UNIT-3

PANCHAYATI RAJ
AND
RURAL ADMINISTRATION:
BUREAUCRACY:
The civil service system, or bureaucracy, originated during the British colonial era in India.
Through the Government of India Act, 1858, the British gained complete control of India’s
Government. This was the start of the British Empire’s authority over India through a
committee of authorized specialists. Within less than a century, the British had developed a
proficient administration composed chiefly of Indians who pledged loyalty to the British
Government.

This administrative body might very well be described as the sine qua non (necessary thing)
of British Rule in India. Following India’s independence, and at a period when third-world
countries were seeking to develop skilled and competent professional services, India’s top
bureaucracy took a firm and unique stance. It provided and continues to provide India with
autonomy and continuity that have remained unshaken even throughout periods of political
instability and shaky political control at the national and state levels.
The term bureaucracy derives from the following:
Bureau (French): which means small desks.
Kratein (Greek): which means to rule.
Thus, bureaucracy fundamentally refers to office-based governance.

Bureaucracy involves coordinating a large number of individuals who are compelled to work
together. Bureaucracy is a term that refers to “government by offices.” Bureaucrats assign
government policy to consider the laws enacted by elected authorities and carry them out
successfully. These are permanent professional staff members of the executive branch of
Government. These individuals’ primary responsibility is to aid the operation of government
agencies, although they report to the ministries.

Advantages of Bureaucracy
• Division of power: Facilitates work and promotes specialization.
• Efficiency: Competence grows; work is conducted effectively under the supervision of direct
supervisors in the hierarchy.
• Responsibility and compliance: Ordinary people can hold government officials and
bureaucrats responsible for their conduct while doing their tasks. If anything goes wrong, the
organization is accountable.
• Decision-making: Generally, individuals are delegated decision-making authority by their
immediate superiors, and managers are delegated authority by those above them in the
hierarchy.
• Regulations and rules: The collection of clearly defined rules and regulations makes
compliance with them a requirement inside the bureaucratic system, limiting the extent of non-
adherence to the framework of rules and protocols.
• Ease of management: Facilitates administration by logically organizing the organization in
a structural hierarchy. Keeping control of the management, making essential modifications as
and when necessary, and introducing new regulations as needed from time to time are made
simpler under a bureaucratic structure due to the organization’s size.

Disadvantages of Bureaucracy

• Red tape: By definition, bureaucracy adheres to a system of rules and regulations. This results

in a lack of flexibility and often results in inefficiency.

• Bureaucratic delays: A bureaucratic system’s intricate set of regulations often results in

lengthy delays.

• Bureaucratic corruption: Corruption at the highest levels of Government may be very

detrimental to the economy.

• Goals change: Getting work done in a bureaucratic system is inefficient, and the collection of

rules and regulations often takes precedence over the ultimate result.

• Documentation: Even for relatively easy tasks, a substantial amount of paperwork may be

necessary.

• Compartmentalization: Because occupations are split into categories, teamwork and

completing work in other categories are limited.

• Nepotism: In bureaucracies, nepotism is often an issue. The top managers may favour their

own and assist them in rising faster than more worthy persons.

• Decision-making: In the bureaucracy, decisions are made per a system of rules and

regulations. This rigidity often results in the adoption of programmed choices at the expense

of exploring other paths.

Control over Bureaucracy

Bureaucrats have a great deal of personal accountability. This is why they, too, must be

restrained, should they abuse the authority bestowed upon them. This acts as a restrictive to

them. Every state is responsible for and vigilant over the bureaucracy. Each stage exercises it

on both an internal and exterior level.

Internal control

This indicates that control is exercised internally, inside the company, rather than outside. The

organization is hierarchical and separated into segments to facilitate its operation; the

instruments of internal controls must be disciplined among them; there should be a leadership

control, and someone should be in charge of budget management and accounting and auditing.

External control

This does not occur inside the organization; it occurs outside of the agency. These include the

legislative system, the executive branch, and the court. Numerous entities are tasked with the

responsibility of overseeing the bureaucracy’s operations. These bureaucrats are in charge of

all major and minor policies at the state and federal levels. This serves as a conduit for

communication between the populace and the Government.

