The local bodies grants are released to Gram Panchayats through their respective State Governments as per the recommendations and allocations made by respective Finance Commissions. Presently, the recommendations of the Fourteenth Finance Commission (FFC) are being implemented. FFC, during its award period of 2015-2020, has inter-alia, recommended distribution of grants to the States using 2011 population data with weightage of 90 per cent and area with weightage of 10 per cent. FFC has worked out the total size of the grant amounting to ₹ 2,87,436 crore for the period from 1.4.2015 to 31.3.2020, constituting an assistance of ₹ 488 per capita per annum at an aggregated level. Of this, the grant recommended for panchayats (rural local bodies) is ₹ 2,00,292.2 crore. The earmarked basic grants for gram panchayats is envisaged to be distributed, using the formula prescribed by the most recently approved State Finance Commission (SFC) for the distribution of resources. However, in case the SFC formula is not available, then the share of each gram panchayat as specified above is envisaged to be distributed across the entities using 2011 population with a weight of 90 per cent and area with a weight of 10 per cent.

This was stated by Shri Jayant Sinha, Minister of State in the Ministry of Finance in written reply to a question in Lok Sabha.

Allocation of Local Grants to Panchayats follows finance commission formula, prioritising population and area weights and SFC formulas. Allocation of funds to rural local bodies follows the Fourteenth Finance Commission's recommended distribution: an aggregate grant envelope with a per capita reference and allocation to panchayats. Distribution to individual gram panchayats should use the most recently approved State Finance Commission formula; if no SFC formula exists, allocation must use 2011 population weighted 90% and area weighted 10%.