CHAPTER 42

LOCAL BODIES

42.1 Local bodies are institutions of the local self governance, which look
after the administration of an area or small community such as villages,
towns, or cities. The Local bodies in India are broadly classified into two
categories. The local bodies constituted for local planning, development
and administration in the rural areas are referred as Rural Local Bodies
(Panchayats) and the local bodies, which are constituted for local
planning, development and administration in the urban areas are referred
as Urban Local Bodies (Municipalities).

42.2 Local Government is a State subject figuring as item 5 in List II of

the Seventh Schedule to the Constitution of India. Article 243 G of the
Indian Constitution enshrines the basic principle for devolution of power
to the Local Bodies. In the nation's journey towards becoming an
economic power, local bodies play an important part in enabling
infrastructure availability to the citizens.

42.3 The many roles that the local government is expected to play today
include:

• A Regulator, namely the administration of various acts and

regulations
• A Provider, that involves providing urban services efficiently and
equitably by managing its accounts effectively and efficiently.

• An Agent that takes the schemes of higher levels government to the

people. This
• includes promotion of popular participation

• A Welfare Agency, which provides active assistance to higher level

governments in the equitable distribution and delivery

• An Agent of Development, who strives for improvement in the

quality of life through the augmentation of infrastructure

Rural Local Bodies:

42.4 The term ‘Panchayat Raj’ is relatively new, having originated during
the British administration. 'Raj' literally means governance or
government. Mahatma Gandhi advocated Panchayati Raj, a decentralized
form of Government where each village is responsible for its own affairs,
as the foundation of India's political system. His term for such a vision
was "Gram Swaraj" or Village Self-governance. It was adopted by state
governments during the 1950s and 60s as laws were passed to establish
Panchayats in various states. Panchayati Raj is included in the State List
of the Seventh Schedule of the Constitution. It is the States that have
been charged with the responsibility for devolution of powers to the
Panchayats. After independence, Community Development Programme
was started in 1952. But because it was not attached with the people,
therefore it couldnot prove to be a success story. People took it as a
burden put on them by the government. A team, under the leadership of
Balwantrai Mehta tried to find out the cause for the failure of this
programme and came up with the inference that there should be an
organisation at village level, which would select the true beneficiaries and
implement various government programmes and schemes. This
organisation would act as the representative of all the villagers and should
ensure the development of the village as well as participation of villagers.
In this way Balwantrai Mehta tried to achieve local self-government
though Panchayats (the organisation). In 1977, Ashok Mehta Committee
was set up to review the working of Panchayats. The committee found out
that Panchayati Raj is the soul of democracy and therefore it should be
empowered with more authority. Those Panchayats which formed after
1977 are known as Second Generation Panchayats. In West Bengal, the
Panchayats became more effective after accepting the suggestions made
in this report.

42.5 During the decade of 1990, it was realized that without

constitutional power, the self-government can not be fruitful. Therefore
the Central Government passed the 73rd Constitutional Amendment Act
th
in 1992, which became effective from 20 April 1993 (from the date of
publication in the Gazette of India). The Constitution (73rd Amendment)
Act, 1992 that came into effect in April 1993 brought about major reform
in local governance in the country. The Amendment Act of 1992 contains
provision for devolution of powers and responsibilities to the panchayats
to both for preparation of plans for economic development and social
justice and for implementation in relation to twenty nine subjects listed in
the eleventh schedule of the constitution. The panchayats receive funds
from three sources ie, local body grants, as recommended by the Central
Finance Commission, funds for implementation of centrally-sponsored
schemes, and funds released by the state governments on the
recommendations of the State Finance Commissions.

42.6 The Ministry of Panchayati Raj was set up primarily to oversee the
implementation of Part IX of the Constitution, inserted by the Constitution
(73r Amendment) Act, 1992, the Panchayats Extension to the Scheduled
Areas Act, 1996 (PESA), and Article 243ZD of Part IX-A relating to District
Planning Committees. Although the Panchayats have historically been an
integral part of rural life in India, these Acts have institutionalised the
Panchayati Raj Institutions (PRIs) at the village, intermediate, and district
levels as the third tier of government. The aim has been to combine social
justice with effective local governance, with an emphasis on reservation
of seats for the deprived classes of population, including of the leadership
positions.

