta, Munish and Chakraborty, Pinaki (30-April 2019), State Finance Commissions: How successful have they been in Empowering Local Governments?
NIPFP Working Paper Series No. 263
225
Table 9.8: Per Capita Devolution Recommended by SFCs (Rs.)
Sr. Average of
No 2010- 2015-
2010- 2011- 2012- 2013- 2014- 2015- 2016- 2017- 2018- 2019-
States R R R R R R R R R R 11 to 16 to
11 12 13 14 15 16 17 18 19 20 R R
2014- 2019-
15 20
1 AP (3rd) 428.12 6 425.16 5 421.47 5 417.93 5 414.51 5 - - - - - - - - - - 250.19 11 - -
rd th th
2 Bihar (3 -4 -5 ) 49.66 15 55.02 14 60.99 14 67.62 13 75.01 13 221.24 11 284.24 10 345.22 8 420.44 8 512.55 6 61.82 15 359.00 11
Chhattisgarh (1st -
3 188.99 11 218.10 8 333.22 6 375.07 6 421.51 4 474.02 4 534.15 5 - - - - - - 309.77 7 504.32 5
2nd)
4 Gujarat (2nd) 433.50 5 - - - - - - - - - - - - - - - - - - 433.50 5 - -
rd th
Haryana (3 -4 -
5 258.90 7 194.58 11 228.02 10 266.02 9 304.51 9 352.58 8 704.52 4 784.55 4 873.90 4 973.68 4 250.92 10 741.81 4
5th)
rd th th
6 HP (3 -4 -5 ) 139.13 13 146.25 12 180.79 12 186.56 11 259.06 10 267.31 9 321.00 9 349.99 7 431.45 7 465.82 8 182.54 13 368.04 10
Karnataka (3rd-
7 2340.04 1 2564.65 1 2889.90 1 3814.28 1 4452.21 1 4966.28 1 5637.60 1 6267.57 1 6516.94 1 7061.93 1 3228.80 1 6101.04 1
4th)
8 Kerala(3rd-4th) 900.17 3 1142.38 2 1410.02 2 1664.58 2 1909.89 2 2164.16 2 2505.53 2 2929.77 2 3418.46 2 3980.77 2 1407.86 2 3004.26 2
th
9 MP (4 ) - - - - - - - - - - 251.82 10 409.49 8 443.68 5 481.25 5 521.70 5 - - 423.37 9
Maharashtra
10 1115.65 2 997.03 3 1151.25 3 - - - - - - - - - - - - - - 1088.14 3 - -
(3rd0
Odisha (2nd-3rd-
11 215.05 9 212.24 9 209.45 11 206.70 10 203.98 11 149.76 12 148.25 11 146.76 10 145.29 10 143.84 10 209.41 12 146.75 13
4th)
Punjab (3rd-4th-
12 148.16 12 270.87 6 304.07 7 338.42 7 376.60 8 448.25 6 416.30 7 443.01 6 471.90 6 503.19 7 289.21 9 456.96 7
5th)
Rajasthan (3rd-
13 197.42 10 250.43 7 301.86 9 322.98 8 385.79 6 446.94 7 496.86 6 - - - - - - 293.04 8 472.08 6
4th)
14 TN (3rd-4th-5th) 584.16 4 659.90 4 933.95 4 1081.48 3 1253.16 3 1336.84 3 1467.49 3 1289.47 3 1443.97 3 1593.57 3 904.60 4 1427.74 3
15 UP (3rd-4th) 219.89 8 207.51 10 302.68 8 466.05 4 381.65 7 449.53 5 - - - - - - - - 317.52 6 449.53 8
16 WB (3rd-4th) 100.50 14 99.57 13 98.68 13 122.71 12 136.25 12 115.54 13 131.55 12 149.79 9 170.55 9 194.19 9 111.71 14 152.72 12
No. of States Ranked 15 States 14 States 14 States 13 States 13States 13 States 12 States 10 States 10 States 10 States 15 States 13 States
All State Average 490.20 510.43 612.62 682.74 748.02 794.81 1041.15 1221.59 1324.49 1465.27 597.62 1136.10
All State Average
361.48 362.19 448.61 423.29 441.82 486.44 590.85 639.12 722.80 817.90 405.12 635.12
(without Karnataka)
Max. 2340.04 2564.65 2889.90 3814.28 4452.21 4966.28 5637.60 6267.57 6516.94 7061.93 3228.80 6101.04
Min. 49.66 55.02 60.99 67.62 75.01 115.54 131.55 146.76 145.29 143.84 61.82 146.75
FC Local Body Grants 70.12 106.23 153.81 179.17 208.70 237.69 381.68 433.20 492.48 652.76 144.68 442.33
Source: Gupta, Munish and Chakraborty, Pinaki (30-April 2019), State Finance Commissions: How successful have they been in Empowering Local Governments? NIPFP
Working Paper Series No. 263.
226
Table 9.9: Devolution Recommended by Different Punjab SFCs and All-States Average
Punjab All States Average*

Devolution as % Share of Per Capita Devolution as % Share of
Per Capita
SFC Year Own Devolution Own
Devolution Own Tax Own Tax
Revenue (Rs.) Revenue
(Rs.) Receipts Receipts
Receipts Receipts
2010-11 241.36 2.98 3.93 490.20 9.69 11.59
2011-12 288.72 3.96 4.25 510.43 9.65 11.18
2012-13 322.24 3.59 4.01 612.62 9.93 11.53
4th 2013-14 360.43 3.77 4.27 682.74 11.00 13.08
2014-15 403.06 4.09 4.55 748.02 11.20 13.19
2015-16 450.96 4.50 4.95 794.81 11.42 13.43
2016-17 418.60 3.70 4.48 1041.15 12.84 15.02
2017-18 445.20 3.85 4.40 1221.59 13.57 15.85
5th 2018-19 473.92 3.69 4.58 1324.49 13.21 15.66
2019-20 504.99 4.56 5.26 1465.27 na na
2020-21 538.28 3.89 4.78 na na na
*Source: a. Gupta, Munish and Chakraborty, Pinaki (30-April 2019), State Finance Commissions: How successful have they
been in Empowering Local Governments? NIPFP Working Paper Series No. 263.
b. Prepared by the Commission from the data available in the Reports of 4th and 5th SFCs and Finance Department,
Punjab.
Table 9.10: Ranking of States by Devolution Index (2014-15) and Average Per Capita SFC
Devolution (2011-16)
Ranking of States by Different Criteria of Devolution Ranking of Average Per
Index Capita SFC Devolution
States
2019-20
Functio
Functio
Aggreg
Financ
naries
Index
2015-
2014-
2010-
16to
11to
ate
T*
IG
15
es
n
Andhra Pradesh 8 11 6 16 11 8 --
Assam 15 15 12 17 17 16 11
Bihar 6 4 4 16 8 19 14
Chhattisgarh 13 13 6 13 13 10 7
Gujarat 2 9 5 4 3 7 --
Haryana 10 11 1 13 10 13 6
Himachal Pradesh 16 8 11 8 14 15 13
Karnataka 9 10 2 3 5 1 1
Kerala 1 1 2 1 1 2 2
Madhya Pradesh 5 8 4 10 7 -- 12
Maharashtra 3 4 5 5 2 3 --
Manipur 18 9 16 21 19 5 5
Odisha 14 12 13 15 15 14 17
Punjab 17 15 15 20 18 12 9
Rajasthan 6 7 8 11 9 11 8
Sikkim 4 2 7 6 4 20 15
Tamil Nadu 11 3 2 9 9 4 3
Tripura 14 7 7 7 12 17 --
Uttar Pradesh 8 11 3 18 11 9 10
Uttarakhand 12 5 11 18 12 6 4
West Bengal 6 14 4 2 5 18 16
*IGT stands for Infrastructure, Governance and Transparency.
Source: Data of Columns 2-6 taken from Devolution Report 2015-16, Tata Institute of Social Science, Mumbai;
Rank in Columns 7-8 based on Average Per Capita Recommended Devolution taken from Overview of
State Finance Commissions (2018), National Institute of Public Finance and Policy (NIPFP) New Delhi, p.
30.
227
9.14 Following are the main takeaways from the data presented in the
foregoing Tables:
- Both in absolute and relative terms, devolution of funds by our state

government to the local bodies is one of the lowest among major states of
the country. Punjab's devolution at Rs. 1381.4 crore, compares poorly with
highest of Karnataka at Rs. 40,031.6 crore and all states' average at Rs.
6876.1 crore during the period of 2015-16 to 2019-20 (Table 9.5).
- Even in per capita terms, Punjab's devolution at Rs. 456.96 pales into
insignificance against the highest of Karnataka at Rs. 6101.04 and all states'
average at Rs. 1136.10 (Table 9.8).
- Even though CFCs' devolution to local bodies has been consistently rising
(Table 9.4), the state’s devolution has been falling, virtually becoming zero
for the period covered by the 4th and 5th SFC (Table 9.3, 9.3A, 9.3B and
9.3C).
- The state government has even failed to fully avail of the grants for local
bodies recommended by CFCs because of its failure to comply with the
conditions attached to them. For instance, the cumulative shortfall in this
behalf during 14th CFC is Rs. 1194.55 crores. In the current context, it is
even more important to address this issue, in view of stiffer entry and
performance level conditions attached to grants for the local bodies by the
15th CFC (Table 9.4).
- Punjab's lowest rank among states in the Integrated Devolution Index

compiled by NIPFP is an avoidable embarrassment. It shows state’s poor
performance on all indices folded into the Integrated Index (Table 9.10).
228
Poor Implementation of Recommendations of SFCs.
9.15 So far, we have viewed the performance of the State in terms of

financial devolution recommended by the previous SFCs, relative to the SFCs
of other states, as also their comparative per capita devolution and, have
concluded that Punjab is virtually at the bottom of the pyramid. However, the
position is much worse, when viewed in terms of implementation of the
recommendations of SFCs and actual release of funds. The same is tabulated
below:
Table 9.11: Recommended Divisible Pool, Actual Amount Due and Actual Release
of Funds to Local Bodies in Punjab (1st SFC to 5th SFC)
(Rs. Crore)
Share of Net Own
Tax Receipts
Actual Amount
OTR - Accounts)
Shortfall (Col. 4
Actual Release
Due (as per Net
Recommended
(4% Share of
minus Col. 5)
Due as
NOTR)
SFC/Time Period
Amount
%age
1 2 3 4 5 6 7
1st SFC 20% Share
540.48 # 540.48 # 159.67 380.81 70.46
(1996-97 to 2000-01) of 5 Taxes*
2nd SFC
4% Share 1217.32 1277.05 235.71 1041.34 81.54
(2001-02 to 2005-06)
3rd SFC
4% Share 2150.90 2313.97 92.91 2221.06 95.98
(2006-07 to 2010-11)
4th SFC
4% Share 5218.00 4629.12 6.35 4622.77 99.86
(2011-12 to 2015-16)
5th SFC
4% Share 7274.00 5902.24 7.00 5895.24 99.88
(2016-17 to 2020-21)
*These are Stamp duty, Motor Vehicle tax, Electricity Duty, Entertainment Tax & Cinematography Shows. SFC did not #1 st
estimated the recommended amount of Divisible Pool, these are the account accounts figures collected from these 5 taxes.
9.16 We have scanned the ATR's presented by some major States to their
respective Legislatures, with a view to assess the status of implementation of the
recommendations of their SFCs. The same is presented at Annexure-9A.
9.17 A perusal of the foregoing presentation reveals that most of the states
have followed a healthy convention of at least accepting core recommendations
of their SFCs relating to financial devolution and stated reasons for non-
229
acceptance of the others. However, in case of Punjab, the state government either
did not release or partially released the funds even after acceptance of the
recommendations of the SFCs. However, the state's ATR in respect of the 5thSFC
only summarizes the recommendations and does not indicate the action taken
thereon, which is not compliant with Articles 243-I(4) and 243-Y(2) of the
Constitution of India. Even the ATR on the recommendations of this
Commission's report for 2021-22 at Annexure-6C is not compliant with Articles
243-I(4) and 243-Y(2) of the Constitution, as it does not indicate the final
decision of the state government on the Commission’s recommendation relating
to devolving 4% of state’s own net tax revenue to the local bodies.
9.18 It also transpires that one of the stated or unstated reasons by the
states for non-acceptance of recommendations of their respective SFCs is the
financial stringency faced by them. Such a reason is not acceptable, as the
Constitutional provisions governing the SFC are the same as that of the CFC, and
the Union government has never invoked financial stringency as a reason for non-
acceptance of the recommendations of the CFC. In any case, financial stringency
faced by the State must be equitably shared by all stakeholders, rather than by
local bodies alone, being a soft target.
9.19 The foregoing analysis makes a strong case for substantially

increasing the quantum of shareable pool for the local bodies. The fact that
Punjabis are historically used to enjoying better infrastructure and civic
amenities, further strengthens this argument. However, we are somewhat
restrained from doing so, having regard to the current financial difficulties being
faced by the state government. But it may be equally wrong to colour our
recommendations in the rear-view mirror of state’s current fiscal position and its
past performance. We have, therefore, adopted the proverbial middle path and
have accordingly framed our recommendations in the light of the Fiscal Scenario
230
projected by us (Chapter 4, para 4.24), which is based on realistic assumptions
of fiscal prudence on the part of the state government.
9.20 We also note that substantial amounts have been provided to the
local bodies by the state government by way of schematic or discretionary grants,
even off-budget, which would show that the real reason for non-implementation
of the SFC's recommendations is not the financial stringency, but state govt's
aversion to the formula-based transfers.
9.21 The Commission strongly feels that, such transfers militate against
the canons of transparency and accountability and is an antithesis of the
Constitutional mandate of providing local bodies assured, predictable and need-
based resources to enable them to function as self-governing entities in their
assigned sphere. The Commission will, therefore, favour a calibrated conversion
of such transfers into formula-based transfers as an additionality to the shareable
pool of resources for the local bodies.
9.22 As noted earlier, Punjab's local bodies are highly transfer-dependent.
The mainstay of their finances are the central transfers, schematic or discretionary
transfers by the state government and compensatory payments. This imbalance
needs to be corrected by placing at their disposal additional handles of their own
revenue and by incentivizing them to better administer their existing sources to
optimize realization. Failing this, local bodies will continue to perform agency
functions for the Union and State governments. We will make precise
recommendations in this behalf while proposing the quantum and composition of
the Sharable Pool.
9.23 The inescapable conclusion which one may draw from the data and
analysis presented in the foregoing pages is that the local bodies in Punjab are not
only the weakest financially, but also rank at the bottom in terms of functional
and administrative devolution. This is despite robust grants-in-aid recommended
231
by the CFCs to the local bodies and, is solely on account of poor devolution by
the state government and local bodies’ inability to improve their own tax and non-
tax revenues. In the absence of compensatory payments for loss of revenue due
to the abolition of Octroi, the Municipalities in the State may not be able even to
foot their salary bill. Such a situation is undesirable and unacceptable and calls
for an emergent correction, both by an enhanced financial devolution by the state
government to the local bodies and by a substantial increase in their own
revenues. In this view, the Commission's recommendations regarding the size of
Divisible Pool for the local bodies are as follows.
Recommendations
• Both the 13th and 14th CFCs recognized the role of SFCs in empowering
local bodies and recommended that the state governments should
strengthen SFCs, which will involve timely constitution, proper
administrative support, adequate resources for smooth functioning and
timely placement of the SFC report before State Legislature, along with
Action Taken Reports (ATRs). Observing, poor compliance by the states,
the 15th CFC has now prescribed stringent entry level conditions for local
bodies to qualify to receive grants recommended by it beyond 2023-2024,
which are as under:
“The Commission has recommended imposing entry-level conditions for local bodies
to receive grants. These include (i) setting up of State Finance Commissions in States,
act upon their recommendations and lay the explanatory memorandum as to the
action taken thereon before the State legislature on or before March 2024 (ii) having
both provisional and audited accounts online in the public domain (iii) fixation of
minimum floor for property tax rates by the relevant State followed by consistent
improvement in the collection of property taxes in tandem with the growth rate of
State's own GSDP (for urban local bodies)”.
While strongly reiterating these recommendations, the Commission,
will earnestly urge the state government to follow a healthy convention
232
set up by the union government and a number of state governments to
accept the core recommendation of their respective Finance Commissions
relating to the financial devolution, and accord reasons for such of the
recommendations which they are unable to accept. Having done so, the
state government should fully and promptly release funds in respect of the
accepted recommendations.
• Keeping all factors listed at paragraphs 9.13 to 9.22 of this Chapter in
view, we recommend total size of the Divisible Pool at Rs. 13746 crore
with its component-wise and yearly break-up for the period 2021-22 to
2025-26 as summarized in Table 9.12.
Table 9.12: Projected Size of Divisible Pool with Yearly Component-Wise Break Up in
Punjab, 2021-22 to 2025-26
Years (Rs. Crore) Share (%) of
Description 2021- 2022- 2023- 2024-
2025-26 Total PRIs ULBs
22 23 24 25
1. Share of State’s Net Own Tax 1316* 1353 1504 1672 1859 7704 55 45
Revenue @3.5%
2. Assignment/Apportionment of 323 876 937 1002 1074 4212 -
Taxes/Charges/Fees
i. 100% of Professional Tax**. - 157 165 173 182 677 20 80
In proportion to
ii. 10% of Proceeds of Stamp Duty - 299 329 362 398 1388 rural-urban
& Registration Fees
realisation#
iii. 16% of Additional Excise Duty 323 338 353 368 385 1767 Division is already
and 10% of Auction Money
a. PRIs 130 135 140 145 150 700 given by Line
Depts.
b. ULBs 193 203 213 223 235 1067
iv. 2% Share of VAT on Petroleum - 82 90 99 109 380 100 -
Product***
3. Grants-in-Aid from 0 390 430 480 530 1830 55 45
Consolidated Fund of State
Grand Total 1639 2619 2871 3154 3463 13746 - -
Note: 1. State’s Net Own Tax Revenue (t) = Gross Own Tax Revenue, including share in the IGST and
Compensation for loss of revenue due to GST (t-1) – Actual Cost of Tax Collection (t-1) –
Compensatory Payments to the ULBs for the revenue loss on account of Abolition of Octroi (t-1).
2. State’s own tax revenue means receipts from GST, Stamp Duty, Registration Fee, State Excise Duty,
VAT/Sales Tax (POL), Vehicles Tax, Electricity Duty/Tax, Land Revenue and other taxes and duties
(Entertainment Tax, Luxury Tax, Betting Tax etc.) imposed by the State.
3. (t) stands for current year (e.g., 2021-22) and t-1 stands for previous year (e.g., 2020-21).
*4% share of the Estimated NOTR given in Report of the Year 2021-22 (Table 7, page 32).
**Professional Tax imposed under the term ‘Taxes on Profession, Trades, Callings and Employment.
***2% share of VAT (excluding ID Cess) on Petroleum Product on the basis of realization in the rural areas.
#If this proportion is not available, then apply 55: 45 (PRIs: ULBs).
Source: Calculated from the data supplied by the Department of Finance, and Line Departments, Punjab.
233
• On the face of it, the total quantum of devolution recommended by us at
Rs. 13746 crore may appear to be far higher than what was recommended
by our predecessor (5th SFC) at Rs. 8749 crore for 2016-17 to 2020-21.
However, inflation-adjusted devolution by us is only Rs. 2542 crore, a real
increase of only Rs. 2455 crore over a period of five years, i.e., an annual
average enhancement of Rs. 491 crores. We feel that it is fair, realistic and
easily achievable.
Section-IV
Horizontal Distribution between PRIs and ULBs
9.24 For an historical perspective on this issue, the Commission viewed

the recommendations made in this behalf by the previous SFCs of Punjab, by the
SFCs of other States and by the 14th and 15th CFCs. The same is presented in the
following Tables:
Table 9.13: Horizontal Distribution between PRIs and ULBs in Punjab (1st
SFC to 5th SFC)
Share (in %)
SFCs
PRIs ULBs
1st SFC (1996-97 to 2000-01) Based on R-U Collections of the Five Taxes*
2nd SFC (2001-02 to 2005-06) 67.5 32.5
3rd SFC (2006-07 to 2010-11) 60.0 40.0
4th SFC (2011-12 to 2015-16) 67.5 32.5
5th SFC (2016-17 to 2020-21) 37.5 # 62.5 #
*20% Share of Net Proceeds of Five Taxes (Stamp duty, Motor Vehicle tax, Electricity Duty, Entertainment tax
& Cinematography Shows) levied by the State.
#(i) 60% share of Divisible Pool is distributed in the ratio of their population-2011(62.5: 37.5); and (ii) 40% share
is distributed on the basis of and in proportion to the gaps in the projected revenue and expenditure of PRIs and
ULBs; which will go to the ULBs alone as the PRIs will have surplus funds and the ULBs will be in deficit.
Source: Reports of 1st to 5th SFCs and Finance Department, Punjab.
234
Table 9.14: Horizontal Distribution between PRIs and ULBs (in %)
Sr. Time PRI
Major States ULBs Remarks
No. Period s
2005-06 to
1. Andhra Pradesh (3rd) - - Devolution based on assignment and grants.
2009-10
70:30 for 2015-16, 60:40 for 4 years (2016-17 to
2015-16 to 70 30 2019-20).
2. Bihar (5th)
2019-20 60 40 No specific criteria but resources need to be
transferred to the ULBs.
2012-13 to
3. Chhattisgarh 76.8 23.2 Distribution based on the population (2001 census)
2016-17
2005-06 to 62.6
4. Gujarat (2nd) 37.36 Distribution based on the population (2001 census)
2009-10 4
2016-17 to Distribution criterion based on the population (2011
5. Haryana (5th) 55 45
2020-21 Census) and area in the ratio 80:20.
Distribution based on 11 indicators under three
domains which are common to both rural and urban
2013-14 to areas: (i) Demography (net increase in population,
6. Karnataka (4th) 75 25
2017-18 area, SC/ST population, Illiteracy); (ii) Decentralized
Governance; and (iii) Basic Household Amenities
(2011 census).
Devolution comprises of (i) General Purpose Fund
2016-17 to
7. Kerala (5th) - - (GPF), (ii) Maintenance Fund and (iii) Development
2020-21
Fund. Each fund has its own distribution criteria
2011-12 to Distribution based 70% on population (Census
8. Madhya Pradesh (4th) 73 27
2015-16 2011), 15% on area and 15% on SC/ST population.
2011-12 to
9. Maharashtra (4th) 55 45 Distribution based on the population (Census 2011)
2015-16
The sharing ratio arrived at on the basis of (i)
2015-16 to population (30%); (ii) density of population (30%);
10. Odisha (4th) 2019-20 75 25 (iii) percentage of persons below poverty line (20%);
(iv) literacy rate (10%); and (v) SC/ST concentration
(10%).
60% share of Divisible Pool distributed between PRIs and ULBs in the
ratio of their 2011 Census population (62.5: 37.5).
40% share of Divisible Pool be distributed between PRIs and ULBs on
2016-17 to
11. Punjab (5th) the basis of and in proportion to the gaps in the projected revenue and
2020-21
expenditure during 2016-17 to 2020-21. While PRIs will have surplus
funds and ULBs will be in deficit during 2016-17 to 2020-21, 40% share
will go to ULBs alone.
Rajasthan (4th) 2010-11 to
12. 75.1 24.9 Distribution based on population (2011 Census).
2014-15
Tamil Nadu (5th) 2017-18 to Sharing ratio as per the needs (O&M and Capital),
13. 56 44
2021-22 and infrastructure creation in RUBs and ULBs.
2011-12 to
14. Uttar Pradesh (4th) 40 60 No specific criteria
2015-16
No criteria. However, from each year’s
2015-16 to recommended devolution, funds for the ULBs set
15. West Bengal (4th) - -
2019-20 aside based on estimated cost of providing services
by them. The balance funds forms PRIs share.
Original Source: Reports of State Finance Commissions of respective States.
Source: Gupta, Munish and Chakraborty, Pinaki (30-April 2019), State Finance Commissions: How successful
have they been in Empowering Local Governments? NIPFP Working Paper Series No. 263.
235
Table 9.15: Criteria Adopted by 14th CFC for Determining Share of States’ Local Bodies
Area Population (in million) Population Ratio (%) Weights(%)
Sr. No. a n d Inter Se
000 Inter Se Area Population
Name of State Shares Rural Urban
sq.km Shares (%) Total Rural Urban (10%) (90%) Total
(%)
1 Andhra Pradesh 160.20 5.06 49.39 34.78 14.61 4.19 70.42 29.58 0.506 3.770 4.276
2 Arunachal Pradesh 83.74 2.65 1.38 1.07 0.32 0.12 77.06 22.94 0.265 0.106 0.370
3 Assam 54.14 1.71 26.87 22.79 4.08 2.28 84.80 15.20 0.171 2.051 2.222
4 Bihar 94.16 2.97 104.10 92.34 11.76 8.83 88.71 11.29 0.297 7.946 8.243
5 Chhattisgarh 135.19 4.27 25.55 19.61 5.94 2.17 76.76 23.24 0.427 1.950 2.377
6 Goa 3.70 0.12 1.46 0.55 0.91 0.12 37.83 62.17 0.012 0.111 0.123
7 Gujarat 196.24 6.20 60.44 34.69 25.75 5.13 57.40 42.60 0.620 4.613 5.233
8 Haryana 44.21 1.40 25.35 16.51 8.84 2.15 65.12 34.88 0.140 1.935 2.075
9 Himachal Pradesh 55.67 1.76 6.86 6.18 0.69 0.58 89.97 10.03 0.176 0.524 0.700
10 Jammu &Kashmir 222.24 7.02 12.54 9.11 3.43 1.06 72.62 27.38 0.702 0.957 1.659
11 Jharkhand 79.72 2.52 32.99 25.06 7.93 2.80 75.95 24.05 0.252 2.518 2.770
12 Karnataka 191.79 6.06 61.10 37.47 23.63 5.18 61.33 38.67 0.606 4.663 5.269
13 Kerala 38.85 1.23 33.41 17.47 15.93 2.83 52.30 47.70 0.123 2.550 2.673
14 Madhya Pradesh 308.25 9.74 72.63 52.56 20.07 6.16 72.37 27.63 0.974 5.544 6.517
15 Maharashtra 307.71 9.72 112.37 61.56 50.82 9.53 54.78 45.22 0.972 8.577 9.549
16 Manipur 2.24 0.07 1.63 0.89 0.74 0.14 54.40 45.60 0.007 0.125 0.132
17 Meghalaya 0.01 0.00 0.14 0.00 0.14 0.01 0.00 100.00 0.000 0.011 0.011
18 Mizoram 0.53 0.02 0.53 0.00 0.53 0.04 0.00 100.00 0.002 0.040 0.042
19 Nagaland 0.24 0.01 0.57 0.00 0.57 0.05 0.00 100.00 0.001 0.044 0.044
20 Odisha 155.71 4.92 41.97 34.97 7.00 3.56 83.31 16.69 0.492 3.204 3.696
21 Punjab 50.36 1.59 27.74 17.34 10.40 2.35 62.52 37.48 0.159 2.118 2.277
22 Rajasthan 342.24 10.81 68.55 51.50 17.05 5.81 75.13 24.87 1.081 5.232 6.313
23 Sikkim 7.10 0.22 0.61 0.46 0.15 0.05 74.85 25.15 0.022 0.047 0.069
24 Tamil Nadu 130.06 4.11 72.15 37.23 34.92 6.12 51.60 48.40 0.411 5.507 5.918
25 Telangana 114.84 3.63 35.19 21.59 13.61 2.98 61.33 38.67 0.363 2.686 3.049
26 Tripura 3.35 0.11 2.41 1.45 0.96 0.20 60.07 39.93 0.011 0.184 0.194
27 Uttar Pradesh 240.93 7.61 199.81 155.32 44.50 16.95 77.73 22.27 0.761 15.251 16.013
28 Uttrakhand 53.48 1.69 10.09 7.04 3.05 0.86 69.77 30.23 0.169 0.770 0.939
29 West Bengal 88.75 2.80 91.28 62.18 29.09 7.74 68.13 31.87 0.280 6.967 7.247
Total 3165.68 100.00 1179.11 821.69 357.42 100.00 69.69 30.31 10.000 90.000 100.000
Source: Report of the 14th CFC (2015-20), Annex 9.1, p. 463.
236
Table 9.16: Criteria Adopted by 15th CFC for Determining Share of
States’ Local Bodies
States Population Area Population Area State-wise share
2011 (‘000 sq. Share Share RLBs ULBs
(Million) km.)
Andhra Pradesh 49.58 162.92 4.21 5.33 4.32 4.32
Arunachal 1.38 83.74 0.12 2.74 0.38 0.38
Pradesh
Assam 31.21 78.44 2.65 2.57 2.64 2.64
Bihar 104.10 94.16 8.84 3.08 8.26 8.26
Chhattisgarh 25.55 135.19 2.17 4.43 2.39 2.39
Goa 1.46 3.70 0.12 0.12 0.12 0.12
Gujarat 60.44 196.24 5.13 6.43 5.26 5.26
Haryana 25.35 44.21 2.15 1.45 2.08 2.08
Himachal Pradesh 6.86 55.67 0.58 1.82 0.71 0.71
Jharkhand 32.99 79.72 2.80 2.61 2.78 2.78
Karnataka 61.10 191.79 5.19 6.28 5.29 5.29
Kerala 33.41 38.85 2.84 1.27 2.68 2.68
Madhya Pradesh 72.63 308.25 6.16 10.09 6.56 6.56
Maharashtra 112.37 307.71 9.54 10.07 9.59 9.59
Manipur 2.86 22.33 0.24 0.73 0.29 0.29
Meghalaya 2.97 22.43 0.25 0.73 0.30 0.30
Mizoram 1.10 21.08 0.09 0.69 0.15 0.15
Nagaland 1.98 16.58 0.17 0.54 0.21 0.21
Odisha 41.97 155.71 3.56 5.10 3.72 3.72
Punjab 27.74 50.36 2.35 1.66 2.29 2.29
Rajasthan 68.55 342.24 5.82 11.21 6.36 6.36
Sikkim 0.61 7.10 0.05 0.23 0.07 0.07
Tamil Nadu 72.15 130.06 6.12 4.26 5.94 5.94
Telangana 35.00 112.12 2.97 3.67 3.04 3.04
Tripura 3.67 10.49 0.31 0.34 0.31 0.31
Uttar Pradesh 199.81 240.93 16.96 7.89 16.05 16.05
Uttarakhand 10.09 53.48 0.86 1.75 0.95 0.95
West Bengal 91.28 88.75 7.75 2.91 7.26 7.26
All States 1178.19 3054.27 100.00 100.00 100.00 100.00
th
Source: 15 CFC, Vol. II, Annex 7.3, p. 280
9.25 From the data presented in the above Tables, we draw the following
conclusions: -
a. For horizontal distribution of devolved funds between the PRIs and

