Rural Development: Administration and Planning (KHU-701) UNIT-3

Manish Kumar Sharma

AP, Department of CSE

Panchayati Raj & Rural Administration: Administrative Structure: bureaucracy,

structure of administration; Panchayati Raj Institutions Emergence and Growth of
Panchayati Raj Institutions in India; People and Panchayati Raj; Financial
Organizations in Panchayati Raj Institutions, Structure of rural finance, Government &
Non-Government Organizations / Community Based Organizations, Concept of Self
help group.

INTRODUCTION
Administration refers to the process of running an organisation. This includes creating
rules & regulations, making decisions, management of operations, creating organisation
of staff/employees/people to direct activities towards achieving a common goal or
objective.

In India, the administration of rural development has been carried out by the Block
Development Office, related government offices and “Panchayati Raj System”. It also
looks into the role of rural people in the administration of rural development mainly
through participation in the Panchayati Raj System.

Structure:
The basic structure of the PRIs is identical across the states of India, it is described via
different nomenclatures in different states. Panchayats in every state has its own
characteristics and even election procedures to these institutions are at variance. A Zilla
Panchayat is co terminus with the district. Each district has one Zilla Panchayat.
Similarly Block Panchayats or Panchayat Samitis are co terminus with blocks of the
said district. A Block may have several villages within it, but Gram Panchayats are not
necessarily co terminus with each village. Depending on the size of population (as a
matter of fact, number of voters) a Gram is defined under the law with a specific
geographical area, which may consist of a single village or a cluster of adjoining
villages. 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: 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.

B. 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. Size of the
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GPs varies widely from state to state. In states like West Bengal, Kerala etc. a GP has
about 20000 people on an average, while in many other states it is around 3000 only.

C. 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.

Under the Constitution there can be only three tiers of the Panchayat. The Gram Sabha
is not a tier of the PR system. It does not have any executive function and operates as a
recommending body only. Gram Sabhas hold meetings normally 2 to 4 times a year,
but can meet as and when necessary.

In some states dates of these meetings are fixed (Madhya Pradesh, Gujarat etc.) while
in others dates are fixed by the Gram Panchayats. Issues to be discussed in the meetings
can be wide ranging but the essential agenda should include: Annual Action Plan and
Budget, Annual Accounts and Annual report of the GP, selection of beneficiaries for
different social service programmes (Indira Awas Yojana (IAY), Pension Schemes etc.),
identification of schemes for preparation of Annual Plan for development programmes
(e.g. MGNREGS) of GP, consideration of the Audit reports, analyses of GP’s
performance etc.

These administrative structures include:

(1) governmental institutions and agencies, including the military;

(2) intergovernmental organisations;
(3) nongovernmental organisations;
(4) commercial private sector organisations; and (5) academic institutions.

Organisational Set up

State Government
(Minister for Panchayati Raj)
 Rural Development: Administration and Planning (KHU-701) UNIT-3

Secretary (Panchayati Raj)

District level officers are required

to attend the monthly meetings
of ZPs.

Panchayati Raj Institutions (PRIs)

Zila Parishad 77 Panchayat Samiti 243 Gram Panchayat

(ZP)(District Level) (PS) (Block level) (GP) (Village level)

Chief
Executive District Chief Executive Secretary/ Sahayak
Officer Panchayat Officer (CEO)/
(CEO)/ Officer (DPO) Block
Additional - cum Development
District Secretary Officer (BDO)
Commission
er (ADC)

Panchayati Raj institutes

Panchayats have been the backbone of the Indian villages since the beginning of
recorded history. Gandhiji, the father of the nation, in 1946 had aptly remarked that the
Indian Independence must begin at the bottom and every village ought to be a Republic
or Panchayat having powers. Gandhiji’ s dream has been translated into reality with
the introduction of the three-tier Panchayati Raj system to ensure people’ s
participation in rural reconstruction.

