This paper is an attempt to reassess the role of local institutions in rural development with the aim to aiding both the ultimate effectiveness of their involvement as well as the development of better aid policies by external organizations that wish to promote a pro-poor rural development through the local institutions. From the institutional perspective two arguments are discussed, one for more effective, more accountable and more participatory local government focussing on the Panchayati Raj institutions. The other asks fora reduction in the state’s involvement in development, in other words, for a greater role to be played by the market. Local Indian NGOs figure in these arguments both for their ability to cushion some of the short-term effects of the new policies and to create a strong civil society that can counter-balance the state through the political incorporation of a greater number of its citizens, particularly those previously excluded from development. The development of a more general ‘advocacy’ role in support of networks in relation to the Indian state, to bilateral and multilateral donor agencies and Northern governments providing aid is proposed. Such measures have to be taken on all levels, from the local to the national. It is suggested that one should look more for complementarity and mutual support in the generation of policy and aid policy than for competition.
