Why is it in the News?

There is a need to educate elected representatives and the public on the significance and the need for panchayats to be able to survive on its own resources

Context:

• Three decades have passed since the enactment of the 73rd and 74th Constitutional Amendment Acts, designed to institutionalize local bodies as entities of local self-government.
• Presently, the degree of devolution in India's Panchayati Raj institutions exhibits variations among states, with some making substantial strides and others trailing behind.
• Therefore, there is a pressing need to scrutinize the fiscal devolution dimension, underscoring the pivotal role of state government commitment in enhancing the effectiveness of Panchayati Raj institutions at the grassroots level.

What is the Local Self Government?

• The system of local self-government, more commonly known as ‘panchayats’, had been established to empower the grassroots of democracy in India.
• Panchayats or local-self rule is a three-tier system in each state which has elected bodies at the village, taluk and district levels.
• The concept of panchayats has been present in Indian society since ancient times.
• Over the centuries the concept has undergone various changes and modifications and in the recent past has taken the form of panchayati raj institutions after decentralization reforms in the early 1990s.
• These institutions for grassroots-level democracy were formally included in the Constitution through the 73rd and 74th Amendments Act in 1993.
• The constitutional amendments also ensured the reservation of one-third of all elected positions for women in both rural and urban areas.
• Derived from the Central Act, various State Panchayati Raj Acts have incorporated provisions for taxation and revenue collection.
• The main idea of setting up local-self government institutions was to enable and empower the local people to manage their affairs by being a part of the decision-making process and participating in the implementation of policies in a more effective manner.

The Present State of Fiscal Devolution of Panchayats:

• Reliance on External Funds: The 73rd and 74th Constitutional Amendments Acts underscored the importance of fiscal devolution, urging Panchayati Raj institutions and urban local bodies to achieve financial self-sufficiency.
  • These amendments explicitly stated the necessity for local bodies to generate their own revenues to reduce reliance on grants from higher levels of government.
  • However, the current scenario indicates that Panchayati Raj institutions still heavily depend on external funding, with only 1% of their revenue originating from taxes.
• Panchayats' Struggle to Generate Revenue Through Taxation: The data highlights the challenge that, despite constitutional provisions, Panchayats are not effectively utilizing taxation as a primary revenue source.
  • Merely 1% of revenue is generated through taxes, while a significant 80% is sourced from the Central government and 15% from the States.
  • This disparity raises concerns about the commitment of state governments to decentralization and the overall efficacy of devolution initiatives implemented over the past three decades.
• Centralization of Financial Resources Despite Constitutional Emphasis on Fiscal Devolution: Despite the constitutional emphasis on fiscal devolution, the centralization of financial resources remains a persistent issue.
  • Panchayats are envisioned as self-governing entities with the authority to raise their own revenue, yet the reality paints a different picture.
  • The disproportionate distribution of revenue indicates a lack of fiscal empowerment at the grassroots level, undermining the fundamental principles of local self-government.

What are the Challenges Faced by Panchayati Raj Institutions in Revenue Generation?

• Dependency on Grants: The reliance on grants is exacerbated by the heightened allocations from Central Finance Commissions (CFC).
  • A comparative analysis reveals a significant increase in grants disbursed through the 14th and 15th CFCs, amounting to ?2,00,202 crore and ?2,80,733 crore, respectively.
  • This substantial influx of grants has inadvertently diminished incentives for generating own-source revenue.
  • Panchayats, buoyed by augmented financial assistance, have gradually shifted focus away from revenue generation, fostering a culture of dependence on external funds.
• The Culture of Entitlement: A prevalent cultural mindset fosters resistance to taxation, with individuals expecting a range of services and benefits without contributing financially to the sustenance of Panchayats.
  • This aversion to taxation arises from the belief that public services should be provided without imposing a direct financial burden on the local populace.
• Dilemma of Elected Representatives: Elected representatives, crucial to the functioning of Panchayati Raj institutions, grapple with their own set of challenges.
  • There exists a tangible apprehension among these representatives that levying taxes might adversely affect their popularity and electoral prospects.
  • This fear often results in hesitancy to take decisive steps towards revenue generation.
  • Addressing this challenge necessitates targeted efforts to educate elected representatives about the enduring benefits of financial self-sufficiency and its positive impact on local development endeavours.
• Decline in Tax Collection: Tax collection, which stood at ?3,12,075 lakh in 2018-19, dwindled to ?2,71,386 lakh by 2021-2022.
  • This downward trend raises concerns, signalling a waning commitment to financial autonomy at the local level.
  • Similarly, non-tax revenue also experienced a decline from ?2,33,863 lakh to ?2,09,864 lakh during the same period.
  • These patterns underscore the imperative for revitalized efforts in revenue generation and a departure from grant dependency.