73rd Amendment Act, 1992

The passage of the Constitution (73rd Amendment) Act, 1992 marks a new era in the
federal democratic set up of the country and provides constitutional status to the
Rural Development: Administration and Planning (KHU-701) UNIT-3

Panchayati Raj Institutions (PRIs). Consequent upon the enactment of the Act, almost
all the States/UTs, except J&K, NCT Delhi and Uttaranchal have enacted their
legislation. Moreover all the States/UTs except Arunachal Pradesh, NCT Delhi and
Pondicherry, all other States/UTs have held elections. As a result, 2,32,278 Panchayats
at village level; 6,022 Panchayats at intermediate level and 535 Panchayats at district
level have been constituted in the country. These Panchayats are being manned by about
29.2 lakh elected representatives of Panchayats at all levels. This is the broadest
representative base that exists in any country of the world developed or underdeveloped.

The main features of the Act are

(i) a 3-tier system of Panchayati Raj for all States having population of over 20 lakh;
(ii) Panchayat elections regularly every 5 years;
(ii) reservation of seats for Scheduled Castes, Scheduled Tribes and women (not less
than one-third of seats);
(iii) appointment of State Finance Commission to make recommendations as regards
the financial powers of the Panchayats and
(iv) constitution of District Planning Committees to prepare development plans for the
district as a whole.

As per the Constitution (73rd Amendment) Act, the Panchayati Raj Institutions have
been endowed with such powers and authority as may be necessary to function as
institutions of self government and contains provisions of devolution of powers and
responsibilities upon Panchayats at the appropriate level with reference to (a) the
preparation of plans for economic development and social justice; and (b) the
implementation of such schemes for economic development and social justice as may
be entrusted to them.

Meaning
A three-tier structure of the Indian administration for rural development is called
Panchayati Raj. The aim of the Panchayati Raj is to develop local self-governments in
districts, zones and villages.

Panchayati Raj institutes village local government that plays a significant role in the
development of villages especially in areas like primary education, health, agricultural
developments, women and child development and women participation in local
government, etc.

All states of India have Panchayati Raj systems except Nagaland, Meghalaya and
Mizoram, in all Union Territories except Delhi; and certain other areas.

Features of Panchayati Raj

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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.
2. Three Tier System: village, intermediate and district levels.
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 levels are elected indirectly.
4. Reservation of seats:

a. For SC and ST: Reservation to be provided at all the three tiers in

accordance with their population percentage.
b. 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.
c. 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.

5. Duration of Panchayat: The Act provides for a five-year term of office to all
the levels of the panchayat. However, the panchayat can be dissolved before the
completion of its term. But fresh elections to constitute the new panchayat shall
be completed –

1. before the expiry of its five-year duration.

2. in case of dissolution, before the expiry of a period of six months from
the date of its dissolution.

6. Disqualification: A person shall be disqualified for being chosen as or for being

a member of panchayat if he is so disqualified –

1. Under any law for the time being in force for the purpose of elections to
the legislature of the state concerned.
2. 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.
3. Further, all questions relating to disqualification shall be referred to an
authority determined by the state legislatures.

7. State election commission:

1. The commission is responsible for superintendence, direction and

control of the preparation of electoral rolls and conducting elections for
the panchayat.
2. The state legislature may make provisions with respect to all matters
relating to elections to the panchayats.
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8. 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:

1. the preparation of plans for economic development and social justice.

2. 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.

9. 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.

10. 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.
11. Audit of Accounts: State legislature may make provisions for the maintenance
and audit of panchayat accounts.
12. 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.
13. Exempted states and areas: The Act does not apply to the states of Nagaland,
Meghalaya and Mizoram and certain other areas. These areas include,

1. The scheduled areas and the tribal areas in the states

2. The hill area of Manipur for which a district council exists
3. 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.

14. Continuance of existing law: All the state laws relating to panchayats shall
continue to be in force until the expiry of one year from the commencement of
this Act. In other words, the states have to adopt the new Panchayati raj system
based on this Act within the maximum period of one year from 24 April 1993,
which was the date of the commencement of this Act. However, all the
Panchayats existing immediately before the commencement of the Act shall
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continue till the expiry of their term, unless dissolved by the state legislature
sooner.

15. Bar to interference by courts: The Act bars the courts from interfering in the
electoral matters of panchayats. It declares that the validity of any law relating
to the delimitation of constituencies or the allotment of seats to such
constituencies cannot be questioned in any court. It further lays down that no
election to any panchayat is to be questioned except by an election petition
presented to such authority and in such manner as provided by the state
legislature.

