As Panchayati Raj System is meant for rural area, similarly there are institutions of urban local government. There are three types of urban local bodies.

  1. Municipal Corporations for the big cities
  2. Municipal Councils for all other cities with smaller population
  3. Nagar Panchayats for transitional areas (semi urban areas)

But a significant difference between Panchayati Raj Institutions (PRIs) and the urban local bodies is that while the PRIs are closely linked with one another, the urban local bodies are independent. In one State, there may be all the three types of urban local bodies - in one big city a Municipal Corporation, in another small city a Municipal Council and in yet another small town a Nagar Panchayat. But they are not linked with one another.

It was during the British colonial rule that the first urban local government came into existence in 1688 when a Municipal Corporation was formed in the city of Madras (now known as Chennai). Later on, similar bodies were formed for the administration at Calcutta (Kolkata) and Bombay (Mumbai). At that time these municipalities were formed to help in the matter of sanitation and prevent epidemics. These Local bodies also had a few civic functions like managing water supply and drainage.

After independence four types of urban local bodies were functioning: (i) Municipal Corporations, (ii) Municipalities, (iii) Town Area Committees and (iv) Notified Area Committees. But the 74th Constitutional Amendment, 1992 brought about major changes in the system of urban local government. Now three types of urban local governments are functioning.