The planning system in local government follows a formal process mandated by legislation and a corpus of regulations. While these strongly advocate citizen participation in selecting, implementing and managing development projects at the local level, in practice, the mechanism is hamstrung by an inadequate social inclusion perspective. The elites continue to play a significant role in the process that marginalizes women, Dalits or minorities in decision-making, resource mobilization or project prioritization. This has demeaned community ownership of development plans and affected the delivery of public services. Because of their perceived lack of capacity, the marginalized communities are denied leadership roles in local government committees and in mobilizing resources or prioritizing their demands. However, with federalism and a robust legal framework in place, the seven-step planning mechanism has, to some extent, been able to address the problem of social exclusion, marginalization and ineffectiveness in local level planning and budgeting.