Carpe Diem, Panchayat?
Programming Note: For long, I have been looking at how India’s decentralized governance systems could aid regenerative transition. The Sixteenth Finance Commission Report gave me an opportunity to look at this closely. This is different from the usual Krishi.System pieces that focus more on agripreneurship and written for an outsider audience.
This piece assumes that the reader is somewhat familiar with India’s decentralized governance systems. I am writing this wearing a catalyst lens who is trying to get into the innards of the system to see which levers are worth plugging into to accelerate regenerative transition. Special thanks to Rohit Parakh for his webinar with Vijayanand G that birthed this piece and the MST 2023 group which emphasized on the need to study the 16th Finance Commission Report more closely.
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Carpe Diem, Panchayat?
It should take you eight minutes to read this.
Every five years, India runs an elaborate fiscal ritual.
The President appoints a Finance Commission. Economists, retired civil servants, and academics tour state capitals, collect data, conduct studies, and ultimately decide how much of the Union’s tax revenues should flow to the states, and more importantly, the panchayats and municipalities that sit at the base of India’s governance pyramid.
The 16th Finance Commission, chaired by Arvind Panagariya, tabled its report in Parliament on February 1, 2026. The headlines focused on the big numbers: ₹7.91 lakh crore for local bodies over five years with ₹4.35 lakh crore earmarked for rural local bodies alone—an 84 percent increase over the 15th Finance Commission.
Here is where things get interesting. Of the ₹4.35 lakh crore allocated to panchayats, 80 percent (₹3.48 lakh crore) is “basic grant” and 20 percent (₹87,048 crore) is “performance grant.”
Let’s be clear. The basic grant is not exactly basic.
Fifty percent of it is tied to sanitation, solid waste management, and water management. The remaining fifty percent is untied, meaning panchayats can theoretically spend it on whatever falls within their constitutional mandate. Add up the tied water-sanitation portion and the untied component. Approximately 60 percent of the total rural local body grant is, in principle, available for purposes beyond roads.
This is where the 16th Finance Commission does something quietly radical.
For the first time in the history of Union Finance Commission grants, there is an explicit ceiling on road expenditure: No more than 20 percent of the untied fund can be spent on construction and maintenance of roads.
Why does this matter? Because over the past decade of Gram Panchayat Development Plan (GPDP) implementation, the overwhelming majority of Finance Commission grants have gone into cement-concrete roads.
Not agriculture. Not watershed development. Not natural farming.
Roads.
As Shri S.M. Vijayanand (Retd. IAS, Former Secretary, Ministry of Panchayati Raj) put it bluntly in a webinar: “Most panchayats have spent most of the money on cement concrete roads in most parts of India.”
The 14th Finance Commission allowed seven expenditure categories; agriculture was not among them. The 15th Finance Commission created an untied component, but nobody used it for agriculture. Nobody even tried.
The 20 percent road cap changes this arithmetic. It is not a perfect solution. Panchayats determined to build roads will find ways to reclassify expenditure. Civil society organizations working on regenerating food and agriculture systems have a window to insert themselves before the default choices get made.
Which brings us to the language of the Commission.
Fifty percent of the basic grant is tied to "sanitation and solid waste management, and/or water management." Water management. Not water supply. Not piped drinking water. Water management. The report does not define the phrase precisely, and this perhaps is an opportunity.
Government engineers will interpret it narrowly—drainage systems, municipal plumbing. But watershed management is also water management. Soil moisture conservation is water management. Farm ponds, check dams, contour bunding—all water management. And all foundational infrastructure for regenerating food and agriculture systems.
For those working at the intersection of agriculture and panchayati raj, the task is to claim this ambiguity before water supply departments do. If watershed management becomes legible as water management in the state-level GPDP guidelines now being drafted, a substantial portion of the tied grant opens up for regenerative landscape interventions.
Mind you. The Commission has not said "don't fund watershed work." It has said "fund water management." The question is who gets to define what that means. The window is open now. It will not stay open forever.
But there is a countervailing force. The Commission has also allocated ₹10,000 crore as a one-time "urbanization premium"—an incentive for states that merge peri-urban villages into adjoining urban local bodies. The explicit objective is to accelerate urbanization, which the Commission describes as a "catalyst for economic development."
The report is unambiguous: with 46 percent of the workforce still in agriculture producing only 17.8 percent of value added, "the movement of workers out of rural into urban areas... holds considerable potential to raise the overall value added per worker."
I am not fully bought onto this. Why not create facilities in rural areas rather than create facilities in urban areas for people from rural areas to migrate to? The deeper problem, however, is not the Commission's contradictory stance. It is the decade of institutional failure that precedes it.
GPDP was designed to be a participatory planning process. In 2015, when the 14th Finance Commission devolved unprecedented resources directly to gram panchayats, the Ministry of Panchayati Raj—then led by Vijayanand himself as Secretary—rolled out GPDP guidelines drawing inspiration from Kerala's 1996 People's Plan Campaign for decentralization.
