Rural Development (Unit 3)

Gram Sabha: The term Gram Sabha is defined in the Constitution of India under Article
243(b). Gram Sabha is the primary body of the Panchayati Raj system and by far the largest.
It is a permanent body. Gram Sabha is the Sabha of the electorate. The Gram Sabha meeting
begins with the Panchayat President (who is also called the Sarpanch) and the members of
the Panchayat (the Panchs) presenting a plan on repairing the road that connects the village
to the main highway.

The Gram Panchayat: Panchayati Raj is a system of governance in which Gram Panchayat
are the basic units of administration. The number of members usually ranges from 7 to 31;
occasionally, groups are larger, but they never have fewer than seven members. The Gram
Panchayat meets regularly and one of its main tasks is to implement development
programmes for all villages that come under it. the work of the Gram Panchayat has to be
approved by the Gram Sabha. In some states, Gram Sabhas
form committees like construction and development committees. These
committees include some members ofthe Gram Sabha and some from the Gram Panchayat
who work together to carry out specific tasks.

The Functions of the Gram Panchayat

1. The construction and maintenance of water sources, roads, drainage, school buildings and
other common property resources.
2. Levying and collecting local taxes.
3. Executing government schemes related to generating employment in the village.
4. This institute solving the disputes of village people as individual or groups.
5. They control the behavior of people of people. Collect their opinion about various
programmes.
6. Gram Panchayat implements the official programme given by the authorities.
7. Conduct regular meetings and keeps records for various departments.
8. The measures are enforced for the desired safety and sanitation of the village people.

Service or Development Functions of the Gram Panchayat

1. Collection of taxes like house etc.

2. Promotion of educational, health, agriculture and communication facilities.
3. Providing health and drinking water facilities whenever the village people need.
4. Produce authentic documents regarding birth, death or property details of village people.
5. Looks after general welfare and immediate development of village e.g. road, fight, bazaar,
community facilities etc.

 Differences between Gram Panchayat and Gram Sabha

Dr. Yusuf Perwej Rural Development

 Panchayat : Panchayat is the name of the local government system in India. Panchayat
means a group of "Five Persons". In simple words, a Panchayat is a council of elders
representing a village. The Panchayat system covers the village level (Gram Panchayat),
clusters of villages (block Panchayat) and the district level (District
Panchayat).

Panchayati Raj System: Panchayati Raj is a form of government at the village level where
each village is responsible for its own activities. The Amendment Act of 1992 contains
provision for passing the powers and responsibilities to the panchayat for preparation of
plans for economic development and social justice.

Village Level Panchayat : It is a local body working for the welfare of the village.
Panchayati Raj is a system of governance in which Gram Panchayat are the basic units of
administration. The number of members usually ranges from 7 to 31; occasionally, groups
are larger, but they never have fewer than seven members. The council leader is
named Sarpanch in Hindi, and each of the five members is a Gram Panchayat Sadasya or
Panch. In such a system, each villager can voice his opinion in the
governance of his village. Decisions are taken without long legal procedure.

Block Level Panchayat: The block-level institution is called the Panchayat Samiti.
Panchayat samiti is a local government body at the tehsil or Taluka level in India.
It works for the villages of the Tehsil or Taluka that together are called a Development
Block. The Panchayat Samiti is the link between the Gram Panchayat and the district
administration. The samiti is elected for 5 years and is headed by the chairman andthe
deputy chairman.

District Level Panchayat: At district level, panchayati raj system is called as "Zila
Parishad". It looks after the administration of the rural area of the district and
its office is located at the district headquarters. It is headed by the "District Collector" or the

Dr. Yusuf Perwej Rural Development

 "District Magistrate" or the "Deputy Commissioner". The Chairman of all the Panchayat
Samitis form the members of Zila Parishad. It is the link between the State Government and
the Panchayat Samiti.

 Zila Parishad

The Zilla Parishad is basically a Local Body is formed through election in Panchayati Raj
System to develop and to provide various facilities to the public of rural areas in the
concerned district. The various Rural Development Works carried at the Villages, Gram
Panchayats, Block and District levels are planned, implemented, monitored and maintained
by the Zilla Parishad.

 Functions of the Zila Parishad

1. It is responsible for giving proper advice to Gram Panchayats and Block Samitis &
assist in their functioning.

2.It acts as a connecting link between state government and bodies at the lower level.

3.It overlooks the implementation of the Five-year plans.

4.In accordance with the Block Samiti, it makes the developmental plans for the whole
district.

5.It even gives advice to the State government regarding the development efforts and
plans in the district level.

 Panchayat Samiti
Panchayat Samiti is the intermediate or the middle tier of the Panchayati Raj System.
These are named differently in different States. Its organization and functions also vary,
as these are determined by the Act passed by the concerned State. It coordinates all the
activities of the Panchayats in a Block.

 Functions of the Panchayat Samiti

The Panchayat Samiti collects the plans from the Gram Panchayat and allocates the
funds for the development of the village communities. It also engages in conveying
government schemes to the village people and implement it accordingly. Panchayat
Samiti performs a number of functions. Some important functions are agriculture, land
improvement, watershed development, social and farm forestry, and technical and
vocational education. Besides, the Panchayat Samiti implements certain schemes and
programs for which specific funds are allocated by the State government or Central
government. It promotes and coordinates different development programs in its areas. It
also has responsibilities like

(a) provision of drinking water in the villages,

(b) development and repair of rural roads,
(c) framing of rules and regulations for the markets,

Dr. Yusuf Perwej Rural Development

 (d) provision of improved seeds and chemical fertilizers, pesticides, agricultural tools,
and implements,
(e) promotion of cottage industries such as handlooms, handicrafts, traditional art, and
artisans,
(f) the welfare of Scheduled Castes and Tribes and other backward classes, and
(g) promotion of self-employment schemes in rural areas.

 Bureaucracy

Bureaucracy involves coordinating a large number of individuals who are compelled to

work together. Bureaucracy is a term that refers to “government by offices.” Bureaucrats
assign government policy to consider the laws enacted by elected authorities and carry them
out successfully. These are permanent professional staff members of the executive branch of
Government. These individuals’ primary responsibility is to aid the operation of government
agencies, although they report to the ministries.

Advantages of Bureaucracy

• Division of power: Facilitates work and promotes specialization.

• Efficiency: Competence grows; work is conducted effectively under the supervision of

direct supervisors in the hierarchy.

• Responsibility and compliance: Ordinary folks can hold government officials and
bureaucrats responsible for their conduct while doing their tasks. If anything goes wrong, the
organization is accountable.

• Decision-making: Generally, individuals are delegated decision-making authority by their

immediate superiors, and managers are delegated authority by those above them in the
hierarchy.

• Regulations and rules: The collection of clearly defined rules and regulations makes
compliance with them a requirement inside the bureaucratic system, limiting the extent of
non-adherence to the framework of rules and protocols.

• Ease of management: Facilitates administration by logically organizing the organization

in a structural hierarchy. Keeping control of the management, making essential
modifications as and when necessary, and introducing new regulations as needed from time
to time are made simpler under a bureaucratic structure due to the organization’s size.

Disadvantages of Bureaucracy

• Red tape: By definition, bureaucracy adheres to a system of rules and regulations. This
results in a lack of flexibility and often results in inefficiency.

• Bureaucratic delays: A bureaucratic system’s intricate set of regulations often results in

lengthy delays.

• Bureaucratic corruption: Corruption at the highest levels of Government may be very

detrimental to the economy.

Dr. Yusuf Perwej Rural Development

 • Goals change: Getting work done in a bureaucratic system is inefficient, and the collection
of rules and regulations often takes precedence over the ultimate result.

• Documentation: Even for relatively easy tasks, a substantial amount of paperwork may be
necessary.

• Compartmentalization: Because occupations are split into categories, teamwork and

completing work in other categories are limited.

• Nepotism: In bureaucracies, nepotism is often an issue. The top managers may favor their
own and assist them in rising faster than more worthy persons.

• Decision-making: In the bureaucracy, decisions are made per a system of rules and
regulations. This rigidity often results in the adoption of programmed choices at the expense
of exploring other paths.

 Panchayati Raj Institution (PRI)

 Panchayati Raj Institution (PRI) is a system of rural local self-government in India.

 Local Self Government is the management of local affairs by such local bodies who have
been elected by the local people.
rd
 PRI was constitutionalized through the 73 Constitutional Amendment Act, 1992 to
build democracy at the grass roots level and was entrusted with the task of rural
development in the country.
 In its present form and structure PRI has completed 26 years of existence. However, a
lot remains to be done in order to further decentralization and strengthen democracy at the
grass root level.