ULBs, most states, including Punjab, adopted rural-urban
proportions of population as a criterion. However, some states used
237
a composite index consisting of population, SC population, poverty
ratio, area, financial weak local bodies, and gap-filling approach,
etc.
b. The share of PRIs is dominant in most states, except Uttar Pradesh
and Uttarakhand.
c. The share of PRIs is more than 65% in the most states, except
Gujarat, Maharashtra and Tamil Nadu;
d. Some states also made recommendations for devolution of funds to
the Schedule VI areas in addition to the revenue sharing with Local
Bodies.
e. For horizontal distribution of grants-in-aid to the local bodies, the
14th CFC (2015-16 to 2019-20) adopted rural-urban proportion of
population in the ratio of 69.69: 30.31; and the 15th CFCs (2021-22
to 2025-26) recommended grants-in-aid’s distribution between the
PRIs and ULBs by the rural-urban proportion of population in the
ratio of 67: 33 (2021-22 and 2022-23); 66: 34 (2023-24 and 2024-
25); and 65: 35 (2025-26).
9.26 The Commission is of the view that, historical bias in

horizontal devolution of funds between the Panchayats and the
Municipalities needs to be corrected having regard to (i) fast growing
urbanization; (ii) understated urban population; (iii) shifting epicenter of
economic growth; (iv) need for improved urban infrastructure to attract
new investment; and (v) ability to access funds other than from the SFC
devolution.
i. Punjab is one of the fastest urbanizing states (ranked 5 th amongst the

major states) of India. Between 2001-2011, Punjab’s urban
population grew at the CGR of 2.307 percent per annum, whereas the
CGR in its rural population was 0.749 percent per annum. In future,
238
Punjab’s cities/towns will expand geographically and attract more
migrants in search of employment opportunities and better living
conditions.
ii. Punjab’s urban population, like India, is grossly understated. A World
Bank Report indicates that India’s urban population was around 55%
in 2010. Late Dr. Isher Judge Ahluwalia in her report on “Municipal
Finances in India” has also indicated the same percentage of urban
population in India. The reasons behind understated urban population
in Punjab are (a) exclusion of census towns, which registered an
increase to 74 census towns in the state during the decade of 2001-
2011, from the urban population; (b) exclusion of population of new
municipalities constituted between 2011-2021 (22 new municipalities
have been added); (c) exclusion of population of newly included peri-
urban and rural areas in the existing municipalities (e.g. Phagwara,
Zirakpur, Lalru, etc,); and (d) exclusion of urban agglomerations
beyond the municipal boundaries.
iii. Currently, the States with higher levels of urbanisation are associated
with higher levels of per capita income in India, and the industry and
services sectors have emerged as the principal drivers of economic
growth. The data showed that urban job market is generally more
productive as compared to equivalent jobs in rural sector. Rising
rural-urban earnings differentials since 1993-94 has induced the rural
labour equipped with skills and education to migrate to the
cities/towns, which are known as centres of industry and services
sectors. These cities and towns have become epicenters of economic
growth in Punjab also.
iv. Financial requirements of the ULBs have multiplied many-fold with
the fast-paced growth of cities/towns and their linkages with the
national and global economies. Further, large number of migrants are
239
expected to be attracted to the cities/towns in search of jobs and better
living conditions. These factors, in fact, have not only raised demands
for creating better urban infrastructure and provision of basic
municipal services, but also demands more funds for carrying out
these municipal services efficiently. These cities/towns, however, are
visibly deficit in the quality of basic services (drinking water,
sewerage, solid waste management, street lights, roads, etc.), and are
unable to provide these facilities even to the existing population. The
ULBs also need additional finances for creating new and improving
the existing urban infrastructure to attract new investments.
v. Financing large amounts of expenditures/investments required for the
improving the existing and creating the new urban infrastructure
depends upon governance of ULBs and their capacity to raise own
revenues from additional sources. Even, the SFC recommended
devolution will not suffice to meet the total requirements of the ULBs.
Therefore, the ULBs must enjoy autonomy to levy new taxes, revise
old ones, raise user charges and raise loans/borrowings, etc., to
augment their pool of resources.
Recommendations
Sharing of taxes, duties, tolls and fees
9.27 ToR a(i) requires the Commission to recommend the distribution

between the State and the Panchayats and Municipalities of the net proceeds of
taxes, duties, tolls and fees levied by the state.
In view of the foregoing discussion, the Commission recommends
as under in this behalf: -
- 3.5% of state’s net own tax revenues to be devolved to the Panchayats and
Municipalities (As at Rs. 7704 crore in Table 9.12) be distributed between
them in the ratio 55:45.
240
- On the above basis, the share of the Panchayats and the Municipalities
works out to Rs. 4237 crore and Rs. 3467 crore, respectively, for the period
2021-22 to 2025-26.
a. Year-wise break-up of the respective share of the Panchayats and
Municipalities is as under: -
Table 9.17: Horizontal Distribution of Tax Devolution (@3.5% Share of NOTR)

between PRIs and ULBs in Ratio of 55: 45 in Punjab during 2021-22 to
2025-26.
Tax Devolution@3.5% Share of NOTR (Rs. Crore)
Year
Total PRIs ULB
2021-22 1316* 724 592
2022-23 1353 744 609
2023-24 1504 827 677
2024-25 1672 920 752
2025-26 1859 1022 837
Total 7704 4237 3467
*4% share of Net Own Tax Revenue of State to be distributed between the PRIs and ULBs in the ratio
of 55: 45.
Source: Calculated from the Fiscal Scenario-5 supplied by the Department of Finance, Punjab.
Assignment and Appropriation of Taxes etc.
9.28 ToR a(ii) requires the Commission to determine the taxes, duties,
tolls and fees which may be assigned to, or apportioned by the
Panchayats/Municipalities.
The practice in this behalf being followed by our own SFC and SFCs of
some major States in the country is tabulated below: -
Table 9.18: Assignment and Appropriation of Taxes, etc. in Punjab (1st SFC to 5th SFC)
Recommended
SFC/Time Period Share of Excise Duty & Auction Money@
Amount
i. 10% of Add. Excise Duty on Country Liquor (April
1st SFC 01,1997);
509.5
(1996-97 to 2000-01) ii. 16% of the Add. Excise Duty on IMFL;
iii. 7% of Auction Money from liquor vends.
2nd SFC i. 16% of Additional Excise Duty on IMFL & Beer;
616.48
(2001-02 to 2005-06) ii. 10% of Auction Money from liquor vends.
3rd SFC
- do - 724.43
(2006-07 to 2010-11)
4th SFC
- do - 1286.24
(2011-12 to 2015-16)
5th SFC
- do - 1474.81
(2016-17 to 2020-21)
@Distribution of share of excise duty & auction money be in the proportion to the collections from the respective areas.
241
Table 9.19: Assignment and Appropriation of Taxes, etc. in Other States
SFC/ Time Period Name of Taxes, etc. Assigned/Appropriated to Local Bodies
i. Land Revenue: 100% to be transferred to GPs.

ii. Entry Tax: 25% share to be transferred to PRIs and ULBs in the ratio of 40: 60.
iii. Royalty on Minerals (both major and minor) except Hydrocarbons: 3% share be given to
Rajasthan (4th), GPs in proportion of their population (latest available census).
2010-11 to 2014-15 iv. Cess on Excise Duty on Liquor: 2% share be distributed between PRIs and ULBs in the
ratio of 75.1: 24.9.
v. Surcharge on Stamp Duty: 10% share be distributed between PRIs and ULBs in the ratio
of 75.1: 24.9.
i. Entertainment Tax.
Tamil Nadu (5th) ii. Surcharge on Stamp Duty.
2017-18 to 2021-22 iii. Shared revenues of leased money from minor minerals, quarries, seigniorage fees, and
receipts from social forestry to be transferred to the local bodies.
Karnataka (4th)
i. Surcharge levied on Stamp Duty be shared between TPs and ULBs.
2018-19 to 2022-23
i. Entertainment Tax: 90% of net tax receipts of this tax collected under various acts to be
passed on to the Local Bodies in the ratio of 80: 20 for Municipalities and Panchayats after
retaining 10 percent by the State Government for covering administrative, legal and other
West Bengal (4th) costs associated with collection of the aforesaid tax.
2015-16 to 2019-20 ii. Taxes on Professions, Trade, Callings and Employment and Taxes on Vehicles: All such
collections should be shared between ULBs and RLBs in the same ratio of 80: 20, keeping
10% with State Government as its collection cost.
i. Entertainment Tax.
Kerala (5th)
ii. Building Tax to be transferred to the local bodies.
2016-17 to 2020-21
i. Share of Surcharge on VAT (47% in 2015-16),
ii. Share of Excise Duty (7.5% in 2015-16),
Haryana (5th) iii. 2% share of Stamp Duty & Registration Fee (27.9% in 2015-16),
2016-17 to 2020-21 iv. Motor Vehicle Tax (2.6% in 2015-16).
(Important Note: All these assigned taxes/duties favoured the ULBs).
i. Stamp Duty: Rs 2025 crore allocated to the ULBs

Bihar (5th) ii. Professional Tax: Rs. 254 crore allocated to the ULBs
2015-16 to 2019-20 iii. 10% Share of Motor Vehicle Tax: Rs. 608 crore be allocated to the ULBs.
Source: Reports of SFCs of States.
The case for appropriation or assignment of specific tax/taxes mainly

rests on the principle of location of tax base and it’s non-portability. Besides, it
also diversifies the shareable pool. It is noted that, while our state has been
apportioning only a share of excise duty and auction money to the local bodies,
quite a few states have appropriated a variety of taxes, tolls, duties and fees.
242
Recommendations
i. The entire proceeds of ‘tax on professions, trades, calling and

employments’ in T-1 may be assigned to the local bodies, to be shared
between the Panchayats and Municipalities in the ratio of 20: 80,
respectively.
ii. 10% of proceeds of Stamp Duty and Registration Fee in T-1 may be
appropriated by the local bodies on the basis of actual realisation in their
respective territorial jurisdictions. If its rural-urban realisation is not
available with the Department of Finance, then apply the ratio of 55: 45
for distribution between the Panchayats and Municipalities,
respectively.
iii. 2% share of VAT (excluding ID Cess) on the Petroleum Product on the
basis of its realisation in the rural areas be allocated or appropriated to
the Gram Panchayats only.
iv. The afore-mentioned assignment/appropriation of taxes to the local
bodies will result in a total devolution of Rs, 4212 crore for the period
2021-22 to 2025-26, with its year-wise break-up and the respective
share of PRIs and ULBs as tabulated below (Table 9.20):
Table 9.20: Horizontal Distribution of Taxes Assignment/Apportionment between PRIs and

ULBs in Punjab (2022-23 to 2025-26)
Year Assignment/Apportionment of Taxes to Local Bodies (Rs. Crore)
10% Share of Stamp 16% of Additional Excise 2% Share of VAT
100% Share of
Duty & Registration Duty and 10% of Auction on Petroleum Total PRIs ULBs
Professional Tax
Fees Money* Product
PRIs ULBs PRIs ULBs PRIs ULBs
Total Total Total PRIs ULBs Total
(20%) (80%) (55%) (45%) (100%) (0%)
2021-
- - - - - - 323 130 193 - - - 323 130 193
22
2022-
157 31 126 299 164 135 338 135 203 82 82 0 876 412 464
23
2023-
165 33 132 329 181 148 353 140 213 90 90 0 937 444 493
24
2024-
173 35 138 362 199 163 368 145 223 99 99 0 1002 478 524
25
2025-
182 36 146 398 219 179 385 150 235 109 109 0 1074 514 560
26
Total 677 135 542 1388 763 625 1767 700 1067 380 380 0 4212 1978 2234
*Rural-urban division has been provided by the Line Departments, Punjab.
243
Grants-in-Aid to Panchayats/Municipalities
9.29 ToR a (iii) requires the Commission to recommend grants-in-aid to
the Panchayats/Municipalities from the Consolidated Fund of the State. We have
noted that, while the previous Punjab SFCs has never recommended such grants,
there are sporadic instances in this behalf by the Finance Commissions of other
States. It may be due to the fact that, transfers from the CFC to the local bodies
are entirely in the shape of grant-in-aid. Nevertheless, the Commission is of the
view that transfers to the local bodies by way of grants-in-aid is necessary to
incentivize efficiency and to promote equity in inter-se distribution of their share
among PRIs and ULBs, and accordingly recommends as follows: -
(a) Grant-in-aid to the Panchayats and Municipalities from the
Consolidated Fund of the State be provided as under for the period
of the Commission: -
Table 9.21: Recommended Grant-in-aid to Panchayats and Municipalities
Year Amount (Rs. Crore)

2021-22 -
2022-23 390
2023-24 430
2024-25 480
2025-26 530
Total 1830
(b). Distribution of the above grant-in-aid will be in the ratio of 55:45
between the PRIs and ULBs, as in the Table 9.22 below: -
244
Table 9.22: Horizontal Distribution of Recommended Grants-in-Aid between
PRIs and ULBs in Punjab, 2021-22 to 2025-26
Horizontal Distribution of Grants-in-Aid (Rs. Crore)

Year
PIPFPA** PRIs (55%) ULBs (45%) Total
2021-22@ - - - -
2022-23 10 209 171 390
2023-24 5 234 191 430
2024-25 5 261 214 480
2025-26 5 289 236 530
Total 25 993 812 1830
**PIPFPA stands for Punjab Institute of Public Finance and Policy Analysis.
@No grant-in-aid was recommended during 2021-22 by 6th SFC
Source: Calculated from the Fiscal Scenario-5 supplied by the Department of Finance,
Punjab.
(c) 100% share of grants-in-aid to the PRIs will be distributed amongst the
Gram Panchayats that are ‘financially weak’. In the case of ULBs, 75%
share of grants-in-aid will be distributed amongst the Municipalities that
are ‘financial weak’ and the remaining 25% share will be distributed
amongst the Municipalities on the basis of performance. The criteria for
determining the weak Panchayats and weak Municipalities may be
decided by the concerned administrative departments. Similarly,
criterion for distribution of performance grant may be decided by the
department of Local Government.
Summary of Divisible Pool
9.30 On the basis of the foregoing recommendations, total
Divisible Pool for the local bodies works out to Rs. 13,746 crore for the period
2021-22 to 2025-26 with its yearly and component-wise breakup as summarized
below: -
245
Table 9.23: Projected Size of Divisible Pool with Yearly Component-Wise Break Up in Punjab,
2021-22 to 2025-26
Description 2021- 2022 2023 2024 2025-
Total PRIs ULBs
22 -23 -24 -25 26
1. Share of State’s Net Own
1316* 1353 1504 1672 1859 7704 55 45
Tax Revenue @3.5%
2. Assignment/Apportionment
323 876 937 1002 1074 4212
of Taxes/Charges/Fees
i. 100% of Professional Tax**. - 157 165 173 182 677 20 80
In proportion
ii. 10% of Proceeds of Stamp
- 299 329 362 398 1388 to rural-urban
Duty & Registration Fees
realisation#
iii. 16% of Additional Excise
Duty and 10% of Auction 323 338 353 368 385 1767 Division is
Money already given
a. PRIs 130 135 140 145 150 700 by Line Depts.
b. ULBs 193 203 213 223 235 1067
iv. 2% Share of VAT on
- 82 90 99 109 380 100 -
Petroleum Product***
3. Grants-in-Aid from
0 390 430 480 530 1830 55 45
Grand Total 1639 2619 2871 3154 3463 13746 - -
Note: 1. State’s Net Own Tax Revenue (t) = Gross Own Tax Revenue, including share in the IGST and
Compensation for loss of revenue due to GST (t-1) – Actual Cost of Tax Collection (t-1) –
Compensatory Payments to the ULBs for the revenue loss on account of Abolition of Octroi
(t-1).
2. State’s own tax revenue means receipts from GST, Stamp Duty, Registration Fee, State Excise
Duty, VAT/Sales Tax (POL), Vehicles Tax, Electricity Duty/Tax, Land Revenue and other
taxes and duties (Entertainment Tax, Luxury Tax, Betting Tax etc.) imposed by the State.
3. (t) stands for current year (e.g., 2021-22) and t-1 stands for previous year (e.g., 2020-21).
**Professional Tax imposed under the term ‘Taxes on Profession, Trades, Callings and
Employment.
***2% share of VAT (excluding ID Cess) on Petroleum Product on the basis of realization in
the rural areas.
Source: Calculated from the data supplied by the Department of Finance, and Line
Departments, Punjab.
Section-V
Inter-se Distribution between Panchayats and Municipalities.
9.31 The Commission has viewed the inter-se distribution between the
Panchayats and the Municipalities of their respective share in the Divisible Pool,
246
as recommended by our predecessor Commissions, SFCs of other states and the
14th & 15th CFCs. A summarized version of the same is tabulated below: -
Table 9.24: Inter-Se Distribution of Funds to Different Tiers of PRIs and

ULBs in Punjab (1st SFC to 5th SFC)
Inter-se Distribution of Funds
SFC/Time
Period PRIs ULBs
1st SFC GPs: 50%,

(1996-97 PSs: 30%
No specific criteria
to 2000- ZPs: 20%
01)
Whole Amount to GPs.
Within GPs:
i. Population: 65%; For all ULBs:
2nd SFC
ii. SC Population: 15%; i. Population: 70%;
(2001-02
iii. Population in Sub-Mountain ii. SC Population: 15%;
to 2005-
Area: 5%; iii. Shortfall in Per Capita Tax
06)
iv. Shortfall in Per Capita Tax Income: 15%
Income: 15%.
i. Allocated Rs. 400 Cr annually to

PMF to be devolved to the ULBs.
ii. Recommended, in respect of the
new infrastructure:
i. First allocating funds to meet the
3rd SFC a. 50% of O&M cost of MCs-III and
operating cost gap of ZPs and PSs
(2006-07 NPs for 5 years; and of MCs-II for
(assessed at Rs. 50 Cr annually);
to 2010- 3 years should be met by State
ii. Remaining amount to the GPs on
11) Govt. through grants.
per capita basis.
b. 50% contributions being made by
State Govt. may be included while
accessing the project cost.
Whole Amount to GPs.

4th SFC
Within GPs: For all ULBs:
(2011-12
i. Population: 80% i. Population: 80%
to 2015-
ii. Poor GPs: 20% ii. Poor ULBs: 20%
16)
i. First allocating Rs. 1 Cr per year
to each ZP and each PS;
5th SFC
ii. Remaining amount to the GPs. For all ULBs:
(2016-17
Within GPs: i. Population: 80%
to 2020-
a. Population: 80% ii. Poor ULBs: 20%
21)
b. Poor GPs: 20%
247
Table 9.25: Inter-Se Distribution Criteria amongst Different Tiers of PRIs
by Major States
State PRIs
ZP PS P Criterion Description
Based on average transfer of funds (for PRIs) for five years, i.e.,
Karnataka (4th) 38.60 53.64 7.76
2012-13 to 2016-17 under all heads to each tier of PRIs.
Kerala (5th) - - - No specific criterion
Maharashtra (4th) 30 20 50 No specific criterion
Population as per 2011 Census (60%); Area (15%); SC/ST
Tamil Nadu (5th) 8 37 55 Population (15%); Per Capita Consumption Expenditure Distance
(10%)
No broad criteria. However, inter-se distribution (i) for the DP & TP
be based on 60% share for those in backward Districts/ Talukas and
Gujarat (2nd) 25 25 50 40% share for those in developed Districts/Talukas and then on the
basis of population; and (ii) for the GPs be based on 60% for the
backward GPs and 40% share for developed GPs
Andhra Pradesh (3rd) - - - Per capita grants; no specific criteria
i. District-wise distribution based on population (50%); Area (10%);
UP (4th) 15 10 75 SC/ST population (10%); backwardness index (30%).
ii. PSs and GPs: Population (80%); SC/ST population (20%)
i. Stage 1: distribution broadly based on statutory functions and
other responsibilities.
Chhattisgarh (2nd) 05 10 85 ii. Stage 2: (a) For ZPs: distribution based on Population (60%),
Area (20%), SC/ST Population (10%); BPL Households (10%).
iii. (b) For BP and GP: distribution based on population.
Madhya Pradesh
0 0 100 Based on population of GPs, classified into various class-sizes.
(4th)
i. Sharing ratio determined by considering different nature of
functions carried out by each tier.
Odisha (4th) 05 20 75
ii. Inter-se distribution among 3 tiers of PRIs based on population,
category number of units like number of GPs, PSs etc.
i. Focus on Developmental Activities.
ii. Horizontal distribution across PRIs on the basis of Index based
West Bengal (4th) 10 12 78
on Population (50%), Area (10%), Backwardness (30%),
proportion of urban population in rural areas (10%).
i. For ZP: Population (50%), Area (10%) and Underdevelopment

Index (40%).
ii. For BP: Population (50%), and Underdevelopment Index
20 10 70 (50%).
Bihar (5th)
iii. GP: Each GP falling within a Block would get equal share of
amount available to all GPs in that Block based on Block’s UDI
and Population
i. District-wise distribution based on rural population (40%); Area

(15%); No. of BPL families (5%); SC population (5%); ST
Population (5%); child sex ratio (0-6 yrs.) (5%); IMR; (5%);
Rajasthan (4th) 03 12 85 Girls Education (5%); Own Revenue Mobilization (10%);
Decline in decadal population growth rate (5%).
ii. Inter-se distribution among PSs and GPs based on latest
population.
i. First allocating Rs. 1 crore per year to each ZP and each PS;
ii. Remaining amount to all GPs:
Punjab (5th) - - - iii. Within GPs:
a. Population: 80%
b. Poor GPs: 20%
Haryana (5th) 10 15 75 No specific criteria
Source: Gupta, Munish and Chakraborty, Pinaki (30-April 2019), State Finance Commissions: How successful have they
been in Empowering Local Governments? NIPFP Working Paper Series No. 263.
248
Table 9.26: Inter-Se Distribution Criteria amongst Different Tiers of ULBs by Major States
State ULBs
MC M NP Criterion Description
Karnataka Based upon a scale of weights assigned as: population (40%), area (20%),
78 22
(4th) level of illiteracy (20%), and SC/ST population (20%
No specific criteria. However, distribution is based on different

percentages of funds allocated for General Purposes (3.5%), Development
Kerala (5th) - - -
Purposes (11%) and Maintenance Purposes (5.5%) for local bodies based
on the projections of SOTR by Commission.
Maharashtra
60 40 - Distribution based upon the population.
(4th)
Sharing based on Population (Census 2011) (65%); Area (15%); Per

Tamil Nadu (5th) 40 29 31 Capita Consumption Expenditure Distance (10%); Proportion of Slum
Population (10%)
i. Municipal Corporation: based on share of General, SC & ST

population in the MCs;
Gujarat
49.6 50.4 - ii. Municipalities: 60% for municipalities in backward Talukas; and
(2nd)
iii. 40% for those in developed talukas and then on the basis of
population
Andhra Pradesh (3rd) - - - Per capita grants; no specific criteria
i. Shares allocated on the basis of Population (90%) and Area (10%).

ii. Inter-se distribution across three tiers of ULBs based on Population
UP (4th) 42 38 20 (40%); Area (5%); SC/ST population (10%); average per capita
income of own resources (15%); backwardness index (access to
wealth) (10%); and overall backwardness index (20%).
i. Stage 1: Urban Population.
ii. Stage 2: (a) Municipal Corporations and Municipal Councils:
Population (70%); Area (10%); Slum population (10%); revenue
Chhattisgarh (2nd) 78 22
effort (10%).
(b) Nagar Panchayats: Population (80%); Area (10%); revenue effort
(10%).
Madhya Pradesh 5+
40 45 No specific criteria
(4th) 10
i. Sharing based on Population (2011 Census);
Odisha (4th) - - - ii. Inter-se distribution across categories of ULBs is based on
population.
Based on Population, Area and Backwardness (one-third weight to each
West Bengal (4th) - - -
criterion)
ULB*: Population (70%), Area (10%) and No. of BPL Families (20%).
- - -
Bihar (5th) *Give some additional weights to MCs, Ms and NPs.
Based on Population (50%); Area (10%); Average Revenue Mobilisation

Rajasthan (4th) - - -
(10%); and Population among Municipalities (30%).
For all ULBs:

i. Population: 80%
Punjab (5th) - - - ii. Poor ULBs: 20%
(Poor ULBs are those whose per capita tax income is lower than the
average of per capita tax revenue of all ULBs).
Haryana (5th) - - - No specific criteria
Source: Gupta, Munish and Chakraborty, Pinaki (30-April 2019), State Finance Commissions: How successful
have they been in Empowering Local Governments? NIPFP Working Paper Series No. 263.
249
Table 9.27: Inter-Se Distribution Criterion adopted by14th CFC and 15th CFC
A. 14th CFC (2015-16 to 2019-20): Inter-Se Distribution Criterion
PRIs ULBs
i. Recommended grants-in-aid to duly constituted GPs i. Recommended grants-in-aid to the duly constituted
only, excluding other two tiers of PRIs (ZPs and municipalities.
PSs). ii. Distribution of grants-in-aid as:
ii. Distribution of grants-in-aid as: (a) Basic grant (80%);
(a) Basic grant (90%); (b) Performance grant (20%).
(b) Performance grant (10%). iii. Basis grants for ULBs will be divided into tier-wise
iii. Basic grants for GPs will be distributed among shares and distributed across each tier by using the
them by using the formula prescribed by respective formula prescribed by the latest SFC of the states*
SFCs of states* iv. Performance grants’ Conditions:
iv. Performance grants’ Conditions: a. Submit audited accounts that relate to a year not earlier than
a. Submit audited accounts that relate to a year not earlier two years preceding the year in which it is seeking
than two years preceding the year for which GP is performance grants.
seeking performance grants. b. ULBs will also show an increase in own revenue over the
b. GP will also show an increase in own revenue over the preceding year, as reflected in these audited accounts.
preceding year as reflected in these audited accounts. c. ULBs must publish service level benchmarks of basic
services each year.
*If the SFC formula is not available, then the share of each
GP, as specified above, should be distributed by using *If the SFC formula is not available, then the share of each of
2011 population with weightage of population (90%) and three tiers will be determined by using 2011 population with
area (10%). weightage of population (90%) and area (10%).
B. 15th CFC (2021-22 to 2025-26): Inter-Se Distribution Criterion
PRIs ULBs
i. Recommended grants-in-aid to all three tiers of PRIs i. Recommended grants-in-aid to the ULBs as under:
(ZPs, PSs and GPs). a. For million-plus cities, one-third (1/3rd) of grants be
ii. Inter-se distribution amongst all three tiers should be earmarked for achieving ambient air quality; and
done by the State Governments on the basis of the two-third (2/3rd) for service level benchmarks for
accepted recommendations of the latest SFC* and in drinking water (including rainwater harvesting and
conformity within the bands of (a) not less than 70% recycling) and solid waste management.
and not more than 85% for GPs, (b) not less than 10% b. For other than million-plus cities/towns, (i) 40% grants
and not more than 25% for BPs and (c) not less than be used for felt needs under the 18 subjects, but not
5% and not more than 15% for ZPs, subject to the for salary and other establishment expenditure; (ii)
shares adding up to 100%. 30% for drinking water, rain water harvesting and
iii. Once the state level grants are earmarked for water recycling; and (iii) 30% for sanitation
each tier, inter-se distribution among relevant tier be (including solid waste and waste water management)
done on the basis of population and area in the ratio of and solid waste management and attainment of star
90: 10 or as per the accepted recommendations of the rating as developed by the Ministry of Housing and
latest SFC. Urban Affairs.
iv. 40% share of grants be used for felt needs under c. State Government, while deciding the share of basic
the 29 subjects, but not for salary and other grants among ULBs in non-million-plus cities,
establishment expenditure; 30% share for drinking should allot grants on population basis for
water, rain water harvesting and water recycling; and Cantonment Boards falling within their territories.
30% share for sanitation and maintenance of ODF ii. States should also make allotment of grants on the basis of
status (including management and treatment of population for the Cantonment Boards within their
household waste, human excreta and faecal sludge territories.
management in particular). iii. Intra-city distribution of grants shall be on the basis of
recommendations of the latest SFC*
*If SFC recommendations not being available, then
inter-se distribution within the tiers should be decided by *If SFC recommendation is not available for distribution
the State Government within the bands indicated above. . within a particular category, allocations should be based on
population and area in the ratio of 90: 10.
Source: 14th CFC and 15th CFC.
From the above summary, it would be seen that, shorn of the minutia, the
criteria for inter-se distribution of their respective shares in devolution are mainly
250
the population, area and scheduled castes population. Broadly, in accord with that
and for the sake of simplicity, we will recommend as under: -
Recommendations
Inter-se Distribution between Different Tiers of PRIs
9.32 As the 15th CFC has already recommended substantial grants to the
Zila Parishads and Panchayat Samitis, the devolution recommended by us is for
inter-se distribution for the Gram Panchayats alone, which is summarized as
follows: -
Table 9.28: Inter-Se Distribution across GPs

Type of Devolution Rs. Crore
A. Tax Devolution (Criteria with Weightage) — Rs. 4237 crore
i. Population (80%) 3389

ii. Area (10%) 424
iii. SC Population (10%) 424
Distribution Criteria of Tax Devolution at ‘A’ above — Rs. 4237 crore
For water supply, sewerage, drainage, sanitation, and sewage

50% Share Tied 2118
disposal treatment.
For any legitimate purpose, not for payment of salaries and

50% Share Untied 2119
establishment expenses.
B. Taxes Assigned/Apportioned* — Rs. 1978 crore

Distribution of B on the basis of criteria at ‘A’ above.

50% Share Tied 989
disposal treatment.

C. Grants-in-Aid — Rs. 993 crore

Distribution of C on the basis of criteria at ‘A’ above.
100% Share To be distributed amongst Gram Panchayats that are ‘financially weak’**. 993
Total Devolution 7208
*These include (i) 20% share of total Professional Tax; (ii) 55% share allocated to the PRIs out
of 10% share of Stamp Duty & Registration Fees; (iii) 16% share of Additional Excise
Duty and 10% of Auction Money realized in the rural areas; and (iv) 2% share of VAT
collections on the Petroleum Products consumed in the rural areas.
**Definition of ‘financial weak’ Gram Panchayats will be flagged by the Department of Rural
Development & Panchayats for adoption of the Commission.
251
Table 9.29: Inter-Se Distribution Between ULBs

ii. Area (10%) 347
Distribution criteria of Tax Devolution (at A above) — Rs. 3467 crore
For water supply, sewerage, drainage, 1733
50% Share Tied
sanitation, and solid waste management.
1734
For any legitimate purpose, except payment
50% Share Untied
of salaries and establishment expenses.

Distribution of B on the basis of criteria at ‘A’ above — Rs. 2234 crore
For water supply, sewerage, drainage,
50% Share Tied 1117
sanitation, and sewage disposal treatment.
For any legitimate purpose, except payment

of salaries and establishment expenses.

Distribution of C on the basis of criteria at ‘A’ above — Rs. 812 crore.
75% Share For the Municipalities that are ‘financially weak’** 609
For the distribution amongst the Municipalities on the basis
25% Share 203
of performance**.
*These include (i) 80% share of total Professional Tax; (ii) 45% share allocated to the ULBs out of 10% share of Stamp Duty
& Registration Fees; and (iii) 16% share of Additional Excise Duty and 10% of Auction Money realized in the urban areas.
**Definition of ‘financial weak’ Municipality and performance criterion to qualify for the performance-based grants-in-aid
will be flagged by the Department of Local Bodies for adoption of the Commission.
Section-VI
Summary
9.33 On the basis of the foregoing recommendations, total

Divisible Pool for the local bodies works out to Rs. 13746 crore for the period
2021-22 to 2025-26 with its yearly and component-wise breakup as summarized
below: -
252
Table 9.30: Projected Size of Divisible Pool with Yearly Component-Wise
Description 2021- 2022 2023 2024 2025-
Total PRIs ULBs
22 -23 -24 -25 26
1. Share of State’s Net
Own Tax Revenue 1316* 1353 1504 1672 1859 7704 55 45
@3.5%
2. Assignment/Apportionm
323 876 937 1002 1074 4212
ent of Taxes/Charges/Fees
i. 100% of Professional
- 157 165 173 182 677 20 80
Tax**.
ii. 10% of Proceeds of In proportion
Stamp Duty & - 299 329 362 398 1388 to rural-urban
Registration Fees realisation#
iii. 16% of Additional Excise
Division is
Duty and 10% of Auction 323 338 353 368 385 1767
already given
Money
by Line
a. PRIs 130 135 140 145 150 700
Depts.
b. ULBs 193 203 213 223 235 1067
iv. 2% Share of VAT on
- 82 90 99 109 380 100 -
Petroleum Product***
3. Grants-in-Aid from
0 390 430 480 530 1830 55 45
Grand Total 1639 2619 2871 3154 3463 13746 - -
Note: 1. State’s Net Own Tax Revenue (t) = Gross Own Tax Revenue, including share in the
IGST and Compensation for loss of revenue due to GST (t-1) – Actual Cost of Tax
Collection (t-1) – Compensatory Payments to the ULBs for the revenue loss on
account of Abolition of Octroi (t-1).
2. State’s own tax revenue means receipts from GST, Stamp Duty, Registration Fee,
State Excise Duty, VAT/Sales Tax (POL), Vehicles Tax, Electricity Duty/Tax, Land
Revenue and other taxes and duties (Entertainment Tax, Luxury Tax, Betting Tax etc.)
imposed by the State.
3. (t) stands for current year (e.g., 2021-22) and t-1 stands for previous year (e.g., 2020-
21).
**Professional Tax imposed under the term ‘Taxes on Profession, Trades, Callings and
Employment.
***2% share of VAT (excluding ID Cess) on Petroleum Product on the basis of
realization in the rural areas.
Source: Calculated from the data supplied by the Department of Finance, and Line
Departments, Punjab.
253
9.34 Respective share of PRIs and ULBs in the Divisible Pool works out
to Rs. 7208 crore and Rs. 6513 (Rs. 25 crore for PIPFP) for the period 2021-22
to 2025-26 with its year-wise break up as under: -
Table 9.31: Horizontal Distribution of Divisible Pool between PRIs and ULBs in Punjab, 2021-
22 to 2025-26
Horizontal Distribution of Divisible Pool

Tax Devolution Assignment of Grants-in-Aid Total Divisible
@3.5% Share* Tax/es # Pool
Year
PIPFP**
PIPFP**
(55%)
(45%)
(55%)
(45%)
ULBs
ULBs
ULBs
ULBs
Total
PRIs
PRIs
PRIs
PRIs
2021-22 724^ 592^ 130 193 - - - - 854 785 1639
2022-23 744 609 412 464 10 209 171 10 1365 1244 2619
2023-24 827 677 444 493 5 234 191 5 1505 1361 2871
2024-25 920 752 478 524 5 261 214 5 1659 1490 3154
2025-26 1022 837 514 560 5 289 236 5 1825 1633 3463
Total 4237 3467 1978 2234 25 993 812 25 7208 6513 13746
*3.5% share of the Net Own Tax Receipts of State.

