The XVI Finance Commission submitted its report for the period 2026–2031 in November 2025, which was accepted by the GOI and tabled with the Explanatory Memorandum as to the Action Taken on the Recommendations Made by the Sixteenth Finance Commission in February 2026. The XVI Finance Commission has provided a substantial increase of 230% in allocations compared to XV Finance Commission to urban local governments by adopting the rightly projected share of urban population of 40.73% by 2031, which actually increases to 45% of the total allocation to local bodies due to two special grants: Planned rural–urban transition and Special infrastructure grants for Westwater treatment in 22 cities; mandating state transfers to ULG at least at the rate of 20% of FC grants; restoring primacy of untied grants (60% of total) with greater autonomy to ULGs to spend funds on needs identified by themselves, thus giving impetus to financial decentralisation and incentivizing systematic rural-urban transition. Besides these, there are other welcoming measures for improving financial sustainability, accountability, transparency and service delivery performance of ULGs, thus firmly putting India’s Urban Future and Urban Local Governments in the forefront. This article takes stock of the XVI Finance Commission’s approach towards the local governments, urban-rural relationship and transitions, issues it tried to address through recommendations about quantum and types of allocations, conditionalities, and, finally, what it may have missed out.


Dr Ravikant Joshi, Senior Fellow, Urban Finance & Governance, at the Centre for Public Policy Research (CPPR), Kochi, Kerala, India.


Views expressed by the authors are personal and need not reflect or represent the views of the Centre for Public Policy Research.


 

Senior Fellow (Urban Finance & Governance) at  | [email protected] |  + posts

Dr. Ravikant Joshi is an Urban Finance specialist with over 35 years of experience, including as Chief Accounts Officer of Vadodara Municipal Corporation. He led key municipal financial reforms, including implementing accrual-based accounting across 159 urban bodies in Gujarat, and has worked with major national and international organisations while contributing to urban issues and public awareness.

Dr Ravikant Joshi
Dr Ravikant Joshi
Dr. Ravikant Joshi is an Urban Finance specialist with over 35 years of experience, including as Chief Accounts Officer of Vadodara Municipal Corporation. He led key municipal financial reforms, including implementing accrual-based accounting across 159 urban bodies in Gujarat, and has worked with major national and international organisations while contributing to urban issues and public awareness.

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