Govt plans to incentivise planned urbanisation of peri-urban areas

New Delhi: Encouraging planned development of peri-urban areas while discouraging haphazard growth and illegal constructions is likely to be the focus area to tap into Sixteenth Finance Commission grants. The Ministry of Housing and Urban Affairs is finalising its recommendation to the commission to incentivise planned urbanisation of peri-urban areas, people aware of the matter said.

The ministry has formed sub-groups to address specific areas like political intervention, administrative reforms and financial resources, they said.

The five-member Sixteenth Finance Commission, chaired by former Niti Aayog vice chairman Arvind Panagariya, was constituted on December 31, 2023, and is expected to finalise its recommendations by October 2025. Its recommendations will be valid for five years from 2026-27 to 2031-32.

The commission is expected to recommend ways to augment the revenues of urban local bodies.

While the Fifteenth Finance Commission incentivised urban reforms with a sharp focus on rapid urbanisation, the ministry now wants to incentivise planned development of peri-urban areas, people cited above said.

“While the Fifteenth Finance Commission’s focus was cities, we want this time to focus on peri-urban areas so that states start planning for urbanisation and not just allow these areas to grow organically and haphazardly,” a senior official, who did not wish to be identified, told ET, adding that the ministry is looking at involving various planning bodies in this process.”The problem is that these planning bodies at the state level are very top heavy with, say, the chief minister as the head. How many times can these bodies meet in a year and discuss micro issues? These processes and structures need to be broken down. This can be done only if these are incentivised,” the official said.The Fifteenth Finance Commission categorised urban local bodies into two groups based on population – those with a population of less than one million received basic grants while those with a population of more than one million received 100% performance-linked grants. It recommended a total of Rs 1,21,055 crore for urban local bodies from 2021-2026.

The finance commission decides what proportion of the Centre’s net tax revenue goes to states (which is known as vertical devolution) and how this share is distributed among various states (which is known as horizontal devolution).