The passage of the Constitution 72nd and 73rd amendment bills in 1992 by Parliament initiated the first phase of local government reform in India. The bills received the assent of the President and came into force in April, 1993.
The basic thrust of such reform is that elected local governments will be allowed to function in respect of their allotted tasks. This means that all types of local governments are to be elected either by the people or in the special case of the intermediate (anchal) panchayats by the chairman of the village (gram) panchayats.
The period of supersession of the local governments is to be for a maximum of six months. In the case of municipal bodies or nagarpalikas there is a provision for co-opting non-voting members with special expertise in municipal administration.
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There has also to be adequate representation for Scheduled Caste and Scheduled Tribe members. At least a third of the total elected membership of local governments is to be women. Additionally, the state legislations may reserve the post of chair-persons for women as well as reserve seats for the backward classes.
The functions allotted to the panchayats cover 29 subjects, while those for the nagarpalikas cover 16. This means that the panchayats will have largely concurrent functional responsibilities.
In keeping with the imperatives of economic liberalisation local governments are expected to privatise their market-related services and encourage non-governmental organisations and Community Based Organisations (C.B.O) to provide social services.
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This would result in a variety of public-private collaborations in the provision of community services and the involvement of local governments in public service delivery arrangements.
The Act provides for a mandatory appointment of State Finance Commissions (SFCs) every five years. There should be a common commission for both the panchayats and the nagarpalikas and for a group of states.
The SFCs are required to assess local government revenues from their own sources and recommend a package of revenue devolution and grants from the State Government to meet their projected fiscal gap in terms of an estimated level of local expenditure.