 Panchayati Raj in India

Panchayati Raj was not a new concept to India. Indian villages had Panchayats (council
of five persons) from very ancient time, which were having both executive and judicial
powers and used to handle various issues (land distribution, tax collection etc.) or
disputes arising in the village area. Gandhiji also held the opinion of empowerment of
Panchayats for the development of rural areas. Thus, recognizing their importance our
Constitution makers included a provision for Panchayats in part IV of our constitution
(directive principles of state policy). Art. 40 confers the responsibility upon State to take
steps to organise Village Panchayats and endow them with such powers and authority as
may be necessary to enable them to function as units of self-government. But it does not
give guidelines for organising village panchayats.
Thus, its formal organisation and structure was firstly recommended by Balwant Rai
committee,1957 (Committee to examine the Community Development
Programme,1952). The Committee, in its report in November 1957, recommended the
establishment of the scheme of ‘democratic decentralisation’, which ultimately came to
be known as Panchayati Raj. It recommended for a three tier system at village, block
and district level and it also recommended for direct election of village level panchayat.
Rajasthan was the first state to establish Panchayati Raj at it started from Nagaur district
on October 2, 1959. After this, Ashok Mehta Committee on Panchayati Raj was
appointed in December 1977 and in August 1978 submitted its report with various

Dr. Yusuf Perwej Rural Development

 recommendations to revive and strengthen the declining Panchayati Raj system in the
country. Its major recommendation were two tier system of panchayat, regular social
audit, representation of political parties at all level of panchayat elections, provisions for
regular election, reservation to SCs/STs in panchayats and a minister for panchayati raj
in state council of ministers.

Further, G V K Rao Committee appointed in 1985 again recommended some measures

to strengthen Panchayati Raj institutions. LM Singhvi Committee appointed in 1986 first
time recommended for the constitutional status of Panchayati Raj institutions and it also
suggested for constitutional provisions to ensure regular, free and fair elections to the
Panchayati Raj Bodies. In response to the recommendations of LM Singhvi committee,
a bill was introduced in the Lok Sabha by Rajiv Gandhi’s government in July 1989 to
constitutionalize Panchayati Raj Institutions, but the bill was not passed in Rajya Sabha.

The V P Singh government also brought a bill, but fall of the government resulted in
lapse of the bill. After this P V Narashima Rao’s government introduced a bill for this
purpose in Lok Sabha in September, 1991 and the bill finally emerged as the 73rd
Constitutional Amendment Act, 1992 and came into force on 24th April, 1993.

 What are the Challenges associated with the Panchayati Raj Institution
(PRI) System?

Lack of Effective Devolution

 Local government is a state subject in the Constitution, and consequently, the

devolution of power and authority to panchayats has been left to the discretion
of states.
 Some of the important subjects like fuel and fodder, non-conventional energy
sources, rural electrification including distribution of electricity, non-formal
education, small scale industries including food processing industries, technical
training, and vocational education have not been devolved in certain states.

Insufficient Grants/Funds

 Despite the constitutional empowerment, the local bodies face problems of

inadequate finance to carry out various activities assigned to them.
 Transfers made through the State Finance Commissions are also meagre in most
States.
 In most of the states, most of the GPs are found reluctant to raise their own
source of revenue (OSR). Only a few GPs are able to generate OSR in the form
of tax or non-tax revenue by renting shops, house tax and clean water fee.

Issue of Sarpanch Pati

 On the Panchayati Raj Day in 2015, the Prime Minister called for an end to
‘Sarpanch Pati culture’. But it is still very much prevalent in the society, mainly
due to gender biases, women illiteracy and patriarchal society.

Infrastructural Challenges

Dr. Yusuf Perwej Rural Development

  Some of the GPs do not have their own building and they share space with
schools, anganwadi centre and other places. Some have their own building but
without basic facilities like toilets, drinking water, and electricity connection.
 While GPs have internet connections, they are not functional in many cases. For
any data entry purposes, panchayat officials have to visit Block Development
offices which delay the work.

Lack of Support Staff

 The Standing Committee on Rural Development (Chair: Dr. P Venugopal) in

July 2018 observed that there is severe lack of support staff and personnel in
panchayats, such as secretary, junior engineers, computer operators, and data
entry operators. This affects their functioning and delivery of services by them.

Lack of Convergence of Various Government Programmes

 There is a clear lack of convergence of various development programmes of the

Centre and state governments.
 For example, roads in two different patches are constructed utilising two
different sources of funding (e.g. Fourteenth Finance Commission and
MPLAD), but it is difficult to find one large activity with funding from multiple
sources.
 Different guidelines by different departments are cited as a major constraint for
lack of convergence of activities.

 Growth of Panchayati Raj Institutions in India

Rural development is one of the main objectives of Panchayati Raj and this has been
established in all states of India except Nagaland, Meghalaya and Mizoram, in all Union
Territories except Delhi. and certain other areas. These areas include:

a. The scheduled areas and the tribal areas in the states

b. The hill area of Manipur for which a district council exists and
c. Darjeeling district of West Bengal for which Darjeeling Gorkha Hill Council exists

Evolution of Panchayati Raj

The Panchayati system in India is not purely a post-independence phenomenon. In fact, the
dominant political institution in rural India has been the village panchayat for centuries. In
ancient India, panchayats were usually elected councils with executive and judicial powers.
Foreign domination, especially Mughal and British, and the natural and forced socio-
economic changes had undermined the importance of the village panchayats. In the pre-
independence period, however, the panchayats were instruments for the dominance of the
upper castes over the rest of the village, which furthered the divide based on either the socio-
economic status or the caste hierarchy.

The evolution of the Panchayati Raj System, however, got a fillip after the attainment of
independence after the drafting of the Constitution. The Constitution of India in Article 40
enjoined: “The state shall take steps to organise village panchayats and endow them with

Dr. Yusuf Perwej Rural Development

 such powers and authority as may be necessary to enable them to function as units of self-
government”.

There were a number of committees appointed by the Government of India to study the
implementation of self-government at the rural level and also recommend steps in achieving
this goal.

The committees appointed are as follows:

 Balwant Rai Mehta Committee

 Ashok Mehta Committee
 G V K Rao Committee
 L M Singhvi Committee

Balwant Rai Mehta Committee & Panchayati Raj

The committee was appointed in 1957, to examine and suggest measures for better working
of the Community Development Programme and the National Extension Service. The
committee suggested the establishment of a democratic decentralised local government
which came to be known as the Panchayati Raj.

Recommendations by the Committee:

 Three-tier Panchayati Raj system: Gram Panchayat, Panchayat Samiti and Zila Parishad.
 Directly elected representatives to constitute the gram panchayat and indirectly elected
representatives to constitute the Panchayat Samiti and Zila Parishad.
 Planning and development are the primary objectives of the Panchayati Raj system.
 Panchayat Samiti should be the executive body and Zila Parishad will act as the advisory
and supervisory body.
 District Collector to be made the chairman of the Zila Parishad.
 It also requested for provisioning resources so as to help them discharge their duties and
responsibilities.

The Balwant Rai Mehta Committee further revitalised the development of panchayats in the
country, the report recommended that the Panchayati Raj institutions can play a substantial
role in community development programmes throughout the country. The objective of the
Panchayats thus was the democratic decentralisation through the effective participation of
locals with the help of well-planned programmes. Even the then Prime Minister of India,
Pandit Jawaharlal Nehru, defended the panchayat system by saying, “authority and power
must be given to the people in the villages.

Ashok Mehta Committee & Panchayati Raj

The committee was appointed in 1977 to suggest measures to revive and strengthen the
declining Panchayati Raj system in India.

The key recommendations are:

 The three-tier system should be replaced with a two-tier system: Zila Parishad (district
level) and the Mandal Panchayat (a group of villages).
 District level as the first level of supervision after the state level.

Dr. Yusuf Perwej Rural Development

  Zila Parishad should be the executive body and responsible for planning at the district
level.
 The institutions (Zila Parishad and the Mandal Panchayat) to have compulsory taxation
powers to mobilise their own financial resources.

G V K Rao Committee & Panchayati Raj

The committee was appointed by the planning commission in 1985. It recognised that
development was not seen at the grassroot level due to bureaucratisation resulting in
Panchayat Raj institutions being addressed as ‘grass without roots’. Hence, it made some
key recommendations which are as follows:

 Zila Parishad to be the most important body in the scheme of democratic

decentralisation. Zila Parishad to be the principal body to manage the developmental
programmes at the district level.
 The district and the lower levels of the Panchayati Raj system to be assigned with
specific planning, implementation and monitoring of the rural developmental programmes.
 Post of District Development Commissioner to be created. He will be the chief executive
officer of the Zila Parishad.
 Elections to the levels of Panchayati Raj systems should be held regularly.

L M Singhvi Committee & Panchayati Raj

The committee was appointed by the Government of India in 1986 with the main objective
to recommend steps to revitalise the Panchayati Raj systems for democracy and
development. The following recommendations were made by the committee:

 The committee recommended that the Panchayati Raj systems should be constitutionally
recognised. It also recommended constitutional provisions to recognise free and fair
elections for the Panchayati Raj systems.
 The committee recommended reorganisation of villages to make the gram panchayat
more viable.
 It recommended that village panchayats should have more finances for their activities.
 Judicial tribunals to be set up in each state to adjudicate matters relating to the elections
to the Panchayati Raj institutions and other matters relating to their functioning.

All these things further the argument that panchayats can be very effective in identifying and
solving local problems, involve the people in the villages in the developmental activities,
improve the communication between different levels at which politics operates, develop
leadership skills and in short help the basic development in the states without making too
many structural changes. Rajasthan and Andhra Pradesh were the first to adopt Panchayati
raj in 1959, other states followed them later.