42.7 Article 234G read with the Eleventh Schedule of the Constitution
stipulates that States may, by law, endow the Panchayats with such
powers and authority as may be required to enable the latter to function
as institutions of self-government. Such laws may also provide for the
devolution of powers and responsibilities upon Panchayats for preparation
of plans for economic development and social justice and implementation
of the schemes as may be entrusted to them. The main features of the
Constitution (73r Amendment) Act, 1992 are as under:

• Panchayat: A Panchayat means an institution (by whatever name

called) of self-government constituted under article 243B of the
Constitution of India for the rural areas.
• Panchayat area: A Panchayat area means the territorial area of a
Panchayat;
• Village: A village means a village specified by the Governor by
public notification to be a village for the purposes of this Part and
includes a group of villages so specified.
• Gram Sabha: A Gram Sabha means a body consisting of persons
registered in the electoral rolls relating to a village comprised within
the area of Panchayat at the village level; Gram Sabha may
exercise such powers and perform such functions at the village level
as the Legislature of a State may, by law, provide.
• Village level panchayat: It is called a Panchayat at the village
level. It is a local body working for the good governance of the
village.
• Intermediate level panchayat: An Intermediate level means a
level between the village and district levels specified by the
Governor of a State by public notification to be the intermediate
level for the purposes of this Part. Panchayats at the intermediate
level may not be constituted in a State having a population not
exceeding twenty lakhs.
• District level Panchayat: In the district level of the panchayati raj
system, there is zilla parishad. It looks after the administration of
the rural area of the district and its office is located at the district
headquarters.

42.8 Composition of Panchayats: Article 243C of the Constitution

states that the Legislature of a State may, by law, make provisions with
respect to the composition of Panchayats, provided that the ratio between
the population of the territorial area of a Panchayat at any level and the
number of seats in such Panchayat to be filled by election shall, so far as
practicable, be the same throughout the State. All the seats in a
Panchayat shall be filled by persons chosen by direct election from
territorial constituencies in the Panchayat area and; for this purpose, each
Panchayat area shall be divided into territorial constituencies in such
manner that the ratio between the population of each constituency and
the number of seats allotted to it shall, so far as practicable, be the same
throughout the Panchayat area. The Legislature of a State may, by law,
provide for the representation of the Chairpersons of the Panchayat at
appropriate level.

42.9 As per Devolution Index Report 2013-14, brought out by Indian

Institute of Public Administration, IIPA there were 240542 village
panchayats, 6332 intermediate panchayats & 593 district panchayats as
on 1st March 2014. Following figure indicates growth in the number of
panchayats over 2001.

Number of Pachayati Raj Institutions in India

300000

240542
250000 227590

200000

150000

100000

50000
5906 6332 474 593
0
Village Panchayats Intermediate Panchayats District Panchayats
2001 2014

42.10 Election: The Chairperson of a Panchayat at the village level shall

be elected in such manner as the Legislature of a State may, by law,
provide; and a Panchayat at the intermediate level or district level shall
be elected by, and from amongst, the elected members thereof. The
Chairperson of a Panchayat and other members of a Panchayat whether
or not chosen by direct election from territorial constituencies in the
Panchayat area shall have the right to vote in the meetings of the
Panchayats. Article 243K of the Constitution states that the
superintendence, direction and control of the preparation of electoral rolls
for, and the conduct of, all elections to the Panchayats shall be vested in
a State Election Commission consisting of a State Election Commissioner
to be appointed by the Governor.

