City Finance Rankings Challenge (2021): Strengthening Municipal Financial Management in India

Policy Update
Divya Natarajan

Background

The City Finance Rankings is a Ministry of Housing and Urban Affairs (MoHUA) initiative that evaluates, recognises, and rewards India’s Urban Local Bodies (ULBs) on the quality of their financial health and their improvement in financial performance over time. A note on the title year is warranted here, since the verifiable record does not fully support the “2021” attribution: the idea is traced by MoHUA’s own framework document to the National Conference of Chief Secretaries held at Dharamshala, Himachal Pradesh, in June 2022, where the Prime Minister observed that healthy competition among ULBs could encourage them to improve their finances (MoHUA, 2022a). Following this, the Union Minister for Housing and Urban Affairs, Hardeep Singh Puri, formally launched the City Finance Rankings 2022 framework and guidelines on December 28, 2022, alongside a separate City Beauty Competition (PIB, 2022). This article follows MoHUA’s own primary framework document, which dates the originating conference to June 2022, rather than the 2021 reference in some secondary reporting.

The initiative builds on an earlier piece of infrastructure: in May 2020, MoHUA had already launched www.cityfinance.in as India’s national municipal finance data portal, intended to provide standardised, timely, and credible financial information on India’s cities and to facilitate benchmarking, comparison, and peer learning among ULBs (PIB, 2022). The City Finance Rankings was designed as the evaluative layer built on top of this existing data infrastructure.

The problem the initiative was designed to address is a long-standing and well-documented one: India’s municipal finances are chronically weak relative to the scale of urban governance responsibility ULBs carry. At the time of launch, MoHUA itself noted that municipal revenues in India stood at less than 1 percent of GDP, with ULBs heavily dependent on inter-governmental transfers and own revenues accounting for less than half of total ULB revenue (PIB, 2022). The 74th Constitutional Amendment had established ULBs as a third tier of government and listed 18 functions for them under the Twelfth Schedule, but did not correspondingly create a dedicated, independent revenue base for municipalities, leaving their financial position largely determined by discretionary transfers from state governments, a structural gap later confirmed in detail by the Comptroller and Auditor General’s own audit of ULBs (CAG, 2024), discussed further under Performance.

Functioning

Under the City Finance Rankings 2022 framework, participating ULBs are evaluated on 15 indicators and metrics grouped into three key municipal finance assessment parameters: Resource Mobilization, Expenditure Performance, and Fiscal Governance (MoHUA, 2022a). Participation was open to all 4,500-plus cities and ULBs across India’s states and Union Territories, though it was encouraged rather than made mandatory (PIB, 2022).

Table 1: City Finance Rankings 2022 Assessment Structure

Source: Ministry of Housing and Urban Affairs, City Finance Rankings 2022 Framework and Guidelines (MoHUA, 2022a).

Cities are not ranked against every other city in India on a single list. Instead, they are grouped into one of four population categories before ranking, above 4 million, between 1 and 4 million, 100,000 to 1 million, and less than 100,000 —  so that a small municipality is compared only against similarly sized peers rather than against a metropolitan corporation with an entirely different fiscal base and administrative capacity. The top three cities in each population category are meant to be recognised and rewarded both at the national level and within their respective state or state cluster (PIB, 2022).

Table 2: City Finance Rankings 2022 Population Categories and Recognition Structure

Source: Press Information Bureau, Ministry of Housing and Urban Affairs (PIB, 2022).

Procedurally, the entire exercise was designed to run end-to-end in a paperless format through the cityfinance.in platform, from data submission to evaluation. MoHUA states that the online ranking module went live on March 20, 2023, roughly three months after the underlying policy and guidelines were formally launched in December 2022, and that participating ULBs had until May 31, 2023, to submit their financial data and supporting documentation (MoHUA, 2022b). This three-month gap between policy announcement and an operational submission portal is comparatively short by the standards of other schemes this series has examined. However, it still means ULBs had roughly five months in total, from portal launch to deadline, to gather and submit 15 indicators’ worth of financial data, a meaningfully tight window for smaller ULBs with limited financial reporting staff, a constraint revisited under Emerging Issues.

