This paper aims to quantify the degree of managerial discretion held by business managers and hospital directors in municipal hospitals in India through the concept of managerial discretion and to clarify the factors that inhibit managerial discretion. We conducted a questionnaire survey of municipal hospital managers. First, we ascertained the amount of discretion that municipal hospital managers have concerning various areas of management efficiency. Managers have a great deal of discretion in measures to increase and secure revenues, secure and train doctors and other medical staff, and reduce and control recurring medical expenses. Second, it became clear to what extent the discretion of municipal hospital managers is limited and by which factors. Many managers opined that legal constraints and the medical fee system had a significant impact. Third, there was no significant difference in managerial discretion between the partial and full application of the Local Public Enterprises Law. The multiple regression analysis with other disincentive factors and the presence of total application as explanatory variables, together with the overall size of discretion as the dependent variable, indicated that total application did not affect the overall level of discretion and that negative impacts from heads of department and internal office staff may be significant.