India needs a second generation of decentralisation reforms

Polity & Governance · 5 September 2026 · Based on The Hindu (original report)

2-minute summary

The debate on democratic decentralisation in India has gained renewed urgency amid the 16th Finance Commission's deliberations and persistent delays in municipal elections. While the 73rd and 74th Constitutional Amendments aimed to establish Panchayats and Municipalities as genuine units of self-government, the reform remains incomplete. In practice, higher tiers of government retain control over the '3Fs'—Funds, Functions, and Functionaries—creating a system that is decentralised on paper but centralised in spirit. The rationale for decentralisation has shifted from cultural identity to economic development and efficient public service delivery. Evidence from Kerala demonstrates that local governance succeeds when backed by administrative preparedness, robust planning capacity, and genuine institutional autonomy. To bridge the gap between citizens and the state, India needs a 'second generation' of decentralisation reforms. This involves clearly demarcating local responsibilities, empowering State Finance Commissions (SFCs), and transforming local planning from a ceremonial exercise into an active, data-driven developmental tool.

Why it's in the news

The article highlights the urgent need for local governance reforms in India, prompted by the ongoing recommendations of the 16th Finance Commission and prolonged delays in holding municipal elections across major cities.

Background and context

Democratic decentralisation in India was formalised through the landmark 73rd and 74th Constitutional Amendment Acts of 1992, which added Parts IX and IX-A to the Constitution. These amendments established a three-tier structure of local self-government in rural and urban areas. Historically, committees like the Balwant Rai Mehta Committee (1957) and Ashok Mehta Committee (1977) laid the groundwork for this transition. Despite constitutional status, local bodies have struggled to function autonomously. They face structural bottlenecks, including a severe mismatch between their functional responsibilities and financial resources. State governments frequently bypass local bodies using parastatal agencies, delay local body elections, and fail to implement the recommendations of State Finance Commissions (SFCs). This has reduced local bodies to mere implementing agencies of central and state schemes rather than autonomous self-governing institutions.

Constitutional provisions

• Article 243G — Mandates state legislatures to devolve powers and authority to Panchayats to enable them to function as institutions of self-government, including the 29 subjects listed in the 11th Schedule.
• Article 243W — Mandates the devolution of powers, authority, and responsibilities to Municipalities, covering the 18 subjects listed in the 12th Schedule.
• Article 243-I and 243-Y — Mandates the Governor of a State to constitute a State Finance Commission (SFC) every five years to review the financial position of Panchayats and Municipalities and recommend tax devolution.
• Article 243K and 243ZA — Vests the superintendence, direction, and control of the preparation of electoral rolls and the conduct of all elections to Panchayats and Municipalities in the State Election Commission.

Committees and reports

• 2nd Administrative Reforms Commission (ARC) - 6th Report on 'Local Governance' — Recommended clear 'activity mapping' for local bodies, restructuring of State Finance Commissions, and capacity building of local functionaries.
• 15th Finance Commission Recommendations — Tied a significant portion of local body grants to the timely constitution of SFCs, online publication of audited accounts, and entry-level property tax rates.

Government schemes

• Rashtriya Gram Swaraj Abhiyan (RGSA) — Focuses on capacity building and training of elected representatives of Panchayati Raj Institutions (PRIs) to strengthen democratic decision-making.
• SVAMITVA Scheme — Provides property cards to rural household owners, which helps Panchayats streamline property tax collection and improve own-source revenue (OSR).

Previous UPSC questions on this theme

• Mains GS-2 2020 — The strength and sustenance of local institutions in India has shifted from their formative phase of 'Functions, Functionaries and Funds' to the contemporary stage of 'Functionality'. Highlight the critical challenges faced by local institutions in terms of their functionality in recent times.

Mains practice: Despite the 73rd and 74th Constitutional Amendments, local self-governments in India continue to suffer from functional and financial paralysis. Discuss the key impediments and outline the core components of a 'second-generation' decentralisation reform.

The 73rd and 74th Constitutional Amendments (1992) were landmark reforms aimed at deepening democracy by establishing Panchayats and Municipalities as 'institutions of self-government'. However, three decades later, local bodies remain structurally constrained, often functioning as mere administrative arms of state governments rather than autonomous units.

**Key Impediments to Local Self-Governance (The 3F Crisis):**

• *Functional Overlap and Retention*: State governments have been reluctant to devolve the 29 subjects of the 11th Schedule and 18 subjects of the 12th Schedule. Parastatal bodies (like urban development authorities) often bypass elected local representatives, leading to fragmented governance.