Performance

Assessing the City Finance Rankings’ performance runs into a basic transparency problem straightaway: despite an extensive search of MoHUA communications and the cityfinance.in platform’s own public materials, no evidence could be found of a final, published list of winning cities or a completed rankings report for the City Finance Rankings 2022 cycle, even though the portal went live in March 2023 with a submission deadline of May 31, 2023. Since the entire purpose of a ranking exercise is to produce and publish a ranking, this absence is itself the most important performance finding here, not a footnote to it, and it is discussed further under Emerging Issues.

In the absence of scheme-specific outcome data, the more reliable way to gauge performance is to look at the underlying municipal finance indicators the Rankings were designed to move, several of which have since been independently and authoritatively measured by the Comptroller and Auditor General (CAG) and the Reserve Bank of India (RBI).

The CAG released a compendium of performance audits on the implementation of the 74th Constitutional Amendment in November 2024, covering 393 Urban Local Self-Governments across 18 states, audits actually conducted between 2014 and 2021 (CAG, 2024; ThePrint, 2024). Separately, the RBI published its first-ever Report on Municipal Finances in November 2024, covering 232 municipal corporations for the period 2019-20 to 2023-24 (Business Standard, 2024; The Week, 2024).

Table 3: Key Indicators of Municipal Finance in India, from CAG and RBI Reports

Source: Comptroller and Auditor General of India, Compendium of Performance Audits on the 74th Constitutional Amendment (CAG, 2024); Reserve Bank of India, Report on Municipal Finances (RBI, 2024), as reported in Business Standard and The Week. Compiled by researcher.

Note: These figures come from the CAG’s and RBI’s own primary reports on municipal governance and finance, not from the City Finance Rankings exercise itself, since its own results were not publicly located. They are used here as the closest available authoritative proxy for whether the fiscal weaknesses the Rankings were meant to help address have shown measurable improvement. The consistency between two independent constitutional and regulatory bodies, ULB own revenue in the 30-40 percent range, municipal revenue receipts under 1 percent of GDP, suggests these are structural, durable problems rather than findings specific to a single study or year.

Read together, the table points to a fairly stable, low-revenue picture rather than a changing one: both the CAG and the RBI, auditing and reporting through entirely separate mandates, arrive at closely aligned findings on ULB fiscal weakness in the years during and after the Rankings’ launch. This does not prove the Rankings had zero effect, a ranking exercise’s influence is hard to isolate from dozens of other municipal finance factors moving at the same time, but it does mean there is no visible aggregate evidence of impact in the two most authoritative independent datasets available to weigh against the initiative’s own missing results.

Impact

Assessing the City Finance Rankings’ impact is necessarily more limited than assessing a scheme with published outcome data, precisely because of the transparency gap identified above. What can be assessed is the initiative’s plausible contribution through its two clearest mechanisms: the underlying cityfinance.in data infrastructure, and the incentive effect of a public ranking exercise, however incomplete its own public reporting may have been.

On the data infrastructure side, the impact appears genuine. Separately from the Rankings itself, cityfinance.in has played an operational role in administering 15th Finance Commission grants to municipalities across India for FY2021-2026, with the majority of eligible ULBs having used the platform to claim these grants in a paperless, transparent manner (MoHUA, 2022a). This suggests the data and digital infrastructure MoHUA built alongside the Rankings has had measurable administrative utility, independent of whether the ranking and reward component was ever completed and publicised.

On the incentive-effect side, the evidence is considerably weaker. A ranking exercise is designed to work through reputational incentive and healthy competition, cities improve their fiscal governance in part because they know their relative performance will be made public and compared against peers. If the rankings were never published, or were published without broad visibility, this core mechanism could not have operated as intended, regardless of how well-designed the underlying 15-indicator framework was.