42.11 Reservation of seats: Article 243D of the Constitution makes the

provision for reservation of seats for Scheduled Castes and Scheduled
Tribes in every Panchayat. The Seats are reserved for the Scheduled
Castes and Scheduled Tribes in every Panchayat and the number of seats
of reserved shall bear, as nearly as may be, the same proportion to the
total number of seats to be filled by direct election in that Panchayat as
the population of the Scheduled Castes in that Panchayat area or of the
Scheduled Tribes in that Panchayat area bears to the total population of
that area and such seats may be allotted by rotation to different
constituencies in a Panchayat. Same rule is also applied for the
reservation of offices of the chairpersons at each level of the panchayats.
There is also provision for reservation of the seats including offices of the
chairpersons for the women of each category. The number of offices
reserved for the chairperson is allotted by rotation to different Panchayats
at each level. State may also provide the reservation of the seats in any
Panchayat or offices of Chairperson to backward class of citizen’s s by
their legislation.

42.12 Elected Representatives As per Devolution Index Report 2013-

14, brought out by Indian Institute of Public Administration, IIPA,
Panchayati Raj System was yet to be revived in NCT of Delhi whereas
Meghalaya Mizoram & Nagaland had traditional gram and autonomous
district councils in place of village, intermediate & district Panchayats.
Goa, Manipur, Sikkim, D& N Haveli, daman & Diu and Lakshadweep did
not have intermediate Panchayat as only 2 Tier system was in place.

Number of Elected Representatives to

Pachayati Raj Institutions in India
2770755
3000000
2739666
2500000

2000000

1500000

1000000

500000
147701 163823
15389 15550
0
Village Panchayats Intermediate Panchayats District Panchayats
2001 2014

42.13 As per Devolution Index Report 2013-14, IIPA, as on 1st April 2014
there were 29.5 lakh representatives in Pachayats . The seats reserved
(in %) for women, SC and ST representatives at all India level was 43, 15
and 19.28 % respectively and the actual representation by the
representatives of three category was 13.6 lakh, 5.5 lakh and 3.5 lakh
respectively.
42.14 Duration of Panchayats : Every Panchayat, unless sooner
dissolved under any law for the time being in force, shall continue for five
years from the date appointed for its first meeting and no longer.

42.15 Powers, authority and responsibilities of Panchayats : Article

243G of the Constitution states that subject to the provisions of this
Constitution, the Legislature of a State may, by law, endow the
Panchayats with such powers and authority as may be necessary to
enable them to function as institutions of self-government and such law
may contain provisions for the devolution of powers and responsibilities
upon Panchayats at the appropriate level, subject to such conditions as
may be specified therein, with respect to:

• the preparation of plans for economic development and social justice;

and

• the implementation of schemes for economic development and social

justice as may be entrusted to them including those in relation to the
matters listed in the Eleventh Schedule.

42.16 Powers to impose taxes by, and Funds of, the Panchayats:
Article 243H of the Constitution states that the legislature of a State may,
by law-
• authorise a Panchayat to levy, collect and appropriate such taxes,
duties, tolls and fees in accordance with such procedure and subject to
such limits;

• assign to a Panchayat such taxes, duties, tolls and fees levied and
collected by the State Government for such purposes and subject to
such conditions and limits;
• provide for making such grants-in-aid to the Panchayats from the
Consolidated Fund of the State; and
• provide for Constitution of such Funds for crediting all moneys received,
respectively, by or on behalf of the Panchayats and also for the
withdrawal of such moneys.

42.17 Audit of accounts of Panchayats: Article 243J of the

Constitution states that the Legislature of a State may, by law, make
provisions with respect to the maintenance of accounts by the Panchayats
and the auditing of such accounts.

Extension to the Scheduled Areas:

42.18 Parliament passed a separate legislation in 1996 as an annexure
to the 73rd Amendment specifying special provisions for Panchayats in
Schedule V areas. Panchayats (Extension to the Scheduled Areas) Act,
1996 (PESA) extends Part IX of the Constitution to the areas listed under
the Fifth Schedule subject to certain exceptions and modifications. A
major function of the Ministry of Panchayati Raj is to oversee the
implementation of the provisions of PESA by the nine States, namely,
Andhra Pradesh, Jharkhand, Chattisgarh, Himachal Pradesh, Madhya
Pradesh, Gujarat, Maharashtra, Orissa, Rajasthan that have the areas
listed in the Fifth Schedule. The PESA Act enjoins the State governments
to endow Gram Sabhas and Panchayats at the appropriate level with the
power to enforce prohibition, ownership of minor forest produce, power to
prevent alienation of land and restore unlawfully alienated land, power to
manage village markets, power to exercise control over money lending,
power to exercise control over institutions and functionaries in all social
sectors and power to control local plans and resources for such plans
including tribal sub-plans. The Act prohibits Panchayats at the higher level
to assume the powers and authority of any Panchayat at the lower level.

