Major Issues and Challenges Facing Urban Local Governments in India

India’s cities are engines of economic growth, housing over a third of the country’s population and generating a disproportionate share of its GDP. Yet the local bodies entrusted with running these cities – municipal corporations, municipal councils, and nagar panchayats – remain surprisingly weak, cash-strapped, and structurally constrained. Three decades after the landmark 74th Constitutional Amendment Act, Urban Local Bodies (ULBs) continue to struggle with tangled responsibilities, thin wallets, and limited political authority. Understanding these challenges is essential for anyone studying governance, urban policy, or public administration.

The promise of the 74th amendment and the reality today 🔗

The 74th Constitutional Amendment Act of 1992 was designed to be transformative. It added Part IX-A to the Constitution, covering Articles 243-P to 243-ZG, and introduced the Twelfth Schedule listing 18 functions that states were expected to devolve to ULBs. On paper, municipalities gained constitutional status as the third tier of government, with mandated elections, reservations for women and marginalised groups, and State Finance Commissions to ensure fiscal support.

The reality has been far messier. A 2024 Comptroller and Auditor General (CAG) compendium of audit reports covering 393 ULBs across 18 states found that while 17 of the 18 functions had been devolved on average, only 4 functions were effectively devolved with complete autonomy. In other words, states have largely gone through the motions of compliance without transferring meaningful control. The CAG concluded that compliance with the amendment remains weak even 31 years after its enactment, with key functions like slum rehabilitation, fire services, and urban planning still not fully transferred in many states.

Inadequate devolution of powers 🔗

The heart of urban governance trouble lies in incomplete devolution. Since local government is a State List subject under Entry 5 of the Seventh Schedule, the Union government cannot legislate directly on municipal powers. The 74th Amendment therefore relied on states to pass conformity legislation and transfer functions in substance – not just in name. Many states chose a minimalist route.

The “three Fs” problem: functions, funds, and functionaries 🔗

Effective decentralisation requires the simultaneous transfer of three things: functions, funds, and functionaries. ULBs in most states receive nominal functions but are denied matching financial powers and staff. As a result, responsibility sits with elected councils while authority remains with state departments and parastatal agencies. The accountability technically rests with urban local bodies, yet it is not backed by adequate finances or planning and management capacity – a well-documented structural mismatch.

Uneven implementation across states 🔗

The picture varies sharply across states. Kerala, Karnataka, and West Bengal have generally moved further in empowering their ULBs, while Uttar Pradesh, Bihar, and several northeastern states show limited devolution. Nine states – Chhattisgarh, Haryana, Jharkhand, Madhya Pradesh, Maharashtra, Manipur, Odisha, Punjab, and Tripura – have devolved all 18 functions, yet even in these states the spirit of the law has been poorly observed. This patchy implementation produces unequal service delivery, making the quality of urban governance a lottery of geography.

Financial constraints and fiscal dependence 🔗

Perhaps no challenge cripples ULBs more than the shortage of money. Indian cities generate enormous economic activity, but the municipalities running them operate on shoestring budgets.

The resource-expenditure gap 🔗

The CAG’s findings on municipal finance are stark. Urban local bodies face a 42% gap between their resources and expenditure, and only 32% of revenue is internally generated, with the rest coming from Union and state government transfers. Property tax – one of the main local revenue sources – is itself under-tapped: ULBs realise only 56% of their total property tax demand, and states control the rates, assessment methods, and exemptions that would otherwise let municipalities strengthen collections.

The macro picture is equally grim. Municipal revenue in India contributes roughly 1% of GDP – far below comparable developing countries. With only 29% of ULB expenditure going toward developmental and programmatic work, the rest is consumed by salaries, establishment costs, and routine maintenance, leaving little for new infrastructure or urban upgrading.

Weak state finance commissions 🔗

The 74th Amendment expected State Finance Commissions (SFCs) to mirror the Central Finance Commission – independent, technically robust, and regularly constituted. In practice, SFCs have not met the standards set by the Central Finance Commission and have struggled to push back against political resistance to devolving revenues. Recommendations are often ignored or partially implemented, leaving ULBs perpetually dependent on discretionary transfers. [Image: A bar chart showing the resource-expenditure gap of urban local bodies, with own revenue at 32% and external transfers at 68%]

Overlapping responsibilities and parastatal bodies 🔗

Walk through any Indian metropolis and you will find multiple agencies delivering – or failing to deliver – urban services. Water supply may be handled by a state-run water board, housing by a development authority, transport by a separate transport corporation, and roads by the state public works department. The municipal corporation is left with garbage, street lights, and a handful of regulatory functions.

The parastatal problem 🔗

These parallel agencies, called parastatals, are typically accountable to the state government rather than the elected municipal council. A PRS analysis of Bengaluru’s governance found that the presence of parastatals managed by and accountable to the state government leads to an erosion of the ULB’s autonomy, causing functional overlap, ambiguity, and wastage of resources. Citizens often do not know which agency to approach for a given problem, and elected councillors have limited leverage over the agencies actually delivering services.

Urban planning left out of municipal hands 🔗

Urban planning – arguably the most consequential function a city government can perform – remains among the least devolved. Master plans are typically prepared by state-level development authorities with little input from the municipality that must actually implement services in those areas. This disconnect fuels unauthorised construction, poor zoning outcomes, and the chaotic sprawl visible across Indian cities.