Though there are variations among states, there are some features that are common. In most
of the states, for example, a three-tier structure including panchayats at the village level,
panchayat samitis at the block level and the zila parishads at the district level-has been
institutionalized. Due to the sustained effort of the civil society organisations, intellectuals
and progressive political leaders, the Parliament passed two amendments to the Constitution
– the 73rd Constitution Amendment for rural local bodies (panchayats) and the 74th
Constitution Amendment for urban local bodies (municipalities) making them ‘institutions

Dr. Yusuf Perwej Rural Development

 of self-government’. Within a year all the states passed their own acts in conformity to the
amended constitutional provisions.

 73rd Constitutional Amendment Act of 1992

Significance of the Act

 The Act added Part IX to the Constitution, “The Panchayats” and also added the Eleventh
Schedule which consists of the 29 functional items of the panchayats.
 Part IX of the Constitution contains Article 243 to Article 243 O.
 The Amendment Act provides shape to Article 40 of the Constitution, (directive principles of
state policy), which directs the state to organise the village panchayats and provide them powers and
authority so that they can function as self-government.
 With the Act, Panchayati Raj systems come under the purview of the justiciable part of the
Constitution and mandates states to adopt the system. Further, the election process in the Panchayati
Raj institutions will be held independent of the state government’s will.
 The Act has two parts: compulsory and voluntary. Compulsory provisions must be added to state
laws, which includes the creation of the new Panchayati Raj systems. Voluntary provisions, on the
other hand, is the discretion of the state government.
 The Act is a very significant step in creating democratic institutions at the grassroots level in the
country. The Act has transformed the representative democracy into participatory democracy.

Salient Features of the Act

1. Gram Sabha: Gram Sabha is the primary body of the Panchayati Raj system. It is a village
assembly consisting of all the registered voters within the area of the panchayat. It will exercise
powers and perform such functions as determined by the state legislature. Candidates can refer to the
functions of gram panchayat and gram panchayat work, on the government official website –
https://grammanchitra.gov.in/.
2. Three-tier system: The Act provides for the establishment of the three-tier system of Panchayati
Raj in the states (village, intermediate and district level). States with a population of less than 20
lakhs may not constitute the intermediate level.
3. Election of members and chairperson: The members to all the levels of the Panchayati Raj are
elected directly and the chairpersons to the intermediate and the district level are elected indirectly
from the elected members and at the village level the Chairperson is elected as determined by the
state government.
4. Reservation of seats:
o For SC and ST: Reservation to be provided at all the three tiers in accordance with their
population percentage.
o For women: Not less than one-third of the total number of seats to be reserved for women, further
not less than one-third of the total number of offices for chairperson at all levels of the panchayat to
be reserved for women.
o The state legislatures are also given the provision to decide on the reservation of seats in any
level of panchayat or office of chairperson in favour of backward classes.
5. Duration of Panchayat: The Act provides for a five-year term of office to all the levels of the
panchayat. However, the panchayat can be dissolved before the completion of its term. But fresh
elections to constitute the new panchayat shall be completed –
a. before the expiry of its five-year duration.
b. in case of dissolution, before the expiry of a period of six months from the date of its dissolution.
6. Disqualification: A person shall be disqualified for being chosen as or for being a member of
panchayat if he is so disqualified –
. Under any law for the time being in force for the purpose of elections to the legislature of the
state concerned.
a. Under any law made by the state legislature. However, no person shall be disqualified on the
ground that he is less than 25 years of age if he has attained the age of 21 years.

Dr. Yusuf Perwej Rural Development

 b. Further, all questions relating to disqualification shall be referred to an authority determined by
the state legislatures.
7. State election commission:
o The commission is responsible for superintendence, direction and control of the preparation of
electoral rolls and conducting elections for the panchayat.
o The state legislature may make provisions with respect to all matters relating to elections to the
panchayats.

8. Powers and Functions: The state legislature may endow the Panchayats with such powers and
authority as may be necessary to enable them to function as institutions of self-government. Such a
scheme may contain provisions related to Gram Panchayat work with respect to:
a. the preparation of plans for economic development and social justice.
b. the implementation of schemes for economic development and social justice as may be entrusted
to them, including those in relation to the 29 matters listed in the Eleventh Schedule.
9. Finances: The state legislature may –
a. Authorize a panchayat to levy, collect and appropriate taxes, duties, tolls and fees.
b. Assign to a panchayat taxes, duties, tolls and fees levied and collected by the state government.
c. Provide for making grants-in-aid to the panchayats from the consolidated fund of the state.
d. Provide for the constitution of funds for crediting all money of the panchayats.

10. Finance Commission: The state finance commission reviews the financial position of the
panchayats and provides recommendations for the necessary steps to be taken to supplement
resources to the panchayat.
11. Audit of Accounts: State legislature may make provisions for the maintenance and audit of
panchayat accounts.
12. Application to Union Territories: The President may direct the provisions of the Act to be applied
on any union territory subject to exceptions and modifications he specifies.
13. Exempted states and areas: The Act does not apply to the states of Nagaland, Meghalaya and
Mizoram and certain other areas. These areas include,
a. The scheduled areas and the tribal areas in the states
b. The hill area of Manipur for which a district council exists
c. Darjeeling district of West Bengal for which Darjeeling Gorkha Hill Council exists.
However, Parliament can extend this part to these areas subject to the exception and modification it
specifies. Thus, the PESA Act was enacted.
14. Continuance of existing law: All the state laws relating to panchayats shall continue to be in force
until the expiry of one year from the commencement of this Act. In other words, the states have to
adopt the new Panchayati raj system based on this Act within the maximum period of one year from
24 April 1993, which was the date of the commencement of this Act. However, all the Panchayats
existing immediately before the commencement of the Act shall continue till the expiry of their term,
unless dissolved by the state legislature sooner.
15. Bar to interference by courts: The Act bars the courts from interfering in the electoral matters of
panchayats. It declares that the validity of any law relating to the delimitation of constituencies or the
allotment of seats to such constituencies cannot be questioned in any court. It further lays down that
no election to any panchayat is to be questioned except by an election petition presented to such
authority and in such manner as provided by the state legislature.

PESA Act of 1996

The provisions of Part IX are not applicable to the Fifth Schedule areas. The Parliament can
extend this Part to such areas with modifications and exceptions as it may specify. Under
these provisions, Parliament enacted Provisions of the Panchayats (Extension to the
Scheduled Areas) Act, popularly known as PESA Act or the extension act.

Objectives of the PESA Act:

Dr. Yusuf Perwej Rural Development

 1. To extend the provisions of Part IX to the scheduled areas.
2. To provide self-rule for the tribal population.
3. To have village governance with participatory democracy.
4. To evolve participatory governance consistent with the traditional practices.
5. To preserve and safeguard traditions and customs of tribal population.
6. To empower panchayats with powers conducive to tribal requirements.
7. To prevent panchayats at a higher level from assuming powers and authority of panchayats at a
lower level.

As a result of these constitutional steps taken by the union and state governments, India has
moved towards what has been described as ‘multi-level federalism’, and more significantly,
it has widened the democratic base of the Indian polity. Before the amendments, the Indian
democratic structure through elected representatives was restricted to the two houses of
Parliament, state assemblies and certain union territories. The system has brought
governance and issue redressal to the grassroot levels in the country but there are other
issues too. These issues, if addressed, will go a long way in creating an environment where
some of the basic human rights are respected.

After the new generation of panchayats had started functioning, several issues have come to
the fore, which have a bearing on human rights. The important factor which has contributed
to the human rights situation vis-a-vis the panchayat system is the nature of Indian society,
which of course determines the nature of the state. Indian society is known for its inequality,
social hierarchy and the rich and poor divide. The social hierarchy is the result of the caste
system, which is unique to India. Therefore, caste and class are the two factors, which
deserve attention in this context.

Thus, the local governance system has challenged the age old practices of hierarchy in the
rural areas of the country particularly those related to caste, religion and discrimination
against women.

The Panchayati Raj system constitutes an integral part of the IAS prelims and UPSC mains
syllabus. Aspirants preparing for the upcoming CSE must be aware of the administrative set
in the country.

 Significance of Panchayati Raj Institution

 Promote Democratic Representation: The Panchayati Raj Institution system

increases cooperation among people, democratic participation, and decentralization
through the three levels such as Gram Panchayat at the village level, Block
Panchayat, or PanchayatSamiti at the intermediate level, and Zilla Panchayat at the
district level.
 Effective and Efficient Planning: The Gram Panchayats (GPs) in India have been
entrusted to provide basic services in the villages and plan for local economic
development. The Gram Panchayat Development Plan (GPDP) which is being
developed by the Gram Sabhas improves the efficiency of public services.
 Ensures Good Governance: Good Governance has two important pillars such as
‘Consensus-oriented’ and ‘Participation’. The Panchayati Raj Institutions help in
ensuring both the pillars of Good Governance.