Evolution of Panchayati Raj institution.

Balwant Rai Mehta Committee

In January 1957, the Government of India appointed a committee to examine the

working of the Community Development Programme (1952) and the National
Extension Service (1953) and to suggest measures for their better working. The
chairman of this committee was Balwant Rai G Mehta. The specific
recommendations made by it are:

1. Establishment of a three-tier panchayati raj system–gram panchayat at the village

level, panchayat samiti at the block level and zila parishad at the district level. These
tiers should be organically linked through a device of indirect elections.
2. The village panchayat should be constituted with directly elected representatives,
whereas the panchayat samiti and zila parishad should be constituted with indirectly
elected members.
3. All planning and development activities should be entrusted to these bodies.
4. The panchayat samiti should be the executive body while the zila parishad should
be the advisory, coordinating and supervisory body.
5. The district collector should be the chairman of the zila parishad.
6. There should be a genuine transfer of power and responsibility to these
democratic bodies.
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These recommendations of the committee were accepted by the National Development

Council in January 1958. The council did not insist on a single rigid pattern and left it
to the states to evolve their own patterns suitable to local conditions. But the basic
principles and broad fundamentals should be identical throughout the country.

Ashok Mehta Committee

In December 1977, the Janata Government appointed a committee on panchayati

raj institutions under the chairmanship of Ashok Mehta. It submitted its report in
August 1978 and made 132 recommendations to revive and strengthen the declining
panchayati raj system in the country.

Its main recommendations were:

1. The three-tier system of panchayati raj should be replaced by the two-tier system,
that is, zila parishad at the district level, and below it, the mandal panchayat
consisting of a group of villages With a total population of 15,000 to 20,000.

2. A district should be the first point for decentralization under Popular supervision
below the state level.
3. Zila parishad should be the executive body and made responsible for planning at
the district level.
4. There should be an official participation of political parties at all levels of
panchayat elections.
5. The panchayati raj institutions should have compulsory powers of taxation to
mobilise their own financial resources.

Due to the collapse of the Janata Government before the completion of its term, no
action could be taken on the recommendations of the Ashok Mehta Committee at the
central level.

L M Singhvi Committee

In 1986, Rajiv Gandhi government appointed a committee to prepare a concept paper

on ‘Revitalisation of Panchayati Raj Institutions for Democracy and Development’
under the chairmanship of L.M.Singhvi.

It made the following recommendations.

(i) The Panchayati Raj institutions should be constitutionally recognised, protected and
preserved. For this purpose, a new chapter should be added in the Constitution of India.
This will make their identity and integrity reasonably and substantially inviolate. It also
suggested constitutional provisions to ensure regular, free and fair elections to the
Panchayati Raj bodies.
(ii) Nyaya Panchayats should be established for a cluster of villages.
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(iii) The villages should be reorganised to make Gram Panchayats more viable. It also
emphasised the importance of the Gram Sabha and called it as the embodiment of direct
democracy.
(iv) The Village Panchayats should have more financial resources.
(v) The judicial tribunals should be established in each state to adjudicate controversies
about election to the Panchayati Raj institutions, their dissolution and other matters
related to their functioning.

Constitutionalisation

Rajiv Gandhi Government

The Rajiv Gandhi Government introduced the 64th Constitutional Amendment Bill in
the Lok Sabha in July 1989 to constitutionalise panchayati raj institutions and make
them more powerful and broad based. Although, the Lok Sabha passed the bill in
August 1989, it was not approved by the Rajya Sabha. The bill was vehemently opposed
by the Opposition on the ground that it sought to strengthen centralisation in the federal
system.

V.P. Singh Government

The National Front Government, soon after assuming office in November 1989 under
the Prime Ministership of V.P. Singh, announced that it would take steps to strengthen
the panchayati raj institutions. In June 1990, a two-day conference of the state chief
ministers under the chairmanship of V.P. Singh was held to discuss the issues relating
to the strengthening of the panchayati raj bodies.The conference approved the proposals
for the introduction of a fresh constitutional amendment bill. Consequently, a
constitutional amendment bill was introduced in the Lok Sabha in September 1990.
However, the fall of the government resulted in the lapse of the bill.

Narasimha Rao Government

The Congress Government under the prime ministership of P.V.

