The Role and Responsibilities of State and Local Governments in India

When you pay your property tax, complain about a broken streetlight, or wait for garbage collection, you are interacting with a carefully layered system of governance. India’s Constitution has divided responsibilities between the Union, the states, and urban local bodies (ULBs), but the relationship between state governments and the cities they oversee is where most urban policy actually plays out. Understanding this interface is essential to understanding why our cities look and function the way they do.

The constitutional foundation of the three-tier system 🔗

India operates as a federal republic with three spheres of government: union, state, and local. While the Seventh Schedule of the Constitution assigns major sectors like public health, sanitation, and local government to the states, the 74th Constitutional Amendment Act of 1992 gave urban local bodies their own constitutional recognition. This amendment added Part IX-A to the Constitution, covering Articles 243P to 243ZG, and came into force on 1 June 1993.

Before this amendment, municipal bodies had no guaranteed constitutional status. State governments could extend, curtail, or even suspend their functional sphere through executive decisions without any legislative amendment. The 74th Amendment changed that by making municipalities part of the justiciable portion of the Constitution, which means states are now constitutionally obligated to establish and maintain them.

Why local government is a state subject 🔗

Despite the constitutional upgrade for ULBs, local government remains firmly placed within the State List. As per Entry 5 of List II in the Seventh Schedule, the Union Government cannot enact laws directly regulating local self-government institutions. What the 74th Amendment actually did was outline a scheme that the states themselves must implement by framing or amending their own municipal laws. This is why the real texture of urban governance – election rules, staff recruitment, tax powers, city boundaries – varies from state to state.

How the state structures urban local government 🔗

Each state has passed its own Municipal Acts to set up and administer cities. In fact, there are almost 70 different municipal acts in India governing urban areas across states, and some states even have separate acts for larger and smaller municipalities. These state-level laws provide the working framework for cities, including rules for elections, recruitment of municipal staff, and the demarcation of urban boundaries.

Under Article 243Q, every state must constitute three kinds of municipalities based on population and economic character. A Nagar Panchayat governs areas transitioning from rural to urban. A Municipal Council serves smaller urban areas. A Municipal Corporation governs larger urban areas. The Governor of the state determines which category a given settlement falls into after considering factors such as population size, population density, revenue generated, the share of non-agricultural employment, and the economic importance of the area.

The Twelfth Schedule and Article 243W 🔗

The Constitution does not fix a rigid list of functions for municipalities. Instead, Article 243W states that municipalities should be empowered to function as institutions of self-government, and leaves it to the state legislature to decide what specific powers and responsibilities to actually devolve. To guide this process, the Constitution added the Twelfth Schedule, which lists 18 functional items that may be assigned to urban local bodies, covering urban planning, regulation of land use, water supply, public health, slum improvement, and urban poverty alleviation, among others.

The catch here is the word “may”. Because devolution is permissive rather than mandatory, states have varied widely in how much authority they have actually handed over. Some states have transferred most of the 18 functions to their ULBs in practice, while others continue to keep significant power at the state level or with specialised parastatal agencies.

The central government’s role: schemes and financial support 🔗

Even though urban governance is constitutionally a state subject, the Union Government exercises what is best described as a catalytic role. Under the heading of “economic and social planning” in the Concurrent List, the Centre designs and funds large national programmes that flow through states to cities. The main instruments for this are Centrally Sponsored Schemes and Central Sector Schemes.

Centrally Sponsored Schemes 🔗

Centrally Sponsored Schemes (CSSs) are programmes jointly funded by the Centre and the states but implemented at the state level, in sectors that fall under the State or Concurrent Lists. Typically, the funding ratio is 60:40 between the Centre and a general-category state, and 75:25 for special-category states. Urban-focused CSSs include the Pradhan Mantri Awas Yojana (Urban), the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), the Smart Cities Mission, and the Deendayal Antyodaya Yojana – National Urban Livelihoods Mission.

These schemes are the primary route through which national priorities – such as affordable housing, sanitation, water supply, and livelihood support – reach the city level. However, because the design of the scheme is fixed by a central ministry, states and ULBs often find it hard to tweak a scheme to match local conditions.

Central Sector Schemes and Finance Commission grants 🔗

Central Sector Schemes are fully funded and implemented by the Union Government and its agencies. They typically target subjects in the Union List or issues requiring national-level intervention, and often use direct benefit transfers to reach citizens. Alongside these, the Union Finance Commission recommends grants-in-aid to local bodies. The 15th Finance Commission allocated around ₹1.2-1.3 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. These figures sound large, but they translate to only about 0.13% of GDP, a share that has barely moved even as urbanisation accelerates.