Dr. Yusuf Perwej Rural Development

  Issues Panchayati Raj Institution (PRI) are facing

 Non-accountability- Even though the personnel at the Gram Panchayat level deliver
crucial services like education, health, and livelihood generation, they are, in most
cases, not accountable to the Gram Panchayat and the Gram Sabha.
 Lack of horizontal and vertical convergence of action at the Gram Panchayat level is
a problem of prime concern. Vertical integration is also not ensured because of different
departments and schemes under which they are appointed with specific mandates.
 Poor Oversight- There is poor oversight to check if the existing rules are being
violated. Dependence on employees is high if elected functionaries in Panchayats lack
administrative experience and it can lead to exploitation of the situation by the staff or
collusion between elected functionaries and officials.
 Variation across states- Wide variation across States in terms of engagement -
qualification and mode of recruitment, duration, remuneration, travel allowances, and
other conditions for similar cadres.
 Variation in Remuneration: There are variations in remuneration under different
schemes functioning at the rural level which leads to the migration of employees from
one State to another; sometimes from one scheme to another. For example, the daily
payment under MGNREGA in Haryana is Rs. 309 whereas, in Madhya Pradesh and
Chattisgarh, it is less than Rs. 200.
 No Standard Minimum Qualification for elected and non-elected members.
 Leadership skills: The lack of leadership skills makes it difficult for them to assert or
even openly express their opinions. Recently, it has been reported that 77% of women
in Panchayati Raj Institutions believe they can’t change things easily on the ground.
 Sarpanch Pati System: Even after getting elected most of their work in panchayats is
done by their husbands.
 Low local revenue generation: As the Economic Survey, 2017-18 highlighted, there is
a Low Equilibrium Trap which means the local bodies appear to be not collecting
revenues from taxes to the extent they can. This is largely because most of the state
governments have not devolved enough taxation powers to Panchayats. Even if the
states have given the taxation powers, its collection is low due to their reluctance to pay
taxes by the locals. Thus, they remain dependent on fund devolution.
 Unwillingness to borrow from Financial Institutions: Despite being empowered to
access loans for public infrastructure and service delivery, most Gram Panchayats have
not borrowed, making them unable to plan effectively for the long term.
 Non-implementation of recommendations of State Finance Commission: Since the
recommendations of State Finance Commissions are non-binding on state government,
they are not implemented in letter and spirit.
 Low local revenue generation: As the Economic Survey, 2017-18 highlighted, there is
a Low Equilibrium Trap which means the local bodies appear to be not collecting
revenues from taxes to the extent they can. This is largely because most of the state
governments have not devolved enough taxation powers to Panchayats. Even if the
states have given the taxation powers, its collection is low due to their reluctance to pay
taxes by the locals. Thus, they remain dependent on fund devolution.
 Unwillingness to borrow from Financial Institutions: Despite being empowered to
access loans for public infrastructure and service delivery, most Gram Panchayats have
not borrowed, making them unable to plan effectively for the long term.
 Non-implementation of recommendations of State Finance Commission: Since the
recommendations of State Finance Commissions are non-binding on state government,
they are not implemented in letter and spirit.

Dr. Yusuf Perwej Rural Development

  Structure of Rural finance

Rural finance is an important subject matter for small scale farmers and modern farming
businesses. However, rural finance has faced various problems and challenges in which
case there is a common opinion to follow a new approach for successful operation in
rural area, and agriculture as well. Recently, rural and agricultural finance have changing and
emerging paradigm whereby various facts and opinions are commonly understood and
developed as to how to bring about development and decrease poverty in rural areas of least
developing countries. By now, there is a great focus and commitment to follow a new paradigm
for rural finance based on past experiences learnt.

The rural credit needs of people in India are met by elaborate structure of the Rural Financial
Institutions (RFIs). National Bank for Agriculture and Rural Development (NABARD) has
been acting as the apex institution as well as principal refinancing agency for RFIs. Reserve
Bank of India (RBI) acts as principal monetary authority and has retained few powers related to
directing and regulating agricultural credit, though most developmental functions in
agricultural sector have been ceded to NABARD. Scheduled Commercial banks, Regional
Rural Banks (RRBs) and Cooperative banks are the three principal rural financial agencies.
There are many other institutions which are state-sponsored as well as Non-Governmental
Organizations (NGOs) have been established for the development of special
sections of population or particular regions, these institutions also provide credit to rural
population. Cooperative banks have been catering to long term and short-term needs of the
semi-urban and rural areas. Few of these banks, which are mainly in smaller states, have been
operating directly through their bank branches. Those banks which are located in larger states
have been operating through intermediary level. The semi-urban and rural branches of
commercial banks at regional level are controlled by regional offices and these regional offices
are coordinated at zonal level by zonal offices, having headquarters of banks responsible for the
overall supervision and control. Commercial banks also act as a sponsor in collaboration with
central and state governments, local district level banks, known as the Regional Rural Banks
(RRBs). NABARD have been playing a very important role in augmenting credit flow for
promoting agriculture, cottage and small scale industries, handicraft and various other rural
crafts and other allied activities in
the rural areas. NABARD does not directly help farmers and rural people, rather it flows credit
to people in rural areas through Commercial Banks, RRBs, Co-operative banks etc. NABARD
is an apex body which deals with planning, policy and other operational aspect of rural credit
for all-round development of the rural economy.

Meaning and Scope

Terminologies related to rural finance should be defined to avoid ambiguities in

understanding the whole concept of finance in agriculture. In an attempt to be clear with
terminology, we use the following definitions for the financial sector to differentiate
agricultural finance from rural finance. There is a great deal of ambiguity among finance, rural
finance, agricultural finance, and microfinance. Finance is narrowly interpreted as capital in
monetary form that is in terms of funds lent or borrowed, normally for capital purposes,
through financial markets or institutions. Rural finance, as defined by the World Bank, is the
provision of a range of financial services such as savings, credit, payments and insurance to
rural individuals, households, and enterprises, both farm and non-farm, on a sustainable basis.
It includes financing for agriculture and agro processing. Agricultural finance is defined as a
subset of rural finance dedicated to financing agricultural related activities such as input supply,

Dr. Yusuf Perwej Rural Development

 production, distribution, wholesale, processing and marketing. Agricultural finance is the
economic study of the acquisition and use of capi tal in agriculture. It deals with the supply of
and demand for funds in the agricultural sector of the economy. Knowledge of fundamental
economic and management principlesand analytical procedures facilitates obtaining control
over capital and using it efficiently. Microfinance is the provision of financial services for poor
and low income people and covers the lower ends of both rural and agriculture finance.
Financial analysis related to farm income, repayment capacity, and risk management indicates
the total amount of capital the farm business can profitably and safely use. Information and
knowledge on the legal aspects of borrowing, leasing, and contractual arrangements helps the
farmer select the means of acquiring and controlling resources that will contribute most to the
farming operation.

Role of Rural Finance to Growth

Technological revolution including mechanization, improved varieties, modern chemical

pesticides and fertilizers, and new production methods have contributed to the increase in
production per acre, per animal, per labor-hour. These technological and structural
changes in agriculture have increased the risks of owning and operating a farm business.
The increased use of credit in farm business along with narrower profit margins has
increased the financial risk of farming. The importance of finance in agriculture has
significantly increased over time in accordance with the change in technology and the
increase in production.

Policy should be directed at developing a market-based financial system for rural finance,
but because of market failures to support disadvantaged groups, a special-priority
program may be needed to get credit to women, smallholders and the rural non-formal
sector. Subsidizing interest rates is not the way to help marginal borrowers. Instead, they
can be helped through fixed-cost subsidies and self-selected targeting. Commercial banks
should be encouraged to lend on other bases than the mortgage and passbook system.
They should consider lending for such downstream agricultural activities as agro-
processing. To improve rural financing, the system of property rights, title and default
enforcement must also be strengthened, among other reforms.
Generally, to improve performance in the rural economy and efficiency in financial
institutions, rural credit markets must be liberalized. The following reforms are important
in an economy:

1) Avoiding produce and price controls;

2) Operation of commercial banks in a competitive environment;
3) Availability of credit to support productivity growth for agricultural smallholders and
small producers of the rural non-formal sector, where growth potential of developing
countries lies
4) Credit availability to women and to the rural poor for consumption-smoothing and for
sustainable income-generating activities

Rural credit and Role of Banking system

Dr. Yusuf Perwej Rural Development

 The growth of rural credit depends on funds which are available from one interval to the other
interval, for understanding the high rise productivity in agricultural and non-agricultural areas.
Interval gap from sowing seeds to understanding of the post-production revenues is
comparatively very long, farmers need money from various fronts for matching primary
investment of buying seeds, tools, fertilizers and for expenses. Rural credit is a very important
part of development of the economy. Being a key component sector of Indian economy, RBI
has historically located priority to delivery of agricultural credit. The RBI Act, 1934 envisage a
developmental role for Reserve Bank in agricultural credit with the responsibility particularly
towards financing for seasonal operation and marketing of crops. The Rural Banking Enquiry
Committee (Thakurdas Committee, 1950) stressed importance, for having an efficient
agricultural finance system, of sound co-operative credit structure which is capable of
developing closer relations with Bank.

Challenges in Rural Finance

It is recognized that rural areas and populations remain underserved, yet economic
development for these areas and populations are key components in the overall
development of a country. The donor community and providers entering the market have
shown a renewed interest in economic growth leading to poverty reduction within rural
populations. In spite of their renewed commitment, significant challenges to the
successful implementation of effective delivery of services and outreach remain
prevalent. Given these facts the question remains: what are these challenges and what can
institutions do to respond to them to make agriculture credit work?
Some factors unique to rural and agricultural markets that constrain both the supply and
demand for finance in those areas could be economic, political, legal, institutional, and
weather related.