#It includes the professional tax, 10% share of Stamp Duty and Registration Fees, 16% share of additional
excise duty and 10% share of auction money on liquor and 2% share of VAT on Petroleum Product consumed in
the rural areas.
**It stands for the Punjab Institute of Public Finance and Policy.
^4% share of NOTR recommended by 6th SFC Report for the Year 2021-22.
Source: Calculated from financial data supplied by Department of Finance, Punjab (Fiscal Scenario-5).
Recommendations
Inter-se Distribution between Different Tiers of PRIs
9.35 As the 15th CFC has already recommended substantial grants to the
Zila Parishads and Panchayat Samitis, the devolution recommended by us is for
inter-se distribution for the Gram Panchayats alone, which is summarized as
under:
254
Table 9.32: Inter-Se Distribution across GPs
ii. Area (10%) 424
iii. SC Population (10%) 424
Distribution Criteria of Tax Devolution at ‘A’ above — Rs. 4237 crore
50% Share Tied 2118
disposal treatment.
Distribution of B on the basis of criteria at ‘A’ above.
50% Share Tied 989
disposal treatment.
Distribution of C on the basis of criteria at ‘A’ above.
100% Share To be distributed amongst Gram Panchayats that are ‘financially weak’**. 993
*These include (i) 20% share of total Professional Tax; (ii) 55% share allocated to the PRIs out of 10% share of Stamp Duty
& Registration Fees; (iii) 16% share of Additional Excise Duty and 10% of Auction Money realized in rural areas; and (iv)
2% share of VAT collections on the Petroleum Products consumed in the rural areas.
**Definition of ‘financial weak’ Gram Panchayats will be flagged by the Department of Rural Development & Panchayats
for adoption of the Commission.
Table 9.33: Inter-Se Distribution Between ULBs

ii. Area (10%) 347
Distribution criteria of Tax Devolution (at A above) — Rs. 3467 crore
For water supply, sewerage, drainage, sanitation, and solid 1733
50% Share Tied
waste management.
For any legitimate purpose, except payment of salaries and 1734
50% Share Untied
Distribution of B on the basis of criteria at ‘A’ above — Rs. 2234 crore
For water supply, sewerage, drainage, sanitation, and
50% Share Tied 1117
sewage disposal treatment.
For any legitimate purpose, except payment of salaries and
Distribution of C on the basis of criteria at ‘A’ above — Rs. 812 crore.
75% Share For the Municipalities that are ‘financially weak’** 609
25% Share For the distribution amongst the Municipalities on the basis of performance**. 203

*These include (i) 80% share of total Professional Tax; (ii) 45% share allocated to the ULBs out of 10% share of Stamp Duty
& Registration Fees; and (iii) 16% share of Additional Excise Duty and 10% of Auction Money realized in the urban areas.
**Definition of ‘financial weak’ Municipality and performance criterion to qualify for the performance-based grants-in-aid
will be flagged by the Department of Local Bodies for adoption of the Commission.
255
Section-VII
Measures Needed to Improve Financial Position of Panchayats /

Municipalities
9.36 Paras (b) and (c) of the ToR of the Commission requires it to
suggest measures to improve the financial position of the
Panchayats/Municipalities and the measures to reduce the unproductive
revenue expenditure and steps to improve the quality of administration and
technical support for efficient and effective use of capital resources.
9.37 The above ToR presents a paradox of sorts to the
Commission. Firstly, viewed in the context of fiscal prudence being
observed by the State Govt. and its current precarious fiscal position, it is a
text book case of preaching without practicing. Not to speak of catalyzing
measures to mobilise own resources by the Panchayats/Municipalities, the
state government has been taking decisions detrimental to their revenues.
Recently, the state government took a decision to waive-off the past arrears
of water charges of municipalities amounting to Rs. 700 crore and free
electric supply to the rural water supply tubewells, involving revenue
sacrifice of Rs. 1348 crores. Usually, such decisions are subject to the state
government compensating the local bodies for the resultant loss. However,
the past track record of the state government in this behalf does not bear
256
testimony to this and is totally unsustainable in the face of state’s poor
financial position. Besides, it weakens the moral authority of citizens
to hold the local bodies accountable for providing cost-effective and
corruption free services to them. Therefore, the Commission strongly
disfavours the culture of freebies in such services whose beneficiaries can
be identified. Instead, cross-subsidization and formula-based transfers from
the state government to the local bodies are better instruments for promoting
equity in the provisioning of services. To cap it, the recommendations of
the 4th and 5th SFC have drawn a blank in their implementation by the state
government.
9.38 The Commission’s task, qua this ToR, is rendered virtually
impossible due to the state government’s inability to enact a law conferring
powers to levy, collect and appropriate taxes, duties, tolls and fees on the
local bodies in terms of Articles 243H and 243X of the Constitution of India.
There is also no clarity even with respect to the powers, authority and
responsibilities of the local bodies (Article 243G and Article 243W). The
extant laws have only enumerated the functions listed in Schedule XI and
Schedule XII of the Constitution, without detailing the precise activities
these will entail and, that too without differentiating the local bodies on the
basis of their size, resources and capabilities.
9.39 Nevertheless, the Commission is of the firm belief that,
without mobilising their own resources and being heavily dependent on the
257
central or state transfers for their survival, the local bodies would be reduced
to the status of mere agents of the central/state governments than becoming
self-governing entities that the Constitution mandates them to be. The
specific recommendations of the Commission in this behalf are as at para
7.7 of Chapter 7 of the report, pertaining to the Panchayats and at paras
8.17 to 8.22 of Chapter 8, pertaining to the Municipalities
258
Chapter 10
Reinventing the Government

(Bad governance doesn’t just undermine service delivery,
it retards development and drives violence – Quett Masire)
10.1 This Chapter deals with certain overarching issues, having an

important bearing on governance and public finance. At the heart of policy
goals of the government ought to be high, inclusive and sustainable socio-
economic development in a liberal and democratic order.
Reinventing Government
10.2 For diehard Marxists, the state is just a committee for

managing the affairs of the bourgeoisie. For diehard public choice
theorists, the state is simply an instrument used by individuals and groups
in power to pursue their self-interested goals. Neither of these extreme
views truly characterize the Indian state. Though there is much to criticize
in the way it functions, the post-independence history of the state in India
lends no credence to the view that it is devoid of autonomy (Bardhan,
1984). Therefore, the Indian state, manifest in governments at various
levels, has a lot of scope for independent action and, in consequence, a
critical and potentially beneficial role to play in economic development.
This, in turn, depends on the quality of governance.
10.3 India watchers have been baffled by the puzzling contrast

between some of the spectacular achievements of the state and its everyday
incompetence. It has conducted National Elections barely without a hitch;
it has run an impressive nuclear programme; it has sent a spacecraft to the
Mars at the most economical cost; and very recently, it has run a massive
259
anti-Covid vaccination programme. At the same time, it has failed
miserably to enforce the rule of law, secure peoples’ rights to life, limb and
liberty; and deliver public services in a corruption-free way. This contrast
is stark in the legislation of justiceable rights to food, work, education and
information and their enforcement/achievement. On the one plane,
enacting such rights is laudable endeavour, on the other, it is a mere
diversion from the real problems of service delivery.
10.4 In the post-independence era, we began with an excellent

administrative system by a developing country’s standards. But there has
been no attempt to build on this platform. Despite slogans such as (i)
downsizing the government, (ii) less government and more governance,
and (iii) government has no business to be in business, there has hardly
been any reform to redefine the role of the state and reinvent its structure,
personnel, processes and procedures.
10.5 Punjab presents a puzzle. Despite pangs of the partition, its

trifurcation and prolonged militancy, the State continued to grow by leaps
and bounds. When the country was still struggling with the third world
issues like poverty and hunger, the state had resolved the issues of bread
and butter and was poised to address the first world problems.
Paradoxically, Punjab’s economic decline from the nineties coincides with
a resurgent India. State after State overtook Punjab in economic
achievement and, sadly, it slid from the top slot by the end 1990s to the 15th
position in terms of per capita income amongst 28 States by the end of 2019-
20. If one were to look for one single contributory factor, it will be none
other than absence of good governance. From the mid-nineties, the state has
been following povertarian model of growth, which prioritizes holding out
doles over strengthening infrastructure, improving social capital and
enforcing rule of law. Therefore, nothing short of reinventing government
260
will do. However, it does not mean that we view the government as a
necessary evil. To the contrary, we believe that government is the only
institution which can address collective issues faced by the society.
10.6 The Commission is acutely conscious of the fact that

suggesting comprehensive governance reforms is neither within its remit
nor capacity. That said, change of direction, as outlined below, may be in
order.
- At present, the state’s ambitions vastly exceed its capabilities. So,
the solution is in moderating the former and enhancing the latter.
This will mean questioning the conventional wisdom about the
boundaries of the state action and modalities of providing public
goods and services.
- That said, the scope of desirable government activity is bound to
remain large. So the issue of improving administrative competence,
motivation and accountability remains. The government need to
carry out a comprehensive review of various entities under its
umbrella to decide if they are of any positive value and worth
expending a huge amount of money on them. Outdated must be
eliminated and out lasting must be reformed to fit into the redefined
role of the state.
- Likewise, there are countless schemes and programmes that are
historically running without their utility over being questioned. A
thorough review may find most of them without any positive
contribution or even negatively impacting the outcomes. A sun-set
clause be introduced for timely weeding out of the outdated and
irrelevant schemes/programmes.
- The way the government is currently structured, saps
entrepreneurship and promotes sloth. We believe that the
261
government with their centralized bureaucracies and standardized
“one-size-fits-all” services, are not up to the mark to face challenges
of a rapidly changing information society and knowledge-based
economy. The trouble is less with bureaucrats and more with
bureaucracies. This system of government must be reinvented (Box
10.1) to liberate the enormous energies/talents of public servants,
who are currently trapped in archaic systems.
Box 10.1
Basic Features of Reinventing Government
Reinventing government is a neo-liberal strategy in which the rigid,
wasteful and centralized bureaucracies of the industrial era be replaced with
the more flexible, entrepreneurial and decentralized government for
transforming the public sector/services. Its main features are as under:
- Catalytic role – leveraging the private-sector actions to solve
community problems;
- Community owned – empowering the families and communities to
solve their own problems;
- Competitive – moving away from the traditional monopolistic models
in providing public services like education, policing, transportation,
etc.;
- Results-oriented – providing incentives to the people bringing better
outcomes/successes;
- Customer-driven – putting resources directly in the hands of the
intended recipients of the service for making choices based on quality
and price;
- Decentralized – allowing local governments to provide citizen-centric
services like water supply, schooling, recreation parks, etc.; and
- Market-oriented – allowing restructuring of the markets whenever or
wherever necessary for achieving public purpose/s.
Source: Osborne, David and Gaebler, Ted (1992), Reinventing Government: How the
Entrepreneurial Spirit Is Transforming the Public Sector, Addison-Wesley
Publishing Company, New York.
- The emerging model of government the world over is the

‘entrepreneurial government’. This may surprise many who think
of entrepreneurs solely as business men and women. But the true
meaning of the word entrepreneur is broader. It was coined by the
262
French Economist J. B. Say, according to which an entrepreneur
‘shifts economic resources out of an area of lower and into an area
of higher productivity and greater yield’. In other words, it uses
resources in a more productive and effective manner. Governments
at all levels must emulate this emerging model.
- Although the media is obsessed with the federal or state
governments, most government in India takes place outside the
capital cities, spread over thousands of local governments. The
solution points in the direction of making local governments
effective for quality, quick and cost-effective delivery of public
services.
- Yet another emerging aspect of governance is the regulation. The
government is required to regulate the players in a number of sectors
to ensure and create a fair deal for all the stakeholders. This
objective remains largely unachieved because the regulatory
institutions are neither autonomous in functioning nor are they
manned by professionals of impeccable integrity. This calls for an
immediate redressal.
10.7 The suggested change in direction cannot be brought about
outsourcing governance. It has to come from within and has to be owned
by the government at the highest level. It may, therefore, help if this
change is steered by an empowered cabinet committee led by the Chief
Minister.
Unplanned Infrastructure and Human Resource Development
10.8 The Commission has observed that the state government has
been creating social and physical infrastructure for the last 5-6 decades
without even having to analyse if the already created infrastructure is
achieving its objectives, is in a state of good repair or needs renewal. It is
263
well known that the infrastructure created so far is not necessarily need-
based, based on any empirical evidence, but largely governed by whims
and fancies of the government in power. Obviously, this has not only
resulted in colossal wastage of resources, but is also not fulfilling the
objectives with which such huge infrastructure has been created. The
Commission would like to recommend as follows: -
a. Make an assessment of existing infrastructure as to its functionality

or dysfunctionality. Surely, there would be underprovided and
overprovided areas in this behalf, resulting in huge slack and
redundancies. These need to be eliminated. This is not only in the
field of physical infrastructure, but is also relevant for the
deployment of human resources, especially in the education and
health sector.
b. Fresh physical and social infrastructure creation should be need-
based, equitable and outcome-focused, which would result in better
service to people and colossal savings to the government. This can
simply be assessed by superimposing the infrastructure map on its
geographical map.
10.9 The commission is neutral in judging the size of the

government as to if it is large or small. However, the Commission believes
that it is not the right size. In other words, there are areas where we have
created institutions and deployed manpower which serves little purpose,
and on the other, there are areas which are crying for right type of human
resource for providing the desired services to the people. A good example
of such mismatch is the creation of a plethora of welfare boards, etc., with
an unwarranted focus on various castes. Likewise, there are innumerable
public sector entities which have long outlived their utility, but are still
continuing and flourishing. Huge resources are locked up in them that need
264
to be unlocked. On the other hand, there are less teachers, doctors,
paramedics, veterinarians, managers, judges, policemen, etc. This
imbalance needs immediate redressal.
Attrition of the Consolidated Fund of the State (CFS)
10.10 Contrary to the constitutional provisions, the last twenty years

have seen a steep rise in the off-budget transactions of the state
government. The constitutional position is that all revenues should be
credited to the Consolidated Fund of the State, and expenditure out of the
CFS be incurred only with the approval of the State Legislature. However,
different stratagems have been used to keep a substantial part of state’s
revenues/expenditures out of the CFS. These include purpose-specific
taxes/cesses/surcharges under various statues and incorporation and
registration of societies by govt. departments with a view to retaining the
receipts and incurring expenditure at their own discretion, rather than
within overall priorities of the state. Normally, such an arrangement is
justified on the ground of providing earmarked and non-lapsable funds for
priority programmes of the government, which may not be possible
through the normal budgetary channels. This argument is further buttressed
by the fact that, once these revenue receipts become part of the CFS, their
release is subject to the financial vagaries of the state, due to which, funds
so raised may not be spent for the stipulated purpose. No doubt, there is
some weight in this argument. However, this needs to be weighed against
pitfalls of such an arrangement.
10.11 Firstly, keeping huge amounts out of the CFS, militates

against the fundamental principle of Public Finance, i.e., ‘no taxation
without representation and no expenditure without legislative
authorisation’. Secondly, it dilutes transparency and accountability.
Thirdly, it results in poor outcomes. Fourthly, it leads to skewed priorities.
265
Lastly, it may promote graft, waste and corruption. In fact, these very
pitfalls seem to be incentivizing the departments to resort to such off-
budget transactions. However, the fear of the departments that once these
receipts become part of the CFS, they are virtually sucked up into a black
hole is meritorious and needs to be suitably addressed.
10.12 After weighing pros and cons of this issue, the Commission is
of the opinion that the balance of advantage lies with ploughing these
revenues into the CFS. At the same time, the state government must ensure
timely release of funds earmarked for specific purposes under various
statues. CAG, in its various reports, has also repeatedly advised the state
governments to make these revenues/expenditures a part of the CFS, and
the Commission strongly reiterates the same. This will go a long way in
improving the quality of Public Finance.
10.13 The magnitude of off-budget transactions for the year 2020-

21 is presented below in Table 10.1:-
Table 10.1: Off-Budget Transactions in Punjab during 2020-21 (Rs. Crore)

S. Description Balance
Revenue Expenditure
No (Cumulative)
1 Punjab Infrastructure Development Board
Routed through Treasury
(PIDB)
2 Punjab Rural Development Board (PRDB) 1257 1415 236
3. Punjab Municipal Infrastructure
388.48 388.48 0.00
Development Fund (PMIDF)*
4. Cattle Fair Fund (CFF) 39.42 47.62 60.04
5. Punjab State Transport Society (PSTS) 67.41 19.33 41.79
6. Excise and Taxation Technical Services
70.66 19.18 69.27
Agency (ETTSA)
7. PUNBUS 309.68 306.43 3.24
8 Punjab Pollution Control Board (PPCB) 87.46 103.44 -
9. Labour Cess 151.68 148.28 667.81**
10 Education Cess Nil Nil Nil
11. Other Societies of Different Departments***
*As per the decision taken in 13th BOD meeting of PMIDC, 25% of interest earned on
PMIDF fund will be utilized for the administrative and office expenditure of PMIDC, and the
balance 75% of interest earned has been utilized as project.
**Balance sheet shows the above amount is exclusive of interest earned on the total labour
cess receipt till 31.03.2021.
***No off-budget transactions since their income and expenditure is routed through treasury.
266
Unlocking Land Values to Finance Urban Infrastructure
10.14 The ULBs are starved of resources. Their current revenues
from all sources are grossly inadequate to fund even the core functions
assigned to them. In the aftermath of GST, most of the local tax resources
stand subsumed into GST, leaving ULBs abjectly dependent upon
central/state transfers for their very survival, this underscores the need for
identifying new sources of revenue. On the other hand, fast-paced
urbanization and people’s quest for better civic amenities continuously
constrain the finances of ULBs.
10.15 In the recent times, unlocking land values to finance urban
infrastructure has emerged as an important new revenue handle at the
disposal of ULBs. This is also known as ‘Value Capture Finance’ (VCF).
VCF is based on the principle that, ‘private land and buildings benefit from
public investments in infrastructure and policy decisions of the government
(eg. Change of land use or FSI)’ and ‘appropriate tools/methods’ of VCF
can be deployed to capture a part of the increment in value of land and
buildings to fund urban infrastructure. However, it should not be confused
with the sale of land/properties by local bodies. Various tools adopted for
VCF are described in the Box 10.2.
267
Box 10.2
Value Capture Methods, Frequency Incidence and Scale of Intervention
S.
Value Capture Method Frequency Incidence Scale of Intervention
No.
Annual rates based on
1. Land value tax gain in land value Area-based
uniformity
Fees for changing land One-time at the time of giving
2. use (agricultural to non- permission for change of land Area/Project-based
agri-uses) use
One-time while applying for
3. Betterment levy Area/Project-based
project development rights
Development charges
4. One-time Area-based
(Impact fees)
Transfer of Development
5. Transaction-based Area/Project-based
Rights
Area (Roads,
Premium on relaxation of
6. One-time Railways) / Project
rules or additional FSI
(Metro)
7. Vacant land tax Recurring Area-based
Recurring and for a fixed
8. Tax increment financing Area-based
period
Land Acquisition and One-time upfront before project
9. Area/Project-based
Development initiation
One-time upfront before project
10. Land Pooling System Area/Project-based
initiation
Source: GoI (year not mentioned), Value Capture Finance Policy Framework, Ministry of Urban
Development, Government of India.
10.16 Some of the progressive states have systematically used VCF

to raise additional resources by ULBs. However, the government of Punjab
has not framed a holistic policy framework on the subject and its effective
implementation. Consequently, various tools of VCF have been used
sporadically and in an adhoc manner, leading to sub-optimal outcomes. In
addition, the current practices on the subject suffer from the following
handicaps: -
- VCF policy framework is not embedded in law.

- Fragmented and sporadic implementation spread over multiple
agencies.
- Many widely used tools of VCF not being resorted to by the state
government.
268
- Arbitrary determination of increase in land value resulting in rent
seeking, rather than value-maximization.
- Lack of clarity about the utilization of VCF proceeds.
10.17 To overcome the above shortcomings, it is essential to draw

up a comprehensive VCF policy framework and to enshrine it in law. The
Commission strongly recommends the state government to follow this
policy earnestly. Ministry of Urban Development, Government of India,
has written a paper on the subject, which may be of help to the state
government in this behalf. A summary of various tools/methods of VCF
deployed by major states of India is reproduced in Annexure-10A.
Low Value Capture Finance in Punjab
10.18 The Commission tried in vain to ascertain from the

department of urban development as to what extent it is able to garner
revenue by invoking various tools of VCF. The department does not seem
to have such information. Nor do other departments, which are dealing
with development of land themselves or are taking policy decisions that
enhance value of land/ properties, have such information. However, it is
informally learnt that various beneficiaries of such actions of the govt. owe
huge sums of money to the govt. Recent Media reports indicate that such
stakeholders owe nearly Rs. 15,000 crore to Haryana’s development
authorities on various counts.
10.19 The position in Punjab may be similar. As such revenues are

generated either by policy decisions of the government or by transfer of
provincial lands/properties or by acquiring land by the government in
exercise of eminent domain, the least these authorities can do is to render
full account of value capture revenues, as also of the land transferred or
acquired for them. The Commission will strongly recommend that all the
269
entities dealing with land development/regulation may be asked to render
full account of the value generated by them, and, in future, such an account
be updated in real-time and effective steps be taken to capture a due share
of the enhanced value of such land/properties and for the recovery current
and outstanding dues.
Paradigm Change in Urban Planning
10.20 India is a fast-urbanizing country and Punjab is one of the

leading states in this behalf. Somehow, the state has remained behind the
curve in urban planning and development so as to cope up with the rising
tide of urbanization. In fact, urban sprawls, which are currently dotting the
state, are (Zirakpur is the latest) emblematic of state-sponsored slums. It
is because cities/towns have not been imagined as centres of sustainable
living with opportunities for all, including women and youth. Instead of
being conceived as engines of growth, cities/towns are seen to be problems
riven by congestion, pollution, squalor and bereft of basic civic amenities
such as water, sewerage, solid waste management, roads, connectivity and
liveable public spaces.
10.21 The starting point for integrated socio-economic and spatial

planning should be regional planning. Rather than focusing on expansion
of towns in isolation from their hinterland, it is important to focus
simultaneously on the watershed region. The aim should be to identify
towns or growing villages with locational or natural resource advantages,
and focus future socio-economic and spatial growth by guiding investment
of funds for industrial and infrastructure and industrial growth into such
nodes. But regional planning in the state has suffered due to missing
institutions.
10.22 An attempt to provide institutional framework for this purpose

was made for the first time through CAA, 1992, which, by virtue of
270
Articles 243 ZD and 243 ZE provided for Committee for District Planning
and Committee for Metropolitan Planning. In token compliance of these
constitutional provisions, the state government has notified these
committees, but they have remained dysfunctional. Interestingly,
Metropolitan Planning Committee has been constituted to cover all
municipalities in a district as a Metropolitan area irrespective of their
spatial or socio-economic synergies or contiguous location. These
committees need to be made effectively functional for integrated regional
planning and to realize economies of agglomeration, and the Commission
strongly recommends for the same.
10.23 The current Master Planning models treat transportation as a

residual. It is necessary to integrate land use with transportation to take
advantage of agglomeration economies and minimize congestion
diseconomies. This must include provisions for housing for the poor along
transit corridors so that they can avail of public transportation. Integration
is possible if there are institutions which can coordinate the planning and
management of land and transport investments.
10.24 As cities grow and expand, agricultural lands surrounding

them need to be converted to non-agricultural use to meet the demands of
housing and commerce. The existing legal/administrative framework
governing change of land use is restrictive and also a major source of
corruption. This should be transparent, policy-driven and not decided on
case-to-case basis.
10.25 In the peripheral areas of fast-growing urban agglomerations,

which grow faster in the unregulated and unauthorized periphery than at
the core, the Town and Country Planning legislation should lay down clear
and simple guidelines for the periphery of cities/towns to enforce a
modicum of orderliness in the growth of these areas to prevent them from
271
becoming the slums of future urban areas. The Commission believes that
the planning of the city and its defined periphery should be an integral
function of ULBs (at least the large ones).
Cities Expanding at the Periphery, not at the Core!
Ludhiana Municipal Corporation Boundary (Red)
272
How not to do Urban Planning!
10.26 As stated earlier, mere devolution of funds to the local bodies

will not suffice until accompanied by wide-ranging governance reforms in
their functioning. Instead of suggesting specific reforms in this behalf, the
Commission has culled out a cohort of reforms in urban governance from
the report on Indian Urban Infrastructure and Services which is
reproduced as follows:
a. Institutional Reforms
• Creating institutional linkages for fostering better governance;
• Creating favorable environment for attracting investments and
generating employment;
• Harnessing agglomeration of economies; and
• Minimizing congestion diseconomies.
273
Figure 10.1: Institutional Framework for Better Governance for Service Delivery
by State Government
Urban Utility State Financial

Regulator Intermediary
Property Tax Deprtment of Reform and

Board Urban Affairs and Performance
Housing Management Cell
• Empowerment of City Mayor for developing efficient system of

delivering urban services (Figure 10.2).
Figure 10.2: Urban Local Government
City Mayor
City Management Service Delivery Agencies
b. Administrative Reforms
The major administrative reforms, suggested by the High-Powered
Committee, are as under:
• Autonomy in city management.
• Empowerment of the Mayors with effective devolution.
• Convergence of institutional responsibilities (Figure 10.3).
274
Figure 10.3: Missing Convergence in Urban Planning
City
development
plan
slum
master
free city
plan
Convergence? plan
comprehensive city
mobility plan sanitatio
n plan
c. Reforms in System of Delivery

• Corporatization of urban services.
• Collective effort to deliver.
• Public Private Partnership.
• Establishing regulatory regime for urban services at state level.
• Accountability and citizen partnership.
• E-Governance.
Figure 10.4: Reforms in Systems of Delivery
Enablers Delivery systems Outcomes
•State Governmnet •Corporatisation •Efficiency gains

Leadership •PPPs •services delivery as
•Sustainable revenues •Collective effort of per norms
•Empowered mayor ULBs •Private investment in
•Urban Utility Infrastructure and
regulator Service Delivery
•Professional
management
•e-Governance
•Land policy and
planning
•Citizen participation
275
d. Capacity Building
• Building/reforming of Municipal cadres.
• Transparent search-cum-selection process led by Mayor for
recruiting Municipal Commissioner.
• Better communication mechanisms and dissemination of
knowledge about best practices among ULBs.
• Setting up institutes of Urban Management.
• Upgrading the skills of existing personnel by providing courses in
urban management/finance/planning.
• Creation of dedicated Municipal Information Unit to collect,
collate and analyse comparable data on municipal services on
annual basis.
e. Urban Planning
• Spatial planning.
• Integration of spatial planning with economic planning.
• Regional planning-integration of spatial planning with
environmental, socio-economic, and cultural considerations.
• Creation of Metropolitan Planning Committees/District Planning
Committees.
• Laying down Town and country planning legislation.
f. Financial Reporting, Disclosures, and Audits
• Transparent budgeting practices.
• Setting up local fund audit commissions.
The government may consider these reforms for adoption by the

urban local bodies in the state.
10.27 Land readjustment or land pooling and Town Planning

schemes (TPSs) are other instruments that have to be deployed for making
276
land available for urban infrastructure. In our country, Ahmedabad and
Surat local bodies in Gujarat have achieved demonstrable success, which
can be suitably replicated by Punjab.
10.28 The vertical dimension of land is even more important. Floor

space index (FSI) is the most abused term in our urban planning system,
and the allocation of FSI is seldom made rationally. Restrictive FSI and
density norms have led to sprawling cities with spiraling costs of
infrastructure development. Judicious use of FSI in the creation of compact
cities is extremely important. The Commission recommends re-zoning, re-
planning, renewal and redevelopment of urban areas for improved civic
amenities and infrastructure.
10.29 The elephant in the room, however, is multiplicity of entities

involved in urban planning and development. To name a few, these are
departments of urban development, local government, town planning,
industries, rural development, municipalities, urban development
authorities and improvement trusts without any point of convergence. The
Commission, therefore, recommends that, the department of housing and
urban development, country & town planning and department of local
government may be merged into one. The merged entity may be made the
foci of urban planning and development. At the implementation level,
ULBs should be the point of convergence, as they are responsible for
delivery of various urban services.
10.30 Urbanisation has become a central vista to India’s economy

as it contributes nearly 60% of India’s GDP. Over the years, cities/towns
have expanded, faced acute shortage of basic civic infrastructure and
become a victim of stresses and strains of unplanned urbanization, the
brunt of which is largely faced by the poor and the marginalised, the
biodiversity and the economy (NITI Aayog, 2021). An estimate states that
277
when independent India scores a century, nearly one-half of her population
will be counted as urban population (GoI, 2022). In this context, orderly
urban planning and development has gained a critical importance. NITI
Aayog, in recognition of these facts and shortages, launched the urban
planning reforms in its recent report titled ‘Reforms in Urban Planning
Capacity in India’. The salient features of these reforms are presented in
Box 10.3 below: -
Box 10.3
Reforms in Urban Planning Capacity in India
This report, while highlighting the rising urbanization trends
and associated problems, puts more emphasis on the reforms to raise
urban planning capacity in India. These are as under: -
- Initiation of programmatic state intervention for planning of
health cities; for which a central government scheme of
developing ‘500 Healthy Cities’ be started during the period of
next five years.
- Adopt a scientific approach for optimum utilization of urban
lands.
- Revamping up the human resources needed for tackling
challenges of urbanization and ensure qualified urban
professionals.
- Re-engineering of urban governance by having clear roles and
responsibilities amongst various urban local authorities.
- Updating/Revision of town and country planning acts across the
States.
- Building local leadership, by involving the citizens, to make
urban planning more accessible and inclusive.
- Take steps for enhancing the role of private sector in urban
planning.
In nutshell, political leadership, decision-makers and planners
need to build a common consensus to save city environment and make
it safe for the all.
Source: NITI Aayog (2021), Reforms in Urban Planning Capacity in India - Final Report,
Government of India, New Delhi.
278
10.31 While presenting the budget for 2022-23, the Central
government have proposed to constitute a high-level committee of reputed
urban planners, urban economists and institutions to make
recommendations on the urban sector policies, capacity building, planning,
implementation and governance (Box 10.4). The central government has
also proposed to upgrade 5 existing academic institutions across different
regions as Centres of Excellence. These centres will be provided
endowment funds of Rs. 250 crore each. In addition, AICTE will take the
lead to improve syllabi, quality and access of urban planning courses in
other institutions.
Box 10.4
New Vistas for Urban Planning: Central Budget 2022-23
• Nearly one-half of India’s population is likely to living in urban areas by the

time India @ 100.
• Recognizing the critical importance to orderly urban development.
• Proposes to set-up five existing academic institutions as Centres of
Excellence across different regions of India.
• Each centre will be provided an endowment fund of Rs. 250 crore.
• These centres will (i) support the States in urban capacity building in
strategic areas like modernizing building bye-laws, town planning, transit-
oriented development, etc.; (ii) promote India-specific knowledge in urban
planning and design; and (iii) deliver certified training in these areas.
• All-Indian Council for Technical Education (AICTE) will take lead in
improving syllabi, quality and access of urban planning courses in these
institutions.
Source: Budget 2022-23, Speech of Nirmala Sitharaman, Finance Minister, Government of India,
February 01, 2022.
10.32 The state government may actively interact with the proposed
panel for drawing up future policies in this behalf. It is also proposed to
assist the States in urban capacity building, which we may avail of. In fact,
there is a dire need for setting up a state level institute for urban planning
and development which may be upgraded to a Centre of Excellence in due
course of time.
279
Budgeting and Fiscal Responsibility Legislation (FRL)
Poor Budget Marksmanship
10.33 The Annual Financial Statement (Article 202 of the

Constitution) or the Budget, as it is known in common parlance, is the most
important financial document through which the state government not only
provides an estimate of its annual receipts and expenditure, but also shares
with the people various development works it proposes to execute, as also
the broad thrust of its development strategy for the future and ways and
means of funding the same. Therefore, integrity of the Budget is at the
very core of the bond of trust between the state and its people.
10.34 The Commission has carried out an analysis of differences

across the Budget Estimates (BEs), the Revised Estimates (REs) and
Actuals (As) for the last 10 years from 2011-12 to 2020-21, which is
presented in Table 10.2.
Table 10.2: Comparison of BE, RE and Actual Budgetary Figures of Punjab, 2011-12 to 2020-21
Variations in Figures @ 10% or More

