Panchayats: Village Governments and Their Money

How India's elected village councils work, where their money comes from, and the effects of reserving seats for women and marginalised groups.

Rural India is governed locally through panchayats, elected councils at the village, block and district levels. Together they form the system of panchayati raj.

Constitutional status

The 73rd Constitutional Amendment of 1992 gave panchayats constitutional status. It required:

Regular elections every five years.
Reservation of seats for Scheduled Castes and Scheduled Tribes in proportion to their population.
Reservation of at least one-third of seats and chairperson posts for women. Many states have raised this to 50 percent.
State Finance Commissions to recommend how funds are shared with panchayats.

The gram sabha, the assembly of all adult voters in a village, is meant to approve plans and review spending.

Where the money comes from

Panchayats rely mostly on transfers:

Grants from the Finance Commission, the central body that recommends how tax revenues are shared.
State government transfers.
Funds from central schemes, such as MGNREGA.
Own revenue, such as local taxes and fees, which is usually small.

Effects of reserving seats for women

A famous study by Raghabendra Chattopadhyay and Esther Duflo in 2004 used the random rotation of reserved seats in West Bengal and Rajasthan. They found that women leaders invested more in public goods that women prioritised, such as drinking water. Later research found that exposure to women leaders changed attitudes and raised parents’ aspirations for their daughters.

Challenges

Limited own revenue and dependence on higher governments.
Limited capacity: many panchayats lack trained staff.
Elite capture: powerful local groups may dominate decisions.
Proxy leaders: in some cases, husbands or relatives act on behalf of elected women, a practice the government has sought to discourage.

Water or roads?

In one village, a woman elected as sarpanch after her seat was reserved for women prioritises a new drinking water supply, since women in the village spend hours fetching water. A neighbouring village led by a man invests more in roads. Research found such differences reflected the priorities of different groups.

Thinking panchayats have little importance

Panchayats manage local infrastructure, welfare schemes and planning that directly affect rural lives. Their decisions shape spending on water, roads, sanitation and more.

Key takeaways

The 73rd Amendment of 1992 gave panchayats constitutional status.
At least one-third of seats are reserved for women, 50 percent in many states.
Panchayats rely mainly on Finance Commission, state and scheme transfers.
Women leaders invested more in public goods women prioritised, such as drinking water.