Fiscal devolution without functional and functionary devolution yields limited gains. Discuss in light of the 16th Finance Commission's award to Rural Local Bodies.

The 73rd Amendment meant Panchayats to be institutions of self-government. That needs three things, the "3Fs": functions, funds and functionaries. The 16th Finance Commission (FC) has awarded ₹4,35,236 crore to Rural Local Bodies for 2026-31 [2], which strengthens the funds pillar. Without the other two, however, the gains will stay limited.

16th FC award: what fiscal devolution achieves

• Scale: the per-capita annual grant rises from about ₹400 to about ₹950 [1].
• Flexibility: the award is split 80:20 between Basic and Performance grants. Half the Basic Grant and the whole Performance Grant are untied, so they can be used across the 29 Eleventh Schedule subjects [2].
• Accountability: to get any of these grants, local bodies must be duly constituted, their audited accounts must be public, and the State must set up its State Finance Commission (SFC) on time [3].

Why funds alone yield limited gains

• Functions: Article 243G allows States to devolve subjects but does not require it. The Standing Committee on Rural Development and Panchayati Raj (2025) found that devolution of the 3Fs is still incomplete [4]. Untied money then follows the priorities of State line departments, not the Gram Sabha's.
• Functionaries: a Panchayat without engineers or accountants cannot plan, spend or report. The Committee asked for regular staff training [4].
• Poor absorption: by November 2024, only about 70% of the 15th FC's recommended funds for 2021-26 had been released [4].
• Conditionality trap: only 25 of 28 States had set up SFCs [4]. A State's delay can cost its Panchayats their grants.
• Grant dependence: Panchayats raise little Own Source Revenue [4], so they answer to whoever gives the grant rather than to local taxpayers.
• Planning gap: District Planning Committees (Article 243ZD) have not been set up, or sit idle, in many States [4]. Village plans therefore stop at the village.

Way forward

• States: map which tier does which activity, then hand over Eleventh Schedule subjects together with the staff to run them. Set up SFCs on time.
• Union: use the Rashtriya Gram Swaraj Abhiyan to train Panchayat staff, and widen the property-tax base through the SAMARTH portal and SVAMITVA property cards [1].
• Revive DPCs so that Gram Panchayat Development Plans feed into district plans [4].

The 16th FC has made Panchayats richer, but not yet stronger. Matching funds with functions and functionaries, as the Standing Committee urged, would let Gram Sabhas decide how money is spent. That would fulfil the 73rd Amendment's vision of self-government and Gandhiji's Gram Swaraj, and help localise the SDGs.