Types of Rural Credit

(1) Short Term Loan/Credit

It is a kind of rural credit which is taken for holding private or business capital requirements. It
is type of credit in which amount of principal and interest has to be paid on given date. The
loan duration is up to one year. It is an expensive option for people, in particular for start-ups or
small companies who are unable to get loan from bank. Short term loan is required to buy
agricultural input like fertilizers, insecticides, pesticides, seeds etc. Such loans are payable once
the crops are actually ready and are sold out.

(2) Medium-Term Loan/Credit

It is a kind of loan in which the repayment period is between 2 to 5 years and this period is
lesser than 10 years. These loans are excellent option for the small firm who are planning to
take a loan through a traditional way. Individuals can get loan amount of different amount,
which varies with credit rating, cash as well as other factors. Such loans are required for
various purposes like digging wells, buying bullocks, fencing fields etc. Medium term loan is
required for such purposes wherein more than one year is required for making payment hence
more time period is required for loan.

Dr. Yusuf Perwej Rural Development

 (3) Long Term Loan/Credit

It is a loan in which the repayment period is generally 5 to 20 years and sometimes even more
than that in certain cases. In business, this type of loan is required to own permanent assets
which would generate returns over period. When a farmer borrows money for buying land or
tractor, or for paying ancestral debts, loans for longer duration is required. In case of
agricultural sector, long-term credit is required for land leveling, sinking well, fencing, heavy
machinery acquisition like tractor, permanent land repairs and other such requirements. Large
amount of money is required for the above requirements. The farmers dealing in private
farming might have a potential to earn profits in future through acquisition of assets. The small
farmers do not have sufficient funds of their own for making
costly investments as they do not have much of savings or their savings is very little.

 Role of Banking System in Rural Areas

The banking system in India has been playing a very important role in economic growth of
India since the 18th century. There are many categories of banks which have been functioning
in the rural areas and providing support to the people in rural areas for becoming a part of the
banking system. RBI is main authority of the public sector banks, the private banks, the
financial and non financial institutions. The Banking system could be classified into the
Scheduled banks and Non-Scheduled banks. Banks have been operating towards development
of the rural areas. The operation area of majority of Regional Rural Banks (RRBs) is actually
limited to notified area and this area comprise of few districts in state. The working of Regional
Rural Banks would be better suited than commercial banks and co-operative banks for meeting
needs of the rural areas. State Bank of India has been playing a very important role in the rural
areas. There are many other commercial banks which are providing banking products and
services to people who have been staying in rural and semi-urban areas. The Co-operative
banks are very important constituent in the Indian financial system and play a very important
role in rural areas and this could be understood by the role that is assigned to these banks,
expectations which they need to fulfill, the number of co-operative banks as well as their
offices which are operating in the financially excluded area in India.

Retail Banking

Banks are providing various products and services through retail banking to the people in rural
areas. These products are helping out the middle income and lower income level people in
getting financially included in the banking sector. Decline in the dependency ratio and also
increase in non-farm income sources have triggered the increased savings flow to banking
system and the demand for retail banking products/ services. Demand for the housing in the
rural areas is on rise over years. Majority rural housing is self-financed, except the weaker
section’s housing. There is an existence of ample opportunities for banks to enter the housing
segment in the rural areas. Affordable housing can be regarded as need-of-the-hour and this
would require great deal of financial and technological innovation.

Dr. Yusuf Perwej Rural Development

 Banking Opportunities in Rural areas

1. Farm Mechanization

Inflation in the agricultural sector has increased consistently due to gap in demand supply
gap and there is an upcoming need for improving productivity through the use of extensive
farming mechanization. There is opportunity for inviting major investments for the banks for
considering higher technological agricultural production such as agricultural biotechnology
and farming mechanization even besides continuing with traditional lending like production
loan.

2. Agro Based Industries

Consumption boom may lead to high demand of food products like meat, milk, fruits, eggs,
pulses, vegetables, etc which would necessitate expansion in supply. This could be achieved
through expansion in farming production activities which coupled with the encouraging
entrepreneurs for setting up the agro based industry. The next generation belongs to millions
of the younger entrepreneurs who are planning to set up the agro based industries at small or
medium scale. These industries will accompany employment opportunity in the rural areas
and will also supplement income of rural households.

3. Warehousing

India is the largest producer of vegetables and fruits in the world but the availability of
storage facilities which is required post-harvest and transportation facility are inadequate and
there have been problems faced by farmers due to these issues. Construction of rural goes
down, cold storage and setting up of agro process units not only helps the farmers to income
besides providing employment opportunities to many in rural areas. This invites huge
investment and entrepreneurs are looking forward to banks for the required guidance and
financial support
.
4. Retail Banking

There is spurt in the middle class segment and is expected to grow at an accelerated pace in
ensuing years with distinct features like education, employability and bankability. Declining
dependency ratio and an increase in the non-farm income source are triggers for increased
flow of saving to banking system and demand for retail banking services. Demand for
housing in the rural area has increased over years. Except housing facility to the weaker
sections, majority of rural housing is being self-financed. There are many opportunities for
the banks to tap this segment. As such, affordable housing is need of
the hour and this requires a great deal of financial and technological innovation.

5. Educational Loans

Increase in literacy rate amongst the rural masses is positive factor. As per a recent
government initiative, i.e. waiver of entire interest on educational loan during period of study
to the students is being given; this is subjected to a condition that the parent’s income should
be below a certain limit. This scheme of government has made loan scheme more attractive
and it has enabled banks to improve the retail lending. In this scheme, there is an interest
subsidy given during moratorium period i.e., course period and one more year on the

Dr. Yusuf Perwej Rural Development

 Education Loan which is taken from Scheduled Banks under Model Education Loan Scheme
of the Indian Banks Association for students who are belonging to the
economically weaker section whose annual parental income upto Rs. 4.5 from all the income
sources. Subsidy is allowed for students to undergo a recognized technical/ professional
course from recognized Institutions in India.

National Bank for Agriculture and Rural Development (NABARD)

NABARD is Apex Development Financial Institution in India. The Bank has been entrusted
with "matters concerning Policy Planning and Operations in the field of credit for Agriculture
and other Economic activities in Rural areas in India". NABARD has been active in
development of the Financial Inclusion policy. NABARD had been established on
recommendations of B. Sivaramman Committee through Act 61, 1981 of the Parliament, on
12th July 1982 by implementing the NABARD Act 1981. This replaced the
Agricultural Credit Department (ACD) and the Rural Planning and Credit Cell (RPCC) of
Reserve Bank of India (RBI) and the Agricultural Refinance and Development Corporation
(ARDC). It is a premier agency which provides developmental credit in the rural areas.
NABARD is India's specialized bank focusing on Agriculture and Rural Development in India.
Initial corpus of NABARD was Rs. 100 crores. Consequently with revision in composition of
the share capital between Indian government and RBI, paid up capital as
on 31st May 2017, was Rs.6,700 crores with holding of Government of India as Rs.6,700
crores (i.e. 100% share). Authorized share capital is actually Rs.30,000 crores.
There are some International associates of NABARD which include World Bank-affiliated
organizations and various global developmental agencies which have been working in field of
rural development and agriculture. These organizations have been helping NABARD by giving
and advising monetary aid for upliftment of people in rural areas and optimizing agricultural
process. NABARD is known for the 'Self Help Groups (SHGs) Bank Linkage Programme' that
encourages India's banks for lending to the SHGs. SHGs are composed mainly of poor women
in the rural areas and this has evolved into important Indian
tool of microfinance.

Objectives of NABARD

NABARD have been established with following objectives:

1. Giving an undivided attention and a purposeful direction for integrated rural development
2. Acting as centre piece for entire rural credit system at national level.
3. Acting as provider of the supplemental funding for the rural credit institution
4. Arranging investment credit to village, cottage and small industries, handicrafts, other rural
crafts, farmers and artisans
5. Improving a system of credit distribution system through institution building, credit
institutions’ rehabilitation as well as training of the bank personnel
6. Providing facilities of refinance facilities to the State Land Development Banks (SLDBs),
State Co- operative Banks (SCBs), Regional Rural Banks (RRBs) and commercial banks for
developing the rural areas.
7. Coordinating working of the different agencies which are engaged in the developmental
work in the rural areas at regional level and also to liaison with Indian government, RBI, State
Government and the other Institutions engaged in policy making at national level.

Dr. Yusuf Perwej Rural Development

 8.Inspecting, monitoring and evaluating projects in getting refinance from NABARD.

Roles of NABARD

1. It serves as apex financing agency for institutions through production and investment credit
for promoting various developmental activities in the rural areas
2. Taking measures toward institutions building to improve absorptive capacity of credit delivery
system which includes formulation and monitoring of various rehabilitation schemes,
restructuring of the credit institutions, personnel training etc.
3. Coordinating working of the different agencies which are engaged in the developmental work
in the rural areas at regional level and also to liaison with Indian government, RBI, State
Government and the other Institutions engaged in policy making at national level.
4. Undertaking evaluation and monitoring of the projects refinanced by NABARD
5. NABARD refinances financial institutions which further provide finance to rural sector.
6. NABARD takes part in developing institutions that help rural economy
7. It keeps check on the client institutes
8. It regulates institutions that provide financial help to rural economy
9. NABARD provides training facilities to institutions which are working in field of the rural
upliftment
10. It supervises and regulates RRBs and Cooperative banks throughout the country.