• *Fiscal Dependency*: Local bodies have extremely weak own-source revenue (OSR) bases. They remain heavily dependent on tied, conditional grants from the Centre and States. State Finance Commissions (SFCs) are frequently not constituted on time, and their recommendations are routinely ignored by state governments.

• *Functionary Deficit*: Local governments lack independent, professionally trained cadres. They rely on state-deputed bureaucrats, which undermines local political accountability and administrative efficiency.

• *Electoral Delays*: Municipal and panchayat elections are frequently delayed by states on political pretexts, violating the constitutional mandate of regular five-year terms.

**Core Components of 'Second-Generation' Decentralisation Reforms:**

• *Mandatory Activity Mapping*: States must clearly demarcate functions between State, District, and Local levels to eliminate overlap and establish exclusive local domains.

• *Empowering State Finance Commissions*: SFCs must be given the same institutional sanctity as the Union Finance Commission. The 16th Finance Commission should incentivize states to implement SFC recommendations by tying state devolution to local fiscal reforms.

• *Enhancing Fiscal Autonomy*: Local bodies must be empowered to levy and collect property taxes, user charges, and explore municipal bonds to build robust own-source revenues.

• *Capacity Building and Participatory Planning*: Local planning must transition from a ceremonial exercise to a data-driven, bottom-up process, mirroring Kerala's 'People's Plan' campaign, supported by administrative training.

**Conclusion:**

True democratic decentralisation requires shifting from procedural compliance to substantive empowerment. Implementing second-generation reforms is vital to transform local bodies from mere delivery agents into resilient engines of local economic development and social justice.

Prelims practice questions

Q1. Consider the following statements regarding the State Finance Commission (SFC) in India: 1. The Governor of a State is constitutionally mandated to constitute a Finance Commission every five years under Article 243-I. 2. The recommendations of the SFC regarding tax devolution are binding on the State Government. 3. The Union Finance Commission has no mandate to recommend measures to augment the Consolidated Fund of a State for local bodies. Which of the statements given above is/are correct?

1. 1 only
2. 1 and 2 only
3. 1 and 3 only
4. 1, 2 and 3

Answer: A. Statement 1 is correct as Article 243-I mandates the Governor to constitute an SFC every five years. Statement 2 is incorrect; SFC recommendations are advisory and not binding on state governments. Statement 3 is incorrect; Article 280(3)(bb) and (c) mandates the Union Finance Commission to recommend measures to augment the Consolidated Fund of a State to supplement the resources of Panchayats and Municipalities.

Q2. Which of the following committees first recommended the constitutional recognition of Panchayati Raj Institutions (PRIs) in India?

1. L.M. Singhvi Committee
2. Balwant Rai Mehta Committee
3. G.V.K. Rao Committee
4. Ashok Mehta Committee

Answer: A. The L.M. Singhvi Committee (1986) recommended that Panchayati Raj systems should be constitutionally recognized, protected, and preserved. It also recommended constitutional provisions for regular, free, and fair elections to these bodies.

Q3. With reference to the 74th Constitutional Amendment Act, consider the following statements: 1. The Twelfth Schedule of the Constitution contains 18 functional items for Municipalities. 2. The constitution of a District Planning Committee (DPC) under Article 243ZD is mandatory for every state. Which of the statements given above is/are correct?

1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2

Answer: C. Both statements are correct. The 74th Amendment added the Twelfth Schedule containing 18 functional items. Article 243ZD mandates that there shall be constituted in every State at the district level a District Planning Committee to consolidate the plans prepared by the Panchayats and the Municipalities in the district.

Revision flashcards

• What are the '3Fs' of democratic decentralisation? Funds (financial resources), Functions (assigned responsibilities/subjects), and Functionaries (administrative staff/personnel).
• Which articles of the Indian Constitution mandate the establishment of State Finance Commissions (SFCs)? Article 243-I (for Panchayats) and Article 243-Y (for Municipalities).
• How many functional items are listed under the 11th and 12th Schedules of the Constitution respectively? The 11th Schedule (Panchayats) contains 29 subjects; the 12th Schedule (Municipalities) contains 18 subjects.
• What is 'Activity Mapping' in the context of local governance? The process of clearly defining and dividing specific tasks and responsibilities among the three tiers of local government to prevent functional overlap.
• Which state is widely recognized for its successful 'People's Plan Campaign' in democratic decentralisation? Kerala, which devolved substantial planning powers and financial resources directly to local self-governments in the late 1990s.