Head Between BEs and REs Between BEs and As Between REs and As
(Total Ten Years) (Total Ten Years) (Total Ten Years)
A. Comparison of BE, RE and Actual Figures of Revenue Receipts of Punjab.
-18.09% (2011-12); -
15.75% (2012-13); -
17.72% (2013-14); - -15.41% (2011-12); -
13.08% (2014-15); - 18.38% (2012-13); -
1. Total Revenue -18.14% (2020-21). 10.18% (2015-16; - 11.91 (2013-14); -
Receipts [One Year] 11.77% (2017-18); - 11.55% (2018-19);
15.64% (2018-19); - -16.76% (2019-20).
21.57% (2019-20); - [Five Years]
26.39% (2020-21).
[Nine Years]
-15.58% (2013-14); -
-10.21% (2017-18); - 10.22% (2014-15); -
-10.47% (2014-15); -
20.27% (2018-19); - 23.03% (2017-18); -
2. State’s Own 14.28% (2017-18); -
10.44% (2019-20); - 23.11% (2018-19); -
Tax Revenue 11.10% (2019-20).
15.12% (2020-21) 20.38% (2019-20); -
[Three Years]
[Four Years] 18.98% (2020-21).
[Six Years]
280
-55.27% (2011-12); -
-62.72% (2011-12); -
50.16% (2012-13);
-20.00% (2011-12); 46.52% (2012-13); -
16.65% (2013-14); -
30.30% (2013-14); 10.48% (2013-14); -
30.32% (2015-16);
3. State’s Own 64.44% (2016-17); 34.75% (2015-16); -
54.01% (2016-17);
Non-Tax 58.02% (2017-18), - 15.26% (2017-18); -
Revenue 33.91% (2017-18), -
15.99% (2019-20); - 23.64% (2018-19); -
26.02% (2018-19); -
4242% (2020-21). 16.42% (2019-20); -
29.79% (2019-20); -
[Six Years] 10.38% (2020-21).
84.05% (2020-21).
[Eight Years]
[Nine Years]
-12.91% (2014-15); -
-22.33% (2019-20); -
4. Share of 22.33% (2019-20); - -12.91% (2014-15)
29.87% (2020-21).
Central Taxes 34.40% (2020-21). [One Year]
[Two Years]
[Three Years]
-43.61% (2011-12); -
-20.69% (2011-12); - 41.26% (2012-13); -28.90% (2011-12); -
27.01% (2012-13); -48.26% (2013-14); - 53.75% (2012-13); -
-18.37% (2013-14); - 28.68% (2014-15); - 36.61% (2013-14); -
29.43% (2014-15); - 17.77% (2015-16); - 16.83% (2015-16); -
5. Grants-in Aid
22.89% (2016-17); - 29.99% (2016-17); - 34.97% (2017-18); -
from Centre
15.12% (2017-18); 14.57% (2017-18); - 29.33% (2018-19); -
83.41% (2018-19); - 29.61% (2018-19); - 33.51% (2019-20); -
21.56% (2019-20). 19.18% (2019-20); - 21.54% (2020-21).
[Eight Years] 21.94% (2020-21). [Eight Years]
[Ten Years]
6. Additional During 2011-12 to 2020-21, proposal to raise additional resources was kept as
Resources a head, but no concrete proposal was made due the reasons best known to the
Mobilisation political executive.
–17.79% (2011-12);
–20.27% (2011-12);
20.36% (2012-13); –31.64% (2011-12);
18.55% (2012-13);
16.77% (2014-15); 22.07% (2015-16);
7. Total Capital 11.15% (2014-15);
21.32% (2015-16); 136.65% (2016-17); -
Receipts 137.28% (2016-17);
136.65% (2016-17); - 66.60% (2020-21)
11.36% (2018-19)
59.29% (2020-21) [Four Years]
[Five years]
[Six Years]
–20.91% (2011-12); –32.48% (2011-12); –44.16% (2011-12); -
8. Public Debt 251.76% (2016-17); 41.66% (2015-16); .178% (2012-13);
(excl. Ways & 11.10% (2018-19); 247.56% (2016-17); - 39.04% (2015-16); -
Means) 47.23% (2020-21) 14.96% (2020-21). 47.05% (2020-21).
[Four Years) [Four Years) [Four Years]
18.77% (2011-12); 20.21% (2011-12);
57.14% (2012-13); 64.19% (2012-13);
9. Ways and
23.33% (2014-15); 28.45% (2014-15); -15.76% (2019-20)
Means
41.03% (2016-17); 46.98% (2016-17); [One Year]
Advances
25.71% (2020-21). 15.76% (2019-20).
[Five Years] [Five Years]
84.84% (2012-13); 17.61% (2011-12); 25.24% (2012-13); -
955.42% (2013-14); - 131.50% (2012-13); - 92.41% (2013-14);
43.63% (2014-15); 19.62% (2013-14); -34.46% 16.29% (2014-15);
10. Non-Debt 38.88% (2015-16); (2014-15); 139.74% (2015- 72.62% (2015-16); -
Receipts 807.04% (2016-17); 16); 82.60% (2016-17); 79.87% (2016-17);
1232.87% (2018-19); - 1421.71% (2018-19); 14.17% (2018-19);
77.97% (2020-21). 49.70% (2020-21). 403.70% (2020-21).
[Seven Years] [Eight Years] [Seven Years]
281
-22.13% (2011-12); -
-17.98% (2011-12); -
11.23% (2012-13);
11. Total Receipts 58.19% (2016-17). 11.09% (2013-14);
11.12% (2019-20);
(1+7) [One Year] 58.19% 2016-17).
35.01% (2020-21).
[Three Years]
[Four Years)
B. Comparison of BE, RE and Actual Figures of Revenue and Capital Expenditure of
Punjab.
-10.38% (2012-13); -
-16.56% (2017-18); -
11.86% (2016-17); -
12.Total Revenue 12.68% (2018-19); -
[No Year] 12.25% (2017-18); -
Expenditure 15.90% (2019-20), 9.3%
10.60% (2018-19)
(2020-1) [Four Years]
[Four Years]
11.11% (2016-17); - 9.97% (2016-17); -
13. Salaries/
[No Year] 22.25% (2020-21); 17.41% (2020-21) .
Wages
[Two Years] [Two Years]
17.32% (2011-12);
25.53% (2012-13); 17.78% (2011-12);
14. Pensions and 23.17% (2012-13);
21.26% (2013-14); 10.83% (2015-16);
Retirement 16.70% (2013-14).
12.95% (2016-17); 14.66% (2017-18).
Benefits [Two Years]
10.87% (2020-21). [Three Years]
[Five Years]
15. Interest 11.07% (2016-17)
[No Year] [No Year]
Payments [One Year]
-23.13% (2011-12); -
-28.29% (2011-12); -
17.77% (2012-13); -
21.65% (2012-13); -
18.58% (2013-14); -
19.13% (2013-14); -
23.17% (2014-15); -
13.97% (2016-17); - 16.04% (2014-15); -
16. Other 10.08% (2015-16); -
14.61% (2017-18); - 18.07% (2015-16); -
Revenue 34.11% (2016-17); -
10.87% (2018-19). 42.45% (2016-17); -
Expenditure 48.36% (2017-18); -
[Three Years] 39.52% (2017-18); -
27.56% (2018-19); -
18.73% (2018-19); -
32.76% (2019-20), -
30.01% (2019-20).
12.19% (2020-21).
[Nine Years]
[Ten Years]
-26.92% (2011-12); -
-70.51% (2011-12); - -59.64% (2011-12); -
22.14% (2012-13); -
67.06% (2012-13); - 57.69% (2012-13); -
41.83% (2013-14); -
69.78% (2013-14); - 48.01% (2013-14); -
34.92% (2014-15); -
48.60% (2014-15); - 21.02% (2014-15); -
10.36% (2015-16); -
17. Capital 37.01% (2015-16); 29.73% (2015-16); -
27.34 (2016-17); -
Expenditure -61.80% (2017-18); - 28.95% (2016-17); -
28.72% (2017-18); -
62.22% (2018-19); - 46.41% (2017-18); -
23.71% (2018-19); -
21.95% (2019-20); 50.48% (2018-19); -
14.01% (2019-20); -
86.45% (2020-21). 35.76% (2020-21).
33.64% (2020-21).
[Nine Years] [Nine Years]
[Ten Years]
-11.13% (2013-14);
18. Repayment of 15.09% (2016-17). -23.46% (2016-17).
50.36% (2016-17).
Public Debt [One Year] [One Year]
[Two Years]
18.77% (2011-12); 25.44% (2011-12);
19. Repayment 57.14% (2012-13); 63.46% (2012-13);
Ways and 23.33% (2014-15); 32.40% (2014-15); -15.76% (2019-20).
Means 41.03% (2016-17); 45.60% (2016-17); [One Year]
Advances -25.71% (2020-21). -15.76% (2019-20).
[Five Years] [Five Years]
282
109.38% (2011-12);
109.38% (2011-12);
226.38% (2012-13) - -20.12% (2012-13);
308.46% (2012-13) -
55.57% (2013-14); 17.32% (2014-15);
51.70% (2013-14);
711.50% (2015-16); 1240.65% (2015-16); -
20. Advances of 23.72% (2014-15); -
10248.79% (2016-17); - 65.41% (2017-18); -
Loans 39.47% (2015-16);
65.92% (2017-18); 15.07% (2018-19); -
10625.76% (2016-17);
59.92% (2018-19); - 29.00% (2020-21).
88.31% (2018-19)
24.47% (2020-21). [Six Years]
[Seven Years]
[Eight Years]
-11.33% (2011-12); -
-12.11% (2013-14);
11.11% (2012-13); -
-10.09% (2012-13); 54.48% (2016-17);
21. Total 10.86% (2017-18); -
67.29% (2016-17). -14.96% (2017-18); -
Expenditure 10.86% (2018-19); -
[Two Years) 15.43% (2019-20).
11.64% (2019-20).
[Four Years)
[Five Years)
C. Comparison of BE, RE and Actual Figures of RD, FD, PD/S, OD and GSDP of Punjab.
21.96% (2011-12);
101.57% (2011-12); 55.66% (2012-13);
65.27% (2011-12); 101.70% (2012-13); 24.30% (2013-14);
29.58% (2012-13); 274.29% (2013-14); 21.64% (2014-15);
201.11% (2013-14); 78.49% (2014-15); 13.08% (2015-16); -
22. Revenue
46.74% (2014-15); 33.72% (2015-16); - 35.66% (2016-17);
Deficit
18.25% (2015-16); 36.05% (2017-18); -33.93% (2017-18);
42.33% (2016-17). 22.23% (2019-20); 10.20% (2018-19);
[Six Years] 50.12% (2020-21). 13.13% (2019-20); -
[Eight Years] 12.68% (2020-21).
[Ten Years]
-11.86% (2011-12);
-11.54% (2013-14); -45.94% (2015-16);
41.90% (2015-16);
354.26% (2016-17); - 303.75% (2016-17); -
-11.12% (2016-17); -
10.50% (2018-19); - 45.89% (2017-18); -
23. Fiscal Deficit 33.99% (2017-18); -
13.39% (2019-20); 18.56% (2018-19); -14-
10.01% (2018-19); -
51.19% (2020-21). 41% (2019-20); 16.02%
17.84% (2020-21).
[Five Years] (2020-21). [Six Years]
[Six Years]
48.03% (2011-12); -
-34.25% (2011-12);
14.31% (2012-13); - -10.31% (2012-13); -
64.19% (2013-14);
64.33% (2013-14); - 41.43% (2013-14);
24.22% (2014-15);
24.00% (2014-15); 279.83% (2015-16);
206.89% (2015-16); -
23.77% (2015-16); 1691.76% (2016-17); -
24. Primary 13.21% (2016-17);
1964.45% (2016-17); - 134.71% (2017-18); -
Deficit/Surplus -150.30% (2017-18); -
30.99% (2017-18); 107.13% (2018-19); -
118.43% (2018-19);
-61.32% (2018-19); - 137.28% (2019-20);
23.64% (2019-20); -
130.16% (2019-20); 45.39% (2020-21).
57.11% (2020-21).
-4092.72% (2020-21). [Eight Years]
[Nine Years]
[Ten Years]
10.00% (2015-16);
25. Outstanding 32.11% (2016-17) [One
31.86% (2016-17) [No Year]
Debt Year]
[One Year]
26. GSDP at
[No Year] [No Year] [No Year]
Current Prices
Source: Budget at a Glance. Ministry of Finance, Government of Punjab.
283
10.35 It is observed from the foregoing data that there are wide
variations between the BEs and REs and between the BEs and Actuals
of a given year, but even the REs vary widely from the Actuals of a year.
Considering that the REs are presented virtually at the end of the relevant
financial year, such variations cannot be explained as mere errors of
estimation. While the Commission is conscious of the fact that the
Budget is nothing but the compendium of estimates, yet these estimates
must veer closer to the actuals rather than far from them. The
Commission feels that such wide variations are due to the tendency of
over-estimating the receipts of the state to show higher developmental
outlays and, at the same time, underestimating the revenue expenditure
in order to keep the fiscal indicators such as revenue deficit, fiscal deficit
and the primary deficit within the limit prescribed in the fiscal
responsibility legislation (FRMB Act, 2003). This tendency continues
unchecked because the focus of the media and the public is on the new
budget and nobody bothers to check the numbers presented in the
previous year and actuals thereof. This is also due to the fact that CAG
report on the accounts of the state is presented with a lag of two years,
by which time the public interest wanes. Coupled with poor disclosures
by the government, the Budget looses its sanctity.
10.36 Poor budget marksmanship has very serious unintended

consequences. First, the line departments are unable to plan their
implementation strategy on the basis of BEs, as there is little certainty of
these being backed by actual release of funds. Second, it results in
distorted priorities because of priority programmes becoming soft targets
for budgetary cuts. Third, it may lead to the creation of unfunded future
284
liabilities. Fourth, poor budgeting means more cost and time overruns
in project implementation. Lastly, selective release of funds may
encourage arbitrariness and rent seeking.
10.37 The Commission, therefore, recommends that the state

government may consider setting up of an independent entity on the lines
of US Congressional Budget Office (CBO) for reality check, non-
partisan and independent evaluation of the Budget (Box 10.5).
Box 10.5
US Congressional Budget Office (CBO)

• CBO established under the Congressional Budget Act, 1974 – a statutory
and autonomous body – for independent analyses of budgetary and economic
issues of US budget process.
• CBO’s main priorities, although set-forth by the law, are to provide the US
Congress an objective, unbiased and non-partisan information to make the
budget and economic policy more effective.
• Each year, it generates 600 to 800 formal cost/revenue estimates,
however, its best report, namely, ‘Annual Budget and Economic
Outlook’, is known for high quality, transparency and accuracy.
• Its unbiased reports enrich the future budgets with high-quality and
accurate analysis of each policy issues and their impacts of different
economic actors both at the micro and macro levels.
• It adopts a holistic approach and applies rigorous system of checks and
balances, while generating cost estimates, budget projections, etc., to
make them truly objective, analytical, full of soundness and clarity.
• Accuracy of CBO’s budget projections and actual realization is high
acclaimed, as the mean variations (errors) between budget projections
and actual realization wrt total outlays was just 2.0% during 1993-2020
and of total revenues was 5% during 1983-2020.
Source: https://www.cbo.gov accessed on February 19, 2022.
Fiscal Responsibility Legislation (FRL) & its Enforcement.

10.38 Most states, including Punjab enacted Fiscal Responsibility
Legislations (FRLs). The Government of Punjab also enacted the Fiscal
Responsibility and Budget Management Act, 2003, which has been
285
amended more than five times. Likewise, the central FRL has also been
amended more than once. Have the FRLs, both at the central and state
level, have fostered financial prudence and better fiscal outcomes?
Probably not, because they are not backed by the will and determination
that is necessary to achieve the limited objective of containing debt and
deficits to the stipulated levels. The state has, therefore, found an easy
path of amending the FRBM Act, than following the hard path of
initiating effective measures to stick to the Fiscal Consolidation Path.
Resort to the path of least resistance has been further eased because of
the central government not insisting upon adhering to the stipulated FRL
targets [Articles 293(3&4] as a condition precedent for allowing the
states to access fresh market borrowings. Instead, increased borrowings
to the states are being allowed to incentivize fiscal reforms, without any
discernible success. The debt and deficit trajectory keeps moving up
partly due to the lax attitude of the central government, but more so due
to the inherent defects in the FRBM Act because it is only limited to
containing debt and fiscal deficit and does not cover more serious fiscal
problems such as (i) a large revenue deficit, (ii) unmerited subsidies, (iii)
very large committed expenditure, (iv) low capital expenditure, (v) low
tax buoyancy, (vi) poor recovery of cost of services, (vii) pervasive cost
and time inefficiencies in implementing projects. These are real fiscal
problems, without resolving which the state’s fiscal trajectory is bound
to be inexorably headed downward, and in turn, negatively impacting
the state’s economic development.
10.39 The provisions of FRL are rendered even more ineffectual
because of inadequate disclosures and there being no cost to the non-
achievement. In fact, without insisting on fiscal prudence as a condition
286
precedent for permitting the state to raise new loans tantamount to
encouraging the states to abandon the path of fiscal prudence. The states
have so far avoided the hard budget option because of the policy of
allowing gross borrowings, by which redemption of accumulated debt is
taken care of by additional borrowings. This is a recipe for perpetual
debt trap.
10.40 Vidhi Centre for Legal Policy, New Delhi has carried out a
study examining the legal basis for the conditions that the Government
of India may impose on States while providing consent under Article
293 (3) of the Constitution for the 15th CFC. It details fiscal indicators
and targets enshrined in the FRLs, transparency mechanisms and the
enforcement measures followed by States. A perusal of the same reveals
that these are poorly enforced and are mainly in token compliance of
recommendations of the various CFCs. The Commission is of the view
that the extant FRL of Punjab is inherently weak and, in the absence of
appropriate transparency and enforcement mechanism, has been reduced
to the dead letter of law.
10.41 The Commission, on a checkup, found that most of the

disclosures listed in the Box 10.6 are only on paper and are not followed
in practice.
287
Box 10.6
Transparency and Reporting Rules Envisaged under State FRLs
A. Fiscal Indicators and Targets
Reduce/maintain Fiscal Deficit as to Certain Percentage of GSDP (above 3% or equal to 3% or

1.
below 3% 0r GSDP).
2. Reduce Revenue Deficit as a percentageof GSDP to eliminate it/reduce it to nil
3. Maintain Revenue Surplus as a percentage of GSDP
4. Limit Outstanding Debt as a percentageof GSDP
5. Reduce Outstanding Total Liabilities to a certain percentage of GSDP
No Guarantees to be given beyond a certain limit (whether the provision in FRL or in other
6.
legislations
Limit Expenditure on account of wages and salaries of employees (as a certain %age oftotal tax
7. and non-tax revenue, including devolutions from the Central Government or as a ratio of
wage/salary to the revenue expenditure net of interest payments and pensions.
Limit the ratio of non-interest committed revenue expenditure to State's own and mandated
8.
revenue
9. Take appropriate measures in cash management to avoid recourse to overdraft from the RBI
10. Generate a primary surplus equal toa certain percentage of GSDP.
11. Limit interest payment as a percentageof revenue receipt
12. Limit total debt stock as a percentageof revenue receipt
B. Transparency Mechanisms
Statement on significant changes in accounting standards that are likely to affect the computation
1.
of fiscal indicators to be made when presenting budget.
Statement on details of borrowings by WMAs /Overdraft from the RBI to be made public when
2.
presenting the budget.
Whenever the State government undertakes to substantially and unconditionally repay the
3 principal amount or interest of any separate legal entity, such liability to be reflected as state
borrowing
Statement on number of employees in the State Government, public sector and aided institutions,
4.
with salaries and pensions to be made when presenting budget.
Statement on claims and commitments made by the State Government having potential budgetary
5.
implications to be made when presenting the budget
Statement on the details of the Guarantee Redemption Fund to be made when presenting the
6.
budget.
List of t h e ongoing projects with targeteddate of completion and deviation, if any,
7.
in previous years, to be furnished when presenting the budget
8. Statement on the compliance costs of major tax proposals to be made when presenting the budget
Statement on the revenue consequences of capital expenditure along with related liabilities to be
9.
made when presenting budget
Statement on the explicit and implicit liabilities in public private partnerships to be made when
10.
presenting the budget
11. Consolidated position in respect of all demands to be brought out in the budget at a glance.
Statement on the summary of Financial Position of the State to be made when presenting the
12.
budget.
Statement on estimated yearly pension liabilities worked out onactuarial/realistic basis for the
13.
next tenyears to be made when presenting the budget
Statement on values of parametersunderlying projections for receipts and expenditures and the
14. band within whichthey can vary while remainingconsistent with targets to be made when
presenting budget
15. Statement on Assets of the State Government to be made when presenting the budget.
16. Statement on the Consolidated Sinking Fund to be made when presenting the budget.
Statement on select fiscal indicators to be made when presenting budget, such as fiscal deficit,
17.
revenue deficit, total liabilities, own revenue, etc.
Statement on components of the State Government’s liabilities and interest, cost of
18.
borrowings/mobilisation ofdeposits to be made when presentingbudget.
288
C. Enforcement Measures
Review report by State Finance Minister, containing trends in receipts and expenditure in
1.
relation to the budget, to be placed before Legislature (Quarterly, Half-Yearly and Annually)
The State Finance Minister to explain deviations from fiscal targets in the review report placed
2.
before theLegislature
Establishment of an independent agency or mechanism to reviewcompliance with the respective
3.
FRL, or assigning the same to an independent external agency.254
State Government to take measures forincreasing revenue and/or reducingexpenditure in case of
4.
shortfall of revenue or excess expenditure over targets, in the course of a financial year
Statement of remedial measures to neutralize increased expenditure or loss of revenue to
5. accompany any proposal which may lead to an increase in revenue deficit, either through
increased expenditure or loss ofrevenue, to be placed before theLegislature
Requirement of curtailment of sums authorized to be paid out of theConsolidated Fund of
the State, or of interim measures to augment revenue, whenever there is a prospect of either
6.
shortfall in revenue or excess of expenditure for a given year on accountof any new policy
decision
Review report before the Legislature ontotal value of sanctioned capital works exceeding the
7.
specified limit for two successive quarters
Proposal for supplementary or additional demands for grants to be accompanied by statement
8.
indicatingthe corresponding curtailment of expenditure or augmentation ofrevenue
Bar on submission of more than one supplementary/additional statement of expenditure in a
9.
financial year.
10. Consistency of the budget presented with the Medium-Term Fiscal Policy Statement
11. Consistency of the budget presentedwith the Five Year Fiscal Plan
Government to identify net fiscal cost of unforeseen demand on finances due to a calamity, and
12. such cost shall be a ceiling for extent of non-compliance specified revenue and fiscal deficit
targets
Triggers i.e., intra-year benchmark on deficits, to be a part of the budget, as well as corrective
13.
actions that shall be initiated upon activation of such triggers.
Officers responsible for undertaking liability outside budgetary provisionwithout approval of
14.
Finance Department to be made personally liable with respect to suchunauthorized liability.
No liability to remain unpaid beyond a certain period of time, and no freshliabilities to be incurred
15.
if previous liability still unpaid beyond said period of time
Source: Ghosh, Damini, Panda, Lalit, James, Kevin and Sengupta (2018), Examining the Legal Basis
for the Conditions that the Government of India may Impose on States while Providing
Consent under Article 293(3) of the Constitution, Report to the Fifteenth Finance
Commission, Vidhi Centre for Legal Studies, New Delhi.
10.42 It is, therefore, strongly recommended that the FRL may be

redrawn by incorporating indicators and targets germane to the state’s
fiscal along with strong enforcement and disclosure mechanisms (Vidhi
Centre report may be of help). Any divergence from the FRL, except in
emergent situations, must carry a cost and push the state toward hard
budget options till the fiscal normalcy is restored, for which the Union
government is required to play a critical role. Failing this, it will be hard
for the state government to achieve debt sustainability and fiscal
stability.
289
Strengthening the State Finance Commission
10.43 The provisions of Article 280 (3) (bb & c) of the

Constitution inserted by the CAA 1992, not only established a symbiotic
relationship between the CFC and SFC, but also underpin the importance
of SFCs in improving the financial position of the local bodies and help
them in effective discharge of functions assigned to them. The same is
reproduce below:
“… the measures needed to augment the Consolidated Fund of a State to

supplement the resources of the Panchayats/Municipalities in the State
on the basis of the recommendations made by the Finance Commission
of the State”.
10.44 Keeping the above provisions in view, CFCs have

repeatedly stressed the need for strengthening the SFCs. Specifically,
they have suggested the following:
• Constituting the SFCs in time and to provide them adequate office

staff and funds.
• Timely submission of the Report by SFCs and improvement in the
quality of their Reports.
• Processing their reports expeditiously and present them to the
State Legislature with an Explanatory Memorandum on the
recommendations and an Action Taken Report (ATR) thereof.
• Follow a healthy convention set-up by the Union government to
accept the recommendations made by the SFCs in so far as they
relate to the devolution of funds, unless there are weighty reasons
to modify the same (which may be stated).
290
• Prompt release of funds to the local bodies in respect of the
accepted recommendations.
10.45 The Commission strongly reiterates the above

recommendations and, in addition, recommends as follows: -
• Various SFCs so far constituted by the state government do not

have adequate representation of experts/professionals. It is,
therefore, recommended that apart from the existing Chairman,
Members, the Commission may comprise of three outside experts
having knowledge of finances of Panchayats, finances of
Municipalities and a constitutional expert. Such members can be
co-opted from National Institute of Public Finance and Policy,
National Institute of Rural Development, and National Institute of
Urban Affairs; and from the universities/research institutes.
• A permanent and professional division be setup in the department
of finance to provide necessary feedback to the CFC and the SFC
and assisting them by providing requisite information on various
issues entrusted to them.
Establishment of Punjab Institute of Public Finance and Policy

(PIPFP)
10.46 Punjab, at present, does not have any worthwhile

autonomous research institute or centre of excellence for doing ground
level research in the public finance and policy advocacy for the state. It
is, therefore, proposed to establish PIPFPA to fill this gap, which will
function as a Think Tank of the state. Its major mandate will be to
undertake theoretical and empirical research in the areas of public
economics, policy analysis/advocacy and capacity building of the state
291
and the local bodies. The major thrust areas of the PIPFPA will be to
promote research in the core areas with an interdisciplinary perspective
to help the state government and local bodies in policy formulation, and
implementation. The specific thrust areas of the PIPFP may be as under:
A. Taxation and Revenue Policies
B. Public Expenditure and Fiscal Management
C. Macro-Economic Policies and their Impacts
D. Inter-Governmental Fiscal Relations between Centre, State and Local
Bodies
E. Policy Advocacy for the State and Local Bodies
F. Creation, updation and Maintenance of Data Bank of State and Local

Bodies.
G. Empowerment of the Local Bodies.
Autonomous Character/Status
10.47 PIPFP may be established as an autonomous institute under

the Societies Registration Act, 1860. For the governance of the
recommended PIPFP, NIPFP is a good template, which can be followed
by the State Government by suitably tweaking it to suit its mandate.
Creation of Integrated and Reliable Data Bank

(The data generation needs knowledge and wisdom)
10.48 A reliable data—being a pillar of scientific inquiry—has

increasingly been used for the public policy formation and in the
decision-making. This ignites the knowledge and wisdom of scholars,
which, in turn, signifies the importance of integrated and reliable data
292
bank, both at the macro and micro levels. Though India’s statistical
system generates an impressive amount of data, both at the aggregated
and disaggregated levels, yet its practical utility is limited by deficiencies
like credibility, timeliness and adequacy. These deficiencies can no
longer be ignored while designing better policies in a world integrated
by international trade, capital mobility and migration. Besides, the
citizens have become more conscious about the result-oriented policy
outcomes. Therefore, the creation of an integrated, real-time and reliable
database with appropriate privacy and public accessibility protocols
have become an imperative.
10.49 In India, both the central and state governments along with
different ministries/departments/agencies, as mandated by the
Constitution and statutes, have been shouldering responsibilities of
collecting and disseminating of the public data. In accordance with this
structure, India’s statistical/data system is largely decentralized amongst
the States with few elements of central policy initiatives and supervision.
For instance, Population Census, Economic Census, Agricultural
Census, Livestock Census, and nation-wide sample surveys, including
Annual Survey of Industries and Socio-Economic Surveys, as well as the
compilation of macro-economic aggregates like the GDP/NDP, price
indices, foreign trade statistics, etc. are carried out mainly by the central
government, with substantial assistance of state governments and their
statistical organizations/agencies.
10.50 In Punjab, the Economic and Statistical Organisation (ESO)

is the main agency responsible for collection, compilation and
dissemination of data. Some of its publications5, published regularly and
5
These are (i) Statistical Abstract of Punjab; (ii) Economic Survey; (iii) State Finances: A Comparison
(erstwhile Statistical Abstract of Public Finance); (iv) Economic and Purpose Classification of
293
annually, are rich sources of data. Some other publications6 have been
discontinued. However, most of these publications, though published
annually and freely distributed, are lagged in real-time data of
two/three years back, which cannot be used for policy formations and
decision-making because of the fast-paced changes occurring in the
modes of production, production relations and information flows.
10.51 Further, the contents of the Statistical Abstract of Punjab,

invariably, are too obsolete, untimely, superfluous and may be useless
(e.g., unnecessary details of engineering colleges with course-wise
distribution of seats made its size bulky). No data about disease pattern
and emerging health problems of old people is available in this
document. Further, Punjab Economic Survey, though improved its
layout and contents during 2019-20 and 2020-21, yet is not reflecting the
future policy directions of the state.
10.52 The 6th SFC is unable to extract the latest data/information

about state finances and of local bodies from such publications7 because
real-time, comparable and high frequency data/indicators were not
available even in the latest publications. The Commission, therefore,
relied upon the line departments for the latest data/information and, in
doing so, spent a lot of time and energy for getting such
data/information.
10.53 In such a scenario, 6th SFC favours (a) creation of

integrated and reliable data bank; and (b) establishment of a Punjab
Punjab Govt. Budget; (v) Municipal Finance Year Book; (vi) Employee Statistics; and (vii) Energy
Statistics.
6
Economic Classification of Budgetary Transactions of Local Bodies (since 2015-16); Farm Accounts
of Punjab (since 2009-10); Statistical Atlas (last published in 2012); and many more.
7
Statistical Abstract of Punjab; State Finances: A Comparison; Economic and Purpose Classification
of Punjab Govt. Budget; Municipal Finance Year Book; etc.
294
Statistical Commission (PSC) in the State as a professional body for the
reforming, restructuring, facilitating and bringing continuity and
integrity in the collection, classification and dissemination of statistics

on the pattern of Central Statistical Commission. It will also lay down
the norms & standards in the field of official statistics by evolving new
concepts, definitions, classification techniques and methodologies of
data collection, processing and release of results to public for use.
10.54 In this context, the followings points must be adhered to:
• Facilitate easy, open access and sharing of government-owned

data through the public domain;
• Allow inter-operability of the data (data mining) generated by
various departments/agencies amongst themselves and shared
with the central agencies;
• Create internet-based computing system in which a large
amount of data be networked and stored through Cloud
Technology; and allow its sharing on-demand to the registered
users;
• Maintain the quality and relevance of data by checking and
updating it at regular intervals;
• Use remote sensing technique for mapping the uses of land and
properties as well as satellite images of cropping pattern,
acreage, warehousing, movements of goods & services, etc.
• Give top priority to people’ data of the beneficiaries of various
welfare schemes by linking to the Aadhar card, PAN card,
Smart Ration Card, NREGA card, etc. and integrate it with
GoI’s Open Government Data Portal (http://data.gov.in)
• Update the micro and village level data for the micro planning
and other decision-making processes at the local level
(Village/City, Peri-Urban Area, etc.);
• Improve the professional capabilities of the officers and staff
engaged in data generation through appropriate training
facilities at the state level;
295
• Create a negative list of non-sharable data like the personal
data (passwords, payment instructions, genetic data, biometric
data, religious/political views, medical records & history, sex
life & sexual orientations, etc.), and the data confidential in
nature for the country’s security and integrity.
10.55 Specifically, the Commission recommends as follows: -
i. Creation of an integrated, reliable and real-time data bank in

the state;
ii. Establishment of a Punjab Statistical Commission (PSC), a
professional body, for advising and reforming the data
collection and dissemination in the state;
iii. Strengthen/reorient the nodal department/agency (e.g., ESO)
for generating a unified data system across all departments/
agencies in the state;
iv. Put shareable data of key socio-economic variables like the
GSDP, state finances, local bodies, policy changes, etc. in the
public domain more frequently;
v. Make the collection and dissemination of data mandatory; and
vi. Implement earnestly the newly designed ‘Punjab State Data
Policy, 2020’ at the earliest.
(K. R. Lakhanpal)
Chairman
(Rahul Bhandari) (A.K. Sinha) (B.S. Ghuman) (G Vajralingam)

Member Member Expert Member Member Secretary
Place: Chandigarh
Dated: 24th March, 2022.
296
Acknowledgements and Thanks
This report endeavors to infuse new thinking, within the ambit of ToR,
by making recommendations on wide-ranging issues not only on financial
devolution to the local bodies, but also those having an important bearing on
the state’s governance and public finance. It is hoped that the government will
throw up these recommendations for a wider discussion among all stake
holders and take decisions that have a potential of reversing state’s socio-
economic decline. This was not an easy task specially in the face of Covid-
induced uncertainties, stranglehold of the political economy’s negative impact
and almost non-existing data base with the line departments. Obviously, such
a challenging task could not be completed without generous assistance coming
forth from various quarters. I will be failing in my duty if I do not acknowledge
their cooperation in formulating various recommendations in the report.
Firstly, I would like to thank officers who held charge of the department
of finance specially Sh. Anirudh Tiwari, IAS, and Sh. K.A.P. Sinha, IAS and
other officers of the department, who extended an unstinted cooperation and
support by promptly responding to the innumerable requests of the
Commission to furnish vital data/information and clarity on various issues. But
for their prompt response, the Commission would have been seriously
handicapped in its task.
Secondly, I would like to thank all officers who held charge of the
department of Local Government and especially Sh. A. K. Sinha, IAS, who not
only promptly responded to various queries of the Commission, but also made
substantive contributions to its deliberations.
297
Thirdly, my thanks to the department of Rural Development and
Panchayats for assisting the Commission in collecting, collating and analyzing
the maze of data, which had to be done denovo. I hope it will assist the
department in formulating future policies for this sector and for better response
to the future Commissions.
Fourthly, my perfuse thanks to the office of the Commission, especially

Dr. G. Vajralingam, Member Secretary, Dr. Sukhwinder Singh, Consultant,
and Sh. Chaman Lal Wason, Director, who enabled me to navigate various
bumps easily. It is with their cooperation that the Commission could overcome
some serious handicaps it faced. I would like to make a special mention of Ms.
Isha Mahajan, who joined us late, but made a wholesome contribution to the
finalization of the report.
Fifthly, I would like to acknowledge the debt of my gratitude to

Dr. B. S. Ghuman, Expert Member and Dr. R. S. Ghuman, Special Invitee. The
report of the Commission bears the stamp of their expertise. They provoked
some enthusiastic discussions in the meetings of the Commission. It is all the
more creditable that they did it probono.
Sixthly, my sincere thanks to the 15thCFC and the authors of various

reports commissioned by it, which were very useful to the Commission for
picking up many new ideas which we have incorporated in the report. My
sincere thanks to Late Dr. Rashpal Malhotra, Executive Vice-Chairman, Centre
for Research in Rural and Industrial Development (CRRID), Chandigarh for
allowing us full access to the CRRID Library. I would also like to thank
MGSIPA, Chandigarh for allowing us free access to their library and specially
to Dr P Venklata Rao, Fellow (KM) for his generous help in designing and
presenting the report.
298
Seventhly, I would like to record my sincere thanks to a number of
elected representatives of both the rural and urban local bodies who responded
to the 7 Video Conferences held by us and made very good suggestions, which
have been suitably reflected in the report.
While concluding this note, I would make a fervent appeal to the

Government of Punjab to seriously ponder over the various issues flagged and
the recommendations made by us and move forward with a strong political will
and determination to reverse the cycle of degrowth the state has suffered for
the last over two decades. There is no time to follow ‘Good Economics’!
K. R. Lakhanpal
Chairman
Place: Chandigarh
Dated: 24th March, 2022.
299
References
Ahluwalia, I. J., Mohanty, P. K., Mathur, O., Roy, D., Khare, A. and Mangla, S. (2019), State
of Municipal Finances in India: A Study Prepared for the Fifteenth Finance
Commission, Indian Council for Research on International Economic Relations
(ICRIER), New Delhi.
Babu, M. D. (2018), ‘Union Finance Commissions and Panchayat Finances: The Mandate and
Experience in India’, Aarthika Charche, Vol. (1), pp. 25-36.
Balan, P.P, Singh, Kesar, Pattanaik, B. K. and Singh, Sukhvinder (2009), Functioning of
Panchayati Raj Institutions: Status, Issues and Options, Centre for Research in
Rural and Industrial Development (CRRID), Chandigarh.
Bardhan, Pranab (1984), The Political Economy of Development in India, Basil Blackwell,
Oxford and New York.
CBPS (2014), Study of Own Source Revenues of Panchayats with A Focus on Property
Tax: Final Report, Centre for Budget and Policy Studies, New Delhi.
CDEIS (2012), Rejuvenation of Punjab Economy: A Policy Document, Centre for

Development Economics and Innovation Studies (CDEIS), Punjabi University,
Patiala, available at http://www.punjabiuniversity.ac.in/cdeiswebsite/index.html
Chakraborty, P. (2021), ‘Covid-19 Context and the Fifteenth Finance Commission: Balancing
Fiscal Need and Macroeconomic Stability’, Economic and Political Weekly, Vol.
LVI (33), pp. 33-39.
Chaubey, P.K. (2003), Urban Local Bodies in India: Quest for Making Them Self-Reliant,
Indian Institute of Public Administration, New Delhi.
Chhibber, Ajay (2021), India’s Interventionist State, IIEP-WP-2021-02, George

Washington University, Washington, D.C., USA
Cohan, Michael A. (2011), ‘Municipal Finance Matters’, in Om Prakash Mathur Ed.)

