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GOVERNMENT OF INDIA
SECOND ADMINISTRATIVE REFORMS COMMISSION
SIXTH REPORT
LOCAL GOVERNANCE
An inspiring journey into the future
OCTOBER  2007
Page 2


GOVERNMENT OF INDIA
SECOND ADMINISTRATIVE REFORMS COMMISSION
SIXTH REPORT
LOCAL GOVERNANCE
An inspiring journey into the future
OCTOBER  2007
PREFACE
“In this structure composed of innumerable villages, there will be ever widening, never ascending, 
circles. Life will not be a pyramid with the apex sustained by the bottom. But, it will be an oceanic 
circle, whose centre will be the individual, always ready to perish for the village, the latter ready to 
perish for the circle of the villages, till at last the whole becomes one life composed of individuals, never 
aggressive in their arrogance, but ever humble, sharing the majesty of the oceanic circle of which they 
are integrated units. Therefore, the outermost circumference will not wield power to crush the inner 
circle, but will give strength to all within and will derive its own strength from it.”
Mahatma Gandhi
In this report on Local Governance, the Administrative Reforms Commission has examined in 
detail the issues relating to rural and urban local governance in India with a special focus on the 
need for real democratic decentralisation in the country in order to usher in genuine grass roots 
democracy as envisaged by the founding fathers of our republic and as now specifically mandated 
by our Constitution. The Report examines these issues in three parts - the first part deals with 
common issues of local governance that are relevant for both rural and urban areas as well as the 
rural-urban continuum; the second deals with rural governance issues; and the third with urban 
governance.
What are the characteristics of good governance? An institutional set-up that ensures good 
governance usually has the following features:
1. Participation
 All men and women should have a voice in decision-making, either directly or through legitimate 
intermediate institutions that represent their interests. Such broad participation is built on 
freedom of association and speech, as well as capacities to participate constructively.
2. Rule of Law
 Legal frameworks should be fair and enforced impartially, particularly laws on human 
rights. 
i
Page 3


GOVERNMENT OF INDIA
SECOND ADMINISTRATIVE REFORMS COMMISSION
SIXTH REPORT
LOCAL GOVERNANCE
An inspiring journey into the future
OCTOBER  2007
PREFACE
“In this structure composed of innumerable villages, there will be ever widening, never ascending, 
circles. Life will not be a pyramid with the apex sustained by the bottom. But, it will be an oceanic 
circle, whose centre will be the individual, always ready to perish for the village, the latter ready to 
perish for the circle of the villages, till at last the whole becomes one life composed of individuals, never 
aggressive in their arrogance, but ever humble, sharing the majesty of the oceanic circle of which they 
are integrated units. Therefore, the outermost circumference will not wield power to crush the inner 
circle, but will give strength to all within and will derive its own strength from it.”
Mahatma Gandhi
In this report on Local Governance, the Administrative Reforms Commission has examined in 
detail the issues relating to rural and urban local governance in India with a special focus on the 
need for real democratic decentralisation in the country in order to usher in genuine grass roots 
democracy as envisaged by the founding fathers of our republic and as now specifically mandated 
by our Constitution. The Report examines these issues in three parts - the first part deals with 
common issues of local governance that are relevant for both rural and urban areas as well as the 
rural-urban continuum; the second deals with rural governance issues; and the third with urban 
governance.
What are the characteristics of good governance? An institutional set-up that ensures good 
governance usually has the following features:
1. Participation
 All men and women should have a voice in decision-making, either directly or through legitimate 
intermediate institutions that represent their interests. Such broad participation is built on 
freedom of association and speech, as well as capacities to participate constructively.
2. Rule of Law
 Legal frameworks should be fair and enforced impartially, particularly laws on human 
rights. 
i
PREFACE
“In this structure composed of innumerable villages, there will be ever widening, never ascending, 
circles. Life will not be a pyramid with the apex sustained by the bottom. But, it will be an oceanic 
circle, whose centre will be the individual, always ready to perish for the village, the latter ready to 
perish for the circle of the villages, till at last the whole becomes one life composed of individuals, never 
aggressive in their arrogance, but ever humble, sharing the majesty of the oceanic circle of which they 
are integrated units. Therefore, the outermost circumference will not wield power to crush the inner 
circle, but will give strength to all within and will derive its own strength from it.”
Mahatma Gandhi
In this report on Local Governance, the Administrative Reforms Commission has examined in 
detail the issues relating to rural and urban local governance in India with a special focus on the 
need for real democratic decentralisation in the country in order to usher in genuine grass roots 
democracy as envisaged by the founding fathers of our republic and as now specifically mandated 
by our Constitution. The Report examines these issues in three parts - the first part deals with 
common issues of local governance that are relevant for both rural and urban areas as well as the 
rural-urban continuum; the second deals with rural governance issues; and the third with urban 
governance.
What are the characteristics of good governance? An institutional set-up that ensures good 
governance usually has the following features:
1. Participation
 All men and women should have a voice in decision-making, either directly or through legitimate 
intermediate institutions that represent their interests. Such broad participation is built on 
freedom of association and speech, as well as capacities to participate constructively.
2. Rule of Law
 Legal frameworks should be fair and enforced impartially, particularly laws on human 
rights. 
i
Page 4


