The State of West Bengal in its Annual Financial Statement of 2009-2010 called for “decentralization with accountability.” In addition to an expanded welfare system and the promotion of self-reliance at the local level, the State has been concerned with improving livelihoods through significantly enhanced funding to its local governments. To be effective, decentralization should move to the level of villages in rural areas in addition to accommodating urban municipalities. The Government of West Bengal (GOWB) has a strong interest in increasing the service delivery to constituents and has encouraged development in the area of financial management by providing incentives, training, computerization and the dissemination of good practice information for rural local governments (PRIs) in order to advance such delivery. This report provides a detailed assessment of the current state of budgeting and financial management capacity of the GOWB PRIs, an assessment of PRI financial management reforms, and focused attention to the capacity of the GPs to manage budgets and fiscal flow. Results from this work support development of a new grant program. The report also highlights budgeting and financial management issues relevant to creating an efficient flow of funds in such a grant program, given the capacity witnessed in GOWB rural local governments. Also, benchmarks that might be considered in a new grant program are provided.