Economic challenges

Rural finance faces varieties of challenges resulting from the economic reality of a country
including the following:

1) Transaction costs – High transaction costs for both borrowers and lenders;
2) Economic activities – Often limited economic opportunities available to local
populations;
3) Risk – High risks faced by potential borrowers and depositors due to the variability of
incomes, exogenous economic shocks and limited tools to manage risk;
4) Concentration of activities – Heavy concentration on agriculture and agriculture
related activities exposes clients and institutions to multiple risks;
5) Crowding – Crowding out effect due to subsidies and directed credit;
6) Portfolio concentration – Increased risks associated with the concentration of a
portfolio on agricultural activities;
7) Collateral – Lack of adequate or usable collateral (lack of assets, unclear property
rights);
8) Infrastructure – Undeveloped or inadequate infrastructure;
9) Land fragmentation – Land held may be too small to be sustainable in an optimal use;
and
10) Sources of income – Individuals may be dependent upon only one crop with no other
external sources of income.

Political, legal and institutional challenges: The following are some of the political,
legal, and institutional challenges faced in rural finance.
1) Institutional capacity – Weak institutional capacity including poor governance and

Dr. Yusuf Perwej Rural Development

 operating systems, low staff and management skills;
2) Political intervention – Risk of political intervention, which can undermine payment
morale through debt forgiveness and interest rate caps;
3) Policy – Inhospitable policy, legal and regulatory frameworks;
4) Legal systems – Undeveloped legal systems, inadequate contract enforcement
mechanisms;
5) Information – Lack of reliable information about borrowers; and lack of market
information and/or market access

Cultural and geographical challenge: Cultural and geographical challenges are the
common problems faced in rural finance some of which are listed below:
1) Population density and demand – Generally lower population density and dispersed
demand;
2) Repayment culture – History of poor repayment culture, many in the rural
populations historically associate poverty reduction efforts with charity from NGO’s
and view the microfinance institutions in the same way making it a challenge to
develop good repayment behavior
3) Accessibility – It is sometimes difficult to gain access to the communities and to get
the community to accept credit terms.

Weather challenges: Developing countries with a great dependence on rain-fed

agriculture are highly influenced by weather related challenges including:
1) Rainfall – Rainfall patterns vary by region resulting in some areas with one growing
season and others with three;
2) Natural disaster – Susceptibility to natural disasters which can cause sudden and
severe devastation to livelihoods
3) Seasonality – potentially affecting both the client and the institution

Unfortunately, financial services providers in rural markets are not able to choose which
challenges they will face. More often than not the various challenges reinforce and
compound each other. For example, the high risk inherent in agriculture means increased
importance in screening and monitoring of clients and therefore higher transaction costs
for both clients and institutions, which are exacerbated by the dispersion of the client
base and small loan sizes. Calvin Miller (2004) has identified 12 key challenges in rural
finance. These challenges can be grouped into four as vulnerability constraints,
operational constraints, capacity constraints, and political and regulatory constraints in a
country.

Vulnerability constraints: Vulnerability constraints include systematic risk, market risk,

and credit / financial risk arising from the following issues in a country including: (1)
weather condition, (2) plagues and diseases, (3) prices, (4) production, (5) useable
collateral, (6) demand preferences, and (7) health and family needs.

Operational constraints: These constraints are caused by low investment returns, low
investment and asset levels, and low geographical dispersions of the rural financial
institutions in a country. These constraints include: (1) low growth potential, (2) low

Dr. Yusuf Perwej Rural Development

 velocity of capital, (3) non-competitive technologies, (4) lack of market integration, (5)
lack or quality of roads and communication, (6) low efficiencies of business operations,
and (7) high operating costs.

Capacity constraints: Capacity constraints are related to infrastructural capacity,

technical and training capacity, social exclusion, and institutional competency. These are
caused by the following constraints: (1) lack of business investment, (2) lack of
competitive technologies, (3) lack of roads, (4) lack of communication, (5) lack of
education, (6) lack of technical and management skills, (7) lack of institutional capacity,
and (8) lack of social representation (civil society).

Political and regulatory constraints: These challenges include political and social
interference, and regulatory framework. They are related to the following challenges: (1)
political interference, (2) NGO donation interference, (3) cultural and gender constraints,
(4) land tenure laws, and (5) financial regulations and tax policy.

 Government & Non-Government Organizations

Government Organizations

Government, in the modern sense and as opposed to the myriad kingdoms and feudal states that
dotted the Indian countryside in the past, emerged in our country during the days of the British
rule. In that era, the connotation, meaning and objectives of Development were quite different.
Foreigners were ruling the country. Their main interest was in their own well-being and
therefore related type of Administration - maintaining law and order, collecting taxes, etc.
No doubt, lot of development took place, particularly in infrastructure (railways, postal system,
etc.). But the main objective of the then-Governance was to facilitate the ruling of the country -
the continued welfare of the rulers was the aim of development. In the process, if the people of
the country benefited, it was just by the way.

Once the country became independent and we had a government, "by the people, of the people,
and for the people", government became a central, and in many ways, the only player in the
development field. Ideologically, just after independence and for a long time thereafter, the
government believed in a socialist model of development, inter alia, depending upon central
planning and control on all economic and social processes. The paradigm of development
related to models and activities like: the five-year plans; setting up of public sector undertaking
to command the heights of the economy; licenses and permits to control investments and
resources allocations; etc.

Over the last two decades or so, the paradigm of governance has changed - first gradually and
then at an accelerated rate. Under the influence of national and international forces, the
economy is moving towards more and more liberalization, privatization, and globalization.
Government wants to become a facilitator and regulator rather than an active player in
development. The process has just started and is being implemented cautiously under a close
watch and rigorous monitoring, so that there is net social gain and also that vulnerable sections
of the society are not unduly hurt.

Dr. Yusuf Perwej Rural Development

 It would not be an exaggeration to say that in some ways government is withdrawing from
certain fields of development, and that is leaving a vacuum. To a certain extent, this has been
necessitated by severe constraint on (democratically garnered) resources and the need to
allocate these to relatively higher priority areas, as perceived by the powers that be. It could
also be attributed to an introspection on the part of various arms of the Government and a,
rather reluctant (?), admission that they have not been able to deliver the goods. In the worst
case scenario, it could be simply an abdication of their responsibility.

The good governance reflects in the goals and objectives of a government. More so, in
development the policies and the programmes and manner of their execution to achieving
desired level of development. Above all, the general perception of the people is about the
functioning and government and of its various agencies towards the performance in the sphere
of development and welfare. It is also important to have decentralization of power functioning
and resources so as to achieve, even grassroots level development and for performance-
orientation.

The central and state governments followed an approach with positive discrimination and
making special efforts by several programmes for elimination of poverty, developing
disadvantaged groups, developing backward areas, protecting the rights of the child, raising the
literacy levels, improving access to health care, empowering the women by increasing gender
sensitivity, and ensuring equal opportunity for all sections of the society.

Non-Governmental Organizations

After independence also, it took a while for NGOs to emerge. It could possibly be said that
immediately post-independence, individuals who comprised the government were themselves
of the NGO mindset - at least in terms of their proximity to the 'common man' and a sense of
selflessness. And therefore, there was no felt need for any intermediary for articulating
collective desires of the people relating to different aspects of development and then
responding to those in terms of related programmes and projects.

In due course, the primary functionaries of government - namely politicians (Legislature) and
bureaucrats (Executive) - became rather distant from the people. In that context, the NGOs
emerged as a link - both for expressing people's point of view and for providing a channel for
resources delivery meant for development activities.

A non-governmental organization (NGO) is a legally constituted organization created by

natural or legal persons that operates independently from any government and a term usually
used by governments to refer to entities that have no government status. In the cases in which
NGOs are funded totally or partially by governments, the NGO maintains its non-governmental
status by excluding government representatives from membership in the
organization. The term is usually applied only to organizations that pursue some wider social
aim that has political aspects, but that are not overtly political organizations such as political
parties. Unlike the term "intergovernmental organization", the term "non-governmental
organization" has no generally agreed legal definition. In many jurisdictions, these types of
organization are called "civil society organizations" or referred to by other names.

Government also realized that there were lots of advantages to enrolling NGOs in the
development process : NGOs are motivated and enthusiastic; they have flexibility in

Dr. Yusuf Perwej Rural Development

 operations; they are close to the people; they provide additional manpower to conduct
developmental activities.

In today's context, NGOs have become an integral part of the process of development and are
shouldering more and more responsibilities in diverse fields. In recent years, the number of
NGOs, their geographic extent, their diversity (in domain areas), their resources channelisation
and, in the ultimate analysis, their impact have all increased.

