Over the past three decades, Finance Commissions have been the most consequential constitutional lever shaping municipal finance in India. Successive awards have expanded and refined fiscal transfers to cities, shifting from largely untied support towards clearer grant design and stronger incentives for transparency, disclosure, and performance. In doing so, they have increasingly defined the direction of urban public finance alongside India’s accelerating urban growth.
Commissioned by the XVI Finance Commission (XVI FC), A Blueprint for Urban Fiscal Devolution traces this evolution and sets out recommendations for strengthening fiscal devolution to Urban Local Governments (ULGs) over 2026–31. It argues that India’s expanding urban footprint and rising service and infrastructure pressures require more predictable, reform-oriented transfers — while recognising that ULG capacities vary sharply across the country. The report recommends a differentiated grant architecture aligned to city size and capacity; an Urbanisation Premium to support planned rural–urban transition and newly constituted ULGs; a Decentralisation and Capacities grant to strengthen foundational municipal systems; and simplified, more transparent grant administration — using digital processes and public disclosure to improve timeliness, reduce opacity, and sustain accountability. These recommendations were submitted for the Commission’s consideration.
The report draws on field visits to 23 ULGs and 5 rural local governments across eight states, alongside consultations with city and state officials and sector experts, and an assessment of past Finance Commission grant design and implementation.
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