Time for India's panchayats to reinvent and think like entrepreneurs

With the 73rd Constitutional Amendment Act of 1992, Gram Panchayats (GPs) were empowered to usher in a new era of grassroots self-governance. They were to be fiscally empowered, politically accountable, and innovative. Although much progress has been made ever since, that vision remains only half fulfilled. Despite constitutional powers to raise their own revenue under Article 243H, most GPs remain financially dependent on state and central transfers. According to latest data from the Ministry of Panchayati Raj (MoPR) and a 2025 study by the National Institute of Public Finance and Policy (NIPFP), own source revenue (OSR) contributes barely 6–7 per cent of panchayat finances nationally. The remaining 93-94 per cent still comes from grants. This dependency has dampened local initiatives within GPs. They have largely become implementers of government schemes rather than self-reliant local governments. It is time to change that, not just by revising tax rules, but by adopting an entrepreneurial mindset within Panchayats.

 

From passive collection to active creation

 

This is important because without control over finances, GPs cannot plan or prioritise according to local needs. The NIPFP report shows that even where economic potential exists, through property taxes, user fees, or community assets – the absence of innovation, digital systems, and political will limits performance. States such as Kerala, Karnataka, and Goa have higher per capita OSR (₹286, ₹148, and ₹1,635 respectively). They also have higher digitised tax collection, and community participation. On the other hand, states like Jharkhand, Bihar, and Himachal Pradesh collect almost negligible OSR. Entrepreneurship, as Joseph Schumpeter described, is about creative transformation. For Panchayats, this will mean moving from passive collection to active creation. They will have to rediscover themselves and find ways to monetise local assets, provide services efficiently, and reinvest the proceeds in development.

 

IIM Ahmedabad’s (IIMA) recent engagement with OSR in documenting entrepreneurial best practices revealed several positive developments in this direction. For instance, in Dharmaj, Gujarat, the GP runs a ₹5 crore annual budget, with half of it coming from locally-generated income. By redeveloping uncultivated land into a multi-purpose park, collecting property and water taxes digitally, and leveraging contributions from its NRI diaspora, the village has built reserves of over ₹2.5 crore. In Sirasu, Uttarakhand, the GP earns ₹15–₹20 lakh a year by charging nominal fees for pre-wedding photo shoots in its scenic locales. They have used this to fund solar lights and roads. In Mukundapurpatna, Odisha, the GP revenue jumped from ₹93,000 in 2006 to ₹36.78 lakh in 2018 through temple rents, market leases, and geo-tagged assets. These (and several other) GPs did not wait for state funds to arrive, they rather turned them into financially viable institutions.

 

Where does the problem lie?

 

Nevertheless, these examples are far and few in between to bring the larger change needed. Where do most Panchayats lag? Mostly, they can be attributed to political reluctance to levy taxes arising out of fear of voter backlash. Many GPs still assess property manually, with poor records and weak enforcement leading to very low valuation. User charges are rarely revised. In some states, ceilings on fees have not changed for decades. This has resulted in a narrow, stagnant tax base and a culture of dependency. As the NIPFP report notes, de jure fiscal empowerment means little without de facto operational autonomy.

 

Technology is beginning to change the equation, albeit slowly. Tamil Nadu’s VP Tax Portal enables real-time monitoring of property and professional taxes, while Jharkhand’s PoS-enabled tax collection has improved efficiency and transparency. Linking such systems with SVAMITVA’s property mapping can vastly expand panchayats’ revenue base. Some behavioural nudges, such as publicly recognising timely taxpayers or showing visible outcomes (“your tax built this road”) can also increase voluntary compliance. When people see the connection between taxes and tangible improvements, resistance will decline – and “fiscal trust” will increase.

 

Ministry of Panchayati Raj’s recent initiative in collaboration with IIM Ahmedabad in rolling out a specialised capacity building initiative for panchayat functionaries will go a long way in realising the immense potential of OSR at the grassroot level. In order to support the states, a digital platform called “Samartha” has also been developed by the ministry for facilitating end-to-end digitisation of OSR management by panchayats. MoPR is also nudging states to formulate or revise the OSR rules to make panchayats more progressive and empowered. Efforts are also being made to handhold identified panchayats having high revenue collections or those situated in peri-urban areas close to growth centres in formulating commercially viable projects. The right entrepreneurial energy in these places, we expect, could create a virtuous economic cycle with spin off effects.

 

The time has come to accept that while improving tax rates and buoyancy is important, it is only entrepreneurial thinking that can bring real change. As IIMA’s study has found, GPs using circular economy models such as biogas and composting plants, solar energy sales, community markets, and eco-tourism are fiscally more independent and are looking to grow further. To accelerate this process, the MoPR is pushing for performance-linked grants, which is tied to OSR growth. Further, the concept of ‘Fiscal Fellows’ at selected GPs that can handhold financial planning and digital integration can also be tried out. The 16th Finance Commission can also incentivise panchayats by rewarding outcomes to those that increase OSR rather than just adhering to procedures.

 

The long-cherished dream of Gram Swaraj will be realised, not by how much money flows from top, but on how effectively it is generated and used at source. Panchayats need to think less like accountants and more like entrepreneurs, spotting opportunities, managing risks, and reinvesting gains into the community. India’s rural transformation will not come from new schemes alone. It will come when its 2.5 lakh+ gram panchayats learn to earn, and when local governance becomes the country’s most vibrant entrepreneurial ecosystem.

(Sushil Kumar Lohani is an IAS officer and currently working as additional secretary, Ministry of Panchayati Raj, Ranjan Ghosh is a faculty member at IIMA and chairperson of its Center for Management in Agriculture)

 

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