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Reforming Urban Governance in India: Issues and Way Forward – IMPRI Impact and Policy Research Institute

Reforming Urban Governance in India: Issues and Way Forward - IMPRI Impact and Policy Research Institute

Chetan Vaidya and Hitesh Vaidya


Given the problems of urban governance in India, the 74th Constitution Amendment Act (CAA) came into force in June 1993, which sought to empower the Urban Local Bodies (ULBs) and strengthen urban decentralization. With the CAA, it was expected that the ULBs would assume responsibilities for urban planning, water supply, social and economic planning, slum upgradation, public health, etc.

There has been full compliance in respect of provisions, such as the constitution of three types of ULBs, reservation of seats, and constitution of SFC. But the same cannot be said for other provisions, namely the constitution of Wards Committees, District Planning Committees and Metropolitan Planning Committees. Many states have not transferred functions, funds and functionaries to ULBs. Thus, the implementation of CAA has raised many issues. These are discussed in the next section and it is followed by certain recommendations. 


The following are the major issues in the implementation of the CAA: 

Status of Mayors: There is also no consistency in terms, powers and methods of election of Mayors. In most states, Mayors do not have executive powers as they are vested with the Commissioners. Some exceptions exist, such as in Kerala, where Mayor has executive powers. In contrast to this, New York City has a strong “mayor-council” system and fully empowers the Mayor with executive powers. 

Model Municipal Law: The Government of India (GOI) developed a Model Municipal Law (MML) in 2003 to guide States to enact municipal legislation. The basic objectives of the MML are to implement the provisions of the 74th CAA in totality for the empowerment of the ULBs and provide the legislative framework for the implementation of the Ministry’s urban sector reform agenda. Few states have prepared their municipal laws along the lines of MML.

Wards Committees: The 74th CAA provides a framework to enable the participation of citizens in urban governance. It contains an enabling mechanism to form ward committees for citizens’ participation. The concept of Area Sabha was introduced to promote a sense of belongingness, inclusion and participation in the working of ULBs. However, it has remained on paper in most states. While the provision of these committees has been a significant addition to the decentralization process, but they have yet to become an effective platform for accountability. In contrast, South Africa has clear policies that local governments to build partnerships with community organisations and encourage citizen participation. 

Institutional Arrangements: Our cities have many agencies providing urban services, such as municipal corporations, water supply and sewerage boards, and urban development authorities and these agencies, generally, do not work in an integrated manner. Citizens often do not know whom to approach for civic problems. However, the boroughs (municipalities) are responsible for civic administration in Metropolitan London. The mayor drives key citywide strategic functions. Similarly, in Seoul, multi-disciplinary urban renewal is driven by the strong leaders in the city’s heart by leveraging stakeholder conflict, effective civic and personal collaboration and public engagement.

SFCs: As per the 74th CAA, state governments have set up State Finance Commissions (SFCs). Most SFCs have formulated fiscal packages without access to a clear directive on the functional jurisdiction of municipalities. The absence of clarity in respect of the functional domain of municipalities constitutes a serious gap in the functioning of the SFCs. Most SFCs have functioned with inadequate technical and financial support, and many recommendations have not been complied with.

CFC: With the amendment of Article 280 in 1992, the Central Finance Commission (CFC)have to address the issue of municipal finances. The 14th CFC provided Rs. 87,132 Crore to be devolved to ULBs in five year period 2015-20. Out of the total, 80% is for basic grants and 20% for performance grants. Performance criteria are audited annual accounts, increases in own revenue and published service level benchmarks. 

Weak Staff Capacity: Most ULBs in India do not have the capacity to promote cities as ‘engines of growth’. The local agencies have a weak institutional capacity to plan spatial, social and economic development, unstable revenue streams, and low capacity to plan, mobilise resources and implement urban infrastructure projects. There is a need to be strengthened of ULBs to play a pivotal role in national economic growth.

MPC and DPC: The ULBs are not in charge of planning for ‘economic development and social justice’ and implementation of city/town development plans due to the failure of state governments to amend State Acts and also, Metropolitan Planning Committees (MPCs) and District Planning Committees (DPCs) have not been assigned a clear role in the preparation of regional and urban plans. The 74th CAA has mandated the State Governments to constitute MPCs and DPCs, which are responsible for the preparation of the Metropolitan Plan and District Development Plan.

