The Government of India introduced the concept of democratic decentralisation for the good governance and development of rural and urban areas at the grassroots level. To deal with poverty and sustainable development of the country, the key component is decentralisation of power in which the authority for some functionality and resources is taken from the state government and given to the local government. 

The urge for decentralisation has come from many sources. Firstly, it has been prompted by the need to deliver the basic public goods such as food, housing and water from local units of administration. Secondly, most people in the developing countries live in rural areas, which are away from the national capital located in distant urban areas. Administration has to penetrate the rural areas and link these up with the nation as a whole. Thirdly, in many countries sociological diversities manifest themselves in ethnic, linguistic and religious differences. Administration needs to be decentralised in response to regional diversities.
Fourthly, regional and local resources can be utilised for the area development purposes, only if administration would move out to the regions and localities. Decentralisation, therefore, facilitates local planning and development with the help of local responses leading to better development outcomes. Fifthly, decentralisation has its own value in political and administrative terms. Politically, local participation in development activities, with intensive response paves the way for meaningful articulation of local demands.

In 1992, when the 73rd and 74th Constitutional Amendment Act passed that transfer of power to popularly elected local governments, it was a crucial step toward the decentralisation of power. The 73rd Constitutional Amendment Act introduced Panchayati Raj Institutions (PRIs), which were not a completely new concept; it has been in existence since centuries with the name, Gram Panchayat. Panchayati Raj Institutions (PRIs) are responsible for the development of the rural areas. The 74th Constitutional Amendment Act was introduced for the development of the urban areas where municipal bodies have the power and authority to plan for economic development and implementation of schemes.

Devolution of authority and resources are given to local governments on a permanent basis. The state government does not give the authority to gather tax from the public to the local government, but the state government funds them, handles tax, and provides staff so that they can carry out their responsibilities. Local government, which includes panchayats and municipalities, is a state subject. Consecutively, power and authority have devolved to panchayats and municipalities at the discretion of states.

 It can be said that there is a design weakness in decentralization. Still, If we take a closer look at India’s political and social history, we can observe that there was a centralized power that regulated the country. Still, the problem at the grassroots levels is untouched, from which we can conclude that the state government has the authority to handle local governance. A study conducted by the Fourteenth Finance Commission shows that authority and power for five basic responsibilities – mainly sanitation, water supply, communications and roads, streetlight provision, and community asset management – have devolved into local self-government. According to the Constitution, panchayat and municipality elections should be held every five years.

The Constitution of India defines Panchayats as institutions of local self-government in rural India. The 73rd and 74th Amendment Acts, 1992 have Constitutionalism the Panchayats and Municipalities and is a step in the direction of speeding up the process of decentralisation and giving strength as well as stability to local institutions. They are historic in nature as they have got the potential to transform the existing character of our democracy (Palanithurai, 2009). Some of the features of the Acts are as follows:
 It has made mandatory for all the states to set up three tier (in smaller states having less than 20 lakh population – two tier) bodies both in the rural and the urban areas.
 Periodic elections to all the tiers at regular interval of five years and, if dissolved earlier, fresh elections to be held within six months.
 Reservation of seats for SCs and STs in all the panchayats and municipalties at all the levels in proportion to their population.
 One third reservation of seats for woman in panchayats and municipalities.
 All posts at all levels (with two exceptions) to be filled by direct elections.
 Indirect elections to the post of chairman at the intermediate and apex tiers. Creation of a State Election Commission to conduct elections to PRIs and municipal bodies.
 A State Finance Commission to be set up in each state every five years in order to review the financial position of the PRIs and municipal bodies.
 Devolution of powers to the panchayat bodies to perform 29 functions and to the municipal bodies to perform 18 functions as suggested in the Eleventh and Twelfth Schedules respectively.
 Organisation of gram sabhas and ward committees.
 The 74thConstitutional Amendment provides for constitution of District Planning Committee (DPC) and Metropolitan Planning Committee (MPC) to prepare a development plan.
Article 243M of the 73rd Constitutional Amendment exempts application of this Act to certain areas in the country. These areas are Fifth Schedule Areas, Sixth Schedule Areas, 1996 (PESA) and other tribal areas.
The tribal communities are the marginalised sections who have been for long isolated from the main stream development process. At the same time their customs and traditions are to be protected and remain uninterrupted. Their indigenous traditional institutions which play an important role are to be maintained. In order the strengthen the grass roots democracy in tribal areas, the Part IX of the Constitution which deals with panchayats has been specially extended through an Act of Parliament called Panchayats Extension to Scheduled V, Areas Act (PESA)1996.This provides for certain exclusive
and wide ranging powers to gram sabhas and panchayats in these areas

Issues with local Governments in India

The restriction is in the architecture of the financial streams that send money to local governments, as well as in a lack of personnel, untimely and postponed election and corruption.

Insufficient Funding

The money or amount provided to the local government is not enough to meet the basic requirement of the local authorities.

Inflexibility in Spending the Allocated Budget

Most of the money given to the local government is inflexible, which means the use of money is restricted to a particular use. For example, suppose a road is being constructed and it is required to build sewage near the road for its durability. But it cannot be built as this much flexibility is not given to the local government because of the constraints in the allocated budget.

Lack of Staff

There are not enough human resources to perform basic tasks. The human resources they get are hired by the higher-level department that too on deputation. That is why they (staff) do not feel accountable to the local government, they think they are accountable to the higher-level departments.  

Untimely and Delayed Elections

The Constitution mandates elections within six months of completion of five years for the panchayats and municipalities to be held, but states often postpone the election.

Corruption

Contractors and criminals are mostly attracted to the local government election because of the large amount of money involved. 

Conclusion

Democratic decentralization is the division of power and authority in the different layers of government that is Center, state, and local government. It is said that the more powerful decentralization is when more people contribute to governance. Decentralization has firmly been established both in rural as well as urban areas. Local democracy has deepened, political participation broadened and representation diversified as a result of 73rd and 74th Constitutional Amendment Acts. Decentralization has provided an institutionalized arena where the local population could participate in local government
decision making. The decentralisation process has now given rural and urban local bodies an opportunity to assume greater responsibility for rural and urban governance. The new system of decentralised governance has provided an element of continuity and enlarged the participatory process at the grassroots level. The states have taken certain measures to transfer functions and devolve funds upon the local bodies.