Strengthening urban local bodies

Source: The post is based on the article “Strengthening urban local bodies” published in the Business Standard on 22^nd November 2022.

Syllabus: GS – 2 – Devolution of powers and finances up to local levels and challenges therein.

Relevance: About Strengthening urban local bodies.

News: An effective local government can not only promote healthy urban growth but also ensure ease of living for the population.

About India’s urban local bodies

In India, local governments in cities are established in accordance with the 74th Amendment Act.

-Their institutional framework comprises, a) Urban Local Bodies (ULBs): They administer cities or towns with a specified population. These local bodies are entrusted with functions related to welfare, public health and safety, infrastructural works and other activities related to city development, b) Municipal corporations, municipalities, notified area committees, and town area committees are some other types of urban local bodies.

-The Amendment gave state legislatures the authority to enact levies that support local government budgets. Accordingly, it is constitutionally required for state governments to establish means for ULBs to raise money.

-The Amendment Act gave municipalities constitutional standing and a strong mandate for democratic decentralisation through self-governing local bodies in urban areas.

What are the financial challenges faced by the urban local bodies?

a) The transfer of duties from the national and subnational governments to local governments has not been accompanied by a transfer of financial authority, b) Municipal corporations in India rely heavily on subsidies from the Central and state governments to cover their spending needs because they have few other sources of income, c) Over-reliance on property taxes has prevented local governments from fully utilising other revenue streams such as trade permits, entertainment taxes, mobile tower taxes, solid waste user fees, water fees, and value capture finance, d) The proportion of municipal corporations’ own sources of income decreased from 89.1% of total earnings in 1960-1961 to roughly 65 per cent in 2012-2013, e) Despite receiving constitutional recognition in 1992, municipal revenue in India as a whole remained almost constant from 1946 to 1947.

Impacts of the financial constraints: 1) According to the Reserve Bank of India, financially starved urban local bodies are unable to create the resources needed to offer their residents high-quality facilities and services, 2) India’s access to basic urban infrastructure falls short of what has been accomplished in the OECD and other BRICS countries.

How to improve the financial condition of urban local bodies?

-According to the third State Finance Commission Report of Uttarakhand (2018-19), the ULBs in India must increase their efficiency in collecting parking fees, advertisement taxes, user fees, lease rentals, and property taxes.

– The state governments should ease resource restrictions for the operation of ULBs when developing capacity for sustainable urbanisation.

-A development of a web-based e-governance system can ensure the participation and effectiveness of local government’s operations. For instance, web-based property tax payments.

India should modernise local governance systems and getting them to work closely with local communities in accordance with a clear and effective administrative structure.