With increasing urbanization, rural-urban migration and associated problems have received a lot of attention in the literature and policy making. However, the question that remains unaddressed is whether India is over-urbanized in relation to the level of its development. If so, how can weidentify this phenomenon more systematically? This study examines the provision of infrastructure in India's urban areas by examining the costs of providing these services. The authors estimate marginal costs of water supply, and compare these marginal costs with the user prices actually charged invarious Indian cities. The authors also argue that under-spending in the case of several local urban services might explain poor service delivery in India's cities. They analyse the challenges in reform of service delivery in the context of developing countries, using case studies of Ludhiana(Punjab) and Rajkot (Gujarat). The effort is to study the challenges to service delivery, identify the bottlenecks in reform, and analyse means to improve and reform service delivery in these cities.