GOVERNMENT OF INDIA
SECOND ADMINISTRATIVE REFORMS COMMISSION
SIXTH REPORT
LOCAL GOVERNANCE
An inspiring journey into the future
OCTOBER  2007
PREFACE
“In this structure composed of innumerable villages, there will be ever widening, never ascending, 
circles. Life will not be a pyramid with the apex sustained by the bottom. But, it will be an oceanic 
circle, whose centre will be the individual, always ready to perish for the village, the latter ready to 
perish for the circle of the villages, till at last the whole becomes one life composed of individuals, never 
aggressive in their arrogance, but ever humble, sharing the majesty of the oceanic circle of which they 
are integrated units. Therefore, the outermost circumference will not wield power to crush the inner 
circle, but will give strength to all within and will derive its own strength from it.”
Mahatma Gandhi
In this report on Local Governance, the Administrative Reforms Commission has examined in 
detail the issues relating to rural and urban local governance in India with a special focus on the 
need for real democratic decentralisation in the country in order to usher in genuine grass roots 
democracy as envisaged by the founding fathers of our republic and as now specifically mandated 
by our Constitution. The Report examines these issues in three parts - the first part deals with 
common issues of local governance that are relevant for both rural and urban areas as well as the 
rural-urban continuum; the second deals with rural governance issues; and the third with urban 
governance.
What are the characteristics of good governance? An institutional set-up that ensures good 
governance usually has the following features:
1. Participation
 All men and women should have a voice in decision-making, either directly or through legitimate 
intermediate institutions that represent their interests. Such broad participation is built on 
freedom of association and speech, as well as capacities to participate constructively.
2. Rule of Law
 Legal frameworks should be fair and enforced impartially, particularly laws on human 
rights. 
i
PREFACE
“In this structure composed of innumerable villages, there will be ever widening, never ascending, 
circles. Life will not be a pyramid with the apex sustained by the bottom. But, it will be an oceanic 
circle, whose centre will be the individual, always ready to perish for the village, the latter ready to 
perish for the circle of the villages, till at last the whole becomes one life composed of individuals, never 
aggressive in their arrogance, but ever humble, sharing the majesty of the oceanic circle of which they 
are integrated units. Therefore, the outermost circumference will not wield power to crush the inner 
circle, but will give strength to all within and will derive its own strength from it.”
Mahatma Gandhi
In this report on Local Governance, the Administrative Reforms Commission has examined in 
detail the issues relating to rural and urban local governance in India with a special focus on the 
need for real democratic decentralisation in the country in order to usher in genuine grass roots 
democracy as envisaged by the founding fathers of our republic and as now specifically mandated 
by our Constitution. The Report examines these issues in three parts - the first part deals with 
common issues of local governance that are relevant for both rural and urban areas as well as the 
rural-urban continuum; the second deals with rural governance issues; and the third with urban 
governance.
What are the characteristics of good governance? An institutional set-up that ensures good 
governance usually has the following features:
1. Participation
 All men and women should have a voice in decision-making, either directly or through legitimate 
intermediate institutions that represent their interests. Such broad participation is built on 
freedom of association and speech, as well as capacities to participate constructively.
2. Rule of Law
 Legal frameworks should be fair and enforced impartially, particularly laws on human 
rights. 
i
I was recently told about the observation of a visiting European who wondered how 
India is able to function without any local government worthy of the name. His bafflement is 
understandable. We have allowed local bodies to atrophy and starved them of funds to such 
an extent that while local government revenues accounted for 15% of the total government 
revenues in the USA in the year 2001, the corresponding figure in India was just 3%. Even after 
the passing of the 73
rd 
and 74
th
 Constitutional Amendments, the transfer of funds, functions and 
functionaries has been nominal in most States with notable exceptions such as Kerala. Throughout 
the seventies and eighties, a process of centralisation of even basic municipal functions such as 
water supply and sanitation into the hands of parastatals such as water boards and authorities 
has led to a massive decline in the role and status of local bodies which is only now sought to be 
reversed. Such reversal faces inevitable hurdles from the established institutional structures at the 
State Government and district levels.
Local democracy is sometimes treated as synonymous with ‘decentralisation’, but the 
two are in fact quite distinct. In particular, decentralisation is not necessarily conducive to 
local democracy. In fact, in situations of sharp local inequalities, decentralisation sometimes 
heightens the concentration of power, and discourages rather than fosters participation among 
the underprivileged. To illustrate, in some tribal areas where upper caste landlords and traders 
dominate village affairs, the devolution of power associated with the Panchayati Raj amendments 
has consolidated their hold and reinforced existing biases in the local power structure.
It is now well established that the constitutional division of subjects between the Union and 
the States has been overdrawn and that what matters is not the subjects but the functions under 
each subject. These should ideally be performed according to the principle that the central authority 
should have a subsidiary function performing only those tasks which cannot be performed 
effectively at the more immediate or local level. That is the decentralisation envisaged in the 73
rd
 
