Labourers at the construction site of Bandra East skywalk in Mumbai on December 11, 2025. Photo: Sankhadeep BanerjeeThe 16th Finance Commission (FC) has provided a boost to urban local governments, shows its latest report tabled in Parliament on February 1.The FC is a Constitutional body that provides recommendations about how India’s Centre and state governments should divide tax revenues. It is reconstituted every five years and provides a fresh set of recommendations. Since the 10th FC, which was the first one after India adopted a third tier of government — urban local bodies and the rural panchayats — each FC has provided grants to these government structures.The latest FC, the 16th, has sharply increased the proportion of grants for urban local governments to 45% from the previous FC’s 36% allotment and the 13th FC’s 26% allotment. In absolute numbers, the 16th FC recommends Rs 3.56 lakh crore in grants to urban local bodies — over two times more than 15th FC’s Rs 1.55-lakh crore grant and a 15-fold rise over the 13th FC’s grant. The 16th FC has sharply increased the proportion of grants for urban local governments.The 13th FC is relevant because it came immediately after the last Census in 2011. These shares are important because they determine how much money is available with the lowest tier of government to solve problems at the grassroots level.A significantly higher share for urban bodies versus the rural bodies is in recognition of the projected urbanisation level of 41% as of 2031. Simply put, with each passing decade, more and more of India is living in its cities.To be sure, urbanisation in India often suffers from the lack of good quality data. To begin with, there is little clarity about the rate of urbanisation in India. According to the last Census in 2011, 31% of the population was living in urban areas. This is much lower than global peers such as China (45%), Indonesia (54%) and Brazil (87%).Als read | Dear Editor, I Disagree | Finance Commission’s balancing act is misleadingStory continues below this adUrbanisation estimates in India have also varied quite substantially. A 2015 World Bank report said 54% of Indians were living in cities and another 24% were living in “urban clusters”, taking the total to 78%. None of these numbers still capture the rapid changes in migration that are taking place each year.Lack of credible numbers hold back policy initiatives. The worst affected are urban local bodies. The recommendations for an increased share by the 16th FC are likely to address some of the financial gaps in urban governance.Srikanth Viswanathan, the Chief Executive Officer of Janaagraha, a think-tank that focuses on urban governance, believes that an increased share for urban local bodies would essentially mean that they are likely to be hit far less when the Census 2027 data comes along. In other words, if that data pegs urbanisation at 48%, for example, then the 16th FC recommendations would have ensured that urban governments are not too far behind. Contrast the latest recommendation of 45% share to the 36% in the last FC or even the 26% in the FC that aligned with the last Census. The grant will be distributed based on the 16th FC’s population-based distribution formula. So, there is a large variation in the way grant amounts have gone up or down for different states.The increased allocation has not been distributed equally. The grant will be distributed based on the 16th FC’s population-based distribution formula. Accordingly, there is a large variation in the way grant amounts have gone up or down for different states. Some of the biggest gainers and losers (in percentage terms) are listed alongside. For instance, Kerala’s grants have grown by over 400% and Maharashtra’s by over 300% while Odisha’s have grown by just 13% and Bihar’s has been cut by 8%.Udit Misra is Senior Associate Editor at The Indian Express. Misra has reported on the Indian economy and policy landscape for the past two decades. He holds a Master’s degree in Economics from the Delhi School of Economics and is a Chevening South Asia Journalism Fellow from the University of Westminster. Misra is known for explanatory journalism and is a trusted voice among readers not just for simplifying complex economic concepts but also making sense of economic news both in India and abroad. Professional Focus He writes three regular columns for the publication. ExplainSpeaking: A weekly explanatory column that answers the most important questions surrounding the economic and policy developments. GDP (Graphs, Data, Perspectives): Another weekly column that uses interesting charts and data to provide perspective on an issue dominating the news during the week. Book, Line & Thinker: A fortnightly column that for reviewing books, both new and old. Recent Notable Articles (Late 2025) His recent work focuses heavily on the weakening Indian Rupee, the global impact of U.S. economic policy under Donald Trump, and long-term domestic growth projections: Currency and Macroeconomics: "GDP: Anatomy of rupee weakness against the dollar" (Dec 19, 2025) — Investigating why the Rupee remains weak despite India's status as a fast-growing economy. "GDP: Amid the rupee's fall, how investors are shunning the Indian economy" (Dec 5, 2025). "Nobel Prize in Economic Sciences 2025: How the winners explained economic growth" (Oct 13, 2025). Global Geopolitics and Trade: "Has the US already lost to China? Trump's policies and the shifting global order" (Dec 8, 2025). "The Great Sanctions Hack: Why economic sanctions don't work the way we expect" (Nov 23, 2025) — Based on former RBI Governor Urjit Patel's new book. "ExplainSpeaking: How Trump's tariffs have run into an affordability crisis" (Nov 20, 2025). Domestic Policy and Data: "GDP: New labour codes and opportunity for India's weakest states" (Nov 28, 2025). "ExplainSpeaking | Piyush Goyal says India will be a $30 trillion economy in 25 years: Decoding the projections" (Oct 30, 2025) — A critical look at the feasibility of high-growth targets. "GDP: Examining latest GST collections, and where different states stand" (Nov 7, 2025). International Economic Comparisons: "GDP: What ails Germany, world's third-largest economy, and how it could grow" (Nov 14, 2025). "On the loss of Europe's competitive edge" (Oct 17, 2025). Signature Style Udit Misra is known his calm, data-driven, explanation-first economics journalism. He avoids ideological posturing, and writes with the aim of raising the standard of public discourse by providing readers with clarity and understanding of the ground realities. You can follow him on X (formerly Twitter) at @ieuditmisra ... Read More © The Indian Express Pvt LtdTags:Express Explained