**Executive Summary**
This document addresses a parliamentary question regarding the allocation of funds under urban development schemes, specifically whether funds are directed to parastatal agencies instead of elected Urban Local Bodies (ULBs). It clarifies the roles of the Central Government, State Governments/Union Territories (UTs), and ULBs in urban development and fund allocation under various missions such as AMRUT 2.0 and SBM-U. The document highlights the importance of devolving functions, funds, and functionaries (3Fs) to ULBs, while also mentioning reforms initiated to strengthen their capacities. The question was scheduled to be answered on December 4, 2025.
**Key Points / Main Content**
* **Fund Allocation and Implementation:**
* Urban development falls under the purview of States/ULBs (Article 243W of the Constitution).
* The Ministry of Housing and Urban Affairs (MoHUA) provides programmatic support to States/UTs through flagship missions.
* The Central Government approves State Plans and provides Central Assistance (CA) to the States.
* States/UTs and cities select, design, approve, and execute projects.
* State Governments release funds to cities/districts.
* **AMRUT 2.0 (Atal Mission for Rejuvenation & Urban Transformation 2.0):**
* States/UTs are empowered to select, appraise, propose, and implement projects.
* Projects are planned, tendered, awarded, and implemented by ULBs based on the approved State Water Action Plan (SWAP).
* Parastatal agencies implement projects where ULBs lack capacity.
* The central share of funds is allocated/released/sanctioned to States/UTs, which further disburse the funds to the ULBs/parastatal agencies.
* **SBM-U (Swachh Bharat Mission - Urban):**
* Sanitation is a State subject with power devolved to ULBs for water and sanitation services.
* States/ULBs are responsible for planning, designing, executing, and operating sanitation projects.
* Central share of funds is released to States/UTs based on demand and approved proposals, which are then transmitted to ULBs.
* **Devolution of Power and Responsibilities:**
* Article 243W empowers state legislatures to endow Municipalities with powers and authority.
* The primary responsibility to make adequate provision for devolution of the 3Fs (Functions, Funds and Functionaries) to the ULBs rests with State Governments.
* MoHUA initiated reform-linked funding under flagship missions like AMRUT, mandating 11 reforms.
* **Reforms for ULB Capacity Building:**
* Reforms focus on E-Governance, Constitution & Professionalization of Municipal Cadre, Augmenting double entry accounting, Urban Planning and City level plans, Devolution of funds.
* Emphasis on setting up Financial Intermediaries at State Level, Credit Rating of the ULBs, Municipal Tax and Fees improvement, Energy and Water Audit and SBM.
* AMRUT 2.0 attaches mandatory reforms on property tax and user charges and incentive-based reforms on water conservation.
* The Fifteenth Finance Commission (XV FC) underscored the need to strengthen the fiscal and institutional capacities of ULBs.
* MoHUA and the Department of Expenditure (DoE) have undertaken reforms improving financial management systems and governance frameworks of ULBs, including property tax reforms, fiscal transparency, fund flow and PFMS integration.
* The presence of duly elected ULBs has been made a pre-condition for receipt of XV FC grants.
* States were advised to constitute and operationalize State Finance Commission (SFCs).
**Impact Analysis**
**Stakeholder: State Governments/Union Territories (UTs)**
* **Impact:** Responsible for planning, designing, approving, and executing urban development projects. They receive central assistance and disburse funds to ULBs or parastatal agencies. They need to ensure devolution of powers and responsibilities to ULBs as per constitutional provisions.
* **Action Required:** Develop and implement State Plans, ensure ULBs have adequate capacity, and comply with MoHUA's reform mandates.
**Stakeholder: Urban Local Bodies (ULBs)**
* **Impact:** Expected to plan, tender, award, and implement projects, especially under AMRUT 2.0. Their fiscal and institutional capacities need to be strengthened, and they need to implement reforms. They are also expected to receive devolution of functions, funds, and functionaries (3Fs).
* **Action Required:** Enhance capacity, implement reforms, ensure presence of duly elected bodies, and ensure proper utilization of funds.
**Stakeholder: Central Government (MoHUA)**
* **Impact:** Provides programmatic support, approves state plans, and releases central assistance. It also monitors the implementation of schemes and encourages reforms.
* **Action Required:** Continue providing support and monitoring, and ensuring compliance with constitutional provisions and reform mandates.
Key Entities Referenced
Ministry of Housing and Urban Affairs (MoHUA): The central ministry providing programmatic support for urban development to States/Union Territories through various flagship Missions/Programmes.
Urban Local Bodies (ULBs): Elected municipal bodies intended to receive financial and administrative control over urban development functions.
74th Constitutional Amendment: Constitutional amendment aimed at devolving urban development functions to elected municipal bodies.
Atal Mission for Rejuvenation & Urban Transformation 2.0 (AMRUT 2.0): Flagship Mission/Programme of the Ministry of Housing and Urban Affairs (MoHUA), focuses on urban infrastructure development.
Swachh Bharat Mission – Urban 2.0 (SBM – U 2.0): Flagship Mission/Programme of the Ministry of Housing and Urban Affairs (MoHUA), focusing on sanitation in urban areas.
