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An Overview of Panchayat Raj Institutions and Devolution of Funds, Functions and Functionaries (3Fs) in India

Law Centrum

14 May 2022

The introduction of 73rd amendment act to the Indian constitution in 1992 is the turning point in the history of inclusive governance.


Panchayat Raj Institutions (PRIs) was given constitutional status by the 73rd amendment act, 1992 with the insertion of Part IX to the constitution which provides provisions from Article 243 to 243 (O) under the heading “The Panchayats”. The amendment also added Eleventh Schedule which encompasses 29 subjects including panchayat’s powers and functions, rural housing, roads, bridges, public distribution system, social welfare, family welfare etc. The term panchayat literally means assembly of five (‘panch’ denotes five and ‘ayat’ denotes council or assembly)[1]. The creation of PRI’s provided an avenue for third tier of governance i.e., local governance, in addition to Central Government and State Government[2].

Local governance is the inclusive governance which enables the people to participate in the country’s governance at grass root level. PRI is the structural way of engaging rural community in the governance in order to make them economically viable. Village panhayats were central to the ideology of India’s national movement. Gadhiji favoured the development of panchayats and he had made it part of his political programme since the Non-Cooperation Movement. Since independence, various committees have been formed and various recommendations were made by these committees for the inclusion of panchayat in the governance system. Balwant Rai Committee was the first committee constituted by Government of India in the year 1957 to work on community development programme[3]. The committee recommended for the introduction of democratic decentralization (now known as Panchayat Raj). Rajasthan state was the first to introduce Pachayat raj in 1959 after the Balwant Rai committee recommendations. Various other committees were also formed following the Balwant Rai committee. Ashok Mehta committee which was constituted in the year 1977 was considered as turning point in the concept and practice of panchayat raj. The states which instituted panchayat raj after Ashok Mehta committee recommendations are considered as second-generation panchayats. West Bengal, Karnataka, Andhra Pradesh and Jammu and Kashmir are the States which accepted the Ashok Mehta Committee by passing new acts. Though many states have instituted the system in their governance structure, all the states do not follow the uniformity in the establishment of PRIs.

Under Indian Constitution, apart from the article 243, the term panchayat finds its mention in article 40 of Part IV which reads as follows: “Organization of village panchayats- The state shall take steps to organize village panchayats and endow them with such powers and authority as may be necessary to enable them to function as units of self-government[4]. However article 40 is unenforceable since it is placed in Directive Principles of State policy. Moreover State governments are not mandated to implement the system, since the word ‘may’ is used in the provisions relating to panchayat in Constitution instead of ‘shall’. The insertion of Panchayat in Indian Constitution gives constitutional status and the key features of the seventy third amendment act are:

1. Panchayat is institution of self-governance.

2. The powers and functions of Gram Sabha at village level are similar to that of State Legislatures.

3. There shall be three tier system of panchayat at village level, intermediate block and district level.

4. The seats in panchayat shall be filled by direct election.

5. Member of Parliament and members of legislative assembly also be part of panchayat at intermediate and district level.

6. Reservation of seats is provided for Scheduled Tribes and Scheduled Castes under Article 243 D.

7. One third of total number of seats reserved for Women.

8. One third of seats reserved for women belonging to Scheduled Caste and Scheduled Tribes.

9. The term of every panchayat shall be for 5 years and the election for the succeeding term should be completed before expiry of the term. And in the event of dissolution, election must be conducted within 6 months.

10. Article 243 G empowers the state legislature to make law in order to institute panchayat and to endow certain powers to enable to function as self-government. The law may contain provisions relating to devolution of powers and responsibilities.

11. Article 243 H enables the State legislature to make laws in order to authorize the panchayat to levy and collect taxes, duties and tolls. In some cases, the panchayat are permitted to retain the revenues collected by it.

12. An independent election commission has to be established in each state for superintendence, direction and control of election process.

13. Article 243-I provides for the constitution of State Finance Commission to review the financial position of panchayat and to make recommendation to the governor.

14. Article 243 ZD provides for the establishment of committee for district planning to consolidate the plans prepared by panchayats.

Hence, as per the provisions given in the Indian Constitution, the state is given legislative competence to make laws relating to creation and functioning of PRIs. The distribution of powers between the three Tiers (Centre, State, and Local Government) is listed as State subject where the State alone can make laws with respect to establishment of PRI. And the Centre can only direct the State to take appropriate measures for the establishment and implementation of the Panchayat Raj System. It is not mandatory on the part of State for the institution of PRIs, Since it finds its mention in Directive Principles of State Policy.

The main components Panchayat Raj are:

1. The Secretariat,

2. Zilla Panchayat,

3. The Taluk Panchayat,

4. The Gram Panchayat

State Secretariat is the principal executive instrument of the state government and is responsible for coordinating the vast network of state administrative machinery.


