Abstract: This paper investigates if devolution of political power in conflict-affected areas can reduce violence by providing institutional means to address people’s grievances. In particular, we look at the impact of a local government, introduced in tribal districts in 1996, on Maoist insurgency in India. The initiative recognised tribals traditional lifestyle and their rights over land, forests and water, thereby reducing their incentive to participate in insurgency. However, difference in difference analysis performed using Global Terrorism Database shows that introduction of local government increased insurgency. We show that weak state-capacity in implementing the policy resulted in capture of benefits of this local government by elites which increased tribals grievances and consequently insurgency.