UNIT 3

PANCHAYAT RAJ AND RURAL ADMINISTRATION

Structure of panchayat Raj institutions in India

Though, taking note from the Gandhian philosophy of Gram Swaraj, Government of

India brought Panchyati Raj System in 1957. However in 1992, the 73rd amendment to

the Constitution of India gave a constitutional power, structured a three-tier Panchayati

Raj system in the country. According the the constitutional structure, the three tiers

are; Zila Parishad at district level headed by a Zila Parishad chairperson; Panchayat

Samiti at block level headed by a Panchayat Samiti chairperson and Gram Panchayat at

village level headed by a Panchayat Mukhiya or a Sarpanch, varies in states.

Strengthening the democratic process at the village level, the fundamental objective of

this local governance system is to implement rural development projects as per the need

of the local community and being implemented by the community. The citizens within

the Gram Panchayats directly elect the representatives at the Panchayati Raj Institutions

(PRIs), from village level to block level to district levels. The village community puts up

their development needs in front of the Gram Sabha at Gram Panchayat level. After

discussions, the need based development projects are implemented in the villages. In

other ways, Gram Panchayats function as a local government at the village level.

Functioning as a local body in rural India, each Gram Panchayat is represented by one

Panchayat Mukhiya, one Sarpanch, one Panchayat Samiti member along with ward

members, directly elected by the persons above 18 years of age in the Gram Panchayat.

There are 250,000 Gram Panchayats, 6,300 Panchayat Samitis (block panchayats) and

nearly 600 Zila Parishads (district panchayats or councils) functioning in the country.
Panchayati Raj Institutions (PRI)

Name of Institutions Total Numbers

Gram Panchayat (Village level) 250,000

Panchayat Samitis (Block level) 6,300

Zila Parishads (District level) 600

Members of Panchayats:

A. Zilla Panchayat:
Each block Panchayat under a ZP elects one/two/three members directly (depending on number of
voters within it). Presidents of all the Block Panchayats are also ex-officio members of the ZP. In
some states the Member of Legislative Assembly (MLA) and Member of Parliament (MP) of the
district/constituency are also ex-officio members.

B. Block Panchayat or Panchayat Samiti:

Each GP under a Block Panchayat elects one/two/three members directly to the Block Panchayat. GP
pradhans are ex-officio members of the Block Panchayats.

C. Gram Panchayat:
A Gram as defined under the Act (meaning a village or a cluster of villages) is divided into a minimum
of five constituencies (again depending on the number of voters the Gram is having). From each of
these constituencies one member is elected. Body of these elected members is called the Gram
Panchayat.

D. Gram Sabha:
In most of the states, each constituency of the members of the Gram Panchayat is called the Gram
Sabha and all the voters of the same constituency are members of this body. However, in some
states this is called Ward Sabha/Palli Sabha etc. In West Bengal it is called Gram Sansad (village
parliament). Gram Sabha in West Bengal has a different meaning. Here all the voters of the Gram
Panchayat as a whole constitute the Gram Sabha.

Functioning of panchayat raj

The functions of Panchayats are divided among different Committees (as ministries are formed in
state and union governments), which are called Standing Committees/Sthayee Samitis/Upa Samitis
etc. One of the members remains in charge of each of such committees while the over-all charge
rests with the chairperson of the Panchayat. Panchayats are supported by a host of other of officials,
the number of which varies from state to state.

Apart from grants received from the government under the recommendation of the Finance
Commission, Panchayats receive schematic funds for implementation of schemes (MGNREGS,
BRGF, IAY etc.). They can also raise revenue by imposing taxes, fees, penalties etc. as per rule of
the state.

