The World Bank will be providing $20 million credit to help Panchayats in Karnataka "effectively deliver" services like primary health, primary education, drinking water and sanitation to the people.
The loan for the Karnataka Panchayats Strengthening Project approved Thursday will "strengthen the capacity of rural local governments in the state to manage public resources and effectively deliver services...," a World Bank statement said Friday.
The credit being provided by the World Bank's concessionary lending arm International Development Association (IDA) carries a 0.75 service fee, a 10-year grace period and a maturity of 35 years.
Mostly known for its booming IT sector, Karnataka is one of the fastest developing states in India.
The state, however, faces wide disparities between urban and rural areas and between different regions.
One reason for this is the ineffective delivery system for transferring resources from centre to state, resulting in large disparities in service delivery and a failure to take local preferences into account.
"Gram panchayats have the potential to help change the lives of rural communities in India," said Michael Carter, World Bank country director for India.
"The Karnataka Panchayats Strengthening Project will improve public services and investment under the responsibility of local governments which are best suited to meet local needs and demands, and foster economic growth in disadvantaged areas."
The project will provide block grants to finance services listed in Panchayat participatory plans and budgets.
The project will also increase the ability of rural people to voice their demands on local governments, in particular for the poorest and excluded people such as women, scheduled castes and tribes.
At the national level, this project is expected to have a demonstration effect as it could create a model of service delivery through rural governments that could then be replicated across other states.