Urban population distribution in India has increased tenfold during the past four decades, while the country’s overall population has increased fourfold. The share of the urban population has increased from 17 to 31% from 1950 to 2011. In smaller urban areas, the rapid urban growth and unprepared municipal self-governance pose significant challenges, such as poor infrastructure, socio-economic inequality, and housing shortages, which lead to unsustainable conditions. This chapter examines the function of local municipalities in Gwalior district, evaluating their capacity to carry out essential facilities such as education, infrastructure, and digital literacy. Towns, which are usually smaller and less resourceful, are generally found to have less administrative authority, mediocre public service delivery, and lower rate of development. In contrast, cities frequently enjoy advantages of greater budgets, more sophisticated infrastructure, and stronger institutional ability. Using Municipal Performance Index (MPI) as a key analytical tool, the chapter highlights the governance challenges across critical sectors including public services, urban planning, and sustainability of the region. The chapter also discusses how towns, despite these challenges, can contribute to better governance through targeted capacity-building measures and governance reforms. Ultimately suggesting policy interventions and institutional reforms that can strengthen their governance frameworks and promote sustainable growth.