Panchayat devolution in India is ordinarily described in the vocabulary of the statute book: twenty-nine subjects listed in a Schedule, a State Act that repeats the list, a government order that assigns the schemes, and an index that converts all of this into a score. The resident of the village experiences something different. A hand pump is repaired or left broken. A health centre has a building and a nurse whose leave is sanctioned somewhere else. A road appears in the panchayat’s plan and is built by a contractor answerable to an engineer in the district town. Between the two descriptions there is no contradiction, because they are measuring different things. The statute book records what has been provided for. The resident records what the elected body can actually decide. This article is about the distance between those two records, and about the discipline required to keep them apart: devolution is measured by statute and experienced through staff, and a State can rank well on the first while its panchayats direct nobody at all.

The argument proceeds through four questions that have to be asked separately and in order. First, does the function appear in the State statute at all, since devolution in India happens through State law and not through the Constitution. Second, has an activity mapping exercise unbundled that function into activities and assigned the activities between the village, block and district tiers, or does the subject sit in the Act as an undivided slogan. Third, does money follow the assignment in a form the local body can choose to spend, or does the money arrive tied to schemes designed elsewhere, in instalments the body does not control. Fourth, do the people who deliver the service answer to the local body: can it post them, transfer them, sanction their leave, or record their performance. A subject counts as genuinely devolved only where all four answers are yes. Every index, ranking and official claim in this field can be tested against that sequence, and most of the confusion in the public argument dissolves once the test is applied, because the instruments that certify devolution examine the first question thoroughly, the second sometimes, the third partially, and the fourth with the lightest touch of all.

The scope needs one boundary stated plainly. The general implementation record of the Seventy-third and Seventy-fourth Amendments, the elections, the reservations, the constitution of the bodies themselves, belongs to the implementation record of the two amendments, and the text of the rural amendment belongs to the article on the Seventy-third Amendment and Panchayati Raj. This article takes the bodies as constituted and asks the narrower fiscal and administrative question: of the functions, funds and functionaries that the design contemplated, what has actually moved, on what evidence, and how would a reader know.

A design that made the shell mandatory and the substance optional

The first fact about devolution in India is that the Constitution does not perform it. Part Nine of the Constitution, inserted by the Seventy-third Amendment, obliges every State to constitute panchayats, to hold elections to them before their five-year term expires, to reserve seats, to maintain a State Election Commission, and to constitute a State Finance Commission at stated intervals. On the substance of self-government the text changes register. The provision on the powers of panchayats says that the Legislature of a State may, by law, endow the panchayats with such powers and authority as may be necessary to enable them to function as institutions of self-government, and may make provision for devolution of powers and responsibilities over the matters listed in the Eleventh Schedule. The urban counterpart in Part Nine A uses the same permissive construction for municipalities and the Twelfth Schedule, and the text of that amendment is treated in the article on the Seventy-fourth Amendment and urban local bodies. Twenty-nine subjects for the panchayats and eighteen for the municipalities are therefore a menu placed before State legislatures, not a transfer effected by the Constitution itself. A State that devolves three subjects with money and staff has complied with the Constitution exactly as fully as a State that devolves all twenty-nine on paper, and nothing in the text allows a court or a commission to prefer the second State on constitutional grounds alone.

The fiscal provisions follow the same pattern. The Constitution authorises a State Legislature to empower a panchayat to levy and collect taxes, duties, tolls and fees, to assign to it taxes collected by the State, and to make grants in aid to it from the Consolidated Fund of the State, all subject to such limits and procedures as the State law itself prescribes. The taxing power of an Indian local body is thus a borrowed power, defined and often capped by the very government whose transfers the tax was supposed to make less necessary. The two constitutional mechanisms that discipline this permissive structure from outside are the State Finance Commission, which the Governor must constitute within a year of the commencement of the Seventy-third Amendment and thereafter at the expiration of every fifth year, to review the financial position of the panchayats and recommend the distribution of taxes and grants between the State and its local bodies; and the Union Finance Commission, which the Constitution charges with recommending the measures needed to augment the Consolidated Fund of a State to supplement the resources of the panchayats and municipalities on the basis of the State Finance Commission’s recommendations. Everything in the devolution record flows from that architecture: a mandatory shell of elections and commissions, an optional core of functions and taxation, and a chain of recommendations, State commission to State government to Union commission, at every link of which delay or dilution is lawful.

What does a District Planning Committee do, and why does it belong in the devolution story?

A District Planning Committee is the body the Constitution requires in every district to consolidate the plans prepared by the panchayats and the municipalities in the district and to prepare a draft development plan for the district as a whole. A large share of its members are elected from among the elected members of the district panchayat and the municipalities.

It belongs in the devolution story because planning is where functions become money: a function that never enters the district plan as a costed proposal remains a Schedule entry, and a committee that meets to ratify departmental schemes rather than to consolidate local plans converts the planning stage into one more channel through which the departments, and not the elected tiers, decide what is done in the district.

The planning provision repays attention because it shows the design at its most characteristic. The committee exists by constitutional command; the plans it consolidates are prepared by bodies whose functions are permissive; and the funds that would give the consolidated plan effect belong to departments and schemes outside the committee’s control. In State after State the district plan has accordingly become a compilation exercise, an aggregation of departmental proposals bound in one volume, while the operative allocations are made in the State budget and in scheme guidelines issued by ministries. Where the planning stage is hollow, devolution downstream is hollow with it, because the one institutional moment at which the three tiers could confront the gap between their listed functions and their actual resources is spent on paperwork instead.

Panchayat devolution and the measurement problem

Because devolution is permissive, somebody has to count it, and the counting has been done mainly by index exercises commissioned by the Ministry of Panchayati Raj and conducted by research institutions. The most fully documented of these is the report titled Status of Devolution to Panchayats in States, an indicative evidence-based ranking, prepared for the Ministry by the Indian Institute of Public Administration and released in February 2025. The edition matters and should always be named with the claim, because the exercise scores States on six dimensions: the legal and institutional framework, functions, finances, functionaries, capacity enhancement, and accountability. In that edition Karnataka stood first with a score of 72.23, followed by Kerala at 70.59 and Tamil Nadu at 68.38, with Maharashtra at 61.44, Uttar Pradesh at 60.07 and Gujarat at 58.26 completing the leading group, against a national average a little under 44. The same report measured the composite devolution position as having risen from 39.9 per cent in the assessment for 2013-14 to 43.9 per cent for 2021-22, and its dimension table distributes the honours in a way that should make any reader of rankings careful: Kerala led on the framework dimension, Tamil Nadu on functions, Karnataka on finances and on accountability, Gujarat on functionaries, and Telangana on capacity enhancement. A State can therefore be the best in India at giving panchayats a legal framework and some other State the best at staffing them, and the single headline number conceals which of those things has happened.

The counting discipline this series applies to implementation records, the same discipline applied to the employment guarantee’s implementation record, is to ask of every figure what it counts and what its denominator is. Applied here, the discipline exposes three features of index evidence that a careful reader holds on to. The first is that an index of devolution is built substantially from provisions: whether the State Act lists the function, whether activity mapping has been undertaken, whether a State Finance Commission has been constituted and has reported, whether funds of specified kinds have been transferred. These are facts about paper, verified from documents, and they are the facts an index can verify at scale across twenty-eight States. The second feature is sensitivity to method. Uttar Pradesh moved from seventeenth place in the 2013-14 assessment to fifth in the 2024 edition, credited in the report with gains in accountability arrangements; a movement of that size in a decade tells the reader as much about what successive exercises chose to measure and weight as it does about any transformation in the villages of Uttar Pradesh, and the honest way to use the finding is as evidence about the measured dimensions, not as a verdict on lived local government. The third feature is the asymmetry of the dimensions themselves. Framework and functions can be improved by a government order and a notification. Functionaries cannot: they require decisions about cadres, postings and discipline that no notification can simulate. It is therefore instructive that the functionaries dimension, which the 2024 edition recorded as rising from 39.6 to 50.9 across the decade, remains the dimension on which the lived complaint concentrates, and that capacity enhancement, which the report credits the Rashtriya Gram Swaraj Abhiyan with lifting from 44 to 54.6 since the scheme’s launch in 2018, is the dimension most amenable to expenditure. A reader who wants the underlying material, rather than a summary of it, will work through the index report itself and the grant tables in the Finance Commission reports; bulky official documents of that kind are easiest to handle when they can be opened and read in a single office file viewer rather than chased across separate downloads.

None of this makes index evidence useless. It makes it specific. The exercises establish, with a consistency across editions that commands respect, that the variation between States is very wide, that a small group of States scores substantially above the rest on nearly every dimension, and that the all-India position moves slowly. What they cannot establish is the proposition for which they are most often quoted in public argument, that a State placed high on the index has panchayats that govern. The distance between those two propositions is the subject of the rest of this article, and it is best travelled one instrument at a time, because devolution in India is not withheld in the abstract. It is withheld, or granted, in particular documents: a State Act’s schedule of functions, an executive order assigning a scheme, an activity mapping resolution, a Finance Commission’s action taken report, and a grant guideline. Each deserves to be read for what it actually transfers.

The index also has a political history that explains its design. For the better part of a decade from the year 2005-06, the Union operated the Panchayat Empowerment and Accountability Incentive Scheme, under which States received incentive grants against improvements in their devolution position as measured by a devolution index prepared for the Ministry, the exercise published in the State of the Panchayats report series and its successors. Money was therefore attached to the index from the beginning, and the index was built, as any instrument carrying money must be, from facts that could be verified from documents at a distance: provisions made, orders issued, commissions constituted, transfers effected through the budget. The fourth condition of this article’s test, whether staff answer to the local body, is the fact least verifiable in that manner, since a staffing order may create dual control, deputation, supervision or transfer in forms that read alike in a return and differ entirely in a village. An index built for incentives will underweight it, an index built for description will struggle to score it, and the reader who knows why the instrument was built will know which of its numbers to trust furthest. The 2024 edition’s inclusion of a distinct functionaries dimension, and its finding that the dimension trails the others across most States, is best read as the measurement tradition slowly bending towards the variable it was not designed to see.

The pioneers: devolution before it was constitutional

The amendments of 1992 and 1993 did not invent the problem, and the pattern of their implementation was visible in the record long before them. The Balwant Rai Mehta Committee of 1957 had recommended a three-tier structure of democratic decentralisation and the transfer of development administration to it; the States that adopted panchayati raj in the following years transferred the functions in form and retained the funds and the staff in fact, and within a decade the institutions were reporting to departments whose budgets they did not touch. The Ashok Mehta Committee of 1978 diagnosed the decay in terms the present record repeats: irregular elections, supersession of bodies by State governments, and development routed through the bureaucracy around the elected tiers. Two States of that era stand out because they broke the pattern in part, and their experience frames everything that followed. West Bengal held panchayat elections from 1978 at regular five-year intervals and bound the institutions into the implementation of land reform and rural programmes, giving the tiers work and continuity if not fiscal autonomy. Karnataka’s legislation of 1983, carried by its rural development minister Abdul Nazir Sab, created mandal panchayats and zila parishads with executive functions and funds that made the district tier a genuine seat of authority, and the elections of 1987 installed bodies whose powers the amendments’ draftsmen later studied. Andhra Pradesh’s mandal system of the middle 1980s moved the operative tier closer to the village on the same reasoning. The constitutional amendment bill of 1989, which fell in the Rajya Sabha, and the successful amendments of 1992 drew on this mixed inheritance: the pioneers had shown that devolution works where a State government wills the transfer of all three Fs together, and the amendments responded by making universal the one element the pioneers could not guarantee, the regular constitution of the bodies themselves, while leaving the transfer, once again, to the will of each State.