Evolution of Panchayati Raj

The Panchayati system in India is not purely a post-independence phenomenon. In fact, the dominant
political institution in rural India has been the village panchayat for centuries. In ancient India,
panchayats were usually elected councils with executive and judicial powers. Foreign domination,
especially Mughal and British, and the natural and forced socio-economic changes had undermined
the importance of the village panchayats. In the pre-independence period, however, the panchayats
were instruments for the dominance of the upper castes over the rest of the village, which furthered
the divide based on either the socio-economic status or the caste hierarchy.
The evolution of the Panchayati Raj System, however, got a fillip after the attainment of independence
after the drafting of the Constitution. The Constitution of India in Article 40 enjoined: “The state shall
take steps to organise village panchayats and endow them with such powers and authority as may be
necessary to enable them to function as units of self-government”.
There were a number of committees appointed by the Government of India to study the
implementation of self-government at the rural level and also recommend steps in achieving this goal.
The committees appointed are as follows:

• Balwant Rai Mehta Committee

• Ashok Mehta Committee
• G V K Rao Committee
• L M Singhvi Committee

Balwant Rai Mehta Committee & Panchayati Raj

The committee was appointed in 1957, to examine and suggest measures for better working of the
Community Development Programme and the National Extension Service. The committee suggested
the establishment of a democratic decentralised local government which came to be known as the
Panchayati Raj.
Recommendations by the Committee:

• Three-tier Panchayati Raj system: Gram Panchayat, Panchayat Samiti and Zila Parishad.
• Directly elected representatives to constitute the gram panchayat and indirectly elected
representatives to constitute the Panchayat Samiti and Zila Parishad.
• Planning and development are the primary objectives of the Panchayati Raj system.
• Panchayat Samiti should be the executive body and Zila Parishad will act as the advisory and
supervisory body.
• District Collector to be made the chairman of the Zila Parishad.
• It also requested for provisioning resources so as to help them discharge their duties and
responsibilities.
The Balwant Rai Mehta Committee further revitalised the development of panchayats in the country,
the report recommended that the Panchayati Raj institutions can play a substantial role in community
development programmes throughout the country. The objective of the Panchayats thus was the
democratic decentralisation through the effective participation of locals with the help of well-planned
programmes. Even the then Prime Minister of India, Pandit Jawaharlal Nehru, defended the panchayat
system by saying, “. . . authority and power must be given to the people in the villages …. Let us give
power to the panchayats.”
Ashok Mehta Committee & Panchayati Raj

The committee was appointed in 1977 to suggest measures to revive and strengthen the declining
Panchayati Raj system in India.
The key recommendations are:

• The three-tier system should be replaced with a two-tier system: Zila Parishad (district level)
and the Mandal Panchayat (a group of villages).
• District level as the first level of supervision after the state level.
• Zila Parishad should be the executive body and responsible for planning at the district level.
• The institutions (Zila Parishad and the Mandal Panchayat) to have compulsory taxation
powers to mobilise their own financial resources.

G V K Rao Committee & Panchayati Raj

The committee was appointed by the planning commission in 1985. It recognised that development
was not seen at the grassroot level due to bureaucratisation resulting in Panchayat Raj institutions
being addressed as ‘grass without roots’. Hence, it made some key recommendations which are as
follows:

• Zila Parishad to be the most important body in the scheme of democratic decentralisation.
Zila Parishad to be the principal body to manage the developmental programmes at the
district level.
• The district and the lower levels of the Panchayati Raj system to be assigned with specific
planning, implementation and monitoring of the rural developmental programmes.
• Post of District Development Commissioner to be created. He will be the chief executive
officer of the Zila Parishad.
• Elections to the levels of Panchayati Raj systems should be held regularly.