Conclusion

The post-independence bureaucracy of India may accurately be seen as the legacy of British

control in India. Consequently, the system built was of excellent quality and was tremendously

beneficial to India after independence. The transition of bureaucrats from colonial

administration to the newly acquired democratic culture was seamless, which would not have

been possible without the civil body’s experience.

Gradually, the ICS officials retired, and by the late 1970s, the majority of them had resigned,

leaving the whole Indian Administrative System in the hands of IAS officials. This might be

considered the beginning of the new era of Indian bureaucracy. Today’s Indian bureaucracy is

solid and capable of governing the Indian Government through its ups and downs.
ADMINISTRATIVE STRUCTURE
 PANCHAYATI RAJ INSTITUTIONS (PRI)

EMERGENCE OF PRI
 Panchayati Raj Institution (PRI) is a system of rural local self-government in India.
 Local Self Government is the management of local affairs by such local bodies who have
been elected by the local people.
 PRI was constitutionalized through the 73rd Constitutional Amendment Act, 1992 to build
democracy at the grass roots level and was entrusted with the task of rural development in the
country.
 In its present form and structure PRI has completed 26 years of existence. However, a lot
remains to be done in order to further decentralization and strengthen democracy at the grass
root level.
The history of Panchayat Raj in India can be divided into the following periods from the
analytical point of view:
 Vedic Era: In the old Sanskrit scriptures, word ‘Panchayatan’ has been mentioned which
means a group of five persons, including a spiritual man.
 In the Rigveda, there is a mention of Sabha, Samiti and Vidatha as local self-units.

 These were the democratic bodies at the local level. The king used to get the approval of these
bodies regarding certain functions and decisions.
 Epic Era indicates the two great epic periods of India, that is, the Ramayana and the
Mahabharata.
 The study of Ramayana indicates that the administration was divided into two parts –
 Pur and Janpad or city and village.

 In the whole of the state, there was also a Caste Panchayat and one person elected by the Caste
Panchayat was a member of the king's Council of Ministers.
 Self-government of a village finds ample expression in the ‘Shanti Parva’ of the Mahabharata;
in the Manu Smriti as well as in Kautilya’s Arthashastra.
 As per the Mahabharata, over and above the village, there were units of 10, 20, 100, and 1,000
village groups.
 ‘Gramik’ was the chief official of the village, ‘Dashap’ was the chief of ten villages, Vinshya
Adhipati, Shat Gram Adhyaksha and Shat Gram Pati were the chiefs of 20, 100, and 1,000
villages, respectively.
 They collected the local taxes and were responsible for the defense of their villages.
 Ancient Period: There is a mention of village panchayats in Kautilya’s Arthashastra.

 The town was referred to as Pur and its chief was the Nagarik.
 Local bodies were free from any royal interference.
 During the Mauryan and Post-Mauryan periods too, the headman, assisted by a council
of elders, continued to play a prominent role in the village life.
 The system continued through the Gupta period, though there were certain changes in the
nomenclature, as the district official was known as the vishya pati and the village headman
was referred to as the grampati.
 Thus, in ancient India, there existed a well established system of local government which was
run on a set pattern of traditions and customs.
 However, it is significant to note that there is no reference of women heading the
panchayat or even participating as a member in the panchayat.
 Medieval Period: During the Sultanate period, the Sultans of Delhi divided their kingdom
into provinces called ‘Vilayat’.

 For the governance of a village, there were three important officials - Mukkaddam for
administration, Patwari for collection of revenues, and Choudhrie for settling disputes
with the help of the Panch.
 The villages had sufficient powers as regards self- governance in their territory.
 Casteism and feudalistic system of governance under the Mughal rule in the medieval period
slowly eroded the self-government in villages.
 It is again noteworthy to note that even in the medieval period there is no mention of women
participation in the local village administration.
 British Period: Under the British regime, village panchayats lost their autonomy and
became weak.
 It is only from the year 1870 that India saw the dawn of representative local institutions.
 The famous Mayo’s resolution of 1870 gave impetus to the development of local
institutions by enlarging their powers and responsibilities.
 The year 1870, introduced the concept of elected representatives, in urban municipalities.
 The revolt of 1857 had put the imperial finances under considerable strain and it was found
necessary to finance local service out of local taxation. Therefore, it was out of fiscal
compulsion that Lord Mayo’s resolution on decentralization came to be adopted.
 Following the footsteps of Mayo, Lord Rippon in 1882 provided the much-needed
democratic framework to these institutions.

