The Second State Finance Commission Report (2001) , Kerala

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This is the Second State Finance Commission Report ( 2001) of Government of Kerala

Transcript of The Second State Finance Commission Report (2001) , Kerala





Dr.Prabhat Patnaik Chairman

Phone: Off: 337430 518822 State Finance Commission Government of Kerala 6th Floor, Secretariat Annexe Thiruvananthapuram - 695 001 Dated: 8th January 2001

His Excellency the Governor of Kerala, ThiruvananthapuramSir, The State Finance Commission was constituted by Government of Kerala in their notification dated 23rd June 1999 under clause (1) of Article 243-I read with clause (1) Article 243-Y of the Constitution of India to study the financial position of the Panchayats and the Urban Local Bodies and to make recommendations to the Governor. The Commission desires to submit its Report in two parts. The first part deals with the devolution of funds from the Consolidated Fund of the State and the strengthening of the tax base of the LSGIs. The second part will focus on the modification of the budgeting, auditing and accounting procedures and the streamlining of the financial administration of LSGIs. The Finance Commission has completed the first part of the Report. I have pleasure in submitting it herewith. Yours faithfully,

Dr.Prabhat Patnaik Chairman



Chapter 1 Chapter 2

Introduction Approach of the CommissionSECTION II

Chapter 3 Chapter 4

Overview of Local Government Finances The Decentralisation Process- a SummarySECTION III

Chapter 5

The First State Finance CommissionSECTION IV

Chapter 6 Chapter 7 Chapter 8

The Devolution and Inter Sc Distribution of Plan Funds The Problem of Maintenance of Assets Non-Plan, Non-Maintenance TransfersSECTION V

Chapter 9

Enhancing Own Revenue of Local Self GovernmentsSECTION VI

Chapter 10 Chapter 11

State Finances during the Decade 1990-2000 Some Issues raised by the Eleventh Finance CommissionSECTION VII

Chapter 12

Procedural SafeguardsSECTION VIII

Summary of Recommendations Annexures




The State Finance Commission was appointed by Government of Kerala in a notification dated 23rd June 1999. The Commission desires to submit its Report in two parts. This is the first part of the Report of the State Finance Commission.


The State Finance Commission was ably assisted by a Secretariat headed by Sri.V.Manikantan Nair, as its Secretary. The Commission extends its thanks to the following officers of the secretariat of the Commission. I. Shri.V.Manikantan Nair 2.Shri.M.V.Haridas 3. Shri.L.Sanal Kumar 4. Smt.A.K.Sasikala 5. Shri.RI.Raveendran 6. R.S.Rajan Nair 7. Shri.K.G.Sadasivan Secretary Joint secretary Joint Director (Panchayats) Joint Director (Municipalities) Under Secretary Accounts Officer Section Officer Section Officer 8. Shri.M.V.Markose Assistant 9. Shri.M.B.Sanu Assistant 10.Shri.P.Unnikrishnan Nair Assistant 11. Shri.S.Suresh Babu Assistant 12. Shri.J.L.Justin Wills 13. Shri.A.Shibu Assistant



Shri.B.Pratheep Kumar

Assistant Typist Typist Confidential Assistanat Peon Peon Peon

15. Shri.B.Mohanan 16. Shri.B.Rajendran Nair 17. Smt.K.Ambika

18. Shri.K.Thankappan 19. Smt.C.Kumari

20. Shri.P.B.Ajithkumar


The Commission gratefully acknowledges the support it received from Sri. S. Parameswaran Nair, Consultant, Municipalities and

Sri.K.Pushparajan , Consultant, Panchayats. The Commission has greatly benefited from the experience and expertise of the consultants. 4. The Commission is very thankful for the support it received from the State Government and its various Departments and senior officials by way of information, suggestions and valuable advice. 5. The Commission likes to offer special thanks to Smt.Shaheena, Assistant Professor, Kerala Agricultural University and Dr. Vikas Rawal, Centre for Development Studies, for the support it received from them in the econometric analysis of a vast volume of data and for the simulation exercises they have done for the Commission. Dr.K.N.Harilal of M.G.University, Kottayam, was kind enough to spare time for a number of very helpful discussion. 6. The Commission also wishes to thank Dr. I.S.Gulati, Dr.T.M..Thomas Issac and Sri.E.M.Sreedharan Namboothiripad, members of the State5

Planning Board, and Sri.K.N.Kurup, Secretary, Planning Department, for the valuable suggestions, advice and guidance given by them. 7. The Commission likes to record its appreciation of the commendable work done by Sri.Vimal and Sri. John Joseph, software programmers and Shri. R. Ratheesh Kumar, Computer Operator. Sri N.Rajendra Prasad, Assistant Director, Statistics deserves special commendation for the analysis of data required by the Commission. The Commission would like to express its thanks to Shri.C.PR.Pillai, Confidential Assistant working in Kudumbasree for his high quality stenographic support. The Commission also acknowledges the assistance it received from Kudumbasree for the prompt and efficient computerisation of the whole data used by the Commission.

