Promoting Good Governance Through State and Urban Local Government Interface

Cities are where India’s future is being shaped – from the sprawling metros to fast-growing tier-two towns. But good governance in these urban spaces does not happen by accident. It depends on how effectively the State governments and Urban Local Bodies (ULBs) work together, share power, and align on priorities. This relationship, or “interface,” determines whether garbage gets collected, roads get repaired, and citizens get heard.

Why the State-ULB interface matters for good governance 🔗

Good governance rests on pillars like accountability, transparency, participation, responsiveness, and equity. In urban areas, these values are hard to achieve when decisions are made far from the people they affect. ULBs – Municipal Corporations, Municipal Councils, and Nagar Panchayats – are closest to citizens, but they cannot function in isolation. They rely on State governments for legal authority, funds, and administrative support.

A well-functioning interface ensures that local problems get local solutions, while States retain their role in setting broader policy frameworks. When this balance works, cities become cleaner, safer, and more inclusive. When it breaks down, citizens pay the price through poor services, delayed projects, and unresponsive administration.

The 74th Amendment: A turning point for urban governance 🔗

Before 1992, urban local bodies existed in a constitutional limbo. Municipal governments relied heavily on State governments for their very existence, administrative arrangements, and fiscal decisions because they had no constitutional recognition. States were not even obligated to hold municipal elections, which led to long periods where cities were run by appointed officers rather than elected representatives.

The 74th Constitutional Amendment Act of 1992 changed this by adding Part IX-A titled “The Municipalities” to the Constitution, consisting of Articles 243-P to 243-ZG, along with a new Twelfth Schedule containing eighteen functional items for municipalities. It came into force on 1 June 1993 and finally gave ULBs a justiciable constitutional status.

The Amendment was built on a simple but powerful premise. It mandated the devolution of powers to Urban Local Bodies as the lowest unit of governance in cities and towns, based on the idea that in a democracy, power rightfully belongs to the people and should flow to them through locally elected representatives in Municipal Corporations, Councils, and Nagar Panchayats.

Three types of municipalities for three types of urban areas 🔗

The Act introduced a layered structure to match the diversity of urban India. Nagar Panchayats govern areas in transition from rural to urban, Municipal Councils manage smaller urban areas, and Municipal Corporations handle larger cities. This tiered model allows the State to tailor its engagement based on the size and complexity of the urban area involved.

Political autonomy through regular elections 🔗

One of the most significant outcomes of the 74th Amendment is the guarantee of regular elections. Before 1993, it was common for municipal bodies to remain without elected representatives for years. The Amendment made a five-year term mandatory for ULBs, and any body dissolved before that must be reconstituted within six months.

This political autonomy has a direct link to good governance. When elections happen on time, mayors and councillors remain accountable to voters rather than to State bureaucrats. However, the reality is uneven. The Brihanmumbai Municipal Corporation polls were delayed by nearly four years, Bengaluru has not held civic elections since 2015, and Comptroller and Auditor General reports show an average 22-month delay in municipal polling – all of which undermines accountability, legitimacy, and citizen responsiveness.

Functional autonomy: The Twelfth Schedule 🔗

Autonomy means little without clear responsibilities. The Twelfth Schedule lists 18 subjects that States can devolve to ULBs, covering essentials like urban planning, regulation of land use, roads and bridges, water supply, public health, sanitation, solid waste management, slum improvement, and urban poverty alleviation.

In practice, devolution varies sharply across States. Some States have transferred most of these functions to ULBs with matching funds and staff; others have retained control through parastatal agencies and specialised boards. This patchy devolution is one of the biggest hurdles to realising the spirit of the 74th Amendment. A ULB that is legally responsible for water supply but has no authority over the water utility cannot deliver on its mandate.

Parastatals and the planning puzzle 🔗

A common complaint is that parallel agencies – development authorities, water boards, and transport corporations – often handle subjects that the Twelfth Schedule assigns to municipalities. This creates overlapping jurisdictions and weakens the ULB’s ability to plan holistically for its city. Strengthening the State-ULB interface means reducing these overlaps and empowering elected local governments to coordinate urban services.

Financial autonomy and the role of Finance Commissions 🔗

Financial autonomy is where the State-ULB interface is tested most rigorously. Cities may have grand mandates, but without money, those mandates are meaningless. Indian cities contribute over 60% of GDP, yet municipal revenues stand at only about 0.6% of GDP – far below South Africa’s roughly 6% and Brazil’s 7.4%.

This is where Finance Commissions step in as critical intermediaries between States and ULBs.

State Finance Commissions: The constitutional bridge 🔗

The 74th Amendment inserted Article 243-Y, which requires every State to constitute a State Finance Commission (SFC) every five years. Their primary role is to recommend the distribution of financial resources between the State government and local bodies, covering both Panchayati Raj Institutions and Urban Local Bodies.

SFCs look at tax-sharing between States and ULBs, grants-in-aid, measures to improve ULB finances, and the principles governing fund transfers. When they work well, they bring predictability and fairness to urban finances.