Administrative arrangements between the state and ULBs 🔗

The interface between a state and its cities is not just financial – it is also deeply administrative. Broadly, two kinds of arrangements exist.

Direct interactions 🔗

Direct interactions involve planning, budgeting, and regulatory approvals. The state government approves municipal budgets, clears borrowings, sanctions major development plans, and supervises the holding of elections through the State Election Commission. District Planning Committees and Metropolitan Planning Committees, set up under Articles 243ZD and 243ZE, are meant to consolidate rural and urban plans and are the formal forums where the state engages with city-level planning.

Indirect support through technical and manpower resources 🔗

Indirect support is equally important. State governments provide technical expertise through agencies like town planning departments, public health engineering organisations, and state finance commissions. They also provide manpower: key positions such as the Municipal Commissioner, Chief Engineer, and Health Officer are typically drawn from state services. A 2020 CAG report on Karnataka found that the power to assess municipal staff requirements, recruit staff, and decide their pay, transfer, and promotion effectively sits with the state government, not the municipal corporation. Similar arrangements exist in Kerala, Maharashtra, and Tamil Nadu.

Personnel management: a persistent bottleneck 🔗

The effectiveness of any ULB depends heavily on who staffs it. Three types of personnel systems coexist across Indian states – a separate personnel system for each ULB, a unified state-level municipal cadre, and integrated arrangements where deputationists from state services hold senior positions. Each system has trade-offs, but the fundamental problem, as noted by the Ministry of Panchayati Raj and Urban Development literature, is that local bodies have very little real control over their own personnel and municipal services have for too long been treated as “inferior” services that do not attract top talent.

The numbers are sobering. About 35% of posts in many municipal corporations remain vacant. India has roughly one town planner for every 75,000 urban residents, and only around 5,000 qualified town planners overall, far short of the estimated three lakh the country will need by 2031. For cities preparing for rapid urbanisation, this staffing gap is a serious constraint on service delivery and planning.

Financial autonomy: the weakest link 🔗

Even after three decades of the 74th Amendment, Indian ULBs remain among the weakest in the world in terms of fiscal autonomy. Municipal revenue in India is only about 1% of GDP. ULBs have limited powers to levy and collect taxes on their own, relying heavily on property taxes and user charges where collection efficiency is low.

The consequence is chronic dependency on state and central transfers, which make up roughly two-thirds of ULB funding in many cities. Many of these transfers are also tied grants, locking the funds to specific uses like water supply or sanitation. This reduces the ability of elected municipal councils to set their own priorities and respond to local demands. Parallel or parastatal bodies – separate state agencies that handle water, transport, housing, or slum redevelopment – further fragment authority, creating overlapping jurisdictions that slow decision-making and dilute accountability.

Moving towards genuine self-government 🔗

A healthier state-ULB interface requires greater functional devolution, predictable and timely transfers, strengthened State Finance Commissions, and instruments like municipal bonds and user charges that allow cities to raise their own resources. It also requires professionalising municipal cadres so that city governments can attract and retain skilled planners, engineers, and finance specialists. None of this is possible unless states are willing to let go of some of the control they currently exercise over cities.

What do you think? If your state government devolved more functions and finances to your city’s municipal body tomorrow, would local service delivery actually improve – or would it expose a different set of capacity gaps? And how should the balance between state oversight and municipal autonomy shift as India’s urban population crosses 600 million in the coming years?

References

1. https://secforuts.mha.gov.in/74th-amendment-and-municipalities-in-india/
2. https://en.wikipedia.org/wiki/Local_government_in_India
3. https://mahadma.maharashtra.gov.in/en/74th-constitutional-amendment-and-urban-local-bodies-in-india/
4. https://visionias.in/current-affairs/monthly-magazine/2024-09-12/polity-and-governance/centrally-sponsored-schemes-csss
5. https://www.gktoday.in/central-sector-and-centrally-sponsored-schemes/
6. https://iaspoint.com/urban-finance-and-governance-challenges-in-india-2026/
7. https://prsindia.org/theprsblog/examining-urban-local-governance-in-india-through-the-case-of-bengalurua
8. https://egyankosh.ac.in/bitstream/123456789/78337/3/Unit-12.pdf
9. https://www.shankariasparliament.com/current-affairs/empowering-local-bodies-for-effective-urban-governance