Based on the approaches they adopt and the priority they give, NGOs have been classified
into seven categories:
(1) Charity: Giving food, clothing medicine, alms, in cash
and in kind, land, building etc.
(2) Welfare: Providing facilities for education, health,
drinking water, roads, communication etc.,
(3) Relief: Responding to immediate needs arising out of
natural calamities like floods, drought,
earthquakes and manmade calamities like
refugee, ravages of water, etc.,
(4) Rehabilitation: Continuing and taking up steps to the work in
areas struck by calamities and starting activities
that are durable in nature.
(5) Services: Building up infrastructure in the neglected
backward areas.
(6) Development Socio-economic development
(7) Development of Conscious raising, awareness, raising,
Human Beings: organizing, recording of priorities, to suit social
justice, opening up of opportunities to the
oppressed and the exploited.
The role of non-governmental organizations:

In the contemporary era, NGOs and voluntary organizations play the multiple role as the
promoters of development, catalysts for socio-economic and political changes as motivators for
popular participation in influencing public policy and public opinion. They engage themselves
in conscientization, play a role in enforcement of law and social legislation and also act as a
vital link between the people and the government.

Creating awareness among the rural masses about their basic rights to services is an important
role played by the NGO and voluntary agencies. Generation of awareness led to a situation in
which demand their rights has made the local delivery system more responsive to the needs of
the poor especially in the rural India. As an awareness creating agency, the NGO can:

Dr. Yusuf Perwej Rural Development

  Supplement the government efforts so as to offer the rural poor choices and alternatives.
 Be the eyes and ears of the people at the village level.
 Adopt simple, innovative, flexible and inexpensive means with its limited resources to
reach a large number with less overheads and with greater community participation and make
communities as self-reliant as possible.
 Disseminate information and Active the delivery system and to make it effective at the
village level in respond to the felt needs of the poorest of the poor.
 Show how village level local resources could be used that include human resources,
skills and local knowledge, grossly underutilized at present, could be used for their own
development.
 To train a cadre of grassroots workers who would become professional in their field of
work.
 To mobilize financial resources from within the community with a viewing making
communities stand on their own feet.
 To mobilize and organize the poor and generate awareness to demand quality services
and impose a community system of accountability on the performance of village level of
government functionaries.

 Community Based Organizations

Community based organizations (CBO's) are nonprofit groups that work at a local level to
improve life for residents. The focus is to build equality across society in all streams - health
care, environment, quality of education, access to technology, access to spaces and information
for the disabled, to name but a few. The inference is that the communities represented by the
CBO's are typically at a disadvantage. CBO's are typically, and almost necessarily, staffed by
local members - community members who experience first hand the needs within their
neighborhoods. Besides being connected geographically, the only link between staff members
and their interests is often the desire and willingness to help. Occupational skill sets and
experience are greatly diverse.

The tightrope upon which stability balances in this type of organization is being stretched taut,
as the role of the CBO is extended to new lengths. Governments are increasingly delegating
responsibility to CBO's and relying on them to gather local concerns, develop, plan, and help
deliver solutions. CBO's are storehouses, gatekeepers, of local information obviously valuable
for their own purposes, but this data is also useful to other organizations and government
agencies. The role of CBO's is becoming knowledge management - to compile, sort, store and
retrieve local data. Technology is increasingly becoming more important to this function, to
manage daily business operations, but also to develop innovative solutions, given restrictive
budgets, limited personnel available, and new demands for services and information.
Technology is being used to bring in the voice of the community members, through public
participation and input. Applications include mapping of community landmarks and services by
locals, providing environmental baseline and change measurements, and identifying concerns
common throughout the community.

Work conducted by CBO's generally falls into the themes of human services, natural
environment conservation or restoration, and urban environment safety and revitalization.
Examples include:

 neighborhood revitalization
 affordable housing

Dr. Yusuf Perwej Rural Development

  food security
 accessible transportation
 senior citizens associations
 environmental protection/conservation
 community sustainability
 humanitarian/disaster response
 medical relief funds
 youth homes and centers

Community based organizations (CBO's) use technology for managing daily business
operations and administrative functions, but also require specific technology for mission-
critical programs. Neighborhood or geographic information systems (NIS or GIS) are emerging
technologies in the nonprofit sector generating custom solutions for CBO's. The value of using
this technology for CBO's lies in:

 the capacity for efficient data management,

 increased information that can be extracted from already collected data,
 the ease in sharing data and incorporating other similarly referenced data (to
generate additional information),
 the sophisticated analysis and presentation it affords, which is critical in
securing further support and funds for the organization, and
 allowing for active participation and collaboration with community members.

 Concept of Self help group

Self Help Groups (SHGs) are small groups of poor people. The members of an SHG face similar
problems. Self-Help Groups (SHGs) are informal associations of people who choose to come
together to find ways to improve their living conditions. It can be defined as self-governed, peer
controlled information group of people with similar socio-economic background and having a
desire to collectively perform common purpose. Villages face numerous problems related to
poverty, illiteracy, lack of skills, lack of formal credit etc. These problems cannot be tackled at
an individual level and need collective efforts. Thus SHG can become a vehicle of change for the
poor and marginalized. SHG rely on the notion of “Self Help” to encourage self-employment
and poverty alleviation.

Functions

 It looks to build the functional capacity of the poor and the marginalized in the field of
employment and income generating activities.
 It resolves conflicts through collective leadership and mutual discussion.
 It provides collateral free loan with terms decided by the group at the market driven rates.
 Such groups work as a collective guarantee system for members who propose to borrow from
organised sources. The poor collect their savings and save it in banks. In return they receive easy
access to loans with a small rate of interest to start their micro unit enterprise.
 Consequently, Self-Help Groups have emerged as the most effective mechanism for delivery of
microfinance services to the poor.

Dr. Yusuf Perwej Rural Development

Need for Self Help Groups (SHGs)

 One of the reasons for rural poverty in our country is low access to credit and financial services.
 A Committee constituted under the chairmanship of Dr. C. Rangarajan to prepare a
comprehensive report on 'Financial Inclusion in the Country' identified four major reasons for
lack of financial inclusion:
o Inability to provide collateral security,
o Poor credit absorption capacity,
o Inadequate reach of the institutions, and
o Weak community network.
 The existence of sound community networks in villages is increasingly being recognised as one
of the most important elements of credit linkage in the rural areas.
 They help in accessing credit to the poor and thus, play a critical role in poverty alleviation.
 They also help to build social capital among the poor, especially women. This empowers women
and gives them greater voice in the society.
 Financial independence through self-employment has many externalities such as improved
literacy levels, better health care and even better family planning.

Genesis of Self Help Groups (SHGs)

 The Genesis of SHG in India can be traced to formation of Self-Employed Women’s Association
(SEWA) in 1970.
 The SHG Bank Linkage Project launched by NABARD in 1992 has blossomed into the world’s
largest microfinance project.
 NABARD alongwith RBI permitted SHGs to have a savings account in banks from the year of
1993. This action gave a considerable boost to the SHG movement and paved the way for the
SHG-Bank linkage program.
 In 1999, Government of India, introduced Swarn Jayanti Gram Swarozgar Yojana (SGSY) to
promote self-employment in rural areas through formation and skilling of SHGs.
 The programme evolved as a national movement in 2011 and became National Rural
Livelihoods Mission (NRLM) – world’s largest poverty alleviation programme.
 Today, State Rural Livelihood Missions (SRLMs) are operational in 29 states and 5 UTs (except
Delhi and Chandigarh).
 NRLM facilitated universal access to the affordable cost-effective reliable financial services to
the poor like financial literacy, bank account, savings, credit, insurance, remittance, pension and
counselling on financial services.

Benefits of Self Help Groups (SHGs)

 Social integrity – SHGs encourages collective efforts for combating practices like dowry,
alcoholism etc.
 Gender Equity – SHGs empowers women and inculcates leadership skill among them.
Empowered women participate more actively in gram sabha and elections.
 There is evidence in this country as well as elsewhere that formation of Self-Help Groups has a
multiplier effect in improving women’s status in society as well as in the family leading to
improvement in their socio-economic condition and also enhances their self-esteem.
 Pressure Groups – their participation in governance process enables them to highlight issues
such as dowry, alcoholism, the menace of open defecation, primary health care etc and impact
policy decision.

Dr. Yusuf Perwej Rural Development

  Voice to marginalized section – Most of the beneficiaries of government schemes have been
from weaker and marginalized communities and hence their participation through SHGs ensures
social justice.
 Financial Inclusion – Priority Sector Lending norms and assurance of returns incentivize banks
to lend to SHGs. The SHG-Bank linkage programme pioneered by NABARD has made access
to credit easier and reduced the dependence on traditional money lenders and other non-
institutional sources.
 Improving efficiency of government schemes and reducing corruption through social audits.
 Alternate source of employment – it eases dependency on agriculture by providing support in
setting up micro-enterprises e.g. personalised business ventures like tailoring, grocery, and tool
repair shops.
 Changes In Consumption Pattern – It has enabled the participating households to spend more
on education, food and health than non-client households.
 Impact on Housing & Health – The financial inclusion attained through SHGs has led to
reduced child mortality, improved maternal health and the ability of the poor to combat disease
through better nutrition, housing and health – especially among women and children.
 Banking literacy – It encourages and motivates its members to save and act as a conduit for
formal banking services to reach them.

Opportunities for Self Help Groups (SHGs)

 SHGs often appear to be instrumental in rural poverty alleviation.

