Greater fiscal autonomy key to overhauling urban governance: NITI Aayog | Economy & Policy News

India’s urban governance framework needs a fundamental overhaul, with empowered city governments, directly elected mayors with five-year terms, greater financial autonomy for urban local bodies and a shift towards integrated land-use planning emerging as key reform priorities at the National Urban Conclave 2026, which concluded here on Sunday.

 

Rajiv Gauba, member of NITI Aayog, called for sweeping changes in the way cities are governed, planned and financed, arguing that urban centres cannot be effectively administered from state capitals and must have the authority, resources and institutional capacity to address local needs.

 

He urged state governments to undertake structural reforms in municipal administration, introduce the Mayor-in-Council system, ensure timely municipal elections and consider linking financial support under national urban missions to these reforms.

  

Gauba emphasised the need for states to devolve all 18 functions to urban local bodies in line with the 74th Amendment, including master planning, water supply, fire services and traffic.

 

The recommendations assume significance as India’s urban population is projected to rise from around 50 crore currently to 85 crore by 2050, with nearly half the country’s population expected to live in cities.

 

“Meeting the growing demand for housing, transport, water supply, sanitation and other essential services will require a departure from conventional approaches to urban development,” Gauba said while addressing the valedictory session of the two-day conclave.

 

India’s population is expected to continue growing for several decades before stabilising at around 165 crore by 2060. The scale of this demographic transition, he said, makes it imperative to strengthen the institutions responsible for managing urban growth.

 

The recommendations draw on the report Moving Towards Effective City Governance, jointly developed by NITI Aayog and the Ministry of Housing and Urban Affairs (MoHUA). Gauba stressed that institutional empowerment must be accompanied by adequate staffing, financial resources and accountability mechanisms if municipal governments are to deliver better services and facilitate meaningful citizen participation.

 

Since municipal finance remains another major weakness in urban administration, the NITI Aayog member called for better collection of property taxes and user charges to strengthen the revenue base of urban local bodies and reduce their dependence on transfers from higher levels of government.

 

While grants to urban local bodies (ULBs) from the Central Finance Commission have more than doubled compared with the previous allocation, with their share rising from 36 per cent to 45 per cent, fiscal devolution from state governments to cities remains inadequate, he said. State Finance Commissions should be constituted regularly, and their recommendations should translate into adequate and predictable financial transfers to municipal bodies, he observed.

 

Gauba also called for rationalising floor area ratio (FAR) restrictions and building regulations that constrain land supply and increase residential and commercial costs. States should promote mixed-use development, higher densities around transit hubs and land pooling to improve land availability, support economic activity and make housing more affordable, he said.

 

Describing cities as engines of growth where talent, capital and ideas converge, he said there was a need to expand affordable rental housing for migrant workers, industrial labourers, students and young professionals. “States should adopt the Model Tenancy Act to encourage greater availability of rental accommodation,” he said.

 

The NITI Aayog member also highlighted the expansion of central government support for urban development since 2014 through programmes such as the Smart Cities Mission, Atal Mission for Rejuvenation and Urban Transformation (AMRUT), Pradhan Mantri Awas Yojana and Swachh Bharat Mission. The budgetary outlay for the urban sector has increased tenfold over this period, while investments of around ₹3.7 trillion have been made in metro rail and bus systems, he said.

 

“An Urban Challenge Fund with a corpus of ₹1 trillion has been announced in the current year’s Budget, along with the allocation of ₹5,000 crore each for seven city economic regions over five years. This will help cities emerge as growth hubs, but their success will depend on the ability of state and municipal governments to plan, finance and implement projects effectively,” he added.

 

Addressing the concluding session, Union Housing and Urban Affairs Minister Manohar Lal stressed the importance of providing affordable housing close to employment centres and public transport networks. He also advised greater circularity in construction practices and scientific remediation of legacy waste.

 

The conclave’s seven technical sessions led to a set of recommendations covering pedestrian infrastructure, water and waste management, affordable housing, integrated urban development, municipal service delivery, building regulations and municipal legislation. The deliberations brought together representatives of the Union and state governments, urban local bodies, industry, academia and knowledge institutions.

 

A key recommendation was to move urban administration away from measuring success primarily through the completion of infrastructure projects and towards the quality and reliability of services delivered to citizens.

 

The participants recommended revising the Model Municipal Law, 2003, through consultations with state governments and developing implementation frameworks to support the proposed changes. They demanded specialised municipal cadres, better mobilisation of own-source revenues and a national framework for accountable, citizen-centric urban services.

 

Satendra Singh, secretary in the Department of Urban Development, MoHUA, said success should be measured by the quality of services rather than merely by project completion. He emphasised the need to strengthen institutional capacity, coordination between agencies, municipal finances and accountability to translate policy recommendations into practical improvements.