INADEQUATE MUNICIPAL FINANCES

For effective municipal governance, the health of municipal finance is a critical element that will determine whether India realizes its economic and development goals.

• Growing fiscal deficits, constrain in tax base expansion and weakening of institutional mechanisms remain a major challenge for the urban local body (UBLs). Revenue loss after the implementation of GST and the pandemic has further deteriorated the situation.
• The urban population and Indian cities are expanding rapidly and the city infrastructure such as water supply, sewage, and solid waste management is under pressure and requires appropriate government effort.

Various challenges faced by the Urban Local Body in India:

• Poor Financial condition: The most serious problem faced by urban local bodies is the acute shortage of finances. City municipalities do not collect enough taxes, even as the Economic Survey 2019 pointed out that municipalities do not realize the full potential of property tax.
• State control: Strict control exercised by the state government over urban local bodies prove to be more of a curse than a boon because instead of providing guidance and support, the control turns out to be restrictive and impeding.
• Irregular election: Urban local bodies have suffered constant postponement of elections for indefinite lengths of time.
• Poor governance: The failure of municipal governance is one of the biggest reasons for the poor condition of Indian cities. Often the governance is impacted due to disputes between the elected Mayor and appointed Municipal Commissioner.
• Corruption: Corruption, favoritism, and nepotism are rampant in the urban local bodies, they also have less power to fight all these issues
• Poor Urban planning: Often there is great neglect in the implementation of the Master Plan. In a few cities the Master plan is still not worked out and thus cities grow as an accident than planning.
• Lack of coordination: Poor coordination among the Center-State and various local bodies and parastatal bodies lead to poor implementation of urban policies and poor urban governance.

Analyzed data from the Indian Institute for Human Settlement

The Indian Institute for Human Settlement analyzed the data from 80 urban local bodies across 24 states between 2013 and 2017 to understand ULB finance and their spending. It found that:

• ULB’s source of revenue was less than half of their total revenue. Its revenue includes:
  • revenue from taxes on property, fees, fines
  • non-tax revenue from user charges
  • Transfers from State and Centre.

Cities with a higher share of their revenue are more financially self-sustaining. Even the property which is the single largest contributor to ULBs own revenue accounted for only 0.15% of the GDP.

• Many ULBs were highly dependent on intergovernmental transfer (IGTs), between 2013 and 2017 IGTs accounted for about 40% of the ULB’s total revenue.
• Tax revenue is the largest revenue source for larger cities, while smaller cities are more dependent on grants.
• Operational and maintenance expenses are on the increase but still inadequate. Operational and maintenance expenses are important for the upkeeping of infrastructure and for maintaining the quality-of-service delivery.

Measures to strengthen Urban Local Bodies

• Greater autonomy: Urban Local Bodies should be more autonomous in their functioning so that they can deliver a quality service.
• Governance reform: Reforms are needed as the catalyst for change, the adoption of a common categorization of urban bodies across the country to assist a systematic planning process and funding.
• Timely elections and recruitment: A minimum level of staffing should be provided in metropolitan areas for strengthening the urban local body as well as elections should not be delayed beyond six months.
• Planning: Government needs to coordinate at various levels about the implementation of various programs.
• Holistic approach: It is critical to integrate various urban development and related programs at the local, state, and national levels to develop cities.

Steps taken by the government for ULBs

• Performance linked grants: 14 finance commission stipulated that a detail procedural for the disbursal of the performance grant to ULBs, based on the various reforms in areas like auditing, reporting, etc
• Municipal bonds: Niti Aayog come up with utilizing the municipal bond market which would ensure a low cost of borrowing, required for municipality project
• Directly elected Mayor: A private member bill was introduced in Parliament to make provision for direct election and empowerment of the office of Mayor in the country for better governance.
• Atal Mission for Rejuvenation and Urban Transformation: Various basic reforms were undertaken under this scheme resulting in an improved collection of user charges, the establishment of municipal cadres in 21 states, and improved service delivery.

Local self-governance in India should be strengthened as it captures the local needs and ensures a responsive government.