Narasimha Rao once again considered the matter of the constitutionalisation of

panchayati raj bodies. It drastically modified the proposals in this regard to delete the
controversial aspects and introduced a constitutional amendment bill in the Lok Sabha
in September, 1991. This bill finally emerged as the 73rd Constitutional Amendment
Act, 1992 and came into force on 24 April, 1993 .

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.
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• 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.

The provisions of the Act with regard to the States can be broadly categorised as
mandatory for the States and these provisions of the Act have to be included in the
legislations to be enacted by them. The enabling, or, discretionary provisions of the Act ,
which have been left to the States to take decisions.

Mandatory provisions

Following are the mandatory provisions of the Act:

1. Constitution of Gram Sabha The Act has prescribed for the establishment of Gram
Sabha at village level consisting of people registered in the electoral roll relating to a
village falling within the area of Panchayat.
2. Constitution of the Panchayats The Act has prescribed establishment of three tier
system of Panchayati Raj and each State/UT there shall be Panchayats at village,
intermediate and district levels except those States/UTs having population not
exceeding 20 lakhs. Source-

3. Composition of Panchayats At all levels, Panchayats will comprise of persons chosen

by direct election from respective territorial constituencies. All members of Panchayats
elected directly or indirectly shall have voting rights in Panchayat meetings. The
chairpersons of the intermediate ( Block level) and the apex tier ( District level)
Panchayats will be elected from among directly elected members.

4. Duration of Panchayats Five year term for all tiers of Panchayats

5. Reservation of Seats Seats shall be reserved for SCs and STs in every panchayat and
the number of the seats so reserved shall bear , as nearly as may be , the same proportion
to the total number of seats to be filled by direct election in that Panchayat have
Rural Development: Administration and Planning (KHU-701) UNIT-3

population of the SCs in that Panchayat area or of STs in that Panchayat area bears to
the total population of that area and such seats may be allotted by rotation to different
constituencies in a Panchayat. Not less than one -third of the total number of seats
reserved for the SCs or STs shall be reserved for women belonging to SCs or STs as
the case may be.

6. Constitution of State Election Commission The superintendence, direction and

control of the preparation of electoral rolls for, and the conduct of, all elections to the
Panchayats shall be vested in a State Election Commission consisting of a State Election
Commissioner to be appointed by the Governor.

7. Constitution of State Finance Commission The Governor of a State shall, as soon as

may be within one year from the commencement of the Act and thereafter at the
expiration of every fifth year, constitute a Finance Commission to review the financial
position of the Panchayats and to make recommendations to the Governor.

People and Panchayati Raj

The installation of the government in 1977 brought about a remarkable change in the
attitude of the government to panchayats. The Left Front had initially three tasks on the
rural front : (a) revitalisation of panchayats. (b) regeneration of stagnant rural economy
(c) changing the correlation of class forces in favour of the poor. The government spelt
out its intention (a) to make panchayats political institutions, (b) to utilise them not only
as instruments of development but also as platforms for fighting against rural vested
interests and raising the hopes of the people thereby (c) to establish the powers of the
people curbing that of the administrative officers and (d) to make the people realise
through the experience of their participation about the limitations inherent in the
existing socio-economic structure and then to unleash the struggles for implementation
of an alternative development strategy.
Public Participation in Gram Sabhas :
The installation of the government in 1977 brought about a remarkable change in the
attitude of the government to panchayats. The Left Front had initially three tasks on the
rural front : (a) revitalisation of panchayats. (b) regeneration of stagnant rural economy
(c) changing the correlation of class forces in favour of the poor. The government spelt
out its intention (a) to make panchayats political institutions, (b) to utilise them not only
as instruments of development but also as platforms for fighting against rural vested
interests and raising the hopes of the people thereby (c) to establish the powers of the
people curbing that of the administrative officers and (d) to make the people realise
through the experience of their participation about the limitations inherent in the
existing socio-economic structure and then to unleash the struggles for implementation
of an alternative development strategy.

