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Cities in India are the stage on which the country’s economic future will unfold; they are also where the strain shows most visibly, and hardest.
Overburdened roads and creaking mass transit, stressed water systems, patchy housing, and mounting inequality now collide daily with national growth ambitions. If urban India is to be a place where people can truly live, work, and invest with confidence, the country must move beyond the approach of awarding yet another scheme or project to ‘improve’ a city/town — instead, we must change how money and performance are wired together on the ground.
A City Performance Dividend (CPD) could be that reset: a new, standalone budget window designed purely to reward performance — sharply, handsomely, and tangibly — rather than finance yet another list of sanctioned projects. Ongoing schemes and formula‑based transfers would remain untouched, while the CPD sits above them as a true top‑up, earned only when that money translates into visible, citywide change.
The CPD could incentivise four big shifts that define daily urban life: faster, more reliable mobility; cleaner air and greener neighbourhoods; smarter waste and water management; and, more inclusive, affordable housing.
Cities would need to show results across this whole basket, and not just on a single front, so gains in one area are not cancelled out by neglect in another. A city that cuts commute times but lets its air quality deteriorate, or builds housing while ignoring basic services, would not qualify for this dividend.
Equity would be built into the scoring. Improvements would have to show up not only citywide, but also in informal settlements and low‑income wards, to earn the payout, and smaller cities and towns could be assessed on a separate track, with benchmarks calibrated to their size and starting capacity.
The bar would sit well above ‘business as usual’. The CPD would not pay for marginal improvements off low baselines. Eligibility would depend on crossing clear thresholds on a small, sharp set of indicators — around commute time reduction, waste collection and processing, access to usable green space, and basic housing security — which, in turn, would unlock a substantial, untied fiscal bonus that cities can deploy on their own priorities.
This is where the CPD breaks from the ‘performance incentives’ in many schemes, where a thin reform layer sits atop entitlement‑driven flows. Under the CPD, there is no automatic allocation; cities can access the fund only by demonstrating that they have achieved or surpassed clearly defined outcome benchmarks across key areas of urban performance.
It also narrows the gap between responsibility and reward for city leadership. Mayors and municipal officials are routinely blamed when things go wrong, but gain little when things go right, and scheme‑level incentives rarely translate into visible benefits for them or their cities.
By tying a clear, city‑level fiscal prize to outcome metrics, the CPD gives political and administrative leaders a real stake in success: a mayor can convert cleaner air, shorter commutes, or better services in poorer neighbourhoods into more discretionary money and visible political credit, while senior officials see part of their appraisals and career prospects linked to the same metrics.
In essence, good outcomes start to pay twice — in flexible resources for the city and in professional and political capital for those who deliver them — and, in the process, they tackle the two chronic weaknesses that have long undermined urban investment: the lack of a hard focus on outcomes and the weak incentives facing those who actually run cities.
Operationally, the scheme can be phased in without disrupting current programmes. To start with, the Union Budget could create a technical assistance window of about Rs 100 crore to build the plumbing of performance: credible baselines, stronger data systems, and standardised outcome tracking. From the following year, a CPD pool in the range of Rs 10,000-15,000 crore would begin paying out, built up gradually and disbursed as more cities cross the agreed thresholds. The lag keeps the system auditable and fiscally manageable.
Done right, the CPD could turn the Union Budget into a national urban scoreboard. Instead of competing for more schemes or bigger entitlements, cities would compete to deliver better lives on multiple fronts and be rewarded with money they control and reputational capital they can bank on.
For a country whose future hinges on the quality of its cities, the CPD is the kind of sharp, performance‑first instrument that can finally move the needle from plans to performance.
Manish Dubey is Chief- Practice, and Amir Bazaz is Head- Practice (Infrastructure and Climate), at Indian Institute for Human Settlements (IIHS).
(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH).