Devolution of Powers and Finances up to Local Levels

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Modern governance in India has its complexities, but with the principles of devolution, we bring forth the power of local voices, the importance of community-driven solutions, and the strength of decentralized decision-making. Furthermore, as per the Indian Constitution, by giving local governments the authority, resources, and responsibility to look after the unique needs of their communities, India paves the for inclusive growth and sustainable progress. This blog on the Devolution of Powers and Finances up to Local Levels also known as democratic decentralization will help you learn about the division of resources to the Panchayats, Gram Sabhas, as well as Municipalities. 

Devolution: the transfer or delegation of power to a lower level, especially by central government to local or regional administration.

What is the Meaning of Devolution of Powers and Finances?

The devolution of powers and finances upto local levels involves handing over certain legislative, executive, and administrative authorities to the local levels. 

  • Additionally, this shift allows them to manage public services and implement policies tailored to the specific needs of their communities.
  • Moreover, the devolution of finances includes granting these lower tiers control over a portion of the national budget. 
  • This financial autonomy authorises local governments to allocate resources efficiently, invest in local development projects, and address local priorities effectively.

Also Read: Functions and Responsibilities of the State: Structure and Functions

What are the Constitutional Provisions relating to the Devolution of Powers and Finances in India?

There are certain Constitutional Provisions that relate to the Devolution of Powers and Finances to local levels in India, they are: 

The 73rd Constitutional Amendment Act of 1992

The 73rd Constitution Amendment Act was enacted in 1992 and enforced on the 24th April 1993. It empowered State governments to formalize VIllage Panchayats as self-governing units, which was an important change. 

  • Before 1992, Village Panchayats existed but faced challenges that were restricting their usefulness as the people’s government.
    • These challenges included insufficient funding, irregular elections, and inadequate representation of marginalized groups such as women and ST and SCs.

The Panchayats: Part IX

Moreover, some characteristics of The Panchayat are as follows: 

  • Constitutional Recognition: The Act has elevated Panchayati Raj institutions to Constitutional status across the nation.
  • Mandatory Establishment: Article 243-B mandates every State to establish Panchayats within its territorial jurisdiction.
  • Empowerment of Panchayats: According to Article 243-G, State governments are obligated to grant Panchayats power, responsibilities, and authority.
  • Term of Office: Gram Panchayats now have a fixed term of 5 years for their elected representatives.
  • Independent Village Panchayat Elections: The Act allows State election authorities to conduct separate and independent elections for Village Panchayats.
  • Representation for Women and SC/STs: Article 243-D guarantees adequate representation of women and ST and SCs within Panchayati Raj institutions for inclusive governance.

Also Read: Separation of Powers in a Democracy

The 74th Constitutional Amendment Act of 1992

The 74th Constitutional Amendment Act constitutionally recognized The Municipalities or Urban Local Bodies (ULBs) on the 1st of June 1993. This amendment aimed to create an institutional setup for democratic decentralization, hence empowering local governments in India’s urban areas. Additionally, it also granted ULBs the authority to perform the 18 functions outlined in the 12th Schedule of the Indian Constitution.

The Goals of the 74th Constitutional Amendment Act

Furthermore, Municipalities are protected under the Indian Constitution’s enforceable Provisions. 

  • State governments are now obligated to stick to the Act’s stipulations within the boundaries of their constitutions when implementing the Municipal system. 
  • Moreover, the legislation’s goal is to improve and revive Municipal governments so they can function as Local government units.

The Key Features of the 74th Constitutional Amendment Act

The key features are as follows: 

  • Three Types of Municipalities: The Act mandates the establishment of 3 categories of Municipalities in each State:
  • Nagar Panchayat: This category is for transitional areas. They are areas in transition from rural to urban areas. 
  • Municipal Council: They are for smaller urban areas.
  • Municipal Corporation: These are designated for a larger urban area.
  • Exception for Industrial Townships: If an urban area within a region is mostly dominated by an industrial facility, the Governor may designate it as an Industrial Township. In such cases, a separate Municipality cannot be established.

Also Read: Who was The First Woman Governor of an Indian State?

What are the Challenges faced at the Local Levels relating to Finance and Power?

Moreover, the Challenges faced at the Local Level are as follows: 

Financial Constraints

Many local bodies have limited financial resources, hence curbing their ability to implement development projects. Furthermore, they rely heavily on State and Central Grants which pose a significant challenge to achieving financial independence.