Government's Efforts to Implement Constitutionally Mandated Fiscal Devolution:

• Establishment of an Expert Committee: To address this challenge, the Ministry of Panchayati Raj constituted an expert committee tasked with examining the own source of revenue (OSR) of rural local bodies.
  • The committee's findings delineate various revenue-generating avenues accessible to Panchayati Raj institutions through State Acts.
  • These mechanisms include property tax, land revenue cess, stamp duty surcharge, tolls, professional tax, advertisement tax, and user charges for essential services like water, sanitation, and lighting.
  • While these avenues exist, their effective implementation is imperative for Panchayats to attain financial autonomy.
• Focus on Effective Taxation Mechanisms: The report underscores the significance of establishing an enabling environment for taxation, encompassing decisions on tax and non-tax bases, enactment of robust tax management and enforcement laws, etc.
  • This strategic approach aims to empower Panchayats to fully leverage their revenue generation potential.
  • While taxation constitutes a vital aspect of fiscal devolution, the report also acknowledges the potential of non-tax revenue streams, including Fees, rent, income from investment sales and hire charges,
• Along with revenue from innovative initiatives such as rural business hubs, commercial ventures, renewable energy projects, carbon credits, CSR funds, and donations.
• Diversification of revenue sources can bolster the financial resilience of Panchayati Raj institutions, reducing their reliance on grants.

The Role of Gram Sabhas:

• Gram sabhas have a significant role in fostering self-sufficiency and sustainable development at the grass-roots level by leveraging local resources for revenue generation.
• They can be engaged in planning, decision-making, and implementation of revenue-generating initiatives that range from agriculture and tourism to small-scale industries.
• They have the authority to impose taxes, fees, and levies, directing the funds towards local development projects, public services, and social welfare programmes.
• Through transparent financial management and inclusive participation, gram sabhas ensure accountability and foster community trust, ultimately empowering villages to become economically independent and resilient.
• Thus, gram sabhas need to promote entrepreneurship, and foster partnerships with external stakeholders to enhance the effectiveness of revenue generation efforts.

Way Forward:

• Education and Awareness: There is a pressing need to raise awareness among elected representatives and the public about the importance of revenue generation for developing Panchayats as self-sustaining institutions.
  • Ultimately, the dependency syndrome for grants has to be minimised and in due course, panchayats will be able to survive on their own resources.
  • Achieving this goal requires concerted efforts at all levels of governance, including the state and central levels.
• Promotion of Entrepreneurship: Gram Sabhas plays a crucial role in promoting entrepreneurship and fostering partnerships with external stakeholders to bolster revenue generation efforts.
  • Encouraging entrepreneurial ventures within local communities can stimulate economic growth and reduce dependency on external funding.
• Collaboration and Support: Panchayats need to collaborate closely with higher tiers of governance and external stakeholders to enhance their revenue generation capabilities.
  • This collaborative approach can facilitate the implementation of innovative initiatives and the efficient utilization of resources, thereby fostering financial self-reliance among Panchayats.

Why is it in the News?

The state visit by Greek Prime Minister Kyriakos Mitsotakis to India will be another important step in building a strategic relationship between India and Greece — a process which began with the historic visit of the Indian Prime Minister, Narendra Modi, to Greece in August 2023.

Context:

• The upcoming state visit of Greek Prime Minister Kyriakos Mitsotakis to New Delhi signifies a pivotal milestone in the ongoing initiatives to forge a strategic partnership between Greece and India.
• This diplomatic initiative follows the landmark visit of the Indian Prime Minister to Greece in August 2023, which generated enthusiasm among Greek political and business circles.
• The anticipation surrounding the visit of the Greek Prime Minister underscores the mutual dedication to enhancing bilateral relations and collaboration across diverse sectors.