 All boards (then existing) were mandated to have a two-thirds majority of non-officials who
had to be elected and the chairman of these bodies had to be from among the elected non-
officials.
 This is considered to be the Magna Carta of local democracy in India.
 Local self-government institutions received a boost with the appointment of the Royal
Commission on centralisation in 1907 under the Chairmanship of C.E.H. Hobhouse.

 The commission recognized the importance of panchayats at the village level.

 It is in this backdrop that the Montagu Chelmsford reforms of 1919 transferred the subject
of local government to the domain of the provinces.
 The reform also recommended that as far as possible there should be a complete control in
local bodies and complete possible independence for them from external control.
 These panchayats covered only a limited number of villages with limited functions and due
to organisational and fiscal constraints they did not become democratic and vibrant institutions
of local self-government at the village level.
 However, by 1925, eight provinces had passed the Panchayat Acts and by 1926, six native
States had also passed panchayat laws. Local bodies were given more powers and functions to
impose taxes were reduced. But, the position of the local self-government institutions remained
unaffected.
 Post–Independence Period:
 After the Constitution came into force, Article 40 made a mention of panchayats and Article
246 empowers the state legislature to legislate with respect to any subject relating to local self-
government.
 However, this inclusion of panchayats into the Constitution was not unanimously agreed upon
by the then decision-makers, with the major opposition having come from the framer of the
Constitution himself i.e. B.R.Ambedkar.
 It was after much discussion among the supporters and opponents of the village panchayat that
the panchayats finally got a place for themselves in the Constitution as Article 40 of the
Directive Principles of State Policy.
 Since the Directive Principles are not binding principles, the result was the absence of a uniform
structure of these bodies throughout the country.
 After independence, as a development initiative, India had implemented the Community
Development Programmes (CDP) on the eve of Gandhi Jayanti, the 2nd October, 1952 under
the major influence of the Etawah Project undertaken by the American expert, Albert Mayer.

 It encompassed almost all activities of rural development which were to be implemented with
the help of village panchayats along with the participation of people.
 In 1953, the National Extension Service was also introduced as a prologue to CDP. But the
programme did not yield much result.
 There were various reasons for the failure of CDP like bureaucracy and excessive politics, lack
of people participation, lack of trained and qualified staff, and lack of local bodies interest
in implementing the CDP especially the village panchayats.
 In 1957, the National Development Council constituted a committee headed by Balwant Rai
Mehta to look into the working of community development programme.