L M Singhvi Committee & Panchayati Raj

The committee was appointed by the Government of India in 1986 with the main objective to
recommend steps to revitalise the Panchayati Raj systems for democracy and development. The
following recommendations were made by the committee:

• The committee recommended that the Panchayati Raj systems should be constitutionally
recognised. It also recommended constitutional provisions to recognise free and fair
elections for the Panchayati Raj systems.
• The committee recommended reorganisation of villages to make the gram panchayat more
viable.
• It recommended that village panchayats should have more finances for their activities.
• Judicial tribunals to be set up in each state to adjudicate matters relating to the elections to
the Panchayati Raj institutions and other matters relating to their functioning.
All these things further the argument that panchayats can be very effective in identifying and solving
local problems, involve the people in the villages in the developmental activities, improve the
communication between different levels at which politics operates, develop leadership skills and in
short help the basic development in the states without making too many structural changes.
Rajasthan and Andhra Pradesh were the first to adopt Panchayati raj in 1959, other states followed
them later.
Though there are variations among states, there are some features that are common. In most of the
states, for example, a three-tier structure including panchayats at the village level, panchayat samitis
at the block level and the zila parishads at the district level-has been institutionalized.

73rd Constitutional Amendment Act of 1992

Significance of the Act

• The Act added Part IX to the Constitution, “The Panchayats” and also added the Eleventh
Schedule which consists of the 29 functional items of the panchayats.
• Part IX of the Constitution contains Article 243 to Article 243 O.
• The Amendment Act provides shape to Article 40 of the Constitution, (directive principles of
state policy), which directs the state to organise the village panchayats and provide them
powers and authority so that they can function as self-government.
• With the Act, Panchayati Raj systems come under the purview of the justiciable part of the
Constitution and mandates states to adopt the system. Further, the election process in the
Panchayati Raj institutions will be held independent of the state government’s will.
• The Act has two parts: compulsory and voluntary. Compulsory provisions must be added to
state laws, which includes the creation of the new Panchayati Raj systems. Voluntary
provisions, on the other hand, is the discretion of the state government.
• The Act is a very significant step in creating democratic institutions at the grassroots level in
the country. The Act has transformed the representative democracy into participatory
democracy.
Salient Features of the Act

1. Gram Sabha: Gram Sabha is the primary body of the Panchayati Raj system. It is a village
assembly consisting of all the registered voters within the area of the panchayat. It will
exercise powers and perform such functions as determined by the state legislature.
Candidates can refer to the functions of gram panchayat and gram panchayat work, on the
government official website – https://grammanchitra.gov.in/.
2. Three-tier system: The Act provides for the establishment of the three-tier system of
Panchayati Raj in the states (village, intermediate and district level). States with a population
of less than 20 lakhs may not constitute the intermediate level.
3. Election of members and chairperson: The members to all the levels of the Panchayati Raj are
elected directly and the chairpersons to the intermediate and the district level are elected
indirectly from the elected members and at the village level the Chairperson is elected as
determined by the state government.
4. Reservation of seats:
o For SC and ST: Reservation to be provided at all the three tiers in accordance with
their population percentage.
o For women: Not less than one-third of the total number of seats to be reserved for
women, further not less than one-third of the total number of offices for chairperson
at all levels of the panchayat to be reserved for women.
o The state legislatures are also given the provision to decide on the reservation of
seats in any level of panchayat or office of chairperson in favour of backward
classes.
Disqualification: A person shall be disqualified for being chosen as or for being a member of panchayat if he is
so disqualified –

Under any law for the time being in force for the purpose of elections to the legislature of the state concerned.

Under any law made by the state legislature. However, no person shall be disqualified on the ground that he is
less than 25 years of age if he has attained the age of 21 years.
Further, all questions relating to disqualification shall be referred to an authority determined by the state
legislatures.

State election commission:

The commission is responsible for superintendence, direction and control of the preparation of electoral rolls
and conducting elections for the panchayat.

The state legislature may make provisions with respect to all matters relating to elections to the panchayats.

Powers and Functions: The state legislature may endow the Panchayats with such powers and authority as
may be necessary to enable them to function as institutions of self-government. Such a scheme may contain
provisions related to Gram Panchayat work with respect to:

The preparation of plans for economic development and social justice.

The implementation of schemes for economic development and social justice as may be entrusted to them,
including those in relation to the 29 matters listed in the Eleventh Schedule.

Finances: The state legislature may –

Authorize a panchayat to levy, collect and appropriate taxes, duties, tolls and fees.

