The Panchayat raj is a South Asian political system found mainly in India, Pakistan, Bangladesh, Sri Lanka, Trinidad and Tobago, and Nepal. It is the oldest system of local government in the South Asia, and historical mentions date to the c. 250 AD period. The word raj means "rule" and panchayat means "assembly" (ayat) of five (panch). Traditionally panchayats consisted of wise and respected elders chosen and accepted by the local community. However, there were varying forms of such assemblies. Traditionally, these assemblies settled disputes between individuals and between villages.
The leader of the panchayat was often called the mukhiya or sarpanch, an elected or generally acknowledged position. The modern panchayati raj of India and its gram panchayats are not to be confused with either the traditional system nor with the extra-constitutional khap panchayats (or caste panchayats) found in northern India.
Mahatma Gandhi advocated panchayat raj as the foundation of India's political system. It would have been a decentralised form of government where each village would be responsible for its own affairs. The term for such a vision was Gram Swaraj ("village self-governance"). Instead India developed a highly centralised form of government. However, this has been moderated by the decentralisation of several administrative functions to the local level, empowering elected gram panchayats. There are significant differences between the traditional panchayati raj system, that envisioned by Gandhi, and the system formalised in India in 1992.
In the time of the Rig-Veda (1700 BC), evidences suggest that self-governing village bodies called 'sabhas' existed. With the passage of time, these bodies became panchayats (council of five persons). Panchayats were functional institutions of grassroots governance in almost every village. The Village Panchayat or elected council had large powers, both executive and judicial. Land was distributed by this panchayat which also collected taxes out of the produce and paid the government's share on behalf of the village. Above a number of these village councils there was a larger panchayat or council to supervise and interfere if necessary. Casteism and feudalistic system of governance under Mughal rule in the medieval period slowly eroded the self-government in villages. A new class of feudal chiefs and revenue collectors (zamindars) emerged between the ruler and the people. And, so began the stagnation and decline of self-government in villages.