Strengthening Rural Governance Through Decentralised Funding

Understanding the Funding Mechanism

Strengthening Rural Governance Through Decentralised Funding: The union government has allocated over ₹ 730 crore to rural local bodies in Gujarat and Haryana for the financial year 2025-26 under the Fifteenth Finance Commission (XV-FC). This move aims at empowering grassroots governance and improving service delivery in rural areas.

Static GK fact: The Eleventh Schedule of the Constitution lists 29 subjects – including sanitation, drinking-water supply, minor irrigation – over which Panchayats have jurisdiction.

Grants Breakdown and Purpose

Under XV-FC, grants to rural local bodies (RLBs) are categorised into untied grants and tied grants. Untied grants allow local bodies flexibility across the 29 schedule subjects, except administrative salaries. Tied grants are earmarked for specific services such as drinking water, sanitation, waste-management and rainwater harvesting.

Static GK tip: For the period 2021-26, the 15th Finance Commission recommended approx. ₹ 2.4 lakh crore for rural local bodies, out of a total of ₹ 4.36 lakh crore for all local bodies.

State-Wise Allocation: Gujarat and Haryana

Gujarat

Gujarat received the second instalment of untied grants for FY 2024-25 amounting to ₹ 522.20 crore, covering 38 District Panchayats, 247 Block Panchayats and 14,547 Gram Panchayats. In addition, ₹ 13.59 crore from a previously withheld first instalment was released to newly eligible bodies: 6 District Panchayats, 5 Block Panchayats and 78 Gram Panchayats.

Haryana

Haryana was granted the first instalment of untied grants for FY 2025-26 amounting to ₹ 195.13 crore, covering 18 District Panchayats, 134 Block Panchayats and 6,164 Gram Panchayats.
The allocation underscores the Centre’s commitment to strengthening Panchayati Raj Institutions (PRIs) via RLBs and enabling region-specific prioritisation.

Significance of the Funding

The release of these funds is more than a fiscal transfer—it is a policy instrument to enhance local governance, promote decentralised decision-making, and bolster infrastructure and basic services in villages. Untied funds give Panchayats freedom to address region-specific needs. Tied funds ensure a focus on critical public goods like water and sanitation.

Static GK fact: The operational guidelines for these grants were issued by the Department of Expenditure on 14-07-2021 for the period 2021-26.

Challenges & Way Ahead

While the framework is robust, the actual impact will depend on how efficiently local bodies use these funds and exercise autonomy. Issues such as capacity of Panchayats, timely release of funds, accountability, and transparency remain key. Strengthening fiscal devolution and building PRI capacity will determine how well these allocations translate into improved rural services.

Static GK tip: The 15th Finance Commission insists on fulfilment of certain conditions—such as publishing audited accounts and constituting State Finance Commissions—before release of grants to local bodies.

Static Usthadian Current Affairs Table

Strengthening Rural Governance Through Decentralised Funding: