Impact of the 74th Amendment on Karnataka Municipal Laws

Urban India is growing at a breathtaking pace, and Karnataka sits at the heart of this transformation with cities like Bengaluru, Mysuru, and Hubballi-Dharwad. But behind every functioning city is a web of laws that decide who collects your property tax, who approves building plans, and who fixes the broken streetlight on your road. In Karnataka, two legislations do most of this heavy lifting: the Karnataka Municipalities Act, 1964, and the Karnataka Municipal Corporations Act, 1976. Both were significantly rewritten after the 74th Constitutional Amendment of 1992 to align with a new vision of empowered urban local bodies. Yet, the journey from constitutional promise to ground reality has been anything but smooth.

The legislative backdrop before the 74th Amendment 🔗

Before 1992, urban governance in Karnataka was regulated by two distinct enactments catering to different city sizes. The Karnataka Municipalities Act, 1964 contains 17 chapters, 380 sections, and 13 schedules, and was introduced to create a uniform law for Municipal Councils in the State, which were earlier governed by seven different enactments. For larger cities, the Karnataka Municipal Corporations Act, 1976 was brought into force as a separate framework. Together, they defined the powers, functions, and financial arrangements of urban local bodies (ULBs) across the state.

The problem, however, was that these local bodies functioned without constitutional protection. State governments could suspend councils, postpone elections, or dilute powers at will. Recognising this fragility, Parliament passed the Constitution (Seventy-Fourth Amendment) Act, which came into force on 1 June 1993 and introduced Part IXA along with the Twelfth Schedule listing 18 functions for transfer to ULBs.

Bringing Karnataka’s laws in line with the 74th Amendment 🔗

Karnataka moved quickly to comply. The Karnataka Municipalities Act was amended in 1994 through Amending Act 36 of 1994 to bring it in conformity with the provisions of the 74th Constitutional Amendment Act, 1992. A similar exercise was undertaken for the Karnataka Municipal Corporations Act, 1976. These amendments were meant to be more than cosmetic; they were supposed to redistribute power from state departments to elected municipal councils.

Key structural changes introduced 🔗

The amended Acts introduced several provisions that mirrored the spirit of Part IXA. These included a three-tier classification of urban areas as Nagara Panchayats, Town Municipal Councils, and City Municipal Councils, along with Municipal Corporations for larger cities. The 74th Constitutional Amendment also required that members of the House of the People and the State Legislative Assembly be represented in the concerned municipalities, and amendments in 1994 ensured they could participate in deliberations and vote in the Council. Reservations were introduced for Scheduled Castes, Scheduled Tribes, and women, and the State Election Commission was empowered to hold periodic elections.

Later amendments continued to refine the framework. In compliance with the 74th CAA, the State Government amended the KM Act in August 2003 by introducing Chapter VIA with Sections 364A to 364Q dealing with the development of Industrial Townships. These additions created a statutory space for emerging urban categories that did not fit neatly into the older framework.

Functions transferred to urban local bodies 🔗

The Twelfth Schedule of the Constitution lists 18 functions, ranging from urban planning and water supply to fire services and public amenities. Karnataka transferred 17 of these 18 functions to its urban local bodies, leaving out fire services, which continues to be managed directly by the state.

On paper, this looks like a generous devolution. In practice, the story is more complicated. A Comptroller and Auditor General (CAG) compendium of performance audits found that while 17 of the 18 functions were devolved across 18 states, only 4 functions were effectively devolved with complete autonomy, namely burial grounds, public amenities, prevention of cruelty to animals, and regulation of slaughterhouses. Karnataka followed a similar pattern, where most functions were devolved through legislation but not through actual transfer of control, staff, or funds.

The problem of parastatal agencies 🔗

The single biggest hurdle to genuine decentralisation in Karnataka has been the proliferation of parastatal agencies. These are statutory bodies created by the state government that perform many functions ostensibly belonging to ULBs but remain accountable to the state rather than to elected councils.

Urban planning offers the clearest example. The State Government established 31 Urban Development Authorities under the Karnataka Urban Development Authorities Act, 1987, and 52 Town Planning Authorities under Section 4-C of the Karnataka Town and Country Planning Act, 1961, for the preparation of Master Plans for ULBs. Under Section 505 of the KMC Act, the Corporation must exercise its powers regarding land use or development plans only with the concurrence of the Planning Authority. In effect, the municipal corporation cannot plan its own city without the permission of a state-controlled body.

Water supply in Bengaluru tells a similar story. The Bangalore Water Supply and Sewerage Board operates independently of the Bruhat Bengaluru Mahanagara Palike (BBMP), even though water supply is listed in the Twelfth Schedule. Urban local bodies across the country lack autonomy in city management because several city-level functions are managed by parastatals that are accountable to the state, and several taxation powers have also not been devolved to these bodies, leading to stressed municipal finances. Slum improvement is another such area. The Karnataka Slum Development Board was constituted in 1975, and although the First State Finance Commission recommended bringing slum improvement under the control of ULBs, this has not been complied with.

Fiscal architecture under the amended Acts 🔗

Devolution of functions without matching financial resources is a recipe for frustration. The amended Karnataka Municipalities Act and the Karnataka Municipal Corporations Act do give ULBs some own-revenue sources, but the design keeps municipalities tightly tethered to the state government.

Taxation powers and their limits 🔗

Municipalities in Karnataka can levy property tax, which remains their most important own-source revenue, along with various fees, cess, and duties. However, under the KM Act, both the State government and the municipal council have the power to suspend or prohibit the levy of objectionable taxes, a council’s decision to reduce, suspend, or abolish a tax is subject to approval by the State government, and the State government may also require municipal councils to impose new taxes. The local body’s fiscal autonomy is therefore conditional rather than constitutional.