People's Participation through Information, Education and Communication :

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Information, Education and Communication (IEC) activities are essential ingredients

of a developments programme and play a crucial role in opening the 110 gateways to
social transformation. It is now increasingly realised that the willing participation of
the people in the development process is a pre-requisite for attaining the objectives of
various development programme. Lack of awareness has been a major difficulty in
securing peoples' participation in the development process, in view of which the IEC
activities assume particular significance since they make systematic, co-ordinated and
effective use of information for the education of the people and communicate such
information in a manner that makes it "empowering knowledge"

Financial Organizations in Panchayati Raj

Institutions
The Panchayats receive funds from three sources:
• Local body grants, as recommended by the Central Finance Commission
• Funds for implementation of centrally sponsored schemes
• Funds released by the state governments on the recommendations of the State Finance
Commissions
Rural Local Bodies have the duties of providing basic amenities and civic services to
rural population.
The Rural Local bodies are empowered to collect taxes to raise p their own resources
to perform their duties. However, the funds collected through their own revenues do
not suffice. Therefore, the Government (Central and State) devolves part of their own
tax revenues to the rural local bodies to meet their needs. Article 243(I) and 243(Y) of
the Constitution of India incorporated by 73rd and 74th Amendment Acts heralded a
new era in the history of the Local Bodies by providing for the constitution of a State
Finance Commission in all the States within one year from the commencement of the
Constitution 73rd Amendment Act, 1992 initially and thereafter at the expiry of every
five years to recommend devolution of funds to the Local Bodies. The Central
Government also asked the Central Finance Commissions to recommend the quantum
of Central Government funds to be devolved to the local bodies from Tenth Central
Finance Commission onwards. The main sources of income for Panchayats are local
cess, house tax, profession tax, vehicle tax, duty on transfers of property, a portion
of entertainments tax, house tax, matching grant and development rates
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)

Own Resource Generation

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Though, in absolute terms, the quantum of funds the Union/State Government transfers
to a Panchayat forms the major component of its receipt, the PRI’s own resource
generation is the soul behind its financial standing. It is not only a question of resources;
it is the existence of a local taxation system which ensures people’s involvement in the
affairs of an elected body. It also makes the institution accountable to its citizens.
In terms of own resource collection, the Gram Panchayats are, comparatively in a better
position because they have a tax domain of their own, while the other two tiers are
dependent only on tolls, fees and non-tax revenue for generating internal resources.
The taxation power of the Panchayats essentially flow from Article 243 H which reads
as follows: “the Legislature of a State may, by law

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.”

Rural Finance
Sources of Rural Finance:
Two main sources are:

I. Private Agencies.

II. Institutional Finances.

The history of rural finances started with the cooperative banking in 1904 on the
Raifessian model in India. In between the cooperative society there have been several
Acts and Committees which went into the problem of rural finances till in 1952 All
India Rural Credit Survey took place and which submitted its report in 1954 and made
several constructive recommendations out of which many schemes of rural finances
emerged and were implemented.
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The following diagram depicts the formal sector of rural finance:

Structure of Rural Finance Market:

The Rural Finance Market comprises of:

(i) Organized or formal system;

(ii) Inorganized or informal segment.

The formal segment consists of the Reserve Bank of India (RBI), National Bank for
Agriculture and Rural Development (NABARD), Public and Private Sector

Commercial Banks, Regional Rural Banks (RRB), Land Development Banks (LDB),
State Cooperative Banks (SCB), Central Cooperative Banks (CCB), Primary Agricul-
tural Cooperative Banks (PACB), Central and States Governments, Life Insurance
Corporations (LIC), Post Office Saving Banks, etc.

RBI is responsible for overall monetary policy and provides accommodation to

NABARD and IDBI for agricultural and Rural Industries respectively. These
institutions in turn provide refinance to commercial banks including RRB’s and SCB’s
and State Land Development Banks (SLDB’s).
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The refinance from NABARD is distributed to the rural entrepreneurs through two or
three tier cooperative structures respectively for long term, short term and medium term
lending. In case of commercial banks and RRB’s they refinance directly to the users.

Except LDB’s and PAC’s, all financing agencies collect deposits from rural r^
households. Post office saving banks are active in rural areas.

Self Help Groups

A self-help group is a financial intermediary committee usually composed of 10 to 25

local women between the ages of 18 and 40. Most self-help groups are in India, though
they can be found in other countries, especially in South Asia and Southeast Asia.