Historical Connections:

• India and Greece share a rich historical bond spanning more than 2500 years, characterized by cultural exchanges and a mutual embrace of democratic values.
• Presently, their bilateral relations are multifaceted, covering political, economic, and military cooperation.
• Trade Routes: Ancient maritime trade routes linked the Indus Valley Civilization with the Aegean region, facilitating the exchange of commodities such as spices, textiles, and intellectual ideas.
  • Archaeological evidence, including the discovery of Indus seals in Mesopotamia, suggests the existence of trade connections between the two civilizations.
• Alexander the Great (326 BCE): Alexander's conquest of parts of northwest India fostered cultural and diplomatic exchanges between Greece and India.
  • Greek philosophies and ideologies potentially influenced various aspects of Indian art, mathematics, and astronomy during this period.
• Indo-Greek Kingdoms (2nd century BCE – 1st century CE): Hellenistic kingdoms established in northwest India witnessed a fusion of Greek and Indian cultures.
  • This blending is evident in Gandhara art, which exhibits Greco-Buddhist influences and serves as a testament to the cultural interplay between the two civilizations.

The Current Status of Bilateral Relations between India and Greece:

• Steady Progress in Bilateral Relations: While India and Greece share a historical connection and mutual enthusiasm, the pace of their bilateral cooperation has been characterized by gradual progress.
  • In this context, it is essential to delve into the various facets of collaboration, recognizing both the positive developments and the need for enhanced momentum.
• Military Cooperation: Over time, military collaboration between the two nations has witnessed notable advancements.
  • Joint exercises involving the Indian Navy, Indian Air Force, and the Greek armed forces have been conducted, underscoring a shared commitment to fostering mutual understanding and coordination.
  • Reciprocal exercises are in the pipeline, illustrating an ongoing endeavour to deepen military bonds.
  • These joint military endeavours not only bolster regional security but also signify an increasing level of confidence and collaboration between the armed forces of Greece and India.
• Economic Engagement: On the economic front, there have been significant instances of collaboration signalling a burgeoning partnership.
  • For instance, an Indian construction company has joined forces with a prominent Greek construction firm to undertake a significant project: the construction of a new airport on the island of Crete.
  • Such initiatives highlight the potential for cross-border investments and partnerships that can contribute to economic development and diversification.

Advancing Economic Reforms And Greece's Role:

• Greece's proactive stance in promoting deeper EU-India relations adds another layer of importance to ongoing economic reforms.
• As Greece endeavours to swiftly finalize the EU-India bilateral trade and investment agreement (BTIA), it underscores its dedication to establishing a conducive environment for heightened economic cooperation.
  • The BTIA is poised to act as a catalyst, providing a structured framework for trade and investment, thereby nurturing closer economic bonds between the EU and India.

A Path to Closer Ties: Economic Reforms in Greece

• The economic facet of the Greece-India relationship assumes greater prominence as Greece, under the leadership of Prime Minister Kyriakos Mitsotakis, embarks on substantial economic reforms.
• Over the past half-decade, the Mitsotakis administration has implemented measures aimed at steering the Greek economy towards a more sustainable growth trajectory.
• This transformation positions Greece not only as a dependable eastern frontier of the European Union (EU) but also as a potential linchpin in broader geopolitical and economic strategies.

IMEEC Corridor: A Vision of Significance

• As Greece solidifies its role in the Eastern Mediterranean, the concept of establishing the India-Middle East-Europe Economic Corridor (IMEEC) emerges as a compelling vision.
• The IMEEC embodies a comprehensive economic initiative aimed at seamlessly connecting India, the Middle East, and Europe, thereby stimulating trade, investment, and economic collaboration.
• This ambitious proposition aligns with the shared vision of both nations to deepen their economic bonds and explore novel avenues for cooperation.

The Geopolitical Significance of the Indo-Greek Relationship:

• A Robust Foundation Rooted in Historical Bonds: The historical backdrop of the evolving ties between Greece and India (with diplomatic relations established in 1950) enriches their contemporary diplomatic endeavours.
  • Furthermore, these diplomatic exchanges acquire significance amidst India's ascent as a global power, being perceived not only as an enduring ally but also as a dynamic and influential player on the world stage.
• Contemporary Diplomacy: The momentous visit of the Indian Prime Minister to Greece in August 2023 served as a watershed, laying the groundwork for enhanced collaboration.
  • The enthusiasm witnessed in Greece, particularly among political and business circles, underscores the perceived opportunities in forging a strategic partnership with India.
• Strategic Importance of Both Nations' Locations: The geopolitical relevance of this burgeoning relationship is amplified by the strategic locations of Greece and India.
  • Situated in regions pivotal to the global system, both nations grapple with geopolitical complexities and volatility.
  • Recent events in the Red Sea highlight the interconnectedness of the East Mediterranean, where Greece is positioned, and the Indian Ocean region, accentuating the imperative for collaboration to promote security, stability, and prosperity.
• A Strategic Vision: Gateway to Europe and Asia: The Greek Prime Minister's assertion that "India will find no better gateway to Europe than my country, and for Greece, there is no better gateway to Asia than a close strategic relationship with India" encapsulates the acknowledgement of each nation's unique role in bridging the other's region.
  • This pragmatic understanding not only acknowledges geographical realities but also reflects a strategic vision to leverage mutual strengths for collective advancement.

