The decentralised governance model gained ground in 1993 when the 73rd Constitutional Amendment came into effect and paved the way for the institutionalisation of the three-tier Panchayati Raj Institutions (PRI) towards fulfilling the dream of Mahatma Gandhi. The latest report by the Reserve Bank of India titled “Finances of Panchayati Raj Institutions” reveals a bitter truth about the financial status of Panchayats after three decades of constitutional empowerment. Around 95 percent of the revenues of panchayats come from grants provided by the central and state governments that restrict their spending abilities. Panchayats increasing their own revenue is critical to strengthening grassroots development. There are more than 2.55 lakh village panchayats, 6,697 intermediary panchayats, and 665 district panchayats in the country, and their performance determines the pace of progress in rural India. The RBI report points out that the heavy reliance of panchyats on grants from central and state governments is in contrast with the composition of states’ revenue receipts, as their own tax and non-tax revenue comprise more than 50 percent of the total revenue receipts for most of the states. It argues that even as grants-in-aid from the upper tiers of government have aimed at mitigating horizontal disparities, the large dependence on grants can affect their financial self-reliance, limiting their ability to decide on local spending and priorities independently, and such dependence also lessens their drive to establish independent revenue streams. “It would be prudent for the Panchayats to reduce their heavy dependence on grants by deploying the tax and non-tax instruments available to them to raise resources. This would help them to improve the quality of their services in rural areas and strengthen the rural economy,” it recommends. The 15th Finance Commission recommended grants of Rs. 4.36 lakh crore to local self-governments for the five-year period from 2021–22 to 2025–26 in the ratio of 67.5:32.5 between rural and urban local bodies till 2024–24 and in the ratio of 65:35 in the final year of 2025–26. Of the total grants earmarked for PRIs, 60 percent is earmarked for national priorities like drinking water supply, rainwater harvesting, and sanitation, while 40 percent is untied and is to be utilised at the discretion of the PRIs for improving basic services. The Commission’s report highlighted that one of the important findings of various studies commissioned by it was that “the tendency to impose conditionalities has given rise to the temptation by both the Union and State Governments to interfere, in the name of convergence, in the powers of the panchayats to select schemes.” Representatives of local bodies raised three key issues that are vital for improving the utilisation of funds received through Commission grants. These are: Grants should not be rigidly confined to a few specific sectors, and local governments should have the flexibility to use them in sectors they consider priority ones. Finance Commissions should support the establishment of a GIS-based property tax system for all local governments with the objective of strengthening their revenues. Funds should be earmarked for the creation of databases at the level of local governments, while providing them the flexibility to hire or outsource specialised manpower for this. Heavy reliance on central and state government grants also allows ruling parties to influence the election of panchayats, and due to the limited ability of elected representatives to infuse planning and execution with alternative ideas of grassroots governance, the dynamism of the institution is adversely affected. The problem also explains why the parties in power in the state or both in the state and at the centre sweep the panchayat polls at all three tiers, which also help strengthen their political bases in respective states or across different states. An increase in the share of own revenue can empower elected PRIs to undertake development programmes and schemes depending on the prioritised needs of the people at the three tiers. The financial autonomy of these rural local bodies can empower 31 lakh representatives to play the most crucial role in strengthening India’s rural economy by articulating innovative village development plans and also raising resources to fund their execution. Currently, the visible role of these elected representatives is mostly confined to identifying and drawing up lists of beneficiaries of various central and state government schemes, monitoring the implementation of social security schemes, and conducting awareness drives. The RBI report has put the spotlight on the key issue—the lack of panchayat resources. It is time for PRIs to deliberate extensively on how the panchayats can increase their own tax and non-tax revenues. Active participation of rural populations in public consultations can help PRIs come up with innovative ideas depending on local needs and potential resources that can be tapped. Wider participation of people at the village level can help PRIs secure their support to increase revenue, as they will know where it is going to be utilized.