PESA, Local Finances and the Working of Grassroots Democracy

PESA, 1996: extending panchayats to Scheduled Areas

The 73rd Amendment did not automatically apply to Fifth Schedule areas. On the recommendations of the Dileep Singh Bhuria Committee (1995), Parliament enacted the Provisions of the Panchayats (Extension to the Scheduled Areas) Act, 1996 (PESA), which came into force on 24 December 1996. It applies to Scheduled Areas in the ten Fifth Schedule states (Andhra Pradesh, Telangana, Chhattisgarh, Gujarat, Himachal Pradesh, Jharkhand, Madhya Pradesh, Maharashtra, Odisha and Rajasthan).

Objectives: to extend Part IX to Scheduled Areas with modifications; to provide self-rule for the bulk of the tribal population; to have village governance with participatory democracy and make the gram sabha the nucleus of all activities; to evolve a governance framework consistent with traditional practices; and to safeguard and preserve the traditions and customs of tribal communities.

Key features:

• State laws on panchayats in Scheduled Areas must be in consonance with customary law, social and religious practices and traditional management of community resources.
• A village ordinarily consists of a habitation or group of habitations or a hamlet managing its affairs according to traditions; every village has a gram sabha.
• The gram sabha is competent to safeguard and preserve the traditions, cultural identity, community resources and customary mode of dispute resolution.
• The gram sabha approves plans, programmes and projects for social and economic development before they are implemented, and identifies beneficiaries of poverty alleviation programmes; panchayats must obtain a utilisation certificate from the gram sabha for funds spent.
• The gram sabha or panchayat must be consulted before land acquisition for development projects and before resettling or rehabilitating affected persons.
• Recommendations of the gram sabha or panchayat are mandatory before grant of prospecting licences or mining leases for minor minerals, and for concessions for exploitation of minor minerals by auction.
• Panchayats and gram sabhas are endowed with: ownership of minor forest produce; power to prevent land alienation and restore unlawfully alienated land; power to manage village markets; control over money-lending to STs; power to enforce prohibition or regulate the sale and consumption of intoxicants; and control over institutions and functionaries in social sectors and over local plans including tribal sub-plans.
• Reservation of seats in Scheduled Areas for communities in proportion to their population, with at least half the seats for STs, and all chairperson posts at all levels reserved for STs.
• The state legislature should follow the Sixth Schedule pattern while designing administrative arrangements at the district level.

Implementation: states were to amend their laws and frame PESA rules. Several did so very late – for example Madhya Pradesh and Chhattisgarh notified their rules only in 2022 – and some states were slower still. Problems include conflict with state laws on forests, excise and mining, weak awareness, bureaucratic resistance, and gram sabha consent being bypassed for projects. PESA complements the Forest Rights Act, 2006, which gives the gram sabha power over community forest resources.

Finances of local bodies

Local bodies have three sources of revenue:

1. Own revenue – property tax (the most important for urban bodies), professional tax (in some states), user charges for water and sanitation, fees, licences and markets. For panchayats, own revenue is very small – often less than 5% of their total receipts.
2. Transfers from the state – share of state taxes and grants as recommended by State Finance Commissions (SFCs). Many states have delayed constituting SFCs or have not acted on their reports.
3. Transfers from the Centre – Finance Commission grants under Article 280(3)(bb) and (c), plus funds through central schemes.

Central Finance Commission grants:

• The 14th FC (2015–20) gave about ₹2.87 lakh crore to local bodies, mainly basic grants with a performance component.
• The 15th FC (2021–26) recommended about ₹4.36 lakh crore for local bodies – rural local bodies, urban local bodies and health grants through local governments. Tied grants for rural bodies are for sanitation and ODF status and drinking water, rainwater harvesting and water recycling. Entry conditions include publishing audited accounts online, and for urban bodies notifying floor rates of property tax and showing improvement in collection. Urban grants are split between million-plus cities (through a challenge fund linked to air quality, water and solid waste outcomes) and other cities.

How well is grassroots democracy working?

Achievements:

• Regular elections in most states and a huge base of elected representatives – about 31 lakh, of whom about 46% are women.
• Political empowerment of women, SCs and STs; studies (for example, by Chattopadhyay and Duflo) found that women-led panchayats invested more in drinking water and roads, priorities voiced by women.
• Better local planning through Gram Panchayat Development Plans, social audits under MGNREGA, and digitisation (e-Gram Swaraj, Audit Online).
• Success stories: Kerala's People's Plan Campaign (1996), which devolved about one-third of plan funds; Hiware Bazar (Maharashtra) for watershed development; Punsari (Gujarat) as a model digital village.

Weaknesses:

• Inadequate devolution of the 3Fs – functions, funds and functionaries; parallel bodies and line departments retain control.
• Proxy representation (sarpanch-pati or pradhan-pati), elite capture and caste dominance. After a Supreme Court direction in 2024, an advisory committee of the Ministry of Panchayati Raj examined proxy representation and recommended measures such as penalties for proven cases, training and public swearing-in of women representatives.
• Irregular gram sabhas with low attendance.
• Weak own revenue; reliance on tied grants; delays in SFCs and audits.
• Limited capacity; over-bureaucratisation through district collectors and block officers.
• In urban areas, weak mayors and parastatal dominance.

Way forward: activity mapping to clearly assign functions; untied funds with accountability; strengthening SFCs and local revenue (property tax reforms); professional cadres for panchayats; training through the Rashtriya Gram Swaraj Abhiyan; the Localisation of SDGs approach (nine themes adopted by the Ministry of Panchayati Raj since 2021, such as poverty-free and healthy villages); and real participation through gram and ward sabhas.

Practice: Mains question

*"PESA has remained a promise largely unfulfilled." Analyse the reasons and suggest measures. (250 words)* Mention the radical vision (gram sabha as nucleus, control over resources), late rules in states, conflict with sectoral laws, consent bypassed (Niyamgiri as a counter-example where the gram sabha's decision was respected), and measures: aligning state laws, capacity building, translating rules into tribal languages, and monitoring by the Tribes Advisory Councils and Governors.

Common traps

• PESA came into force on 24 December 1996, on the Bhuria Committee's recommendation.
• PESA covers Fifth Schedule areas, not Sixth Schedule areas.
• Under PESA all chairperson posts are reserved for STs, and at least half the seats.
• Gram sabha recommendations are mandatory for minor mineral leases; consultation for land acquisition.

Practice: check your understanding

1. *How do PESA and the Forest Rights Act reinforce each other?* PESA gives the gram sabha powers over minor forest produce and local resources; FRA gives it legal authority to claim and manage community forest resources and to protect them.
2. *Why are State Finance Commissions important?* They determine how much of the state's taxes and grants reach local bodies; delays in setting them up or acting on their reports starve local bodies of funds.