Unfortunately, SFCs are often neglected. A Lok Sabha standing committee report revealed that out of 26 States for which information was provided, only nine had constituted their 6th State Finance Commissions, and only two of those were active. Several States delay constitution, fail to table Action Taken Reports, or staff the Commission with bureaucrats rather than finance experts. This erodes the SFC’s ability to act as a credible, independent arbiter.

The Central Finance Commission and urban grants 🔗

The Union Finance Commission, constituted under Article 280, also plays a direct role in urban finances by recommending grants to local bodies. These grants have grown significantly over successive Commissions and have become a major source of capital for city infrastructure.

The 15th Finance Commission allocated between ₹1.2 and ₹1.3 lakh crore to urban local bodies over five years, and the 16th Finance Commission has proposed ₹3.56 lakh crore for the 2026-31 period. The latest Commission has also tied part of the funds to reform-linked conditions.

Cities must now meet benchmarks including improving fiscal discipline, holding regular elections, publishing provisional and audited accounts in the public domain, and constituting State Finance Commissions to qualify for performance-based grants. This marks a shift from unconditional transfers to governance-linked support, which supporters argue will push States and ULBs to clean up their act.

Inclusivity through reservations 🔗

Good governance is incomplete without inclusivity. The 74th Amendment was ahead of its time on this count. It mandated reservation of seats for Scheduled Castes and Scheduled Tribes in proportion to their population in the municipal area, and crucially, reserved not less than one-third of total seats for women, including within SC/ST quotas. State legislatures were also empowered to provide reservations for Other Backward Classes.

Since 1993, the 74th Amendment has reserved one-third of seats in ULBs for women, and several States have gone further by granting 50 percent reservation for women in local self-government bodies. Today, women are a crucial political constituency, both as voters and as elected representatives.

Out of roughly 31 lakh elected representatives in local governments today, nearly 46 percent – about 14.5 lakh – are women, a scale of representation unparalleled anywhere else in the world. This transformation started at the grassroots and has now influenced legislation at higher levels, including the Women’s Reservation Act of 2023.

Inclusivity beyond numbers 🔗

Reservations bring people into the room, but true inclusivity requires that their voices count. Training programmes, mentorship, and protection from proxy politics are essential so that elected women and weaker sections from can actually exercise the authority their seats carry. The interface between States and ULBs plays a role here too – through capacity-building initiatives, support for ward committees, and laws against harassment of local representatives.

Tensions and reforms in the State-ULB interface 🔗

Despite all this progress, the relationship between States and ULBs remains uneven. State governments often hesitate to devolve real power because urban bodies control lucrative resources like land, property taxes, and infrastructure contracts. Political competition between State ruling parties and Mayors from rival parties also creates friction.

Common pain points include delayed elections, limited own-source revenue for ULBs, heavy reliance on State transfers, and administrative control exercised through Municipal Commissioners appointed by the State. The result is that even well-intentioned Mayors often find themselves boxed in by State-level decisions.

Reform ideas that keep surfacing include giving ULBs stronger powers to levy and collect their own taxes, making SFC recommendations binding rather than advisory, ensuring timely elections through independent State Election Commissions, and empowering Metropolitan Planning Committees and District Planning Committees envisioned in the Constitution but under-used in practice.

Towards a healthier partnership 🔗

The State-ULB interface is not a zero-sum game. Strong ULBs do not weaken States; they strengthen the whole governance ecosystem by taking care of local issues so that States can focus on broader policy. A city that manages its water supply, sanitation, and street lighting well frees up State bandwidth for education, health, industry, and inter-city infrastructure.

Good governance in urban India will depend on three things working together: political autonomy through regular elections and genuine local leadership, functional autonomy backed by clear devolution of the Twelfth Schedule subjects, and financial autonomy supported by credible, timely Finance Commissions. The 74th Amendment laid the foundation; what is needed now is honest implementation by every State.

What do you think? Should State Finance Commission recommendations be made constitutionally binding on State governments, like those of the Union Finance Commission? And in your own city, do you feel your Municipal Corporation has the real power to solve the problems that affect your daily life?

References

1. https://www.webology.org/data-cms/articles/20220426112538amwebology%2017%20(2)%20-%2069%20pdf.pdf
2. https://vajiramandravi.com/current-affairs/74th-constitutional-amendment-act/
3. https://en.wikipedia.org/wiki/Seventy-fourth_Amendment_of_the_Constitution_of_India
4. https://www.nextias.com/ca/editorial-analysis/20-02-2026/16th-fc-local-bodies-devolution
5. https://www.drishtiias.com/daily-updates/daily-news-analysis/state-finance-commission-2
6. https://india.mongabay.com/2023/03/state-finance-commissions-in-poor-shape/
7. https://iaspoint.com/urban-finance-and-governance-challenges-in-india-2026/
8. https://pwonlyias.com/current-affairs/16th-finance-commission-india/
9. https://www.orfonline.org/research/the-state-of-women-s-representation-in-urban-local-self-government-in-india-a-review
10. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2112762