Tribal Areas under Sixth Schedule of the Constitution:

42.19 Under the Sixth Schedule, separate provisions have been made
for the Administration of Tribal areas in Assam, Meghalaya, Tripura and
Mizoram. These provisions have been made in exercise of the enabling
provisions given in Articles 244(2) and 275(1) of the Constitution. The
Sixth Schedule identifies and designates certain tribal areas as
autonomous districts. It provides for the constitution of District Councils
and Regional Councils for autonomous areas, consisting of not more than
thirty members each, of whom not more than four persons shall be
nominated by the Governor and the rest shall be elected on the basis of
adult suffrage for a term of five years. An exception has been made in
respect of the Bodo Territorial Council. The administration of an
autonomous district is to be vested in a District Council and of an
autonomous region, in a Regional Council. The Sixth Schedule endows
Councils with powers of legislative, judicial, executive, financial, collection
taxes and fees, entitlement to royalties and indication of resources to be
credited to Councils. The sixth schedule has entrusted several key powers
to the Governor of the State concerned in respect of District and Regional
Councils. These powers are classified and briefly described as (1)
constituting district and regional councils, (2) dissolving and superseding
councils (3) affecting electoral representation in the council area, (4)
enlarging, diminishing powers or reviewing decisions of District and
Regional Councils, (5) Giving prior assent to laws, rules and regulations of
the District and Regional Councils (6) arbitration, (7) Powers to appointing
a Commission to ensure into the administration of autonomous district
regions. In addition to the above powers, special powers have been
conferred in respect of the Governors of Assam, Tripura and Mizoram in
certain subjects.

42.20 As per the article 243G of the constitution, the Legislature of a

State may, by law, endow the Panchayats with such powers and authority
as may be necessary to enable them to function as institutions of self-
Government and such law may contain provisions for the devolution of
powers and responsibilities upon Panchayats at the appropriate level,
subject to such conditions as may be specified therein, with respect to the
preparation of plans for economic development and social justice; the
implementation of schemes for economic development and social justice
as may be entrusted to them including those in relation to the 29 matters
listed in the Eleventh Schedule.

42.21 To keep an account of Income and Expenditure of Panchayati Raj

database formats for PRIs at the district and state levels suggested by
CAG has been accepted by Ministry of Panchayati Raj and NIC has been
entrusted to develop input screens on the Ministry’s portal and link this to
all states for uploading of state-wise data.

Urban Local Bodies:

42.22 The origin of local self-government had very deep roots in ancient
India. On the basis of historical records, excavations and archaeological
investigations, it is believed that some form of local self-government did
exist in the remote past. In the Vedas and in the writings of Manu,
Kautilya and others, and also in the records of some travelers like
Magasthnese, the origin of local self-government can be traced back to
the Buddhist period. The Ramayana and the Mahabharata also point to
the existence of several forms of local self-government such as Paura
(guild), Nigama, Pauga and Gana, performing various administrative and
legislative functions and raising levies from different sources. Local
government continued during the succeeding period of Hindu rule in the
form of town committees, which were known as ‘Goshthis’ and ‘Mahajan
Samitees’.

42.23 Independence brought a new kind of activity in every sphere of

public life. It opened a new chapter in the history of local government in
India. The present Constitution came into force in 1950 and the local self-
government entered a new phase. The Constitution of India has allotted
the local self-government to the state list of functions. Since
Independence much important legislations for reshaping of local self-
government have been passed in many states of India. The constitutions
of local bodies were democratized by the introduction of adult suffrage
and the abolition of communal representation. In July 1953, the U.P.
Government took a decision to set-up Municipal Corporations in five big
cities of Kanpur, Agra, Varanasi, Allahabad and Lucknow, popularly known
as KAVAL Towns. As a result, the state of U.P. adopted a new Act for
Municipal Corporations in 1959.