The lesson of the pre-amendment decades is therefore embedded in the post-amendment record rather than replaced by it. Constitutional status solved the existence problem. It did not solve, because it did not attempt, the command problem: who employs the staff, who holds the budget head, who can be made to answer when the listed function fails. Every section that follows is a variation on those three questions, asked of instruments that the Constitution enabled but did not write.

The instruments through which devolution actually happens

No devolution in India has ever been effected by the Eleventh or Twelfth Schedule. The Schedules are reproduced in State conformity legislation, and the reproduction is the point at which measurement and reality first part company, because a State panchayat Act that lists twenty-nine subjects has satisfied the most visible test of devolution while deciding nothing about any of them. The actual transfer, where it occurs, is made by instruments lower in the legal hierarchy and far less often read. A State Act or rules framed under it specify which functions stand transferred to which tier. Executive orders of the departments concerned assign particular schemes, with their budgets and their staff, to be implemented through or by the panchayats. Activity mapping exercises allocate the activities inside each subject between the State, the district tier, the block tier and the village tier. State Finance Commission recommendations, and the action taken on them, determine how much money moves by formula rather than by discretion. And the guidelines of centrally sponsored schemes, together with the conditions the Union Finance Commission attaches to its grants, decide how much of the money that arrives can be spent on what the local body itself judges to be the need.

Activity mapping is the instrument that deserves the closest reading, because it embodies the correct theory of the subject. A Schedule entry such as minor irrigation or primary education is not one activity but a bundle: policy and standards, planning, construction, staffing, day-to-day operation, maintenance, and supervision are separable, and a sensible devolution assigns each element to the lowest tier capable of performing it, the principle of subsidiarity that the Second Administrative Reforms Commission placed at the centre of its Sixth Report on local governance, submitted in 2007 under the chairmanship of Veerappa Moily. The Union Ministry of Panchayati Raj pressed the exercise on the States through the round tables of State ministers convened in 2004, which resolved that the activities within all twenty-nine subjects be mapped and assigned. Where mapping was done seriously, it produced a document of real value, because it converted a slogan into an allocation: this tier appoints, that tier maintains, the other tier merely reports. Kerala’s decentralisation rested on precisely this foundation, its Committee on Decentralisation of Powers, known as the Sen Committee, having recommended a division of functions into activities and sub-activities tier by tier before the People’s Plan Campaign moved the money. In most States, by contrast, activity mapping was undertaken as a reporting exercise, completed in form for some or all subjects, and then left without the two accompaniments that alone give it effect: a corresponding reallocation of budget heads, and a corresponding transfer or dual-control arrangement for the staff performing the mapped activities. A map that assigns an activity to the gram panchayat while the budget line remains in the department’s demand for grants and the staff remain on the department’s rolls is a cartography of intentions.

The pattern generalises, and it is the single most useful thing to understand about the instruments. Each instrument transfers one layer of the bundle and is liable to be mistaken for a transfer of the whole. A function listed in the Act transfers responsibility in the eyes of the public, which will blame the panchayat when the service fails. An executive order assigning a scheme transfers workload, and usually transfers it with the scheme’s guidelines, its unit costs, its targets and its reporting formats attached, so that the panchayat’s role is executory rather than deliberative. A grant transfers money, on conditions examined below. A staffing order, the rarest instrument of the four, transfers the means of decision, and its rarity is the measure of the system. The States’ own documents, read in sequence for any single subject, will usually show the first two instruments in place, the third partially in place, and the fourth absent, which is why the four-condition test set out at the start of this article is not a rhetorical device but a description of the audit the record invites.

One distinction in the language of the orders governs much of this terrain and repays the reader’s vigilance. An order may transfer a function to the panchayat, making the body the principal for that function, answerable for its standards and possessed of its budget; or it may direct that a departmental programme be implemented through the panchayat, making the body an agent for a principal that remains elsewhere, bound by the programme’s guidelines and accountable upward for their observance. The two instruments are announced in the same vocabulary of empowerment, and a count of subjects covered by orders will ordinarily merge them. The agency form is not dishonest, and for scheme delivery it is often the appropriate form; the employment guarantee rests on a statutory version of it. But devolution statistics built from orders that do not distinguish principal from agent will overstate the transfer of decision by exactly the share of the orders that are agency arrangements, and the four-condition test discriminates where the count does not: the agent body fails the third condition, because the money’s terms are the principal’s, and the fourth, because the staff executing the programme answer to the principal’s hierarchy. Reading a State’s devolution order for its operative verb, transferred or routed through, is the fastest single audit a reader can perform on the whole settlement.

Three State settlements, and the district tier problem

The all-India instruments operate inside settlements that differ enough between States to make the national average a polite fiction, and four settlements mark the range. West Bengal’s is the settlement of continuity: panchayat elections held without interruption since 1978, finance commissions constituted in a reasonably regular rhythm, and panchayats woven into the delivery of rural programmes across four decades, producing bodies with an administrative memory no other State’s village tier matches; the Reserve Bank’s 2024 consolidation recorded average revenue per panchayat in West Bengal at Rs 64 lakh, the highest in the country, against Rs 2.7 lakh in Andhra Pradesh, a spread that says as much about how completely the flows are routed through the institutions in one State and around them in the other as it does about the wealth of the two countrysides. Madhya Pradesh’s settlement of 2001, its Gram Swaraj amendments, is the settlement of the assembly: it vested the gram sabha itself with powers over village resources, appointments to village-level posts and the approval of works, attempting to correct from below the capture of the elected tiers that the State’s own experience had displayed, and its record is the standing evidence that empowering the assembly changes the politics of the panchayat without changing its purse or its staff. Rajasthan’s settlement is the settlement of the announcement: the State declared in 2010 the transfer of five departments, primary education, medicine and health, agriculture, women and child development, and social justice, to the panchayati raj institutions, a declaration that satisfied the first condition of the test at a stroke and has been followed, in the assessment of successive reviews, by a partial movement of the remaining three, with functionaries in particular retained within departmental control under arrangements of supervision. Karnataka’s is the settlement of accumulation: no single dramatic transfer, but legislation across four decades, from the mandal system of the 1980s through conformity legislation that gave its district tier an executive chief officer drawn from the administrative service and finance commission cycles that the State has generally honoured, producing the balanced first place in the 2024 ranking rather than a lead built on any one dimension.

The district tier concentrates the settlement problem in a single office. In most States the zila parishad has a president elected from among its members and a chief executive officer who is a senior officer of the State administration, appointed by the State government, transferable by it, and assessed within its hierarchy. The officer runs the district panchayat’s administration, controls its staff such as they are, and in practice holds the file on every decision the elected president announces. Where the officer’s tenure is short and the president’s authority over the officer is nil, the district tier is a deliberative body attached to an administrative one, and State governments have found the arrangement convenient enough to reproduce it at the block tier through the block development officer. Kerala’s transfer of institutions disturbed the arrangement by giving the district panchayat establishments of its own to command. Madhya Pradesh’s answer ran through the gram sabha instead. The generality of States have left the arrangement undisturbed, and any reader applying the four-condition test at the district level will find the fourth condition answered, in the person of the chief executive, before the inquiry begins: the staff answer to the State, because the staff are the State, on deputation to a body whose president they may politely outlast.

The block tier, where administration actually lives

Between the village and the district stands the tier that residents rarely name and administration always uses. The panchayat samiti at the block level is, in most States, the weakest of the three tiers as an elected body and the strongest as an administrative address, because the block is where the State’s machinery is physically present: the block development officer, the extension officers for agriculture, animal husbandry, health and education, the junior engineers, the accounts staff. Schemes are sanctioned at the block, works are measured at the block, and the gram panchayat’s proposals travel upward to the block to be costed, approved and paid. Activity mapping exercises that assigned implementation to the village tier collided with this geography, since the people capable of executing the assignment sat a tier above it, and many mappings resolved the collision quietly by assigning the gram panchayat the functions of identification and supervision, the soft activities, while execution remained where the staff were. The pattern is worth isolating because it explains a recurring puzzle in the record: States whose activity maps read as thorough devolutions to the gram panchayat and whose gram panchayats still experience themselves as recommending bodies. The map devolved the activities that require presence in the village, which are the activities of voice, and retained at the block the activities that require establishment, which are the activities of decision.

The block’s position also shapes the politics of the system. The block development officer answers to the district administration and the departments, not to the samiti’s elected head, reproducing at block scale the chief executive problem of the district tier, with the consequence that the intermediate elected body presides over an office it does not command. Reform proposals have circled this arrangement for decades: making the block officer the samiti’s own executive, merging the block establishment into a panchayat service, or accepting the block as a departmental unit and building devolution at the village and district tiers around it, the course Karnataka’s structure approximates. The choice matters beyond administrative tidiness, because the block is the tier at which the scheme stream is converted into works, and whoever commands the block commands the conversion. A devolution settlement that leaves the block untouched has left the machine room in other hands, whatever the Schedules say.

Funds: what actually reaches a local body, and on whose terms

Money reaches a panchayat through three streams, and the character of each stream matters more than its size. The first is the State’s own transfer, such as it is: a share of State taxes or grants routed by the budget, influenced in principle by the State Finance Commission’s recommendations and in practice by the State’s fiscal position and habits. The second is the Union Finance Commission’s grant for local bodies, passed through the State, which has grown across successive awards into the most predictable money a panchayat sees. The third is scheme money, above all the centrally sponsored schemes, which arrives with its purpose, design and reporting fixed by the sponsoring ministry. Only a fraction of the second stream, and almost nothing of the third, is money the panchayat may allocate according to its own judgment. That fraction, the untied share, is the fiscal meaning of self-government, and it is small.

The Finance Commission arc shows the Union learning to use its one lever with increasing deliberateness. The Thirteenth Finance Commission first placed a defined share for local bodies inside the divisible pool framework and split its grants between a basic component and a performance component, attaching conditions to the performance grant that reached into accounting arrangements, audit, and the State Finance Commission process itself. The Fourteenth Finance Commission, chaired by Y. V. Reddy, enlarged the flow sharply and simplified the design: grants of Rs 2,87,436 crore for the five years from 2015, of which Rs 2,00,292 crore was for panchayats and Rs 87,144 crore for municipalities, divided between basic and performance grants in the ratio of 90 to 10 for panchayats and 80 to 20 for municipalities, and distributed among States on the basis of population in the 2011 Census with a weight of 90 per cent and area with a weight of 10 per cent. The Fifteenth Finance Commission, chaired by N. K. Singh, recommended grants to local bodies of Rs 4,36,361 crore in all for its award period from 2021 to 2026, of which Rs 2,36,805 crore was for rural local bodies and Rs 1,21,055 crore for urban local bodies, the balance covering health sector grants routed through local bodies and related components. Within the rural envelope the Commission tied the majority to two national priorities: 60 per cent of the rural grant, Rs 1,42,083 crore, was tied in equal shares to drinking water supply, rainwater harvesting and water recycling on the one hand and sanitation and the maintenance of open defecation free status on the other, leaving 40 per cent, Rs 94,721 crore, untied for location-specific needs within the panchayats’ functions. The sums are large and the direction is unmistakable. They are also, in their tied majority, evidence for the proposition that runs through this article: even the channel designed to supplement the resources of local bodies is used substantially to purchase national programme outcomes through them, rather than to enlarge the sphere of what they decide.