Self-help Groups (SHGs) are informal associations of people who come together to find
ways to improve their living conditions. They are generally self-governed and peer-
controlled.
People of similar economic and social backgrounds associate generally with the help of
any NGO or government agency and try to resolve their issues, and improve their living
conditions.

The emergence of Self Help Groups – Origin and Development in India

• The origin of SHGs in India can be traced back to the establishment of the Self-
Employed Women’s Association (SEWA) in 1972.
• Even before, there were small efforts at self-organising. For example, in 1954,
the Textile Labour Association (TLA) of Ahmedabad formed its women’s wing
in order to train the women belonging to families of mill workers in skills such
as sewing, knitting, etc.
• Ela Bhatt, who formed SEWA, organised poor and self-employed women
workers such as weavers, potters, hawkers, and others in the unorganised sector,
with the objective of enhancing their incomes.
• NABARD, in 1992, formed the SHG Bank Linkage Project, which is today the
world’s largest microfinance project.
• From 1993 onwards, NABARD, along with the Reserve Bank of India, allowed
SHGs to open savings bank accounts in banks.
• The Swarn Jayanti Gram Swarozgar Yojana was introduced in 1999 by GOI
with the intention of promoting self-employment in rural areas through
formation and skilling of such groups. This evolved into the National Rural
Livelihoods Mission (NRLM) in 2011.

Functions of Self Help Groups

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• They try to build the functional capacity of poor and marginalised sections of
society in the domain of employment and income-generating activities.
• They offer collateral-free loans to sections of people that generally find it hard
to get loans from banks.
• They also resolve conflicts via mutual discussions and collective leadership.
• They are an important source of microfinance services to the poor.
• They act as a go-through for formal banking services to reach the poor,
especially in rural areas.
• They also encourage the habit of saving among the poor.

Need for Self Help Groups

• One of the chief reasons for rural poverty is the lack of access or limited access
to credit and financial services.
• The Rangarajan Committee Report highlighted four major reasons for lack of
financial inclusion in India. They are:

• Inability to give collateral security

• Weak credit absorption capacity
• The insufficient reach of institutions
• Weak community network
• It is being recognised that one of the most important elements of credit linkage
in rural areas is the prevalence of sound community networks in Indian villages.
• SHGs play a vital role in giving credit access to the poor and this is extremely
crucial in poverty alleviation.
• They also play a great role in empowering women because SHGs help women
from economically weaker sections build social capital.
• Financial independence through self-employment opportunities also helps
improve other development factors such as literacy levels, improved healthcare
and better family planning.

Advantages of Self Help Groups

• Financial Inclusion – SHGs incentivise banks to lend to poor and marginalised

sections of society because of the assurance of returns.
• Voice to marginalised – SHGs have given a voice to the otherwise
underrepresented and voiceless sections of society.
• Social Integrity – SHGs help eradicate many social ills such as dowry,
alcoholism, early marriage, etc.
• Gender Equality – By empowering women SHGs help steer the nation towards
true gender equality.
• Pressure Groups – SHGs act as pressure groups through which pressure can be
mounted on the government to act on important issues.
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• Enhancing the efficiency of government schemes – SHGs help implement and

improve the efficiency of government schemes. They also help reduce
corruption through social audits.
• Alternate source of livelihood/employment – SHGa help people earn their
livelihood by providing vocational training, and also help improve their existing
source of livelihood by offering tools, etc. They also help ease the dependency
on agriculture.
• Impact on healthcare and housing – Financial inclusion due to SHGs has led to
better family planning, reduced rates of child mortality, enhanced maternal
health and also helped people fight diseases better by way of better nutrition,
healthcare facilities and housing.
• Banking literacy – SHGs encourage people to save and promote banking
literacy among the rural segment.

Problems of Self Help Groups (SHGs)

• Need for extending this idea into the poorest families, which is not necessarily
the case at present.
• Patriarchal mindset prevailing which prevents many women from coming
forward.
• There are about 1.2 lakh branches of banks in rural areas as opposed to 6 lakh
villages in the country. There is a need to expand banking amenities further.
• Sustainability and the quality of operations of such groups have been
questionable.
• There is a need for monitoring cells to be established for SHGs across the
country.
• The SHGs work on mutual trust. The deposits are not safe or secure.