42.24 The Centre Council of Local Self-Government constituted by the

Central Government, has also played a significant role in labouring on
reforms needed in the various aspects of municipal government and
administration. The Rural-Urban Relationship Committee devoted itself to
both functional and financial aspects and was largely microscopic in its
approach. One more report came from another committee of the council
on the service conditions of municipal employees (1965-68). In 1985, the
Central Government appointed the National Commission on Urbanization,
which gave its report in 1988. This was the first commission to study and
give suggestions on all aspects of urban management. Apart from the
contributions made by the Central Government, committees were
appointed in different states in order to improve the municipal
organizations and administration there under.

42.25 The Constitution (74th Amendment) Act, 1992 is a landmark

initiative of the Government of India to strengthen local self-government
in cities and towns. The Act stipulates that if the state government
dissolves a Municipality, election to the same must be held within a period
of six months. Moreover, the conduct of municipal elections is entrusted
to statutory State Election Commission, rather than being left to
executive authorities. The mandate of the Municipalities is to undertake
the tasks of planning for ‘economic development and social justice’ and
implement city/town development plans. The main features of the 74th
Constitutional Amendment are as under:

• Committee: Committee means a Committee constituted under

article 243S of the Constriction.
• Metropolitan area: Metropolitan area means an area having a
population of ten lakhs or more, comprised in one or more districts
and consisting of two or more Municipalities or Panchayats or other
contiguous areas, specified by the Governor by public notification to
be a Metropolitan area.
• Municipal area: Municipal area means the territorial area of a
Municipality as is notified by the Governor.
• Municipality: Municipality means an institution of self-government
constituted under article 243Q of the Constitution.

42.26 Constitution of Municipalities: As per Article 243Q, every State

should constitute three types of municipalities in urban areas. Provided
that a Municipality under this clause may not be constituted in such urban
area or part thereof as the Governor may, having regard to the size of the
area and the municipal services being provided or proposed to be
provided by an industrial establishment in that area and such other
factors as he may deem fit, by public notification, specify to be an
industrial township. The constitution of three type of municipalities by
every State are as under:
• Nagar Panchayat: Nagar Panchayat (by whatever name called) for a
transitional area, that is to say, is an area in transition from a rural
area to an urban area.
• Municipal Council: A Municipal Council is constituted for a smaller
urban area; and
• Municipal Corporation: A Municipal Corporation is constituted for a
larger urban area.

42.27 Type of Area: The Governor declares a transitional area, or

smaller urban area or larger urban area based on the population of the
area, the density of the population therein, the revenue generated for
local administration, the percentage of employment in non-agricultural
activities, the economic importance or such other factors as he may deem
fit, specify by public notification for the purposes.

42.28 Composition of Municipalities: Article 243R of the Constitution

makes the provision for the composition of Municipalities. All the seats in
a Municipality are filled by persons chosen by direct election from the
territorial constituencies in the Municipal area and for this purpose each
Municipal area shall be divided into territorial constituencies to be known
as wards. The Legislature of a State may, by law, provide the manner of
election of the Chairperson of a Municipality.

42.29 Wards Committees: Article 243S of the Constitution make the

provisions for constitution and composition of Wards Committees, etc.
consisting of one or more wards, within the territorial area of a
Municipality having a population of three lakhs or more. A member of a
Municipality representing a ward within the territorial area of the Wards
Committee shall be a member of that Committee. Where a Wards
Committee consists of two or more wards, one of the members
representing such wards in the Municipality elected by the members of
the Wards Committee shall be the Chairperson of that Committee.