Municipal Finance Matters: Indian Municipal Finance Report (IMFR), National
Institute of Public Finance and Policy, New Delhi, pp.185-193.
CRIER (2019), Finances of Municipal Corporations in Metropolitan Cities of India, A

Study Prepared for the Fifteenth Finance Commission. New Delhi.
ESO (2020), Internal Resource Mobilisation and Service Delivery of PRIs and ULBs in
Punjab: Current Status and Future Challenges, Economic and Statistical
Organization, Government of Punjab.
300
Ghosh, Damini, Panda, Lalit, James, Kevin and Sengupta (2018), Examining the Legal Basis
for the Conditions that the Government of India may Impose on States while
Providing Consent under Article 293(3) of the Constitution: A Report for the
Fifteenth Finance Commission, Vidhi Centre for Legal Studies, New Delhi
Gill, Anita (2010), ‘Punjab Peasantry: A Question of Life and Debt’, in R.S. Deshpande and
Saroj Arora (eds.), Agrarian Crisis and Farmers Suicides, Sage Publications, New
Delhi, pp. 292-311.
Gill, Anita and Singh L. (2006), Farmers’ Suicides and response of Public Policy: Evidence,
Diagnosis and Alternatives in Punjab, Economic and Political Weekly, Vol. 41 (26),
pp. 2762-2768.
GoI (1994), Finance Commission Report for 1995-2000, available at

https://fincomindia.nic.in
GoI (2000), Report of the Eleventh Finance Commission (2000-2005), available at

GoI (2004), Report of the Twelfth Finance Commission (2005-2010), available at

GoI (2009), Report of the Thirteenth Finance Commission (2010-2015), Vol. I & II,
Akalank Publications, New Delhi.
GoI (2011), Report on Indian Urban Infrastructure and Services, by High Powered Expert
Committee (HPEC) for Estimating the Investment Requirements for Urban
Infrastructure Services, Ministry of Urban Development, Government of India.
GoI (2013), Economic Survey 2012-13, Oxford University Press, New Delhi.
GoI (2014), Report of the Fourteenth Finance Commission (2015-20), Vol. I & II, General
Manager, Govt. of India Press, New Delhi.
GoI (2017), Devolution Report 2015-16: Where Local Democracy and Devolution is
Heading Towards? Ministry of Panchayati Raj, Government of India, Tata Institute
of Social Science, Mumbai.
GoI (2019), Basic Statistics of Panchayati Raj Institutions, Ministry of Panchayati Raj,
GoI (2020), Finance Commission: A Legacy of Trust, available at https:// fincomindia.nic.in
GoI (2020), Report of Fifteenth Finance Commission for 2020-21, available at

GoI (2020), Report of Fifteenth Finance Commission for 2021-26, Vol. I to IV, available
at https://fincomindia.nic.in
GoI (2022), Budget 2002-23, Speech of Nirmala Sitharaman, Ministry of Finance,

GoI (2022), Economic Survey 2021-22, Ministry of Finance, Government of India, New
Delhi, available at https://finmin.nic.in
301
GoI (year not mentioned), Value Capture Finance Policy Framework, Ministry of Urban
Development, Government of India.
GoP (2017), White Paper on State finances, Department of Finance, Government of Punjab,
Chandigarh.
GoP (2019), Memorandum to 15th Finance Commission, Government of Punjab,

Chandigarh.
GoP (2020), Exit Strategy for Covid-19 Lockdown Restrictions, Government of Punjab,
Chandigarh.
Govinda Rao, M. (2013), ‘Property Tax System in India: Problems and Prospects of Reform’,
Working Paper-114, National Institute of Public Finance and Policy, New Delhi, pp.
1-19.
Gupta, Munish and Chakraborty, Pinaki (2019), State Finance Commissions: How
Successful have they been in Empowering Local Governments? Working Paper
Series No. 263, National Institute of Public Finance and policy, New Delhi.
IIPA (2019), Financial Matrix for Empowerment: Design of Inter-Governmental Fiscal

Transfers in India to Rural Local Governments – A Report submitted to the
Fifteenth Finance Commission by Indian Institute of Public Administration, New
Delhi.
Jain, Varinder (2014), Affluence, Vulnerability and Social Security Evidence from Punjab, in
Inderjeet Singh, Sukhwinder Singh and Lakhwinder Singh (eds.), Economic
Development in Punjab: Essays in Honour of R.S. Ghuman, L.G. Publishers &
Distributors, New Delhi, pp. 248-272.
Jena, P. R. and Gupta, M. (2008), ‘Revenue Efforts of Panchayats: Evidence from Four
States’, Economic and Political Weekly, Vol. 43 (30), pp. 125-130, July 26.
Lahiri, A. and R. Kannan (2001), ‘India’s Fiscal Deficit and their Sustainability in
Perspective’, paper presented at World Bank-NIPFP Seminar held on Fiscal
Policies for Growth at New Delhi.
Mathur, O.P., Thakur, D. and Rajadhyaksha, N. (2009), A Study of Property Tax Potential
in India, National Institute of Public Finance and Policy, New Delhi.
Mathur, Om P., Naqvi, A. H., Laroriya, A., Samyukta, V. S. and Verma, H. (2021), State of
the Cities India, Centre for Urban Studies, Institute of Social Sciences, New Delhi.
Meadows, D.H., Meadows, D.L., Randers, J. and Behrens III, W.W. (1972), The Limits to
Growth: A Report for the Club of Rome's Project on the Predicament of
Mankind, Universe Books, New York.
Mohanty, P.K. (2016), Financing Cities in India: Municipal Reforms, Fiscal

Accountability and Urban Infrastructure, Sage Publications, New Delhi.
302
NABARD (2018), All India Rural Financial Inclusion Survey, 2016-17, available at
https://www.nadard.org/auth/writereaddata/tender/1608180417NABARD-Repo-
16_Web_P.pdf
NITI Aayog (2021), Reforms in Urban Planning Capacity in India - Final Report, Government
of India, New Delhi.
Osborne, David and Gaebler, Ted (1992), Reinventing Government: How the
Entrepreneurial Spirit is Transforming the Public Sector, Addison-Wesley
Publishing Company, New York.
Pinaki Chakraborty, Gupta, Munish and Singh, R.K. (2018), Overview of State Finance
Commissions, National Institute of Public Finance and Policy (NIPFP) New Delhi.
Pradhan, Basanta K. and Prashad, Anjali (2018), Fiscal Scenario in Punjab: Past Trends,
Future Prospects and Challenges, Institute of Economic Growth, Delhi.
Rajaraman, I. and Sinha, D. (2007), ‘Tracking Functional Devolution by States to Panchayats’,

National Institute of Public Finance and Policy, New Delhi, pp. 1-48.
Rangarajan, C. and Prasad, A. (2012), ‘Managing State Debt and Ensuring Solvency: The
Indian Experience’, World Bank Policy Research Working Paper 6039, Poverty
Reduction and Economic Management Network Economic Policy and Debt
Department, April 2012.
Reddy, G. R. (2021), ‘Fifteenth Finance Commission’s Recommendations on Local Bodies:

Far too Many Concerns’, Economic & Political Weekly, Vol. LVI (51), pp. 17-20.
Sawhney, U. K. (2012) ‘Subnational Reforms and Public Policy Issues in Punjab’,

International Journal of Punjab Studies, Vol. 19 (01), pp. 49-66.
Sen, Tapas (1994), Management of Public Finances in Punjab: Final Report, A Report
Submitted to the Government of Punjab, National Institute of Public Finance and
Policy, New Delhi.
Sen, Tapas (2016), ‘Public Finances and Development: The case of Punjab’ in Lakhwinder
Singh and Nirvikar Singh (Eds.), Economic Transformation of a Developing
Economy: The Experience of Punjab, India, Singapore, Springer, pp. 393-409.
Shergill, H.S. (2010), Growth of Farm Debt in Punjab, Institute for Development and
Communication (IDC), Chandigarh.
Singh, Inderjit, Singh, Sukhwinder, Bhangoo, K.S., Brar, J.S., Gill, A., Kumar, R., Aggarwal,
P.K. and Nagaich, S. (2017), Farmers’ and Agricultural Labourers’ Suicides in
Seven Districts of Punjab, Final Report’, Submitted to Department of Revenue,
Rehabilitation and Disaster Management, Government of Punjab.
Singh, Lakhwinder, Singh, Sukhwinder and Kumar, Deepak (2018), Rural-Urban

Migration, Informal Sector Employment and Income/Earning Differentials:
Reflections from Two States – Punjab and Haryana, A Project Report Submitted
by Punjabi University, Patiala to Indian Council of Social Science Research, New
Delhi.
303
Singh, Lakhwinder (2015), Resurrecting Punjab's Economy, Hindustan Times, January 06,
Chandigarh.
Singh, Sukhpal and Bhogal, Shruti (2014) Punjab's Small Peasantry: Thriving or
Deteriorating? Economic and Political Weekly, Vol. 49 (26-27). Pp. 95-100.
Singh, Sukhvinder and Singh, Haqiqat (2015), Bench Marking of Rural Local-Self
Government in India, Centre for Research in Rural and Industrial Development
(CRRID), Chandigarh.
Singh, Sukhwinder (2016), ‘Economic Development and Emerging Health Scenario in

Punjab: A Need for State Support and Accountability’, in Lakhwinder Singh and
Nirvikar Singh (Eds.), Economic Transformation of a Developing Economy: The
Experience of Punjab, India, Singapore, Springer.
Tanzi, V. and Schuknecht, L. (1997), ‘Reconsidering the Fiscal Role of Government: The
International Perspective’, American Economic Review, Vol. 87 (2), Papers and
Proceedings of 104thAnnual Meeting of the American Economic Association.
Tennessee: American Economic Association.
Jha, A. N. (2021), ‘Continuity with Change: Approach of the Fifteenth Finance Commission’,
Economic and Political Weekly, Vol. LVI (33), pp. 40-47.
Srivastava, D. K. (2021), ‘Fiscal Consolidation and FRBM in the Covid-19 Context: Fifteenth
Finance Commission and Beyond’ Economic and Political Weekly, Vol. LVI (33),
pp. 48-55.
Rao, Govinda M. (2021), ‘Fiscal Transfers in Pandemic Times’, Economic and Political
Weekly, Vol. LVI (33), pp. 56-61.
Reports of State Finance Commissions
A. Punjab State
1. Report of the First Punjab Finance Commission, December, 1995.

2. Report of the Second Punjab Finance Commission, February, 2002.
3. The Third Punjab Finance Commission: Main Report, December, 2006.
4. Report of the Fourth Punjab Finance Commission, May, 2011.
5. Report of the Fifth Punjab Finance Commission, June, 2016.
B. Other States of India
1. Final Report of the First State Finance Commission, Kerala, February, 1996.
2. Final Report of the Fifth State Finance Commission (2015-20), Vol. I & II, Bihar, January,
2016.
3. Report of 3rd State Finance Commission, Haryana, December, 2008.
304
4. Report of Fifth Delhi Finance Commission (2016-21), October, 2017.
5. Report of Fourth Maharashtra Finance Commission, Vol. I & II, Bihar, January, 2016.
6. Report of Fourth State Finance Commission. Haryana, June, 2014.
7. Report of The Fifth Assam State Finance Commission (2016-20), Vol. I, II & IIII,
November 2016.
8. Report of the Fifth State Finance Commission (2017-18 to 2021-22), Tamil Nadu, March,
2017.
9. Report of the Fifth State Finance Commission, Haryana, September, 2018.
10. Report of the Fourth Maharashtra Finance Commission, Vol. I & II,
11. Report of the Fourth State Finance Commission, Bihar, June, 2010.
12. Report of the Fourth State Finance Commission, Himachal Pradesh, January, 2014.
13. Report of the Fourth State Finance Commission, June, 2010.
14. Report of the Fourth State Finance Commission, Karnataka, May, 2018.
15. Report of the Fourth State Finance Commission, Kerala, Vol. I & Vol. II, June 2010.
16. Report of the Fifth State Finance Commission, Kerala, Part I & II, December, 2015.
17. Report of the Fourth State Finance Commission, Rajasthan (2010-2015), September, 2013.
18. Report of the Fifth State Finance Commission, Rajasthan (2015-20), November, 2018.
19. Report of the Fourth State Finance Commission, West Bengal, Vol. I & II, February, 2016.
Constitution and Acts
1. The Constitution of India, Universal LexisNexis (A Division of RELX India Pvt. Ltd.),
Gurgaon (Haryana), 2019.
2. The Punjab Panchayati Raj Act, 1994, Singla Law Agency, Chandigarh. 2019.
3. The Punjab Municipal Act, 1911 (as amended by Punjab Act No. 14 of 2017), Singla
Law Agency, Chandigarh. 2018.
4. The Punjab Municipal Corporation Act, 1976 ((as amended by Punjab Act No. 3 of
2015), Singla Law Agency, Chandigarh. 2018.
305
List of Studies Commissioned by Fifteenth Finance Commission
S. Subject Name of Institute

NO
Resource Sharing between Centre and States
Institute of Economic Growth, New
1. and Allocation across States: Some Issues in
Delhi
Balancing Equity and Efficiency
Institute of Economic Growth, New
2. Pay Commissions: Fiscal Implications
Delhi
Cyclically Adjusted Primary Balance for Institute of Economic Growth, New
3.
Centre and States in India Delhi
Ayushman Bharat: Costs and Finances of the Institute of Economic Growth, New
4.
Prime Minister’s Jan Arogya Yojana Delhi
Development Expenditure in the States post Indian Council for Research on ,
5. Fourteenth Finance Commission Award: How International Economic Relations,
Have States Spent the Award Money New Delhi
Development Expenditure in the States Post-
Indian Council for Research on
Fourteenth Finance Commission Award: An
6. International Economic Relations,
Assessment of the Centrally Sponsored
New Delhi
Schemes
Finances of Municipal Corporations in
7. International Economic Relations,
Metropolitan Cities of India
New Delhi
8. State of Municipal Finances in India International Economic Relations,
New Delhi
Projection of Tax Revenue on Petroleum
Products and Sales Tax and State’s Own Tax
9. Xavier University, Bhubaneshwar
Revenue (SOTR) Effort Analysis of States in
India
Resource Allocation in lieu of State’s
Centre for Development Studies,
10. Demographic Achievements in India: An
Kerala
Evidence Based Approach
Cesses and Surcharges: Concept, Practice and Vidhi Centre for Legal Policy, New
11.
Reform Delhi
Examining the Legal Basis for the Conditions
That the Government of India may Impose on Vidhi Centre for Legal Policy, New
12.
States While Providing Consent under Article Delhi
293(3) of The Constitution
Cleaning Constitutional Cobwebs: Reforming Vidhi Centre for Legal Policy, New
13.
the Seventh Schedule Delhi
Examination of the Legal basis for Conditional
Vidhi Centre for Legal Policy, New
14. Transfers to States and Issues Relating to
Delhi
Performance-Based Incentives for States
Forest Conservation Through Fiscal The Energy and Resources Institute,
15.
Federalism: Lessons from Past Experience New Delhi,
306
Strengthening Green Fiscal Federalism in The Energy and Resources Institute ,
16.
India New Delhi
Indian Statistical Institute, New
17. Agricultural Subsidies
Delhi,
Measurable, Performance-Based Incentives for National Council of Applied
18.
States in India Economic Research, New Delhi
Urban Infrastructure Development and Indian Institute for Human
19.
Resilience Building by ULBs Settlements, Bengaluru
Devolution of Union Finance Commission Accountability Initiative, Centre for
20.
Grants to Panchayats Policy Research, New Delhi
Accountability Initiative, Centre for
21. Analysis of Fund Flows to Rural Local Bodies
Policy Research, New Delhi
22. Contingent Liability Management Framework CRISIL, New Delhi
Financial Matrix for Empowerment: Design of
Indian Institute of Public
23. Intergovernmental Fiscal Transfers in India to
Administration, New Delhi
Rural Local Governments
National Institute of Public Finance
24. Fiscal Implications of GST
and Policy, New Delhi
National Institute of Public Finance
25. Overview of SFC Reports
and Policy, New Delhi
Macroeconomic Policy Simulations for the National Institute of Public Finance
26.
15th FC Period and Policy, New Delhi
Potential of Urbanisation to Accelerate Post- Indian Institute for Human
27.
COVID Economic Recovery Settlements
307
Annexure-1A
DEPARTMENT OF FINANCE
No.1/6th PFC-DFREI-FD-2018/2062 Dated: 03-07-2018
NOTIFICATION
In pursuance of the provisions of the section 3(1) of the Punjab Finance Commission
for Panchayats and Municipalities Act, 1994, the Governor of Punjab is pleased to constitute
the 6th Punjab Finance Commission for Panchayats and Municipalities consisting of the
following as the Chairman and Members: -
1. Sh.K.R.Lakhanpal, IAS(Retd.) Chairman
Former Chief Secretary, Punjab.
2. Dr.B.S. Ghuman, Vice Chancellor Expert Member (Part time
Punjabi University, Patiala in addition to present duties)
3. Financial Commissioner Ex-Officio Member
Rural Development & Panchayats,
Government of Punjab.
4. Principal Secretary Local Government, Ex-Officio Member
Government of Punjab
5. Dr.Roshan Sunkaria, IAS, Member Secretary
Principal Secretary, (in addition to present duties)
Government of Punjab,
Department of Science, Technology and
Environment.
2. The Chairman and Members of the Commission shall hold office from the date on
which they respectively assume office, upto the 31st day of December, 2020.
3. The Commission shall make recommendations relating to the following matters: -
A IN THE CASE OF ‘PANCHAYATS’ AS TO-
(a) The principles which shall govern-
i. The distribution between the State and the Panchayats of the net
proceeds of the taxes, duties, tolls and fees leviable by the State which
may be divided between them and the allocation between the Panchayats
at all levels 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
iii. The grants-in-aid to the Panchayats from the Consolidated Fund of the
State,
(b) the measures needed to improve the financial position of the Panchayats.
A-1
(c) measures to reduce unproductive revenue expenditure and steps to improve the
quality of administration and technical support for efficient and effective use of
capital resources; and
(d) any other matter referred to the Finance Commission by the Governor in the
interest of sound finances of the Panchayats.
B. IN RESPECT OF ‘MUNICIPALITIES’ AS TO-
(a) The principles which shall govern-
(i) The distribution between the State 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 this part and the allocation between
the Municipalities at all level 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 Municipalities; and
(iii) The grants-in-aid to the Municipalities from the Consolidated Fund of

the State; and
(b) the measures needed to improve the financial position of the Municipalities.
(b) measures to reduce unproductive revenue expenditure and steps to improve the
quality of administration and technical support for efficient and effective use of
capital resources; and
(c) any other matter referred to the Finance Commission by the Governor in the
interest of sound finances of the Municipalities.
The words ‘Panchayats’ and ‘Municipalities’ shall have the same meaning as defined
under clause 2(d) of the aforesaid Act.
4. The Commission shall make its report available by 31st December, 2020 on each of the
matters aforesaid, covering a period of 5 years commencing on the 1st day of April, 2021. The
Commission shall indicate the basis on which it has arrived at its findings.
CHANDIGARH Sh. V.P. SINGH BADNORE

3 JULY, 2018 GOVERNOR OF PUNJAB
Sd/-
(ANIRUDH TEWARI)
PRINCIPAL SECRETARY FINANCE
A-2
Annexure-1B
No.1/6thPFC-DFREI-FD-2020/2287 Dated: 24-09-2020
NOTIFICATION
In pursuance of the provisions of the Punjab Finance Commission for the Panchayats
and Municipalities Act,1994, the Governor of Punjab is please to make the following
amendments in the Punjab Government Notification No 1/6'hPFC-DFREI-FD-
2018/2062 Dated 03.07.2018 namely: -
1. Paragraph 2 and 4 of the Punjab Government Notification No. l/6thPFC-
DFREI-FD-2018/2062 Dated 03.07.2018, for the words, figures and letters
31st December, 2020 the words figures and letters 31st March, 2021 shall
be substituted.
Sh. V. P. Singh Badnore

Chandigarh Governor of Punjab
-Sd/-
Principal Secretary, Finance
A-3
Annexure-1C
NOTIFICATION
In pursuance of the provisions of the Punjab Finance Commission for
the Panchayats and Municipalities Act,1994, the Governor of Punjab is please to
make the following amendments in the Punjab Government Notification No
1/6'hPFC-DFREI-FD-2020/2287 Dated 24-09-2020 namely: -
1. Paragraph 1 of the Punjab Government Notification No. l/6thPFC-DFREI-
FD-2020/2287 Dated 24-09-2020, for the words, figures and letters 31st
March, 2021 the words figures and letters 31st December, 2021 shall be
substituted.
Sh. V. P. Singh Badnore

Dated, Chandigarh Governor of Punjab
The 11.02.2021
-Sd/-
A-4
Annexure-1D
NOTIFICATION
In pursuance of the provisions of the Punjab Finance Commission for
the Panchayats and Municipalities Act, 1994, the Governor of Punjab is please
to make the following amendments in the Punjab Government Notification No
1/6'hPFC-DFREI-FD-2021/408 Dated 17-02-2021 namely: -
1. Paragraph 1 of the Punjab Government Notification No. l/6thPFC-DFREI-
FD-2021/408 Dated 17.02.2021, for the words, figures and letters 31st
December, 2021 the words figures and letters 31st March, 2022 shall be
substituted.
Sh. Banwarilal Purohit

Chandigarh Governor of Punjab
-Sd/-
A-5
Annexure-1E
No. 1/6th PFC-DFREI-FD-2018/3631 CHANDIGARH, 22-11-2018
NOTIFICATION
In continuation of Notification No. 1/6th PFC-DFREI-FD-2018/2062 dated 03.07.2018,
His Excellency, the Governor of Punjab is pleased to appoint Dr. G. Vajralingam, IAS (Retd.)
as full-time Member Secretary of the Sixth Punjab Finance Commission.
CHANDIGARH V.P SINGH BADNORE

21ST November 2018 GOVERNOR OF PUNJAB
-Sd-
(ARUN SEKHRI)
SPECIAL SECRETARY FINANCE
A-6
Annexure-2A
Sixth Punjab Finance Commission
MGSIPA Complex, Sector 26, Chandigarh-160019
Subject: Questionnaire for seeking views of concerned Departments/Public Sector

Undertakings, Policy Makers, Experts from Different Fields, Stakeholders and
Public at large for augmenting resources and improving delivery and quality of
services by PRIs and ULBs in Punjab.
General Instructions
i. Answers/Comments to the questions may be filled-in and posted to the Member

Secretary, Sixth Punjab Finance Commission, Room No. 135, MGSIPA Complex,
Sector 26, Chandigarh either by Registered/ Speed Post or be emailed at
pbfinancecomm6@gmail.com
ii. All questions in the questionnaire are illustrative. Please feel free to comment on
any relevant issue/s to PRIs and ULBs, even if it is not mentioned in the
questionnaire. You may answer all questions or only those in which you are
interested.
iii. For Government Departments and Public Sector Undertakings, it is expected to
answer all questions pertaining to them. However, their responses to the related
questions should be specific and concise duly supported by facts and figures.
iv. In this questionnaire, the term Urban Local Bodies (ULBs) includes Municipal
Corporations, Municipal Councils and Nagar Panchayats and the term Panchayati
Raj Institutions (PRIs) include Gram Panchayats, Panchayat Samitis and Zila
Parishads.
A. Personal Information
i. Name: ......................................................................................
ii. Father’s/Husband’s Name: ......................................
iii. a. Sex: Male or Female b. Background: Rural/Urban
iv. Present Occupation: Service (Govt./Private), Professional, Business and
Homemaker....................................................
v. Educational Qualifications: .............................................
vi. Present Address:..............................................................
........................................................................................................
Mobile:..................................Email: .............................................
B. Provisions under 73rd and 74th Constitutional Amendment Acts, 1992.
The 73rd and 74th Constitutional Amendment Acts (1992) empower the PRIs
and ULBs to function as institutions of self-government in the matter of making
plans, implementation and in all other matters falling in their purview. These
amendments bestow the PRIs and ULBs with constitutional status; empower them
to perform a large number of developmental and welfare functions; and allow them
to raise own resources through imposing user charges, taxes, cesses and fees, etc.
There is a provision to establish State Finance Commission, after every five years,
A-7
to recommend the principles for the devolution of resources/grants-in-aid, etc. to
these bodies.
Please answer the following questions?
1. Have the PRIs and ULBs in the State assigned the functions as stipulated in the 11th
and 12th Schedules incorporated in Indian Constitution?
i. Fully assigned
ii. Partially assigned
iii. Not assigned at all
Any further comments.
2. Do the PRIs and ULBs have sufficient funds to discharge the assigned functions in
an effective manner?
i Sufficient
ii Insufficient
iii Grossly Insufficient
3. Do the PRIs and ULBs have sufficient functionaries to discharge the assigned
functions in an effective manner?
i. Sufficient
ii. Insufficient
iii. Grossly Insufficient
4. Has the State Government created legislative structure (provisions for holding direct
election, reservations of seats, powers to impose taxes, delegation of functions,
constitution of State Finance Commission, independent State Election
Commission, etc.) to enable the PRIs and ULBs to function as institutions of self-
government as envisaged by the 73rd and 74th Constitutional Amendments?
i. Fully created
ii. Partially created
iii. Not created at all
C. Resource Mobilization by the PRIs and ULBs
4. Are the PRIs and ULBs raising sufficient resources by levying and collecting taxes,
cesses, fees, and user charges, etc.?
i. Sufficient.
ii. Insufficient.
iii. Grossly Insufficient.
A-8
6. Should the PRIs and ULBs be given full autonomy to levy of various taxes, cesses,
fees, user charges, etc. or this power be subject to the floor or ceiling rates to be
fixed by the State Government?
i. Full autonomy
ii. Subject to floor or ceiling rates to be fixed by the State
Government.
7. Give your suggestions for raising additional financial resources by the PRIs and
ULBs.
i. By levying of new taxes, cesses, fees, etc.
ii. By levying of user charges.
iii. By improving collection of taxes and user charges, etc.
iv. Above all.
8. Do you agree that the State Government should compensate the PRIs and ULBs
for any revenue loss due to any concession/abolition of user charges and taxes,
etc. by the State Government?
i. Fully agree
ii. Don’t agree
9. Do you agree that adequate resources are being generated by the PRIs and ULBs
by un-locking wealth in capital assets such as land and buildings, etc. owned by
both the private and public sector?
i. Fully agree
ii. Don’t agree
10. Should the rates of existing taxes and user charges, etc. levied by the PRIs and ULBs
be revised annually?
i. Fully agree
ii. Don’t agree
11. Do you agree that Professional/Development Tax should be imposed on the

persons/establishments enjoying facilities provided by the PRIs and ULBs within
its limits?
i. Fully agree
ii. Don’t agree
12. 5th State Finance Commission had recommended 4% share of the Net Tax
Proceeds of the State should go to the PRIs and ULBs.
A-9
a) What would you expect from the 6th State Finance Commission to
recommend the percentage share of the Net Tax Proceeds of the State
should go to the PRIs and ULBs?
b) Would you suggest new formula (need based, performance based, poor
resource based, SC population, service delivery gap and fiscal gap, etc.)
instead of existing population-based criterion for determining the
devolution of funds to the PRIs and ULBs?
13. Do you agree that a percentage of amount collected through Conversion of Land
Use (CLU) within the limits of PRIs and ULBs be shared with these bodies?
i. Fully agree
ii. Don’t agree
14. Should digitized system of titling of properties and land be introduced within the
territorial jurisdiction of PRIs and ULBs in substitution of the existing
system?Yes/No.
If Yes, should the title holders be allowed to access their title by issuing a code and
payment of user charges?
i. Fully agree
ii. Don’t agree
15. Are you in favor of free/concessional supply of various services such as water
supply, sanitation, and sewerage, etc. by the PRIs and ULBs?
i. Fully agree
ii. Don’t agree
16. (a) Is the supply of basic services such as water supply, sanitation, and sewerage,
etc. at free/concessional rates by the PRIs and ULBs sustainable?
i. Fully agree
ii. Don’t agree
(b). If not, would the free/concessional supply result in the poor quality or non-
provision of such services?
i. Fully agree
ii. Don’t agree
(c). Are you in favour of levying of user charges for various services such as water
supply, sanitation, and sewerage, etc. by the PRIs and ULBs commensurate
with the quality of services?
A-10
i. Fully agree
ii. Don’t agree
17. Octroi – an independent income source of ULBs – was abolished in 2006. As

an alternative, a proportion of VAT (11%) was used to compensate the loss of
ULBs and now, the VAT has been subsumed into GST. In the light of these
observations:
What alternative measures would you like to suggest (such as imposing city
specific GST, etc.) for raising resources of the ULBs in place of subsuming of
VAT into GST?
18. Do you agree that some percentage of funds realized from the mining process be
shared with PRIs and ULBs to raise their resources?
Yes/No
If Yes, suggest percentage
i. 5%
ii. 10%
iii. 15%
iv. 20%
D. Property Tax
19. Should the property tax be levied universally on all properties within the
territorial jurisdiction of the PRIs and ULBs?
i. Fully agree
ii. Don’t agree
If not, indicate the extent of exemption/concession to be given by the PRIs and

ULBs?
20. Should the property tax also be imposed on the owners of residential,
institutional and commercial vacant plots within the territorial jurisdiction of
PRIs and ULBs?
i. Fully agree
ii. Don’t agree
21. Do you agree that some percentage of income generated from Stamp Duty and
Registration Fees on sale/purchase of any property within the limits of PRIs and
ULBs should be given to them?
Yes/No
If Yes, suggest percentage
i. 5%
ii. 10%
A-11
iii. 15%
iv. 20%
E. Administrative and Capacity Building Issues

22. Do you agree that the present status of capacity building relating to the
organizational, financial and operational aspects of the PRIs and ULBs is
insufficient?
i. Fully agree
ii. Don’t agree
23. Do you favour creation of statutory mechanism to ensure implementation of the

recommendations of the State Finance Commission once accepted by the State
Government and Action Taken Report tabled in the State Legislature?
i. Fully agree
ii. Don’t agree
24. Please offer your comments on the issues which are not included in the
questionnaire related to the reforms and rationalization in the working and delivery
of services by the PRIs/ULBs.
*************
A-12
Annexure-6A
Punjab Government Gazette