Two features of the grant machinery deserve record because they show conditionality doing quieter work than the tied share. The first is the rule on passage: Finance Commission grants are released to the State, and the State is required to transfer them to the panchayats within ten working days of receipt, paying interest for any period of delay, a provision aimed at a long-documented habit of State treasuries treating local body grants as a float. The second is the entry-level conditions attached to the Fifteenth Commission’s grants, which made the maintenance of accounts and their audit a condition of the money itself: rural bodies were required to make their accounts available online through the eGramSwaraj system, with audited accounts following provisional ones, and urban bodies were required, among other things, to notify floor rates for property tax and, in the million-plus cities, to demonstrate improvement against service level benchmarks for water supply, sanitation and solid waste management as a condition of a performance-linked share. The effect on behaviour is examined in the discussion of conditional grants below. The point for the funds question is simpler. A panchayat’s bank balance at any moment is a mixture of tied scheme money it administers for others, tied grant money it must spend on two named subjects, a modest untied grant it can direct, and its own revenue, which is the subject of the next section and which is, by the best official measurement, close to negligible.

Can panchayats borrow money, and why do so few of them do?

In principle the larger local bodies can borrow, because State municipal law commonly empowers a municipality to raise loans for works within its functions, and panchayats in some States may borrow with the sanction of the State government. In practice borrowing is confined to a handful of large municipal corporations, and panchayats effectively do not borrow at all.

The reasons are structural rather than accidental. A lender needs a revenue stream it can attach, and a body whose own revenue is a small fraction of its receipts offers nothing to attach except the expectation of future State transfers, which are the State’s credit and not the body’s. Borrowing power without own revenue is a permission to pledge somebody else’s income, and the market prices it accordingly. The municipal bond market illustrates the point in the small: it began with the Ahmedabad issue of 1998 and has remained shallow ever since, used by a short list of large corporations whose own revenues a lender could examine.

The consequence of the three streams, taken together, is a fiscal posture that the figures of the Reserve Bank make vivid. In its report on the finances of panchayati raj institutions published in January 2024, drawing on data for some 2.58 lakh panchayats for the years from 2020-21 to 2022-23, the Reserve Bank recorded average revenue per panchayat of Rs 21.23 lakh in 2022-23, having stood at Rs 21.2 lakh in 2020-21 and Rs 23.2 lakh in 2021-22, of which the average panchayat’s own taxes supplied in the region of Rs 21,000. A body with an annual revenue of about twenty-one lakh rupees, almost none of it raised by its own decision, is not a government in the fiscal sense at all. It is an implementing unit with an elected head, and everything else in the devolution record, the scheme guidelines it must follow, the staff it does not command, the plans it consolidates without funding, follows from that fiscal fact as much as it causes it.

The average panchayat’s budget, read closely

Abstractions about streams and shares resolve, at the end, into one small budget, and the Reserve Bank’s consolidation permits it to be read with unusual concreteness. Take the average panchayat of the Bank’s 2022-23 figures, acknowledging that an average across 2.58 lakh bodies conceals the spread between West Bengal’s Rs 64 lakh and Andhra Pradesh’s Rs 2.7 lakh of revenue per panchayat recorded in the same report. The average body received about Rs 21.23 lakh in the year. Of that sum, its own taxes brought in about Rs 21,000, one thousand rupees for every lakh of revenue, and its non-tax receipts, fees, rents and interest, about Rs 73,000. Grants from the Union brought about Rs 17 lakh and grants from the State about Rs 3.25 lakh, with the balance from other receipts the report records. Hold that composition in mind and then ask the questions a budget is supposed to answer. What can this body decide to do that it could not otherwise do? Its discretionary margin, the untied grant share of the Finance Commission money plus its own receipts, is a sum in the low lakhs, against a village’s needs in water, sanitation, lighting, drainage and roads that run to multiples of its whole revenue. What can it promise? Nothing that requires a person, since the salaries of everyone who might execute the promise are paid from budgets it does not hold. What can it refuse? A scheme, in theory; in practice the scheme is the only money in the room, and refusal is a decision to have nothing happen in the village that year. What does it answer for? In the gram sabha, for everything visible: the broken hand pump on a State water budget, the absent nurse on a health department roster, the road sanctioned at the block and measured by an engineer it has never met. The budget of the average panchayat is the four-condition test expressed in rupees. The first condition it passes, since its functions are listed. The second it passes in part. The third it fails in composition, since nearly every rupee arrives with its purpose attached. The fourth it fails entirely, since its twenty-one lakh rupees employ, directly, almost no one. Reform proposals that do not change this budget’s composition are proposals about the decoration of the institution, and the merit of stating the position at the level of one budget is that decoration becomes impossible to mistake for the thing itself.

The scheme stream, and the plan that was supposed to discipline it

The third stream of funds, scheme money, deserves separate treatment because it is where the largest sums move and where the local body’s discretion is thinnest. A centrally sponsored scheme arrives with its objectives, its beneficiary criteria, its unit costs, its funding pattern between Union and State, its management information system and its review calendar already fixed. What is asked of the panchayat is execution: identification of beneficiaries within the criteria, supervision of works within the unit costs, and reporting within the formats. The arrangement has a rationale that its designers state plainly: a national programme with national standards cannot be renegotiated in two and a half lakh villages, and the uniformity that makes the scheme a scheme is precisely the absence of local discretion. The devolution question is therefore not why scheme money is tied, since tying is its nature, but why so much of the money for Schedule subjects moves in scheme form at all. Every rupee a State or a ministry chooses to route as a scheme is a rupee withdrawn from the deliberative sphere of the local body and placed in its executive sphere, and the choice is made afresh in each budget, which is why the tied share of a panchayat’s real resources exceeds the tied share of its Finance Commission grant and why the untied proportion of the whole, the true fiscal measure of self-government, is smaller than any single channel’s figures suggest.

Against this stands the planning counterweight the design provided: the gram panchayat development plan, prepared through the gram sabha and consolidated upward through the district planning committee, promoted nationally through the people’s plan campaigns for panchayat planning that the Union Ministry has run since 2018. The plan process asks the village to state its needs across all twenty-nine subjects in one document, on the theory that a body that plans comprehensively will gradually bend the scheme stream towards its priorities through convergence, the pooling of scheme funds at the point of delivery. Convergence is the honest word for an unresolved tension. The funds converge physically, in the same village and often on the same asset, while remaining legally distinct, each with its own guideline and its own utilisation certificate, and the panchayat’s plan functions as a wish list against which the schemes are mapped after their allocations are known. Where the State’s own transfers are substantial and untied, as in Kerala’s plan grant, the local plan is a budget and the distinction dissolves. Where they are not, the plan is a consultation document, and the resident who attends the gram sabha to approve it is participating in the one stage of the process at which nothing is decided. Measuring devolution by the existence of plans, as indices partly do, repeats at the planning stage the error the four-condition test exists to catch.

The State transfer: the stream that no index can see clearly

The Finance Commission stream is documented to the last crore because it originates in a published report. The State stream, which in aggregate is the larger part of what many panchayats receive and the whole of what the constitutional design contemplated, is documented badly, and the bad documentation is itself a finding. A State’s transfer to its local bodies is not one flow but several: the devolution recommended by the State Finance Commission and accepted, in whole or part, by the government; grants in aid voted in the budget of the panchayati raj or urban development department; the State’s share of scheme costs passed down with the schemes; salary and establishment support for transferred institutions in the States that transferred them; and discretionary grants announced for particular purposes. These flows appear under different budget heads, move at different speeds, and are reported in formats that differ between States, which is why the Reserve Bank’s 2024 report on panchayat finances, the most careful recent consolidation of the position, recorded inconsistency in the underlying data as one of its findings, and why no two official publications state the State transfer to panchayats in quite the same total.

Within that obscurity, three features are consistent enough across the States to state as the record. The first is delay as a fiscal technique. A State under cash pressure holds its releases to local bodies to the closing months of the financial year, compressing the panchayat’s working season into the quarter in which works can least well be executed and audited, and converting an annual entitlement into a year-end scramble; the ten working day rule with interest, noted earlier, disciplines the Finance Commission’s money because the Union wrote the rule into the grant’s terms, while the State’s own transfer carries no equivalent sanction and obeys the treasury’s convenience. The second feature is the conversion of devolution into patronage at the margin: where a formula recommended by a finance commission is not in force or not followed, the distribution of State grants among districts and bodies reacquires a discretionary character, and the local body’s rational response is to cultivate the department and the legislator rather than the taxpayer, an incentive examined further in the discussion of own revenue. The third feature is the salary trap in the States that did devolve institutions. A transferred school or hospital brings its salary bill with it, and where the transfer of funds follows a formula that does not track salary growth, the local body’s discretionary residue is consumed year by year by the establishment costs of services it administers but whose pay it does not set, so that a body can be, on paper, among the most devolved in India and, in its own budget, without a rupee it is free to move. Devolution of institutions without a matching revenue settlement is the transfer of a liability, and several States’ local bodies carry exactly that inheritance from the generous settlements of the 1990s.

The performance grant experiment of the Fourteenth Finance Commission belongs to this part of the record, because its conditions were addressed to the State stream’s habits. The performance share, a tenth of the panchayat envelope and a fifth of the municipal envelope, was payable against criteria that included audited accounts placed in the public domain and an improvement in the body’s own revenues. In the early years of the award a substantial part of the performance money went unclaimed, not because bodies refused it but because the conditions, simple as they read, required an accounting and audit chain that in many States did not exist at the required standard, and the money lapsed or was released late against partial compliance. The episode is the empirical foundation for the Fifteenth Commission’s redesign, which moved the accounting conditions from a performance annexure to the entry gate of the whole grant. It also stands as the cleanest evidence for a proposition the rest of this article relies on: in this field, the binding constraints are administrative before they are political, and a reform that does not build the chain of accounts, audit and staff that compliance presupposes will measure its own failure in unclaimed money.