Assign to a panchayat taxes, duties, tolls and fees levied and collected by the state government.

Provide for making grants-in-aid to the panchayats from the consolidated fund of the state.

Provide for the constitution of funds for crediting all money of the panchayats.

Finance Commission: The state finance commission reviews the financial position of the panchayats and
provides recommendations for the necessary steps to be taken to supplement resources to the panchayat.

Audit of Accounts: State legislature may make provisions for the maintenance and audit of panchayat
accounts.

Application to Union Territories: The President may direct the provisions of the Act to be applied on any union
territory subject to exceptions and modifications he specifies.

Exempted states and areas: The Act does not apply to the states of Nagaland, Meghalaya and Mizoram and
certain other areas. These areas include,

The scheduled areas and the tribal areas in the states

The hill area of Manipur for which a district council exists

Darjeeling district of West Bengal for which Darjeeling Gorkha Hill Council exists.

However, Parliament can extend this part to these areas subject to the exception and modification it specifies.
Thus, the PESA Act was enacted.

Panchayat samiti

Panchayat samiti is a rural local government (panchayat) body at the intermediate tehsil (taluka/mandal) level
in India. It works for the villages of the tehsil that together are called a development block. It has been said to
be the “panchayat of panchayats”The 73rd Amendment defines the levels of panchayati raj institution as :

• No Level
• Intermediate level
• Base level
The panchayat samiti is the link between the gram panchayat (village council) and the zila parishad (district
board). The name varies across states: mandal parishad in Andhra Pradesh, taluka panchayat in Gujarat, and
mandal panchayat in Karnataka.

Functions of Panchayat Samiti

The Panchayat Samiti meets at regular intervals to take stock of the activities and discuss developmental
matters of local interest. Broadly, the functions of the Panchayat Samiti can be classified as:

• Delegated function,
• Community development function, and
• Supervisory functions.
1. Delegated functions: The delegated functions include implementation and coordination of
policies of development as determined by the state government. It is through the Samiti that
the state government implements the developmental projects at the grass-root level and
associates the people with such activities.
2. Community development function: The function of community development include the
planning and implementation of social welfare programs especially in the field of
Agriculture,Irrigation, Cottage and small scale industries,Co-operatives,Education, etc.
3. Supervisory functions: The Panchayat Samiti has another very important function of
supervising the work of the Gram Panchayats within the block. It may also examine and
modify the budget of the Gram Panchayats.

Zilla Parishad

Zila parishad is located at the apex of the Panchayat system at the district level. It consists of the Chairman of
the Panchayat Samities as ex-officio Members, M.L.As, M.P.s of the area. Representatives of women,
scheduled castes and tribes and backward class are co-opted as members.

The representatives of co-operative societies in the area like co-operative central bank and marketing society
are nominated to Zilla Parishad to act as official members. The chairman and Vice-chairman are elected by the
Chairman of Panchayat Samities in the district.

Functions

The main functions of the Zilla Parishad may be categorized as Development, Civic, Welfare, Coordinative,
Supervisory, Financial and Advisory.

1. Developmental functions: The developmental function includes looking after developmental work in
the district and secures the execution of developmental projects and other activities in the blocks
under the district. The problems and difficulties arising out of the execution of the projects are
discussed at the apex body which finds out ways and means to solve them through negotiation with
the state government.
2. Civic activities: Construction and maintenance of public roads, bridges, culverts, parks and water
supply system come under the civic activities of Zilla Parishad.
3. Welfare functions: Establishment of markets, running of public libraries, dispensaries, public health
and family planning centers, providing relief in times of calamities is some examples of its civil welfare
activities.
4. Coordination: The Zilla Parishad also works as the chief coordinator of the activities of the Panchayat
Samities in the block level. It is through the blocks that the districts prosper. Therefore the Zilla
Parishads coordinate and consolidate the developmental projects in the block levels.
5. Financial functions: It has financial functions also. It examines and approves the budgets of the
Panchayat Samities and distributers funds to them. It exercises financial control over the Panchayat
Samities and the Village Panchayats.
 6. Advisory functions: By virtue of working with the other two levels of Panchayati System it is in a
position to advice the state government about the activities to be taken up at the grass-root level. The
advice offered to the state government in right earnest can ever be hardly overlooked or neglected.

