The correct answer is option 2: Rajasthan.

The Panchayati Raj System is a system of local self-government in India. It was introduced to decentralize power and promote grassroots democracy. The first state in India to implement the Panchayati Raj System was Rajasthan.

Option 1: Punjab is not the correct answer as it was not the first state to implement the Panchayati Raj System.

Option 3: Gujarat is not the correct answer as it was also not the first state to implement the Panchayati Raj System.

Option 4: Uttar Pradesh is not the correct answer as it was also not the first state to implement the Panchayati Raj System.

It is important to note that the Panchayati Raj System has now been implemented in all the states of India.