 The team observed that the major reason for the failure of the CDP was the lack of people’s
participation.
 The committee suggested a three-tier PRIs, namely, Grama Panchayats (GPs) at the village
level, Panchayat Samiti (PSs) at the block level, and Zilla Parishad (ZPs) at the district level.
 As a result of this scheme of democratic decentralization was launched in Rajasthan on
October 2, 1959.
 In Andhra Pradesh, the scheme was introduced on 1st November, 1959. The necessary
legislation had also been passed and implemented in Assam, Gujarat, Karnataka, Madhya
Pradesh, Maharashtra, Orissa, and Punjab etc.
 The appointment of the Ashok Mehta Committee in 1977 did bring new thinking in the
concepts and practice of the Panchayat Raj.
 The committee recommended a two-tier Panchayat Raj institutional structure consisting
of Zilla Parishad and Mandal Panchayat.
 In order to use planning expertise and to secure administrative support, the district was
suggested as the first point of decentralization below the state level.
 Based on its recommendation, some of the states like Karnataka incorporated them effectively.
 In subsequent years in order to revive and give a new lease of life to the panchayats, the
Government of India had appointed various committees.
 The most important among them are the Hanumantha Rao Committee (1983), G.V.K. Rao
Committee (1985), L.M.Singhvi Committee (1986) and the Sarkaria Commission on
Centre-State relations (1988), P.K. Thungan Committee (1989) and Harlal Singh Kharra
Committee (1990).
 The G.V.K. Rao Committee (1985) recommended making the “district” as the basic unit of
planning and holding regular elections while the L.M.Singhvi
committee recommended providing more financial resources and constitutional status to
the panchayats to strengthen them.
 The Amendment phase began with the 64th Amendment Bill (1989) which was introduced by
Rajiv Gandhi seeking to strengthen the PRIs but the Bill was not passed in the Rajya Sabha.
 The Constitution (74th Amendment) Bill (a combined bill for the PRIs and municipalities) was
introduced in 1990, but was never taken up for discussion.
 It was during the Prime Ministership of P.V.Narasimha Rao that a comprehensive amendment
was introduced in the form of the Constitution 72nd Amendment Bill in September 1991.
 73rd and 74th Constitutional Amendments were passed by Parliament in December 1992.
Through these amendments, local self-governance was introduced in rural and urban
India.
 The Acts came into force as the Constitution (73rd Amendment) Act, 1992 on April 24, 1993
and the Constitution (74th Amendment) Act, 1992 on June 1, 1993.
Financial Organizations in Panchayati Raj Institutions:
 The Panchayati Raj Ministry in a meeting with the 15th Finance Commission has pitched for
a fivefold increase in funding for rural local bodies.
 The Panchayati Raj Ministry has asked for Rs 10 lakh crore to be allocated for the 2020-21 to
2025-26 period, in comparison to the Rs 2 lakh crore allocated under the 14th Finance
Commission.
Need for (increased) funding to Panchayats

 The panchayats gained prominence as crucial nodal points during the COVID-19.
 They ran isolation centres, medical camps, and contact tracing.
 However, they faced many challenges during the lockdown period as for most panchayats it
was difficult to provide food at short notice.
 Hence, the Panchayati Raj Ministry has proposed to set up community kitchens in each
panchayat that will be operated by the local self-help groups (SHGs).
 The utilisation rate for Finance Commission grants between 2015 and 2019 stands at 78% and
the allocations had tripled between the 13th and 14th Commissions.
 The role of panchayats becomes more important post lockdown period because now the newly
returned migrant workers will also depend on them to generate employment under the Garib
Kalyan Rojgar Abhiyan.
 Other employment schemes of the government of India are as below-
 Pradhan Mantri Rojgar Protsahan Yojana (PMRPY)
 Prime Minister’s Employment Generation Programme (PMEGP)
The 2.63 lakh panchayats across the country have 29 functions under their ambit, according to
the 11th Schedule of the Constitution.
 Road construction, its maintenance and drinking water supply are the major projects carried
out by panchayats using Financial Commission grants.

Gram Panchayat Funds:

 A major portion of Part IX of the Constitution covering Articles 243C, 243D, 243E, 243 G and
243 K deals with the structural empowerment of the PRIs.
 But the real strength in terms of both autonomy and efficiency of these institutions is dependent
on their financial position (including their capacity to generate own resources). In general,
Panchayats in our country receive funds in the following ways:

1. Grants from the Union Government based on the recommendations of the Central Finance
Commission as per Article 280 of the Constitution
2. Devolution from the State Government based on the recommendations of the State Finance
Commission as per Article 243 I
3. Loans/grants from the State Government
4. Programme-specific allocation under Centrally Sponsored Schemes and Additional Central
Assistance
5. Internal Resource Generation (tax and non-tax)

Still PRIs are weak in Revenue:

Across the country, States have not given adequate attention to fiscal empowerment of the
Panchayats. Panchayats’ own resources are meagre. Kerala, Karnataka and Tamil Nadu are
the states which are considered to be progressive in PRI empowerment but even there, the
Panchayats are heavily dependent on government grants. One can draw the following broad
conclusions:

1. Internal resource generation at the Panchayat level is weak.

2. This is partly due to a thin tax domain and partly due to Panchayats’ own reluctance in
collecting revenue.
3. Panchayats are heavily dependent on grants from Union and State Governments.
4. A major portion of the grants both from Union as well as the State Governments is scheme
specific. Panchayats have limited discretion and flexibility in incurring expenditure.
5. In view of their own tight fiscal position, State Governments are not keen to devolve funds to
Panchayats.
6. In most of the critical Eleventh Schedule matters like primary education, healthcare, water
supply, sanitation and minor irrigation even now, it is the State Government which is directly
responsible for implementation of these programmes and hence expenditure. Overall, a
situation has been created where Panchayats have responsibility but grossly inadequate
resources.
 How to Overcome:

For fiscal decentralization to be effective, finances should match expenditure assignments

related to the transferred activities. This calls for a two-fold approach
1. first demarcation of a fiscal domain for PRIs to tap resources directly both Tax and Non-
tax and
2. Devolution of funds from the Union and State Governments.
Problems in Terms of Policy:
 In the Indian context, the concept and practice of local government taxation have not
progressed much since the early days of the British rule.
 Most of the revenue accrual comes from taxation of property and profession with minor
supplement coming from non-tax receipts like rent from property and fees for services.
Solution:
It is high time that a national consensus emerges on broadening and deepening the revenue
base of local governments.
A comprehensive exercise needs to be taken up in this sector on a priority basis.
The exercise will have to simultaneously look into four major aspects of resource mobilisation
viz.
(i) Potential for taxation
(ii) Fixation of realistic tax rates
(iii) widening of tax base and
(iv) improved collection.
Besides this, devolution of funds from the higher tiers of the government to component of the
Panchayat’s resources.

Own Resource Generation:

The taxation power of the Panchayats essentially flow from Article 243 H which reads as
follows:

1. Authorise a Panchayat to levy, collect and appropriate such taxes, duties, tolls and fees in
accordance with such procedure and subject to such limits;
2. Assign to a Panchayat such taxes, duties, tolls and fees levied and collected by the State
Government for such purposes and subject to such conditions and limits;
3. Provide for making such grants-in-aid to the Panchayats from the Consolidated Fund of the
State; and
4. Provide for constitution of such Funds for crediting all moneys received, respectively, by or on
behalf of the Panchayats and also for the withdrawal of such moneys therefrom as may be
specified in the law.”

State Panchayati Raj Acts have given most of the taxation powers to Village Panchayats. The
revenue domain of the intermediate and District Panchayats (both tax as well as non-tax) has
been kept much smaller and remains confined to secondary areas like ferry services, markets,
water and conservancy services, registration of vehicles, cess on stamp duty and a few others.
A study of various State Legislations indicates that a number of taxes, duties, tolls and fees
come under the jurisdiction of the Village Panchayats. These include octroi, property/house
tax, profession tax, land tax/cess, taxes/tolls on vehicles, entertainment tax/fees, license fees,
tax on non-agriculture land, fee on registration of cattle, sanitation, drainage, conservancy tax,
water rate/tax, lighting rate/tax, education cess and tax on fairs and festivals.

Structure of rural finance:

 Non-governmental Organizations (NGOs)
 As defined by the World Bank NGOs refers to not-for-profit organizations that pursue activities
to relieve suffering, promote the interests of the poor, protect the environment, provide basic
social services, or undertake community development.
 These organisations are not a part of the governement, have a legal status and are registered
under the specific Act (Societies Registration Act, 1860 in India) of the government.
 The term NGO in India denotes wide spectrum of organisations which may be non-
governmental, quasi or semi governmental, voluntary or non-voluntary etc.
In India, based on the law under which they operate and the kind of activities they take up, civil
society groups can be classified into following broad categories:

 Registered Societies formed for specific purposes

 Charitable Organizations and Trusts
 Local Stakeholders Groups, Microcredit and Thrift Enterprises, Self Help Groups
 Professional Self-Regulatory Bodies
 Cooperatives
 Bodies without having any formal organizational structure
 Government promoted Third Sector Organizations
Need for NGOs

 Since independence, India has achieved phenomenal economic growth in education,

healthcare, poverty alleviation and overall standard of living.
 Issues of exclusion of women, children and marginalized communities in the development
process however remains.
 Other adverse consequences of inequitable growth include the spread of Naxalism, recurrent
violence for reservations and ever increasing cases of farmer suicides.
 India ranks 130th in the 2018 Human Development Index rankings. The Global Hunger
Index for 2018 indicates that 38.4% of children under five in India are stunted.
 In such an environment, civil society plays a key role in raising the concerns of people and
ensuring that minorities are not neglected.
 The state requires the constructive and collaborative engagement of the civil society in its
various developmental activities and programs.
 Non-governmental organisations (NGOs) acts as the operational arm of the civil society and
thus have an important role in the development processes.
Legislations regulating the finances of NGOs