and 74
th
 Constitutional Amendments which now needs to be implemented in full. 
The world today is poised to leave its rural past behind. With cities being the main beneficiaries 
of globalisation, millions of people chasing jobs are migrating to cities, both large and small. For 
the first time in history, more than half the world’s population of 3.3 billion is living in these 
urban complexes. Within the next two decades, five billion people, i.e. 80 per cent of the world’s 
population will be living in cities. By contrast, the world’s rural population is expected to decrease 
by 28 million during this same period. 
Since most of this demographic growth will be in Asia and Africa, the crucial question is how 
Nation States will cope with this demographic transition, especially since most of this urban growth 
ii iii
          
3. Transparency
 T ransparency is built on the free flow of information. Processes, institutions and information 
are directly accessible to those concerned with them, and enough information is provided to 
understand and monitor them.
4. Responsiveness
 Institutions and processes try to serve all stakeholders.
5. Consensus Orientation
 Good governance mediates differing interests to reach a broad consensus on what is in the 
best interests of the group and where possible, on policies and procedures.
6. Equity
 All men and women have opportunities to improve or maintain their well-being.
7. Effectiveness and Efficiency
 Processes and institutions produce results that make the best use of resources.
8. Accountability
 Decision-makers in government, the private sector and civil society organisations are 
accountable to the public, as well as to the institutional stakeholders. This accountability 
differs depending on the organisation  and whether the decision is internal or external to an 
organisation.
9. Strategic Vision
 Leaders and the public have a broad and long-term perspective on good governance and 
human development, along with a sense of what is needed for such development. There is also 
an understanding of the historical, cultural and social complexities in which that perspective 
is grounded. 
Our Constitution provides a clear mandate for democratic decentralisation not only through 
the Directive Principles of State Policy which exhorts the State to promote Panchayati Raj 
Institutions but more specifically now through the 73
rd
 and 74
th
 Amendments of the Constitution 
which seek to create an institutional framework for ushering in grass roots democracy through 
the medium of genuinely self-governing local bodies in both urban and rural areas of the country. 
However, despite the constitutional mandate, the growth of self-governing local bodies as the 
third tier of governance in the country has been uneven, halting and slow.
Page 5


