In other words, the state governments are under constitutional obligation to adopt the new Panchayati Raj system in accordance with the provisions of the Act. Consequently, neither the formation of Panchayats nor the holding of elections a regular interval depends on the will of the state government any more.
The provisions of the Act can be grouped into two categories—compulsory and voluntary. The compulsory provisions of the Act have to be included in the state laws creating the new Panchayati Raj system. The voluntary provisions, on the other hand, may be included at the discretion of the states.
Thus the voluntary provisions of the Act ensure the right of the states to take local factors like geographical, politico-administrative, and others, into consideration while adopting the new Panchayati Raj system. In other words, the Act does not disturb the constitutional balance between the centre and the states in the Indian federal system.
Though it is a central law on a state subject (i.e., local government is a subject included in the state list under the Seventh schedule of the constitution), the Act does not encroach upon the jurisdiction of the states which are given adequate discretionary powers with regard to the Panchayats.
The Act is a significant landmark in the evolution of grassroots democratic institutions in the country. It transfers the representative democracy into participatory democracy. It is a revolutionary concept to build democracy at the grassroots level in the country.