Way Forward to Enhance Indo-Greek Relations:

• Promoting Cross-Cultural Understanding: By expanding university student exchange programs, deliberate steps will be taken to familiarize the younger generation with the cultures, traditions, and educational systems of both nations.
  • This fosters not only cross-cultural appreciation but also establishes a groundwork for future collaborations and friendships.
• Fostering Cultural Exchanges: Cultural exchanges serve as a cornerstone in fortifying the bonds between Greece and India.
  • Through the promotion of cultural events, exhibitions, and festivals, both countries create platforms for their citizens to immerse themselves in and celebrate the richness of each other's cultural heritage.
  • These initiatives act as bridges, connecting hearts and minds, and nurturing a sense of shared identity and mutual respect for cultural diversity.
• Media Collaboration: Bridging Information Gaps: Media collaboration emerges as a pivotal avenue to bridge geographical distances and keep the citizens of both nations abreast of developments, cultural nuances, and societal trends.
  • Joint efforts in media, including co-productions, cultural documentaries, and news coverage, facilitate a nuanced understanding of each other's realities.

Conclusion

The swift exchange of visits between the political leadership of Greece and India underscores their commitment and the urgency in advancing their strategic partnership. As the world navigates through a pivotal year in 2024, the onus lies on policymakers and businesses to capitalize on this momentum and fortify the strategic partnership between Greece and India.

Why is it in the News?

If India slowly but steadily raises its development cooperation budget to less than 0.5 per cent of its GDP by 2030, it will still have put around $70 billion into the global system. India is already the voice of the Global South; it will become the bank of the Global South.

Context:

• In 2007, China's GDP stood at approximately $3.6 trillion. Fast-forward to the present, India's GDP has reached $3.7 trillion or potentially more, framing a significant context for a crucial juncture in Indian diplomacy under the current leadership.
• As India wraps up its transformative diplomatic year in 2023, highlighted by its G20 presidency, it becomes imperative to reflect on the geopolitical lessons drawn from China's rise post the 2008 financial crisis.

Global South and India:

• Global South represent a group of countries primarily located in Asia, Africa, and Latin America which are referred to as "developing" or "underdeveloped".
  • Global North on the other hand is completely opposite to this- developed, high per capita income, higher life expectancy and having a strong voice in various multilateral organizations.

Significance of the Global South:

• Economic Projections: By 2030, three out of the four largest economies are anticipated to emerge from the Global South (China, India, Japan, Indonesia).
• BRICS Dominance: The GDP of BRICS nations, measured in terms of purchasing power, now surpasses that of the G7 countries.
• Increased Intra-South Trade: Intra-South trade has surged, constituting over a quarter of global trade.
• Addressing Global Challenges: Collaborating with Global South nations is crucial for tackling issues like climate change, inequality, malnutrition, and energy security.
• Foreign Direct Investment: Outflows of foreign direct investment from the South contribute significantly to global flows.

India's Initiatives as a Global South Leader:

• Multilateral Reforms: India advocates for the reform of multilateral institutions to enhance inclusivity.
• Aarogya Maitri Project: Providing medical supplies to disaster-affected countries.
• Global South Diplomacy: Initiatives like the Global South Young Diplomat Forum and the Global South Centre of Excellence for R&D.
• Educational Support: Offering Global South Scholarships for students pursuing higher education in India.
• While India possesses the potential and political will to lead the Global South, it must also strive to narrow the gap between the Global North and South, aligning with its vision of 'Vasudhaiva Kutumbakam'—The World is One Family."

