The 16th Finance Commission (FC) has provided a boost to urban local governments, shows its latest report tabled in Parliament on February 1.

The FC is a Constitutional body that provides recommendations about how India’s Centre and state governments should divide tax revenues. It is reconstituted every five years and provides a fresh set of recommendations. Since the 10th FC, which was the first one after India adopted a third tier of government — urban local bodies and the rural panchayats — each FC has provided grants to these government structures.

The latest FC, the 16th, has sharply increased the proportion of grants for urban local governments to 45% from the previous FC’s 36% allotment and the 13th FC’s 26% allotment. In absolute numbers, the 16th FC recommends Rs 3.56 lakh crore in grants to urban local bodies — over two times more than 15th FC’s Rs 1.55-lakh crore grant and a 15-fold rise over the 13th FC’s grant.

The 13th FC is relevant because it came immediately after the last Census in 2011. These shares are important because they determine how much money is available with the lowest tier of government to solve problems at the grassroots level.

A significantly higher share for urban bodies versus the rural bodies is in recognition of the projected urbanisation level of 41% as of 2031. Simply put, with each passing decade, more and more of India is living in its cities.

To be sure, urbanisation in India often suffers from the lack of good quality data. To begin with, there is little clarity about the rate of urbanisation in India. According to the last Census in 2011, 31% of the population was living in urban areas. This is much lower than global peers such as China (45%), Indonesia (54%) and Brazil (87%).

Urbanisation estimates in India have also varied quite substantially. A 2015 World Bank report said 54% of Indians were living in cities and another 24% were living in “urban clusters”, taking the total to 78%. None of these numbers still capture the rapid changes in migration that are taking place each year.

Lack of credible numbers hold back policy initiatives. The worst affected are urban local bodies. The recommendations for an increased share by the 16th FC are likely to address some of the financial gaps in urban governance.

Srikanth Viswanathan, the Chief Executive Officer of Janaagraha, a think-tank that focuses on urban governance, believes that an increased share for urban local bodies would essentially mean that they are likely to be hit far less when the Census 2027 data comes along. In other words, if that data pegs urbanisation at 48%, for example, then the 16th FC recommendations would have ensured that urban governments are not too far behind. Contrast the latest recommendation of 45% share to the 36% in the last FC or even the 26% in the FC that aligned with the last Census.

The increased allocation has not been distributed equally. The grant will be distributed based on the 16th FC’s population-based distribution formula. Accordingly, there is a large variation in the way grant amounts have gone up or down for different states. Some of the biggest gainers and losers (in percentage terms) are listed alongside. For instance, Kerala’s grants have grown by over 400% and Maharashtra’s by over 300% while Odisha’s have grown by just 13% and Bihar’s has been cut by 8%.