Decentralisation and community driven management acquire special importance in the context of the ongoing process of globalisation and associated economic reforms. This document argues that rapid human development and strong local democracy go hand in hand. It attempts to identify the ingredients of a “panchayat-friendly” policy regime based upon an analysis of the issues pertaining to removal of administrative, legal and procedural anomalies, structural design of the three-tier system, panchayat finance and budgets, gender, urban poverty and livelihoods as imperatives for future action in rural as well as urban areas. It discusses issues pertaining to fiscal devolution and argues that systems of due diligence must be put in place such that panchayat / municipal finance have sound legal and auditing underpinnings. It addresses skepticism about the effectiveness of local institutions (Panchayati Raj) as a viable approach for poverty eradication and sustainable human development.