Revitalising Municipal Finances in Urban India (GS Paper 2, Polity)
Why in News?
- Urban India contributes almost 60% of the country’s economic output, and municipal corporations (MCs) are essential in providing services such as road maintenance and sanitation.
- However, financial constraints limit their ability to deliver these services efficiently, highlighting the need for urgent reforms.
Problems of Urban Self-Governance in India
Urban self-governance faces several issues, primarily due to the insufficient financial autonomy of municipal corporations, which hampers their operational and developmental capacity.
Key Challenges in Municipal Financing
Limited Revenue Generation:
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- Municipal corporations generate only about 0.6% of GDP in revenue (2023-24), with significant reliance on state and central government transfers.
- Property tax revenue, a key source of income, remains alarmingly low at 0.12% of GDP.
Revenue Concentration:
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- A significant portion of revenue, over 58%, is generated by the top 10 municipal corporations, causing fiscal disparity among urban areas.
Inefficiency in Tax and Fee Collection:
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- The property tax system is ineffective, failing to reflect actual property valuations.
- User fees for services such as water supply and sanitation are not adequately adjusted, leading to poor cost recovery.
Strategies for Strengthening Urban Local Bodies (ULBs)
Enhancing Participatory Governance:
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- Foster citizen involvement in policy-making through platforms like resident welfare associations and NGOs.
Building Capacity of Municipal Personnel:
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- Implement comprehensive training programs to improve administrative and management skills, with ongoing evaluation of effectiveness.
Legislative and Institutional Reforms:
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- States need to enact reforms that promote fiscal and functional devolution, empowering ULBs as self-governing entities.
Strategic Recommendations for Financial Improvement in MCs
Enhancing Own-Source Revenues:
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- Use GIS-based property tax mapping for better compliance and employ valuation-linked tax formulae for increased revenue elasticity.
Boosting Non-Tax Revenues:
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- Increase income from services such as waste management and urban transport through public-private partnerships (PPPs).
- Utilize technology for better monitoring and revenue generation.
Reducing Dependence on Transfers:
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- Establish rule-based frameworks for state and central transfers to ensure predictability and fair compensation, with adjustments for inflation and economic growth.
Strengthening Fiscal Management:
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- Implement digitalisation and automation to streamline expenditures and allocate more resources for capital projects.
Exploring Innovative Financing Options:
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- Use municipal bonds to finance infrastructure and introduce diverse instruments to attract private investments in renewable energy and urban transport.
Some Government Initiatives to Promote Urban Governance in India
Citizen-Centric Programs:
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- Swachh Sarvekshan (2017) encourages citizen participation in urban hygiene.
- Swachh Bharat Idea Book promotes grassroots innovation for improving urban sanitation.
Performance-Based Indexes:
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- Ease of Living Index (2017) evaluates urban life quality based on sustainability, economic ability, and quality of life.
- Municipal Performance Index (2019) assesses the performance of ULBs in various sectors, including financial management and service delivery.
Conclusion
- Empowering urban local bodies (ULBs) is essential for sustainable urban development.
- Achieving this requires collaboration between the government, academia, and civil society.
- Through these collective efforts, municipal corporations can overcome financial constraints and ensure effective delivery of essential urban services.
