Scalable video coding extension has been added to H.264AVC to support compression and encoding of multiple resolution video sequences, having different frame rates and fidelities in a single bit stream. The motion vectors and the residual data of the enhancement layers are derived from up-sampling the co-located macroblock (MB) of the base layer. The peak signal to noise ratio (PSNR) across the enhancement layers is degraded as up-sampling introduces distortion of high-frequency components. In this paper, a spatial-resolution-ratio-based MB mode decision scheme is proposed for spatially enhanced layers. The scheme uses the motion estimated at the base layer, to encode the respective MBs in the enhancement layers. The spatial–temporal search schemes at the enhancement layers are used to derive motion vectors and residues that are encoded using a quantization parameter obtained using independent rate control (IRC) scheme. The IRC from the prior art is modified to achieve better rate control per layer by recursive updates for mean absolute difference values of each basic unit. Proposed modified inter-layer dependency shows improvement in the PSNR for enhancement layers while the updated IRC enforces better IRC for all the layers.