1.Funding Decline for Panchayati Raj Bodies (Panchayat Funding)
What & Where
Panchayati Raj Institutions (PRIs): constitutionally-mandated 3-tier rural self-government under 73rd Amendment, 11th Schedule subjects.
Operate across rural India; exceptions include most Sixth-Schedule areas, Nagaland, Meghalaya, Mizoram & Delhi.
Core processes: State Finance Commissions recommend devolution; Finance Commission grants, Centrally Sponsored Schemes channel funds.
Quick Facts for MCQs
Legal & Policy
- 73rd Amendment mandates SFCs every five years; many states delay constitution and Action Taken Reports.
- GST centralisation shrinks states’ assignable taxes, weakening fiscal autonomy of PRIs.
- 29 subjects transfer uneven; state reluctance curtails functional devolution.
Financial Devolution
- Parliamentary panel notes “steady decline” in untied, performance-linked allocations to PRIs.
- Untied fund cut restricts local priority spending on services, infrastructure, welfare.
- Special grants (MPLADS, BRGF) remain ad-hoc, not substitute for assured devolutions.
Institutional Bottlenecks
- Gram Sabha participation, social audits, financial disclosure rated poor in 2024 Devolution Report.
- Rotation of reserved seats disrupts leadership continuity and long-term planning.
- District Planning Committees exist largely on paper; elected members lack budgeting training.
Reform Steps
- Link future grants to measurable PRI performance; parallelly protect minimum untied share.
- Strengthen digital accounting, RTI disclosures, regular audits to curb fund diversion.
- States urged to aid local tax mobilisation: property, profession, user charges.
Key Data Points
| Feature | Data-Point |
|---|---|
| Share of PRI revenue from grants | ≈ 95 % |
| Own-tax contribution | ≈ 1 % of total PRI revenue |
| Avg own-tax per panchayat | ₹ 21,000 |
| Avg Central grant per panchayat | ₹ 17 lakh |
| Avg State grant per panchayat | ₹ 3.25 lakh |
| Revenue–expenditure : GSDP | < 0.6 % in every state |
| States with any SFC constituted | 25 |
| States with 6th SFC in place | 9 |
| Highest avg PRI revenue | Kerala ₹ 60 lakh+, West Bengal ₹ 57 lakh |
| Lowest avg PRI revenue | Andhra Pradesh & Punjab < ₹ 6 lakh |
Related UPSC Prelims PYQs
Which one of the following authorities makes recommendation to the Governor of a State as to the principles for determining the taxes and duties which may be appropriated by the Panchayats in that particular State ?
Which one of the following authorities recommends the principles governing grants-in-aid of the revenues to the states out of the Consolidated Fund of India?