Significance of Panchayati Raj Institution

Promote Democratic Representation: The Panchayati Raj Institution system increases cooperation among
people, democratic participation, and decentralization through the three levels such as Gram Panchayat at the
village level, Block Panchayat, or PanchayatSamiti at the intermediate level, and Zilla Panchayat at the district
level.

Effective and Efficient Planning The Gram Panchayats (GPs) in India have been entrusted to provide basic
services in the villages and plan for local economic development. The Gram Panchayat Development Plan
(GPDP) which is being developed by the Gram Sabhas improves the efficiency of public services.

Ensures Good Governance: Good Governance has two important pillars such as ‘Consensus-oriented’ and
‘Participation’. The Panchayati Raj Institutions help in ensuring both the pillars of Good Governance.

Challenges faced By Panchayati Raj Institutions

Even after conferring constitutional status and protection through the 73rd Amendment Act (1992), the
performance of the Panchayati Raj Institutions has not been satisfactory and not up to the expected level. The
various reasons for this sub-optimal performance are as follows:

Issues Related To Functionaries Concerns related to Human Resource at Gram Panchayat level:

Non-accountability- Even though the personnel at the Gram Panchayat level deliver crucial services like
education, health, and livelihood generation, they are, in most cases, not accountable to the Gram Panchayat
and the Gram Sabha.

Lack of horizontal and vertical convergence of action at the Gram Panchayat level is a problem of prime
concern. Vertical integration is also not ensured because of different departments and schemes under which
they are appointed with specific mandates.

Poor Oversight- There is poor oversight to check if the existing rules are being violated. Dependence on
employees is high if elected functionaries in Panchayats lack administrative experience and it can lead to
exploitation of the situation by the staff or collusion between elected functionaries and officials.

Variation across states- Wide variation across States in terms of engagement – qualification and mode of
recruitment, duration, remuneration, travel allowances, and other conditions for similar cadres.

Variation in Remuneration: There are variations in remuneration under different schemes functioning at the
rural level which leads to the migration of employees from one State to another; sometimes from one scheme
to another. For example, the daily payment under MGNREGA in Haryana is Rs. 309 whereas, in Madhya
Pradesh and Chattisgarh, it is less than Rs. 200.

No Standard Minimum Qualification for elected and non-elected members.

RURAL FINANCE

• A number of banks and finance companies have begun to specialize in offering credit to farmers.

• Finance in this sector has the added benefit of supporting further work in regional areas. As banks and
Financial services continue to extend their services into rural India they are generating employment in The
vicinity.
• Rural finance is a line of credit specifically intended for the requirements of the agricultural industry. Ranging
from mortgage assistance to land development and farming equipment, these credit plans are a Significant
aspect of rural and semi-urban support.

• In a country like India, farming finance is a service of utmost importance and closely related to the Continued
progress of the country, as agriculture continues to play a central role. Finance Presence in Rural India

Financial aids for the poor clusters in rural areas today are in the following forms:

• Nationalized Banks

• Private Banks

• Credit Societies

• Co-operative Banks

• Informal loans (Money Lenders)

Nationalized Banks – Regional Rural Banks (RRB/ Gramin)

• Rural banking in India started since the establishment of banking sector in India.

Rural Banks in those days mainly focused upon the agro sector. Regional rural Banks in India penetrated every
corner of the country and extended a helping hand In the growth process of the country.

• Till date in rural banking in India, there are 14,475 rural banks in the country of Which 2126 (91%) are
located in remote rural areas

SBI

• SBI, has a breathtaking rural branch network of 6,600 with 972 specialized Branches. Thesebranches have
been set up in different parts of the country with the Sole purpose of developing agriculture through credit
deployment.

