Explained: This article explains the political background, key decisions, and possible outcomes related to Explained : The Great Indian Trade-Off: How India’s Local Body Politics Betray the City and Its Impact and why it matters right now.
For some time now, local body elections have had precious little to do with urban governance. Instead, they serve as proxies for much larger political battles fought at the state level, with the consequences for those who won them the battle being much the same regardless of the winner.
On January 15, over 50 lakh Mumbai residents cast their vote in the Brihanmumbai Municipal Corporation (BMC) elections. The contest, framed as a ‘turf war’ between the Shiv Sena (Uddhav Balasaheb Thackeray) (Shiv Sena (UBT)) and its offshoot which now carries the name of the original undivided Shiv Sena and is an ally of the Bharatiya Janata Party (BJP), ultimately ended the Thackeray family’s 25-year dominance over one of Asia’s richest local bodies. Optimistic onlookers might hope that this change in political dynasty would signal some shift in the way Mumbai is governed. But this change is an illusion.
For some time now, local body elections have had precious little to do with urban governance. Instead, they serve as proxies for much larger political battles fought at the state level, with the consequences for those who won them the battle being much the same regardless of the winner. Structurally, the well was poisoned from the start.
In what may be termed the great Indian trade off, the institutions meant to ostensibly govern the city instead serve as glorified trust funds, while their trustees and their interests remain rooted firmly elsewhere. This has profound implications for urban governance – it means that Indian cities and their local bodies are never truly in control of their own fate, and proposals to bolster these critical institutions are immediately viewed with suspicion as threatening to destabilise the entire political ecosystem. The result is a dysfunctional governance structure that is cracking beneath the politics it is forced to subsidize. How did we get here, and why does this system persist?
A travesty of governance
If you ask the average city dweller why their municipal corporation is unable to provide them with reliable amenities, they would probably respond with a lament about entrenched corruption and bad faith actors. But as convenient and compelling as this explanation is, it is unfortunately insufficient to understand the scope of our governance failures.
While some degree of extortion and embezzlement unquestionably exists, the weaknesses of urban governance are difficult to trace to specific individuals (otherwise, there would be more examples of cities being governed effectively), and are better explained structurally. This is an unfortunate fact, for while individuals may be easily replaced by voters, systems are far harder to fix.
The more accurate (and perhaps more boring) answer for voters is that everyday frustrations such as running out of water or having your lights wink out for four hours a day, are better attributed to misaligned incentives and institutional weakness. Under our current system, governing an Indian city is like trying to pilot a ship according to a plan made by a higher official, with both hands tied behind your back, with a crew that doesn’t follow your orders while the ship is falling apart around you. While any singular constraint may have been overcome through strong and competent leadership, when multiple constraints converge it creates a situation where individual competence barely matters, undermining the democratic covenant that links better leaders to better outcomes.
Those hoping for a Zohran Mamdani to come and transform an Indian city may be surprised to learn that even if he were to occupy Bangalore’s mayoral seat tomorrow (which has remained vacant for over five years), he would be hard-pressed to do anything when he lacks autonomy, fiscal power, and control over vital government agencies. While he may have been able to promise free buses to New Yorkers, in India those same promises are made at the state-level, with city mayors left holding the bag.
Indeed, while the soon-to-be-chosen mayor of BMC will nominally oversee a budget greater than that of some Indian states put together (over 70,000 crore, compared to Goa’s 28,000 crore and Sikkim’s 16,000 crore), in practice the real executive power is vested in the municipal commissioner appointed by the Maharashtra government, ensuring that the city’s interests never diverge substantially from that of the state. Even if this were to change, the fact would still remain that the budget being drafted is not truly the city’s own, as it draws most of its income from cash transfers granted by the state and is unable to set its own tax policy.
Most avenues of own-source revenue, such as Octroi, development charges, or service charges, have been either moved upwards to state governments, outsourced to parastatal agencies, or axed altogether. It all adds up to a sobering statistic – while urban India generates over 60% of the national Gross Domestic Product (GDP), its municipalities control less than 1 percent of the total tax revenue. For contrast, our neighbour China spends over 80% of its total expenditure at the local government level.
