Union Territories & Panchayats
(1) Every State shall have a Nagar Panchayat for a transitional (rural-to-urban) area, a Municipal Council for a smaller urban area, and a Municipal Corporation for a larger urban area - though the Governor can exempt an area from having any Municipality at all if it's designated an "industrial township" (typically a company-run township with its own municipal-style services). (2) The Governor decides, by notification, what counts as "transitional", "smaller urban", or "larger urban", based on population, density, revenue, non-agricultural employment, and other factors.
This creates a three-tier urban local government structure matching the urbanisation level of an area - a small emerging town gets a basic Nagar Panchayat, a mid-sized town gets a Municipal Council, and a major city gets a full Municipal Corporation, with the Governor deciding which category applies based on practical factors like population and revenue.
This is why India's largest cities (like Mumbai, Delhi, or Bengaluru) have Municipal Corporations with substantial administrative machinery, while a small emerging urban town might have only a basic Nagar Panchayat with more limited scope.