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Informist, Wednesday, Nov. 13, 2024

 

NEW DELHI – Municipal bodies are hampered in their ability to provide essential services to drive urban development due to their financial dependence on states and higher level governments for a significant portion of their revenues, according to a report released by the Reserve Bank of India Wednesday.

 

"While the revenue account of the MCs (municipal corporations) has remained in surplus, their heavy reliance on transfers and grants from upper tiers of government continues," RBI Deputy Governor Michael Patra said in the foreword to the 'Report On Municipal Finances'. "The own revenue sources are not adequate for meeting the revenue expenditure of most of the MCs, thereby affecting their functional and financial autonomy," he said, summarising the report.

 

According to data given in the report, budget estimates for 2023-24 (Apr-Mar) showed state governments' transfers made up 28.7% of total revenue receipts for municipal corporations. The combined transfers, including by the central government, has fluctuated from 29.7-33.8% of total revenue receipts for these corporations, going back to FY20. The report analysed the budgets of 232 municipal corporations, over 90% of the total in the country, the RBI said.

 

State-specific strategies to strengthen the revenues of these municipal corporations are key for them to plan and execute long-term projects, the report said. This would include reforms in local taxation, better enforcement of tax laws, and innovative non-tax revenue streams. Municipal corporations would also be helped by financial management training to use resources effectively, and a rules-based framework to manage state fund transfers, the report said.

 

"Timely and direct transfers from the state governments to the MCs (municipal corporations) remain crucial for their financial stability and effective service delivery," the report said. "It is essential that the MCs are compensated adequately and predictably through a clearly defined formula that accounts for the revenue foregone, adjustments for inflation, and the growth potential of the city economy."

 

In terms of financial autonomy, municipal corporations can bolster mechanisms to collect property, water and drainage and sewerage taxes. Property taxes, which make up 60% of local body revenues, have untapped potential that can be unlocked by continuous property reassessment, enforcement and efficient administration, the report said. As for non-tax revenues, the report recommended ensuring seamless availability of high-quality public services in exchange for adequate fees and user charges for essentials, which are updated regularly. 

 

"Comprehensive reforms, including adoption of technologies like GIS (Geographic information system) mapping and digital payments, rate rationalisation and their periodic revisions as well as better monitoring to plug leakages can help in the augmentation of their own source revenues," Patra said. 

 

To boost capital spending, the RBI report encouraged more municipal corporations to raise municipal bonds, including green bonds. They can also free up committed expenditure through digitalisation and process automation for capex, and bring in private investment through public-private partnerships, the report said. A mechanism to pool the resources of municipal corporations for large-scale projects should be devised, and urban planning should be focused around climate resilience, according to the report. 

 

"The adoption of the standard National Municipal Accounting Manual (NMAM, 2004) by the MCs needs to be fast-forwarded," the RBI report said, which could help with innovative financing for these bodies. "State governments and Finance Commissions (Central and State) can mandate compliance, support training programmes, implement audit mechanisms, and link intergovernmental transfers to adherence to these standards, thus encouraging MCs to adopt and sustain these reforms."  End

 

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

 

 

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