GOVERNMENT OF INDIA
SECOND ADMINISTRATIVE REFORMS COMMISSION
SIXTH REPORT
LOCAL GOVERNANCE
An inspiring journey into the future
OCTOBER  2007
PREFACE
“In this structure composed of innumerable villages, there will be ever widening, never ascending, 
circles. Life will not be a pyramid with the apex sustained by the bottom. But, it will be an oceanic 
circle, whose centre will be the individual, always ready to perish for the village, the latter ready to 
perish for the circle of the villages, till at last the whole becomes one life composed of individuals, never 
aggressive in their arrogance, but ever humble, sharing the majesty of the oceanic circle of which they 
are integrated units. Therefore, the outermost circumference will not wield power to crush the inner 
circle, but will give strength to all within and will derive its own strength from it.”
Mahatma Gandhi
In this report on Local Governance, the Administrative Reforms Commission has examined in 
detail the issues relating to rural and urban local governance in India with a special focus on the 
need for real democratic decentralisation in the country in order to usher in genuine grass roots 
democracy as envisaged by the founding fathers of our republic and as now specifically mandated 
by our Constitution. The Report examines these issues in three parts - the first part deals with 
common issues of local governance that are relevant for both rural and urban areas as well as the 
rural-urban continuum; the second deals with rural governance issues; and the third with urban 
governance.
What are the characteristics of good governance? An institutional set-up that ensures good 
governance usually has the following features:
1. Participation
 All men and women should have a voice in decision-making, either directly or through legitimate 
intermediate institutions that represent their interests. Such broad participation is built on 
freedom of association and speech, as well as capacities to participate constructively.
2. Rule of Law
 Legal frameworks should be fair and enforced impartially, particularly laws on human 
rights. 
i
PREFACE
“In this structure composed of innumerable villages, there will be ever widening, never ascending, 
circles. Life will not be a pyramid with the apex sustained by the bottom. But, it will be an oceanic 
circle, whose centre will be the individual, always ready to perish for the village, the latter ready to 
perish for the circle of the villages, till at last the whole becomes one life composed of individuals, never 
aggressive in their arrogance, but ever humble, sharing the majesty of the oceanic circle of which they 
are integrated units. Therefore, the outermost circumference will not wield power to crush the inner 
circle, but will give strength to all within and will derive its own strength from it.”
Mahatma Gandhi
In this report on Local Governance, the Administrative Reforms Commission has examined in 
detail the issues relating to rural and urban local governance in India with a special focus on the 
need for real democratic decentralisation in the country in order to usher in genuine grass roots 
democracy as envisaged by the founding fathers of our republic and as now specifically mandated 
by our Constitution. The Report examines these issues in three parts - the first part deals with 
common issues of local governance that are relevant for both rural and urban areas as well as the 
rural-urban continuum; the second deals with rural governance issues; and the third with urban 
governance.
What are the characteristics of good governance? An institutional set-up that ensures good 
governance usually has the following features:
1. Participation
 All men and women should have a voice in decision-making, either directly or through legitimate 
intermediate institutions that represent their interests. Such broad participation is built on 
freedom of association and speech, as well as capacities to participate constructively.
2. Rule of Law
 Legal frameworks should be fair and enforced impartially, particularly laws on human 
rights. 
i
I was recently told about the observation of a visiting European who wondered how 
India is able to function without any local government worthy of the name. His bafflement is 
understandable. We have allowed local bodies to atrophy and starved them of funds to such 
an extent that while local government revenues accounted for 15% of the total government 
revenues in the USA in the year 2001, the corresponding figure in India was just 3%. Even after 
the passing of the 73
rd 
and 74
th
 Constitutional Amendments, the transfer of funds, functions and 
functionaries has been nominal in most States with notable exceptions such as Kerala. Throughout 
the seventies and eighties, a process of centralisation of even basic municipal functions such as 
water supply and sanitation into the hands of parastatals such as water boards and authorities 
has led to a massive decline in the role and status of local bodies which is only now sought to be 
reversed. Such reversal faces inevitable hurdles from the established institutional structures at the 
State Government and district levels.
Local democracy is sometimes treated as synonymous with ‘decentralisation’, but the 
two are in fact quite distinct. In particular, decentralisation is not necessarily conducive to 
local democracy. In fact, in situations of sharp local inequalities, decentralisation sometimes 
heightens the concentration of power, and discourages rather than fosters participation among 
the underprivileged. To illustrate, in some tribal areas where upper caste landlords and traders 
dominate village affairs, the devolution of power associated with the Panchayati Raj amendments 
has consolidated their hold and reinforced existing biases in the local power structure.
It is now well established that the constitutional division of subjects between the Union and 
the States has been overdrawn and that what matters is not the subjects but the functions under 
each subject. These should ideally be performed according to the principle that the central authority 
should have a subsidiary function performing only those tasks which cannot be performed 
effectively at the more immediate or local level. That is the decentralisation envisaged in the 73
rd
 
