The latest Economic Survey has once again emphasized the importance of creating liveable Indian cities. A key test of making cities liveable lies in their capacity to adapt and mitigate climate shocks, while sustaining growth and equity.
Over the years at different levels of governance, there have been a number of climate-friendly urban policies to build water bodies, adapt to heat waves, tackle sustainable mobility, build climate-resilient infrastructure, and improve waste management, amongst other measures. Yet the scale of the threat remains immense. Today, in Delhi one in seven deaths has been associated with air pollution. By 2030, 40% of Indian cities are projected to run out of water, and urban areas are increasingly going to experience severe heat waves. This shows that translating climate initiatives to on-ground implementation remains a persistent challenge. A key reason has been an urban governance deficit, particularly the lack of financial autonomy and institutional accountability.
Empowering Urban Local Bodies: Indian cities need $260 billion by 2050 for climate-resilient infrastructure. Yet, Indian urban local bodies (ULBs) have limited autonomy per their constitutional powers. For essential functions such as climate-resilient urban planning, regulation of land use, and water supply, ULBs either have no role, or are relegated to being implementing agencies. ULBs struggle to raise revenue through taxation as many states have not yet devolved these powers. Municipal bonds have not been deployed effectively either. Not only has there been a low issuance of municipal bonds, but there has also been low demand due to poor creditworthiness, as well as a lack of timely and adequate disclosures of ULBs. As of November 2025, only 21 of approximately 6,000 ULBs have issued municipal bonds worth a mere $42 million. For context, the Brihanmumbai municipal corporation’s planned expenditure for the coming fiscal year alone is $8 billion.
To address the lack of institutional and financial capacity of ULBs, the smart cities mission established special purpose vehicles (SPVs). These are companies incorporated by the state or local governments to plan, fund, and develop initiatives for urban improvement. While the smart cities mission concluded, the government has announced that SPVs should be repurposed to address emerging, complex, and evolving urban challenges. However, SPVs themselves are unable to raise resources, remaining dependent on central and state finances.
This is in sharp contrast to the governance framework in China, a country with a comparable population and similar urban climate resilience challenges to India. Across China an estimated $560 billion has been allocated to repair and upgrade basic urban infrastructure like storm drains and restore ecological systems over the next five years. China has also invested heavily in building ‘sponge cities’ that drain and store water to prevent flooding during extreme weather events and replenish groundwater levels. A large part of this money comes from local government financing. Local governments control ownership, financing, and development rights of urban spaces, which they then earn money through sales or leases. In addition, they leverage local government financing vehicles (LGFVs) which are allowed to raise their own capital. However, China’s financial devolution serves as a cautionary tale. Overborrowing with limited revenue streams has resulted in LGFV’s accumulating debts worth $9 trillion that they are unable to service. In addition, 70% of LGFVs are delisted and prohibited from raising new capital.
The solution is somewhere in the middle. ULBs must be empowered to achieve fiscal autonomy. The Union Budget’s proposed incentive scheme to provide an additional ₹100 crore for cities that can raise municipal bond issuance of more than ₹1000 crore is a good start. However, there need to be mechanisms in place to ensure the debt is sustainable. ULBs should be statutorily mandated to prepare multi-year development plans and budgets. They must also first enhance their capacity to recover operations and maintenance costs to ensure the economic viability of urban services.
Incentivising action for urban resilience: Increased accountability is crucial for responsive urban climate governance. ULBs are India is still marked by a lack of political accountability with fragmented authority structures further diluting their transparency. According to the CAG in 2021, ULBs had a vacancy rate of 20%, including of elected officials. Besides being chronically understaffed and facing salary delays, officials also lack incentives to act proactively. Meanwhile, SPVs, being corporate entities, have no elected representatives and consequently limited accountability.
China introduced the targeted accountability system (TRS) — a list of key performance indicators to monitor policy implementation across all tiers of government. Urban climate actions are linked to clearly defined targets, incentivizing local governments to experiment with innovative policy and governance approaches. However, the TRS carries the risk of creating perverse incentives that promote quick fixes rather than long-term sustainable solutions.
The solution, therefore, is to create a holistic accountability framework that measures long-term outcomes, and incorporates qualitative indicators that capture the effectiveness of services, administrative transparency, and inclusiveness of decision making. Further, mandating social audits of ULBs will foster bottom-up accountability to ensure that targets align with community needs. Social audits are community-led assessments to verify the performance of public bodies against ground realities and expectations. These indicators can assess the quality and inclusiveness of projects, climate resilience of infrastructure, and the satisfaction of the community among other things.
As India aims to become Viksit Bharat, cities will continue to be a critical part of the journey. Urban economic agency and accountable governance systems in cities may prove vital in ensuring they remain liveable in a warming planet.
Noel Therattil is research analyst, and Pooja Ramamurthi is fellow, Center for Social and Economic Progress (CSEP), New Delhi. The views expressed are personal