• SBI has developed rural agricultural business units, education programmes for Local farmers and “kisan”
cards. SBI has gradually evolved to become the leader in Agricultural finance with a portfolio of Rs. 18,000
crore in loans to around 50 lakh Farmers.

• One of their recent endeavors is the tie-up with National Agricultural Cooperative Marketing Federation
(NAFED) to finance farmers for Cultivation of various crops like soyabean, paddy, jute and potato.

• SBI has 30 Regional Rural Banks in India known as RRBs. The rural banks of SBI is spread in 13 states
extending from Kashmir to Karnataka and Himachal Pradesh to North East. The total number of SBIs Regional
Rural Banks in India Branches is 2349 (16%).Canara

• Canara has launched aggressive grass-root level plans, in a bid to achieve 100% Financial inclusion in 1,400
villages all over India, which could bring 7 lakh Families into their net.

• Under this programme, every adult member of a rural household in the selected Villages would be
encouraged to open a ‘No Frills’ account with minimum entrylevel formalities.

Private banks- Commercial ICICI

• ICICI Bank, the country‟s second largest bank, has adopted the franchise model Of operation in rural
markets.
• A one man office (known as “kendra”) in the village forms an interface between The villager and the Bank‟s
products and facilities. Crop loans, housing loans, Automobile loans, farm equipment, seed financing and
insurance policies are all on offer.

Foreign Banks

• Foreign Banks like Citibank, HSBC and Standard Chartered are now looking “villageward”. Citi is reported to
be in the hunt for several rural branch licenses.

There is a new focus on the SME segment as well.

• More or less, all the banks are using an agent-based model , as the typical branchbased model does not work
here due to cost economics.

• Many banks have solutions for Mobile-based services to reach rural consumers Directly into their hand.
Cooperative Banks Credit Cooperatives

• Rural Credit Cooperatives have existed in India for a long time. A shortage of Supply of rural credit was
prevalent in India.

• To meet the demand for short and long term rural credit the Co-operative Credit Structure (CCS) was set up.

• While short term credit is supplied by the State Cooperative Banks (SCB), District Central Cooperative Banks
(DCCB) and Primary Agricultural Credit

Societies (PACS), long term credit is supplied by the Primary Cooperative Agriculture and Rural Development
Banks.

Short term credit is supplied in rural India by three institutions –

• State Cooperative Banks (SCB)

• District Central Cooperative Banks (DCCB)

• Primary Agricultural Credit Societies (PACS) Long term credit is supplied by the

• Primary Cooperative Agriculture and

• Rural Development Banks (PCARDB) Credit Societies – Small Scale Finance Organizations

• There are two types of financial organizations that provide small‐scale Entrepreneur support.

• Microfinance institutions (MFI)

• Small Organizations/NGOs/SHG

Microfinance institutions

• MFI Their amounts are often too small to be used for the intended (pr oductive) Purposes, such as Upgrading
an existing venture, as well a s for their lack of nonfinancial support.

• However, some MFI‟s, notably BASIX, a livelihood finance provider, an d SKS, Are using financing models that
go beyond the traditional mic rofinance funds to Support small‐scale entrepreneurs as an altern ative
investment opportunity in rural Areas.

• These MFI‟s provide larger grants coupled with non‐financial support for rural Ventures that promise
increased employment opportunities for the po or.

• Already established in rural areas, MFI‟s have an advantage in local networks And understanding about the
risks of a potential investment

Small Organisations- NGOs/SHOs

• There are other organizations involved in financing rural entrepreneur s or Infrastructure in villages, often
with a specific remit such as environmental Sustainability.

• Financial organization such as S3IDF work together with local NGOs/S HGs to Provide basic infrastructure
services in rural areas and train loc al entrepreneurs to Take charge of the projects or services.

• Finance is the primary service, but these organizations provide additional servicesTo link the technology with
finance and suppliers

What is NABARD Scheme?

