Local governments have become the third tier of governance in Indian federal polity. For decentralisation to be successful, fiscal systems that make governments accountable to their citizens are needed. The absence of consistent data and reporting has made evaluating decentralisation difficult. In this paper, we utilise data from a well-designed sample of gram panchayats in Kerala to document fiscal management systems, extent of decentralisation of revenues, and local governments’ response to raising revenues using local capacity. Our findings suggest that the pressure to spend on welfare and development activities has outstripped development of revenue. However, there is some evidence that local governments have untapped revenue potential in their property tax. Importantly, we also find that state and federal government support vis-à-vis intergovernmental grants is not crowding out revenue mobilisation.
