States in India are as large as independent countries of Europe. Many of these States are internally very diverse. There is thus a need for power sharing within these States. Federal power sharing in India needs another tier of government, below that of the State governments. This is the rationale for decentralization of power.
When power is taken away from Central and State governments and given to local government, it is Called decentralization. The basic idea behind decentralization is that there are a large number of problems and issues which are best settled at the local level. People have better knowledge of problems in their localities. They also have better ideas on where to spend money and how to manage things more efficiently, besides, at the local level it is possible for the people to directly participate in decision making. This helps to inculcate a habit of democratic participation. Local government is the best way to realize ore important principle of democracy, namely local self-government.