Centre's Budget plan to give cities greater financial autonomy
06 Jan 2026

The central government is reportedly working on a blueprint to give more financial autonomy to urban local bodies (ULBs) in India.

The plan, which is likely to be unveiled in the upcoming Union Budget, aims at reducing ULBs' dependence on state and central grants.

The focus will be on enabling these bodies to generate more resources through property tax reforms and rationalized user charges.

Municipalities to be encouraged to tap market-based financing
Financial independence

The plan will also encourage municipalities to use market-based financing tools such as municipal and green bonds for long-term infrastructure investment.

Cities like Surat, Ghaziabad, Indore, Vadodara, Ahmedabad, and Pimpri-Chinchwad have already used these bonds for urban projects.

The Budget may also include measures to help municipalities diversify their revenue streams by providing services like project consultancy and implementation training.

Peer-to-peer mentoring and case studies in budget proposal
Mentorship initiative

Peer-to-peer mentoring is another important aspect of the proposal. Weaker municipal bodies could be paired with better-performing corporations to replicate good governance and financial practices.

Successful city-level case studies might be highlighted in the Budget speech to show how innovation, governance reforms, and market-linked instruments can widen municipal revenue bases.

India's municipal finances remain fragile despite reforms
Financial status

Despite several reforms, Mint reports that municipal finances in India remain fragile.

The Reserve Bank of India noted that municipal revenues and expenditure have stagnated at around 1% of GDP, which is much lower than in OECD countries and many emerging economies.

Data from the Ministry of Housing and Urban Affairs shows there are nearly 4,500 ULBs in India, most of which are small with limited financial powers.

Property tax remains largest single source of municipal income
Revenue sources

The National Institute of Urban Affairs found that own-source revenues accounted for only about 48% of total revenues on average for 25 municipal corporations.

A March 2025 report by Icra showed government grants made up around 38% of municipal revenues in FY24.

Property tax is the largest single source of municipal income, contributing roughly 42% of own revenues on average.

Municipal bonds seen as alternative funding source
Funding options

Experts believe structural reforms are needed to strengthen city finances.

Suprio Banerjee, vice president and co-group head at Icra Ltd., said government incentives have helped lower issuance costs and improve viability for municipal bonds.

Recent Union Budgets have promoted green bonds and pooled municipal bonds, along with the Urban Infrastructure Development Fund (UIDF) for tier-II and tier-III cities.