Decentralised on Paper, Centralised in Practice
By - Anay Ajit Kulkarni, Research Assistant, Pune International Centre.
Long before constitutional recognition, systems of local administrative self-government existed across Indian states in the form of municipalities, town committees, and village Panchayats. The 73rd and 74th Constitutional Amendments sought to standardise and constitutionally strengthen this fragmented landscape by formally recognising Panchayats and Municipalities as the third tier of governance. While these amendments marked a significant constitutional milestone, their implementation has exposed enduring challenges in the devolution of powers, finances, and administrative authority, leaving decentralisation an ongoing rather than completed reform.
The 73rd Amendment: Constitutional Recognition Without Guaranteed Autonomy
Enforced in April 1993, the 73rd Constitutional Amendment granted constitutional status to Panchayati Raj Institutions through the insertion of Part IX. The Eleventh Schedule listed 29 subjects for potential devolution; however, these remain illustrative rather than mandatory. Article 243G leaves the transfer of powers to State Legislatures, resulting in constitutional recognition without assured functional authority. This discretionary design contributes to uneven decentralisation across states.
Decentralisation Without Money: The Unfunded Mandates
While the 73rd Amendment sought to strengthen the financial position of Panchayats, they remain heavily dependent on transfers from higher levels of government due to limited own-source revenues (OSR) and delays in the constitution of State Finance Commissions. Rather than viewing these transfers as discretionary grants, they must be understood as public investment in grassroots governance, given that Panchayats deliver essential services and address local development priorities. The resulting paradox is that local governments are expected to drive development without adequate fiscal autonomy, reducing decentralisation to administrative delegation rather than genuine self-government.
Urban Governance and the Limits of the 74th Amendment
As rural decentralisation gained constitutional recognition, rapid urbanisation exposed governance deficits in towns and cities. The 74th Constitutional Amendment conferred constitutional status on municipalities and identified 18 functional domains under the Twelfth Schedule; however, like the Eleventh Schedule, actual devolution remains subject to state discretion under Article 243W, resulting in uneven implementation.
This institutional challenge is compounded by the systematic underestimation of India’s urban population. While Census 2011 places urbanisation at around 32%, proxy indicators such as night-light intensity and spatial expansion suggest significantly higher levels. Kelkar and Pethe (2024) note that earlier World Bank estimates had already placed India’s urban population above 60% a decade ago. Such mismeasurement distorts policy priorities, leading to inadequate resource allocation and governance frameworks that lag India’s accelerating urban transition.
Shared Mandate, Uneven Outcomes: Rural–Urban Decentralisation
Although the 73rd and 74th Amendments pursued a shared goal of democratic decentralisation, their implementation reveals distinct governance challenges across rural and urban contexts, particularly in areas of fiscal capacity, administrative coordination, and service delivery complexity.
These challenges are compounded by blurred rural–urban boundaries, where census towns display urban characteristics yet remain governed by rural institutions, leading to planning and service delivery mismatches, especially in rapidly expanding peri-urban regions. Mechanisms such as District Planning Committees (DPCs) and Metropolitan Planning Committees (MPCs) were intended to enable integrated, bottom-up planning; however, limited institutional capacity and overlapping mandates have restricted their effectiveness, leaving regional coordination only partially realised.
The Missing Link in Decentralisation: Power, Capacity, and Control
Decentralisation becomes meaningful only when the three critical elements, Functions, Functionaries, and Finances, are devolved simultaneously. In many states, responsibilities are transferred without corresponding administrative staff, while officials continue to report to state departments rather than local authorities, limiting institutional autonomy. Persistent fiscal dependence further constrains innovation, responsiveness, and accountability. Such partial devolution reflects a broader political economy reality: decentralisation entails a redistribution of power, which states may resist due to concerns over fiscal control, bureaucratic influence, and political authority, resulting in uneven implementation despite constitutional provisions.
The urgency of effective decentralisation has intensified amid rapid urbanisation, climate pressures, and growing demands for participatory governance. Local governments remain best positioned to respond to community needs and ensure democratic accountability, underscoring the importance of meaningful devolution for inclusive and sustainable development.
Beyond Constitutional Reform: The Incomplete Journey of Decentralisation
The 73rd and 74th Constitutional Amendments marked a transformative shift in India’s federal structure by recognising Panchayats and Municipalities as the third tier of governance. However, Articles 243G and 243W vest State Legislatures with discretion over functional devolution, rendering the Eleventh and Twelfth Schedules enabling rather than mandatory, which has contributed to uneven decentralisation across states.
Key constitutional mechanisms intended to strengthen local autonomy, including State Finance Commissions, District Planning Committees, and Metropolitan Planning Committees, have not been uniformly operationalised, limiting accountable and integrated governance. Persistent gaps in the devolution of the 3Fs continue to constrain local autonomy, as fiscal dependence, administrative control by state departments, and uneven institutional capacity remain significant barriers.
Rapid urbanisation and the rural–urban continum further complicate governance, underscoring that decentralisation is not a one-time statutory reform but an evolving constitutional process requiring sustained legislative commitment and administrative reform. Finally, although administrative discourse continues to describe these institutions as Urban Local Bodies (ULBs) and Rural Local Bodies (RLBs), the Constitution recognises them as Urban and Rural Local Government units of self-government rather than subordinate agencies. Aligning practice with this constitutional vision requires substantive devolution of authority, timely fiscal transfers, and enhanced administrative autonomy to realise the democratic intent of Parts IX and IX-A.
Thanks for reading! This post is available for free. Please feel free to share it with others.
Beyond The Blueprint is an initiative of the Pune International Centre (PIC) under the Co-Operative Federalism and Multilevel Governance. PIC is an independent and multidimensional policy think tank based in Pune. PIC does not solicit any payments or subscriptions for this blog series.
Good article Anay, Best wishes