The idea was that gram sabhas would conduct situational analysis, identify development priorities, and prepare plans from below. States were invited to a "write shop" at the Kerala Institute of Local Administration, where they drafted state-specific guidelines mentored by experts. Within a year, over 2.4 lakh gram panchayats had prepared their own development plans for the first time in the history of Panchayati Raj.
The reality today is different.
As Vijayanand now describes it: "Participatory exercise is not there, there is no development analysis of what is the situation, and it is just infrastructure oriented."
In most states, the Block Development Officer prepares the plan. Panchayat presidents often don't know what's in it. The software portal where plans are uploaded shows one thing; what actually gets implemented is entirely different. The conditionalities imposed by the Union Ministry—select from drop-down menus, choose only prescribed options—violate both letter and spirit of decentralization.
The facade of participation exists. Genuine deliberation and people's priorities remain absent.
Meanwhile, the real action in state finances has been elsewhere. The 16th Finance Commission devotes an entire chapter to the explosion of subsidies. The picture is sobering.
State subsidies have nearly tripled from ₹3.86 lakh crore in 2018-19 to an estimated ₹9.43 lakh crore in 2025-26. Agricultural subsidies specifically have grown from ₹29,610 crore to ₹91,389 crore in the same period.
Here is the most disconcerting piece of the subsidy puzzle.
The share of unconditional cash transfers within agricultural subsidies has risen from 58.8 percent in 2018-19 to 70.2 percent in 2023-24. Schemes like Rythu Bandhu in Telangana and state top-ups to PM-KISAN now dominate agricultural spending. The Commission warns that large-group cash transfers—growing at 53.6 percent annually—”will not only impose a significant burden on the States’ budgets but also destabilise their finances in the long run.”
The contrast is stark. States are pouring money into cash transfers to farmers while the panchayat system—designed to enable farmer-driven local planning—remains a shell.
The cash goes directly to individual bank accounts; the capacity for collective action at the village level atrophies. This is not an argument against income support. It is an observation about what gets built and what doesn’t.
Cash transfers require no institutional infrastructure beyond JAM (Jan Dhan-Aadhaar-Mobile). Natural farming requires troubleshooting mechanisms, input supply chains, community resource persons, SHG-panchayat coordination—the patient work of institution building that nobody is funding.
Can the next five years be different?
The answer depends on understanding the difference between position power versus delegated authority.
The Constitution, through the 73rd Amendment, establishes panchayats as “institutions of local self-government” with mandate for “economic development and social justice.” This is position power—inherent authority flowing from constitutional status.
Delegated authority is what state governments choose to give through specific legislation. Most states have not delegated meaningful agricultural functions to panchayats. They allow seedling distribution, awareness camps—but not real agricultural planning.
Panchayats already have position power for local economic development. A gram panchayat can decide to promote natural farming in a gram sabha. It can use Finance Commission grants for land development, watershed management, irrigation infrastructure. The formal authority exists. What’s missing is motivation, capacity, and support.
This is where civil society and SHG-panchayat linkage becomes a powerful lever.
The Ministry of Panchayati Raj has mandated this linkage, and with SHGs covering approximately 60 percent of rural households, mobilizing SHG women to attend gram sabhas creates a powerful constituency.
If they come prepared—understanding regenerative transition’s benefits, ready to articulate demand—the dynamics shift. The gram sabha is constitutionally the sovereign body of local governance; its decisions have legal force. But attendance in most of India is pathetic.
Meetings are often not held; someone signs the register. SHGs can change this. They bring numbers, voice, and organized capacity. The equity dimension matters here too: SHG women can manufacture inputs as microenterprises, take fallow land on lease for collective cultivation. Natural farming need not become another landed-farmer program. The landless could also gain from regenerative transition.
The 16th Finance Commission is not a silver bullet. Many states have never operationalized their SFC recommendations. It cannot force states to give panchayats real functions. The constitutional mandate for panchayats lists subjects like agriculture, land improvement, minor irrigation, animal husbandry, fisheries, social forestry, minor forest produce, and so on. But these are “may be devolved” subjects, not “must be devolved.” Most states have not devolved them in any meaningful way.
It cannot substitute for farmer demand. If farmers do not want natural farming, if they are not convinced that yields will stabilize, if they do not see the cost reductions and health benefits, no amount of panchayat-level resource availability will matter.
The 84 percent increase sounds impressive until you adjust for inflation; in real terms, the gain is marginal. The states that need decentralization most are the states least equipped to meet the Commission’s performance thresholds. These tensions will not resolve themselves. But the question is not whether the policy is perfect. The question is whether those who believe in a different agricultural future can find the leverage points within it.
The road cap has created an opening. The water management ambiguity has created an opening. The SHG-panchayat mandate has created an opening.
Carpe diem, panchayat. The next five years will tell us whether we seized the day.
References and Further Reading:
16th Finance Commission recommends Rs 8 lakh crore grant to local bodies (Down to Earth)
Grants expanded but Gram Panchayats face stricter compliance (Down to Earth)
16th Finance Commission overhauls forest formula (Down to Earth)
Heatwaves and lightning should be added to national disaster list (Down to Earth)
Rs 3.56 lakh crore more needed per year for public health (The Print)
So, what do you think?
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