Kerala’s local bodies need better accounting practices: The 2025 local body elections in Kerala have revived familiar expectations. Voters want greater accountability, visible improvements in service delivery, and local governments that spend public money with discipline. These expectations are not abstract. They depend on whether local bodies can produce accounts that are timely, credible, and usable for decision-making.
Financial devolution without accounting capacity creates the appearance of decentralisation without its substance. For Kerala’s newly elected local governments, accounting is not an administrative afterthought. It is the operating system of local governance.
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Constitutional mandate for local finance
India’s local governments derive their authority from the 73rd and 74th Constitutional Amendments of 1992, which inserted Parts IX and IX-A and the Eleventh and Twelfth Schedules into the Constitution. Panchayats and municipalities were formally recognised as the third tier of government, with responsibilities for local planning and service delivery.
That recognition came with obligations. Articles 243J and 243Z require rural and urban local bodies to maintain proper accounts and subject them to audit. Devolution of functions and funds presupposes systems that can record, classify, and report how public money is raised and spent. Without standardised accounting and credible audits, constitutional intent remains incomplete.
Kerala’s legal and institutional framework
Kerala’s local self-government institutions operate within a comparatively robust statutory framework. Sections 215 and 295 of the Kerala Panchayat Raj Act and the Kerala Municipality Act mandate annual accounts. The Kerala Local Fund Audit Act, 1994, requires audits to be completed within six months of account submission.
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Accounting rules go further. The Kerala Municipality (Accounts) Rules, 2007 and the Kerala Panchayat Raj (Accounts) Rules, 2011 require accrual-based, double-entry bookkeeping. Local bodies must follow the Kerala Municipal Accounts Manual and the Kerala Panchayat Raj Accounts Manual. Since 2010, all local body accounts have been computerised through Saankhya, developed and maintained by the Information Kerala Mission.
On paper, this is a comprehensive shift from cash accounting to accrual accounting. In practice, the gap between formal adoption and functional use remains large.
Kerala’s local bodies: Why accrual accounting matters
Cash accounting records transactions only when money changes hands. It obscures unpaid bills, tax arrears, and the true condition of public assets. Accrual accounting records income when it is earned and expenses when they are incurred. It produces balance sheets, income and expenditure statements, cash flow statements, and explanatory notes that together describe financial health.
The case for accrual accounting in Indian local governments was reinforced by the Supreme Court’s 2001 judgment in Almitra H. Patel v Union of India, which highlighted serious deficiencies in municipal accounting. The response was institutional. The Government of India introduced the Double Entry Accrual Accounting System, followed by the National Municipal Accounting Manual in 2004 and accounting standards for local bodies issued by the Institute of Chartered Accountants of India in 2005.
Kerala moved early. From 1 April 2011, most local governments were legally required to adopt accrual-based, double-entry accounting supported by computerised systems.
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Gains and their limits
The reform has delivered measurable improvements. Local bodies now record land, buildings, roads, water systems, and other public assets. Liabilities such as unpaid bills, employee benefits, and loans are recognised when they arise. Revenues from property tax, professional tax, user charges, and grants are booked when due, not merely when collected. This enables tracking of arrears, assessment of collection efficiency, and a clearer view of revenue gaps. Expenses are recorded when services are delivered, improving cost attribution.
Yet accounting often remains procedural rather than analytical. Financial statements are prepared, uploaded, and archived, but rarely examined in council meetings or used to guide choices. Delays, incomplete registers, and inconsistent classifications weaken their value. Disclosure is thin. Explanatory notes on accounting policies are frequently absent, and management discussion of financial risks and trends is limited.
Accounting as governance
These weaknesses are not anecdotal. The Comptroller and Auditor General of India’s Report No. 4 of 2024 on Kerala’s local governments, covering the year ended March 2022, records persistent deficiencies. Revenues continue to be recognised on cash receipt in many cases. Demand registers are incomplete. Arrears are poorly tracked. Grants are sometimes recorded late, distorting the cost of services.
Accrual accounting exists in form, but not fully in substance. Software has been implemented. Systems have not been internalised. Effective accrual accounting requires trained staff, internal controls, timely audits, and elected representatives who treat financial information as a governance tool rather than a compliance ritual.
Closer alignment with international public sector accounting standards would improve consistency and disclosure. More importantly, local governments must begin to use their accounts to explain choices and constraints to citizens. Transparent accounts are not a technical indulgence. They are a democratic necessity.
As Thomas Piketty has argued, economic democracy depends on transparent accounting and open access to financial information. For Kerala’s local governments, strengthening accrual accounting is not about refining formats. It is about restoring the link between decentralisation, accountability, and public trust.
Dr Geetha Rani V is Assistant Professor in Commerce, and Dr Meenu Mohan is Assistant Professor in Law at Gulati Institute of Finance and Taxation, Thiruvananthapuram.