GOVERNMENT OF INDIA
MINISTRY OF HOUSING AND URBAN AFFAIRS
LOK SABHA
UNSTARRED QUESTION NO. 798
TO BE ANSWERED ON DECEMBER 04, 2025
ALLOCATION OF FUNDS UNDER URBAN DEVELOPMENT SCHEMES
NO. 798. SHRI RADHAKRISHNA:
Will the Minister of HOUSING AND URBAN AFFAIRS be pleased to state:
(a) whether the Government has assessed the extent to which allocations under
various urban development schemes, such as AMRUT, Smart Cities Mission
(SCM) and Swachh Bharat Mission - Urban (SBM-U) are being directed to
parastatal agencies instead of elected Urban Local Bodies (ULB);
(b) if so, the details of such allocations during each of the last five years,
scheme and State/UT-wise;
(c) whether the Government has examined the impact of this practice on local
self-governance, accountability and participatory urban planning and if so,
the details thereof; and
(d) the measures proposed to ensure that elected municipal bodies retain
financial and administrative control over urban development functions as
envisaged under the 74th Constitutional Amendment?
ANSWER
THE MINISTER OF STATE IN THE
MINISTRY OF HOUSING AND URBAN AFFAIRS
(SHRI TOKHAN SAHU)
(a) to (c): As per the provisions of Article 243W of the Constitution, in
conjunction with the Seventh and Twelfth Schedules, matters relating to
urban development fall within the purview of States/Urban Local Bodies
(ULBs). However, Ministry of Housing and Urban Affairs (MoHUA) provides
programmatic support to the States/Union Territories (UTs) in their urban
development agenda through its various flagship Missions/Programmes viz.
Atal Mission for Rejuvenation & Urban Transformation 2.0 (AMRUT 2.0),
Pradhan Mantri Awas Yojana – Urban 2.0 (PMAY-U 2.0), Swachh Bharat
Mission – Urban 2.0 (SBM – U 2.0), Smart Cities Mission (SCM), etc.
…2/--2-
Through these Missions/Schemes, the Central Government approves the
State Plans and provides the Central Assistance (CA) to the States. The
projects are selected, designed, approved and executed by the States/UTs
and the cities. The State Governments release funds to the cities/districts.
AMRUT 2.0: Under AMRUT 2.0 Mission, States/UTs are empowered to select
appraise, propose and implement projects. As per AMRUT 2.0 guideline, the
projects as per approved State Water Action Plan (SWAP) are planned,
tendered, awarded and implemented by ULBs. Where ULBs do not have
adequate capacity, specialized parastatal agencies implement the projects.
Further, under AMRUT 2.0, central share of funds is
allocated/released/sanctioned to States/ UTs and not to the parastatal
agencies/ city/ ULB. States/ UTs further disburse the funds to
the ULBs/ parastatal agencies.
SBM-U: Sanitation is a State subject under 7th schedule of the constitution
and by the 74th amendment of the Constitution of India the devolution of
power has been made to the ULBs for water and sanitation services. It is the
responsibility of State/ULBs to plan, design, execute and operate sanitation
projects in the urban areas of the country. Under SBM-U, Central Share of
funds are released to the States/UTs on the basis of demand made by
States/UTs in the form of complete proposals duly approved by State Level
Technical Committee (SLTC) which are further transmitted to ULBs by the
concerned State/UT as per the State Action Plan.
(d) Article 243W of Part-IXA of the Constitution empowers state legislatures
to endow the Municipalities with such powers and authority as may be
necessary to enable them to function as institutions of self-government. This
law may contain provision for the devolution of powers and responsibilities
upon Municipalities, subject to such conditions as may be prescribed
therein, which, inter alia, includes (i) preparation of plans for economic
development and social justice; and (ii) the performance of functions and
the implementation of schemes as may be entrusted to them including those
in relation to the matters listed in the Twelfth schedule. It is, therefore, the
primary responsibility of the State Government to make adequate provision
for devolution of the 3Fs (Functions, Funds and Functionaries) to the ULBs.
However, MoHUA initiated reform-linked funding under flagship missions like
AMRUT. The Mission mandated a set of 11 Reforms such as E- Governance,
Constitution & Professionalization of Municipal Cadre, Augmenting double
entry accounting, Urban Planning and City level plans, Devolution of funds &
…3/--3-
Functions, Review of Building Bye-Laws, Setting up Financial Intermediaries
at State Level, Credit Rating of the ULBs, Municipal Tax and Fees
improvement and improvement in levy and collection of user charges,
Energy and Water Audit and SBM. AMRUT 2.0 Mission has also attached
mandatory reforms on property tax and user charges and incentive-based
reforms on water conservation, urban governance and energy efficiency.
The Fifteenth Finance Commission (XV FC) had also, in its
recommendations, underscored the need to strengthen the fiscal and
institutional capacities of ULBs with a view to enhancing service delivery,
accountability and transparency in urban governance. In pursuance of these
recommendations, MoHUA, in coordination with the Department of
Expenditure (DoE), has undertaken a series of reforms aimed at improving
the financial management systems and governance frameworks of ULBs
across the country. These reforms include property tax reforms, fiscal
transparency and accountability, fund flow and PFMS integration,
Governance and Institutional Strengthening, digital governance and data
systems, performance-based reforms for Million-plus cities and Capacity
Building and Institutional support. The presence of duly elected ULBs has
been made a per-condition for receipt of XV FC grants. States were also
advised to constitute and operationalize State Finance Commission (SFCs)
as per prescribed timelines.
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