Own revenue: the sharpest indicator, and the argument about blame

Own revenue is the indicator that resists flattery, because it measures the one fiscal act that is unmistakably the local body’s own: deciding to take money from its own residents and answer to them for it. The Reserve Bank’s January 2024 report on panchayat finances gives the rural position with precision. Across the period it studied, the own revenues of panchayats, the taxes, fees and charges they impose themselves, were only 1.1 per cent of their total revenue, non-tax revenue contributed 3.3 per cent, and around 95 per cent of everything the panchayats received arrived as grants from the levels of government above them, roughly 80 per cent from the Union and 15 per cent from the States. The urban position is better in degree and similar in structure. The Reserve Bank’s Report on Municipal Finances, published in 2022, recorded municipal revenue and municipal expenditure each at roughly 1 per cent of gross domestic product, own revenue at roughly two-fifths of the revenue of the municipal corporations it examined, and property tax, the single largest local tax instrument, at about 0.15 per cent of gross domestic product, against about 0.6 per cent in developing economies generally and about 1 per cent in developed economies. A municipal system that collects one-seventh of the property tax effort of a developed economy, in a country whose cities are its growth engines, is not under-taxing by oversight. It is under-taxing by design and by incentive, and the design half of that explanation is the half that commentary usually skips.

The skipped half begins with the constitutional text noted earlier: a local body may levy only the taxes the State law authorises, subject to the limits and procedures the State law prescribes. In State after State the authorisation is narrow and the limits are low. The taxes available to a gram panchayat are commonly a house or property tax, a profession tax where the State assigns it, fees for fairs, markets, slaughterhouses and water, and a scattering of minor cesses, with rates fixed in schedules to the State Act or in rules the panchayat cannot amend, and with exemptions the panchayat did not choose. Revision of rates, where the power exists at all, frequently requires the approval of a State officer. The State Finance Commissions have recommended wider tax domains and periodic revision for three decades, and the Fifteenth Finance Commission’s decision to make the notification of property tax floor rates a condition of urban grants was an attempt, from outside the State entirely, to break the pattern of rates left unrevised for years because no elected State government wishes to be the author of a local tax increase either. A body that cannot set its own rates cannot be blamed for its own revenue in any simple way, and the familiar criticism that panchayats and municipalities will not tax is, in its usual form, an accusation against the wrong legislature.

The other half of the explanation is real and should not be argued away. Where local bodies do hold rate-setting and collection powers, the record shows hesitation that is plainly their own: councils that leave assessments unrevised across a whole term, collections pursued at a fraction of demand, and a widespread preference for spending grant money, for which no resident sends a bill of complaint, over raising local money, for which every resident does. The incentives are intelligible. A sarpanch or a mayor taxes neighbours, faces them at the next election, and gains a sum too small to transform services, while the grants that dwarf the local tax arrive whether or not the effort is made. The two halves combine into the position the evidence supports: the ceiling on own revenue is set by State law and is low, and beneath that ceiling the effort made is also low, so that reform addressed to only one half, exhortation to the local bodies or enlargement of their tax domain alone, has a documented history of disappointing its authors. The indicator matters for a further reason. Own revenue is the only money that arrives without a guideline attached, which is why the panchayat that raises even a modest share of its receipts locally is making decisions of a different character from the panchayat that spends only transfers, and why the 1.1 per cent figure is not a footnote to the devolution record but its summary.

A reader who wants to test a State’s transfer against these generalisations has to find it in the State’s budget documents, and the exercise is a small education in the subject itself. The Finance Commission’s grants are visible in the Union’s documents and in the State budget’s receipts under the head for grants in aid, with the onward transfer to local bodies appearing in the expenditure of the panchayati raj and urban development departments. The State’s own devolution is harder to isolate, because it is distributed across the budgets of the departments whose functions overlap the Schedules: the rural development department’s grants to panchayats, the education and health departments’ establishment expenditure on institutions the local bodies are said to control, the water supply department’s capital works in villages whose water function stands devolved. A figure for total resources reaching local bodies assembled from those heads will mix devolution with departmental spending in local territory, and the two are different things: a department’s school built in a village is expenditure in the village, not a resource of the panchayat, and counting it as devolution is the budgetary form of the error the four-condition test exists to prevent. The disciplined reader counts only what passes into accounts the local body operates, separates the salary of transferred staff from the discretionary residue for the reason the salary trap discussion gives, and treats any single published total for a State’s devolution with the question the index sections taught: what, exactly, does this number count. State budgets were not designed to answer that question, and the State Finance Commission exists, in large part, because nothing else in the fiscal machinery is charged with answering it.

The shrinking tax domain: what the GST settlement took away

The argument about blame requires one correction from the fiscal history, because the local tax domain has not merely been left narrow by State inaction. It has been narrowed from above, twice, by reforms whose merits lay elsewhere. The first narrowing was the abolition of octroi, the levy on the entry of goods into a municipal area that was, for all its obstruction and corruption at the check post, the most buoyant own revenue the larger municipalities possessed; State after State abolished it in favour of compensating grants or substitute levies of weaker yield, converting an own tax collected at the city’s gate into a transfer negotiated with the State’s finance department. The second narrowing was the goods and services tax settlement of 2016, under which taxes levied by local bodies, including entry tax and the entertainment tax levied by panchayats and municipalities, were subsumed into the new tax, leaving advertisement tax among the few local levies of any significance outside the GST, and compensating local bodies, where compensation came, through the State’s share rather than through any local handle on the tax base. Neither reform was aimed at local government, and both can be defended on their own ground of an unobstructed common market. Their combined effect on the devolution ledger is a fact of the record all the same: the own revenue indicator, against which local bodies are judged and found wanting, is measured on a domain that national fiscal policy has been contracting for a generation, and a panchayat or municipality seeking to raise its own share must do so with the instruments that remain, property tax above all, whose rates the State controls. The Fifteenth Finance Commission’s property tax floor condition, read against this history, is an attempt to defend the last substantial handle by the only means available to a grant maker, and its modesty is the measure of how far the fiscal centre of gravity has moved from the local body the Constitution describes.

The urban mirror: municipalities and the parastatal city

Everything said so far about the rural bodies has an urban counterpart with the same structure and a worse staffing settlement, and the brief’s territory covers both. The Twelfth Schedule lists eighteen matters for municipalities, from urban planning and water supply to public health and slum improvement, on the same permissive terms as the rural list. In the large cities, however, the functions were never the municipality’s to await: they were already occupied, before the Seventy-fourth Amendment and long after it, by parastatal agencies of the State. The development authority plans the city’s land and often develops it, in the capital’s case under a board answerable to the Union. The water board supplies water and sewerage across the municipal area. The transport undertaking runs the buses. The housing board builds the housing. These bodies are chaired and staffed through the State administration, their budgets do not pass through the municipal council, and their accountability runs upward to the State government that appoints them. The elected council, which the Constitution addresses as the institution of self-government for the city, is left with the functions no parastatal wanted: conservancy in part, local roads, street lighting, markets, burial grounds, and the taxation that pays for a fraction of them. Where the panchayat’s problem is a function listed for it and performed by a department, the municipality’s problem is a function listed for it and performed by another public body altogether, one whose existence predates the amendment and whose directors the council does not choose.

The metropolitan end of the structure shows the same preference at the planning stage. The Constitution requires a Metropolitan Planning Committee in every metropolitan area to prepare a draft development plan, with a majority of its members elected from among the municipalities and panchayats of the area. In most metropolitan areas the committee was constituted late, or meets rarely, or coexists with a development authority whose plan is the operative one, so that the constitutional device for giving elected local government the planning function in the largest urban concentrations is, in the generality of cases, a device on paper. At the other end of the urban scale, the ward committee, required in municipalities above a population of three lakh as the tier of self-government nearest the resident, has in most cities remained a nominated formality or has not been constituted with any function worth the name. The urban record thus repeats the rural one with a characteristic inversion: the rural bodies were given functions on paper that departments perform, while the urban bodies were given paper over functions that specialised agencies had already annexed, and in neither case did the annexation reverse.

The fiscal mirror is exact. Municipal own revenue, at roughly two-fifths of receipts in the Reserve Bank’s 2022 assessment, is healthier than the panchayat position by an order of magnitude and still leaves the city dependent on transfers for the majority of its spending, with property tax unrevised and under-collected for the reasons given earlier. Successive Union Finance Commissions have tried to use urban grants to purchase the reforms the States would not legislate, the property tax floor notification and the service level benchmarks of the Fifteenth Commission being the sharpest instance, and the urban sanitation and solid waste functions listed in the Twelfth Schedule illustrate the resulting posture from the resident’s side: urban sanitation and waste in India is a function the Schedule assigns to municipalities, whose mission money still flows through State missions and whose technical staff sit in parastatal and departmental establishments, so that the council answers for the garbage on the street with neither the fleet nor the engineers under its command. A mayor and a sarpanch, comparing positions, would recognise each other’s predicament at once: the blame is local, the levers are not.

Functionaries: the third F, and the one that decides the other two

Ask who works for a panchayat and the answer, across most of India, is: almost nobody. The gram panchayat typically has a secretary, in many States a single secretary responsible for more than one panchayat, sometimes a part-time assistant, and access to staff it does not employ. The school teacher in the village school is an employee of the State education department or of a district-level body within its discipline. The nurse and the auxiliary nurse midwife in the health sub-centre belong to the health department. The engineer who must certify the panchayat’s works sits in the block or district office of a department or of the panchayat samiti’s engineering cell under departmental control. The gram rozgar sahayak who runs the employment guarantee’s records at village level is engaged for the scheme. Each of these people works inside the panchayat’s territory, on subjects listed in the Eleventh Schedule as the panchayat’s, and answers for posting, transfer, leave, discipline and promotion to a hierarchy that is not the panchayat’s. The elected body is then held responsible, by residents and by its critics, for services delivered by people it cannot direct, reward or remove. Responsibility without command is the everyday constitutional position of the Indian panchayat, and it is produced not by any single decision but by the accumulated staffing orders that never accompanied the transfer of functions.

Kerala’s exception is instructive precisely because it was a staffing decision. The People’s Plan Campaign launched in August 1996 devolved between 35 and 40 per cent of the State’s plan outlay to the local self-government institutions, a share without parallel in the country, and the transfer of money was accompanied by a transfer of institutions: schools, hospitals and other establishments were placed under the local bodies, and the staff working in them came under the local bodies’ administrative control to a degree that most States withheld, with departmental hierarchies retaining technical supervision rather than the whole of command. Karnataka, which led the 2024 devolution ranking on the strength among other things of its finances and accountability arrangements, similarly built its position over decades of State legislation rather than by a single order. The contrast yields the general proposition: States that devolved staff, in whatever measure, have local bodies that residents treat as governments, and States that devolved only functions and funds have local bodies that residents treat as contractors of the departments. The devolution indices record the difference without quite naming it, since the functionaries dimension in the Indian Institute of Public Administration’s 2024 edition, led by Gujarat, still returned the lowest scores of the six dimensions in most States even after rising across the decade.

