Structural Changes and Innovations in Indian Urban Governance

India’s cities are growing faster than the systems meant to govern them. Yet for most of the country’s history after independence, the people running these cities had little constitutional protection and even less real power. State governments could dissolve municipal councils at will, postpone elections indefinitely, and starve local bodies of funds. The turning point came in 1992 with a single piece of legislation that rewrote the rules of urban governance and gave cities a permanent seat at the constitutional table. Understanding what changed, what was invented, and what still does not work is essential to grasping how urban India is actually run today.

The legal foundation: what the 74th Amendment changed 🔗

The Constitution (74th Amendment) Act, 1992 added a new Part IXA to the Constitution, covering Articles 243P to 243ZG, and introduced a new Twelfth Schedule listing 18 functional areas for municipalities. It came into force on 1 June 1993. Before this, urban local bodies existed only at the discretion of state governments and could be superseded without consequence. The amendment granted municipalities constitutional status and brought them within the justiciable part of the Constitution, meaning states were now legally obligated to set them up rather than treating them as optional.

The reform created a uniform three-tier structure across the country. Nagar Panchayats govern areas transitioning from rural to urban, Municipal Councils serve smaller and medium towns, and Municipal Corporations administer large cities. The Governor of each state classifies an area into one of these categories based on population, density, revenue potential, and the share of non-agricultural employment.

Regular elections and fixed tenure 🔗

One of the most important legal reforms was the protection of the democratic process itself. Every municipality now has a fixed five-year term. If a body is dissolved early, fresh elections must be held within six months, so a council can no longer be suspended indefinitely. To make this credible, the amendment mandated an independent State Election Commission to conduct these polls, removing the conflict of interest that existed when state governments controlled the timing of local elections.

The amendment also built in social representation. Seats are reserved for Scheduled Castes and Scheduled Tribes in proportion to their population, and at least one-third of all seats are reserved for women. This last provision quietly brought a large number of women into formal political roles for the first time, often at the ward level where decisions touch daily life most directly.

Devolution of powers to urban local bodies 🔗

The Twelfth Schedule lists functions that states are expected to transfer to municipalities, including urban planning, regulation of land use, water supply, public health, sanitation, roads, and poverty alleviation. The word “expected” matters here. The Constitution enables devolution but leaves the actual transfer of powers, funds, and functionaries to state legislatures. This gap between what the schedule promises and what states actually hand over remains the central tension in Indian urban governance, and it is a thread that runs through almost every challenge discussed below.

Innovations in municipal governance 🔗

The 74th Amendment did more than protect elected councils. It introduced a set of new institutions designed to make planning more participatory and more integrated across jurisdictions. These bodies represent the structural innovations that distinguish modern urban governance from the older, more centralised model.

Ward committees and citizen participation 🔗

Ward Committees were created to bring governance closer to residents in larger cities, specifically those with a population of three lakh or more. The idea is that a single municipal corporation governing millions cannot remain responsive to a single neighbourhood, so smaller units allow citizens to raise local concerns about drains, streetlights, and garbage collection directly. In practice, several cities have built on this foundation in creative ways. Pune and Chennai have strengthened ward-level committees and experimented with participatory budgeting, where residents propose and prioritise neighbourhood projects that are then folded into the municipal budget.

State Finance Commissions 🔗

Money is the lifeblood of any government, and the amendment recognised this by mandating a State Finance Commission (SFC) in every state, to be constituted every five years. The SFC reviews the financial position of municipalities and recommends how taxes, duties, and grants should be shared between the state and its local bodies. In principle, this creates a predictable, rules-based flow of resources rather than leaving cities to negotiate for funds case by case. The Central Finance Commission then considers these recommendations when suggesting measures to strengthen state resources.

District and Metropolitan Planning Committees 🔗

Cities do not exist in isolation. A metropolitan region may span several municipalities and panchayats, each making its own plans for water, transport, and land use, often with little coordination. The amendment addressed this through two planning bodies. The District Planning Committee (DPC), under Article 243ZD, consolidates the separate plans prepared by panchayats and municipalities within a district into a single draft development plan. The Metropolitan Planning Committee (MPC), under Article 243ZE, performs a similar role for large metropolitan areas with a population of one million or more.