and 74
th
 Constitutional Amendments which now needs to be implemented in full. 
The world today is poised to leave its rural past behind. With cities being the main beneficiaries 
of globalisation, millions of people chasing jobs are migrating to cities, both large and small. For 
the first time in history, more than half the world’s population of 3.3 billion is living in these 
urban complexes. Within the next two decades, five billion people, i.e. 80 per cent of the world’s 
population will be living in cities. By contrast, the world’s rural population is expected to decrease 
by 28 million during this same period. 
Since most of this demographic growth will be in Asia and Africa, the crucial question is how 
Nation States will cope with this demographic transition, especially since most of this urban growth 
ii iii
          
3. Transparency
 T ransparency is built on the free flow of information. Processes, institutions and information 
are directly accessible to those concerned with them, and enough information is provided to 
understand and monitor them.
4. Responsiveness
 Institutions and processes try to serve all stakeholders.
5. Consensus Orientation
 Good governance mediates differing interests to reach a broad consensus on what is in the 
best interests of the group and where possible, on policies and procedures.
6. Equity
 All men and women have opportunities to improve or maintain their well-being.
7. Effectiveness and Efficiency
 Processes and institutions produce results that make the best use of resources.
8. Accountability
 Decision-makers in government, the private sector and civil society organisations are 
accountable to the public, as well as to the institutional stakeholders. This accountability 
differs depending on the organisation  and whether the decision is internal or external to an 
organisation.
9. Strategic Vision
 Leaders and the public have a broad and long-term perspective on good governance and 
human development, along with a sense of what is needed for such development. There is also 
an understanding of the historical, cultural and social complexities in which that perspective 
is grounded. 
Our Constitution provides a clear mandate for democratic decentralisation not only through 
the Directive Principles of State Policy which exhorts the State to promote Panchayati Raj 
Institutions but more specifically now through the 73
rd
 and 74
th
 Amendments of the Constitution 
which seek to create an institutional framework for ushering in grass roots democracy through 
the medium of genuinely self-governing local bodies in both urban and rural areas of the country. 
However, despite the constitutional mandate, the growth of self-governing local bodies as the 
third tier of governance in the country has been uneven, halting and slow.
I was recently told about the observation of a visiting European who wondered how 
India is able to function without any local government worthy of the name. His bafflement is 
understandable. We have allowed local bodies to atrophy and starved them of funds to such 
an extent that while local government revenues accounted for 15% of the total government 
revenues in the USA in the year 2001, the corresponding figure in India was just 3%. Even after 
the passing of the 73
rd 
and 74
th
 Constitutional Amendments, the transfer of funds, functions and 
functionaries has been nominal in most States with notable exceptions such as Kerala. Throughout 
the seventies and eighties, a process of centralisation of even basic municipal functions such as 
water supply and sanitation into the hands of parastatals such as water boards and authorities 
has led to a massive decline in the role and status of local bodies which is only now sought to be 
reversed. Such reversal faces inevitable hurdles from the established institutional structures at the 
State Government and district levels.
Local democracy is sometimes treated as synonymous with ‘decentralisation’, but the 
two are in fact quite distinct. In particular, decentralisation is not necessarily conducive to 
local democracy. In fact, in situations of sharp local inequalities, decentralisation sometimes 
heightens the concentration of power, and discourages rather than fosters participation among 
the underprivileged. To illustrate, in some tribal areas where upper caste landlords and traders 
dominate village affairs, the devolution of power associated with the Panchayati Raj amendments 
has consolidated their hold and reinforced existing biases in the local power structure.
It is now well established that the constitutional division of subjects between the Union and 
the States has been overdrawn and that what matters is not the subjects but the functions under 
each subject. These should ideally be performed according to the principle that the central authority 
should have a subsidiary function performing only those tasks which cannot be performed 
effectively at the more immediate or local level. That is the decentralisation envisaged in the 73
rd
 