Two States complicate the picture in a way the argument must absorb, because they show the staffing question being settled inside the panchayat system itself. Maharashtra and Gujarat inherited and retained district services: classes of employees who are employees of the district and taluka panchayats as such, recruited through the panchayat service selection machinery, transferable within the district’s panchayat establishment, and promoted within it. The primary teacher in a Maharashtra zila parishad school is, in consequence, the parishad’s own employee in a sense that has no counterpart in a State where every teacher is a member of the State education service on posting to a village. The arrangement demonstrates that the cadre objection, while genuine, is a design problem with working solutions at district scale: a service large enough to hold a career, local enough to answer to the elected body. It also demonstrates the limits of inheritance, since the district services cover the staff the old district boards employed and extend only as far as each State’s subsequent choices carried them, and the States that lacked the inheritance have shown little appetite for creating district services from nothing. The contrast sharpens the article’s central claim. The obstacle to functionaries is not that a local service cannot be constituted under Indian conditions. Two of the largest States have run one for decades. The obstacle is that constituting one requires a State legislature to vote its own administrative class into a smaller jurisdiction, and that vote, unlike the listing of functions, is a real transfer of power.

Why do State governments resist transferring staff to panchayats?

The resistance is not mere possessiveness, and its strongest form deserves statement. A State service is a career, with recruitment on merit through a common process, promotion by seniority and assessment, and protection under service rules, and a transfer of staff to local bodies puts that career structure in question at every point.

Break the cadre into fragments answerable to some two and a half lakh village bodies, the argument runs, and recruitment quality, career progression, specialised supervision and the very idea of a professional service dissolve. A block-level engineer or a medical officer cannot build a career inside institutions too small to promote them, transfers between postings protect an officer from becoming the captive of one locality, and discipline under service rules is a legal proceeding rather than a political act; fragment the service and local political pressure on postings and discipline would reproduce at village scale every pathology that cadre systems exist to prevent. No State has solved these problems, and Kerala itself retained departmental control over much technical supervision rather than pretend otherwise.

The counter-position is equally concrete. Capacity is not a precondition that a local body either has or lacks before functions arrive; it is an output of exercising functions under supervision, and the States that devolved earliest are the States whose local capacity is strongest, which suggests the arrow of causation runs from responsibility to capacity and not only the other way. Withholding staff until capacity appears is therefore self-fulfilling: it guarantees the absence of the experience by which capacity forms. The middle arrangements are known and practised in places: deputation of department staff to the local body with dual control, the department retaining cadre and discipline while the local body records performance and controls day-to-day work; transfer of institutions with their staff while technical standards remain departmental; and district cadres for services that need a career ladder wider than one panchayat. What the record does not support is the comfortable conclusion that the staffing question can be postponed indefinitely while functions and funds are proclaimed transferred. A function performed by staff answerable elsewhere is, for the resident, the department’s function delivered in the village. It becomes the panchayat’s function on the day the panchayat can say no to the person performing it, and on the evidence of three decades, that day has been reached in a minority of States and for a minority of services.

State Finance Commissions: a mandatory mechanism that runs late

If the staffing question is the least discussed part of the record, the State Finance Commission is the most quietly disobeyed. The constitutional requirement is not ambiguous: a commission must be constituted within one year of the commencement of the Seventy-third Amendment and thereafter at the expiration of every fifth year, it must review the financial position of the panchayats and the municipalities, and its recommendations, together with an explanatory memorandum of the action taken, must be laid before the State Legislature. The provision is mandatory in terms, it costs little to obey, and it has been breached in State after State as a matter of routine: commissions constituted years after the due date, reports submitted late in the cycle they were meant to inform, action taken reports tabled later still or not at all, and recommendations accepted in part, in diluted form, or left without a decision. Successive Union Finance Commissions have recorded the consequences from their side of the table: the Union Commission is charged with building its local body recommendations on the State Commission’s work, and has repeatedly found the State reports unavailable, out of cycle, or unactioned when its own award was framed, so that the constitutional chain from State Finance Commission to Union Finance Commission operates, in many States, with its first link missing. The Reserve Bank’s 2024 report on panchayat finances made the same point from the evidence of receipts, urging that the prompt constitution of the commissions assumes importance precisely because the delays are sizeable and habitual.

The consequences are distributive, not merely procedural. Where a State Finance Commission has reported and been acted on, the division of transfers among gram, block and district panchayats, and between rural and urban bodies, follows a published formula that a panchayat can read and plan against. Where it has not, the Fourteenth Finance Commission’s design supplied a default, distribution by population and area, and the transfers arrive as budgetary discretion, variable with the State’s finances and its politics. Litigation has been the citizen’s remedy for the default, and courts have in writ proceedings directed State governments to constitute their finance commissions and to place the reports and action taken memoranda before their legislatures, treating the obligation as the mandatory duty its text declares it to be. But a direction to constitute a commission is a direction to start a process whose report the government may still dilute, which is why the more consequential intervention came from the Fifteenth Finance Commission itself: it made the constitution of the State Finance Commission, action on its recommendations, and the laying of the action taken report before the legislature a condition of local body grants, providing that grants would not be released to a State in default after March 2024. For the first time, a breach of the mandatory provision carried a price denominated in money the State wanted. The device is examined as conditionality below; here it is enough to note what its necessity confesses, that a constitutional command addressed to State governments on the finances of their own local bodies went unenforced for a quarter of a century by every ordinary mechanism of compliance.

It is worth setting out what the mechanism looks like when it works, because the working form exposes the failing one by contrast. A commission constituted on time assembles its data while the preceding award still has years to run, consults the panchayats and municipalities whose finances it reviews, and reports early enough for its recommendations to be debated, accepted or rejected with reasons recorded in the action taken memorandum, laid before the legislature, and available to the Union Finance Commission when that body frames the local body chapter of its own award. Each stage has a date implied by the design: constitution five years after the last, the report within the commission’s working life rather than after it, the action taken memorandum following within the period the legislature’s rules and practice allow, and the whole cycle synchronised so that the State’s settlement informs the Union’s rather than trails it. The record’s failure is a failure of these dates in sequence, and its consequence is cumulative: a late commission borrows stale data, a delayed report meets a changed government, a tabled memorandum without debate leaves acceptance ambiguous, and the Union Commission, arriving to find no operative State settlement, falls back on population and area, the two facts that need no commission to establish. The States that run the cycle on time, and they exist, are recognisable in the data before they are recognisable in the rankings, because their transfers arrive by formula and their panchayats budget against entitlements rather than expectations. The mechanism was designed as the fiscal constitution of local government. Where it is honoured, devolution has a calendar. Where it is not, devolution has announcements.

The missing ledger: what the State does not know about its own panchayats

A recurrent embarrassment runs beneath every section of this record: the Indian State cannot say, within any tolerable margin, how much money its local bodies receive, spend and raise. The Union Finance Commissions have recorded the deficiency in successive reports, noting that the absence of reliable, comparable data on local finances compelled them to construct estimates from State budgets and samples, and the Reserve Bank’s 2024 consolidation, which assembled figures for some 2.58 lakh panchayats, presented its tables with the caution that the underlying reporting was inconsistent across States and years. The deficiency has a structure. A panchayat’s receipts arrive from many sources through many channels, its accounts are maintained, where they are maintained, by a secretary serving several villages, its audit trails years behind, and its State government’s own consolidation depends on returns the districts compile unevenly. The State Finance Commission, the body charged with reviewing this position every five years, typically works without a data cell of its own, borrowing figures from the departments whose transfers it is meant to evaluate. Recommendations built on borrowed data carry borrowed authority, and governments disposed to dilute a commission’s report have rarely lacked for technical objections to its arithmetic.

The data question belongs in an account of devolution because measurement here is not a scholarly luxury but a working part of the machinery of transfer. A formula cannot distribute what cannot be counted. A grant condition cannot reward own revenue effort that is not recorded. An index cannot score finances from returns that do not exist, which is why the finance dimension of every devolution index leans on the existence of transfers rather than their composition, and why the four-condition test of this article directs the reader to documents, the activity map, the budget head, the staffing order and the action taken report, that either exist in inspectable form or betray their absence at once. The slow construction of the digital ledger, accounts on a common platform, audits on a common application, plans in a common format, is therefore more than an administrative fashion. It is the first attempt to give the local government system a memory, and its completion would change the evidentiary basis of every argument in this article, including the arguments of this article’s critics, which is the proper test of an improvement in measurement.

Accounts and audit: the infrastructure nobody campaigns on

Devolution runs on paper of a particular kind, and the condition of that paper explains more of the record than any speech about empowerment. A panchayat that cannot produce accounts cannot receive performance money, cannot be audited, cannot demonstrate a need, and cannot defend its sarpanch when the works are questioned. The accounting architecture was standardised late: the Ministry of Panchayati Raj, with the technical guidance of the Comptroller and Auditor General, prescribed a model accounting system for panchayats in 2009, with formats and codes meant to make a gram panchayat’s books legible to an auditor and comparable across States, and the Thirteenth Finance Commission’s conditions pressed the States to adopt them. Audit itself is performed in most States by the local fund audit organisation of the State government, the examiner of local fund accounts and the audit departments descended from that office, working to inspection cycles that have historically run years behind the accounts they examine, with the Comptroller and Auditor General exercising technical guidance and supervision over the arrangements and auditing the larger municipalities and a sample of the rest. The arrears are not a detail. An audit that reaches a panchayat three years after the expenditure certifies a past that nobody can correct, and the action taken on audit paragraphs, by bodies that have often changed composition since the expenditure, decays into correspondence.

The Fifteenth Finance Commission’s conditions were aimed at this layer, and their operation is the part of the conditionality story with measurable results. Rural bodies were required to maintain accounts on the eGramSwaraj platform, the Ministry’s integrated system for planning, accounting and payments launched in 2020, and to have audits conducted through the AuditOnline application, so that provisional and audited accounts for successive years became a condition of grant release; the Ministry’s reporting on the award period recorded adoption at a scale no circular had achieved, with the great majority of gram panchayats preparing their development plans on the platform and closing their annual accounts within it. Two readings of that achievement are possible and both are true. On one, the digitisation of the account is the foundation on which everything else must stand, and the grant conditions did in five years what the model accounting system could not do in ten. On the other, a portal records what it is fed, and the gap between an account closed on a platform and an account that a gram sabha has interrogated remains the gap between the accountability the index measures and the accountability the resident experiences. The measurement problem of the earlier sections reappears at the foundation: the account is the first of the paper instruments, and like the others it is necessary, verifiable, and not the thing itself.

Parallel bodies: the road around the elected body

A government that finds the elected local body slow, inexpert or politically inconvenient has an alternative that Indian administration has used for forty years: create a body that is not the local body, fund it directly, and give it the function. The district rural development agency is the type specimen. Created from 1980 onwards as a registered society at the district level to administer the anti-poverty programmes of the period, chaired through the district administration and staffed by deputed officers, the agency handled rural development funds of a scale rivalling the district panchayat’s while standing outside the elected structure altogether. Reform proposals and some State practice moved in time to merge the agencies into the zila parishads or wind them up as separate entities, but the institutional reflex survived the particular body: mission societies for health and for elementary education, implementation agencies for watershed and housing programmes, and district-level trusts, each with its own governing board, its own bank account, its own staff on contract, and its own reporting line to the sponsoring department or ministry. The District Mineral Foundation Trusts, established under the amendment of 2015 to the mines and minerals legislation to spend a share of mining royalties in mining-affected areas, are a later instance of the same design: considerable money, a real local purpose, a district administration in charge, and the elected district body at best a guest in a structure operating in its own territory.

What happens to parallel bodies when their programmes end?

