Financial Empowerment of Panchayati Raj 


    Syllabus: GS2/Governance


    • The Reserve Bank of India’s (RBI) recently released its maiden report on ‘Finances of Panchayati Raj Institutions,


    • It sought to fill a long-felt gap in understanding of the fiscal health of the third tier of government in India: local institutions of governance. 
    • Though it is now more than 30 years since the 73rd amendment, the report said, empowerment of the kind envisaged in 1992 is yet to be realized.

    Findings of the Report

    • Host of factors: The report points out, their efficacy is “contingent upon factors such as the availability of adequate resources, nurturing of capabilities, political support, and active engagement of the local community.” 
    • Finances: The main stumbling block is inadequate resources. Over the years, PRIs have done little to augment their own revenues from items like property tax, fees and fines, while preferring the softer option of transfers from higher levels.
    • Lack of autonomy: Inevitably, this reliance on grants has meant they are not financially self-reliant, thereby limiting their ability to decide local spending priorities themselves. 
    • Subsidiarityprinciple: The principle of subsidiarity as enshrined in the EU’s Maastricht Treaty, is far from realized in India’s third tier of government.
      • The principle of subsidiarity means that higher levels of government should perform only those functions that cannot be effectively performed at the local level. 
    • Uneven devolution and development: As regional disparities are sharp with respect to economic development in India, the devolution of powers and functions to panchayats (and their performance) varies greatly across states. 
      • In general, India’s southern states have done better than others, which may perhaps explain why these states have made more progress on human development indicators. 

    About Panchayati Raj

    • It is a system of local self-government in India
    • It is a three-tier system, with village panchayats at the grassroots level, block panchayats at the intermediate level, and zilla parishads at the district level.
    • 73rd amendment to the Constitution of India institutionalized Panchayati Raj Institutions (PRIs).
    Related Committees:
    Balwant Rai Mehta Committee (1957): This landmark committee recommended the three-tier Panchayati Raj system, with Gram Panchayats (village level), Panchayat Samitis (block level), and Zilla Parishads (district level).
    Ashok Mehta Committee (1977): Focused on strengthening financial resources and functional autonomy of Panchayats.
    G.V.K. Rao Committee (1985): Emphasized the need for regular elections and greater participation of women and marginalized communities.
    L.M. Singhvi Committee (1986): Recommended measures to address financial constraints and improve administrative efficiency of Panchayats.
    P.K. Thungan Committee (1989): Proposed electoral reforms and devolution of more power and functions to Panchayats.
    Harlal Singh Kharra Committee (1990): Focused on ensuring timely elections and strengthening accountability mechanisms.
    Natarajan Committee (1996): Assessed the implementation of the 73rd Amendment and recommended further devolution of power and resources.
    Vikram Singh Malik Committee (2001): Proposed measures to address corruption and promote transparency in Panchayati Raj institutions.
    Sachar Committee (2006): Highlighted the need for greater representation and empowerment of women in Panchayats.
    M.V. Rajwade Committee (2017): Reviewed the functioning of Gram Sabhas and recommended steps to enhance their participation and effectiveness.


    • Rural governance: According to the 2011 Census, almost 69% of our population resides in rural areas. By any reckoning, it is no exaggeration that panchayats are critical to providing local governance and stepping up rural development.
    • Translating vision: The RBI report says, local governments at the panchayat level (about 262,000 such) have a “significant role in translating the vision and developmental policies of both the Central and State governments into action.” 
    • Local needs: Local governments invariably have more detailed information on the preferences and local needs of citizens than any higher level of government. This makes them best suited to provide many basic public goods and services, such as health, education, sanitation, etc. 


    Limited devolution of power:

    • Funds: Transfer of financial resources from the central and state governments to Panchayats remains inadequate, hampering their ability to deliver basic services and undertake development projects.
    • Functionaries: Shortage of adequately trained and qualified personnel at the Panchayat level limits their capacity to manage resources and implement programs effectively.
    • Functions: While the 73rd and 74th amendments outlined responsibilities for Panchayats, crucial sectors like irrigation, education, and healthcare remain largely controlled by higher levels of government, restricting their autonomy.

    Political interference:

    • Party politics: Panchayat elections are often contested along party lines, leading to politicization of local governance and prioritizing partisan interests over community needs.
    • Bureaucratic hurdles: Panchayats face bureaucratic obstacles from state and central government officials, often delaying approvals and hindering project implementation.
    • Social inequalities: Existing social hierarchies like caste and gender can marginalize certain groups, preventing them from fully participating in Panchayat decision-making.

    Internal weaknesses:

    • Corruption: Lack of transparency and accountability mechanisms can lead to misuse of funds and resources, undermining public trust in Panchayats.
    • Lack of awareness and capacity: Limited understanding of Panchayat roles and responsibilities among both elected representatives and citizens can impede effective participation and utilization of the system.
    • Gender gap: Low representation of women in Panchayats despite reservation quotas often restricts their voice and influence in decision-making.


    • Decentralisation not just devolution: Implement true devolution of funds, functions, and functionaries.
    • Transparency and accountability: Regularly conduct transparent audits of Panchayat finances and projects to prevent corruption and misuse of resources..
    • Empower Gram Sabhas: Ensure active participation of Gram Sabhas in decision-making, budget allocation, and project monitoring.
    • Promote active citizen participation and empower marginalized communities, through mechanisms like social audit.

    Way Ahead

    • The RBI report says, ideally, the level responsible for providing a particular good or service should also be in charge of its funding and revenue collection, minimizing the scope for moral hazard.
    • Strengthening Panchayati Raj is an ongoing process that requires sustained commitment from the government, civil society, and rural communities. 
    • There is a need to move towards realizing the dream of Mahatma Gandhi that “every village will be a republic or panchayat, having full powers”, that can drive inclusive development and social change in rural India.

    Source: LM