Finance Commission grants to Rural Local Bodies have grown steadily, yet Panchayats struggle to use them. Examine how capacity-building schemes such as PM VGSY address the absorptive-capacity deficit of PRIs.

The Sixteenth Finance Commission has recommended about Rs.4.35 lakh crore in grants to Rural Local Bodies for 2026-31 [1]. Yet earlier grants often went unspent. The PM Viksit Gram Swaraj Yojana (PM VGSY) is a Centrally Sponsored Scheme of Rs.7,395.55 crore. It targets this absorptive-capacity gap, but it can close only part of it.

Why Panchayats struggle to use grants

• Rigid tied grants: under the 15th FC, 60% of grants were tied to sanitation and drinking water. Villages that had already finished such works could not move the money elsewhere [2].
• Weak State machinery: only 25 of 28 States had set up State Finance Commissions (Art. 243-I). Many District Planning Committees were never set up or have stopped working [2].
• Delayed elections: without an elected Panchayat, no one can spend the funds [2].
• Grant dependence: about 95% of Panchayat revenue comes as grants, and Panchayats raise very little of their own [3].
• Poor plan quality: GPDPs are uploaded to unlock grants, but the plans are often weak [4].

How PM VGSY addresses the deficit

• Planning: a holistic GPDP on eGramSwaraj combines village priorities with departmental schemes. The target is 2.55 lakh GPDPs a year [1].
• Spending and accountability: online accounting, AuditOnline audits and public disclosure [1].
• Human capacity: about 32 lakh elected representatives and functionaries trained each year, plus need-based contract staff at State, District and Block levels [1].
• Own Source Revenue: raising OSR is a stated objective, to reduce dependence on grants [1].
• Inclusion: the scheme also covers traditional bodies in non-Part IX areas, and the PANCHAM chatbot works in 17 languages [1].

Limits

• Training cannot replace the transfer of functions, funds and functionaries to Panchayats. RBI found that States which devolved more powers got better outcomes [3].
• The scheme creates no permanent posts, so the skills leave when contracts end [1].
• Its targets count plans uploaded, not plan quality [1][4].

PM VGSY adds a layer of skills on top of Finance Commission transfers, but whether the money gets used depends just as much on the States. Three steps would close the remaining gap: the Central Empowered Committee should approve plans against the Vijayanand committee's GPDP quality indicators [4], unused tied grants should be convertible into untied ones, and elections should be held on time [2]. The Gram Panchayat could then become the real "fulcrum" of local self-government that Part IX envisions.