Sustained growth and ushering in cooperative federalism are twin imperatives that India faces. As the 16th Finance Commission (FC)1 has its deliberations underway, this article underlines the importance of the third tier of government, focusing on urban local bodies (ULBs). It recommends that the good work done by the earlier FCs be continued, especially that of using a quasi-formulaic approach in working out the magnitude of the fund flow towards ULBs, to bring in an element of buoyancy in their revenues and make them ‘partners’ in the development process. The instrument of incentives to elicit cooperation from local bodies, as introduced by the various FCs, is critically discussed in this article. The evidence so far, in this respect, is positive, and it is incidentally recommended that the 16th FC and future FCs formulaically strengthen this aspect at the state level too.
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