The weak Mayor, the strong Commissioner 🔗

A defining feature of Indian urban governance is the imbalance between the elected Mayor and the state-appointed Municipal Commissioner. The Commissioner – usually an IAS officer – wields executive, financial, and administrative power, while the Mayor typically holds a ceremonial post.

Short and uncertain mayoral tenures 🔗

The 74th Amendment did not specify how Mayors should be elected or how long they should serve, leaving this to state legislatures. The results are inconsistent. Bengaluru’s Mayor historically served just one year, Mumbai’s for two and a half years, while Bhopal has a directly elected Mayor serving a five-year term. The CAG observed that only 5 states provide for direct election of mayors, and just 9 states have a mayoral term coterminous with the council. Short tenures mean Mayors rarely get enough time to craft a vision, build coalitions, and see projects through.

The Commissioner as chief executive 🔗

In most cities, the Commissioner model dominates. As an Observer Research Foundation analysis notes, most state statutes place all powers of municipal regulation – building permissions, action against unauthorised construction, collection of taxes and user charges – in the hands of the Commissioner. The Commissioner is appointed for about three years but can be transferred at the state government’s discretion, which introduces its own instability. The Second Administrative Reforms Commission has recommended a directly elected Mayor with a fixed five-year tenure to fix both ownership and accountability, but the proposal has yet to see broad adoption.

Staffing shortages and limited administrative autonomy 🔗

Even if ULBs had the money and authority, they would still struggle to deliver because they do not have the people. ULBs face an average 37% vacancy rate in sanctioned staff positions, and those in 16 states have limited or no control over their staffing. States like Madhya Pradesh, Telangana, and Jharkhand report vacancies well above the national average.

The problem is compounded by the fact that recruitment, pay, transfers, and promotions are usually decided by the state government rather than the municipality. A CAG report on Karnataka, for instance, noted that the power to assess municipal staff requirements, recruit staff, and determine their pay, transfer, and promotion rests with the state government. Experts have long argued that municipalities should hire their own personnel to ensure accountability and proper management – a reform still largely unimplemented.

Citizen participation that exists mostly on paper 🔗

The 74th Amendment envisioned ward committees and other participatory structures to deepen local democracy. In practice, these mechanisms are weak or absent in most cities. Citizens have few structured channels to influence how services are planned and delivered, and grievance redress is often episodic rather than institutionalised. The result is a governance system that looks democratic at the council level but remains distant and opaque for ordinary residents.

The path forward: what reforms would strengthen ULBs 🔗

The challenges are well-diagnosed. A sustainable reform agenda would need to move on several fronts simultaneously.

Fiscal empowerment 🔗

ULBs need meaningful taxation powers and the authority to set rates and user charges for core services. Modernising property tax administration using GIS, simplifying assessments, and ensuring timely SFC recommendations with binding force would help. The CAG has recommended enhancing financial autonomy, improving revenue collection mechanisms, and ensuring optimal use of allocated funds.

Political and administrative strengthening 🔗

Direct election of Mayors with fixed five-year terms, clearer demarcation between deliberative and executive wings, and municipal control over recruitment and personnel would go a long way toward fixing accountability. Metropolitan Planning Committees envisaged under Article 243ZE need to be operationalised seriously across large urban agglomerations.

Clarifying functional responsibilities 🔗

Overlapping parastatals must be either brought under municipal control or coordinated through clear, legally defined mechanisms. Urban planning functions, in particular, should sit with the local body that is ultimately responsible for delivering services to residents.

Capacity building and technology 🔗

Sustained investment in training elected representatives and municipal staff – as suggested by NITI Aayog and the 6th Administrative Reforms Commission – can raise the quality of local decision-making. E-governance tools, digital grievance platforms, and GIS-based planning offer practical levers to tighten service delivery and improve citizen engagement.

With roughly half of India’s population projected to live in cities by 2050, fixing urban local governance is not an optional upgrade – it is a prerequisite for the country’s economic, environmental, and democratic future. The 74th Amendment created the scaffolding; the task now is to give it substance.

What do you think? Should India move decisively toward a directly elected Mayor model with real executive powers, or would strengthening the existing commissioner-council system work better for cities of vastly different sizes? And in your own city, which single reform – financial, administrative, or political – would make the biggest difference to how it is run?

References

1. https://secforuts.mha.gov.in/74th-amendment-and-municipalities-in-india/
2. https://www.insightsonindia.com/2024/11/16/cag-report-on-urban-local-bodies/
3. https://theprint.in/india/governance/over-30-yrs-after-74th-amendment-cag-flags-weak-compliance-with-law-empowering-urban-local-bodies/2357067/
4. https://www.tandfonline.com/doi/full/10.1080/07352166.2016.1271614
5. https://forumias.com/blog/cag-highlights-key-challenges-in-urban-local-bodies/
6. https://vajiramandravi.com/current-affairs/challenges-in-urban-local-governance/
7. https://pwonlyias.com/current-affairs/cag-report-on-urban-local-bodies/
8. https://www.legacyias.com/cag-report-highlights-critical-issues-in-urban-local-bodies-across-18-states/
9. https://prsindia.org/theprsblog/examining-urban-local-governance-in-india-through-the-case-of-bengalurua
10. https://www.iasgyan.in/daily-current-affairs/institution-of-mayor-in-india
11. https://www.orfonline.org/research/strengthening-municipal-leadership-in-india-the-potential-of-directly-elected-mayors-with-executive-powers