16th Finance Commission Proposes Major Funding for Urban Infrastructure and Wastewater Management
The 16th Finance Commission has put forward a comprehensive recommendation for substantial financial support aimed at transforming India's urban landscape. In its report tabled in Parliament on Sunday, the commission has proposed a total grant of ₹66,100 crore specifically dedicated to accelerating urbanisation and addressing critical infrastructure gaps in cities across the country.
Focus on Drainage System Revamp and Wastewater Projects
The commission's report highlights an urgent need for the revamp of drainage systems in Indian cities. While acknowledging that large metropolitan areas may have the capacity to raise their own fiscal resources for such purposes, the report emphasizes that smaller cities often lack this capability. To address this disparity, the commission has recommended providing fiscal resources on a cost-sharing basis specifically for middle-level municipalities.
As part of this initiative, the Finance Commission has proposed a Special Infrastructure Component of ₹56,100 crore exclusively for wastewater management projects in selected cities. A total of 22 cities have been identified as eligible for this funding, including:
- Pune
- Jaipur
- Lucknow
- Kanpur
- Nagpur
- Patna
- Rajkot
- Amritsar
- Madurai
- Howrah
Indore's Wastewater Management Model Cited as Success Story
The report specifically points to Indore's wastewater management system as a successful model worth emulating. According to the commission's findings, Indore achieved efficient liquid waste management through comprehensive interception of household and grey water sewage outfalls into rivers and stormwater drains, coupled with the establishment of a robust sewerage network. This transformation contributed to the city ranking number one in the Swachh Survekshan for seven consecutive years.
However, the report acknowledges recent challenges in Indore, noting that the city has experienced a spate of deaths among residents who consumed contaminated water in the past month, underscoring the ongoing importance of water quality management even in cities with established systems.
Addressing Slow Pace of Urbanisation Through Financial Incentives
The Finance Commission has expressed concern about the unusually long delays in conferring statutory urban status on areas that exhibit all urban characteristics. According to the report, India's urbanisation process remains constrained by the slow and ad-hoc conversion of census towns into statutory towns and the hesitant merger of peri-urban areas into nearby urban local bodies.
These areas continue to be governed by rural local bodies that are often ill-equipped to manage the burgeoning demands of an urbanising population. To incentivize the transition from rural to urban governance structures, the commission has recommended a ₹10,000 crore urbanisation premium.
The report specifically advocates for the incorporation of peri-urban areas—rural regions that have acquired substantial urban features—into adjacent municipal bodies to ensure more effective governance and service delivery.
Comprehensive Financial Allocation for Urban Local Bodies
Looking at the broader financial picture, the 16th Finance Commission has recommended a total allocation of ₹3,56,257 crore for urban local bodies covering the period from 2026-2027 to 2030-2031. This substantial funding package breaks down into several key components:
- Basic Grant: ₹2,32,125 crore
- ULB Performance Component: ₹29,016 crore
- Special Infrastructure Component: ₹56,100 crore (for wastewater projects)
- Urbanisation Premium: ₹10,000 crore
The commission's recommendations represent a significant step toward addressing India's urban infrastructure challenges while simultaneously accelerating the country's urbanisation process through targeted financial interventions and policy incentives.