General meaning of the ‘Devolution’ means transfer of power from higher level to lower level. In the context of panchayat “Devolution” means authority transferred from State Government to Local government enabling the later to make decision in planning and implementing the activity[5]. Along with the transfer of powers and functions to local government, it also requires staff support and resources for its effective functioning. Apparently, the 3 F’s (funds, functions and functionaries) are interrelated and interchanging in the devolution process. The effectiveness of PRI system is determined by the proper administrative and financial devolution from the state. Funds, Functions and functionaries are the three main elements of devolution.


It is meaningless to assign functions to panchayat without financial backing.

The Panchayat receives fund from 3 sources:

1. Devolution of funds by State Government as recommended by State Finance Commission.

2. Funds provided based on the recommendations of the Central Finance Commission.

3. Assigned and shared revenue (revenue collected by the State Government and transferred to the Local government.

As noted earlier, State Governments has to transfer the functions with respect to 29 subjects mentioned in the Eleventh Schedule of the constitution to panchayats. Ironically many States are not transferring the funds to panchayats. For instance, in State’s like Andhra Pradesh, Kerala, Himachal Pradesh, Chhattisgarh, and West Bengal only Gram Panchayat was empowered to collect Taxes and Government Order for the same was issued. In case of Arunachal Pradesh, no transfer of funds had taken place. In Maharashtra, the Zilla parishad and Gram Panchayat (GP) are given power to collect taxes. Wherein case of Haryana, the Government has empowered the Gram Panchayat to generate revenue from lease of panchayat land and rental of panchayat premises. Karnataka Government provides for mandatory transfer of united funds to PRI’s and was allowed to collect 7 types of taxes. In Odisha, there is no clear devolution of Central Fund. Even the State of Punjab is not clear in devolution of funds, whereas the main source of income of GP is from auction of Panchayat land. In case of Uttar Pradesh, all three tiers were allowed to levy taxes.

Article 243 I provide for the constitution of State Finance Commission by states within one year from the commencement of the constitutional amendment act and thereafter on the expiry of every five years to review the financial condition of the PRIs and to make recommendations to the Governor for devolution of funds[6].


It is one of the triple F’s i.e., transferring functions relates to providing functional powers to the PRIs. The functional powers of PRI’s are decided by the law enacted by the State Governments. The functional responsibilities of the Panchayat Raj Institutions can be divided into three broad categories, i.e., civic, developmental and welfare functions. The Village Panchayats are assigned to perform the civic, developmental and welfare functions due to their close proximity with people at grass root which enable the institution to ensure the participation of people in the system. At Block or Sub divisional level, functions relating to planning and implementing agency were assigned. District panchayat performs functions relating to Planning, Co-ordination, Supervision, review and monitoring of all programmes [7].

As narrated earlier, 29 functions have been listed under XI schedule of Indian Constitution for the devolution of PRIs. Based on the provision, each States have to make laws in order to enable the functioning of PRIs. But most of the states have not devolved all the 29-matter listed in the schedule. States like Karnataka, Haryana, Kerala, Sikkim, Tamil Nadu and Arunachal Pradesh have devolved all 29 functions to PRI’s.


After the devolution of functions what is required is transferring the required staff to PRIs. Many state governments have not transferred required staff to the PRIs. Moreover, each state has taken different stance in devolution of funds to PRI’s. For instance, in Tamil Nadu there is no significant devolution of functionaries. If Puducherry is taken, devolution of functionaries has not yet been done[8]. In case of Andhra Pradesh, functionaries are partially accountable of PRI’s[9].

PRI come under the purview of the Ministry of Rural Development headed by a Minister of Rural Development of Cabinet Rank[10]. The role of the ministry is to examine from time to time the working of PRIs and to make policy decision favouring the proper functioning of PRIs. In this respect, the ministry circulated guidelines for the devolution of powers and functions in the form of booklet in the year 1995. And in the year 2001, the Ministry had set up a Task Force on Devolution of Powers and Functions upon Panchayati Raj Institutions. The Task Force in its report had highlighted the important issues that need to be addressed for the effectiveness of PRI’s. The ministry also required the states to carry out activity mapping of devolution of powers and functions to PRIs and pointed out the activity as important steps in the devolution of functions[11].


The act was enacted with the intent to ensure the self-governance in scheduled areas of India (the areas identified by the fifth schedule[13] of Indian Constitution). Since 73rd amendment did not include the scheduled areas under part IX of Indian Constitution, PESA was enacted. The act is the extension of the provisions of the Part IX of the Constitution to Scheduled Areas of nine States, Andhra Pradesh, Chhatisgarh, Gujarat, Himachal Pradesh, Jharkhand, Maharashtra, Madhya Pradesh, Orissa and Rajasthan[14]. The following are the salient features of PESA act:

  1. Formation of Gram Sabha a village level.

  2. Reservation of scheduled tribes (STs) shall not be less than half of the total number of seats of panchayats at all three levels. Seats shall be reserved on the basis of proportion to their population.