What makes the MPC notable is its democratic composition. At least two-thirds of its members must be elected by, and from among, the elected representatives of the municipalities and panchayat chairpersons in the metropolitan area. The goal is integrated spatial planning for the region as a whole, covering shared concerns like water resources, infrastructure, and environmental conservation that no single municipality can manage alone.

New financial instruments 🔗

Beyond the institutions written into the Constitution, cities have begun pioneering their own innovations to raise money. Municipal bonds have re-emerged as a way to fund infrastructure. Indore Municipal Corporation issued India’s first municipal green bond in 2023, raising around ₹720 crore for a large solar power plant to meet the city’s water-pumping needs, and the issue was oversubscribed several times over. Cities including Ghaziabad, Pimpri-Chinchwad, and Nashik have followed with their own bond issues. Alongside this, technology platforms for grievance redressal, GIS-based property tax systems, and double-entry accounting are gradually professionalising municipal administration.

Challenges and future directions 🔗

For all its ambition, the 74th Amendment has not fully delivered on its promise. More than three decades on, the gap between constitutional design and ground reality remains wide, and the reasons are structural rather than accidental.

Inadequate resource mobilisation 🔗

The most persistent problem is money. Indian municipalities raise very little of their own revenue and depend heavily on transfers from state and central governments. Own-source revenue often accounts for less than 40 percent of municipal budgets, and a large share of spending goes towards salaries and administrative costs rather than capital investment in infrastructure. Property tax, the natural backbone of municipal finance, is badly underused, with collection efficiency far below potential. The subsuming of local taxes such as octroi into the Goods and Services Tax further narrowed the revenue base of many corporations.

State Finance Commissions, meant to fix this, have struggled in practice. Many states constitute them late, and even when recommendations are made, their implementation is frequently delayed or ignored. The result is that cities are handed large responsibilities without matching financial authority, a situation often described as the problem of unfunded mandates.

Incomplete decentralisation 🔗

The amendment enabled devolution but did not compel it, and many state governments have been reluctant to let go of control. Crucial urban functions such as water supply, housing, and development planning are often handled by parastatal agencies like development authorities and water boards that report to the state rather than to elected councils. These parallel power structures dilute the authority of the very municipalities the amendment was meant to empower. The MPC, in particular, has been weakly implemented in many states, partly out of concern that a strong metropolitan body could become a political rival to the state government.

Limited capacity for service delivery 🔗

Even where powers and funds exist, many local bodies lack the staff and technical expertise to use them well. A large share of elected councillors are first-time entrants who need orientation in how municipal administration actually works. There is a shortage of specialised technical staff for planning, finance, and engineering. Analysts argue that what cities need is not uniform reform but a differentiated, capacity-led approach that matches expectations and funding to what each body can realistically deliver.

The way forward, then, is less about new laws and more about implementing the existing ones in spirit. Regularising and acting on State Finance Commission recommendations, making ward committees genuinely functional, transferring all 18 Twelfth Schedule functions with funds and staff attached, and investing seriously in the training of municipal personnel would do more than any further amendment. The constitutional architecture is largely sound. The unfinished business lies in honouring it.

What do you think? If the 74th Amendment gave cities the legal framework to govern themselves, why have so many state governments been hesitant to hand over real power and money? And in your own city, do you feel that decisions about your neighbourhood are made by people you can actually hold accountable?

References

1. https://secforuts.mha.gov.in/74th-amendment-and-municipalities-in-india/
2. https://banotes.org/governance-issues-challenges/urban-local-bodies-governance-assessment-india/
3. https://www.sciencedirect.com/science/article/pii/S2226585618301365
4. https://india.mongabay.com/2023/02/are-cities-smart-enough-to-leverage-municipal-bonds/
5. https://www.ijsat.org/papers/2025/3/7374.pdf
6. https://forumias.com/blog/challenges-faced-by-local-bodies-in-india/
7. https://www.orfonline.org/research/india-s-urban-challenges-recommendations-for-the-new-government-2019-2024