More broadly, the structural weaknesses in Indian municipal finance that the Rankings were designed to help address, low own-source revenue and heavy dependence on discretionary rather than formula-based transfers, remain largely unresolved as of the most recent independent data available from both the CAG and the RBI (CAG, 2024; Business Standard, 2024). This does not mean the Rankings had no effect, but it does mean that whatever effect it had was not sufficient, on its own, to shift the aggregate national picture on municipal finance in a way that is visible in either the CAG’s or the RBI’s own post-launch data.

Emerging Issues

First, the absence of published results is the most significant issue specific to this initiative, and arguably undermines its core function. A ranking exercise that does not publish its rankings cannot generate the reputational incentive and peer-comparison effect it was designed around. Whether this reflects an unfinished rollout, a decision not to publicise results, or simply a gap in public communication, the practical effect on ULBs, and on India’s broader municipal governance reform community, is the same: the intended signal was not delivered in a publicly visible way that this research could locate.

Second, participation in the Rankings was voluntary and encouraged rather than mandatory, applied to a ULB sector where basic financial reporting capacity is itself uneven. The CAG’s own audit found significant budget variance across the states it examined, and it is reasonable to expect that the ULBs with the weakest financial management, precisely those the Rankings were meant to motivate toward reform, may also have been the least equipped to participate meaningfully in a 15-indicator, data-intensive ranking exercise (CAG, 2024; ThePrint, 2024).

Third, the structural constraints on municipal finance in India sit largely outside what a ranking exercise alone can address. Property tax, the single largest own-source revenue tool available to ULBs, remains under-tapped nationally, with property tax revenue amounting to just 0.12 percent of GDP nationally (rising to approximately 0.15 percent once smaller ULBs outside the RBI’s 232-corporation sample are included), and the RBI’s own report explicitly identifies underdeveloped own-source revenue streams, both tax and non-tax, as a defining weakness of Indian municipal corporations (Business Standard, 2024). A ranking and recognition exercise can highlight which cities perform comparatively well within this constrained environment, but it cannot by itself grant ULBs the taxation authority or state-level cooperation needed to close the underlying gap.

Fourth, India’s municipal bond market, one of the alternative financing tools the broader municipal finance reform agenda (including the City Finance Rankings) was meant to encourage cities toward, remains extremely shallow relative to India’s infrastructure needs. As of the end of FY2025-26, only 22 ULBs had raised a cumulative sum just over Rs 4,500 crore through 31 bond issuances since the market’s inception in 1997, a figure SEBI’s own Chairman has publicly acknowledged represents less than 1 percent of India’s total rupee bond sales (Business Standard, 2026). This reflects both weak underlying ULB creditworthiness and limited investor confidence in municipal-level fiscal discipline, the very qualities the Rankings framework was designed to assess and improve.

Finally, the weakening of elected local government itself complicates any assessment of ULB financial reform, since financial governance reforms depend partly on accountable, elected local leadership to be meaningfully implemented and sustained. Several states have postponed municipal elections for extended periods in recent years, including Tamil Nadu, which went without one for over a decade between 2011 and 2022 (Deccan Herald, 2026). Where ULBs are run by state-appointed administrators rather than elected representatives for extended periods, the political accountability mechanism that would normally reinforce a public financial ranking’s incentive effect is itself absent.

Way Forward

First, MoHUA should publish, or clarify the status of, the City Finance Rankings 2022 results as a matter of basic institutional accountability. If a final ranking was completed internally but not released, publishing it, even belatedly, would restore some of the reputational-incentive function the exercise was designed to create.

Second, future editions of the Rankings should include a built-in, time-bound publication commitment, for instance, a mandatory results announcement within a fixed number of months of the submission deadline, so the exercise’s credibility as a genuine competitive mechanism does not depend on discretionary follow-through.

Third, given the CAG’s finding that many ULBs already struggle with basic budget accuracy and financial reporting (CAG, 2024), participation support, potentially in the form of technical assistance or simplified reporting tiers for smaller and financially weaker ULBs, should be built into the Rankings framework, so that the exercise does not inadvertently exclude the ULBs most in need of the reform incentive it aims to create.