Foreign Contribution (Regulation) Act (FCRA), 2010

 Foreign funding of voluntary organizations in India is regulated under FCRA act and is
implemented by Ministry of Home Affairs.
 The acts ensure that the recipients of foreign contributions adhere to the stated purpose for
which such contribution has been obtained.Under the act organisations require to register
themselves every five years.
Foreign Exchange Management Act, 1999

 Foreign Exchange Management Act (1999) aims to consolidate and amend the law relating to
foreign exchange with objective of facilitating external trade and payments and for promoting
the orderly development and maintenance of foreign exchange market in India.
 A transaction under FEMA is called a fee or a salary while the same under FCRA is called a
grant or a contribution.
o In 2016, the powers of Ministry of Finance to monitor NGOs were placed under the FEMA.
The idea was to bring all NGOs, which receive foreign contributions, under one umbrella for
better monitoring and regulations. The step was taken to that ensure only one custodian
monitors flow of foreign funds to these organisations.
Constitutional Provisions for NGOs in India

 Article 19(1)(c) on the right to form associations;

 Article 43 which highlights the State’s having an endeavor to promote cooperatives in rural
areas;
 Concurrent List in Entry 28 mentions about – Charities and charitable institutions,
charitable and religious endowments and religious institutions”.
Role of Non-Governmental Organisations

The Advocacy/Social Safety-Valve Role

 Non-profit organisations play vital role in mobilizing public attention to societal problems
and needs.
 They are the principal vehicle through which communities can give voice to their concerns.

Improving government performance

 NGOs can broaden government’s accountability by ensuring government is responsive to

citizens at large rather than to narrow sectarian interests.
 They also induce innovation and flexibility in policymaking by bringing their own independent
expertise and research teams.
 They enhance the efficiency of delivery of many services at the local level through involvement
of residents.
 They also improve policy monitoring and evaluation as Comptroller and auditor general (CAG)
takes cognizance of reports and social audits by NGOs while preparing its reports.
The Service Role

 The non-profit sector acts as a flexible mechanism through which people concerned about a
social or economic problem can begin to respond.
 It also caters to groups of the population who desire a range of public goods that exceeds what
the government or society is willing to support.
 NGOs help in constructive conflict resolution. In the international arena Track II diplomacy
(involving non-governmental bodies) plays a crucial role in creating an environment of trust
and confidence.
Building Community Participation

 The non-profit organisations offer alternative perspectives; and most importantly, the capacity
to conduct a meaningful dialogue with communities, particularly those that are disadvantaged.
 They foster pluralism, diversity and freedom. Many NGOs work to preserve and promote
India’s diverse culture. For example, SPIC MACAY is a society for promoting Indian classical
music and culture amongst youth.
Activities undertaken by NGOs

 Advocacy, Analysis and Awareness Raising – acting as a voice for people on both a
representative and self-appointed basis; researching, analyzing and informing the public about
issues; mobilizing citizen action through media campaigns and other forms of activism; and
lobbying business leaders and policymakers.
 Brokerage – acting as an intermediary between different sectors and groups.
 Conflict resolution – acting as a mediator and facilitator.
 Capacity Building – providing education, training and information.
 Delivery of services – operational delivery of essential humanitarian, development and/or
social services.
 Evaluation and Monitoring – serving as a ‘watchdog’ or third party / independent ‘auditor’,
invited and uninvited, of government and corporate performance, accountability and
transparency.
Issues with NGOs

 Accreditation remains a big challenge, as it is very difficult to distinguish whether an

organization wants to work for the cause or has been set up only for receiving government
grants.
 Over dependence on funds from the government dilutes the willingness of NGOs to speak out
against the government.
 NGOs have acted as a cover for organized crime in past and are often seen as fronts for
fundamentalist causes. Foreign funded NGOs have been responsible for organising agitations
and scuttling development projects in India.
 NGOs are often seen as encroaching on centuries-old tradition and culture of the people, and
lead to mass protest at times. Ban of Jallikattu, after the PIL by PETA is one such example.
Way Forward