A system working as intended
The operational reality of the 73rd and 74th amendment, both passed in the same session of Parliament to institutionalise decentralised governance, then closely tracks the names of the different institutions they supported. The term ‘Panchayati Raj’ literally translates to ‘Rule of the Panchayats’ and is in many ways true, as India’s panchayats wield real power within their jurisdictions. ‘Urban Local Body’ meanwhile suggests devolution without real power, which has been the fate of these institutions since the beginning, with many of their core functions being outsourced to unelected bureaucrats or parastatal agencies that continue to report to the state government.
This asymmetric devolution of power is not a flaw, but rather the system working exactly as designed. Understanding this divergence requires examining many core pillars of Indian social structure and politics.
As Mahatma Gandhi once put it, India lives in the village. Cities may be engines of economic growth, but they are home to itinerant populations and not the foundations from which political legitimacy flows. For most of history, cities were thus not seen as sites of substantive citizenship, but rather administrative challenges to be managed. Over time, this has resulted in a unique relationship where the city’s resources flow upward, while power and legitimacy is channelled downward. Meanwhile, as cities continue to grow in population and resources, a new problem arises. Solving its growing governance challenges would require greater devolution of powers to Urban Local Bodies (ULB)’s, but given the size and density of India’s top cities, this would immediately risk creating a parallel power centre to the state government.
For example, Bangalore contributes over half of Karnataka’s GDP. A mayor of its ULB who had real executive power might govern the city better, but their very existence would immediately threaten and diminish the position of Karnataka’s state-level leadership, whose interests and political constituencies would be in conflict. In India’s party system, where rank and discipline are paramount, this is an unacceptable compromise. Poor service delivery is then deemed acceptable. The city suffers so the state can run: thus begins the Great Indian Trade-Off.
The great Indian trade-off
Once the trade-off is set in motion, it lays the foundation for a new kind of politics, and the future becomes path dependent. On top of the great Indian trade-off is built a whole new framework of redistributive politics, much of which functions as a great electoral incentive. Consider the Bangalore case. If Bangalore’s governing structure was permitted to keep or control a greater share of the taxes it generates, it would come at a great cost to the state exchequer. That cost has to be cut from somewhere, and the state government’s greatest discretionary expenditure is welfare.
Many existing welfare schemes across parties and governments suddenly look a whole lot more challenging to envision and implement if cities controlled their own revenue. In other words: India’s redistributive politics is built on the foundation of disempowered cities. An urban migrant in the informal economy whose neighbourhood lacks civic amenities but receives a cash transfer from the state government isn’t being failed by one institution and served by another. Rather, they are two sides of the same dysfunctional coin.
Empowering cities to take charge of their own governance would likely still prove better in the long run. While it will unquestionably shock the system, Indian democracy is remarkably resilient and adaptive. Cities that govern better would be able to provide their residents with stable housing and amenities, reducing the dependence on external cash transfers. Meanwhile for those outside them, the increase in tax revenue that would no doubt follow cities that were no longer stymied by poor services and crumbling infrastructure would eventually grow to compensate for the reduced share of the total wealth flowing outwards.
This is supported by global examples, such as China’s rapid growth under Deng Xiaoping’s fiscal centralization agenda, or the numerous cases of strong city governments anchoring their respective states in the West. Nonetheless, these are long-term consequences that would require decades to fully manifest, while democracy waits only for the next election cycle.
How long must cities pay this democracy tax? Given the path dependent nature of the system, radical sweeping changes seem unlikely. A glacial rate of change that follows the gradual increase in the political and electoral significance of cities is more probable. Unfortunately for the Indian city-dweller, the calculus of interests that stand to gain versus lose from better ULB governance seems to be weighted firmly against cities for the foreseeable future. Until then, we all play our part in the great Indian trade-off.
The author is a consultant and development practitioner. Views are personal.
This article went live on February fifth, two thousand twenty six, at forty-nine minutes past three in the afternoon.
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