Panchayati Raj system in India signifies the system of rural local self-government. It was constitutionalized through the 73rd Constitutional Amendment Act of 1992. Panchayati Raj institutions are simultaneously a remarkable success and s staggering failure. The three challenges faced by Panchayati Raj institutions in India are:-1) The prime challenge that the institution faces is the problem of lack of finances. The lack of financial resources hinders their functions and growth. 2) There is very little devolution of authority. Panchayati Raj institution cannot govern unless they are given the authority to actually perform functions related to governance.3) Lack of awareness and non-fulfillment of promises made by these bodies make village people suspicious of the utility of Panchayati Raj bodies.