Sustainable Development Sust. Dev. 7, 113–120 (1999) DECENTRALIZATION: AN EFFECTIVE METHOD OF FINANCIAL MANAGEMENT AT THE GRASSROOTS (EVIDENCE FROM INDIA) Sumana Datta and V. Varalakshmi* Tata Energy Research Institute, India Haryana is among the 20 Indian states currently implementing the Joint Forest Management Programme (JFMP). Protection and management of degraded forests by village level institutions – hill resource management societies (HRMSs) – in partnership with the Haryana Forest Department could be described as a significant step in delegation and to an extent in devolution of forest protection and management roles and responsibilities. A significant outcome of JFM to the HRMSs has been the enormous funds that have been generated at the village level. These have been expended to fulfil community needs. A study conducted in five HRMSs to understand the mechanism of fund utilization revealed that major portions have been utilized for human development and lesser amounts for forest development activities. The process adopted has been one of consensus with well established mechanisms for regulating misuse. The success of the study villages has been presented as evidence in support of successful decentralization and financial management at the grassroots and the potential of many HRMS type institutions to develop into strong institutions with a high degree of institutional and financial sustainability. Copyright  1999 John Wiley & Sons, Ltd and ERP Environment. Received 10 July 1998 Accepted 18 August 1998 INTRODUCTION D ecentralization has been an integral part of development thinking, planning and practice for some time now in the world. In independent India, planners and policy makers have been experimenting with it for almost half a century now. One such attempt at institutionaliz- ing people’s participation in development endeav- ours has been experimented in the Indian context through the Panchayati Raj system, which is the system of local self-governance. The Panchayats 1 have, however, met with limited success in *Correspondence to: V. Varalakshmi, Tata Energy Research Institute, Habitat Place, Lodi Road, New Delhi 110 003, India. CCC 0968-0802/99/030113–08 $17.50 Copyright  1999 John Wiley & Sons, Ltd and ERP Environment. 1 Panchayats – Basic political unit of self-governance for rural areas, throughout India, since 1957 and constituted under Article 243 B of the Indian Constitution. The Panchayat representatives are chosen by direct elections from constituencies in the Panchayat territorial area. These Panchayats have special provisions for proportionate number of seats for the Scheduled Castes and Scheduled Tribes and one-third of the seats reserved for women by direct election.