Buoyant urban taxes such as entertainment tax, professional tax, and the erstwhile octroi remain with the state. This leaves ULBs heavily reliant on property tax, which is often under-assessed and poorly collected. The BBMP Act, 2020, which replaced the KMC Act for Bengaluru, tried to address some of these issues. The BBMP Act, 2020 adds a new level of zonal committees to the existing three-tier municipal structure in the city and gives the Corporation some additional taxation powers.

Dependence on state transfers 🔗

Because own-revenue streams are thin, Karnataka’s ULBs depend heavily on grants devolved by the state based on recommendations of State Finance Commissions. Indian ULBs are among the weakest in the world in terms of fiscal autonomy and have limited effective devolution of revenue, with municipal revenue in India accounting for only one percent of GDP in 2017-18. Delayed release of grants, unpredictable transfers, and the state’s discretion in modifying allocations make long-term planning extremely difficult for urban local bodies.

Auditing also reveals the extent of state control. The KM Act requires that the accounts of every council be audited every year. The State government holds the power to modify the budget to bring it in compliance with the provisions of the KM Act, and every payment appearing contrary to law, every deficiency or loss caused by gross negligence, and any material impropriety in the accounts must be reflected in the audit report.

Findings from the Performance Audit by the CAG 🔗

Perhaps the most authoritative scrutiny of Karnataka’s urban governance came from the Comptroller and Auditor General. The CAG carried out a performance audit of the Implementation of the 74th Constitutional Amendment Act covering the period 2014-15 to 2018-19, conducted in two stages, where Stage I audited implementation by the State Government and parastatals and Stage II test-checked 44 ULBs across all tiers and 11 selected functions.

The audit’s conclusions were sobering. The audit observed that legal provisions were not backed by decisive actions, resulting in a situation where the spirit of the 74th CAA had not fructified, which was especially true for provisions that were intended to provide autonomy to ULBs. In other words, Karnataka had done the legislative work on paper but had not followed through on the administrative and fiscal side.

Specific issues flagged by the auditor 🔗

Several specific findings stand out. Parastatals retained control over planning and development, reducing ULBs to executing agencies. Property tax dues from state-owned industrial bodies remained unpaid for years. For instance, the Karnataka Industrial Areas Development Board had property tax dues of Rs. 22.91 crore including penalty to be paid to the Hubballi-Dharwad Municipal Corporation as at the end of March 2020. When state bodies themselves do not pay their dues, it exposes the weak financial position of municipalities.

The audit also noted delays in passing budgets, irregularities in expenditure, and inadequate maintenance of accounts. Standing committees that should have scrutinised planning decisions were reduced to reviewing building licences rather than deliberating on substantive planning questions.

Continuing debates and recent reforms 🔗

The Karnataka Municipal Corporations Act, 1976, has been partially superseded for Bengaluru by the Bruhat Bengaluru Mahanagara Palike Act, 2020. The BBMP Act, 2020 gives the Corporation the power and responsibility to prepare and implement schemes for the 18 functions provided under the 74th Amendment, but it does not clarify whether new bodies will be created at the municipal level or whether existing parastatals will continue to perform these functions and whose accountability will shift from the state to the municipal corporation. This ambiguity keeps alive the old tension between elected municipal authority and state-controlled parastatals.

More recently, debates around the Greater Bengaluru Governance Bill have reopened questions about how Karnataka’s principal urban governance laws should evolve. Whether through new legislation or by tightening the existing Karnataka Municipalities Act and the Karnataka Municipal Corporations Act, the fundamental challenge remains the same: making urban local bodies genuinely autonomous, financially stable, and accountable to the citizens they are supposed to serve.

Why the story matters 🔗

The Karnataka Municipalities Act, 1964, and the Karnataka Municipal Corporations Act, 1976, are not dusty statutes confined to law libraries. They shape every facet of daily urban life in the state, from how wide your street can be to who answers when garbage is not collected. The 74th Amendment tried to put elected local bodies at the centre of this system, and Karnataka’s legislative response was faithful in form. The deeper work of transferring real power, real money, and real functionaries has, however, been uneven. Until parastatals are either absorbed into municipal structures or made accountable to them, and until municipal finances are placed on a predictable and buoyant footing, the promise of the 74th Amendment will remain partially fulfilled.

What do you think? Should Karnataka abolish or merge its parastatal agencies into the elected municipal corporations to give real meaning to decentralisation, even if it slows down specialised decision-making in areas like water supply and urban planning? And in your own city or town, do you see local councillors or state-appointed officials taking the decisions that actually affect your neighbourhood?

References

1. https://www.dvara.com/what-we-do/excited-about/cities/blog/tag/karnataka-municipalities-act/
2. https://www.indiacode.nic.in/bitstream/123456789/8130/1/22_of_1964_(e).pdf
3. https://agkar.cag.gov.in/docs/74th%20Constitutional%20Amendment%20Act%20English.pdf
4. https://theprint.in/india/governance/over-30-yrs-after-74th-amendment-cag-flags-weak-compliance-with-law-empowering-urban-local-bodies/2357067/
5. https://prsindia.org/theprsblog/examining-urban-local-governance-in-india-through-the-case-of-bengalurua?page=10&per-page=1
6. https://www.dvara.com/what-we-do/excited-about/cities/blog/2013/03/15/karnataka-municipalities-act-1964-funds-part-ii/
7. https://cag.gov.in/ag1/karnataka/en/audit-report/details/110761