Having panchayats as self-governing institutions

Having panchayats as self-governing institutions


The 73rd and 74th Constitutional Amendments Acts aimed to establish local self-government through Panchayati Raj institutions. Despite three decades since these amendments, the revenue generation capacity of Panchayats remains low.


GS-02 (Governance, Panchayats)

Key Highlights

  • Panchayats depend heavily on grants from the Center and States, raising concerns about fiscal autonomy and sustainability.
  • Various avenues exist for Panchayats to generate revenue independently, including taxes, fees, and innovative projects.
  • Gram Sabhas play a crucial role in revenue generation and community development at the grassroots level.
  • Challenges such as the “freebie culture” and lack of awareness among elected representatives hinder revenue generation efforts.

Mains Question

Discuss the challenges faced by Panchayati Raj institutions in India in generating revenue independently. What measures should be taken to enhance their financial autonomy and promote sustainable development at the grassroots level? (250 words)

73rd Amendment Act, 1992:

  • The 73rd Amendment Act, 1992, mandated State Governments to adopt the Panchayati Raj system and introduced significant constitutional changes.
  • Key Points:
    • Inclusion of Panchayati Raj: The amendment required State Governments to implement the Panchayati Raj system, with the addition of the 11th schedule to the Constitution containing 29 subject matters under the jurisdiction of Panchayats.
    • Creation of Part IX: Part IX of the Constitution was introduced, encompassing Articles 243 to 243O, outlining provisions for Panchayats. However, certain regions like Nagaland, Meghalaya, and Mizoram, along with specific areas, were exempt from its application initially.
  • Salient Features:
    • Establishment of Gram Sabhas: Gram Sabhas were established as the grassroots units of the democratic system, comprising eligible voters within the Panchayat’s jurisdiction.
    • Three-tier System: Every State was mandated to constitute Panchayats at the village, intermediate, and district levels, with exceptions for smaller population states.
    • Direct Election and Reservation: Members of Panchayats at all levels were to be elected directly by the people, with reservations for Scheduled Castes, Scheduled Tribes, and women.
    • Duration and Powers: Panchayats were given a five-year term and endowed with powers and functions as determined by the State legislature, including economic development, social justice planning, and implementation of government schemes.
    • Judicial Non-interference: The act barred courts from intervening in Panchayat elections, requiring any challenges to elections to be addressed through designated election petitions.

74th Amendment Act, 1992:

  • The 74th Amendment Act, 1992, granted municipalities constitutional status and introduced significant changes in urban governance.
  • Key Points:
    • Constitutional Recognition: Municipalities were granted constitutional status through the addition of Part IX-A, containing Articles 243P to 243ZG, to the Constitution.
    • Addition of 12th Schedule: The 12th schedule was added, comprising 18 functional items to be within the jurisdiction of municipalities.
  • Salient Features:
    • Composition and Reservation: Municipalities were to consist of directly elected members representing territorial wards, with reservations for Scheduled Castes, Scheduled Tribes, women, and other backward classes as determined by State legislatures.
    • Term and Disqualification: Municipalities were granted a five-year term, with provisions for dissolution and continuity. Disqualification criteria for members were established, including age and legislative disqualifications.
    • Powers and Responsibilities: Municipalities were empowered to undertake urban planning, financial management, and social development within their jurisdiction, with provisions for taxation and financial distribution.
    • Judicial Non-interference: Similar to the 73rd Amendment, the act prohibited courts from interfering in municipal elections, stipulating specific procedures for election challenges.

How panchayats receive funds:

The Panchayats rely on multiple funding sources:

  • Local body grants, recommended by the Central Finance Commission
  • Funds for centrally sponsored schemes
  • State government funds based on State Finance Commission recommendations
  • Assigned/shared revenues from the State Government


  • Article 243(I) and 243(Y) of the Constitution, introduced by the 73rd and 74th Amendment Acts, mandate the formation of State Finance Commissions to allocate funds to Local Bodies.
  • The Central Finance Commissions also recommend funds for local bodies from the Tenth Central Finance Commission onwards.
  • Major sources of revenue for rural local bodies include local cess, surcharges, stamp duty surcharge, and proceeds from mines and minerals.
  • Gram Panchayats primarily rely on grants from the Central Finance Commission, with earmarked funds totaling Rs. 2.12 lakh crores for the period 2015–2020. They also receive funds from state finance commissions, but their own revenue sources remain largely untapped.
  • In addition to allocated funds, Panchayats influence spending on schemes like NREGS, Swachch Bharat Mission, and PMAY, which are not credited to their accounts.
  • Other sources of funds include BRGF, schemes like IAY and MNREGA, rural development funds, and funds from elected representatives like MP, MLA, and MLC LADS.
  • Gram Panchayats generate revenue through land revenue, taxes on toddy, vehicles, industries, tolls, and festivals. They can also seek funds from NGOs, educational trusts, religious institutions, international agencies, and the district collector in times of crisis.
  • Programs like Sansad Adarsh Yojana aim to develop model villages and spur funding enthusiasm. Gram Panchayats, inspired by Gandhian philosophy, focus on self-reliance, social equality, and decentralized governance, encouraging savings and investments at the local level.

Dimensions of the Article:

  • Assessing Fiscal Devolution
  • Role of Gram Sabhas
  • Challenges and Solutions

Assessing Fiscal Devolution

  • The implementation of the 73rd and 74th Constitutional Amendments Acts marked a significant step towards decentralization and strengthening local governance in India.
  • The efficacy of these reforms in empowering Panchayati Raj institutions hinges on their ability to generate revenue independently.
  • Despite the constitutional mandate for fiscal devolution, many Panchayats continue to rely heavily on grants from higher tiers of government.

Role of Gram Sabhas

  • Gram Sabhas, as grassroots democratic institutions, play a pivotal role in fostering self-sufficiency and sustainable development.
  • By empowering Gram Sabhas to engage in participatory planning and decision-making, Panchayats can harness local resources more effectively.
  • Additionally, Gram Sabhas can facilitate community-led initiatives for revenue generation, thereby promoting economic empowerment at the village level.

Challenges and Solutions

  • Despite the potential for revenue generation, Panchayats face several challenges, including a reluctance to impose taxes and a lack of awareness among elected representatives
  • Moreover, to address this dependency, Panchayats must explore diverse avenues for generating revenue. The Ministry of Panchayati Raj’s expert committee report highlights several potential sources of income, including property tax, user charges, and revenue from innovative projects. By leveraging these opportunities, Panchayats can enhance their financial autonomy and sustainability.
  • Addressing these challenges requires concerted efforts to promote fiscal responsibility and accountability at all levels of governance.
  • Incentivizing revenue generation through matching grants and capacity-building initiatives can encourage Panchayats to prioritize financial self-sufficiency.

Way Forward:

  • Promoting Financial Autonomy: This includes strengthening revenue collection mechanisms, improving financial management practices, and fostering a culture of fiscal responsibility among elected representatives. Additionally, capacity-building programs and awareness campaigns can empower Panchayats to maximize their revenue generation potential.
  • Encouraging Community Participation: Furthermore, promoting community participation and stakeholder engagement is essential for sustainable development at the grassroots level. By involving local communities in decision-making processes and revenue generation initiatives, Panchayats can ensure that development efforts are inclusive, transparent, and aligned with the needs of the people.


Achieving fiscal autonomy and sustainability is imperative for the effective functioning of Panchayati Raj institutions in India. By diversifying revenue sources, empowering Gram Sabhas, and addressing key challenges, Panchayats can strengthen their capacity to deliver essential services and promote holistic development at the grassroots level.