Extraordinary
Published by Authority
Chandigarh, Thursday, July 26,2012 (Sravana 4, 1934 Saka)
Department of local Government
Local Government-1 Branch
Notification
The 26th July, 2012
No. 14/167/2012-5LG1/2916.- Whereas it is considered necessary to provide for

consistent and integrated planning for contiguous geographic areas;
2.0 Whereas there is a felt need to provide new dimension for the role of citizen and their
elected representatives in preparation of regional plans for improving civic
infrastructure in cities through participatory process;
3.0 Whereas the regional plan for improving the civic infrastructure so prepared are
expected to play an important role in determining investment policies and project
priorities in the urban areas;
4.0 Whereas the Urban Local Bodies within one district or contiguous geographic areas
share many physical and economic resources and infrastructure such as
communications, water, and commercial places;
5.0 Whereas the Municipal solid waste, i.e., the chemical, plastics, hospital waster or their
debris is increasingly becoming a problem and at times an issue between inhabitants of
cities and the neighbouring rural areas, as result there is strong felt need of establishing
Solid Waste Management systems in the cities;
6.0 Whereas agriculture lands at the fringe of the cities are increasingly prone to
conversion, sometime in an involuntary manner, therefore, a need for shared
understanding and collaborative response to manage such challenges requires
immediate attention;
7.0 Whereas there is a need to set up a mechanism to evolve shared understanding and
collaborative response at the local level through participatory processes to face the
emerging challenges and resolve the above said issue;
8.0 Therefore, the Governor of Punjab is pleased to constitute the Metropolitan Planning
Committees (MPCs) for the districts of SAS Nagar, Amritsar, Patiala, Bathinda,
Ludhiana, Jalandhar, Moga, Kapurthala and Pathankot in keeping with the following: -
1. The jurisdiction of Committee shall be the Municipal Corporations and the
Urban Local Bodies in the district, for which it is constituted.
2. The metropolitan Planning Committees shall comprise of the following
members: -
A-13
A. Ex-Officio Members
i. All MLAs and MPs of the district concerned;
ii. All Presidents of the Municipalities;
iii. Mayors of the Municipal Corporations in the district;
iv. Principal Secretary to Government of Punjab, Department of Local
Government or his nominee not below the rank of Additional Secretary
Local Government;
v. Principal Secretary to Government of Punjab, Department of Finance or his
nominee not below the rank of Additional Secretary, Finance;
vi. Principal Secretary to Government of Punjab, Department of Housing and
Urban Development or his nominee not below the rank of Additional
Secretary, Housing and Urban Development;
vii. Chief Administrator of the Urban Development Authority in the district;
viii. Director, Local Government Department, Punjab; and
ix. Deputy Commissioner of the district concerned.
B. Nominated Members
i. Five subject matter specialists including specialists in Architecture, Urban
Planning, Finance, Environment, Industries and Structural Engineering to
be nominated by the state government; and
ii. Five senior citizens or representatives of NGOs from the district to be
nominated by the state government.
3. Commissioner of the Municipal Corporation at the concerned district head quarter
shall the ex-officio Member Sectary of the Committee;
4. The Chairman shall be nominated by the State Government from amongst the
members of the Committee.
5. The committee can co-opt any subject matter specialist or, any of the person so
required, to carry out its task for a period not exceeding one year.
6. The term of the nominated members and the Chairman shall be two years.
7. Any member of the Committee, including its Chairman may resign any time from
his office before completion of his tenure, but such member shall not be eligible for
re-nominating or re-appointment.
8. Functions of Committee
The functions of the Committee would be as following: -
a. To prepare the draft district urban development plan keeping in view the matters
of common interest between all the urban areas of the district including spatial
planning, sharing of water and other physical and natural resources, integrated
development of infrastructure and environment conservation, plans prepared at
the grass-root level by the concerned Municipality and the extent and type of
available resources whether financial or otherwise. The urban development plan
shall be an amalgam of all the city development plans prepared by the Municipal
Corporation and the Municipalities of the district;
A-14
b. To prepare priority-wise list of schemes and programmes, taking into account
the resources available with the Committee and the resources provided by the
State government;
c. To take appropriate measures for proper implementation of the development
schemes, programmes and projects;
d. To monitor the progress of projects;
e. To encourage the Municipal Corporations and the Municipalities to take up and
expedite the implementation of development projects;
f. To recommend measures to generate additional resources for development
works with the cooperation of people; Non-Government Organizations and
Non-Resident Indians and other agencies; and
g. To perform such other additional functions relating to District Planning and
Coordination and monitoring of the activities of different departments of the
State Government, as may be assigned to the Committee by the State
Government.
9. The Committee, if may so consider necessary, consult any institution or
organization or hire the series of a consultant in carrying out its task particularly
preparation of draft Urban Development Plan.
10. The Committee shall forward the District Urban Development Plans prepared by it
to the State Government and it shall be mandatory for the State Government to
accord its approval to implement the plan so recommended by the Committee. In
case the State Government feels that the plan so prepared cannot be approved, it
shall record its reasons in writing for the same.
11. The meetings of the committee shall be held at the District Headquarter or at such
other place as may be decided by it.
12. The meetings of the Committee shall be held as often as required for achieving the
task assigned to it, but it shall meet at least once in a quarter.
13. All non-official members of the Committee shall be entitled to TA/DA as per the
Punjab Government Rules and the expenditure for such TA/DA shall be incurred
by the Municipal Corporation in the district for which the Committee is set up.
14. In addition, Secretariat support and expenditure for convening the meeting of the
Committee shall also be borne by the Municipal Corporation in the district
concerned.
15. In case any difficulty arises in carrying out the business of the Committee, the
Committee may refer such a difficulty or issue to the State Government, whose
decision in connection therewith, shall be final and binding.
(LG 4 Branch)
No. 5/63/2012-2LG4/1186- Considering the role and importance of the urban centres
in the overall socio-economic development and the present experience in developing
urban infrastructure, a proactive project development, innovative financing method,
integrated planned development, restructuring of the institutional framework,
monitoring and supervision mechanism, capacity building of the Urban Local Bodies;
the Governor
A-15
Annexure-6B
Present Status of Implementation of Functions Assigned to the ULBs under the Twelfth
Schedule
Sr. Assigned Present Status of

Main Activities
No. Functions* Implementation
Burials and burial
grounds; i. Construction and O & M of
1 cremations, cremation grounds and
burial grounds; and electric Fully with the ULBs
cremation grounds
(O) crematoriums.
Cattle pounds, i. Catching and keeping stray

prevention of animals;
2 ii. Sterilization and anti-rabies Fully with the ULBs
cruelty to animals
(D) measures; and
iii. Ensuring animal safety.
Regulation of i. Ensuring quality of animals
3 slaughter houses and meat;
ii. Disposal of waste; and Fully with the ULBs
and tanneries (O)
iii. O & M of slaughter houses.
i. Establishing and
maintaining fire brigades;
and
4 Fire Services (O) ii. Providing fire Fully with the ULBs
NOC/Approval certificate
in respect of high-rise
buildings.
i. Overall control with the Dept. of
Housing & Urban Development.
i. Master Planning/
However, under Amrut Mission,
Development Plan/ Zonal
master plans of 17 major towns
Plans;
have been prepared by the ULBs.
ii. Enforcement is with the ULBs
Urban planning ii. Enforcing master planning
within MC Limit.
5 including town regulations;
iii. Fully with the ULBs.
planning (O) Enforcing building
iv. Regularization of illegal colonies
byelaws and licenses;
done by the ULBs as per the policy
iii. Regularization of illegal
of State Government.
colonies; and
v. ULBs, PSIDC/PSIEC have their
iv. Group housing, industrial
respective roles. ULBs wholly
areas.
responsible for discharging
function of Group Housing.
Slum i. Identifying slum ULBs have full role in Slum
improvements and areas/beneficiaries; Improvement and up-gradation.
6 up gradations (D) ii. Affordable Housing; and
iii. Slum improvements/up- PMAY and Affordable Housing in
gradation. Partnership Schemes, etc. are looked
after by the ULBs.
7 Planning for i. Policies/programs for i. ULBs are just implementing
economic and economic development agency as per the guidelines of
A-16
Social ii. Policies/programs for State/Central Govts.
development (O) social development ii. ULBs also have role to implement
certain welfare schemes across
housing, employment, health and
basic necessities such as Street
vending, RAY, Housing for all,
PMAY, Baserascheme, etc.
Safeguarding the
interests of weaker i. Identifying beneficiaries;
section of society, ii. Empowering differently i. Departments of Social Welfare.
8 including the abled persons and senior ii. ULBs are acting as an
handicapped and citizens; implementing arm for various
mentally retarded iii. Housing programs; and State/ Central Govts. schemes.
(D) iv. Scholarships
i. Punjab Skill Development Mission

- Entrepreneurship and Livelihood
- Centre and State Government
schemes.
i. Identifying beneficiaries;
Urban poverty ii. Department of Local Govt. through
9 ii. Livelihood and
alleviation (D) the ULBs is involved to implement
employment; and
National Urban Livelihood
iii. Street Vendors.
Mission and PMAY.
iii. ULBs - Street venders and other
welfare schemes through funds
from GOI and own funds.
i. Construction and
maintenance of roads; and
i. ULBs play full role, but within
10 Roadsandbridges(O) ii. Construction and
their jurisdictions.
maintenance of bridges,
ii. UDAs in the new colonies.
drains, flyovers and
footpaths.
i. Regulation of land use primarily
i. Regulating land use;
Regulation of land- ii. Approving building vested with the ULBs;
11 use and construction ii. Fully with the within their
plans/high rises; and
buildings (O) jurisdictions;
iii. Demolishing illegal
iii. Fully with the within their
buildings.
jurisdictions.
ULBs and Parastatal Bodies such as:
i. Punjab Water Supply and

Water supply for i. Distribution of water; Sewerage Board (52 ULBs).
domestic, industrial ii. Providing connections; ii. Department of Water Supply and
12 iii. Operation & Maintenance
and Commercial Sanitation (19 ULBs).
purpose (O) (O&M); and iii. GLADA, GMADA, etc. also
iv. Collection of charges. execute this function in few towns.
iv. Collection of charges is with the
ULBs and Parastatal Bodies.
A-17
i. Department of Health has
exclusive role in maintaining
i. Maintaining hospitals,
hospitals and dispensaries.
dispensaries;
ii. ULBs help the Department of
Public Health ii. Immunization/Vaccination;
Health in organizing
sanitation, iii. Cleaning and disinfection
immunization/vaccination
13 conservancy and of localities affected by
programs.
solid waste infectious disease/s;
iii. ULBs are responsible for cleaning
management (O) iv. Solid waste management;
and disinfection of localities
and
affected by infectious diseases.
v. Control and supervision of
iv. ULBs fully responsible for solid
public markets.
waste management, and control
and supervision of public markets.
i. ULBs only undertake awareness
drives of afforestation with the
i. Forestation; Forest Department.
Urban forestry, ii. Awareness drives; ii. Department of Forest plays a
protection of the iii. Protection of environment significant role in the discharge of
environment and and promotion of this function.
14
promotion of ecological aspects; and iii. ULBs undertake measures for
ecological aspects iv. Maintenance of natural protection of environment and
(D) resources like water promotion of ecological aspects by
bodies, etc. controlling pollution (air, noise,
water, soil, plastic waste, E-waste,
etc.)
Provision of urban
amenities and i. Creation of parks, gardens
15 facilities such as and playgrounds; and i. Fully with the ULBs.
parks, gardens, ii. Operation and ii. Fully with the ULBs.
playgrounds (O) Maintenance of them.
i. Schools and Education are

exclusively handled by the
Department of Education (MC
Nangal runs a Model School and a
Pharmacy College).
ii. ULBs grant licenses for fairs and
i. Schools and Education;
Promotion of festivals and provide water tanks,
ii. Fairs and festivals;
cultural, educational mobile toilets, fire brigade, etc.
16 iii. Cultural
and aesthetic iii. ULBs and Improvements Trusts
buildings/institutions;
aspects (D) Construct Community Centres and
iv. Heritage buildings; and
also regulate cultural activities.
v. Public space beautification
iv. ULBs notify Heritage byelaws and
undertake certain projects (e.g.,
HRIDAY, Galiara Project at
Golden Temple and Durgiana
Mandir, Amritsar.
v. Fully with the ULBs.
i. Coordination with i. ULBs play full role in registering
Vital statistics hospitals/ crematoriums, and issuance of birth/death
including birth and etc. for obtaining certificates.
17
death registration information; and ii. ULBs also maintain the database
(O) ii. Maintaining and updating of birth/death.
database
A-18
i. Installation and i. ULBs are fully responsible for (i)
maintenance of street installation & maintenance of
lights; street lighting, and (ii) creation
ii. Creation and maintenance and maintenance of parking lots,
Public amenities of parking lots, and public public toilets.
including street convenience; ii. State Road Transport
lighting, parking iii. Deciding and operating bus Departments/Corporations have
18 routes; and jurisdiction in respect of bus
lots, bus stops and
public conveniences iv. Creation and maintenance routes, but bus shelters/bus stand
(O) of bus stops. in many towns are provided by
the ULBs.
iii. Under JNNURM scheme, Bus
Rapid Transport System (BRTS)
is being run in Amritsar by MC,
Amritsar.
*Listed in the Twelfth Schedule. (O) stands for obligatory functions and (D) stands for discretionary
functions as per PMCA, 1976.
A-19
Annexure-6C
EXPLANATORY MEMORANDUM AS TO THE ACTION TAKEN ON THE

RECOMMENDATIONS MADE BY THE SIXTH PUNJAB FINANCE
COMMISSION FOR PANACHAYATS AND URBAN LOCAL BODIES IN ITS
REPORT SUBMITTED TO THE GOVERNOR ON JANUARY 29, 2021.
The Report of the Sixth Punjab Finance Commission for Panchayats and Urban Local Bodies
for the year 2021-22 together with Explanatory Memorandum on the action taken on the
recommendations of the Commission is laid before the State Legislature in pursuance of Article
243 I(4) and Article 243 Y(2) of the Constitution of India and Section 11 of the Punjab State
Finance Commission for Panchayats and Municipalities Act, 1994.
1. The summary of the main recommendations of the Commission relating to devolution
of State taxes, grant-in-aid to Local Bodies and other matters is as under:
Compensatory Payment to Local Bodies:

2. The Commission recommends the compensatory payments (Loss of Revenue for
abolition of Octroi, abolition of Octroi on Power, abolition of Octroi on Liquor) to
Local Bodies will continue to be made in addition to the share in the net proceeds of
State Own Tax Receipts.
The State Government has accepted the above recommendation of the Commission.
Share of Excise Duty and Auction Money:

3. The Commission recommends the continuation of 16% share of excise duty on IMFL
& Beer; and 10% share of auction money from liquor vends to be devolved to the PRIs
and ULBs in proportion to the collections in the rural and urban areas in transparent
manner.
The State Government has accepted the above recommendation of the Commission.
Share in Taxes:
4. The Commission, therefore, recommends 4% share of State’s Net Own Tax Revenues
for vertical devolution to the local Bodies
Shareable Net Own Tax Revenue (t) = Gross Own Tax Revenue, including share in
the IGST and Compensation for loss of revenue due to GST (t-1) – Actual Cost of Tax
Collection (t-1) – Compensation for Revenue Loss of ULBs on account of Abolition
of Octroi (t-1).
Note: (t) stands for current year 2021-22 and (t-1) stands for previous year 2020-21
5. The Commission recommends that, the quantum of devolution be calculated on the

basis of actuals of the previous year (t-1), net of collection charges and compensation
of ULBs for loss of revenue on account of Octroi. On this basis, devolution for 2021-
22 from the State to the Local Bodies would be 4% of State’s own tax revenues for
2020-21 Actuals. On this basis the quantum of Divisible Pool for Panchayats and
Municipalities for 2021-22 will be Rs. 1316 crore as per table below:-
A-20
Actual Figures (Rs. Crore)
Year Gross Own Tax ULB’s Shareable Net Divisible Pool
Tax Collection Compensati Own Tax (@4% Share
Receipts Charge on Receipts of Col. 5)
1 2 3 4 5 6
2016-17 27,747 467 1971 25,309 1012
2017-18 30,423 419 2010 27,994 1120
2018-19 31,574 418 2059 29,097 1164
2019-20 (PA) 29,995 460 1608 27,927 1117
2020-21 BE 35,824 502 2410 32,912 1316
The Government has formed a Group of Ministers to examine the proposal in entirety
and give recommendations.
The Group of Ministers may consist of following: -
a) Finance Minister, Government of Punjab.
b) Local Government Minister, Government of Punjab.
c) Rural Development and Panchayats Minister, Government of Punjab.
d) Water Supply and Sanitation Minister, Government of Punjab.
Horizontal distribution between Panchayats and Municipalities:
6. The Commission recommends that the share of ULBs in 6th PFC Devolution be 45%
and that of PRI is 55% in 2021-22. On the above basis, the share of Panchayats, out of
the total recommended devolution of Rs. 1316 crore for the year 2021-22 for the Local
Bodies, will work out Rs. 724 crore and that of the Municipalities to Rs. 592 crore.
The State Government has accepted the recommendation of Horizontal distribution
between Panchayats and Municipalities. However, the horizontal distribution of
devolution of share shall be made based on the recommendations of Group of
Ministers.
Inter-se distribution between Panchyati Raj Institutions (PRIs).
7. For the year 2021-22, the entire share of PRIs will go to GPs.
8. Inter-se distribution of the share of GPs is proposed in the ratio of population (80%),
SC population (10%) of their projected population during 2021 and 10% to such Gram
Panchayats, which do not have any recurring source of income from land and property
etc.
9. The GPs will be free to spend 50% of their allocation to meet the felt needs of their
territorial jurisdiction, except that, it would not be used for salary and establishment
expenses. The other 50% will be entirely earmarked for sanitation, water supply and
waste management.
A-21
The State Government has accepted this recommendation of the Commission.
However, However, the Inter-se distribution between Panchayati Raj Institutions of
devolution of share shall be made based on the recommendations of the Group of
Ministers.
Inter-se distribution between Urban Local Bodies (ULBs)
10. The proposed share of ULBs in the Divisible Pool for 2021-22 may be distributed
between various category of Municipalities as under: -
Population- 80%
Area- 10%
Financially Weak Municipalities- 10%
11. Financially weaker Municipalities may be such Municipalities whose own per capita
revenue for the year 2020-21 is less than the average per capita revenue of all the
Municipalities put together for the year previous to which the devolution pertains (t-1).
Inter-se distribution between them will be in proportion to their population in the year
2021.
12. While 50% of the recommended devolution to the municipalities will be untied and
may be spent on meeting the felt needs of the people in their respective territorial
jurisdiction except on salaries and establishment expenses, the remaining 50% may be
earmarked for water supply, sewerage, drainage and solid waste management.
13. The Municipalities which do not implement a model property tax (to be developed by
the department of Local Government) beginning 2021-22 and achieve annual
buoyancy, of at least, equivalent to the annual growth in the nominal GDP of the State
in the year t-1, will not be entitled to any share in the devolution.
The State Government may accept the above recommendation of the Commission.
However, the Inter-se distribution between Urban Local Bodies of devolution of
share shall be made based on the recommendations of the Group of Ministers.
Sd/-
K.A.P. Sinha, IAS
Sd/-
Finance & Planning Minister, Punjab
A-22
Annexure-7A
State-Wise Tax and Non-Tax Revenue Handles Assigned to PRIs at Each Tier
Tax Revenue Receipts Non-Tax Revenue Receipts

Name of
S. No. Levied/ Type of Non-Tax Levied/
State Type of Tax Appropriated Deposited Provisions Appropriated Deposited Provisions
Collected Collected
1. Andhra
Pradesh Surcharge on
House tax V, I V, I, D GF S/60,S/61, seigniorage fee V V GF S/60, S/74
Fees for the

(Gram Kolagaram, or occupation of
V V GF S/60,S/74 V V GF S/60(3)(v)
Panchayat- Katarusum building (chavadies
V,Mandal and sarais)
Parishad-I, Fees for use of
Vehicle tax
Zilla V, D D SF S/60S/70 poramboke or V V GF S/60, S/74
(optional)
Parishad-D) common lands
Income from
Tax on
V - GF S/60, Mandal Parishad V, I V, I IF, GF S/112,S/74
Andhra agricultural land
market
Pradesh
Panchayat Duty on Fees for the
Act,1994 Transfer of temporary
Property V, I, D V, I, D GF, IF, DF S/60,S/69 occupation ofvillage V V GF S/74
[A.P PA,
1994] (Indian Stamp sites, roads and
Act, 1899) other similar public
Income from
Land Cess V, I, D V, I, D DF S/60(2) (i, ii) endowmentsand V V GF S/74
trusts
Tolls and taxes Payments from
V - GF S/74 I V, I GF S/74
(Pubic Health) Market Committee
Entertainment Maintenance of
V V GF S74 (vi) cattle Pounds (Sums S - GF S/52
Tax 150
and sale proceeds)
Income from
Education Tax V V, I, D SF151 S/60(5) (a) V V GF S/74
fisheries
Water Rate S, I, D - ST S/60
A-23
Inam Assessment S, V - GF, ST S/74(xi)
Income from Ferry D D, V DF, GF S/74(xii), S/57
Income from leases of govt.
- - GF S/74 (xviii)
properties under GPs
Income from fines received
- - GF S/74 (xix)
(Village offences)
Income from investments
- - GF S/74 (xxi)
from GF
Fees for right to expose
goods for salein such V V GF S/104(a)
market
Fees for the use of shops, S/104(b)
stalls, pens or stands in such V V GF
markets S/106
Fees on vehicles including
motor vehicles or pack- S/104(c)
animalsbringing or persons V V GF
carrying, any goods for sale S/106
in such markets
Use of Slaughter Houses
V - GF S/117
(Rent and Fee)
Fees on animals
brought forsale into or V V GF S/104(d)S/106
sold in such market
License fees on brokers,
commission agents,
weighing men and
measures practicing their
calling insuch market. S/104 (e)
V V GF
S/106
A-24
2 Name of State Type of Tax Levied/ Appropriated Deposited Provisions Type of Non-Tax Levied/ Appropriated Deposited Provisions
Collected Collected
Bihar Tax on Fees on registration
S/27(2) (a); S/55(1)
Occupants of V V GF S/27(1)(a) of boats V, I, D - -
(b)(i); S/82(1) (b)(i)
(Gram holdings &vehicles
Panchayat-V, Tax on Fee on Sanitary
Panchayat Profession, arrangements S/27(2) (b); S/55(1)
V V GF S/27(1)(b) V, I, D V, I, D GF, IF, DF
Samiti-I, and Trade, Calling @Fairs, Pilgrimage, (b)(ii); S/82(b) (i)
Zila Prishad-D) and Employment Melas
S/55(1)(a), Fee for License
Tolls (Ferry) I, D - - S/55(1) (b)(iii)
S/82(1)(a) Haat or market I I IF
Bihar Panchayat Raj GF, IF, S/27(2) (c); S/55(1) (a)
Act, 2006. Water rate V, I, D V, I, D
DF (iv); S/82(1)(b)(v)
S/27(2)(d);S/55(1)(a)(v);
Lightning Fee V, I, D - GF, IF, DF
S/82(1)(b)(iv)
Fee for license of
D D DF S/82(1)(b)(iii)
fair or mela
Conservancy rate V V GF S/27(2)(e)
3 Name of State Type of Tax Levied/ Appropriated Deposited Provisions Type of Non-Tax Levied/ Appropriated Deposited Provisions
Collected Collected
Jharkhand Tax on occupant Fees on registration
S/93(1)(i) (a) V, I V, I GF, IF S/93(1)(ii)(a)
(Gram of a holding V V GF of vehicles
Panchayat-V; Tax on
Panchayat professions,
V V GF S/93(1)(i) (a) Sanitary Fee V, I, D V, I, D GF, IF, DF S/93(1), (2), (3)
Samiti-I; trades, callings
Zila and employments
Parishad-D) Lighting fee V, I, D V, I, D GF, IF, DF S/93(1), (2), (3)
Water Rate V, I, D V, I, D GF, IF, DF S/93(1), (2), (3)
Jharkhand Ferry Rate I, D I, D IF, DF S/93(2), S/93 (3)
Panchayat RajAct, Conservancy Tax V V GF S/93(1)(ii)(e)
2001. Fees for license of
I, D I, D IF, DF S/93(2), (3)
hats and Bazars
Boat or
conveyance D D DF S/93(2), (3)
registration
A-25
4. Name of State Type of Taxes Levied/ Appropriat Deposited Provisions Type of Non-Taxes Levied/ Appropria Deposit Provisio
Collected ed Collecte ted ed ns
d
Chhattisgarh ST (Total
(Gram Panchayat-V, proceeds),
S/77(1)
Janpad Panchayat- D(Extra Fee for registration of
Duty on transfer of property S/75,S/7A - GF Schedule-
I, I I, D stamp duty) cattle V
I
Zilla Panchayat-D) IF (Grant-in-
aid)
Chhattisgarh Panchayat S/77(3), S/76, S/77(1)
Development Tax I V, I IF, DF Fees for use of sarais,
Raj Adhiniyam, 1993 S/76A Schedule-
dharamshalas, rest
Tax on Persons carrying on I
houses, slaughter
the profession of purchase, S/77(2) I I IF S/77(2)
V, I V GF houses and encamping
agent, commission agent, Schedule-II* Schedule
grounds
weight men -I(4)
Fees for bullock-
Temporary tax for special S/77(2)
V, I V GF carts stand and tonga V, I V, I IF, GF -
works of public utility Schedule-II(9)
stand
Property Tax (lands and S/77(1)
V, I **. - GF Water rate V, I V, I GF, IF -
buildings Schedule-I (1)
S/77(2)
S/77(1)
Tax on private latrines V V GF Fees for grazing cattle V, I V, I GF, IF Schedule-
Schedule-I (2)
II(5)
S/77(2)
S/77(1) Fee on vehicles (other
Light Tax V V GF V, I V GF Schedule-
Schedule-I (3) than motor vehicles)
II (13)
Fee on temporary
structures or any
Tax on animals used for S/77(2)
S/77(2) projection over any
riding, driving, drought or I I IF V, I V, I GF Schedule-
Schedule-II (2) public place or
burden or on dogs or pigs I(11)
temporary occupation
thereof
Tax on the bullock-carts,
S/77(2)
bicycles, rickshaws used for I I IF Note: Schedule-I: Obligatory Tax to be imposed by GP.
Schedule-II(3)
hire Schedule-I: Optional tax after the permission of Zila Panchayat, Janpad
Tax for the construction or Panchayat and with previous approval of Janpad, Gram Panchayat. (as per
S/77(2)
maintenance of public latrines V, I V GF S/77(1) and (2)).
Schedule-II(10)
(Scavenging Tax)
S/77(1)
Entertainment Tax I I IF
Schedule-I B
Tax on trades, calling, S/77(1)
V V GF
professions Schedule-I (4)
*Chhattisgarh Krishi Upaj Mandi Adhiniyam, 1972. **(on building not covered under item
(1) of the Schedule-I
A-26
5. Type of Taxes Levied/ Appr Deposite Provisions Type of Taxes Levied/ Appr Deposit Provisions
Name of State opr d opri ed
Collected iate Collected ated
d
Gujarat Fee levied for S/244-Fee
Tax on building and institution ofSuits and levied;
V, N V,N GF S/178(i) cases V V GF
lands S/99-Gram
(Gram Panchayat-V,
Fund
Nagar Panchayat- N,
Sums to be paid as
Taluka Panchayat- I, Net proceeds of cess S V,N GF S/181 - V GF S/234 & S/235
compensation
District Panchayat-D) Net proceeds of stamp Ferry rate
I I IF S/184 D D DF @
duty
Gujarat Panchayat Act, Rent/Penalty (criminal S/120(h)-Taluka
1961. Conversion Tax S V,N ST S/65* V - GF
case) fund
Tax on motor vehicles
(otherthan tolls on V,N - ST S/20** Water rate S I I #
trailers)
Tolls on roads and
Pilgrim Tax V,N - GF S/178 (iii) S V,N,I GF $
bridges
Tax on fairs, festivals Fee on markets and V,ND - GF
and V,N, D - GF S/178 (iv) weekly S/178(x)
Other entertainments bazaars
Tax on bicycles and on Fee on cart stands and VND VND GF,DF
vehicles drawn by V,N, D V,N, D GF, DF S/178(v) tonga stands S/178(xi)
animals
Tax on trade, District development
V,N, D V,N, D GF, DF S/178 V,N, D V,N DF S/103-DDF+
professions, callings fund (10% of income)
A-27
Sanitation cess
V,N, D V,N GF S/178(xv)

*Under Land Revenue Code,1879. ** Under Bombay motor vehicles Tax
Act,1958.
@ Bombay Ferries and Inland Vessels Act,1868. # Bombay irrigationAct,

1879. $ Tolls on Roads and Bridges Act. 1875. +Inter-governmental aid
(V+NDF).
6. Type of Tax Levied/ Appropriat Deposit Provision Type of Non-Tax Levied/ Approp Deposite Provision
Name of State
Collecte ed ed s Collec riated d s
d ted
Haryana Income derived fromcommon
HouseTax V V GF S/41(1) (a) V V GF S/40(h)
land
(Gram Panchayat-V; Income derived fromfisheries V V GF S/40(g)
Panchayat Samiti-I; Duty on Transfer of
V V GF S/41(1) (b) Fees at fairs, agriculturalshows
Zilla Parishad-D). Property I I IF S/91(2)
andindustrial exhibitions
Service Fee (CleaningStreets,
Haryana Panchayati Raj Teh-bazari* V V GF S/41(2) (i) V V GF S/41(2)(ii)
lightning streets, Sanitation)
Act, 1994. *Fee collected from the shopkeepers in fairs other than cattle fairs. Water Rates V V GF S/41(2)(iv)
Preservation Fee ID ID IF, DF S/91(1)(c)
Fee on Public places (markets, S/91(1)(a
ID ID IF, DF
sarais, schools) )
Fees for registration of animals
sold in the Sabha area
V V GF S/41(2) (iii)
A-28
Name of State Tax Revenue Receipts Non-Tax Revenue Receipts
7 Type of Tax Levied/ Approp Deposit Provision Levied/ Appropr Deposited Provisions
Collecte riate ed s Type of Non-Tax Collecte iated
d d d
Kerala Entertainment
V V GF S/200 Service Fee V,I,D V,I,D GF,IF, DF S/198
Tax/Show Tax
Village Panchayat-V; Profession Tax V V GF S/204 Income from fishing lands - V GF S/212
Block Panchayat-I; Property Tax/Building
District Panchayat-D) V - GF S/203 Income from Porampokes - V GF S/212
tax
Property tax (unlawful S/235AA Receipts from propertiesand
Kerala Panchayat Raj D - DF V V GF S/212
construction) enterprises
Act,1994 Duty on transfer of
S V ST S/206 Fees for licenses V V GF S/212
property
Surcharge on tax on Income from endowmentsand
V V, I, D GF, IF, DF S/199 - V GF S/212
direction ofgovt. trusts
Fees (market fee – right to
Land conversioncess V V GF S/200* V V GF
expose goods)
*Levied under Kerala Land Utilization Order, 1967. Fees (market fee-use of S/221(public
V V GF
infrastructure) market),
Fees on animals brought for S/223(Private
V V GF
sale in market market)
License fees (market) V - GF
Market fee (Vehicles) V V GF

8. Name of Levied/ Levied/
Approp Deposite Appropria Deposite
State Type of Tax Collecte Provisions Type of Non-Tax Collecte Provisions
riated d ted d
d d
Karnataka Tax on lands and buildings V V GF S/199(1) Pilgrim fee V V GF S/199(3)(d)
Tax on entertainment
(Gram Panchayats- other than S/199(3)(a) Water rate V V GF S/199(2)
V V GF
V; Taluka cinematograph shows
Panchayat-I; Tax on vehicles, otherthan
Zila Parishad-D GF S/199(3)(b) Market Fee V V GF S/199(3)(e)
motor vehicles V V
Fee on the registration of
Karnataka S/204*
Local cess S V GF cattle brought for sale in V V GF S/199(3)(f)
Panchayat RajAct, any market place
1994 S/205** Fee on buses and taxies
Duty on transfer ofproperty S D DF S/199(3)(g)
and auto-stands V V GF
*Levied under Karnataka Land Revenuee Act, 1964. **levied under Karnataka Stamp Fee on grazing cattlein the
V V GF S/199(3)(h)
Act, 1957. grazinglands
A-29
9. Tax Revenue Receipts Non-Tax Revenue Receipts
Type of Taxes Levied/ Appro Deposi Provisions Type of Non-Taxes Levied/ Appropr Dep Provisions
Name of State
Collected priated ted Collecte iated osite
d d
Punjab Tax of land and IF, S/146 (Def),
V V GF Local Rate I I,D
(Gram building S/88(a) DF S/148
Panchayat-V; Tax on professions,
V V GF S/88(b) Income derivedfrom fisheries V
Panchayat trades, callings - S/86(g)
Samiti-I; Zila Duty on Incomederived from
Parishad-D) V - GF S/88(2) V -
entertainment Common Land S/86(h)
Duty/Surcharge on
Punjab Panchayati Raj V - GF S/88(3) Fees on vehicle registration V - GF S/88
transfer of property
Act, 1994 Fees for providing sanitation
arrangements at placesof S/88(4)(b)
V, I - GF, IF
worship /pilgrimage, fairs & S/149(c)(ii)
melas.
Fees on registration of vehicles
other than those registeredunder S/149(c)(i)
I - IF
Motor Vehicle Act, 1988
S/88(4)(c);
Water rate V, I - GF, IF
S/149(v)
S/88(4)(d);
Lightning Rate V, I - GF, IF
S/149(vi)
Conservancy rate V - GF S/88(4)(e)
Ferry toll I IF S/149(b)
Fee for license for market I - IF S/149(iii)

10. Levied/ Appro
Name of State Appropr Deposi Levied/ Depos
Type of Tax Collecte Provisions Type of Non-Tax priate Provisions
iated ted Collected ited
d d
Madhya Pradesh Schedule-I
Cess on land V I GF S/74 Market fees V - GF
(Gram Panchayats- [S/77(f)]
V; Janpad S* Fees on the registration Schedule-I
Duty on transfer ofProperty V, I ST S/75 V - GF
Panchayat-I; of cattle sold [S/77(f)]
Zila Parishad-D) Development tax on Schedule I-A
I V, I IF, GF ** Light tax V (GS) - GF
agriculture [S/77A](3)
Madhya Pradesh S/74(3),
Panchayat Raj Schedule II
Development Tax D V, I GF, DF S/77(3) Water rate V GF
Adhiniyam, 1993 [S/77(2)]
Theatre Tax I V,I IF, Schedule-I Fees payable by owners V - GF Schedule II
A-30
GF (B) of vehicles other than [S/77(2)]
motor- vehicle
Schedule I-A Schedule II
Tax on private latrines V (GS) - GF Drainage Fee V - GF
(2) [S/77(2)]
Tax on Profession,trades Schedule I-A License fee (Lands under Schedule II
V (GS) - GF I - IF
andcallings [S/77A](4) Janpad) [S/77(2)]B
Fees for the use of
Tax on the bullock-carts, sarais, rest houses,
Schedule II Schedule II-A
bicycles, rickshaws usedfor V (GS) - GF dharamshalas, slaughter V (GS) - GF
[S/77(2)] [S/77(A)]
hire houses and encamping
ground
Tax on animals used for
Schedule II-A Fee for bullock-cart
riding,driving, drought or V (GS) - GF V - GF Schedule III (S/80)
[S/77(A)] stand or tonga stand
burden or on dogs or pigs
- Schedule II-
Temporary Tax. V (GS) GF Fee for grazing cattle V - GF Schedule III (S/80)
A [S/77(A)]
Fees for temporary
structure orany Schedule II-A
Property Tax V (GS) - GF Schedule II-A(1) V - GF
projection over any [S/77(A)]
public place
*Under Indian Stamp Act. **M.P. Janpad Panchayat (Imposition of Developmentt Tax
on Agriculture Land) Rules,1999
A-31
Name of State Levied/ Levied/
Approp Deposi Appropriat
11. Type of Tax Collect Provisions Type of Non-Tax Collecte Deposited Provisions
riated ted ed
ed d
Maharashtra Fee on markets and weekly
Cess on land V - GF S/127 V - GF S/124(1)(x)
bazars
(Village Panchayats- Fee on cart stand and tonga
Tax on land and building V - GF S/124(1)(i) V - GF S/124(1)(xi)
V; Panchayat Samiti-I; stands
Zila Parishad-D.) Fee for supply of water from
Betterment tax V - GF S/124(1)(i-a) V - GF S/124(1)(xii)
wells and tanks
Local purchase tax V - GF S/124(1)(i-b) Equalization grant - - GF S/132A
Bombay Village Pilgrim tax V - GF S/124(1)(iii) Village water supply fund - - GF S/132B
Panchayat Act, 1968. Tax on fairs, festivals and
V - GF S/124(1)(iv) District development fund - - GF S/133
other entertainments
Fee for temporary erection
on, or putting up projections
Maharashtra Zila Tax on bicycles and on
V - GF S/124(1)(v) over, or temporary V GF S/124(1)(xiv)
Parishad and vehicles drawn by animals
occupation of, any public
Panchayat Samiti street or place
Act, 1961 S/124(1)(vii- Fee cleaning a cess pool
Lightning Tax V - GF V - GF S/124(1)(vi)
a) constructed on land
Sanitary Cess V - GF S/124(1)(vii) Loans from Zila Parishad - - GF S/132
Fee for grazing cattle or S/124(1)
Water rate S/124(1)(viii) V - GF
V - GF grazing lands (xvii)
Tax under S/2 of B ombay Fee on the registration of
S/124(1)
Motor Vehicles Tax Act, V - GF S/124(1)(ix) animals sold V - GF
(xviii)
1958
Tax on trade, calling or