The full form of NABARD is the National Bank for Agriculture and Rural Development. NABARD manages any
credit-related concerns for agricultural and rural undertakings such as their policy, planning, and operations. In
general, NABARD handles the funding of any agricultural activities with respect to rural development in India
as the institution’s primary goal is the nationwide growth of India’s rural community. There are three sectors
NABARD works around: development, supervision, and finance.

Functions of NABARD

When it comes to aiding rural communities financially, NABARD plays a few distinct roles. They are as follows:

The NABARD scheme aims to provide funds for India’s rural infrastructure to enable long term irrigation
practices.

Generally offering financial services and aid for the development and improvement of rural India.

Planning, implementing and managing any funding programs for farming and agricultural activities.

Providing all kinds of funding services for developing and growing food processing units and food parks in
designated areas.

Offers both long term refinance and short term refinance servicing to its customers. Simultaneously, it
provides any direct refinance services to Indian cooperative banks.

Offering lending services, cold chain, and storage infrastructure to rural warehouses.

Marketing federations can receive credit facilities from the NABARD scheme.

Creating new policies for India’s rural financial institutions.

Features of NABARD Scheme

• The following are some of the features of the NABARD loan scheme.
• Offering support for funding or refinancing.
• Growing the infrastructure of rural communities in India.
• Creating credit plans available at a district level for these communities.
• Offering guidance and support to the banking sector so the latter can achieve their own credit targets
for the year.
• Carrying out the supervision of cooperative banks and Regional Rural Banks (RRBs) in India.
• Devising new projects that aid in rural development of the country.
• Putting into place any of the government’s developmental schemes aimed at helping the growth of
rural areas.
• Offering training services for handicraft artisans.

VISION

To emerge as the premier Institute of the Developing World offering Training, Research and Consultancy
services to its customers and undertaking other related activities in the field of agriculture and rural
development banking.
MISSION

• Commitment and competence building of people in Rural Financial Institutions (RFIs) and other
partners in Rural Development through training.
• Help building viable and vibrant RFIs through Organisation Development, Consultancy and Research.
• Help building appropriate systems for delivery of financial services.
• Promote policy debate on Rural Development Strategies.

Regional Rural Banks (RRBs) in India are the scheduled commercial banks that conduct banking activities for
the rural areas at the state level. As the name suggests, the Regional Rural Banks cater to the needs of the
rural and underprivileged people at the regional level across different states in the country. In the following
banking awareness study notes let us have a closer look at the RRBs in India for practical as well as UPSC IAS
exam purposes.

The Regional Rural Banks or the RRB government-based banks operate at the regional level in various states
across the country.

The RRBs are entrusted to cater to the needs of the rural people in the backward regions and bring Financial
Inclusion at the primary level.

The main objective of the RRBs is to provide credit and other banking facilities to the small, marginal farmers,
agricultural laborers, small artisans, etc. In the rural areas for boosting the rural economy.

At present, there are 43 RRBs in the country and each of them is sponsored by the government of India in
collaboration with the state government and sponsor bank.

Ownership

The equity of the Regional Rural Banks is held by the stakeholders in a fixed proportion. This proportion is
50:35:15, distributed as:

Central Government – 50%

Sponsor Bank – 35%

State Government – 15%

Features

• Following are the characteristic features of the Regional Rural Banks in India:
• The RRBs possess complete knowledge of the problems faced by the people in the rural regions as
they operate in a familiar environment
• They show professionalism in mobilizing the finances just like that of a commercial bank
• RRBs provide banking as well as credit facilities to the marginal farmers, small entrepreneurs, artisans,
laborers, etc. In rural areas
• They fulfill the priority sector lending norms as applicable on the commercial banks
• They are required to work within their prescribed local limits only

Objectives

• The Regional Rural Banks in India are entrusted with the following functions and/ or objectives as
described below:
• Opening branches of banks in the rural areas
• Providing loans for the development of the agricultural sector to small farmers, agricultural laborers,
small entrepreneurs, etc.
• Generating employment opportunities
• Encouraging savings among the rural people, accepting deposits, and using the funds for productive
purposes
 • Protecting common people from money lenders’ exploitation
• Reducing the cost of providing loans in rural areas

What are NGO and its Functions?