Political Influence

In addition, even with the protection of the Constitution, there is political interference from higher levels of government which continues to be a hurdle. This interference usually hampers Local decisions due to external pressures, thus compromising real freedom in Governance.

Capacity Limitations

Some Local bodies face challenges due to inadequate administrative and technical capacities. Moreover, the lack of sufficient training and support curbs their ability to plan and execute projects well.

Disparities in Devolution

Devolution changes significantly across States and regions, hence resulting in unequal local governance structures. This unequal distribution of autonomy and resources worsens socio-economic disparities, thus creating challenges for balanced and inclusive development.

Also Read: Government of India Act 1935: Key Features, Significance and More

What is the Finance Commission’s Devolution of Power?

The Finance Commission is a constitutional body that was established under Article 280 of the Indian Constitution by the President. It has an important part in allocating revenue resources between the Union Government and State Governments. Moreover, its inception dates back to 1951 and is aimed at defining the financial relationships between the Center and the States.

  • As per Article 281, the President presents the recommendations of the Finance Commission along with an explanatory letter to both Houses of Parliament. This process ensures transparency and accountability in financial matters.
  • The Finance Commission is constituted by the President every 5 years or as deemed necessary, further emphasizing its significance in India’s fiscal governance.

What are the Functions of the Finance Commission in Devolution of Finance?

Additionally, Government devolution involves the division of tax revenues between the Central government and the States.

  • The Center provides grants to States from the Consolidated Fund of India based on set guidelines. 
  • The State Finance Commission gives suggestions to expand a State’s consolidated fund to improve the resources of its Municipalities and Panchayats.
  • The President may refer any matter concerning prudent financial management to the Finance Commission, which reviews rules for grants-in-aid to States and the division of taxes between the Federal government and States every 5 years. 
  • Moreover, the Finance Commission’s recommendations, along with the government’s response, are presented to Parliament.
  • The Finance Commission also assesses the growth in a State’s Consolidated Fund to allocate resources to its Panchayats and Municipalities. 
  • It possesses the authority to fulfil its responsibilities, including the ability to summon witnesses and request public records under the Code of Civil Procedure from 1908.

Also Read: Study Notes on the Functions of the Parliament

The Panchayats (Extension to Scheduled Areas) Act, 1996 (PESA Act)

The Government of India enacted PESA to protect “Scheduled Areas,” which lacked protection under the 73rd Constitutional Amendment. This law extends the provisions of Part IX to the Scheduled Areas across India. 

  • PESA specifically authorises the Gram Sabha at a local level, thus granting it a wide array of authorities such as consultation on land acquisition, ownership of minor forest produce, and leasing of minor minerals.
  • Implemented alongside the opening of India’s economy to Foreign Direct Investment, PESA coincided with the expansion of the mining industry primarily situated in the Scheduled regions.
    • This made mineral resources easily accessible to multinational corporations and the Indian corporate sector for exploitation at lower costs.

The Powers of the Panchayats of Gram Sabha

An integral aspect of PESA is its focus on each Gram Sabha’s role in protecting and maintaining the community’s traditions, customs, cultural identity, local resources, and traditional dispute resolution methods. The Powers are as follows: 

  • Consultation for land acquisition and relocation
  • Granting concessions for minor mineral extraction
  • Managing small water bodies
  • Regulating the sale of intoxicants
  • Owning small-scale forest products
  • Stopping illegal land alienation
  • Controlling local markets
  • Overseeing lending to specific tribes 

Additionally, the Act also mandates that States empower Panchayats with the necessary authority for effective self-governance.


What is the devolution of powers to the local government?

Devolution of powers to the local government or democratic decentralization involves transferring authority over local affairs, services, and development decisions from the central government to local councils. Hence guaranteeing tailored governance at grassroots levels.

What is the devolution of financial powers?

Devolution of financial powers means granting local governments autonomy to manage and allocate funds. Moreover, empowering them to invest in local projects and address community needs effectively.

What do you mean by devolution of power?

Devolution of power refers to the transfer of responsibilities, authorities, and usually financial resources from a central government to regional or local entities. Thus, enabling more localized decision-making and governance.

Lastly, we hope you liked our blog and gained an understanding of the Devolution of Powers and Finances up to Local Levels or democratic decentralization. Moreover, you may even read more blogs and empower yourself with knowledge regarding Civics and Polity! 

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