Globalization as a process is transforming, in varying forms and degrees, the rural economies, societies and cultures throughout the developing world. The implication of the ongoing global economic restructuring on rural economies are diverse, multi dimensional and, in many cases, irreversible. The present paper is an attempt to examine the role of Panchayati Raj Institutions and rural development in the era of globalization. No doubt as workable democratic institutions the panchayati raj institutions play a significant role but the present system of panchayati raj is beset with inbuilt conflict and confusion of responsibility and does not encourage local initiative and enterprise. The growths of globalization and different economic institutions and policies in rural development have led to a number of challenges in rural communities. It encourages economic and social politics where it is unnecessary and harmful and denies political principles where it is necessary and useful. Due to these reasons, it is not coming up to the expectations of the people and well being of the rural communities. In order to make them more viable and useful as instruments of rural development, a drastic change in function and power of panchayati raj institution is outlined in the course of proper conduct of challenges and responses of globalization.