V - GF S/124(1)(vi) -
employment
A-32
12. Name of State Tax Revenue Receipts Non-Tax Revenue Receipts
Type of Taxes Levied/ Appropriat Deposi Provisio Type of Non-Taxes Levi Appropriate Deposite Provisions
Collecte ed ted ns ed/ d d
d Coll
ecte
d
Odisha S/29(iii)
S/83, Panchayat
Vehicle tax V V GF Income from endowments, trusts, etc. I, D - IF, DF
(Gram Panchayat- S/86 Samits Act,
V; 1999
Panchayat Conservancy tax V V GF S/83 Power to levy fees under S/55 &S/56 V - - S/57
samiti-I; Drainage tax V V GF S/83 Ferry rate V V GF S/72
Zila Parishad-D) S/93(V)
Land cess V V, D GF, DF Water rate V - GF S/83(d)
S/15(D)
Lightningrate V - GF S/83( e)
• Orissa Gram Fee on private markets, cart-standsand
V - GF S/83(g)
Panchayat Act,1964 slaughter houses within gram
• Orissa Panchayat Fee on animals brought forsale into or
V GF S/83(h)
Samiti Act, sold in a public market
1999 Rent from dealers* V V GF S/83(l)
• Orissa Zila Parishad License fees for brokers, commission
V V GF S/83(m)
Act,1994 agents, weighing menand measures
S/83(j)
Fee for use of any infrastructurein
V VI GF S/58(2)(b)16
market.
8
Income from property, Institutions and

- - GF S/93(e)
Undertakings.
Fee for regulating the movementof

V - GF S/83(i)
cattle (protectionof crops)
*Dealers who are temporarily occupying open grounds or any structure belonged to GP.
A-33
13. Tax Revenue Receipts Non-Tax Revenue Receipts
Name of State Type of Taxes Levied/ Appropriated Deposite Provis Type of Non-Taxes Levied/ Appropriate Deposit Provision
Collected d ions Collected d ed s
Rajasthan Taxes on Buildings (owned by S/65(a Fee for temporaryprojection V, I, D V, I, D GF, IF, S/67
V - GF
persons) ) on public land DF
(Gram Panchayat- S/65(d D D DF S/69(a)
Pilgrim tax V - GF Fee for fair or melas
V; )
Panchayat S/65(c D D DF S/69(b)
Samiti-I; Vehicle tax V - GF Water rate
)
Zila S/65(e
Parishad- Tax for arranging supply of water V - GF
)
D) Tax on commercialcrops V - GF S/65(f)
Special tax for community
V, I, D V,I,D GF, IF,DF S/66
service
Tax in respect of Panchayat S/68(2
I I IF
Samiti fairs. )(c)
S/68(2
Primary education cess I I IF
)(b)
Tax on trades, calling, S/68(a
I I IF
professions, etc. )
Surcharge (up to 5% on stamp S/69(c
D D DF
duty saleof property) )(i)
S/69(c
Surcharge on market fees D D DF
)(i)
Tax on rent payable for the use S/68(1
I I IF
or occupation of agriculture land )

Type of Taxes Levied/ Appropriat Depositd Provisions Levied/ Appro Deposit Provisions
Name of State
14 Collecte ed Type of Non-Taxes Collecte priated d
d d
I
Tamil Nadu (10%
Local cess V, I, D GF, IF, DF S/167* Local educationgrant - - IF S/179
proceeds will
go to D/171
(Village Panchayat- Duty on transfer of
V - GF S/171; S/175 Local Roadsgrant - - IF S/182
V; property
Panchayat Union Local Cess SurchargeMatching
Councils-I; House tax V - GF S/171; S/172 - - IF S/180
Grant
District Panchayats- Fees on licenses and permissions
D) Vehicle tax V - GF S/171; S/173 I - IF S/186(e)
by PanchayatUnion
Entertainment tax I - IF S/13**, Fee levied in publicmarkets I I, V IF, GF S/186(f)
A-34
Professional tax V V GF S/188*** Fee for use of choultries I - IF S/186(i)
Tamil Nadu Panchayat S/186(o);
Act, 1994 Taxes and tolls levied S/188; S/117 IF,
V V GF Income from ferries andfisheries - - S/188(n);
in village and 118# GF
S/188(o)
* Levied under Tamil Nadu Revenue Recovery Act, 1864. Income from endowment and IF, S/186(k);S/188
I -
**Levied under Tamil Nadu Entertainment Tax Act,1939. trusts GF (k)
***Levied under Tamil NaduTax on Professions,Trades, Callings and Employment Sale proceeds oftools, plants,
- - IF S/186(n)
Act, 1992. stores, avenue produce
#Levied under Tamil Nadu PublicHealth Act, 1939. Income derived from poramboke
- - GF S/188(r)
s
Income from leasesof
- - GF S/188(t)
Government property
Fee for temporaryoccupationof S/186(h),
I - IF, GF
roads S/188(i)

Levied/
Appropria Deposit Levied/ Deposit Provisio
Type of Taxes Collecte Provisions Type of Non-Taxes Appropriated
ted d Collected ed ns
d
Telangana S/64(1)(a); Fees for use of porambokes or S/64(2)(ii
House Tax V - GF V - GF
S/65 communalland )
Fees for the occupationof
S/64(2)(ii
(Gram Panchyats- V, Kolagaram or atarusum V - GF S/64(1)(b) buildingincluding chavadies and V - GF
i)
Mandal Praja Parishad- sarais
I; S/64(2)(v
Zilla PrajaParishad-D) Tax on agricultural land V - GF S/64(2)(i) User charges V - GF
)
S/64(2)(v
Local cess V - GF S/135* Encroachment fee V - GF
i)
Telangana Panchayat Payment made to GP under S/70;
RajAct, 2018 Education tax V - GF S/37** V - GF
TelanganaGST Act, 2017.
Special taxes V - GF S/64(2)(iv)S/67 Income from ferries V, I, D V, I, D V, I, D
*Telangana District Boards Act,1955. Fees for the temporary
**TelanganaEducationAct, 1982. occupationof village sites, roads
V - GF S/70
andother similar public places or
parts
S/70
Payments under the Telangana
(Agricultural Produceand V - GF
Livestock)Markets Act, 1966
A-35
Type of Taxes Levied/ Appropri Deposi Provisio Type of Non-Taxes Levied/ Appropriat Depositd Provisio
Collected ated td ns Collecte ed ns
d
GF, Fees on registrationof animals V - GF S/37(f)
Land Tax V, D - S/37(a)*
Uttar Pradesh DF sold in anymarket
Tax on land revenue Fees for the use of slaughter- V - GF S/37(g)
V - GF S/37(b)
(Gram Panchayat- houses andencampingground
V; Tax on theater, cinema or V, I - GF, IF S/37(h);
Kshetra Panchayats- V - GF S/37(c) Water rate
similar entertainment S/131A(a)
I; Tax on animals and vehicles V - GF S/37(d) Irrigation Rate V - GF S/37(k)
Zilla Panchayats-D) Tax on person exposing - IF S/131A(b
goods for sale in markets, V - GF S/37(e) Electricity tax I )
Uttar Pradesh hats, or melas
Panchayat Act,1947 Tax for cleaning and lighting
Uttar Pradesh Kshettra V - GF S/37(j)
of streets and sanitation;
Panchayats and Zila Tax for cleaning private
Panchayats Adhiniyam, V - GF S/37(i)
latrines and drains
1961 Tax on circumstances and V, D
- DF S/119**
property
*Levied under U.P. Zila Panchayats (Recovery of Arrears of Taxand Rent on
Land) Rules,1975). **Levied under U.P Kshettra and Zila Panchayat
Adhiniyam Act, 1961 and United Provinces District Boards Act, 1922.
A-36
S. Tax Revenue Receipts Non-Tax Revenue Receipts
No. Name of State Type of Taxes Levied/ Appropriate Deposit Provisio Type of Non-Taxes Levied/ Approp Deposited Provisions
Collecte d ed ns Collected riated
d
17. West Bengal GF, IF, S/47(i), S/133(i)
Tax on land and building V - GF S/46(1) Fees on registrationof vehicles V, I, D -
DF S/181(1)(c)(i)
Fees on complaints andpetitions
Duty on transfer of S/46(4)(
(Gram V - GF and other processes in suits and V - GF S/47(ii)
property a)
Panchayat-V; cases
Panchayat S/47(iii); S/133(ii);
Duty on entertainment V - GF S/46(5) Sanitary Fee V, I, D - GF, IF
Samiti-I; S/181(1) (c)(ii)
Zila Parishad-D) S/180* S/47(iv); S/133(v)
Road Cess D - DF Water rate - GF, IF
V, I, D S/181(1)(c)(iv)
West Bengal S/47(v);
Public work cess D - DF S/180 Lighting rate V, D - GF
Panchayat RajAct, S/181(1)(c)(v)
1973 *Under Cess Act,1880. Conservancy rate V - GF S/47(vi)
GF, IF, S/47(ix), S/133(b);
Ferry rate V, I, D -
DF S/181(1)(b)
Drainage rate V - GF S/47(xii)
Fees for use of burning ghat V - GF S/47(xiv)
Fees on license on dogs and
birds and other domestic pet V - GF S/47(x)
animal.
Fees on registration for [shallow
or deep tube-wells] fitted with
motor-driven pump sets and V - GF S/47(xv)
installed for irrigation for
commercial purposes
Tolls on persons, vehicles or GF, IF, S/47(viii);S/133(1)(
V,I,D -
Animals (Roads and bridges) DF a);
A-37
S/181(1)(a)
Fee on running dangerous trade I - IF S/116; S/133(iii)
Fee for license for a hat or
I - IF S/117; S/133(iv)
market
Fees on registration for running
V - GF S/47(vii)
trade, wholesale or retail,
Note: V- Gram Panchayat, I – Block Panchayat; D- District Panchayat; S-State (Government); GF- Gram Panchayat Fund; IF- Block Panchayat Fund; DF- District Panchayat Fund; CFI- Consolidated Fund of
India;
ST- State Treasury; and na – Not available.
Source: Culled from ‘Financial Matrix for Empowerment: Design of Inter-Governmental Fiscal Transfers in India to Rural Local Governments’ – A Report submitted to the Fifteenth Finance Commission
by Indian Institute of Public Administration, to the 15 th CFC, June 2019.
A-38
Original Source: States’ Panchayat Acts/Rules and Other Relevant Reports, which are as
under:
• Arunachal Pradesh Panchayati Raj Act, 1997.

• Bihar Panchayat Raj Act, 1993.
• Bihar Panchayat Samitis and Zila Parishads (Budget and Accounts) Rules, 1964.
• Chhattisgarh Panchayat Samitis and Zila Parishad (general) Finance, budget, Accounts and Audit
Rule, 1964.
• Chhattisgarh Gram Panchayats Rules, 1997.
• Gujarat Taluka and District Panchayat Finance Accounts and Budget Rules, 2010.
• Haryana Panchayati Raj Finance, Budget, Accounts, Audit, Taxation and Works Rules, 1996.
• Kerala Panchayat Raj Act, 1994.
• Kerala Panchayat Raj (Accounts) Rules, 2011.
• Kerala Panchayat Raj Accounts Manual.
• Kerala Panchayat Raj (Budget) Rules, 2008.
• Kerala Local Fund Audit Act, 1994.
• Kerala Local Fund Audit Rules, 1996.
• Bombay Village Panchayats (Budget and Accounts) Rules,1959.
• Maharashtra Zila Parishads and Panchayat Samitis Account Code, 1968.
• Madhya Pradesh Panchayat Audit Rules, 1997.
• Madhya Pradesh Panchayat Audit Rules, 2001.
• Madhya Pradesh Panchayati Raj and Gram Swaraj Sansodhan Adhiniyam, 2011.
• Punjab Panchayat Samitis and Zila Parishad (general) Finance, Budget, Accounts and Audit
Rule, 1964.
• Punjab Panchayati Raj Act, 1994.
• Punjab Panchayati Raj Act (Gram Panchayat) Rules, 2012.
• Rajasthan Panchayati Raj Rules, 1996.
• Tamil Nadu Panchayats (Issue and Disposals of Audit Reports of
Panchayat Union Council and District Panchayat) Rules, 2000.
• Tamil Nadu Panchayats (Receipts and Expenditure and Maintenance of the
Accounts of Village Panchayats) Rule, 2000.
• W.B. Panchayat (Gram Panchayat Accounts Audit and Budget) Rules, 2007.
• W.B. Panchayat (Zila Parishad and Panchayat Samiti) Accounts & Finance Rules, 2003.
• Andhra Pradesh Goods and Services Tax Act, 2017.
A-39
Annexure-8A
Latest Property Tax Rates across Municipal Corporations in Punjab
Property Tax Rates by

Area and Category of
Cities/Towns
Type of Property Use Remarks
Category of Cities*
Type of
Area #
A B
1 2 3 4 5
Residential Property (Rate Rs. per square yard)

Area 1 5.00 2.00 These rates are for built up area of ground floor.
For all residential houses, except For basement, first floor, other floors and vacant
single storey houses built on land Area 2 3.00 1.00 area, the rate will be fifty per cent of the rates
area upto 125 sq. yards specified in Column No.3/4
Area 3 2.00 -
Area 1 5.00 2.00

For Flats having more than 500
Area 2 3.00 1.00 -
square feet super area
Area 3 2.00 -
Commercial Buildings including Restaurants (except Multiplexes, Malls, Marriage

Palaces), Rate Rs. Per square foot
Area 1 4.00 3.00
Having 100 square feet land or
Area 2 2.00 1.50
below
Area 3 1.75 -
Area 1 5.00 4.00

Having 1000 square feet land or These rates are for built up area of ground floor.
below but beyond 100 square feet Area 2 3.00 2.00 For the basement, first floor, other floors and
land vacant area, the rate will be fifty per cent of the
Area 3 2.00 - rates specified in Column No. 3/4.
Area 1 6.00 5.00
Having beyond 1000 square feet Area 2 4.00 2.50

land
Area 3 3.00 -
Multiplexes, Malls, etc., Rate Per Square Feet (Rs.)

For all These rates are for whole built-up area having
- 15.00 10.00
areas distinct roof and/or partition and for all floors.
Marriage Palaces, Rate Per Square Yard (Rs.)

For all
- 6.00 4.00 These rates are for whole area of land.
areas
A-40
Industrial (any Manufacturing Unit), Educational Institutions and Godowns, Rate
Per Square Yard (Rs.)
Having 4000 square yards land or For all These rates are for built up area of ground floor.
5.00 4.00
below areas For basement, first floor, other floors and vacant
area, the rate will be fifty per cent of the rates
Having beyond 4000 square For all specified in Column No. 3/4.
7.50 6.00
yards land areas
Government Buildings including Buildings of Government

Undertakings/Boards/Corporations, Rate Per Square Yard (Rs.)
For basement, first floor, other floors and vacant
- Area 2 6.00 2.00 area, the rate will be fifty per cent of the rates
specified Column No. 3/4.
Area 3 4.00 -
Institution Buildings (other than Educational Institutions), including Community

Halls/Centres, Sports Stadiums, Social Clubs, Bus Stands, Golf Clubs such like
Buildings Used for Public Purpose, Rate Per Square Yard (Rs.)
These rates are for built up area of ground floor.
For all For basement, first floor, other floors and vacant
- 7.50 6.00
area area, the rate will be fifty per cent of the rates
specified Column No. 3/4.
#Every municipal area of ‘A Category’ cities be classified as Area-1 (Posh Area), Area-2 (less
posh/developed area) and Area-3 (balance area); and of ‘B Category’ cities be classified as Area-1
(Posh area) and Area-2 (balance area).
*Cities of Amritsar, Jalandhar, Ludhiana, Patiala and SAS Nagar (Mohali) as ‘A Category’ and all
other cities with Municipal Corporations as ‘B Category’.
Source: Notification No. 3/1/21-1lg3/350/1 dated 14th February, 2021.
A-41
Annexure-8B
Latest Property Tax Floor Rates across Municipal Councils and Nagar Panchayats in Punjab
Property Tax Rates by
Area and Category of
Cities/Towns
Type of Property/Use Remarks
Category of Cities/
Type of Towns*
Area #
B C
1 2 3 4 5
Residential houses and Flats, Rate Per Square Yard (Rs.)

For all house, except single
storey houses built on land area
area, the rate will be 50% of the rates specified in
upto 125 square yards Area 2 1.00 0.50 Column No. 3/4
For flats having more than 500 Area 1 2.00 1.00

square feet super area
Area 2 1.00 0.50
Commercial Buildings including Restaurants (except Multiplexes, Malls, Marriage

Palaces), Rate Per Square Foot (Rs.)
Having 100 square feet land or Area 1 3.00 2.00
below
Area 2 1.50 1.00
Having 1000 square feet land or Area 1 4.00 2.00
below but beyond 100 square
area, the rate will be 50% of the rates specified in
feet land Area 2 2.00 1.00
Column No. 3/4
Having beyond 1000 square Area 1 5.00 3.00
feet land
Area 2 2.50 1.50
Multiplexes, Malls, etc., Rate Per Square Foot (Rs.)

For all These rates are for whole built-up area having
- 10.00 8.00
areas distinct roof and/or partition and for all floors.
Marriage Palaces (Rate Rs. Per square yard)

For all
- 4.00 2.00 These rates are for whole area of land
areas
Industrial (any Manufacturing Unit), Educational Institutions, and Godowns, Rate

Per Square Yard (Rs.)
Having 4000 square yards land For all
4.00 3.00 These rates are for built up area of ground floor.
or below areas
area, the rate will be fifty per cent of the rates
Having beyond 4000 square For all
6.00 4.50 specified in Column No. 3/4
yards land areas
A-42
Government buildings including buildings of Government Undertaking Boards or
Corporations, Rate Per Square Yard (Rs.)
-
Area 2 area, the rate will be fifty per cent of the rates
6.00 4.50 specified in Column No. 3/4
Institution Buildings other than Educational Institutions, including Community

Halls/Centres, Sports Stadiums, Social Clubs, Bus Stands, Golf Clubs and Such Like
Buildings used for Public Purpose, Rate Per Square Yard (Rs.)
For all For basement, first floor, other floors and vacant
- 6.00 4.50
area area, the rate will be fifty per cent of the rates
specified in Column No. 3/4
*All Municipal Councils having Class-I status termed as ‘B Category; and all Municipal Councils
with Class-II & Class-III status and all Nagar Panchayats termed as ‘C Category’.
#Every municipal area of ‘B Category’ and ‘C Category’ towns be classified as Area-1 (Posh area)
and Area-2 (balance area).
Source: Notification No. 3/2/21-1lg3/351/1 dated 14th February, 2021.
A-43
Annexure-8C
Notification of Municipal Corporation, Chandigarh
No.MC/MOH/SS/2017/10821 Dated: 31.08.2017

The Commissioner Municipal Corporation Chandigarh in exercising the powers- conferred
vide Section 3(A) of Chandigarh Municipal Corporation (Sanitation & Public Health) Bye Laws
1999 further amended vide Local Govt. Chandigarh Administration Notification No.808-FII (8)-
2017/6135 dated the 12/7/2017, hereby notify the door to door waste collection charges as per
schedule given below: -
Residential Places
Sr.
House Type Rates
No.
1 EWS Houses Rs 50/- per month
2 Cheap houses LIG, MIG Flats & 5 Marla Houses Rs. 80/- per month
3 Rs. 100/- for Ground floor, Rs 110/- for
Houses more than 05 Marla and less than 01
1st floor, Rs 120 for 2nd floor, Rs.130 for
Canal & HIG Flats
3rd floor per month.
4. Houses 01 Canal & above Rs. 250/- per month.
Commercial Establishments
Sr.
No. Establishment Rates
1. Booths Rs. 50/- per month

2.
Juice Shop/ Pan Shop/Chat Shop/Halwai etc. Rs.100/- per month
3. Restaurants in Booths Rs.150/- per month
4. SCO/SCF other than Restaurant Rs.100/- per bay per floor/per month
5. Rs.250/- Ground floor Rs.200/-
Restaurants and Hotels one bay SCO/ SCF First & Second Floor each/
per month
6. Residence in SCF 1st /2nd floor Rs.100/- each / per month
Special Category of Commercial Establishment

Sr.
Establishment Rates
No.
1. Taxi Stand . R s 1 5 0 / - per month
2. Creche Rs.100/- per month
3. Coal Depot Rs.300/- per month
A-44
2) These rates have been approved by the General House of the Municipal
Corporation, Chandigarh.
3) These charges will be collected by the Door to Door waste collectors directly
from the waste generators (Households, Commercial Establishments / Organisations,
etc).
4) These charges shall only be applicable for those Door to Door waste collectors who
have been duly certified by the Municipal Corporation Chandigarh.
5) These charges shall be paid by the waste generators (Households, commercial
establishment, organisation etc.) to the Door to Door waste collectors for providing
services every day except Sundays. In case of non-collection by the Door to Door
waste collector, proportionate deductions can be made in payments.
6) The Door to Door waste collectors have to accept entire dry and wet waste from
waste generators (Households, commercial establishments / organisations etc.).
-sd-
Commissioner, Municipal
Corporation, Chandigarh.
A-45
Annexure 9A
SFCs Major Recommendations and Action Taken Report (ATR) of SFCs of Different States
Sl. States / Recommendations (Devolution + Grants) and ATR Status on SFC

No Latest SFCs Others Recommendations with Remarks
1 Andhra Pradesh Core recommendations:
(3rd)
Recommended total devolution of funds to the PRIs and ULBs as Rs.1763.72 crore per The Government accepted recommendations related to
(2005-06 to annum (Rs. 1274.34 crore for PRIs and Rs. 489.38 crore for ULBs) for the period 2005- total devolution; and the same recommendations were
2009-10) 06 to 2009-10, which works out to 6.77% of the Total Tax and Non-Tax Revenues of the applied for another 5 years (2010-2015) – the period of the
State including the share of Central Taxes for the year 2004-05. 13th CFC, because of no parallel SFC was appointed.
Thus, for 2010-2015 period, the total devolution to the LBs stood at
Rs. 2112.28 crore per annum (1597.04 crore for PRIs and Rs. 515.24
crore for ULBs), which exceeded the amount recommended by the
3rd SFC.
Grants to PRIs:
Recommended per capita grant of Gram Panchayats may be enhanced from Rs.4 to Rs.8, Recommendations regarding per capita grant and special grant were
that of Mandal Parishads from Rs. 8 to Rs. 16, and of the Zilla Parishads from Rs. 4 to Rs. accepted.
8 from the year 2005-06 onwards. This led to additional commitment of Rs. 88.64 crore to
the PRIs,the amount to be released annually. A special grant of Rs.18 crore per annum for
five years for the construction of Gram Panchayat office buildings, and Rs. 30.64 crore
per annum and for providing basic civic amenities by the Gram Panchayats.
Grants to ULBs:
Recommended per capita grant of the Municipalities and Municipal Corporations may be Recommendation regarding per capita grant to Municipalities
enhanced from Rs.8 to Rs. 12 from the year 2005-06. This led to additional commitment and Municipal Corporations was not accepted.
of Rs. 8.32 crore per annum for five years, the amount to be released to the ULBs.
Other recommendations:
(i) R e c o m m e n d e d Rs. 42.08 crore and Rs. 11.92 crore may be released from excise
income to PRIs and ULBs respectively. (i). Recommendation regarding release of excise income to PRIs and
(ii) A separate cell in the PR & RD Department may be set up exclusively for the work ULBs was not accepted.
of the SFCs. (ii). Recommendation accepted.
(iii) Instructions may be issued to Gram Panchayats to levy and collecttaxes on (iii). Recommendation accepted.
advertisements, drainage and lighting to augment their resources.
(iv) A separate Budget Head may be opened for the 13 MunicipalCorporations to
provide amounts towards payment of the Property Tax and Water Charges annually (iv). Recommendation accepted.
on Government buildings.
A-46
2 Bihar Core recommendations:
(5th) i. Recommended 2.5% of total revenue of the state preceding financial year (t-1) be transferred to the
(2015-16 local bodies as the tax devolution and grant for the period 2015-16 to 2019-20.
to ii. Divisible pool was computed by deducting cost of collection and appropriated taxes (Entertainment
2019-20) tax in the case of Bihar) from State’s own tax receipts (SOTR) as in the State Budget. Recommendations accepted regarding devolution.
iii. Recommended divisible pool formed 8.5% of State’s net own tax revenue in 2015-16 and 9% from
2016-17 to 2019-20. The recommended devolution was 8.5% (Rs.2450 crore) for 2015-16.
Grants:
i. Grants for Local bodies would be come out of Consolidated Fund of the State (CFS).
ii. Grants be distributed between the PRIs and ULBs in the ratio 70: 30 during 2015-16; and 60: 40 in
subsequent years. Recommendations accepted for grants.
iii. Overall, total grants-in-aid of Rs. 9510 crore, of which Rs. 5785 crore grants were for thePRIs and Rs.
3725 crore for the ULBs for the five years (2015-16 to 2019-20).
Grants would focus on capacity building and would be utilized for Manpower, Training, e-Governance, Distribution of amount of grants for utilization for various
Office space, preparation of Master Plans/CDPs/DPRs/GIS maps, developing divisional and district purposes as recommended was accepted.
headquarters on the lines of smart and AMRUT cities etc.
3 Chhattisgar Core recommendations:

h(2nd)
i. Recommended 8% share of the net SOTR for the local bodies. The net SOTR of the five-year period came
(2012-13 to out to Rs. 72418.55 crore, the divisible pool, i.e., 8% of the net SOTR came to Rs.5793.48 crore (Rs.
2016-17) 1158.6 crore annually)
ii. Of the divisible pool, the share of the PRIs fixed at 6.85%, and that of the ULBs at 1.15% (based on Recommendations accepted regarding devolution.
rural-urban population census 2011).
iii. Total amount allocated to PRIs and ULBs for full five year comes to Rs.4453.73 crore and Rs.1339.75
crore, respectively.
Grants:
i. Recommended an annual grant-in-aid of Rs.2 lakh each to 4607 GPs in Schedule V areas for four years
(2013-2017) to fund rural infrastructure. This involved a total grant-in-aid of Rs.92.14 crore per annum
and Rs.368.56 crore over the four-year period (2013-2017).
ii. Recommended one time grant-in-aid of Rs. 50 crore for establishment of Institute of Urban
Governance and Development. Recommendations accepted for grants.
iii. Additionally, a grant-in-aid of Rs.200 crore was recommended to ULBs for sanitation.
A-47
4 Gujarat Core recommendations:
(2nd) i. Recommends 10% of State’s total revenue receipts for devolution. The recommended devolution is not clear, whether it had
(2005-06 ii. Also recommends that the existing 21.15% of total tax revenue of the State be increased by been accepted, rejected, or partially accepted etc. in the ATR.
to additional 10% to 31.15% of the Gross tax receipts of the State. The additional 10% of tax
2009-10) However, the ATR states several departments wise (financial and
revenue should be diverted to PRIs and ULBs for the award period (2005-06 to 2009-10). non-financial recommendations) either implemented or tend to be
revised or the action to be taken by the concerned departments.
i. No additional grants were recommended for the PRIs and ULBsby the Commission. In respect of PRIs, the Commission made 41 recommendations, out
of which 20 (49%) were accepted by the State Government and on
review,it has been found that out of 20 accepted recommendations, 7
recommendationshave been implemented; while in respect of ULBs,
the Commission made42 recommendations, out of which 12 (29%)
recommendations were accepted by the State Government. It was
found that out of 12 accepted recommendations, 8 recommendations
have been implemented by the Government.
5 Haryana Core recommendations:

