Lok Sabha Question No. 938 (UNSTARRED), answered on 2026-02-05
Subject: Strengthening of Urban Local Bodies
Ministry: HOUSING AND URBAN AFFAIRS
Asked by: Prof. Sougata Ray

## GOVERNMENT OF INDIA

## MINISTRY OF HOUSING AND URBAN AFFAIRS LOK   SABHA

UNSTARRED QUESTION NO. 938

TO BE ANSWERED ON FEBRUARY 05, 2026

## STRENGTHENING OF URBAN LOCAL BODIES

NO. 938. PROF. SOUGATA RAY:

Will the Minister of HOUSING AND URBAN

AFFAIRS be pleased to state:

- (a) the  steps  taken  to  strengthen  the  fiscal  capacity  of  Urban  Local Bodies (ULBs) across the country;
- (b) whether the Government has noticed that a large number of ULBs
- are facing a severe financial crisis and if so, the details thereof; and
- (c)
- whether some ULBs have demanded direct transfer of Central funds
- and if so, the details thereof?

## ANSWER

## THE MINISTER OF STATE IN THE MINISTRY OF HOUSING AND URBAN AFFAIRS (SHRI TOKHAN SAHU)

- (a) The Government has undertaken a series of structural and reform-linked measures  to  strengthen  the  fiscal  capacity  of  Urban  Local  Bodies (ULBs). These include:
- i. Implementation  of  the  Fifteenth  Finance  Commission  (15th  FC) framework through a transparent, rule-based and digital mechanism for release of grant and monitoring reforms undertaken by ULBs.
- ii. Mandating  property  tax  reforms  such  as  notification  of  minimum floor rates, improvement in assessment systems, and ensuring yearon-year  growth  in  collections  linked  to  States'  average  5  years GSDP growth.
- iii. Introduction of the Municipal Shared Services Centre  (MSSC) scheme to strengthen municipal finance systems, shared services, and institutional capacity at scale.
- iv. Promoting municipal borrowing and bond financing through incentives  under  AMRUT  and  AMRUT  2.0,  including  support  for green bonds issuances.
- v. Incentivising user charges reforms for water supply and sewerage services to improve cost recovery and operational sustainability.
- vi. Large-scale capacity building of State and ULB officials on financial management, budgeting, data reporting, and grant compliance.

- Establishment of the CityFinance portal (https://www.cityfinance.in) as a national platform for publishing audited financial statements, standardising  ULB  financial  data,  and  enabling  transparency  and
- vii. benchmarking.
- viii. Linking all ULBs bank accounts to the Public Financial Management System  (PFMS)  for  real-time fund tracking and  improving  the timeliness of transfers.

These measures aim to improve own-source revenue mobilisation,  fiscal  transparency,  financial  discipline,  access  to market finance, and overall sustainability of ULB finances.

- (b) The Government is aware that a number of ULBs specially in tier-II and tier-III cities face financial stress due to limited own-source revenues, high dependence on grants, rising expenditure responsibilities, legacy liabilities,  and  weak  budgeting  and  financial  management  systems. Smaller  and  emerging  ULBs  are  relatively  more  dependent  on  intergovernmental transfers.

## To  address  these  challenges,  the  Government  has  adopted  a  reformoriented approach through:

- i.
- ii.
- iii.
- Performance-linked Finance Commission grants
- Property tax and user charge reforms
- Digital financial reporting and transparency mechanisms
- iv. Capacity building and institutional strengthening
- v. Support  for  municipal  budgeting,  shared  services,  and  long-term financial planning under Municipal Shared Services Centre (MSSC).

These interventions are designed to shift ULBs from grant dependency to a sustainable own source revenue generation.

- (c) In the context of the 15th Finance Commission, the grants are released to the States strictly in accordance with the conditions and procedures stipulated  in  the  operational  guidelines.  Funds  are  released  to  the States, for transferring to ULBs within the prescribed timelines through the  Public  Financial  Management  System  (PFMS).  Since  the  15th  FC framework  is  built  on  a  conditional,  reform-linked  and  State-routed mechanism,  the  question  of  direct  transfer  of  Central  funds  to  ULBs
- does not arise.

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