To augment the resources of the Local Bodies, financial devolution to the Local Bodies is made on the basis of recommendations of the State Finance Commission (SFC).

Based on the recommendations of Third State Finance Commission, a higher share of State’s own tax revenues for the rural and urban Local Bodies beginning with 9% (it being 8% till 2006-07) has been allocated for the year 2007-08. In 2007-08, Government had allocated Rs.1,583.59 crores as the State Finance Commission grant for the rural Local Bodies. The percentage of devolution will be progressively increased to 10% within the award period of the Third State Finance Com mission (2007-08 to 2011-12). The ratio of the shares of rural and urban Local Bodies will be 58:42 as before. Since Village Panchayats are entrusted with most of the basic functions such as maintenance of village roads and streets, drinking water supply, street lights, sanitation and solid waste management and they are also the largest in number (12,618), the allocation for the rural Local Bodies is shared in the ratio 60:32:8 among Village Panchayats, Panchayat Union Councils and the District Panchayats from the year 2007-08 onwards. These policy changes are expected to greatly improve the delivery of services at the grass roots level.