(i) The Governor may, after making such inquiry as he may deem fit, and Declaration of

having regard to the population of any urban area, the density of population Intention to therein, the revenue generated for the local administration of such area, the Constitute a percentage of employment in non- agricultural activities in such area, the Municipal area. economic importance of such area, and such other factors as may be prescribed, by notification, declare his intention to specify such area to be a larger urban area, or smaller urban area, or a transitional area’. Provided that no such declaration shall be made unless the population :- a) in the case of a larger urban area is 75 thousands or more, b) in the case of a smaller urban area, is twenty five thousand or more but is less than 75 thousand, and c) in the case of a transitional area, is less than twenty-five thousand : Provided further that the non-agricultural population in all cases shall be eighty five per cent or more. Explanation :- "revenue generated for the local administration ' shall not include — a) taxes, if any, distributed to the Municipality by the State Government, b) loans and grants from the State Government, and c) loans and grants from the Central Government or any institution or other source.

1. (2) The Governor shall, by notification, declare an area specified as- i. alarger urban area to be a city, ii. asmaller area to be a town, and fii. a transitional area to be a Nagar Panchayat.
2. (3) Notwithstanding anything contained in sub-section (I), the Governor may, by notification, determine separate conditions to constitute any hill area, pilgrim centre, tourist centre of mandi town as a municipal area.