- Why in news
- On 17 March 2026, the Union Panchayati Raj Minister told the Lok Sabha in a written reply how 15th Finance Commission grants to rural local bodies are allocated, released and monitored for FY 2020-21 to 2025-26.
- What it is
- The Fifteenth Finance Commission is the Finance Commission set up under Article 280 of the Constitution. It recommended grants to Rural Local Bodies for 2020-21 and for 2021-26, split into untied (basic) and tied parts. The grants carry conditions meant to improve planning, accounts, audit and the State Finance Commission process.
- Inter-se State criteria
- Grants are distributed among States with 90% weight to population and 10% to area.
- Nodal ministries
- The Ministry of Panchayati Raj handles untied (basic) grants; the Department of Drinking Water and Sanitation handles tied grants.
- Disbursal deadline
- States must pass grants to panchayats within 10 working days, or pay interest on the delay.
- Release in instalments
- Grants go to States in two instalments a year, after the Grant Transfer Certificate for the last instalment is received.
- Amount released
- Rs 256.60 crore of the second instalment of untied grants for 2025-26 went to Assam's eligible rural local bodies.
- Withheld portion
- Rs 42.70 crore of the withheld part of the first untied instalment was released to three additionally eligible Autonomous District Councils.
- Release route
- Panchayati Raj and Jal Shakti recommend release of the grants; the Ministry of Finance releases them. Grants come in two instalments a year.
- Use of tied grants
- Tied grants are for sanitation and ODF maintenance, and for drinking water, rainwater harvesting and water recycling.
- Constitutional basis
- The Finance Commission is constituted under Article 280 every five years by the President.
Don’t confuse with Finance Commission vs State Finance Commission: The Finance Commission (Article 280) shares Union taxes with States and recommends grants. The State Finance Commission (Article 243I) reviews finances of panchayats and recommends sharing between State and local bodies.
Don’t confuse with Untied vs tied grants: Untied (basic) grants can be used for local needs except salaries. Tied grants are for specified purposes such as drinking water, rainwater harvesting and sanitation.
Don’t confuse with Eleventh vs Twelfth Schedule: The Eleventh Schedule lists 29 subjects for Panchayats. The Twelfth Schedule lists 18 subjects for Municipalities.
Laws, judgments and statutory bodies: 30 Prelims questions since 2013 (what the law says, who chairs, legal basis). In Mains, 44 news-triggered questions, most in GS2, asking for provisions and challenges.
Why it matters
- Predictable, formula-based funds strengthen panchayat finances and fiscal decentralisation under Part IX.
- Conditions such as audit, online plans and State Finance Commissions push accountability and transparency.
- Predictable untied funds let Panchayats act on local priorities.
- Tied grants push progress on sanitation and drinking water.
Problems
- The annexure shows releases below allocations in several States, often because eligibility conditions were not met or GTCs were delayed.
- Panchayats depend on grants more than own revenue, and many States delay constituting or acting on State Finance Commissions.
- Instalments can be withheld if eligibility conditions are unmet, which delays local spending.
- Many local bodies have weak capacity to plan and use funds.
Way forward
- Build State capacity to meet audit, plan upload and accounts conditions so funds are not withheld.
- Regular State Finance Commissions with action-taken reports, and stronger own-source revenue for panchayats.
- Strengthen Panchayat capacity in planning and financial management.
- Release funds on time and track use through public reporting.
Put in your answer
eGramSwaraj coverage: In FY 2025-26, 96.36% of Gram Panchayats and equivalents uploaded GPDPs on eGramSwaraj.
Digital monitoring tools: eGramSwaraj and AuditOnline were launched in April 2020 to monitor panchayat planning, accounts and audit.
Constitutional basis: Article 243I provides for State Finance Commissions to be constituted every five years.
Article 280: The Finance Commission under Article 280 recommends measures to supplement State resources for Panchayats, based on the State Finance Commission's recommendations.
- 2013Mains GS2 · Q7Discuss 13th Finance Commission recommendations departing from earlier commissions for local government finances
- 2018Mains GS2 · Q15Assess Panchayat importance and sources of financing beyond government grants
- 2020Mains GS2 · Q13Critical challenges to local institutions' functionality beyond functions, functionaries and funds
- 2012Prelims Q33Which noticeable features of the 13th Finance Commission recommendations, including local body grants
- 2011Prelims Q11Which provisions the 73rd Amendment makes for panchayats, including State Finance Commissions
- 2025Prelims Q66Which statements on 15th Finance Commission recommendations are correct
- 2026Prelims Q74Which statements on Revamped RGSA for Panchayati Raj Institutions are correct
UPSC’s own questions that come close to this issue, from our Prelims and Mains banks.
No practice question for this one; the card may still help an answer. Why: Gives standing allocation figures and tier-wise bands for rural local body grants. Issue on file; Mains gate not met as it is a routine reply.
Worth revising until Prelims 2027: most news questions come within two years of the event.