Federalism is a division of sovereign authority among levels of the government. In a true federalism, national and state governments have equal division of powers. On the other hand, decentralization is a process by which the activities of an organization such as planning and decision making, are delegated away from the central authority. In the political context, decentralization is a policy choice wherein the government decides to share some of the responsibilities with the other levels of the government. Thus, a decentralized system can be within or without a federal system.

To strengthen the democratic roots the third tier was introduced by the 73rd and 74th Amendment to the Constitution of India, enhancing cooperative federalism. 73rd Amendment created The Panchayati Raj Institutions (PRIs) in the rural areas whereas the  74th Amendment created the Municipalities (Municipal Corporation and Council) in the urban areas. The main motive behind the introduction of local self-governance was to bring economic development and social justice. Panchayats and Municipalities were empowered to create their own development (social and economic) plans which is consolidated by the District Planning Committee. Following the rooster method, seats are filled in a democratic way; vertical and horizontal reservations based on caste and sex. The constitution provides for specific provisions for Scheduled Caste and Scheduled Tribe Areas.

A municipal corporation (Mahangar Palika) are state government formed departments that work for the betterment of metropolitan cities. It is a local governing body that provides services like healthcare centers, educational institutions, housing facilities, etc. Smaller district cities and towns are looked after by municipalities (Nagar Palika) which are also entrusted with similar duties and responsibilities. The city is divided into wards depending on the population and representatives are elected directly for each ward. A ward is the smallest unit of governance, has clearly defined boundaries and conducts committee meetings under a ward councilor. Ward committee meetings act as a link between the municipality and the interests of the community. City council (Nagar Panchayat) an urban political unit in India, which also follows a similar ward system.

A Panchayat is a body of five elected representatives elected directly by the local population who form the local government at village level in India. Panchayati Raj system empowers people to engage in their own management which appears at the community level. The Indian Constitution envisages a three-tier system of Panchayats, The Village Level Panchayat (Gram  Panchayat), The District Level Panchayat (Zila Parishad) and The Intermediate Level Panchayat (Panchayat Samiti).

State Finance Commissions lay down the principles on the basis of which adequate financial resources are ensured for panchayats and municipalities. They have own source revenue, share certain taxes with the State. The central government funds programmes and provides grants such as Union Finance Commission grants. A PRI has three types of revenues own source revenues i.e., tax and non-tax, assigned revenues and grants-in-aid/scheme related funds whereas major sources of income for urban local bodies also include the above-mentioned revenues in addition to borrowings undertaken by local authorities and other receipts of fees, fines, forfeitures, etc. Taxation has been centralized to a great extent with the introduction of GST.


  • PRIs:
  • Local problems require local solutions. Problems arising in rural areas can be best attended and solved by members of the Panchayats, encouraging local leadership.
  • The needs of rural areas such as construction and maintenance of roads, adequate water supply, improvement in agricultural activities, education facilities etc., all are taken care of by the local self-government. All such functions performed by them improves the standard of living of the local people, strengthening political leadership at the grass root levels.
  • The creation of the Panchayati Raj system has facilitated a decentralized decision making process which has led to the involvement of local people and has empowered the backward sections of the society. Having a local government has also relived the burden from the shoulders of the state and central governments.
  • Municipalities:
  • A key benefit of following a ward system is that not only are the ward councillors more closer to the people of their area but, also are sensitive to the issues concerning them and their wards.
  • A ward system leads to an efficient and effective leadership as the ward corporator is able to advocate for the needs of its wards through ward committee meetings.
  • People are able to take part in the election process and can vote for the ideal candidate while also holding them accountable for their actions. It leads to participatory democracy and allows for greater diversity in the council.


  • PRIs:
  • Panchayats are heavily dependent on the state and central government for the allocation of funds and grants which restricts local decision making process.
  • Political interference from the state and central governments in the local decision making process hampers the effectiveness of the local government.
  • Panchayati Raj bodies go through a lot of administrative problems which often leads to politicization of administrative work. They fail to secure participation of the people because of lack of coordination among the officials and the people.
  • Lack of incentives and promotion opportunities creates an apathetic attitude in the administrative personnel which leads to ignorance of development programmes.
  • Municipalities:
  • Irregularity of ward committee meetings hampers citizen participation.
  • Territorial disputes make it difficult for the council to reach a consensus.
  • It often leads to polarization of the community because of partisan politics.
  • Due to an increase in the number of elected officials, it leads to higher costs for salaries, benefits and administrative expenses.

The above mentioned disadvantages highlight the problem of lack of governance and absenteeism of citizen participation. Citizen participation must be promoted at all levels of the government through participatory democracy governance models. A sense of ownership can be created among the people through awareness drives, campaigns and workshops. Fiscal decentralization is extremely critical for the strengthening of the third tier with respect to their own revenue generation. The concept of e-governance is citizen oriented which leads to the formation of smart cities, smart villages and smart wards . It adopts new developments in technology, thereby creating a sustainable democratic governance model which solves the barriers to active citizens participation.


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