42.30 Reservation of seats: Article 243T makes the provisions for the
reservation of seats. Seats are reserved for the Scheduled Castes and the
Scheduled Tribes in every Municipally and the number of seats so
reserved shall bear, as nearly as may be, the same proportion to the total
number of seats to be filled by direct election in that Municipality as the
population of the Scheduled Castes in the Municipal area or of the
Scheduled Tribes in the Municipal area bears to the total population of
that area and such seats may be allotted by rotation to different
constituencies in a Municipality. Not less than one-third of the total
number of seats reserved Scheduled Caste are reserved for women
belonging to the Scheduled Castes or, as the case may be, the Scheduled
Tribes. Not less than one-third (including the number of seats reserved
for women belonging to the Scheduled Castes and the Scheduled Tribes)
of the total number of seats to be filled by direct election in every
Municipality are reserved for women and such seats may be allotted by
rotation to different constituencies in a Municipality. The office of
Chairpersons in the Municipalities shall be reserved for the Scheduled
Castes, the Scheduled Tribes and women in such manner as the
Legislature of a State may, by law, provide.
42.31 Duration of Municipalities: As per Article 243U of the
Constitution, every Municipality, unless sooner dissolved under any law
for the time being in force, shall continue for five years from the date
appointed for its first meeting and no longer provided that a Municipality
shall be given a reasonable opportunity of being heard before its
dissolution.

42.32 Powers, authority and responsibilities of Municipalities: As

per Article 243W of the Constitution states the powers, authority and
responsibilities of Municipalities, etc. Subject to the provisions of this
Constitution, the Legislature of a State may, by law, endow:
(a) the Municipalities with such powers and authority as may be
necessary to enable them to function as institutions of self-government
and such law may contain provisions for the devolution of powers and
responsibilities upon Municipalities, subject to such conditions as may be
specified therein, with respect to-
• the preparation of plans for economic development and social justice;

• the performance of functions and the implementation of schemes as

may be entrusted to them including those in relation to the matters
listed in the Twelfth Schedule;

(b) the Committees with such powers and authority as may be necessary
to enable them to carry out the responsibilities conferred upon them
including those in relation to the matters listed in the Twelfth Schedule.

42.33 Power to impose taxes by, and Funds of, the Municipalities:
Article 243X of the Constitution states the power to impose taxes by, and
Funds of, the Municipalities. The Legislature of a State may, by law:
• authorise a Municipality to levy, collect and appropriate such taxes,
duties, tolls and fees in accordance with such procedure and subject to
such limits;
• assign to a Municipality such taxes, duties, tolls and fees levied and
collected by the State Government for such purposes and subject to
such conditions and limits;
• provide for making such grants-in-aid to the Municipalities from the
Consolidated Fund of the State; and
• provide for constitution of such Funds for crediting all moneys received,
respectively, by or on behalf of the Municipalities and also for the
withdrawal of such moneys there from.

42.34 Audit of accounts of Municipalities: Article 243Z of the

Constitution states about the audit of accounts of Municipalities. The
Legislature of a State may, by law, make provisions with respect to the
maintenance of accounts by the Municipalities and the auditing of such
accounts .
42.35 Elections to the Municipalities: As per provisions made in
Article 243ZA, the superintendence, direction and control of the
preparation of electoral rolls for, and the conduct of, all elections to the
Municipalities are vested in the State Election Commission referred to in
article 243K. Subject to the provisions of this Constitution, the Legislature
of a State may, by law, make provision with respect to all matters relating
to, or in connection with, elections to the Municipalities.

42.36 Committee for Metropolitan planning: As per Article 243ZE of

the constitution, in every Metropolitan area, a Metropolitan Planning
Committee may be constituted to prepare a draft development plan for
the Metropolitan area as a whole. Every Metropolitan Planning Committee
shall, in preparing the draft development plan have regard to (i) the plans
prepared by the Municipalities and the Panchayats in the Metropolitan
area; (ii) matters of common interest between the Municipalities and the
Panchayats, including co-ordinated spatial planning of the area, sharing of
water and other physical and natural resources, the integrated
development of infrastructure and environmental conservation; (iii) the
overall objectives and priorities set by the Government of India and the
Government of the State; and (iv) the extent and nature of investments
likely to be made in the Metropolitan area by agencies of the Government
of India and of the Government of the State and other available resources
whether financial or otherwise. The Chairperson of every Metropolitan
Planning Committee shall forward the development plan, as
recommended by such Committee, to the Government of the State.