 A National Accreditation Council consisting of academicians, activist, retired bureaucrats

should be made to ensure compliance by NGOs.
 There should be better coordination between Ministries of Home Affairs and Finance in terms
of monitoring and regulating illicit and unaccounted funds.
 A regulatory mechanism to keep a watch on the financial activities of NGOs and voluntary
organizations is the need of the hour.
 Citizens today are keen to play an active role in processes that shape their lives and it is
important that their participation in democracy go beyond the ritual of voting and should
include promotion of social justice, gender equity, inclusion etc.

SELF HELP GROUP

 Self-Help Groups (SHGs) are informal associations of people who choose to come together to
find ways to improve their living conditions.
 It can be defined as self-governed, peer controlled information group of people with similar
socio-economic background and having a desire to collectively perform common purpose.
 Villages face numerous problems related to poverty, illiteracy, lack of skills, lack of formal
credit etc. These problems cannot be tackled at an individual level and need collective efforts.
 Thus, SHG can become a vehicle of change for the poor and marginalized. SHG rely on the
notion of “Self Help” to encourage self-employment and poverty alleviation.
Functions:

 It looks to build the functional capacity of the poor and the marginalized in the field of
employment and income generating activities.
 It resolves conflicts through collective leadership and mutual discussion.
 It provides collateral free loan with terms decided by the group at the market driven rates.
 Such groups work as a collective guarantee system for members who propose to borrow
from organised sources. The poor collect their savings and save it in banks. In return, they
receive easy access to loans with a small rate of interest to start their micro unit enterprise.
 Consequently, Self-Help Groups have emerged as the most effective mechanism
for delivery of microfinance services to the poor.
Need for SHGs

 One of the reasons for rural poverty in our country is low access to credit and financial services.
 A Committee constituted under the chairmanship of Dr. C. Rangarajan to prepare a
comprehensive report on 'Financial Inclusion in the Country' identified four major reasons for
lack of financial inclusion:
o Inability to provide collateral security,
o Poor credit absorption capacity,
o Inadequate reach of the institutions, and
o Weak community network.
 The existence of sound community networks in villages is increasingly being recognised as
one of the most important elements of credit linkage in the rural areas.
 They help in accessing credit to the poor and thus, play a critical role in poverty alleviation.
 They also help to build social capital among the poor, especially women. This empowers
women and gives them greater voice in the society.
 Financial independence through self-employment has many externalities such as improved
literacy levels, better health care and even better family planning.
Benefits of SHGs

 Social integrity – SHGs encourages collective efforts for combating practices like dowry,
alcoholism etc.
 Gender Equity – SHGs empowers women and inculcates leadership skill among them.
Empowered women participate more actively in gram sabha and elections.
 There is evidence in this country as well as elsewhere that formation of Self-Help Groups has
a multiplier effect in improving women’s status in society as well as in the family leading to
improvement in their socio-economic condition and also enhances their self-esteem.
 Pressure Groups – their participation in governance process enables them to highlight issues
such as dowry, alcoholism, the menace of open defecation, primary health care etc and impact
policy decision.
 Voice to marginalized section – Most of the beneficiaries of government schemes have been
from weaker and marginalized communities and hence their participation through SHGs
ensures social justice.
 Financial Inclusion – Priority Sector Lending norms and assurance of returns incentivize
banks to lend to SHGs. The SHG-Bank linkage programme pioneered by NABARD has made
access to credit easier and reduced the dependence on traditional money lenders and other non-
institutional sources.
 Improving efficiency of government schemes and reducing corruption through social audits.
 Alternate source of employment – it eases dependency on agriculture by providing support in
setting up micro-enterprises e.g. personalised business ventures like tailoring, grocery, and tool
repair shops.
 Changes In Consumption Pattern – It has enabled the participating households to spend more
on education, food and health than non-client households.
 Impact on Housing & Health – The financial inclusion attained through SHGs has led to
reduced child mortality, improved maternal health and the ability of the poor to combat disease
through better nutrition, housing and health – especially among women and children.
 Banking literacy – It encourages and motivates its members to save and act as a conduit for
formal banking services to reach them.
Opportunities:

 SHGs often appear to be instrumental in rural poverty alleviation.

