India’s Urban Governance Crisis: Power Gaps Hamper Growth

India’s rapidly urbanizing cities, vital contributors to national economic growth, confront significant governance issues stemming from the unfulfilled promise of power devolution since 1992.

The 74th Constitutional Amendment, intended to grant greater authority, funds, and personnel to local city governments, has largely remained unimplemented. This systemic failure manifests in common problems, such as fragmented authority across urban development agencies, often leading to inefficiencies like repeated road excavations for different projects.

India’s Urbanization Reality

India is already significantly urbanized, a fact underscored by recent economic assessments. Understanding the scale of this shift is crucial for addressing its challenges.

• The Economic Survey 2025-26 indicated `63%` urbanization a decade prior.
• This figure represents `double` the urbanization recorded in the 2011 census.

The Three Pillars of Reform

To address these pervasive governance issues, experts propose three primary reforms. These focus on improving coordination, ensuring financial predictability, and empowering local revenue generation.

Streamlining Urban Coordination

A critical challenge lies in the fragmented authority across various municipal bodies and parastatal agencies, which lacks a single point of accountability. Effective governance requires a unified approach.

• **Problem:** Fragmented authority across municipal bodies and parastatal agencies.
• **Recommendation:** A `mayor-in-council` system, as suggested by NITI Aayog and modeled after Kolkata.
• **Goal:** Empower a directly elected mayor with executive control over key urban functions.
• **Current Efforts:** Some states, like Karnataka with its `Greater Bengaluru Governance Act`, have attempted centralization but often fall short of truly empowering city mayors.

Ensuring Predictable Finances

Predictable financial transfers from states to cities are essential for stable urban development, yet this mechanism often proves unreliable. State Finance Commissions (SFCs), designed to create transparent revenue-sharing formulas, frequently face neglect or inactivity.

• **Issue:** State Finance Commissions (`SFCs`) are often neglected or inactive.
• **Data:** Only `9 out of 28` states currently have a functioning commission.
• **Potential Solution:** The `16th Finance Commission’s` mandate linking central grants to timely SFC formation and reporting, which could enforce fiscal devolution.

Empowering Local Revenue Generation

Equipping cities with the ability to generate their own revenue is vital for self-sufficiency and infrastructure development. However, Indian cities significantly underperform in property tax collection compared to global averages.

• Indian cities collect `0.12-0.15%` of GDP in property tax.
• This contrasts sharply with the developing-country average of `0.7%`.
• The municipal bond market raises only a fraction of the estimated `$55 billion` annual requirement for urban infrastructure.

This low collection is primarily due to capacity deficits in areas like GIS mapping and digital collection infrastructure. Property tax forms a fundamental basis for municipal bond markets and credit ratings, which remain underdeveloped in India.

• **Capacity Deficits:** Issues in `GIS mapping` and digital collection infrastructure.
• **Impact:** An underdeveloped `municipal bond market`, hindering access to capital.
• **Utilization Barrier:** Even when funds are raised, project readiness can be a barrier; `Pune’s` unused bond funds for a water project due to land acquisition issues serve as an example.

Ultimately, India’s cities, despite their economic might, are significantly hampered by weak governance. This raises questions about their capacity to initiate necessary reforms independently, without awaiting broader governmental devolution.