Some are merged into the elected structure, some are wound up, and many simply persist. The District Rural Development Agencies were merged with the zila parishads or closed as separate entities in a number of States once their founding programmes changed form, while mission societies and trusts created for later programmes continue beside the panchayats.

The agency itself deserves a definition, since it is the type specimen of the form. A District Rural Development Agency was a society registered under the societies legislation in each district, created from 1980 to implement the Integrated Rural Development Programme and the rural anti-poverty schemes that followed it. Funds from the Union and the State flowed to the agency rather than to the district panchayat, its officers were government staff on deputation, and its governing body was chaired through the district administration. It was called a parallel body because it performed, in parallel and in competition, the development functions that the Constitution’s design assigned to the elected panchayats, drawing to itself the money, the staff and the administrative attention while the zila parishad in the same district headquarters deliberated without a budget of comparable size.

The case for parallel bodies is rarely stated by their defenders in those terms, but it has a substance that an honest account records. A mission structure can hire on contract, procure quickly, be audited against a single programme’s targets, and be wound up when the programme ends; routing the same money through bodies of uneven capacity, some of which cannot maintain accounts to audit standard, risks the programme itself, and a minister answerable for a national target will choose the channel that reports to the ministry. The cost of the choice is constitutional rather than administrative. Every function routed around the local body is a function the local body cannot learn by doing, every contract staff member in a mission office is a functionary the staffing settlement never has to confront, and the grants and schemes examined in this article, for all their conditions about accounts and commissions, leave the parallel channel untouched. The centrally sponsored schemes illustrate the equilibrium: the employment guarantee is implemented through the panchayats by statute, and its village-level record is the stronger for it, while the health mission’s societies and the education mission’s structures operate beside the panchayats on subjects the Eleventh Schedule lists for them. Devolution measured in functions will count the subjects as the panchayats’. Devolution experienced by the resident will record that the money for them arrived in the care of somebody else.

Conditional grants: the Union’s lever on a State subject

Local government is a State subject, and the Union cannot legislate a panchayat into competence. What the Union can do, and through the Finance Commission route has learned to do with increasing precision, is attach conditions to money. The Fifteenth Finance Commission’s award is the fullest exercise of the lever to date, and its conditions repay listing because they disclose what the Union judged to be the binding failures. For rural bodies, accounts were to be maintained online and made public, provisional accounts for the preceding year and audited accounts for the year before that being the entry-level expectation, with the audit pushed onto a common platform. For urban bodies, the entry conditions added the notification of floor rates for property tax, aimed at the unrevised rate schedules described earlier, and for the million-plus cities a performance share depended on meeting benchmarks for air quality, drinking water, sanitation and solid waste management. Across both, the State Finance Commission condition stood behind the whole structure: a State that had not constituted its commission, acted on its recommendations and laid the action taken report before its legislature faced the stoppage of grants after March 2024. The Commission defended conditions of this kind as the minimum governance floor beneath a transfer of this size, the assurance that money routed to a quarter of a million bodies would at least be accounted for. The account in this section is a general description of that architecture; the grant position of any individual panchayat or municipality turns on its own State law and the award in force for it, which are matters for advice on that body’s records.

The assessment has to be made on evidence, and the evidence supports two propositions that sit in tension. The first is that the conditions worked on the things they measured. Accounts moved online at a pace that decades of exhortation had not produced, because the money depended on it. States constituted their finance commissions against the March 2024 deadline for the same reason. Conditionality, applied to verifiable administrative acts, is a real instrument, and its success here is the clearest demonstration in the devolution record that State behaviour responds to the price attached to default. The second proposition is the known limitation of every such instrument, that behaviour bends towards the condition measured. An accounts portal condition produces accounts on a portal; it does not produce a panchayat that decides. A property tax floor produces a notified floor; it does not by itself produce a collection. And the deepest items of the devolution deficit, the transfer of functionaries and the enlargement of the untied share, were not conditions of the award at all, because they are not verifiable administrative acts a grant guideline can specify. The conditional grant is thus best understood as an instrument that has raised the floor of the system, the accounting, auditing and commission-constituting floor, while leaving its ceiling, the sphere of genuine local decision, exactly where the States choose to put it. That is a genuine innovation with a genuine limit, and both halves belong in any verdict on it.

The architecture has outlived the award that built it. The Sixteenth Finance Commission, whose award period runs from the year 2026, carried the design forward in recognisable form: grants to local bodies divided between a basic component of 80 per cent and a performance component of 20 per cent, payable on conditions that repeat the Fifteenth Commission’s entry expectations, the due constitution of the local bodies, the publication of provisional and audited accounts, and the establishment of the State Finance Commission at the appropriate time. The continuity matters more than the proportions. A device used by two successive commissions, framed by different memberships a decade apart, has ceased to be an experiment and has become the settled technique by which the Union conducts its side of the devolution settlement, and State governments framing their own settlements must reckon with conditions as a permanent feature of the fiscal landscape rather than as one commission’s preference. Whether the technique’s reach extends in time from the accounting floor to the staffing ceiling is the open question with which the conditionality experiment stands.

One component of the Fifteenth Commission’s award shows the lever being used to build capacity rather than merely to police it, and it belongs in the assessment. Within the total of Rs 4,36,361 crore, the Commission routed grants of Rs 70,051 crore for the health sector through local bodies over its award period, directed at the infrastructure of primary care, diagnostic facilities and block level public health units, on the reasoning that the buildings and services of primary health are the local bodies’ listed business and that money for them should strengthen the institutions rather than a parallel departmental chain. The design is the conditionality philosophy at its most constructive, using the grant to create the establishment whose absence the functionaries argument laments. Its limits are the same argument’s other half: buildings and equipment arrive on the grant’s schedule, while the doctors and technicians who make them a health service remain to be posted by the health department on its own, which is why the health component, like the transferred hospitals of Kerala before it, will be judged in the end at the fourth condition of the test.

The courts police the mandatory shell, and cannot reach the permissive core

Litigation runs through the devolution record at the points where the Constitution speaks in commands, and its pattern confirms the design described at the outset. Elections are mandatory, and the courts have enforced them without equivocation. In Kishansing Tomar v. Municipal Corporation of the City of Ahmedabad, reported at (2006) 8 SCC 352, a Constitution Bench of the Supreme Court held that the State Election Commission must complete elections before the expiry of the local body’s term, that the Commission functions independently of the State government in this duty, and that pending processes such as delimitation or the revision of electoral rolls furnish no excuse for allowing the term to lapse. Reservation in local bodies is mandatory in structure and has been policed for its limits: in Dr. K. Krishnamurthy v. Union of India, reported at (2010) 7 SCC 202, the Court sustained reservation for backward classes in local bodies while holding it subject to the ceiling of 50 per cent and to the existence of an empirical basis. When States pleaded their incomplete empirical exercises as a reason to let election deadlines pass, the Court in Vikas Kishanrao Gawali v. State of Maharashtra, reported at (2021) 6 SCC 73, prescribed the triple test for reservation for other backward classes in local bodies, a dedicated commission’s empirical inquiry, specification of the proportion required, and observance of the aggregate ceiling, and in Suresh Mahajan v. State of Madhya Pradesh in 2022 it directed the State Election Commission to notify and conduct the elections rather than hold them hostage to an unfinished test. The thread is consistent: where the text fixes a duty and a date, the judiciary can and does direct compliance, and the mandatory shell of Parts Nine and Nine A, elections held, seats reserved within the ceiling, commissions at least constituted under the spur of litigation or of grant conditions, is the part of the design that works.

The permissive core lies beyond that reach, and the reason is doctrinal rather than timid. A court cannot direct a legislature to exercise a power the Constitution frames as a liberty. The endowment of panchayats with powers and authority is something the State Legislature may do; no writ issues to compel the content of a permissive endowment, and a bench that prescribed which of the twenty-nine subjects must carry staff would be legislating the devolution settlement itself. The litigation record therefore teaches a precise lesson about the limits of legalism in this field. Everything in the devolution deficit that is justiciable has been, over three decades, substantially litigated into compliance. What remains unreformed, the functions without funds, the funds without discretion, the services without answerable staff, remains because it is located in the zone the Constitution left to politics. Readers who approach the record expecting a judgment to complete the work of the Seventy-third Amendment will be disappointed by the cases and instructed by them: the courts have delivered the shell on time, and the shell was never the part that was missing.

A connected weakness in the mandatory shell deserves record, because it shows dependence operating even where the Constitution speaks in commands. The State Election Commission is a constitutional authority, and its commissioner holds a tenure protected on the pattern of a High Court judge, removable in like manner and on like grounds. The Commission’s machinery, however, is borrowed: its staff are State government employees, its budget is voted by the State whose elections it conducts, and its conduct of an election depends on the State administration for police, premises and personnel. The Supreme Court’s directions in the cases described in this section have repeatedly had to bridge the distance between the Commission’s constitutional status and its administrative dependence, instructing State governments that the Commission’s requirements for an election are not requests to be weighed against convenience. The pattern is the devolution problem in miniature and within the mandatory zone itself: an institution endowed with authority on paper, dependent for its operation on the very government it exists to check, and rescued periodically by litigation rather than by settlement. It is the strongest available evidence that the gap between provision and practice in this field is not a defect of drafting enthusiasm but a settled administrative habit, which constitutional text alone, even mandatory text, has not broken.

Capacity: what training can repair, and what it cannot

One component of the deficit is neither money nor staff but skill: elected representatives, many in office for the first time, and panchayat secretaries carrying several villages are asked to plan, procure, account and answer audit for sums that would test a trained administrator. The Union’s principal response is the Rashtriya Gram Swaraj Abhiyan, launched in 2018 to build the capacity of panchayati raj institutions through training of representatives and functionaries, support to training institutions, and the digital systems through which panchayats plan and account, and revamped from the year 2022-23 with a dedicated module on own source revenue developed with academic support. The Indian Institute of Public Administration’s 2024 devolution edition credited the scheme with lifting the capacity enhancement dimension of its index from 44 to 54.6 across the period assessed, the largest movement of any dimension, which is consistent with capacity being the variable most responsive to expenditure.

What is the Rashtriya Gram Swaraj Abhiyan trying to repair?

The Rashtriya Gram Swaraj Abhiyan is the Union Ministry of Panchayati Raj’s capacity building programme for panchayati raj institutions, launched in 2018 and revamped in 2022. It funds the training of elected representatives and panchayat functionaries and strengthens the State and district training institutions that deliver that training.

What it is trying to repair is the competence gap: the distance between the responsibilities the law assigns a panchayat and the skills available to the small number of people who must actually discharge them, from preparing a plan and a budget to keeping accounts that will survive audit. The digital platforms on which panchayats plan, account and report are part of the same repair, since competence in the system is exercised through them.

The honest limit of the capacity approach is the same as the limit of the index that measures its progress. Training improves the performance of a body within the authority it holds; it does not enlarge that authority. A secretary trained to keep impeccable accounts for funds she cannot allocate, and a sarpanch trained in planning for subjects whose staff he cannot direct, are better equipped occupants of an unchanged position. Capacity building is a necessary complement to devolution and a documented success on its own terms. Offered as a substitute for devolution, as it sometimes is in the sequencing argument that local bodies must first demonstrate capacity, it encounters the objection recorded in the staffing discussion: the capacity being demanded as a precondition is, in the States that devolved earliest, visibly the product of the devolution itself.