The Rise of China to Geoeconomic Prominence: An Analysis

• China's Strategic Moves During the Financial Crisis: Back in 2007, China had not yet achieved the geo-economic prominence it now holds.
  • However, despite having a GDP lower than India's today, it swiftly emerged as a pivotal nation during the global financial crisis in 2008.
• Countries worldwide sought to deepen their ties with China, aiming to secure a special standing in their diplomatic relations with the People's Republic.
• China's strategic advantage lies in its provision of institutional and geo-economic responses.
• • These responses included the establishment of a development bank, the initiation of a cross-continental lending program, and the catalyzation of infrastructure projects without the legacy constraints associated with Western agencies.
  • This marked the beginning of what later evolved into the Belt and Road Initiative.
• China's Role as a Crucial Non-Western Alternative: In 2008, China capitalized on its economic potential to amass significant economic and political influence, a position it has maintained ever since.
• This was achieved by positioning itself as a vital addition to the global order.
  • While the US grappled with post-crisis recovery and the Eurozone faced internal challenges, China emerged as a symbol of stability and economic dynamism.
• The world, in search of an extra engine for growth and an additional source of investment, welcomed China as a crucial alternative outside the Western world.
• Hence, China's adept strategic manoeuvres not only offered a remedy during the financial crisis but also solidified its status as an indispensable centre of geopolitical power on the global stage.

Does India Possess Enough Resources to Continue China's Ascent the Path?

• Unleashing India's Potential for Global Influence: India is in a similar position and has a comparable GDP. This is the foundation that Indians must comprehend in order to grasp their current position in the world as we approach 2024.
• Recent history shows us that a $4 trillion economy, comparable to India's, can have a significant impact.
• It can make a place for itself beside economies that are four or five times larger than its own, such as the US, the EU, and China, with foresight and deft diplomacy.
• A Unique Opportunity for India: In 2024, as Europe stagnates, the US withdraws, and China faces internal issues and sees a nominal decline in its share of the global economy, there is real potential for India.

What Additional Advantages India Can Provide Along China's Lines?

• Momentum-Focused Additionalities: Unlike China's case, India's aspirations for additionalities require momentum more than extraordinariness.
  • With its trajectory set on a green and digital future, in contrast to China's manufacturing dominance, India aims to leverage its $4 trillion economy to wield influence comparable to a $15 trillion economy.
• Systematic Approach to Additionalities: India's quest for additionalities should emulate China's approach from 15 years ago, emphasizing a systematic roadmap.
  • This roadmap, outlining India's unique proposition, signals that its economy is positioned to exert significant influence globally.
• Dedicated Development Finance Institution: To meet global corporate needs beyond trade finance, India should establish an outward-focused development finance corporation, mirroring China's China Development Bank.
  • This institution should carry a distinct global imagery and play a pivotal role as a major source of development finance.
• Strategic External Engagement: Collaborating with like-minded partners, India should strategically map priority infrastructure, connectivity routes, business hubs, and developmental projects.
  • This external engagement approach aligns with the vision for India's global role and positions 2024 as the year to articulate a comprehensive world map reflecting this vision.

Priorities for India's Upcoming Government in the Years Ahead:

• Information Technology (IT) and Innovation: Demonstrate India’s global potential, following the model set by China in 2007 and during the 2008 financial crisis.
  • Leverage the established status as a global IT hub to propel software services and technology exports to new heights.
• Entrepreneurship and Start-ups: Sustain and enhance the flourishing start-up ecosystem through supportive policies and funding.
  • Capitalize on the growing number of Unicorns (over 100) as a testament to India's entrepreneurial prowess.
• Strategic Location: Leverage India's strategic geographical location as a gateway between the Middle East, Europe, and Asia for enhanced international trade.
  • Strengthen India's role in the India-Middle East Europe corridor, offering an alternative trade route to the Middle East and Europe.
• Key Reforms and Policies: Continue the momentum of economic reforms aimed at improving the business environment and ease of doing business.
  • Build on initiatives such as Make in India and Goods and Services Tax (GST) to streamline processes and stimulate economic activity.
  • These strategic focus areas can propel India’s global standing, foster innovation, and contribute to sustained economic growth.

As India enters a transformative phase in 2024, its capacity to translate economic momentum into global influence becomes pivotal for its role in the changing geopolitical scenario.

Drawing insights from China's ascent, a strategic roadmap, systematic methodologies, and visionary diplomacy emerge as crucial elements for reshaping the global order.

India's trajectory toward becoming the bank of the Global South hinges on its ability to contribute significantly to global growth, institutions, and security through strategic additions.