Fourth, the Rankings should be explicitly positioned as one component of a broader municipal finance reform agenda that includes state-level property tax reform, predictable and formula-based intergovernmental transfers, and expanded municipal bond market access, in line with the RBI’s own recommendation for state-level rule-based systems of compensation and transfer, including timely State Finance Commissions (Business Standard, 2024), rather than as a standalone solution.

Finally, MoHUA should consider integrating municipal election timeliness, or its absence, as contextual information alongside financial rankings, since a ULB’s capacity to implement and sustain financial reforms is difficult to evaluate independently of whether it currently has accountable, elected local leadership in place.

References

Press Information Bureau (PIB), Ministry of Housing and Urban Affairs, Government of India. (2022, December 28). Ministry of Housing and Urban Affairs launches 2 key initiatives to take India’s Urban Rejuvenation journey to the next level. https://www.pib.gov.in/PressReleasePage.aspx?PRID=1887067&reg=48&lang=2

Ministry of Housing and Urban Affairs, Government of India. (2022a). City Finance Rankings 2022: Final Guidelines and Ranking Framework. https://www.cityfinance.in/assets/images/homepage/spotlight/CFR-Framework.pdf

Ministry of Housing and Urban Affairs, Government of India. (2022b, March 20). ‘City Finance Rankings, 2022’ portal goes live, MoHUA invites Urban Local Bodies to participate in the first of its kind initiative. Press Information Bureau. https://www.hardeepsinghpuri.com/single-media/city-finance-rankings-2022-portal-goes-live-mohua-invites-urban-local-bodies-to-participate-in-the-first-of-its-kind-initiative

Ministry of Housing and Urban Affairs, Government of India. City Finance – Financial Data of 4,000+ Indian Cities. https://www.cityfinance.in/home

Comptroller and Auditor General of India (CAG). (2024, November). Compendium of Performance Audits on the Implementation of the 74th Constitutional Amendment Act, 1992. https://cag.gov.in/uploads/download_audit_report/2023/8.-Ch-5-Performance-audit-on-the-Efficacy-of-implementation-of-74th-Constitution-0651c2062a5c705.88651054.pdf

ThePrint. (2024, November 11). Over 30 yrs after 74th Amendment, CAG flags ‘weak compliance’ with law empowering urban local bodies. https://theprint.in/india/governance/over-30-yrs-after-74th-amendment-cag-flags-weak-compliance-with-law-empowering-urban-local-bodies/2357067/

Reserve Bank of India (RBI). (2024, November 13). Report on Municipal Finances.

Business Standard. (2024, November 13). Municipal corporations need to enhance own sources of revenue: RBI report. https://www.business-standard.com/economy/news/municipal-corporations-need-to-enhance-own-sources-of-revenue-rbi-report-124111301395_1.html

The Week. (2024, November 13). Municipal corporations need to enhance own sources of revenue RBI report. https://www.theweek.in/wire-updates/business/2024/11/13/dcm77-biz-rbi-municipal-report.html

Business Standard. (2026, September). India’s Rs 86 trillion urban infrastructure push may spur municipal bonds. https://www.business-standard.com/markets/news/russia-says-new-us-sanctions-would-make-ukraine-peace-deal-harder-126091700767_1.html

Deccan Herald. (2026). Strong ULBs key to future-proof cities. https://www.deccanherald.com/amp/story/opinion%2Fstrong-ulbs-key-to-future-proof-cities-3733115

About the Contributor

Divya Natarajan is a Research and Editorial Intern at IMPRI and a recent Economics graduate from Stella Maris College, Chennai. She has experience in public policy research, editorial writing, and policy analysis through internships with think tanks and research organisations. Her interests include public policy, governance and development economics.

Acknowledgements

I would like to extend my gratitude to IMPRI for this opportunity, constructive reviews and editorial support. 

Reviewers

Shruti Chandra and Rashi Kothari

Disclaimer

All views expressed in the article belong solely to the author and not necessarily to the organisation. 

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