42.37 To meet the expectations of various stakeholders, the role of the

local government is being continuously modified to keep pace with the
changes in expectation of local governance. The 74th Constitutional
Amendment Act of 1993 has broadened the role of the local bodies
formally. There have also been other changes that have occurred as a
result of the economic reforms on the 1990s.

Accounting Reforms as Engines of Good Governance

42.38 An integral part of the new expectations of governance is for Public
Information – without which there cannot be meaningful participation or
shared decision-making. The modern citizen expects a fair account of how
the government is faring in its job in much the same way as investors in a
company expect fair accounts of the company’s financial position and
performance. Transparent accounting and financial reporting is central to
the fulfillment of new age governance. The introduction of acceptable
accounting practices and disclosure norms are not just technical practices
but the foundations for the integrity and maturity of the government. For
instance, municipal bodies in India today are facing an unprecedented
growth in the demand for urban infrastructure and civic services.Municipal
accounting systems would therefore need to reflect not only financial
transactions but also the ‘financial performance’ of the municipal
governments, which includes its ability to achieve its developmental
goals, meet its programme targets, its efficiency in the use of resources,
its financial position including income, assets and liabilities as well as its
foresight in dealing with the developmental and financial challenges of
governing the city.

42.39 It is necessary that accounting system has to satisfy the following

basic objectives (i) be accurate in capturing the underlying transactions,
(ii) enhance transparency, and (iii) be user-friendly to facilitate
understanding of the accounting statements by most users. The prevailing
cash-based accounting system in India is deficient on the dimensions of
transparency and user-friendliness and therefore it becomes necessary to
reform the accounting system.

42.40 The story of municipal accounting reforms in India is barely two

decades old. The period between 1981 and 1991 can be termed the first
phase of municipal accounting reforms in India. The second phase of
the municipal accounting reforms can be traced from 1990 to 1995. The
third phase presents a sudden wave of accounting reforms across the
country since 1998. This phase has also witnessed broader institutional
developments in municipal accounting reform. Most notably, the
development of a technical guide for accounting and financial reporting by
urban local bodies by the Institute of Chartered Accountants of India
(ICAI) in 2000 and formulating the recommendation of the 11th Finance
Commission that Comptroller & Auditor General of India (C&AG) should
audit accounts of urban local bodies. The Supreme Court of India in the
year 2001, while hearing a Public Interest Litigation (PIL) relating to the
functioning of ULBs, opined that urban local bodies in India should take
immediate steps to get their accounts converted from cash basis to
accrual basis.

42.41 The proposed system is an improvement over the present cash

based system and not a mere replacement of the existing system. The
appropriate accounting system provides all the information that is
available in the present dispensation, besides providing such additional
information which will make the accounting records more complete from a
users’ perspective. In a nutshell, the proposed accounting system
supplements the cash accounting system, and does not supplant it. While
cash accounts serve the purpose of legislative control over public
finances, an accrual system is helpful in expanding the efficacy of fiscal
management. Many local bodies still follow the cash based accounting
system. The Government has been alive to the fact that many cities are
shifting to accrual based accounting systems, driven by the need for
better transparency, the need to make corporations more accountable,
and the need to make accounting statements more useful to
Governments and other users
42.42 Source of information on Local Bodies : Ministry of
Panchayati Raj maintains information on Panchayati Raj institutions viz
gram panchayats, district panchayats etc . the information includes
number of panchayati Raj institutions, number of elected representatives
and the constitution of elected representatives according to various
categories – sex wise , SC/ST etc. The information w.r.t. functioning viz
income & expenditure of various urban local bodies - municipal
corporations is maintained by respective municipal corporations. Recently,
Indian Institute of Public Administration has been bringing out
Devolution Index Report – comparing the Panchayats across States.