Briefly describe the recommendations of 14th Finance Commission with regard to devolution of funds to…

Question

Briefly describe the recommendations of 14th Finance Commission with regard to devolution of funds to rural local bodies (Panchayati Raj Institutions). What measures have been implemented by the Government of India for monitoring and audit of the finances of Panchayati Raj Institutions ?

Ghissu Editorial · Accepted Answer

The 14th Finance Commission sharply raised grants to Gram Panchayats, about Rs 2,00,292 crore over five years, split into 90% basic and 10% performance grants for basic services. For monitoring, the Centre uses the eGramSwaraj portal, AuditOnline, State Finance Commissions under Article 243-I and CAG audits.

**Introduction**

The 14th Finance Commission (FFC) significantly shaped fiscal devolution to Panchayati Raj Institutions⟦2⟧⟦1⟧ (PRIs), focusing on Gram Panchayats, while the Government of India enhanced monitoring and audit mechanisms to ensure transparency and accountability.

**Key Recommendations of the 14th Finance Commission**

1. **Major Fund Devolution**: FFC recommended 42% of central taxes to states and, separately, Rs. 2,00,292.20 crores over five years primarily to Gram Panchayats, but overlooked intermediate and district Panchayats, creating gaps in the three-tier system.

2. **Basic and Performance Grants**: The Commission split the grant into a 90% basic grant and a 10% performance grant, for basic services like water supply and sanitation.

**Government Measures for Monitoring and Audit**

3. **eGramSwaraj Portal**: Panchayats upload Gram Panchayat Development Plans and financial statements for real-time monitoring.

4. **State Finance Commissions⟦5⟧⟦4⟧⟦3⟧ (SFCs)**: Article 243-I mandates SFCs every five years; as of 2025, 25 states have constituted SFCs to assess Panchayat finances and recommend fiscal devolution.

5. **CAG Audits**: The CAG audits Panchayat accounts; the Andhra Pradesh⟦7⟧⟦6⟧ CAG 2025 audit revealed gaps in welfare and education schemes, highlighting the need for stronger financial oversight.

6. **Capacity Building**: Training programs improve Panchayat officials’ financial management skills.

**Challenges and Way Forward**

7. **Delayed Fund Transfers and Underfunding**: Delays and limited coverage of intermediate and district Panchayats hinder holistic development.

8. **Audit Gaps**: Andhra Pradesh CFMS audit showed 48% public account share and delayed receipt notifications, indicating weak internal controls.

9. **Future Reforms**: Expand fiscal devolution to all Panchayat tiers, introduce flexibility in tied grants, and strengthen audit mechanisms.

**Conclusion**

FFC’s fund devolution and government monitoring have advanced PRI finances, but persistent gaps require comprehensive reforms for effective rural governance.

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