Article 243G of the Constitution required the State Governments to enact legislation to entrust powers, authority and responsibilities to Panchayats. Accordingly, all the States, except Arunachal Pradesh, have passed State Legislation.

It is a Constitutional mandate that the States may entrust the preparation of plans for economic development and social justice to the Panchayats and also implementation of schemes in relation to the matters listed in the Eleventh Schedule.

Funds are provided by the States to Panchyats on the basis of recommendations of the State Finance Commission. This is a continuing process. Some State Finance Commissions e.g. Andhra Pradesh, Assam, Haryana, Karnataka, Kerala, MP, Maharashtra, Rajasthan, Tamil Nadu, UP and W. Bengal have submitted their reports to the respective State Governments. The States of Assam, Karnataka, Kerala, MP, Punjab, Rajasthan, Tamil Nadu and W. Bengal have accepted most of the recommendations ... Gujarat (has) received Interim Report of the SFC on which (it has) yet to take action ... Recommendations of SFCs are required to be placed before the State Assemblies before the State Governments act upon them ...