On most mornings in Nisraya village of Anand district, the gram panchayat office becomes a hub of small but important decisions, such as repairing internal roads, maintaining public toilets, or ensuring drainage lines remain functional. For Vijaysinh Raj, the young sarpanch of the village with a population of around 5,500, the challenge is rarely about the lack of funds alone. Often, it is about how those funds can — or cannot — be used.“If Rs 100 is sanctioned as a grant, tied grants come in such a way that a gram panchayat has to spend Rs 25 on water supply, Rs 25 on drainage and the remaining Rs 50 on other infrastructure such as roads,” Raj explained. In theory, such allocations ensure that villages prioritize essential services. In practice, however, they often force panchayats to spend money where there is nothing left to spend on. “Such is the situation that even if we don’t think there is a need to install more jet pumps, we are forced to search for options to install them even for houses on the outskirts of the village that are already close to existing water connections. If we do not utilize the grants, they lapse,” Raj said. “Every village has different needs. In our case, we require more funds for internal roads in the village. Panchayats should be allowed to utilize funds based on local priorities,” he added. Raj’s dilemma reflects a larger reality across India’s rural governance system — one highlighted in a major study conducted by the Anand-based Institute of Rural Management Anand (IRMA), The Tribhuvan Sahkari University for the 16th Finance Commission. Across the country’s more than 2.5 lakh gram panchayats, the ability to generate revenue, maintain financial records and implement development programmes varies dramatically. At its core, the study reveals that India’s decentralized governance system functions within radically unequal fiscal environments. Well-run but hands tied Among the states examined in the study, Gujarat emerges as one of the relatively stronger performers in local fiscal administration, alongside Kerala and Maharashtra. Many panchayats in the state have been able to generate own-source revenue (OSR) through property taxes, market fees, and leasing common property resources. In Adas gram panchayat in Anand district, for example, commercial establishments such as a petrol pump and a rice mill contribute taxes, licence fees, and service charges to the village administration. Vaherakhadi gram panchayat earns revenue by leasing out a village pond for fisheries and collecting sanitation-related user charges. Around 26% of its revenue comes from land rent, while Bordikhurd gram panchayat generates about 18% of its own-source revenue through lighting tax. Yet such opportunities vary widely even within Gujarat. In Dahod district, a tribal region, panchayats often struggle to generate revenue from commercial assets or land rents. “In many villages, people do not pay rent for commercial properties because they see them as govt assets that should be free,” a researcher observed. In some villages, auctioning trees is discouraged because it goes against local tradition. The fiscal capacity of panchayats, the study makes clear, is inseparable from the economic and social conditions of the villages they govern. Leadership gaps Economic constraints, however, are only part of the story. Neha Sehra, a research associate involved in the study, said newly elected local representatives often struggle with limited training and administrative support. “In many districts, newly elected panchayat representatives depend heavily on the administration because training and institutional support for local leaders remain uneven across states,” Sehra said. The study also highlights a political reality: raising local taxes is rarely popular. “Local leaders often hesitate to introduce taxes because they fear losing their vote bank, which limits panchayats’ ability to generate their own revenue,” Sehra added. The staffing divide Administrative capacity remains one of the most decisive factors shaping the effectiveness of panchayats. “Secretaries and technical assistance are vital for the efficient functioning of panchayats. Yet the disparities are striking. In one particular Gujarat village, we found two secretaries for a gram panchayat, while in Bihar a single secretary was responsible for several villages,” said Prof Indranil De, principal investigator of the study. “In many cases, gram panchayat development plans are prepared and uploaded to the eGramSwaraj portal not by panchayat personnel but by external data entry operators or block-level staff,” he said. Grant dependencyDespite constitutional provisions allowing panchayats to levy taxes, govt transfers remain the backbone of rural local finances. The 15th Finance Commission allocated Rs 2.36 lakh crore to rural local bodies between 2021 and 2026, with 60% tied grants and 40% untied funds. Most tied grants are earmarked for water supply and sanitation projects. Durgesh Patel, former sarpanch of Malataj village, said that villages like his have already achieved near-universal water and drainage coverage. “Our village is already 100% equipped with water and drainage facilities,” Patel said. “But grants continue to come under those heads, and the gram panchayat cannot use those tied funds for other projects. Eventually, some of these grants lapse.” Patel believes the solution lies in giving a designated officer — a taluka development officer or equivalent — the authority to assess village needs and allow tied funds to be redirected accordingly. An uneven spreadThe IRMA study also highlights how funds are distributed unevenly across tiers of rural governance. At the panchayat samiti (block) level, Gujarat stands out as a clear outlier — average allocation of Rs 2,129 lakh, against Rs 100 lakh to Rs 400 lakh in most other states. Andhra Pradesh received just Rs 51 lakh on average at this level, indicating limited fiscal devolution to the block. At the gram panchayat level, Kerala recorded the highest average allocation at Rs 94 lakh, followed by West Bengal at Rs 77 lakh and Bihar at Rs 44 lakh. At the other end, Andhra Pradesh, Punjab and Uttar Pradesh received only Rs 3 lakh to Rs 6 lakh per gram panchayat. At the district level, Gujarat again topped the list at Rs 33,714 lakh, followed by Maharashtra at Rs 28,020 lakh. Digital governance The eGramSwaraj portal, developed by the Centre, is designed to unify planning, budgeting and financial reporting across panchayats. However, its implementation remains uneven. Even the data the portal does capture has limitations. “The portal records development plans and fund utilization, but how this data is compiled and reported as aggregate panchayat finances remains unclear,” said Prof De. Associate professor Ruchi Mishra acknowledges the platform has improved transparency but argues it needs to go further. “Features such as fund alerts, scheme customization and integration with state revenue systems would empower local representatives to make decisions based on community needs,” Mishra said. Going forward, the stakes of getting digitization right are only going to rise. As assistant professor Kushal Anjaria puts it, “When finance commission grants depend on timely online accounts and audit visibility, digitization becomes a governance necessity rather than a technical add-on.” Role of SFCs Another critical element in India’s decentralization architecture is the state finance commission (SFC). While the central finance commission decides the overall allocation of funds to local govts, SFCs determine how resources are distributed within states. “The success of finance commission grants ultimately depends on the strength of state finance commissions. Without timely formation and implementation of their recommendations, decentralization cannot translate into real outcomes,” said Soumi Roy Chowdhury, assistant professor and co-author of the study. The uniformity trapMore than three decades after the 73rd Constitutional Amendment institutionalized local self-governance, India’s decentralization project remains incomplete. Treating vastly different villages as interchangeable parts of the same administrative system creates policy distortions that compound over time. For Vijaysinh Raj in Nisraya, the argument is not abstract. “Setting up public toilets is easy. Maintaining them is difficult,” he said. His village employs safai karmacharis to maintain cleanliness, spending around Rs 42,000 a year on wages — money they manage only because an NRI donor fills the gap. “Not every village has such support,” he said. Until the system accounts for that difference, the gap between decentralization on paper and self-governance in practice will remain.
