"India has one of the lowest shares of local government expenditure compared to total public sector expenditure at around 5 per cent," Ansari said at the 94th Satyendra Narayan Singh memorial lecture here.
In comparison, the same figure was 30 per cent in member countries of Organisation for Economic Co-operation and Development (OECD), over 50 per cent in China and 15 per cent in Brazil, he said.
"Likewise, the share of local government expenditure to GDP is less than two per cent in India compared to around 14 per cent in OECD countries, over 10 per cent in China and over 6 per cent in Brazil," the Vice-President said.
Observing that political federalism has worked well at the third tier of local government through regular elections, granting of constitutional status, reservation for women etc, he said these measures should be accompanied by fiscal federalism at the grassroot level for development.
Inviting debate on devolution of finance to the grassroot level, Ansari said, "While there has been criticism regarding the manner and extent of devolution of finances from the Centre to the states, the issue of further devolution to local government has not been adequately debated."
He also suggested that "the time has come for all the constituent units of our federal setup to ponder on how to realize the full potential of our federal democracy for meeting the aspirations of our people."
The Vice-President said, "It would be fair to assert that our democratic set up has served us well in orienting our heterogeneous society towards its developmental goals by taking along all segments of our citizenry."
Praising the multi-layered federal polity of the country, Ansari said with Parliament and state Legislatures having over 5,000 people`s representatives, "We today have the largest political representative base in the world of over two and a half lakh local governments, comprising over three million elected representatives."
He also hailed the emergence of strong regional parties who participate in governance at the local, state and central levels to further strengthening the federal system.
Thus, strong state governments could pursue their developmental goals without depending on the dynamics of political force at the Centre, the Vice-President said.
Citing another issue, he said the Inter-State Council under Article 263 was established by a Presidential Order in 1990 but "remains somewhat dormant".
"The March 2010 Report of the Commission on Centre-State Relations piously proclaims that `cooperative federalism` is the key in which `Statesmanship should lead Politics`," he said.
"A horizontal disparity in economic development among states co-exists with intense competition, which at times also takes on political overtones," he said, adding, eliminating barriers to inter-State movement of goods and in utilization of natural resources was a "significant challenge for the management of our federal polity".
Later, accompanied by Governor Devanand Konwar, Ansari attended a lunch hosted by Bihar Chief Minister Nitish Kumar at the latter`s residence, here.