Sixth Schedule and its Fiscal aspects

Articles in the Constitution

244(2) - administration of schedule and tribal areas through autonomous district councils
275(1) - grants from union and states

Administration of 4 North East states

Sixth schedule provides for the administration of the north east India through autonomous district councils (ADCs). ADCs are considered rural local governments, despite provisions for town committees, within their structure.

Clause 1

Governor by public notification, based on the recommendation of the expert committee appointed by him or her, form a district council

Clause 2

District council not have members more than 30, of whom not more than 4 be nominated by the Governor, rest elected based on universal adult suffrage
Governor makes rules in consultation with existing tribal councils, other representations from tribal organisation
Governor decides the qualifications for voting at such elections and preparations of electoral rolls, for being elected and the term of office
- Elected member's tenure is for five years, while the nominated members are at the pleasure of the Governor
In case of emergency, the five year period can be extended by the governor, if the conduction of elections is impractical, exceeding one year at a time, and this gets ceased after six months of emergency getting revoked.
A member elected to fill the casual vacancy shall hold office only for the remainder term of office of whom he replaces.

Clause 3

All laws made are submitted forthwith the governor and until assented by him, shall have no effect.

Clauses 4

District councils exercise the powers of a court of appeal in respect of all suits and cases triable by a village council or court constituted under sub paragraph (1) and no other courts other than high and supreme courts shall have jurisdiction over such suits or cases.

Clause 5

For the trial of offences punishable with death, transportation for life, imprisonment for a term of not less than five years, under the IPC or under any other law for the time being applicable to such district or region confer on the district council or the regional council have the authority as specified by the Governor.

Clause 7

District and Regional funds are constituted and rules for management are made by the Governor
The accounts are kept in such forms as CAG may prescribe with the prior approval from the president.
Report of the CAG are submitted to the Governor and he later tables it in the legislative assembly.

Clause 14

Governor appoints of commission to inquire the administration of the councils and the report submitted is tabled before the state assembly.

Clause 15

Governor, any act or resolutions is likely yo endanger the safety of India, can suspend or annul the same.
This order is made with reasons, is laid before the legislature unless revoked, continue to be in force for a period of 12 months.

Clause 16

Governor on recommendation of the commission, order the dissolution of the council.
Governor can himself or through a person or authority, can assume all the functions and powers of the council
This can be in action for a period of 6 months.
Governor can further extend this time period, but not exceeding 6 months on each occasion.
This order has to be laid before the legislature and shall cease to operate at the expiration of 30 days from the date on which the state legislature first sits, unless approved by the legislature.

Clause 17

Governor, can by an order exclude any areas from inclusion into the ADCs.

Clause 19

No act of parliament or the legislature shall apply to the areas unless Governor by public notification so directs
This can also have retrospective effect

10 ADCs

10 ADC in 4 states - Year of formation

1. Assam

Bodoland Territorial Council (BTC) - 2003
- ! Largest in terms of area and population
Karbi Anglong Autonomous Council (KAAC) - 1952
North Cachar Hills Autonomous Council (NCHAC) - 1952

2. Meghalaya

Garo Hills ADC - 1952
Jaintia Hills ADC - 1964
Khasi Hills ADC - 1952

3. Mizoram

Chakma ADC - 1987
Lai ADC - 1987
Mara ADC - 1987

4. Tripura

Tripura Tribal Areas ADC - 1979

Village committees or councils

The schedule provides for establishment of village and town committees or councils. ADCs in Assam, Mizoram, Tripura have a system of village committees or village councils. In Meghalaya, the traditional institutions of local governance have been retained.

Asymmetry within Asymmetry

Referred as "Asymmetry within Asymmetry", which is manifested in their fiscal arrangement.

Data from 2005 to 2020

Data on the revenue and expenditure of ADCs from 2005 - 2006 to 2019 - 2020, converted into constant prices of 2011 - 2012, using gross domestic product deflator.

Local Governance in the 6th schedule

"Local governance is a diverse objective of vibrant, living, working and environmentally preserved self governing communities" - Shah (2006)

"Local" Governance and Governments

An examination of the working of the ADCs shows that these twin concepts of local governance and local governments coexists in these areas.

Preservation of tribal self governing institutions, traditions, customary practices, and laws accorded the top priority.

India's fiscal federalism in the 6th schedule

Finance commission roles in allocating the funds to ADCs

Finance commission has not regularly allocated funds to the ADCs as the part of their vertical devolution.

Excluded from 73rd and 74th Amendments

6th schedule areas are generally excluded from the provisions of the 73rd and 74th Constitutional amendments.

Grants

10th finance commission said, states that do not have panchayats will also be given grants though similar local level bodies.

Grants only after

11th finance commission stipulated that, grants would be made only after the enactment of relevant legislative measures for the extension of 73rd and 74th constitutional amendments.

Not allocated grants

12th finance commission did not allocate grants for normal and excluded areas separately and left it to the states to distribute the grants between them.

Recommended grants

13th finance commission recommended grants of 1,357 crore rupees for excluded areas.