However, the State T&CP Act and Development Authorities Acts have not been amended to incorporate the provisions for the preparation of Metropolitan and District Development Plans. The existing statutory authorities, like planning and development authorities, have to realign the existing institutional framework.

State of Finances: The Constitution of India specifies the taxes to be divided between the central and state governments. But the Constitution has no “municipal finance list” to match the municipal functions. Further, the 74th CAA is not specific about the types of taxes ULBs should have, but on the other hand, the powers for determining the revenue base of ULBs rests with the state governments.  ULBs revenue bases are limited and inflexible. 

Reforms under Urban Missions: The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) was implemented during 2005-15, and the Atal Mission for Rejuvenation of Urban Transformation (AMRUT) was launched in 2015. JNNURM had provided access to the cities to funds for infrastructure development is linked to a commitment by states and ULBs to implement mandatory and optional urban reforms.

AMRUT provides a 10% incentive to states and cities implementing reforms. These include e-Governance, professionalization of municipal cadre, credit rating and improved urban planning and accounting system. These reforms are expected to improve urban decentralization.  


To improve urban governance and delivery of services, there should be constitutional amendments as well administrative actions. These are:

Constitutional Amendments

The 12th schedule of the constitution should be amended and classify the functions into the core, assigned by the government and other functions. Sub-section (a) (ii) in Article 243-W should be amended so that ULBs should be accountable for provisions of core services in the 12th schedule. The term “may” in the sub-section should be replaced by “shall” for core functions. The services may be provided by the ULBs directly or indirectly through parastatals or outside agencies.

Article 243-Q should be amended so that industrial areas are not exempted from the formation of ULBs. Article 280 deals with CFCs. The sub-section 3(c ) in this article should be amended so that CFCs provide grant-in-aid to ULBs linked to net proceeds of taxes (and not ad-hoc grants). The Constitution should have a “municipal finance list” to match the municipal finances to its functions.   

Management Actions

Governance: For strengthening ULBs, the Government may consider the adoption of a common categorization of urban bodies across the country to improve clarity in their definition so as to assist a systematic planning process and devolution of funds. Metropolitan areas are defined as areas having a population of more than ten lacs or more, but this has to be specified by the Governor through a public notification. All areas having a population of more than ten lacs or more should be defined as metropolitan areas. A minimum level of staffing should be provided for ULBs in metropolitan areas.

The Mayor should be the Chief Executive of the municipal body, while the Commissioner should perform the functions delegated to him/her. SECs should adopt Assembly electoral rolls without any revisions. Elections to ULBs should not be, generally, delayed beyond six months. The power of delimitation of wards for ULB elections should be with SECs, not state governments.  Incentives should be provided for increasing citizens’ participation at area sabha, ward committee and zonal committee levels in ULBs.

Model Municipal Law: MML was prepared in 2003. This may be reviewed and revised in the present context.

SFC/CFC: SFCs should be constituted every fifth year. The SFCs should submit their reports in time to be considered by CFC. Each State should prescribe the qualifications of persons eligible to be appointed as Members of the SFCs.  Common formats must be adopted, and annual accounts and other data must be compiled and updated for use by the SFCs.  SFCs should identify taxes, user charges, and fees to be levied by ULBs. 

Planning: MPC/DPCs need to coordinate with various agencies with regard to the implementation of various programmes. The programmes need to be prioritized as per the Plans. In the case of large ULBs, promoting area sabhas at the election booth level is necessary. ULBs should be able to prioritise the development programmes.  

Services: Management of water supply and sewerage system should be the primary function of ULBs. They should be responsible for water supply and distribution in their territorial jurisdictions, whether based on their source or on collaborative arrangements with parastatal and other service providers. Municipal Corporations may be given responsibility for the entire water supply programme from development to distribution.  For smaller and medium-sized ULBs, a phased transfer of responsibilities for the management of the distribution networks should be developed. Parastatal agencies should be accountable to ULBs. 


The 74th CAA has led to regular elections of ULBs, reservation of seats and the constitution of SFC. Urban governance in India needs further strengthening through the amendment of the 74th CAA and certain administrative measures, such as the provision of a minimum level of municipal staff and incentives for the active participation of citizens. 

Draft (18 December 2019)


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