(5th)(2016- i. Recommended 7% of State’s own tax revenue (1.5% of Collection cost) and net of VAT, and
17 to Recommendation accepted.
2% of Stamp duty & Registration fees collected on behalf of Urban Bodies be transferred to the
2020-21) local bodies.
ii. Commission has estimated devolution of funds by making three different sets of assumptions.
In Set 1, SOTR has been projected based on the compounded annual growth rate of SOTR
of Haryana for past five years. In Sets 2 and 3, SOTR has been projected based on the
estimations of GSDP of Haryana for next five years.
i. Recommends specific grants of Rs. 250 crore for the establishment of State Level Urban Recommendation accepted with the remark that the services of
Shared Service Centre and Rs. 70 crore for Swarna Jayanti Haryana Institute for Fiscal the proposed State Level Urban Shared Service Centre will be
Management (SJHIFM). utilized for urban as well as rural areas.
A-48
6 Karnataka Core recommendations:
(4th) For 2018-19 devolution should be based on the Non-Loan Net Own Revenue Receipts (NLNORR) and ATR not available.
(2018-19 thereafter every year. The fiscal devolution to the local bodies shall be part of the divisible pool or NLNORR.
to The FC grants shall not be treated as part of NLNORR. Recommended scheme of devolution is inclusive of
2022-23) salary components. The impact of Goods and Services Act, 2017 (GST) including its compensation should be
factored into the tax receipts of the state w.e.f.,July 1st 2017.
The devolution scheme to be followed at four levels:
1st level: In this level, the relative shares of the state and the LBs in NLNORR have been determined and it is
recommended to be in the ratio 52:48 (exclusive of FC grants and inclusive of GST compensation). The increase
in the share of local bodies is from the present 42% to 48% of NLNORR.
2nd level: In this level, the relative shares of the rural and urban bodies are determined. The share of LBs as
determined in the first level is 48% of NLNORR. Out of the 48% determined, 1% of NLNORR shall be deducted
and devolved to BBMP as additional grants. Based on domain wise indicators, the remaining 47% has to be
divided between PRIs and ULBs in the ratio of 75:25. This works out to 35.25% rounded offto 35% to PRIs and
11.75% rounded off to 12% to ULBs in the NLNORR. The existing share of BBMP in the 12% meant for ULBs
shall continue.
3rd Level: Determination of inter-se sharing of funds among each tier ofPRIs and each class of ULBs, 2012-13
to 2016-17.
4th Level: Determination of share of funds among each unit in each tier of PRIs and each unit of each class
of ULBs is to be based on existing proportion of allocation scheme-wise.
The overall percentage in transfer of funds to PRIs and ULBs recommended is based on global protection
and global provisioning
along with justification.
A-49
7 Kerala Core Recommendations: Recommendations
(5th) rejected.Reasons:
(2016-17 The Commission decided to follow the Union Finance Commission, CFC’s approach and
devolve funds based on the estimate made for the year of devolution (t). Previous SFCs The ATR states that the financial transfers from State Government
to to Local Governments are substantial in volume and any uncertainty
had taken Gross State Own Tax Revenue (SOTR) / State plan outlay for devolution of
2020-21) resources. This Commission decided to take net proceeds of SOTR after deducting collection on this score will adversely affect the project approval and
charges for sharing the State resources in all items of devolution. consequent delay in the implementation of the development
The Commission recommended that 20% of the net proceeds of annual SOTR should be programmes of the Local Governments. It is difficult to get data of
devolved to Local governments as totaldevolution on (t) basis in the year 2016-17 based current year’s State Own Tax Revenue (SOTR) at the appropriate
on the projectionof SOTR of the Commission. For the subsequent years, an annual increase time anddevolving funds based on the same. Moreover, adjustments
of 1% has been recommended. of the provision for Development Funds of a particular financial
year in the coming years will lead to chaos in the preparation of the
The Commission recommended that 3.5% of the net proceeds of annual SOTR shall be Projects. The present system of t-2 (State Own Tax Revenue of two
devolved to Local Governments as General Purpose Fund (GPF) on (t) basis for the award financial years back, which appropriation account of the State is
period based on the projection of SOTR of the Commission. prepared by the Accountant General and passed by the State
The Commission recommended that 5.5% of the net proceeds of annualSOTR calculated on Legislature and data available for computation) has proved a
(t) basis shall be devolved to Local governments as Maintenance Fund for the year 2016-17 successful formula in the financial devolution from the State
based on the projection of SOTRof the Commission. For the subsequent four years, the Government to the Local Governments. Hence, considering the
rate shall be accounting issues, it is decided tocontinue the existing formula of (t-
increased to 6% per annum. 2) as the base year for the computation of award amount. The
recommendation was therefore rejected.
Following this, it was decided to continue the existing formula of
3.5% and 5.5% of SOTR in (t-2) for the allocation of General
Purpose fund and
The Commission recommended that 11% of the net proceeds of annual SOTR calculated on Maintenance Fund respectively for the award period. The
(t) basis shall be devolved to Local governments as Development Fund for the year 2016-17 Maintenance Fund will be increased in every year during the Fifth
based on the projection of SOTRof the Commission. The rate of devolution shall be increased SFC award period tothe extent of 5.60% in 2017-18, 5.75% in 2018-
to 11.5% in2017-18, 12.5% in 2018-19, 13.5% in 2019-20 and 14.5% in 2020-21. 19, 5.90% in 2019-20 and6.00% in 2020-21. For the Development
Fund, the Government decided to modify the provision for
Development Fund for Local Governments from the existing level
of 22.92% to 23.00% for the financial year 2016-
17. Thereafter it will be increased by 0.5% in every year during the
FifthSFC award period, i.e., 23.50% in 2017-18, 24.00 % in 2018-
19, 24.50 %
in 2019-20 and 25.00 % in 2020-21
A-50
Other Recommendations: Recommendations
The basic grant should be spent in delivering basic civic services like water supply, sanitation, rejected.Reasons:
sewerage, waste management, maintenanceof community assets, roads, street lighting and Regarding the grants part, the ATR states that since 14th Finance
other basic functions assigned to them under the Kerala Panchayat Raj Act and Kerala Commission Grant has to be used for developmental activities in the
Municipality Act. Local Governments it is decided to continue the existing
In order to avail ‘performance grant’ the Commission recommended that State government arrangement of including 14th FC Grant also as part of the
should take urgent steps to revise tax and non-tax rates of LGs as improvement in own Development Fund. The recommendation was therefore rejected.
revenues of LGs over the previous year is made mandatory by the CFC.
For effective monitoring of the flow of fund to LGs this Commission recommends that the
basic grant as well as performance grants to LGs should be distributed through the major
head 3604 under suitable sub-heads.
Grants: Recommendations
rejected.Reasons:
The basic grant should be spent in delivering basic civic services like water supply, sanitation,
sewerage, waste management, maintenance of community assets, roads, street lighting and For other recommendations mentioned, for the first part, it was
other basic functions assigned to them under the Kerala Panchayat Raj Act and Kerala accepted with modification that the projects under 14th Finance
Municipality Act. Commission Basic Grant also are part of the Development Fund
In order to avail ‘performance grant’ the Commission recommended that State government Projects.For the last two items, specifically the performance grant
should take urgent steps to revise tax and non-tax rates of LGs as improvement in own and the effective monitoring of the flow of fund to LGs, the
revenues of LGs over the previous year is made mandatory by the CFC. recommendations were accepted.
For effective monitoring of the flow of fund to LGs this Commission recommends that the
basic grant as well as performance grants to LGs
should be distributed through the major head 3604 under suitable sub heads.
A-51
8 Madhya Core recommendations The ATR suggests the following:
Pradesh Since the 4th SFC award period had been from 2011-12 to
(4th) The Commission recommended 7.5% of the Net Own Tax Revenue of theState to be devolved to the
LBs. 2015-16, and because the SFC final report was submitted in
(2011- October 2017 (with an interim report submitted in
12 to Out of it, the share of PRIs (GPs) shall be 5.5% and the share of ULBs shallbe 2%. The inter-se November 2015). And since the 4th SFC award period had
2015- distribution among GPs will be based on population.For ULBs, the inter-se distribution will be 45% already collapsed by the time the SFC interim report came
16) to Nagar Parishads, 40% to Nagar Pallikas, and 5% to Nagar Nigams. out in 2015. The interim report’s recommendations for the
Other recommendations: year 2015-16 were also not carried out because the
comments of the local government’s administration on
The Commission recommended that based on the formula of the 14th FCgrants, the distribution of recommendations were not received. Therefore, the
grants shall be on the criteria: 70% Area, 15% SC/ST population, and 15% weightage to those Government made the recommendation that for the years
factors as given in the interim report 2015. 2015-16, 2016-17 and 2017-18, to follow its 3rd SFC
recommendations regarding LBs, and for two subsequent
years 2018-19 and 2019-20, to follow the 4th SFC
recommendations.
9 Maharashtr Core recommendations:

a (4th)
40% of Total State’s Revenue from Tax & Non-Tax revenue to LBs was recommended for Recommendation rejected.
(2011-12 to devolution. Out of this divisible pool, 20% to be set aside for incentive grants for horizontal
2015-16) distribution amongst ULBs & PRIs. For this distribution, the criteria should be as follows: ii)
following indices to be considered weightage to be given as under Human Development Index
(10%), Population (40%), Area (30%), Schedule Caste/Schedule Tribe (10%), Deficit in
services (5%), and Recovery of tax& non-tax revenue (5%).
Divisible Pool: Suppose out of Rs.100, Rs.20 deducted as Performance Grants incentive. The
balance Rs. 80 is divided into Urban LBs and Panchayat Raj Institutions according to the
proportion of the population
i.e. 45:55. The share of Urban LBs to be divided amongst Municipal Corporations and Councils
in the ratio of 40:60. In case Panchayat Raj Institutions its share is divided amongst Zilla
Parishads, Panchayat
Samitis and Village Panchayat in the ratio of 20:30:50.
A-52
Other recommendations (Financial):
(i) Commission recommended a share of 50% of the amount collected on account of profession (i) Recommendation accepted.
tax to be devolved on the respective local bodies.
(ii) Commission recommended for an increase of General cess to 500 paisa per Rupee of a land (ii) Recommendation partially accepted.
revenue. Commission recommended for itstransfer to Zilla Parishad immediately after it is
recovered.
(iii) Commission recommended that the acts related to Urban LocalBodies and Panchayat Raj
Institutions so amended to incorporate provisions for application of User Charges and taking (iii) Recommendation partially accepted.
away freezing limits for the rates of fines and penalties to enable the local bodies to link
their resources with cost and benefits and will be able to exploit their own sources to the
fullest potentials.
(iv) Commission recommended for increase in Water Cess to 50 paisa perRupee. Commission (iv) Recommendation rejected.
recommended for its transfer to Zilla Parishad immediately after it is recovered.
(v) Commission recommended for a 15 % of the income from forest produce to PRI bodies. (v) Recommendation rejected
(i) Commission recommends that the Village Panchayats with the population more than 5000 (i) None of the Recommendation in these categories was
should have a village development officer. accepted.
(ii) That all subjects in Schedule 11 be devolved with all powers to Panchayati Raj Bodies.
(iii) Government should pass on the directions to Urban Local Bodies to ensure Drainage audits. (ii) Recommendation partially accepted.
Government should also pass on the directions to Urban Local Bodies to ensure Drainage
byelaws (iii) Recommendations partially accepted.
10 Odisha Core recommendations:

(4th)
(2015- The Commission recommended limiting the total transfer to LBs within 10% of net divisible pool of State
taxes projected for the award period 2015-2020. The Commission recommended that 3% of the net tax revenue Recommendations accepted.
16 to
during the period 2015-2020 is to be devolved and distributed between the PRIs and the ULBs in the ratio
2019-20) 75:25.
Inter-se distribution of devolution amongst the three tiers of PRIs will bein the ratio 75:20:05.
The Commission recommended a total transfer of Rs. 25325.03 crore outof which Rs. 12740.08 crore is from
the State’s Taxes and Consolidated Fund to the three tiers of PRIs and ULBs during the award period, and
recommended that the remaining amount of Rs. 12584.95 may be provided through the 14th FC to supplement
the resources to be transferred.
A-53
Grants:
(i) The Commission recommended allocation of an additional amount of 20% to the Panchayats under TSP
out of the total devolution – devolution proper and some specific grants for PRIs. Recommendations accepted.
(ii) The Commission recommended grants-in-aid to meet the fund requirement partly and fully for the
selected focus areas after keeping aside the recommended amount in the form of devolution and
assignment of taxes.
(i) The Commission recommended to exclude Entry Tax, Entertainment Tax and Motor Vehicle Tax from (i) Recommendation accepted with
the shareable pool and to assign a part of these taxes to LBs directly. modifications. The allocation for
assignment from Entry Tax for PRIs in
2016-17 and subsequentyears have been
modified and aligned with the rate of
growth ofassignment to ULBs. The
assignment from Entry Tax for ULBs is
modified by shifting the base year from
(ii) The Commission recommended institutional and structural strengthening, resource generation and to 2015-16 to 2014-15. Secondly, owing to
address legal hurdles andother general financial and non-financial issues of LBs.
lack of capacity of LBs to levy and collect
Entertainment Tax, the Government felt that
the present system of levy and collection of
Entertainment Tax through the
Commissionerof Commercial Taxes should
continue.
(ii) The ATR states that these issues are being
examined, and therespective departments
would be taking action in consultation with
High Level Monitoring Committee.
A-54
11 Punjab Core recommendations:
(5th)
(2016- (i) The Commission recommended 4% of Net Total Tax Revenue of the State be transferred as devolution to LBs for the
17 to next five years i.e., 2016-17 to 2020-21. The Commission recommended 60% of the shareof State taxes be distributed
between PRIs and ULBs in the ratio of their population based on census 2011. Accordingly, the shares of PRIs and ULBs
2020-21) worked out to Rs. 2727.75 crores and Rs. 1636.65 crores respectively. The Commission recommended 40% of the share
of State taxes be distributed between PRIs and ULBs on the basis of and in proportion to gaps in the projected revenue
and expenditure figures during 2016-17 to 2020-21. While PRIs will have surplus and ULBs will be in deficit during the
2016-17 to 2020-21, this 40% share amounting to Rs.2909.60 crores will go to ULBs alone.
The Commission recommended the Panchayat Samitis and Zila ParishadsRs. 1 crore per annum for each of the Panchayat
Samitis and Zila Parishads be devolved to these bodies out of the total share of PRIs by the State government, since under
the 14 FC recommended grants are only meant for Gram Panchayats and not these two other tiers.
ATR only summarizes the
The Commission recommended 80% share should be disbursed among all the ULBs in proportion to the population of each
recommendations. It does not
ULB, adopting the population figures of Census 2011. The remaining 20% of the total amount should go as additional
provide thedecision of the
allocation to the poor ULBs, to bedistributed in proportion to respective population.
Government on these
The Commission recommended that out of the total amount of share in tax revenue which is to go to Panchayats, 80% may recommendations.
be disbursed among all Panchayats in proportion to the individual Panchayat’s population as per the census 2011. The
remaining 20% may be given as additional grantfor poor Panchayats. The payments to Panchayats may be routed through
Zila Parishads. Both the portions of 80% and 20% of the grants may be transferred to the Zila Parishads in proportion to all
the rural population of the district and population of poor Panchayats of the district respectively.
(ii) Compensatory Payments in lieu of Octroi: When the octroi in Urban Local Bodies (ULBs) was abolished in 2006, the
State Govt. enacted the Punjab Municipal Fund Act, 2006. As per provisions of this Act, the Punjab Municipal Fund has
been constituted and 10% of the collections (raised to 11% w.e.f May 2012 when Octroi on petrol and diesel abolished)
made by the State Govt. from the Value Added Tax Act, 2005 are to be credited to the Punjab Municipal Fund. The
Commission favoured its continuation. The Commission has estimated the contribution of Rs.9439.14 crore to this Fund
during the Five-Year period 2016-17 to 2020-21.
A-55
(i) The Commission recommended that State may constitute a monitoring committee comprising the representatives from
FinanceDepartment and rural & urban local bodies to ensure the fully utilization of performance grants.
(ii) For improving the performance of ULBs the measures viz, computerization and E-governance, use of new tolls of
managementsystem i.e., GIS and MIS, may be adopted by these bodies.
(iii) To enhance capacity building and training the Commission felt that there should be departmental capacity building
programmes at the regular intervals.
(iv) As per the Thirteenth Finance Commission, this Commission again recommended that the process of compilation of
statistical work should continue so that desired data is available to all concerned departments/agencies at appropriate
time.
(v) The Thirteenth and Fourteenth Finance Commissions emphasized the need for a uniform municipal accounting system
and keeping of accounts and audit under the technical guidance and support of C&AG. This Commission was of the
view that the State should acceptand follow the recommendations of the Central Finance Commissionin this regard.
(vi) The Commission highly recommended that the set service level benchmarking for the level of services i.e. water supply,
sewerage and solid waste management to be finalised and regularly monitored.
A-56
12 Rajastha Core recommendations:
n (4th)
(2010-11
to (i) The Commission recommended that 5% of Net Own Tax Revenue (excluding Entry Tax and Land Recommendation accepted with modification.
2014-15) Revenue) of the State government bedevolved to the LBs for the award period i.e., 2010‐2015. In addition, (i) The State government maintained that for the
100% of Land Revenue, 25% of Entry Tax, 3% of Royalty on minerals,2% Cess on Excise Duty and 10% year 2014-15, instead of creation of divisible
Surcharge on Stamp Duty are also recommended to be devolved. The total devolution earmarked was pool from separate Tax and Non-Taxrevenue
Rs.10183.96 crore for the award period. sources, 7.182% of net own tax revenue
(ii) State’s Net own tax revenue share in net own tax revenue (excluding Land Revenue and Entry Tax) (excluding Land Revenue) of the State be
amounting to Rs.7214.66 crore between PRIs and ULBs may be distributed on the basis of theshare of devolved.
rural and urban population in the 2011 Census which is 75.1% rural and 24.9 % of the total population
of 6.85 crore. Accordingly, the share of PRIs and ULBs in devolution amounts to Rs.5418.21 crore for
PRIs and Rs.1796.45 crore for ULBs. (ii) Recommendation accepted for the share of
(iii) The Commission recommended that the existing ratio of 85% to Gram Panchayats, 12% to Panchayat PRIs and ULBs in the divisible pool.
Samitis and 3% to Zila Parishads as suggested in the Interim Reports be continued. Inter‐ se distribution
of funds among the Panchayat Samitis and Gram Panchayats is to be made on the basis of population (iii) Recommendation accepted.
according to the latest Census of the concerned Panchayat Samitis and Gram Panchayats.
(iv) The Commission recommended 50% devolution on population basis, 10% on area basis and 10% on
average revenue mobilizationbasis among all the ULBs. The balance 30% will be distributed only
(iv) Recommendation accepted.
among the Municipalities on population basis.
A-57
(i) The difference of funds to be devolved and funds already devolved in compliance of Interim Reports for (i) Recommendation accepted.
the period 2010‐13 would be kept in a Corpus Fund. The Corpus would be created at the level of
Panchayati Raj Department.
(ii) Specific functional grants to Gram Panchayats.
(iii) PRIs would be given 20% funds as performance grant on meeting thefollowing criteria during the financial
year.
(iv) After earmarking Functional grant for Gram Panchayats and 20% fund for performance grant to PRIs, (ii) Recommendation accepted.
remaining amount would be available as Untied grant. (iii) Recommendation not accepted.
(v) In addition to the GoI subsidy, the Commission recommends that a further 20% the cost on solar street
units installed by the Gram Panchayats during 2013‐14 and 2014‐15 be given by the state government as (iv) Recommendation not accepted.
Incentive.
(vi) The Commission recommends that an incentive of 50% of the cost ofwater purification plant installed by
the Gram Panchayats during 2013‐14 and 2014‐15 for the community at a safe public place be provided
out of the Untied Grant.
(vii) To improve the service level, ULBs need to be motivated to contribute matching share towards (v) & (vi) Recommendations accepted.
expenditure for core functions specifically for sanitation and solid waste management. Therefore, to
ensure proper xxvi utilisation of funds, the Commission considered it necessary to earmark grant for core
functions for the years 2013‐14 and 2014‐15.
(viii) Performance Grants for ULBs.
(ix) Untied Grants to ULBs for undertaking various development works
of local interest for which they have no funds.
13 Tamil Core recommendations

Nadu
(i) The Commission recommended devolution of 10% of the Net State’sown tax revenue (SOTR) during (i) Recommendation accepted.
(5th)
the award period commencing from2017-2018.
(2016- (ii) The Net SOTR for the award period may be determined by permittingthe following deductions from gross
17 to SOTR: (i) Surcharge on Stamp Duty of RLBs/ULBs provided in the expenditure budget, if not already
2020- (ii) Recommendation accepted.
deducted under the receipt major head (ii) Cost of collection for the major tax items – Commercial
21) Taxes, State Excise, Stamps and Registration and Motor Vehicles Tax (iii) Other surcharges, if any.
(iii) The cumulative arrears of Rs.156.90 crore for RLBs and Rs. 395.11 crore for ULBs be added to the
divisible pool in the first year of the award period, i.e. 2017-18 and released to the respective LBs as per (iii) Recommendation accepted with modification
the devolution scheme recommended. that the cumulative arrears be considered for
(iv) The State Government should compensate LBs for loss of Entertainment Tax revenue in case a separate release in three equal instalments commencing
legislation enabling from 2017-18.
local bodies to collect Entertainment Tax is not passed. This
(iv) Recommendation not accepted. As the proposal
compensation should extend to 90% of the State GST collected on Entertainment Services and be is likely to be cleared by Government for
distributed on the destination principle.
A-58
(v) In the event there is a loss in State Tax collection due to the introduction of GST and the Government authorizing LBs themselves to levy
of India also agrees to compensate States for loss in devolution from the Union divisible pool of taxes Entertainment Tax, the hypothetical situation
to the States on implementation of GST, in addition to the losses in State’s tax revenue, then on a pari posturized by SFC may not arise.
passu basis, the Stateshould share 10% of the compensation that it receives from the Centre for the
shortfall in revenue collections of the State due to introduction of GST, with the LBs.
(vi) The vertical sharing ratio between rural and urban LBs shall be 56:44.
(v) Recommendation accepted.
(vii) The vertical sharing ratio between RLBs may be determined as 8:37:55 amongst District Panchayats,
Panchayat Unions and Village Panchayats.
(viii) 10% of the overall devolution intended for RLBs be credited into a Pooled Fund for Deficit RLBs.
40% of the amounts available in this Fund, i.e., 4% of the overall devolution intended for RLBs, may
be disbursed in the first three years of the award period by the DRD onlyamongst those Panchayat Unions (vi) Recommendation accepted.
and Village Panchayats which havebeen in deficit for at least 3 of the last 5 years.
(ix) 5% of the overall devolution intended for ULBs be impounded into aPooled Fund for Deficit ULBs (vii) Recommendation accepted.
subsuming the Operation andMaintenance Gap Filling Fund. 40% of the Fund, i.e., 2% of the devolution
amounts tier wise should be disbursed in the first three years of the award period by the DMA and DTP (viii) Recommendation accepted.
respectively only amongst those Corporations, Municipalities and Town Panchayats which have been
in deficit for at least 3 of the last 5 years based on audited accounts.
(ix) Recommendation accepted with modification
that the O&MGFF is to be increased to 5% and
the existing practice will continue.
Grants to PRIs
A Capital Grant Fund may be established to replace the Infrastructure Gap Filling Fund (IGFF), into which All recommended grants to RLBs were accepted.
20% of the aggregate devolution intended for RLBs would be paid. Of this Fund, 20% would be set apart for
taking up projects which are deemed to be of importance at the Statelevel.
The minimum lumpsum grant may be increased from Rs. 5 lakh to Rs. 7 lakh per Village Panchayat per year.
The Minimum Lump Sum Grant to Panchayat Unions may be increased to Rs. 40 lakhs per annum per
Panchayat Union to be released on a monthly basis out of the 37% share of Panchayat Unions in the
SFC devolution.
A-59
Grants to ULBs:
A Capital Grant Fund may be established to replace the IGFF, into which 15 per cent of the aggregate All recommended grants for ULBs were accepted.
devolution intended for ULBs tier wise would be paid.
The Minimum Lump Sum Grant for Town Panchayats may be enhanced from Rs. 20 lakh to Rs. 30 lakh.
A special grant of Rs. 25 crores may be provided to Tamil Nadu Instituteof Urban Studies (TNIUS) to be
distributed in equal annual installmentsover the award period out of the aggregate devolution for ULBs in
TN. Out of the aggregate devolution intended for ULBs, 5% may be set apart
for the incentive fund.
15 Uttar Core recommendations:

Pradesh
(4th) Recommended 15% of State’s tax and non-tax revenuesnet of collection cost be transferred to the LBs. Recommendation accepted with modifications. The
(2011- ATR states thatNon-Tax Revenue of the State is very
12 to low, and if seen in terms of expenditure on various
general, social and economics areas, it is in fact in
2015- deficit. Therefore, Government decided that only part
16) of the State’s
Net Tax Revenue will form the divisible pool to be
transferred to LBs.
A-60
The Commission recommended that, if the State government finds it feasible, it can enforce the fiscal The ATR states that – from the financial year 2011-12,
devolution methodology for LBs as recommended by this Commission from the first year of the award it is not feasible to enforce the recommendations.
period, 2011-12, and also, may continue to do so till the subsequent SFC recommendations for the next (Remark: Reason for the same not mentioned in the
award period will be received by the Government. ATR).
The Commission recommended that like the previous SFCs, and till the new SFC report comes after this
4th SFC, the Government can utilise the recommendations of this SFC. This is because, the However, after the decision of the State government on
recommendations regarding the working mechanism and the work environment for SFCs needs constant this Commission’s recommendations, the
improvements and these improvements cannot be related to any specific award period of SFCs, and recommendations of thisCommission will continue till
thus it should be a continuous process. the acceptance of the recommendations ofthe next SFC.
A-61
16 West Core recommendations: Recommendations accepted with modifications.
Bengal
(4th) The Commission recommended for SFC grants to the tune of Rs.1103.80 crore for the financial year 2015-
16 which willconstitute 2.5% of the projected State’s own tax revenue. It is stated that the State government may devolve Rs.
(2015- 900 crore to theLBs for the year 2016-2017 from its
16 to Of this SFC grants of Rs.1103.80 crore, share of GP, PS, ZP and ULB as vertical devolution will be Own Tax Revenues and an annual increase of 3% from
Rs.153.00 crore, Rs.253.50 crore, Rs.224.81 crore and Rs.442.49 crore, respectively in 2015-16. The 2017-2018 to 2019-2020.
2019- Commission alsorecommended a progressive enhancement of SFC grants at the rate of 15% per annum
20) from 2016-17 onwards. Therefore, on an average a GP in West Bengal will be annually entitled to a sum
of Rs.6.16 lakhs, a PS Rs.1.00 crore, a ZP Rs.15.16 crore and a ULB Rs.4.66 crore during 2015- 16 to Out of the total devolved funds to Rural and Urban
2019-20. Local Bodies, 60%may be earmarked for capital
expenditure and remaining 40% for maintenance of
The Commission also considered it to be reasonable that if in a particularyear the State’s own tax revenue assets, payment of electricity bill, O&M of water
grows by less than 15%, the SFC grant should be 2.5% of the actual tax revenue. The Commission further supply schemes etc.
recommended that 60% of recommended grant should be spent towardscreation of new assets and 40% of
the grant should be spent as expenditure towards payment of electricity bills, O&M cost of water supply
schemes, street lights and regular maintenance of other assets created by the ULBs. The Rural LBs will,
however, be free to spend the SFC grant on the basis of the local felt need pertaining to civic services,
provided no salary, wages and establishment cost should be borne from
this grant.
The Commission was of the opinion that the idea of an ‘incentive fund’ should continue to enthuse the
performance of the LBs and, therefore, recommended that 4% of the grant be earmarked as ‘performance
grant’ from the 2nd year i.e., 2016-17.
Source: SFC reports and ATRs of various States.
A-62
Annexure-10A
Details of Value Capture Methods Adopted and Used by Major States/ULBs in India
Premium on
Charge for
Urban Tax on Development TDR and Relaxation of Vacant Town
Betterment Regularization of
States Land Conversion Charge/impact Incentive Rules or Land Planning
Levy Unauthorized
Tax of Land Fees FSI Additional Tax Scheme
Development
FSI
Andhra Pradesh
Town Planning
The Andhra Pradesh Act 1920
Regulation and
Penalization of
unauthorizedbuildings
and buildings constructed
in deviation of the
Sanctioned Plan Rules,
Betterment 2015; Section 399 of Section 85
Section 4 AP Development charge No No
1. Andhra contribution HMC Act, 1955 (3) of AP
Yes ConversionAct - Section 27 APUAD specific specific
Pradesh S. 24 APTP - Compounding Fee; Municipaliti
2006 Act provision provision
ACT Section 452(2) and 636 es Act,1965
of HMC Act, 1955
- Demolition Expenses;
Section 456(4) of
HMC Act, 1955
- Demolition Expenses;
Section 440 of HMCAct,
1955 - Balconies
A-63
Premium on
Charge for
Urban Tax on Development TDR and Relaxation of Vacant Town
Betterment Regularization of
States Land Conversion Charge/impact Incentive Rules or Land Planning
Levy Unauthorized
Development
FSI
Section 216
of Bombay Ahmedabad
Provincial Urban
Municipal Regulations for Development Gujarat
GTPUD Act (Chapter
Gujarat Land Corporations Rehabilitation Authority Town
VII);value-based No
Revenue Act, 1949 and (AUDA) Planning
2. Gujarat Yes developmentcharge Section 7 GRUD Act Specific
(Amendment) Bill- (Gujarat Redevelopment - Development and Urban
also levied; ImpactFees provision
2016 Adaptation of the Slums, Control Development
Collected under AUDA
of Laws (State 2010. Regulations in Act1976
and Concurrent CDP2021 -
subjects)Order, proposed
1960.)
Betterment
tax S. 127
(5) (h)
MPMC Act;
Madhya
Madhya
Pradesh
Pradesh Madhya Pradesh Nagar
Town
Town Tatha Gram Nivesh
No No No No No No and
3. Madhya Improvement Niyam 1975 and
specific specific specific specific specific specific Country
Pradesh Trust Act Madhya Pradesh
provision provision provision provision provision provision Planning
1960; Bhumi Vikas Rules
Act 1973
Madhya 1985
- Section
Pradesh
50
Town and
Country
Planning Act
1973
A-64
Premium on
Charge for
Urban Tax on Development TDR and Relaxation Vacant Town
Betterment Regularization
States Land Conversion Charge/impact Incentive of Rules or Land Planning
Levy of Unauthorized
Development
FSI
Nagpur
Improvement
Trust Act 1936;
Mumbai
Municipal Development Charge
Maharashtra
Maharashtr Corporation Act Section 124A 1994
Gunthewari Bombay Town
a Land 1888; Mumbai Maharashtra Amendment
4 Maharashtra Yes Yes (Regulation, Announced Planning Act
Revenue Metropolitan Regional and Town to MRTP Act
Upgradation and 1915 and 1954
Code 1966 Regional Planning Act 1961 - 1966
Control) Act 2001
Development Amended in 1993
Authority
(MMRDA) Act,
1974 - Section
26-30
Section 22 of
Section The Orissa
Section 677 of 472 of Development
Odisha Odisha Authorities
Municipal Section 196 of Municipa Act,1982
Corporation Act, Odisha Municipal l Section 9.3.1. Regularization of
2003; Section 70 Corporation Act, Corporati Slum unauthorized /
No No No
the Orissa Town 2003; Section 84 of on Act, Rehabilitation& deviated construction
5. Odisha specific specific specific
Planning & The Orissa 2003; development through
provision provision provision
Improvement Development Section Policy for compounding
Trust Act, 1956; Authorities Act, 64 of The Odisha Scheme
CDP Land and 1982 Orissa
Implementation Development
Policy, 2015. Authorities
Act, 1982
A-65
Premium on
Charge for
Tax on Development Relaxation Town
Urban Land Betterment TDR and Regularization Vacant
States Conversion Charge/impa of Rules or Planning
Tax Levy Incentive FSI of Unauthorized Land Tax
of Land ct Fees Additional Scheme
Development
FSI
Land
Section Section 128 of Pooling
141 of Punjab Policy for
Policy for
Punjab Municipal Punjab. S.
Section 7. Draft Section 12.1 (4) regularization of
Regiona Corporation Act, 43, S. 139
No Policyfor No of Draft Policy unauthorized No
l and 1976. Policy for of
6. Punjab specific Housing & specific forHousing & Colonies and specific
Town utilization of Punjab
provision Urban provision Urban buildings under the provision
Plannin External Regional and
Development Development Punjab Laws(Special
g and Development Town
Provisions) Act-2013
Development Charges inthe Planning and
Act 1995. State of Punjab. Developmen
t Act, 1995.
Section 20. Section 26.

RTIDF
Notification- Notification-
betterment levy
Government of Govt of
Policy of on premium Integrated
Rajasthan. Section 90-A Section 106 Rajasthan.
Transferable FAR along the (For industrial land) Township
Local Self of Rajasthan Rajasthan LocalSelf
7. Rajasthan na Development twoMetro RIICO Disposal of Schemes of
Government, Land Revenue Municipalities Government,
Rights in corridors for Land Rules 1979 private
Urban Act, 1956 Act, 2009 Urban
Rajasthan2012 height up to developers
Development Development
FAR of4 rather
& Housing & Housing
than 1.33.
Department Department
Tamil Nadu Town Section 81

Yes; Charged but Chennai
andCountry (3) (a) of
no specific Metropolitan Section 113A and
Planning Act1961 Tamil Nadu
8. Tamil Nadu TNULT Act Yes Yes provision Development section 113B - Yes
- Section 63B; District
exist under any Authority - TNTCP Act
Impact fees Municipalitie
Act DCRprovision
collected s Act,1920
A-66
Premium on Charge for
Urban Tax on Development Relaxation of Regularization Town
Betterment TDR and Vacant
States Land Conversion Charge/impact Rules or of Planning
Levy Incentive FSI Land Tax
Tax of Land Fees Additional Unauthorized Scheme
FSI Development
Section 35 of Policy for

Zamindari
Uttar Pradesh Sub-section-(2) regulation
No Abolition and Sections 14 and 15 No No No
9. Uttar Urban Planning (i) of section-56 of FAR-
specific Land Reforms Act; of specific specific specific
Pradesh and of the UPUPD Housing
provision Consolidation of UPUPD Act 1973 provision provision provision
Development Act, 1973 Department, Govt.
HoldingsAct
Act 1973 of UP
Section 102 of
The West Bengal
Sections 4A, 4B, 4C
No Town and No No No
10. West WBULT and4D of West Section 91 Section 52
specific Country specific specific specific
Bengal ACT Bengal Land WBT&CPD Act WBT&CPD Act
provision (Planning and provision provision provision
Reforms Act, 1955
Development)
Act, 1979
Source: Culled from GoI (Year not mentioned), Value Capture Finance Policy Framework, Ministry of Urban Development, Government of
India.
A-67

Sixth Punjab Finance Commission Report

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Sixth Punjab Finance Commission Report

Uploaded by

Copyright:

Available Formats

REPORT OF THE SIXTH

PUNJAB FINANCE COMMISSION

List of Abbreviations vii-x

List of Tables xi-xvii

List of Figures xviii-xxi

List of Boxes xxii-xxiii

Chapter 1: Introduction 1-10

Administrative Changes that Occurred during the Tenure of the 4

Design of the Report 9

Chapter 2: Approach, Issues and Methodology 11-18

Statistical Tools Used 15

Questionnaire for Seeking Views of Stakeholders 16

Consultations with Stakeholders 17

Constitution of Committees and Study Sponsored 17

Meetings with Chief Minister and Concerned Ministers, Punjab 17

Chapter 3: The Economy 19-40

Fatigue among Growth Drivers 28

Declining Development Expenditure 29

Declining Per Capita Income 31

Structural Transformation of Economy 33

Future Growth Potential 38

Chapter 4: State Finances 41-90

Assessment of State Finances 42

Public Debt and Its Sustainability 72

State Public Enterprises 74

Public Assets Management 75

Emerging Pain Points 79

Roadmap for Fiscal Consolidation 81

Chapter 5: Centre-State Fiscal Relations 91-108

State (s) and the 15th CFC 98

Suggested Action by Government of Punjab 107

Chapter 6: A Review of the Status of Decentralised 109-128

Dominance of Parastatal Bodies/Agencies 115

Conclusions and Recommendations 116

Financial Devolution 118

Administration Devolution 126

Chapter 7: Finances of Panchayati Raj Institutions 129-160

Comparative Analysis of PRIs and Their Finances: Where Punjab 132

Key Takeaways 139

Structure and Main Features of PRIs Finances 140

Analysis of Punjab PRI Finances 154

Chapter 8: Municipal Finances 161-208

Present Status of Urban Local Governments 163

Taxation Powers of ULBs in Punjab 164

Structure of Municipal Finances (All-India) 166

Key Takeaways of Municipal Finances (All-India) 170

Comparative Analysis of Municipal Finances: Where Punjab 171

Structure and Main Features of Municipal Finances in Punjab 183

Analysis and Key Takeaways 188

Recommendations to Improve Financial Position of 193

Chapter 9: Assessment of the Gap in Financial 209-258

Composition of the Divisible Pool 214

Quantum of Divisible Pool (Vertical Devolution) 219

Poor Implementation of Recommendations of SFCs 229

Horizontal Distribution between PRIs and ULBs 234

Grants-in-Aid to Panchayats/Municipalities 244

Summary of Divisible Pool 245

Inter-Se Distribution between Panchayats and Municipalities 246

Measures Needed to Improve Financial Position of 256

Chapter 10: Reinventing the Government 259-296

Unplanned Infrastructure and Human Resource Development 263

Attrition of the Consolidated Fund of the State (CFS) 265

Unlocking Land Values to Finance Urban Infrastructure 267

Low Value Capturing Finance in Punjab 269