Not allocated

14th finance commission did not allocate grants to these areas.

Population and area based

15th finance commission, 2020 provided grants based on population and area in the ratio of 90:10.

Responsibility lies with state

Major responsibility of resource allocation to ADC lies with the state. Most state do this through state finance commission.

State Finance commission

Number of State Finance commissions formed till date	State
6	Assam
5	Tripura
2	Mizoram
0	Meghalaya, enacted a law, but yet to constitute one

Resource mobilisation and Utilisation

Authority to mobilise resources through different means

ADCs have the authority to mobilise financial resources, but face several challenges while doing so.

$ Schedule 6 - Article 10 - The district council has the power to make regulations for control of money lending and trading by non tribals

Views of different personalities

Low own revenue generation, high dependency of ADCs on transfers and high proportion of revenue expenditures heads, including salary and administration, reported commonly in finances of other local governments in India. (Jena, Gupta (2008), Reddy (2021))

Low financial resources make them depend on state's funding - Stuligross (1999)

Failure to utilise their assigned financial powers, poor maintenance of accounts leading to gaps in transparency and accountability and delays in sharing the funds across all 10 ADCs

Umdor (2004)

Challenges

More than half the budget of Khasi Hills ADC goes to the salary of its employees.
Accounting irregularities have been highlighted by the report of the CAG.

3 ADCs in Meghalaya has existence of financial irregularities - Syiem (2016)

Lack of clear cut distinction between revenue and capital expenditure in Mizoram's budget documents.
Finance commissions not adequately examined or addressed the issues of ADCs.
Corruption and mismanagement of funds are also reported.
CAG audit have not been conducted regularly due to failure of ADCs to furnish necessary documents.

One time assistance not used properly

NITI Aayog recommended a one time assistance of 1,000 crore in 2015 to the 10 ADCs through Ministry of Finance.
This resource pool was not fully tapped by ADCs due to their failure to submit utilisation certificates on time (TNT Bureau, 2021)

Source of receipts

Revenue from own sources, including tax and non tax revenue levied and collected by ADCs.
- @ Schedule 6 - Article 8 - Powers to assess and collect land revenue and to impose taxes
- Most common but minor source of tax revenue is land revenue.
Shared revenue, collected by the state government within the jurisdiction of the ADCs and shared between the state and ADCs
~ Schedule 6 - Article 9(1) - Share of royalties from licenses and leases collected by the state
- & Schedule 6 - Article 9(2) - Any dispute arises in sharing of loyalties are referred to the Governor, who decided in his discretion and his decision is final.
Grants and other transfers from union and state governments respectively
- Grants have been the most significant source of receipt for all ADCs
Professional tax is an important avenue for revenue generation for ADCs
- ~ Schedule 6 - Article 8(3)(a) - taxes on profession, trades, callings, employments.
- @ 1st report of Mizoram state finance commission (2015) states, "all ADCs in the state have been collecting professional taxes within their jurisdiction, forming a small proportion of their own revenue"
- - 3rd Tripura state finance commission report, "levy of professional tax comes under shared revenue, state collecting and distributing it."
- % Meghalaya and Assam does not levy or collect professional tax.

Table

Revenue from 2005 to 2020

Expenditure

Much of the expenditure falls under the category of revenue expenditure for administration and regular expenses.
The proportion of revenue expenditure is significantly higher than the capital expenditure. The proportion of capital expenditure is lower than 30% in all ADCs.
All ADCs use a cash based single entry system for transactions. Panchayats also use a cash based single entry system. Municipalities are suggested to use an accrual based double entry system.
Most ADCs differ in terms of classification o their accounting heads, while panchayats and municipalities have a simplified classification into three heads.
Internal audit in panchayats and municipalities are done by the state audit agency under the supervision of CAG. The external audit are done by CAG. This isn't clear for ADCs.

Expenditure from 2005 to 2020

Way forward

CAG suggested a uniform accounting system in 1977, but still the accounting practices of various ADCs differ.
Design a more systematic framework for the transfer of resources to the ADCs.
Expenses on revenue heads may be reduced, with more resources directed towards infrastructure and capital formation.
Enforce fiscal discipline and avoid gratuitous expenses.
Finance commission could establish a funding mechanism that allow ADCs to execute their development roles with less dependence on state governments.
Devolution of resources must be subjected to utmost accountability and transparency.
Introducing double entry cash based or double entry accrual based accounting system in all ADCs.
- Institute of Chartered Accountants of India may be sought for making ADC accounting manuals.
Design of transfers to urban towns and rural village local governments. There are provisions for town committees in the 6th schedule, and several towns are found in ADCs areas. still the resource devolved are so far been a part of grants to rural local bodies. Hence, there is need to recognise the existence of urban and rural areas, which is not in the ambit of 73rd and 74th constitutional amendments, designing a transfer mechanism accordingly.
Enhancing the fiscal transfer to ADCs lies in their inclusion in the terms of references (TOR) of successive finance commissions. Panchayats and municipalities are regularly included.
Timely establishment of state finances commissions.