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Accepting the increasing role of the urban local bodies (ULBs) in India, many studies point out to the low performance and infancy of the ULBs in regard to fiscal solvency. This is largely attributed to the state policies and ad-hoc transfer mechanism. Using the dataset (1998/99 t0 2007/08) of the Twelfth and Thirteenth Finance Commission the present paper attempts to understand the underlying reason for such ill performance. The paper shows that the problem is even greater as many of the top states could not even keep pace with the rising demand for expenditure provisions at par with urbanization. Using five suitable measures the paper further tries to gauge the reason for this growing dependence on transfers and rising disparity in municipal finances for 17 major states in India and questions the fundamental role the state plays.

Growing Dependence on Transfers and Rising Disparity in Municipal Finances in India: Evidence from Thirteenth Finance Commission