73rd and 74th CAA are the embodiment of grass-root democracy and democratic decentralization in India. However, they have remained Half Baked Cake (Mani Shankar Iyer Committee) due to reluctance of states.
Reluctance to empower Urban Local Bodies
Funding Challenges
High fiscal dependence- ULBs’ own revenue was only 47% of their total revenue in 2022, with property tax accounting for 29%.
Post-GST revenue loss- Subsumption of Octroi, sales tax, and entertainment tax reduced ULB income. Eg- of revenue post-GST.
Weak property tax collection- Only 10-11% of revenue from property tax vs 20-22% in China (Peterson Institute).
Limited taxation powers- ULBs lack fiscal autonomy unlike China (land rights), Denmark (local income tax), or USA (broad local taxes).
Weak SFC implementation- 15% shortfall in 15th FC grants and delayed State Finance Commissions reduce fiscal predictability.
Functional Challenges
Parastatal dominance- Urban authorities and public corporations control key functions like water, and transport, limiting ULB autonomy. Eg- Delhi Jal Board
Rise of Special Purpose Vehicles (SPVs)- Schemes like JNNURM (2005) and Smart Cities Mission (2015) implemented via SPVs, bypassing elected bodies. SPVs, led by bureaucrats, indicate “procedural distrust” of local democracy.
Incomplete devolution- Most States haven’t transferred all 18 functions under the 12th Schedule.
Inactive District Planning Committees (DPCs)- Non-functional in 9 States and ineffective in 15 others, hindering integrated planning.
Greater Bengaluru Governance Bill (2024)- Empowers Greater Bengaluru Authority (GBA) to alter ULB boundaries and override elected councils.
Reasons for States’ Reluctance to Empower ULBs
Political Control – Fear of losing urban dominance.
Discretionary Devolution – 74th Amendment left powers optional.
Low Political Incentive – No short-term electoral gain.
Weak Administrative Capacity – Perceived inefficiency of local bodies.
Limited Citizen Pressure – Urban voter apathy enables state control.
Way Forward
Empower ULBs legally through activity mapping and fiscal autonomy.
Constitute SFCs timely, link grants to performance.
Integrate local bodies into planning via empowered DPCs and MPCs.
Urban Local bodies are the cornerstones of participatory democracy and good governance as 50% of India’s population is expected to reside in urban areas by 2030.