and 74
th
 Constitutional Amendments which now needs to be implemented in full. 
The world today is poised to leave its rural past behind. With cities being the main beneficiaries 
of globalisation, millions of people chasing jobs are migrating to cities, both large and small. For 
the first time in history, more than half the world’s population of 3.3 billion is living in these 
urban complexes. Within the next two decades, five billion people, i.e. 80 per cent of the world’s 
population will be living in cities. By contrast, the world’s rural population is expected to decrease 
by 28 million during this same period. 
Since most of this demographic growth will be in Asia and Africa, the crucial question is how 
Nation States will cope with this demographic transition, especially since most of this urban growth 
ii iii
          
3. Transparency
 T ransparency is built on the free flow of information. Processes, institutions and information 
are directly accessible to those concerned with them, and enough information is provided to 
understand and monitor them.
4. Responsiveness
 Institutions and processes try to serve all stakeholders.
5. Consensus Orientation
 Good governance mediates differing interests to reach a broad consensus on what is in the 
best interests of the group and where possible, on policies and procedures.
6. Equity
 All men and women have opportunities to improve or maintain their well-being.
7. Effectiveness and Efficiency
 Processes and institutions produce results that make the best use of resources.
8. Accountability
 Decision-makers in government, the private sector and civil society organisations are 
accountable to the public, as well as to the institutional stakeholders. This accountability 
differs depending on the organisation  and whether the decision is internal or external to an 
organisation.
9. Strategic Vision
 Leaders and the public have a broad and long-term perspective on good governance and 
human development, along with a sense of what is needed for such development. There is also 
an understanding of the historical, cultural and social complexities in which that perspective 
is grounded. 
Our Constitution provides a clear mandate for democratic decentralisation not only through 
the Directive Principles of State Policy which exhorts the State to promote Panchayati Raj 
Institutions but more specifically now through the 73
rd
 and 74
th
 Amendments of the Constitution 
which seek to create an institutional framework for ushering in grass roots democracy through 
the medium of genuinely self-governing local bodies in both urban and rural areas of the country. 
However, despite the constitutional mandate, the growth of self-governing local bodies as the 
third tier of governance in the country has been uneven, halting and slow.
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FAQs on Local Governance - Indian Polity for UPSC CSE

1. What is local governance?
Ans. Local governance refers to the system of decision-making and administration at the local level, where elected or appointed officials manage and govern a specific locality, such as a city, town, or village. It involves local authorities taking responsibility for delivering public services, making policies, and addressing the needs and concerns of the local community.
2. What are the key responsibilities of local governance?
Ans. Local governance is responsible for various key tasks, including: - Providing essential public services such as water supply, waste management, and transportation. - Maintaining local infrastructure, such as roads, bridges, and public buildings. - Developing and implementing local policies and regulations. - Managing and allocating local resources, including finances and human resources. - Engaging with the local community to address their needs and concerns.
3. How does local governance differ from national governance?
Ans. Local governance and national governance differ in terms of scope and authority. While national governance focuses on making decisions and policies for an entire country, local governance is specific to a particular locality. Local governance has more direct contact with the local community, addressing their immediate concerns and managing local affairs, whereas national governance deals with broader issues and national-level policies.
4. What is the role of citizens in local governance?
Ans. Citizens play a crucial role in local governance as they are the ones directly affected by local policies and services. They have the right to participate in decision-making processes, provide feedback, and hold local authorities accountable. Citizens can engage with local governance through various means, such as attending public meetings, joining local committees or councils, and voicing their opinions and concerns through feedback mechanisms provided by local authorities.
5. How can transparency and accountability be ensured in local governance?
Ans. Transparency and accountability in local governance can be ensured through several measures, including: - Regularly publishing financial reports and budgets to provide transparency in resource allocation. - Implementing mechanisms for citizen participation and feedback, such as public consultations or online platforms. - Establishing independent oversight bodies to monitor and audit local governance processes. - Encouraging open and accessible communication channels between local authorities and the community. - Enforcing laws and regulations that promote transparency and accountability within local governance systems.
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