Own Revenue Growth of Rural Local Governments and Socio-Economic Challenges

Addressing socioeconomic challenges related to fiscal decentralisation and rural development highlights the growing importance of strengthening the own-revenue capacity of rural local governments for improving financial sustainability and service delivery. Despite extensive research on fiscal decentralisation, a significant gap remains in understanding how the growth of own revenues of rural local governments influences their financial position and expenditure patterns in addressing socioeconomic challenges. The aim of this study is to examine the impact of own revenue growth on the financial performance and expenditure behaviour of rural local governments (Panchayats) in India. The empirical analysis is based on secondary statistical data for the period 2017–2024, covering India, including indicators of own revenue, total revenue, tax and non-tax components, and expenditure, obtained from the Reserve Bank of India (RBI), the Ministry of Panchayati Raj, and the Devolution Index Study Report (2024). The results indicate that own revenue constitutes only about 6–8% of total Panchayat revenue and expenditure, demonstrating its limited contribution to overall financial sustainability. Furthermore, own revenue collection declined from Rs. 5,378.74 crore in 2017–18 to Rs. 4,812.46 crore in 2021–22, reducing its share in total revenue from 8% to 6%, which reflects structural weaknesses in local revenue mobilisation. At the same time, average own revenue per Village Panchayat (Gram Panchayat) remained low, with tax revenue around Rs. 21,000 and non-tax revenue about Rs. 73,000 in 2022–23, indicating insufficient fiscal capacity to support development expenditure. The findings confirm that increasing own revenue has only a marginal effect on expenditure behaviour, as local governments remain highly dependent on intergovernmental transfers, which limits their ability to address socioeconomic challenges effectively. The study contributes to addressing socioeconomic challenges by providing evidence-based insights for strengthening fiscal decentralisation, improving local revenue mobilisation mechanisms, and supporting future research on enhancing the financial autonomy and development capacity of rural local governments.