4 min readMar 5, 2026 06:12 AM IST First published on: Mar 5, 2026 at 06:12 AM ISTUnion Finance Commissions may be quietly liberating India’s cities. Quietly, because the Budget overshadows the work of the Commission which paints on a far larger canvas comprising all tax revenues of the Union government. Its recommendations are in force for five years and impact all states and local governments. Yet, its work comes into public discourse only when there are political rumblings from Opposition states.The 16th FC has liberated cities in two ways. India’s cities have, for the longest time relied on schemes of the Union and state governments, which are unpredictable in quantum and timing, and available only for specific purposes like water or sanitation. State Finance Commission (SFC) grants enable urban local governments (ULGs) to pay for staff salaries and other operational expenses, and Union Finance Commission (UFC) grants serve as the only predictable source of funding for infrastructure.AdvertisementFrom 2014-15 to 2025-26, total allocations to (states and) ULGs through urban centrally sponsored schemes administered through the Ministry of Housing and Urban Affairs was Rs 3.12 lakh crore. Ninety per cent of this outlay was from 2016-17 to 2023-24, when the CSS allocation in seven out of the eight years was higher than the FC allocation by anywhere between 15 and 400 per cent. During the last two years, CSS for cities have fallen significantly; FC allocations have therefore been higher. The 16th FC has raised their grants so as to make ULGs less dependent on CSS grants. Their allocation is 2.3 times of what 15th FC allocated.It is highly unlikely that the Centre is able or willing to match this scale of funding in the next five years. It appears to be dialing back on its commitment to urban infrastructure. Budget speeches wax eloquent on urban future, but money is not put where the mouth is. MoHUA’s budget has fallen close to 1 per cent of the Union budget from a high of 1.9 per cent during 2017-19. This is understandable because local governments are a state subject, and in a fiscally constrained environment the Centre is compelled to prioritise subjects exclusively in the Union domain.The 16th FC has retained the 15th FC’s entry conditions for even basic grants. One such condition is that SFCs be constituted on time and their Action Taken Reports be tabled in state legislatures within six months of their reports. ULG rely on their grants to a great degree. Across Tamil Nadu, Kerala, Uttar Pradesh, Haryana and Karnataka, SFC grants were three to four times of UFC grants on a per capita basis. States, however, do not constitute them on time or with credible and independent leadership, nor do they staff them adequately, or give them reasonable tenure. There is also a low acceptance rate of critical recommendations. The 15th FC mandated proper constitution and accountability for considering recommendations of SFCs in state legislatures. That has resulted in a rejuvenation of the institution. While there is a long way to go in reforming SFCs, the 16th FC’s signal of continuity on this front is unequivocal.AdvertisementThe liberation of India’s ULGs from the clutches of government’s discretion and dependence is key to realising the vision of Viksit Bharat. No country in the modern world has achieved high economic growth, large-scale poverty alleviation, and liveability without empowered ULGs governing their cities.The writer is CEO, Janaagraha