Devolved on paper, devolved in fact: the four-condition test applied

The instrument this article has used throughout can be stated as a table and applied. For any subject in either Schedule, and for any State, four questions are asked in order: whether the function appears in the State statute for that tier; whether activity mapping has assigned the activities within it tier by tier; whether a budget line accompanies it carrying funds the local body can in substance direct; and whether the staff performing it answer to the local body. The table applies the test to Kerala, the best-documented case in the country and the State whose devolution effort is the standard against which others are described, for six subjects from the Eleventh Schedule. Its entries summarise the position analysed in the preceding sections.

Eleventh Schedule subject, as devolved in Kerala	In the State statute	Activity mapping assigned	Budget line with funds the body can direct	Staff answer to the local body	Genuinely devolved
Drinking water	Yes	Yes	Partly: local schemes funded; major supply remains with the State water authority	No: the Kerala Water Authority, a State parastatal, runs the major schemes	No
Health and sanitation, including hospitals and dispensaries	Yes	Yes	Yes: institutions transferred with plan funds	Partly: institutions and their staff placed under local bodies, technical supervision retained by the department	No, and the nearest approach in the country
Education, including primary and secondary schools	Yes	Yes	Partly: buildings and oversight funded locally; salaries borne by the State	Partly: schools transferred; teachers remain members of the State service	No
Rural housing	Yes	Yes	Yes: a major head of local plan spending	Partly: execution rests with local staff and beneficiary committees	No
Agriculture, including agricultural extension	Yes	Yes	Partly: local plan funds for allied activities	No: extension staff belong to the agriculture department	No
Minor roads and bridges	Yes	Yes	Yes: a standing head of local works spending	Partly: works executed locally, technical sanction retained by engineers outside the body	No

Read the table in the direction the argument predicts. The first two columns are complete, because paper is cheap and Kerala did the paper thoroughly. The third column is strong where the plan grant reached, which is the People’s Plan’s real legacy. The fourth column never completes, because the staffing settlement stopped at the threshold every State has stopped at: supervision, dual control and institutional transfer without a wholesale re-founding of who employs the server of the service. In the generality of States, where plan devolution was never attempted on Kerala’s scale, the third column weakens to tied scheme money and the second is often a formality, so that the typical subject in the typical State scores one condition of four while standing in the State Act as devolved. That divergence, and not any dispute about the sincerity of the amendments, is the explanation of the gap between the index literature and the resident’s experience with which this article began.

The test has practical uses, which are the reader payloads this subject carries. An elected representative or local official confronting a department that announces a devolution should ask, in order, for the activity map for the subject, for the budget head and the untied proportion within it, for the action taken report on the last State Finance Commission recommendations touching it, and for the staffing order that says who answers to the panchayat; the first refusal in that sequence identifies the layer at which the announced devolution stops. A journalist handed a devolution ranking should print the edition, the institution and the year beside the score, should say which dimension the score rewards, and should decline to convert a framework ranking into a claim about services; the 2024 edition’s own distribution of dimension leaders, five different States across six dimensions, is the standing warning against the single-number story. A researcher should treat any devolution figure that does not specify its four conditions as measuring the first of them.

A comparative check: devolution written into a statute, and what it did differently

Template discipline requires the comparison, and the natural comparator is close at hand. The employment guarantee statute of 2005 did by legislation what the amendments left to State discretion: it wrote the panchayats into the operative text, assigning the gram sabha the recommendation of works and the conduct of social audits, the gram panchayat a defined share of execution, and the intermediate and district panchayats specified planning and monitoring roles, with a programme officer and a district programme coordinator named in the Act itself. The consequence is visible in the contrast of records. Where the constitutional text merely permitted, the devolution of water supply or agricultural extension advanced at the speed of State inclination. Where a single statute commanded a role for the local body, funded it from a dedicated stream, and built its audit around the gram sabha, the role existed in every State from the commencement of the programme, whatever the local enthusiasm. The comparison is not offered to praise that programme’s whole record, whose implementation questions belong to their own article, but to isolate the variable the comparison controls for. The States, the staff, the audit capacity and the politics are the same in both stories. The legal technique is different: in one, the local body’s place is an enabling sentence addressed to a legislature that may ignore it; in the other, it is an operative provision that a scheme cannot lawfully bypass. Devolution in India has failed, where it has failed, at the drafting table of the permissive clause rather than in the village, and the remedy the comparison suggests is equally specific. The subjects in the Schedules will be devolved in fact when the instruments that govern them, scheme guidelines, staffing orders, budget manuals, are written with the local body in the operative position, as one statute demonstrated a legislature can do when it intends the result.

What a State that intends devolution does first

The record permits the sequencing question to be answered with unusual confidence, because every ordering has been tried somewhere and the failures are as instructive as the successes. Listing functions first, the ordering most States chose, produces a statute that satisfies every framework index and changes nothing in the village. Moving money first, in tied scheme form, produces activity without authority and audits without accountability. Building capacity first, the ordering embedded in the sequencing argument, produces trained occupants of unchanged offices. The settlements that altered the lived position share a different first move: they settled the answerability of people. Kerala transferred institutions with their staff and let the plan money follow the establishments. Maharashtra and Gujarat began, by inheritance, with services of the panchayats’ own. Karnataka built its district tier around an executive with a defined relationship to the elected body and honoured the finance commission rhythm that makes transfers predictable. None of these settlements is complete, and the table in this article records Kerala failing its own fourth condition in most subjects. But the direction of travel in each begins from the proposition the index literature states least often: a local body becomes a government on the day it can direct the people who serve its residents, and funds, functions and training acquire their meaning from that day forward. A State government drafting its next devolution order, and a Union ministry drafting its next grant condition, will find the staff question waiting at the head of the queue whichever document they open first.

The verdict the record supports

Three conclusions survive the evidence. The first is that the devolution that has occurred in India is real but stratified: elections and representation were delivered in full because they were mandatory and justiciable; functions were delivered on paper because listing them costs a State nothing; funds were delivered in growing volume because the Finance Commission route allowed the Union to purchase local delivery of national priorities; and functionaries were delivered least because their transfer alone requires a State to surrender command over its own administrative machinery, which is the substance of governing. The second conclusion is that the instruments of correction have so far reached the layers that are measurable: conditional grants have repaired accounts, audit and the constitution of finance commissions, and index exercises have made the variation between States impossible to deny, while the layer that decides the resident’s experience, the answerability of staff, has no index of comparable force and no condition of comparable price attached to it. The third is the verdict on sequence. The argument that local bodies must earn devolution by demonstrating capacity, advanced in good faith by State administrations managing real cadre problems, has had thirty years to produce its evidence and has produced Kerala’s opposite: the capacity followed the responsibility. A settlement that began with staffing arrangements, dual control where full transfer is genuinely unworkable, institutions transferred with the people who run them as Kerala transferred them, would not complete devolution by itself. It would, for the first time, make the other three Fs mean what the Schedules say they mean, and it would convert the index score and the resident’s report from two descriptions of different things into two measurements of the same one. Until that conversion happens, the honest description of Indian local government is the one the evidence has supported throughout: a third tier of the federation that exists everywhere, is elected everywhere, is listed as responsible for the services residents need most, and governs, in the operative sense of directing money and people, in a minority of places and over a minority of its listed subjects, with the distance between the list and the operation varying by State in ways the record, read with the discipline this article has applied, is fully capable of showing.

Frequently Asked Questions

Q: How is fiscal devolution to local bodies measured?

Fiscal devolution is measured principally by index exercises commissioned by the Ministry of Panchayati Raj and conducted by research institutions, of which the fullest documented edition is the Status of Devolution to Panchayats in States ranking prepared with the Indian Institute of Public Administration and released in February 2025. That exercise scores States on six dimensions: framework, functions, finances, functionaries, capacity enhancement and accountability. The finance dimension is built substantially from documented provisions and transfers, whether functions are listed, whether a State Finance Commission has reported and whether funds have moved, rather than from what a local body can decide. A finance score should therefore be read with its edition, its institution and its method attached, and never as a direct measure of a panchayat’s spending power.

Q: How much do local bodies actually raise themselves?

Very little on the rural side, and less than half on the urban side. The Reserve Bank of India’s report on the finances of panchayati raj institutions, published in January 2024 on data for some 2.58 lakh panchayats for the years from 2020-21 to 2022-23, recorded own revenues at only 1.1 per cent of panchayats’ total revenue, with non-tax revenue at 3.3 per cent and around 95 per cent arriving as grants from the Union and the States. For municipalities, the Reserve Bank’s Report on Municipal Finances of 2022 recorded own revenue at roughly two-fifths of municipal corporation revenue, with property tax at about 0.15 per cent of gross domestic product, against about 0.6 per cent in developing economies and about 1 per cent in developed economies.

Q: Do panchayats have their own staff?

In the generality of States, almost none. A gram panchayat typically has a secretary, in many States one secretary serving several panchayats, and sometimes a part-time assistant. The teachers, health workers, engineers and extension staff who deliver services inside the panchayat’s territory are employees of State line departments or of district establishments, answerable to those hierarchies for posting, transfer, leave and promotion. Kerala, which transferred institutions to its local bodies under the People’s Plan Campaign, and Maharashtra and Gujarat, which retain district panchayat services whose members are employees of the panchayats themselves, are the standing exceptions that show the position elsewhere is a choice of State law and not a necessity of the subject.

Q: Have State Finance Commissions been constituted on time?

Frequently not. The Constitution requires a State Finance Commission within a year of the commencement of the Seventy-third Amendment and thereafter at the expiration of every fifth year, with its recommendations and an action taken memorandum laid before the State Legislature. The record across States includes commissions constituted years after the due date, reports submitted late in the cycle they were meant to inform, and action taken reports tabled later still or not at all. Successive Union Finance Commissions have recorded that State reports were unavailable or unactioned when their own awards were framed, the Reserve Bank’s 2024 report on panchayat finances urged prompt constitution because of the sizeable delays, and the Fifteenth Finance Commission made constitution and action on the recommendations a condition of local body grants after March 2024.

Q: What conditions did the finance commission attach to local body grants?

The Fifteenth Finance Commission attached entry-level and performance conditions to its grants for the award period from 2021 to 2026. Rural local bodies were required to maintain accounts online through the eGramSwaraj system, with provisional accounts for the preceding year and audited accounts for the year before that made public, and audits conducted on the common AuditOnline platform. Urban local bodies were additionally required to notify floor rates for property tax, and the million-plus cities faced a performance-linked share dependent on meeting service level benchmarks for matters including drinking water, sanitation and solid waste management. Behind all of it stood the condition that a State constitute its State Finance Commission, act on its recommendations and lay the action taken report before the legislature, with grants liable to stop for a State in default after March 2024.

Q: What is activity mapping and why does it matter?