  3. Every legislation on the panchayats in Fifth Scheduled Area shall be in conformity with customary and religious practices of the community;

  4. Gram Sabha recognize the customary practice of dispute resolution;

  5. Gram Sabha can approve projects and plans for social and economic development; to identify beneficiaries for poverty alleviation programme and to provide certificates for the utilization of funds and programmes.

  6. The act mandates that before acquisition of land or resettlement or rehabilitation affected persons by such project’s gram sabha has to be consulted.

  7. Recommendation of the gram sabha or the panchayats is mandatory for the grant of licence or mining lease for minor minerals.

  8. Gram sabha and panchayats can enforce prohibition or to regulate or restrict the sale and consumption of any intoxicant, ownership of minor forest produce, to prevent alienation of land;

  9. Planning and management of minor water bodies.


Local Self Governance is the most innovative and inclusive system that provides the governance in the hands of people at grass root level[15]. Since India Passed Constitutional Amendment Act, 1993 all States have enacted conformity legislation to the amendment act. However, the states have failed to implement the act in the true sense. The core objective of 73rd amendment is devolution – a fundamental concept yet to take shape in true sense. Devolution of 3 F’s to be effective and meaningful, necessary actions both at legislative and executive have to be take place. Ironically, states have been unable to devolve funds to PRIs due to their own fiscal constraint. Due to lack of sufficient funds to carry the activities allotted to them, PRIs are not able to do their task. Consequently, PRIs are heavily dependent on grants from central and state governments[16]. At the same time internal capacity of the PRIs to rise fund also very weak. When they raise funds through central grants, panchayat has limited control in terms of spending. Hence, financial constraint is the main reason for the implementation of PRI failure. Secondly, PRIs have no power to appoint their own staffs and completely dependent on state governments to provide them with staffs.

The present scenario of PRIs is that, it is properly structured having constitutional status but under-empowered because of lack of proper devolution. Devolution to local governments has been inconsistent and inadequate across country. Many states are not regular in conducting the elections, state finance commissions are not constituted properly. Continuity in conducting the elections is not followed by many states due to many reasons. Hence, the Ministry of Panchayati Raj needs to seriously consider the machinery to enhance and incentivize states to decentralize the 3Fs to PRIs[17].


[1] GEORGE MATHEW, STATUS OF PANCHAYATI RAJ IN THE STATES OF INDIA 121-22 (1st ed. 1995). [2] S. N. CHAUDARY, DALIT AND TRIBAL LEADERSHIP IN PANCHAYATS, CONCEPT PUBLISHING COMPANY (1st ed. 2004) [3] ibid [4] 1 DURGA DAS BASU, SHORTER CONSTITUTION OF INDIA (14th ed. 2009) [5] SURAT SINGH, PROBLEMS AND PROSPECTS OF PANCHAYAT FINANCES: A STUDY OF COMMON LAND 21-20 (1st ed. 2001) [6] M.A. Oommen, Abhijit Datta, Panchayats and their Finance, Institute of Social Sciences, New Delhi (1995) [7] Government of Tamil Nadu, Rural Development and Panchayat Raj Institution, Funds release to rural local bodies (Sep.25, 2018), [8] Ministry of Panchayat Raj, Delegation of Powers to Panchayats (Feb. 05, 2018), [9]Chikkam Satyanarayana, Devolution of functions, functionaries and funds to Panchayat Raj Institutions-A perspective, 2 I.J.A.R. 70, 69-76(2015) [10] S.L. GOEL, PANCHAYATI RAJ IN INDIA 84-89 (2nd ed. 2009) [11] Government of India, Guidelines for devolution of Functions, Funds and Functionaries (3Fs), MINISTRY OF PANCHAYATI RAJ (Oct. 5, 2009, 12:05 PM), [12] Hereinafter referred as PESA Act [13] Declaration of Vth Schedule, MINISTRY OF TRIBAL AFFAIRS, GOVERNMENT OF INDIA (Mar. 06, 2019, 11:35 AM), [14], Report of the task on Pancahayati Raj Institution (PRIs), PLANNING COMMISSION (Jan. 05, 2019, 05:06 PM), [15] 4 G. PALANITHURAI, DYNAMICS OF NEW PANCHAYATI RAJ SYSTEM IN INDIA,300-01 (1st ed. 2008) [16] NIKUNJALATA DUTTA, VILLAGE PANCHAYATS IN INDIA (1st ed. 1989) [17] M.V, N. SIVANNA, DECENTRALISED DEMOCRACY IN INDIA: GANDHIS VISION AND REALITY New York (1st ed. 2018).

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