The functions of NGO deem to have a legal status as they are registered under the Societies Registration Act,
which is a Central Act for registering not for profit registration. Thus, because of the functions of NGO in India
it signifies broad range of organisations which may be non-governmental, quasi or semi governmental and
includes both voluntary and non-voluntary organisation, etc.

NGO acts as a mediator between government and citizen. When few issues that the does not reach to
government or are not solved by the government then functions of NGO play a significant role in assigning
these issues to the government and few issues are intentionally looked by the NGO. Their main aim is to make
the earth a better place for every human being who is suffering.

The function of NGO is to focus on all the issues concerning human rights, social, environmental and advocacy.
They work to promote and improve the social and political conditions of the society on a broad scale. Some of
the functions of NGO are:

• Human rights and child rights

• Poverty eradication
• Animal Rights
• Prevent Social Injustice
• Conservation of Environment
• Aged people care routine
• Empowerment of women
• Disease Control and others
• Health and Nutrition plans
• Conservation of Wildlife
• Hygiene and Sanitation conditions
• Humanitarian Relief
• Education plans and literacy
• Refugee Crisis

What are the Roles of NGO in Indian Context?

The functions of NGO play a major role and have brought social change for promotion and development of the
society. It has proved that these organisations are working for various parts of the world and are doing their
work in serving the humanity and other good cause. It is important that the members of the NGO are
educated, inspired, enthusiastic and working in the interest and properly carrying out the functions of NGO.
Few of the roles of NGO are given below:

Social Safety-Valve Role

NGO plays a crucial role in organising the public inconvenience and becomes an advocate to the societal
problems and needs. They play a significant role in lending voice to the poor and needy.

Improve Government Performance

It is one of the functions of NGO to ensure that the government is responsive and are solving the problems of
the citizens thus making the governments work accountable. NGO is also authorised to give suggestions and
encourage improvement and flexibility in the government’s policymaking by giving their own research teams
and expertise.

The Service Role

The non-profit organisation works as a mechanism through which people worried about any social or
economic difficulty which can respond and lend their helping hands. NGO help in beneficial conflict resolution
and creates the environment of trust and confidence.

Building Community Participation

The non-profit organisation proposes substitute perspective that includes the capability to carry out a
meaningful dialogue with disadvantaged communities. Many NGO are working to conserve and encourage
India’s diverse culture. They have different communities all across the world who is participating to serve the
same interest of NGO.

Women Empowerment

The performance of major functions of NGO has come a long way in working for women empowerment. Few
of the examples like fighting against sati, dowry, cruelty, other social menaces to educating women, lowering
the female foeticide rate, employment to female, etc.

What is a CBO?

What is a Community–Based Organization (CBO)?

The following definition of a CBO was created during the 2002 and 2003 planning meetings and adopted by
NCBON members at the NCBON Organizational Meeting at the APHA Annual Meeting in Washington DC in
2004.

A Community–Based Organization is one that is driven by community residents in all aspects of its existence.
By that we mean:

The majority of the governing body and staff consists of local residents,

The main operating offices are in the community,

Priority issue areas are identified and defined by residents,

Solutions to address priority issues are developed with residents, and

Program design, implementation, and evaluation components have residents intimately involved, in leadership
positions

Work conducted by CBO’s generally falls into the themes of human services, natural environment conservation
or restoration, and urban environment safety and revitalization. Examples include:

• Neighborhood revitalization
• Affordable housing
• Food security
• Accessible transportation
• Senior citizens associations
• Environmental protection/conservation
• Community sustainability
• Humanitarian/disaster response
• Medical relief funds
• Youth homes and centers

What are SHGs?

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:

Inability to provide collateral security,

Poor credit absorption capacity,

Inadequate reach of the institutions, and

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.

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,
States of the North-East.

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