 Economic empowerment through SHGs, provides women the confidence for participation in
decision making affairs at the household-level as well as at the community-level.
 Un-utilised and underutilised resources of the community can be mobilised effectively under
different SHG-initiatives.
 Leaders and members of successful SHGs bear the potentiality to act as resource persons for
different community developmental initiatives.
 Active involvement in different SHG-initiatives helps members to grow leadership-skills.
Evidences also show that often women SHG leaders are chosen as potential candidates for
Panchayat Pradhans or representatives to Panchayati Raj Institution (PRI).

Weaknesses of Self Help Groups (SHGs)

 Members of a group do not come necessarily from the poorest families.

 Though there has been social empowerment of the poor, the economic gain to bring about a
qualitative change in their life has not been satisfactory.
 Many of the activities undertaken by the SHGs are still based on primitive skills related mostly
to primary sector enterprises. With poor value addition per worker and prevalence of subsistence
level wages, such activities often do not lead to any substantial increase in the income of group
members.
 There is a lack of qualified resource personnel in the rural areas who could help in skill
upgradation or acquisition of new skills by group members. Further, institutional mechanisms
for capacity building and skill training have been lacking.
 Poor accounting practices and incidents of misappropriation of funds.
 Lack of resources and means to market their goods.
 SHGs are heavily dependent on their promoter NGOs and government agencies. The withdrawal
of support often leads to their collapse.

Dr. Yusuf Perwej Rural Development

Challenges of Self Help Groups (SHGs)

 Lack of knowledge and proper orientation among SHG-members to take up suitable and
profitable livelihood options.
 Patriarchal mindset – primitive thinking and social obligations discourages women from
participating in SHGs thus limiting their economic avenues.
 Lack of rural banking facilities – There are about 1.2 lakh bank branches and over 6 lakh
villages. Moreover, many public sector banks and micro-finance institutions are unwilling
to provide financial services to the poor as the cost of servicing remains high.
 Sustainability and the quality of operations of the SHGs have been a matter of considerable
debate.
 No Security – The SHGs work on mutual trust and confidence of the members. The deposits of
the SHGs are not secured or safe
 Only a minority of the Self-Help Groups are able to raise themselves from a level of micro-
finance to that of micro-entrepreneurship.

Measures to Make Self Help Groups (SHGs) Effective

 The Government should play the role of a facilitator and promoter, create a supportive
environment for the growth and development of the SHG movement.
 Expanding SHG Movement to Credit Deficient Areas of the Country - such as Madhya
Pradesh, Rajasthan, States of the North-East.
 Rapid expansion of financial infrastructure (including that of NABARD) and by adopting
extensive IT enabled communication and capacity building measures in these States.
 Extension of Self-Help Groups to Urban/Peri-Urban Areas – efforts should be made to
increase income generation abilities of the urban poor as there has been a rapid rise in
urbanisation and many people remain financially excluded.
 Positive Attitude – Government functionaries should treat the poor and marginalized as viable
and responsible customers and as possible entrepreneurs.
 Monitoring – Need to establish a separate SHG monitoring cell in every state. The cell should
have direct links with district and block level monitoring system. The cell should collect both
quantitative and qualitative information.
 Need Based Approach – Commercial Banks and NABARD in collaboration with the State
Government need to continuously innovate and design new financial products for these groups.

Case studies

 Kudumbashree in Kerala
o It was launched in Kerala in 1998 to wipe out absolute poverty through community
action. It is the largest women empowering project in the country. It has three
components i.e., microcredit, entrepreneurship and empowerment. It has three tier
structure - neighborhood groups (SHG), area development society (15-20 SHGs) and
Community development society (federation of all groups). Kudumbashree is a
government agency that has a budget and staff paid by the government. The three tiers
are also managed by unpaid volunteers.
 Mahila Arthik Vikas Mahamandal (MAVIM) in Maharashtra
o SHGs in Maharashtra were unable to cope with growing volume and financial
transactions and needed professional help. Community managed resource centre
(CMRC) under MAVIM was launched to provide financial and livelihood services to
SHGs. CMRC is self-sustaining and provides need-based services.

Dr. Yusuf Perwej Rural Development

  Current Financial position of PRIs in India

 The various government organizations working in the field of rural finance in

India.

Dr. Yusuf Perwej Rural Development

  Regional Rural Banks (RRBs)

Regional Rural Banks are government owned scheduled commercial banks of India that
operate at regional level in different states of India. These banks are under the ownership of
Ministry of Finance, Government of India. They were created to serve rural areas with basic
banking and financial services

The RBBs Act has made various provisions regarding the incorporation, regulation and
working of RRBs. According to this Act, the RRBs are to be set-up mainly with a view to
develop rural economy by providing credit facilities for the purpose of development of
agriculture, trade, commerce, industry and other productive activities in the rural areas.

Dr. Yusuf Perwej Rural Development

 Objectives

The objective of regional rural banks is to develop the rural economy by providing credit and
other facilities for agriculture and other productive activities in rural areas. They provide these
facilities to small and marginal farmers, rural artisans, agricultural laborer's and other small
entrepreneurs working in the rural areas.

The objectives of RRBs can be summarized as follows:

 To provide loan for backward class public

 To opening branches of bank in rural areas.
 To save the rural poor from the moneylenders.
 To cultivate the banking habits among the rural people and mobilize savings for the
economic development of rural areas.
 To increase employment opportunities by encouraging trade and commerce in rural areas.
 To encourage entrepreneurship in rural areas.
 To cater to the needs of the backward areas which are not covered by the other efforts of
the Government?
 To develop underdeveloped regions and thereby strive to remove economic disparity
between regions.
 To increase employment opportunities by encouraging trade and commerce in rural areas.

Features

The Features of RRBs can be summarized as follows:

 The area of operation of a rural bank is limited to a specified region which comprises of
one or more districts.
 These banks cannot have a lending rate which is higher than the prevailing lending rate
of cooperative credit societies in any particular state.
 The salary structure of the employees of these banks is fixed in consonance with the
salary structure of the employees of the state government, local authorities of comparable
level and status in the area.
 They are public sector banks. The paid-up capital of each bank is Rs. 25 lakhs. 50 percent
of the capital is contributed by the Central Government. The concerned state government
contributes 15 percent. 35 percent is contributed by the sponsoring public-sector commercial
banks.
 It grants loans and advance only to the small and marginal farmers, agricultural laborer's,
small traders\ entrepreneurs.
 This is sponsored bank. It is sponsored by a scheduled commercial bank.
 The RRB charges interest rates as adopted by the co-operative society in the state.

Functions

 Providing of loans and advance to the farmers and other person already engaged in
agriculture activities.
 Providing of loans and advance to the co-operative societies and other society which are
involved in agriculture processing .
 Accepting the various types of deposits from the rural and other connected areas.

Dr. Yusuf Perwej Rural Development

  providing loans and advances to small entrepreneurs and others who are engaged in trade,
commerce and industry.
 Setting up and Maintenance of godowns and warehouse.
 Reducing the dependency of weaker section of money lenders.
 Undertaking of the supply of agricultural inputs & equipment's to farmers.
 Making backward and tribal areas economically better by opening new branches and
extending micro credit facilities and operating the scheme of inclusion.

 The various government organizations that are associated with rural

development

 Community-Based Organizations (CBOs)

Community-based organizations, or CBOs, are local non-profit groups that works to generate
improvements within a community on the local level.1 They are basically the community
development process in the form of a formal organization. They are usually locally formed,

Dr. Yusuf Perwej Rural Development

 locally staffed, and their actions are specific to the location they operate in. Most CBOs are
mainly volunteer organizations, with few paid positions as most of their funding is delegated
towards completing the group's objectives. Their local status also means that they may be limited
in what resources they have access to, depending on the geographical location of the CBO and
the community it serves.

Since they are so localized, a CBO is only going to tackle issues within the community they
operate in. This does not mean that CBOs only focus on minor things; large scale issues like
crime and poverty are common areas of interest for CBOs. These groups are free to look at
issues that exist outside of their community that are affecting the community itself, but they will
just look at how those issues impact things within that particular space. In some instances, a
CBO may collaborate on an issue outside of its community with another CBO. This usually
happens when there is some overlap in regards to their areas of interest, such as shared
geographic boundaries between the two communities. They may also look at how a larger issue
is being handled in other communities and by other CBOs in order to find guidance or alternative
solutions. Otherwise, it will remain within a specific community and not venture outside of it.

Who is the father of Panchayati Raj?

Balwant Rai Mehta was a parliamentarian who is credited for pioneering the concept of the
Panchayati Raj in India and was also known as the ‘Father of Panchayati Raj’.

What is the importance of Panchayati Raj?

Panchayati Raj institutes village local government that plays a significant role in the
development of villages especially in areas like primary education, health, agricultural
developments, women and child development and women participation in local government,
etc.

Which state in India has no Panchayati Raj institution?

All states of India have Panchayati Raj systems except Nagaland, Meghalaya and Mizoram,
in all Union Territories except Delhi; and certain other areas.

What are the features of Panchayati Raj?

1. Gram Sabha: Gram Sabha is the primary body of the Panchayati Raj system. It is a village
assembly consisting of all the registered voters within the area of the panchayat.
2. Three Tier System: village, intermediate and district levels.
3. Election of members and chairperson: The members to all the levels of the Panchayati Raj are
elected directly and the chairpersons to the intermediate and the district levels are elected indirectly.

Dr. Yusuf Perwej Rural Development