 Economic empowerment through SHGs provides women the confidence for participation in
decision-making affairs at the household-level as well as at the community-level.
 Un-utilised and underutilised resources of the community can be mobilised effectively under
different SHG-initiatives.
 Leaders and members of successful SHGs bear the potentiality to act as resource persons for
different community developmental initiatives.
 Active involvement in different SHG-initiatives helps members to grow leadership-
skills. Evidences also show that often women SHG leaders are chosen as potential candidates
for Panchayat Pradhans or representatives to Panchayati Raj Institution (PRI).
 Weaknesses of SHGs

 Members of a group do not come necessarily from the poorest families.

 Though there has been social empowerment of the poor, the economic gain to bring about a
qualitative change in their life has not been satisfactory.
 Many of the activities undertaken by the SHGs are still based on primitive skills related mostly
to primary sector enterprises. With poor value addition per worker and prevalence of
subsistence, level wages, such activities often do not lead to any substantial increase in the
income of group members.
 There is a lack of qualified resource personnel in the rural areas who could help in
skill upgradation or acquisition of new skills by group members. Further, institutional
mechanisms for capacity building and skill training have been lacking.
 Poor accounting practices and incidents of misappropriation of funds.
 Lack of resources and means to market their goods.
 SHGs are heavily dependent on their promoter NGOs and government agencies. The
withdrawal of support often leads to their collapse.
Challenges:

 Lack of knowledge and proper orientation among SHG-members to take up suitable and
profitable livelihood options.
 Patriarchal mindset – primitive thinking and social obligations discourages women from
participating in SHGs thus limiting their economic avenues.
 Lack of rural banking facilities – There are about 1.2 lakh bank branches and over 6 lakh
villages. Moreover, many public sector banks and micro-finance institutions are unwilling
to provide financial services to the poor as the cost of servicing remains high.
 Sustainability and the quality of operations of the SHGs have been a matter of considerable
debate.
 No Security – The SHGs work on mutual trust and confidence of the members. The deposits
of the SHGs are not secured or safe
 Only a minority of the Self-Help Groups are able to raise themselves from a level of micro-
finance to that of micro-entrepreneurship.
Measures to Make SHGs Effective:

 The Government should play the role of a facilitator and promoter; create a supportive
environment for the growth and development of the SHG movement.
 Expanding SHG Movement to Credit Deficient Areas of the Country - such as Madhya
Pradesh, Rajasthan, and States of the Northeast.
 Rapid expansion of financial infrastructure (including that of NABARD) and by adopting
extensive IT enabled communication and capacity building measures in these States.
 Extension of Self-Help Groups to Urban/Peri-Urban Areas – efforts should be made to
increase income generation abilities of the urban poor as there has been a rapid rise
in urbanisation and many people remain financially excluded.
 Positive Attitude – Government functionaries should treat the poor and marginalized as
viable and responsible customers and as possible entrepreneurs.
 Monitoring – Need to establish a separate SHG monitoring cell in every state. The cell
should have direct links with district and block level monitoring system. The cell should
collect both quantitative and qualitative information.
 Need Based Approach – Commercial Banks and NABARD in collaboration with the State
Government need to continuously innovate and design new financial products for these groups.
Case studies:

 Kudumbashree in Kerala
o It was launched in Kerala in 1998 to wipe out absolute poverty through community action. It
is the largest women empowering project in the country. It has three components
i.e., microcredit, entrepreneurship and empowerment. It has three tier structure -
neighborhood groups (SHG), area development society (15-20 SHGs) and Community
development society (federation of all groups). Kudumbashree is a government agency that has
a budget and staff paid by the government. The three tiers are also managed by unpaid
volunteers.
 Mahila Arthik Vikas Mahamandal (MAVIM) in Maharashtra
o SHGs in Maharashtra were unable to cope with growing volume and financial transactions and
needed professional help. Community managed resource centre (CMRC) under MAVIM was
launched to provide financial and livelihood services to SHGs. CMRC is self-sustaining and
provides need-based services.