DR. PRABHAT PATNAIK, Chairman, State Finance Commission.

Thiruvananthapuram, 08.01.2001.



NUMBER 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 3.20 3.21 3.22 3.23 3.24 3.25 3.26 3.27 3.28 3.29 3.30 3.31 3.32 3.33 & 3.34

CONTENTS Distribution of population - Village Panchayats Distribution of population - Municipalities Distribution of population - Corporations Geographical area of LSGIs Classification of Village Panchayats as per extant income norms. Classification of Municipalities as per extant income norms. Property Tax rates in ULBs Rate of Building Tax in 1985 and 1995 in Village Panchayats. Rate of Property Tax in 1995 in Urban Local Governments. Rates of Profession Tax in Village Panchayats Rates of Profession Tax in ULBs Rates of Show Tax Receipts from Show Tax & Surcharge on Show Tax. Rates of Basic Tax Details of Basic Tax Grant Rate of Stamp Duty and Surcharge under the 1960 and 1994 Acts Distribution of Surcharge on Stamp Duty Stamp duty deducted and paid to KWA Calculation of Road Units for distribution of VTC Collection and distribution of MVT to LSGIs Share of important items of Non-Tax Revenue in total Non-Tax Revenue Grants-in-aid from the Rural Pool Distribution of General Purpose Grants Distribution of Specific Purpose Grant-in-aid Grant-in-aid given to local governments for running Schools Grant-in-aid given to local governments for running Libraries Loans availed by ULBs Plan Grant-in aid devolved to LSGIs Formula for Devolution of Plan Grants Non-Plan Grant-in- Aid to LSGIs Receipt and Expenditure of the establishment grants for District Panchayats / Block Panchayats Expenditure pattern in Village Panchayats and ULBs Self-sufficiency of LSGIs


4.1 8.1 8.2 8.3 8.4 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15

Total plan grants to LSGIs as part of people's planning campaign (Including sponsored schemes) Non-Plan transfers to LSGIs Tax-Cum- Grants Transfers (Excluding VTC) Proposed Distribution of General Purpose Grant Between Tiers Some Important Items of 191 Non-Plan expenditure 200001 Salary, Interest and Pension components of the State for the period 1991-99 Expenditure component of Revenue Deficit from 198990 to 1999-2000 Outlay on Capital Expenditure from 1990-91 to 1999-2000 Loans and Advance from Government of India 1990-91 to 1998-99 Small Savings and Deposits from 1990-91 to 1998-99 State Provident Funds 1990-91 to 1998-99 Internal Debt of the State from 1990-91 to 1998-99 Total Debt of the State Relative shares of the major streams of borrowings Debt and Interest payments for the period from 19902000 Maintenance Expenditure of the State from 1990-91 to 1999-2000 Gross Fiscal Deficit over of the decade Growth Rates of various items of Tax Revenues Projected Fiscal Services with CFC recommended transfers for 200 1-2006 Behaviour of Revenue Deficit as percentage of SDP


LIST OF ANNEXURES NUMBER 1.1 1.2 1.3 1.4 1.5 3.1 3.2 3.3 3.4 3.5.1 3.5.2 3.5.3 3.5.4 3.5.5 3.5.6 3.5.7 3.5.8 3.5.9 3.6.1 3.6.2 3.6.3 3.6.4 3.6.5 CONTENTS Notification No. 33384/SFC.Al/99/Fin, dated 23,6.99 Notification No. 48596/Admn.AI/2000/Fin, dated 26.7.2000 Visit of the commission to LSGIs of each type Commission's discussions with Associations Commission's discussions with Secretaries and Heads of Departments Municipalities having Entertainment Tax and Additional Entertainment Tax Exceeding Property Tax collection Use of provisions by ULBs - A Status Report Details of Plan provisions to Panchayat Raj / Nagarapalika Institutions Details of Non-Plan Specific Programmes 2000-2001 Total receipts (excluding grant-in-aid for peoples' plan campaign) of Village Panchayats 1993-94 to 1998-99 Abstract of total receipts of Village Panchayats under own revenue Percentage share of taxes to total Direct Tax Re venue- Village Panchayats Percentage increase of taxes over previous year- Village Panchayats Percentage increase of own revenue over previous yearsVillage Panchayats Share of taxes in total own revenue- Village Panchayats Share of each item under own revenue- Village Panchayats Total expenditure of Village Panchayats for the years 199394 to 1998-99 (excluding plan grant in aid for peoples' plan campaign) Per capita expenditure of Village Panchayats Total receipts (excluding grant-in-aid for peoples' plan campaign) of Municipalities 1993-94 to 1998-99 Abstract of total receipts of Municipalities under own revenue Percentage share of taxes to total Direct Tax RevenueMunicipalities Percentage increase of taxes over previous year-Municipalities Percentage increase of own revenue over previous yearsMunicipalities Share of taxes in total own revenue Municipali