The Administrative Reforms Commission(ARC) headed by Morarji Desai in 1966 recommended the setting up of 'Lokayukta' for the redressal of citizens' grievances. (1)
Around 18 states in India has Lokayukta including Kerala (2). It is up-to the states to form the formalities on how they want to implement it in each state.
Lokayuktas are appointed by the Governor (3) ( I assume typically on the advice of the council of ministers ). Gujarat Lokayukta act has this variation that the Governor appoints Lokayukta after consulting the high court chief justice and leader of opposition. (4) . You might have read news reports of the uproar it created after Guj Governor appointed Lokayukta last week.
Lokayukta has only recommendation power and it is up-to the state govt to take a decision on the same.
For removing Lokayukta, (5) a 2/3rd majority of the legislature is required. ( in both appointing and removal, this process varies from Jan Lokpal bill in that JLB does not envisage a role for legislature )
Obviously it has been only the Karnataka Lokayukta which has captured public attention and possibly done any significant work till date. Only during Justice Hegde's time it seems that some serious corruption scandals were exposed. (6)
Worldwide around 60 countries (7) has ( or has tried ) ombudsman system with mixed results apart from Scandinavia.
The major advantage of an ombudsman is that he or she examines complaints from outside the offending state institution, thus avoiding the conflicts of interest inherent in self-policing. However, the ombudsman system relies heavily on the selection of an appropriate individual for the office, and on the cooperation of at least some effective official from within the apparatus of the state. (8)
(5) http://www.kar.nic.in/
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