Activity mapping is the exercise of unbundling each subject in the Eleventh and Twelfth Schedules into its component activities, policy, planning, construction, staffing, operation, maintenance and supervision, and assigning each activity to the tier of government best placed to perform it, on the principle of subsidiarity. The Union Ministry pressed it on the States through the round tables of State ministers convened in 2004, and the Second Administrative Reforms Commission placed it at the centre of its 2007 report on local governance. It matters because a Schedule entry without mapping is a slogan: mapping is the document that converts a listed function into an allocation, and it exposes at once whether budget heads and staff have followed the assignment or whether the function was devolved in name alone.

Q: How do parallel bodies bypass local government?

By construction. A parallel body is a society, mission, agency or trust created outside the elected local body and funded directly by a department or ministry, so that money and functions flow to it without entering the local body’s budget, plan or accountability. The District Rural Development Agency, created from 1980 as a registered society in each district, is the type specimen; mission societies for health and education, programme implementation agencies and the District Mineral Foundation Trusts established under the 2015 amendment to the mines and minerals legislation repeat the design. The elected body retains the listed function and the public blame, while the parallel body holds the funds, engages the staff and reports to the sponsoring government, which is why the bypass survives every proclamation of devolution that leaves the channel untouched.

Q: Which states have devolved the most to local bodies?

On the fullest documented measurement, the Status of Devolution to Panchayats in States ranking prepared by the Indian Institute of Public Administration for the Ministry of Panchayati Raj and released in February 2025, Karnataka stood first with a score of 72.23, followed by Kerala at 70.59 and Tamil Nadu at 68.38, with Maharashtra, Uttar Pradesh and Gujarat completing the leading group against a national average a little under 44. The same edition distributed the dimension leads widely: Kerala on framework, Tamil Nadu on functions, Karnataka on finances and accountability, Gujarat on functionaries and Telangana on capacity enhancement. Kerala’s position rests on the People’s Plan Campaign of 1996, which devolved between 35 and 40 per cent of the State plan outlay to local bodies with institutions transferred, a settlement no other State has replicated at that scale.

Q: Why are most Finance Commission grants to panchayats tied to specific purposes?

Because the grants serve two purposes that pull in opposite directions, and the tie is the compromise between them. As supplements to the resources of local bodies, the grants argue for freedom: a panchayat knows its own priorities. As instruments of national policy, they argue for direction: the Fifteenth Finance Commission identified drinking water and sanitation as national priorities and tied 60 per cent of its rural grant of Rs 2,36,805 crore, in equal shares, to drinking water supply, rainwater harvesting and water recycling on one side and sanitation and the maintenance of open defecation free status on the other, leaving 40 per cent untied. Tying also answers the accountability objection that untied money cannot be traced to outcomes. The cost is recorded in the article’s analysis: every tied rupee enlarges the panchayat’s workload without enlarging the sphere of what it decides.

Q: What can a panchayat spend untied grants on?

Untied grants are the part of the Finance Commission transfer that the panchayat may apply to location-specific needs within its functions, without a scheme guideline prescribing the object in advance. Under the Fifteenth Finance Commission’s design the untied share was 40 per cent of the rural grant, Rs 94,721 crore across the award period, available for the basic services within the panchayat’s remit as the body itself prioritises them through its plan and budget: the repair of a water source the tied heads do not cover, street lighting, drainage, the maintenance of assets earlier schemes created, and the small works that no scheme’s unit costs anticipate. The untied share is the fiscal space in which a panchayat behaves as a government rather than as an implementing agency, which is why its proportion of the whole is treated in this article as the truest single measure of fiscal devolution.

Q: What happens if a State delays tabling its Finance Commission action taken report?

Under the constitutional text alone, remarkably little happened for a long time: the obligation to lay the State Finance Commission’s recommendations with an explanatory memorandum of action taken before the legislature is mandatory in terms, yet delayed or omitted tabling carried no automatic consequence, the commission’s cycle slipped, and the Union Finance Commission framed its awards without the State settlement the design presupposed. Litigation in writ proceedings produced directions to constitute commissions and table reports in particular cases. The position changed when the Fifteenth Finance Commission attached money to the default, providing that local body grants would not be released to a State that had not constituted its commission, acted on its recommendations and laid the action taken report after March 2024, converting a disregarded procedural duty into a priced one.

Q: Who audits a gram panchayat’s accounts?

In most States the audit of a gram panchayat’s accounts is conducted by the State’s local fund audit organisation, the examiner of local fund accounts and the audit establishment under that office, which inspects panchayat accounts against the accounting formats standardised nationally through the model accounting system prescribed for panchayats in 2009 with the technical guidance of the Comptroller and Auditor General. The Comptroller and Auditor General exercises technical guidance and supervision over the audit arrangements and audits the larger local bodies. Under the Fifteenth Finance Commission’s conditions, panchayat audits were moved onto the AuditOnline platform and the availability of audited accounts became a condition of grant release, a change aimed at the long-standing position in which audits ran years behind the expenditure they examined and action on audit objections decayed accordingly.

Q: What share of its plan funds did Kerala give local bodies under the People’s Plan Campaign?

Between 35 and 40 per cent of the State’s annual plan outlay. The People’s Plan Campaign, launched on 17 August 1996 by the Left Democratic Front government under Chief Minister E. K. Nayanar, made the Ninth Five Year Plan a people’s plan by devolving that share to the local self-government institutions, gram, block and district panchayats and the municipalities, as substantially untied grant in aid against plans the bodies prepared through gram sabhas and development seminars. The share was the largest fiscal devolution attempted by any State, against a little over 2 per cent of plan funds reaching local bodies in the preceding plan period, and it was accompanied by the transfer of institutions and by activity mapping on the recommendations of the Committee on Decentralisation of Powers, the Sen Committee, which is why Kerala’s settlement is treated throughout this article as the benchmark case.

Q: Can a gram panchayat fix its own property tax rates?

Ordinarily, no. The power of a panchayat to levy a house or property tax comes from the State panchayat Act, which prescribes the tax, the base and commonly the rates or the bands within which rates may move, together with exemptions the panchayat did not choose. Revision of rates, where the law allows the panchayat any initiative at all, frequently requires the sanction of a State authority. The position is the fiscal application of the constitutional design: the Legislature of a State may authorise a panchayat to levy taxes subject to such limits as the State law specifies. It follows that the familiar criticism of local bodies for low property tax effort is addressed in the first instance to the wrong legislature, a point the Fifteenth Finance Commission recognised from the urban side by making the notification of property tax floor rates a condition of its grants to municipalities.

Q: What did the Second Administrative Reforms Commission say about devolution?

The Second Administrative Reforms Commission, in its Sixth Report on local governance submitted in 2007 under the chairmanship of Veerappa Moily, made devolution turn on the principle of subsidiarity: functions should be discharged at the lowest tier capable of performing them, and activity mapping should be undertaken for every subject so that the activities within it stand assigned tier by tier in place of wholesale transfers of Schedule entries. The Commission pressed for State Finance Commissions to be constituted on time and their reports acted on within a disciplined cycle, for the staff dimension of devolution to be faced rather than deferred, for parallel bodies to be wound into the elected structure, and for centrally sponsored scheme guidelines to be framed so that funds for devolved subjects flow through the local bodies. The report remains the fullest official statement of the settlement the Constitution contemplated, and the record examined in this article is, in large part, the measure of its non-implementation.

Q: Why do centrally sponsored schemes route money around panchayats?

Because a scheme is designed to deliver a national programme to a national standard, and its designers reach for the channel they can instruct. Routing funds through a mission society or a programme agency gives the sponsoring ministry a single reporting line, uniform guidelines and unit costs, contract staff it can engage and disband, and audit against the programme’s own targets. Routing the same funds through two and a half lakh elected bodies gives it variation it cannot control and bodies of very uneven accounting capacity. The choice is intelligible from the ministry’s chair and costly from the Constitution’s: each scheme routed around the panchayats is a Schedule subject whose money, staff and decisions are withheld from the elected tier, and the panchayats are denied the learning by doing on which the capacity argument for withholding depends. The employment guarantee shows the alternative is workable where a statute writes the panchayats into the programme’s own text.

Q: How can a reader test whether a function is genuinely devolved?

By asking four questions in order and stopping at the first refusal. Does the function appear in the State statute for that tier of local body? Has an activity mapping exercise assigned the activities within it between the tiers, so that the body’s share is specified rather than sloganeered? Does a budget line accompany the assignment carrying funds the body can in substance direct, untied or nearly so, rather than scheme money with its purpose fixed elsewhere? Do the staff who perform the function answer to the body, in posting, in day-to-day direction and in the recording of their performance? A function is genuinely devolved only where all four answers are yes. The test can be applied to any subject in either Schedule from public documents, the State Act, the mapping order, the budget and the staffing order, and the layer at which a subject fails identifies precisely what a given State has withheld.

Q: Have courts directed States to hold panchayat elections on time?

Yes, repeatedly, because the election provisions are mandatory in terms and therefore justiciable in a way the devolution provisions are not. In Kishansing Tomar v. Municipal Corporation of the City of Ahmedabad, reported at (2006) 8 SCC 352, a Constitution Bench of the Supreme Court held that the State Election Commission must complete elections before the expiry of the local body’s term, that it functions independently of the State government in that duty, and that pending delimitation or revision of electoral rolls furnishes no excuse for delay. In Suresh Mahajan v. State of Madhya Pradesh in 2022 the Court directed the State Election Commission to notify and conduct local elections rather than hold them hostage to the unfinished empirical exercise required for reservation for other backward classes under the triple test prescribed in Vikas Kishanrao Gawali v. State of Maharashtra, reported at (2021) 6 SCC 73.

Q: Why does one panchayat secretary commonly look after more than one gram panchayat?

Because the secretary is a State or district establishment post sanctioned by population and budget norms that were set for a smaller establishment, while the number of gram panchayats runs to some two and a half lakh, and most States have not expanded the sanctioned cadre to one secretary per body. The consequences compound through the whole administrative record. The secretary maintains the accounts, records, tax registers and scheme documentation of every panchayat in the charge, attends each body’s meetings, and answers audit for all of them, so that the quality of a panchayat’s paperwork, the foundation on which grants, audits and plans all depend, is rationed by one person’s week. The arrangement is the functionaries question in its most ordinary form: the single official through whom the elected body must act is a shared resource the body does not appoint, cannot supplement and cannot hold to account for the division of the official’s time.

Q: Do municipalities raise more of their own money than panchayats?

Yes, by an order of magnitude, though from a low base and with the same structural ceiling. The Reserve Bank’s Report on Municipal Finances of 2022 recorded own revenue at roughly two-fifths of the revenue of the municipal corporations it examined, and municipal revenue overall at roughly 1 per cent of gross domestic product. Against that, the Reserve Bank’s 2024 report on panchayat finances recorded own revenues at 1.1 per cent of panchayats’ total revenue, with non-tax receipts adding a further 3.3 per cent. The difference reflects the urban tax base, a concentration of taxable property and commerce, and municipal tax handles of real yield, property tax above all, which rural bodies largely lack. Both tiers remain dependent on transfers for the majority of what they spend, and in both the rates of the principal tax are set or capped by the State.