NGO And A CBO

NGO specifically refers to a non-governmental organization whereas CBO stands for a
community-based organization. They share a similar motive – helping people and
fighting with odds prevailing in society. There exists a great array of social, economic,
spiritual, and emotional problems within a particular civilization. These kinds of
organizations are rescuers of people in the disguise of associations. They work hard to
make the world adapt to all the uncertainties and combat them more effectively.

Community-based organizations (CBO’s) are nonprofit groups that employment at an

area level to enhance life for residents. the main target is to create equality across
society altogether streams – health care, environment, quality of education, access to
technology, access to spaces, and knowledge for the disabled. The inference is that the
communities represented by the CBO’s are typically at an obstacle. CBO’s are typically,
and almost necessarily, staffed by local members – community members who
experience first-hand the requirements within their neighbourhoods. Besides being
connected geographically, the sole link between staff members and their interests is
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usually the will and willingness to assist. Occupational skill sets and knowledge are
greatly diverse.

While the term “NGO” has various interpretations, it’s generally accepted to
incorporate private organizations that operate without government control which are
non-profit and non-criminal. Other meanings further explain NGOs as associations that
are non-religious & non-military.
A non-governmental organization (NGO) may be a non-profit, citizen-based group that
functions independently of the state. You can apply for NGO registration. Civil
societies also refer to as civil societies, organize at the neighbourhood, national and
international levels to serve specific social or political needs and are cooperative rather
than commercial.
.
There are 3 sorts of NGO in India :
1) Section-8 Company
2) Trust
3) Society

Work Process
The forum of work processed by NGO and CBO is completely different from
governmental authorities. They are not chosen by people for development. These
organizations ardently volunteer good causes for the improvement of people. They
acquire no concrete source of income or funds. But, still, they pour blood and sweat for
the benefit of people and biodiversity.

Organization structure
NGO is a full-fledged organization that comprises members who passionately work for
the fortune of people. CBO can deem as a category of NGO because its work resembles
closely with the pattern of an NGO, but it will operate at small levels.

Community-based organizations constitute random people associated to support

a particular cause in a specific area. They are not legalized by any custom, duty,
or memorandum. They are liberal to process their actions without any restriction.
NGOs work on large scales and thus they have more synchronization and assertion as
a team. They work under the guidance of a specific hierarchy monitoring them. The
work of an NGO is processed into actions with more guidelines, stiff principles, and
within the curriculum of executed strategy. The direction of work, area, and
organization structure vary significantly between an NGO and CBO. Their contribution
and work add more grace and prosperity to our society.

Legal prospects
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The fundamental difference between NGO and CBO is their legal framework. A non-
governmental organization will constitute a legal memorandum and an adequate
structure of members. It is a formed group of people who practice the social cause on
a large spectrum.

The community-based organization is not led by any legally bound criteria. It

establishes randomly without ascertaining the foundations of legal norms. It is more
like an informal group of people who exercise good actions for the rehabilitation of a
small community.

Work criteria
The work of an NGO is allocated on wider prospects whereas CBO works for specific
communities only. NGO works for chains of states and deals with the problem
prevailing there. Let’s understand the notion of an NGO better with an instance. When
any natural calamity hits any state then NGO comes into power and performs every bit
to reverse the situation back to normality. Similarly, the work of a community-based
organization takes place on small levels. For example- Awareness of AIDS diseases,
its consequences, and require help in this prospect that provides for people in rural areas.
It carries into consideration because backward people and communities are not
acquainting with it properly and this can affect them miserably. Therefore, a CBO
comes into the central picture and assists people to combat the crisis in a better way.

Source of funding
There exists a good number of differences between NGO and CBO but there is a strong
common point which they share. It is that both organizations do not own any certain
stream of funds. They are provided funds by elite people of society, celebrities,
individual people, and corporations. Their expenses rely on these mediums only. When
the efforts and steps of any NGO and CBO become distinguished then they witness a
sharp increment in their funding. For example, during the time of crisis, Goonj which
is an eminent NGO is in flood with funds and monetary help by the public. Therefore,
this is how they collect the budget and allocate the same in their actions.

Community-based organizations work on a local level, and they receive funds from
these regions only. Additionally, the fund primarily by areas in which they execute their
services and people of that locality.