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Grants-in-aid to Rural Local Bodies in 28 States

Published: 20th Jul, 2020

An amount of Rs.15187.50 crore, as grants-in-aid, in respect of 2.63 lakh Rural Local Bodies (RLBs) spread in 28 States of the country has been released by the Ministry of Finance.


An amount of Rs.15187.50 crore, as grants-in-aid, in respect of 2.63 lakh Rural Local Bodies (RLBs) spread in 28 States of the country has been released by the Ministry of Finance.


  • The amount was released upon the recommendations of the Ministry of Panchayati Raj and the Department of Drinking Water and Sanitation, Ministry of Jal Shakti.
  • This grant-in-aid forms part of the Tied Grant as recommended by Fifteenth Finance Commission (XV-FC) for the period FY 2020-21.

Panchayati Raj Institutions

  • In India, the Panchayati Raj system is identified as the prime instrument of decentralization through which democracy becomes truly representative and responsive.
  • The Panchayati Raj institutions are considered as local self-government meant for providing basic infrastructure facilities, empowering weaker sections of the society, and initiate the development process at the grass-roots level of rural India, where the sole of India lives.
  • India has created history in fiscal federalism in the world through the landmark 73rd and 74th Amendments to its Constitution in 1992 which adds a three-tier of local self-government to its federal structure.
    • The three-tier system of panchayats at the village, intermediate block/taluk/Mandal, and district levels except in States with the population is below 20 lakhs (Article 243B).
  • The 73rd Amendment established a Finance Commission in each State to determine the principles based on which adequate financial resources would be ensured for panchayats and municipalities (Article 243I).
  • The Constitution (73rd Amendment) Act, 1992 that came into force with effect from 24th April 1993 has vested constitutional status on Panchayati Raj institutions.

Finance Commission (FC)

  • It is a constitutional body for the allocation of certain revenue resources between the Union and the State Governments.
  • It was established under Article 280 of the Indian Constitution by the Indian President. It was formed in 1951.
  • The 15th FC headed by N.K. Singh was constituted by the President of India on 27th November 2017, against the backdrop of the abolition of the Planning Commission and the introduction of the Goods and Services Tax (GST).
  • It shall be the duty of the Finance Commission to make recommendations to the President to the:
    • The distribution between the Union and the States of the net proceeds of taxes which are to be, or maybe, divided between them and the allocation between the States of the respective shares of such proceeds.
    • Principles which should govern the grants in aid of the revenues of the States out of the Consolidated Fund of India.
    • Any other matter referred to the Commission by the President in the interests of sound finance.
    • The Commission shall determine their procedure and shall have such powers in the performance of their functions as Parliament may by law confer on them.

Fifteenth Finance Commission (XV FC)

  • It submitted its interim report for the period FY 2020-21 and the Government of India accepted its recommendations in respect of the Local Bodies.
  • The Commission has worked out the total size of the grant to be Rs.60, 750 crores for the period FY 2020-21 for the Rural Local Bodies (RLBs) which is the highest ever allocation made by the Finance Commission in any single year.
  • The Commission has recommended Grants-in-aid to all tiers of the Panchayati Raj including the Traditional Bodies of Fifth and Sixth Schedule areas, in 28 States, in two parts, namely, (i) a Basic Grant and (ii) a Tied Grant.
    • Fifty percent of the grant will be Basic Grant and fifty percent will be the Tied Grant.
  • The basic grants are untied and can be used by RLBs for location-specific felt needs, except for salary or other establishment expenditure.
  • The Tied Grants are to be used for the basic services of sanitation and maintenance of open-defecation free (ODF) status and supply of drinking water, rainwater harvesting, and water recycling.
    • The RLBs shall, as far as possible, earmark one-half of these Tied Grants each to these two critical services.
    • However, if any RLB has fully saturated the needs of one category it can utilize the funds for the other category.
  • The State Governments will be distributing the XV FC Grants to all the tiers of panchayats – village, block and district and the traditional bodies of Fifth and Sixth Schedule areas based on the accepted recommendations of the latest State Finance Commission (SFC) and in conformity of the following bands recommended by XV FC.
    • 70-85 % for village/gram panchayats
    • 10-25 % for block/intermediate panchayats
    • 5-15 % for district/Zilla panchayats
  • In states having a two-tier system with the only village and district panchayats, the distribution will be in the bands of 70-85 % for village/gram panchayats and 15-30% for district/Zilla panchayats
  • The intra-tier distribution among the relevant entities in a tier across the State (including Fifth and Sixth Schedule areas) will be based on population and area in the ratio of 90:10 or as per the accepted recommendations of the latest SFC.
  • The Ministry of Panchayati Raj would actively support the States in effective utilization of the XV FC Grants by providing Web/IT-enabled platforms for planning, monitoring, accounting/auditing of the works and funds flow at the level of each of the RLBs.


  • The amount is to be used by RLBs to facilitate taking up of various developmental work concerning supply of drinking water, rain water harvesting, water recycling, sanitation and maintenance of ODF status, which are national priorities.
  • Availability of this fund with the RLBs will boost their effectiveness in delivery of basic services to the rural citizens and would also empower them in providing gainful employment to migrant laborers who have returned to their native places owing to Covid-19 pandemic situation as well as in augmenting rural infrastructure in a constructive way.

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