{"id":195471,"date":"2022-07-13T17:48:04","date_gmt":"2022-07-13T12:18:04","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=195471"},"modified":"2022-07-13T17:48:04","modified_gmt":"2022-07-13T12:18:04","slug":"the-scale-of-municipal-finances-is-inadequate","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/the-scale-of-municipal-finances-is-inadequate\/","title":{"rendered":"The scale of municipal finances is inadequate"},"content":{"rendered":"\n

Source<\/strong>: The post is based on an article \u201cThe scale of municipal finances is inadequate<\/strong>” published in the \u201cThe Hindu\u201d on 13th<\/sup> July 2022.<\/p>\n

Syllabus: <\/strong>GS2 Devolution of\u00a0Powers and Finances up to Local Levels and Challenges Therein.<\/p>\n

Relevance:<\/strong> Financial Issues in the ULBs<\/p>\n

News<\/strong>: Recently, the Indian Institute for Human Settlements (IIHS) analysed data from 80 Urban Local Bodies (ULBs) across 24 States between 2012-13 and 2016-17 to understand their finance and spending, and found some key trends.<\/p>\n

The legal regime for the local bodies in India<\/strong><\/h5>\n

The 74th Constitution Amendment Act<\/strong> 1992 mandated setting up of ULBs as the lowest unit of governance in cities and towns in India.<\/p>\n

Further, the constitution also mandated the devolution of powers to ULBs\u2019, particularly ensuring their fiscal empowerment.<\/strong><\/p>\n

Importance of municipal finance<\/strong><\/h5>\n

The health of municipal finances is a critical element of municipal governance. Further, it is also important for India to realise its economic and developmental promise.<\/p>\n

What are the revenue sources for ULBs?
\n<\/strong><\/h5>\n

Taxes<\/strong>, fees<\/strong>, fines<\/strong> and charges<\/strong>, and inter-governmental transfers<\/strong> (IGTs) are the key revenue sources<\/strong> of the ULBs.<\/p>\n

Inter-Governmental Transfers (IGTs) refers to transfers from Central<\/strong> and State governments<\/strong>. First, the transfers from the Central government are as stipulated by the Central Finance Commissions<\/strong> and through grants<\/strong> towards specific reforms. Second, the State government transfers<\/strong> are as grants-in-aid<\/strong> and devolution of State\u2019s collection of local taxes.<\/p>\n

What are the key findings?
\n<\/strong><\/h5>\n

ULBs’ own revenue <\/strong>was around 47% of their total revenue, in which the largest component<\/strong> was tax revenue<\/strong>. Their own revenues increased by 7% from 2012-13 to 2016-17.<\/p>\n

(A) Own Revenue<\/strong><\/h5>\n

The ULBs\u2019 own sources of revenue were less than half of their total revenue. The share of ULBs own revenue, in GDP was only 0.5% for the five-year period.<\/p>\n

Further, the share of India\u2019s property tax, the single largest contributor <\/strong>to ULBs\u2019 own revenue, accounted for only about 0.15% of the GDP. In contrast, its share was about 0.6% and 1% in the ULBs of developing and developed countries respectively.<\/p>\n

(B) IGTs<\/strong><\/h5>\n

It accounted for about 40% of the ULBs\u2019 total revenue. It means ULBs are highly dependent on IGTs.<\/p>\n

However, the dependence of ULBs on IGTs has dipped over the last 5 years between 2012-13 and 2016, due to modest increase in own revenue.<\/p>\n

Furter, the scale of IGTs<\/strong> in India remained at around 0.5% of GDP, which is far lower than the international average of 2% to 5% of GDP.<\/p>\n

(C) Inter-city variations<\/strong><\/h5>\n

There are considerable differences in the composition of revenue sources<\/strong> across cities of different sizes.<\/p>\n

For example, Class I-A cities (population of over 50 lakh) primarily depend on their own tax revenue, while Class I-B cities and Class I-C cities (population of 10 lakh-50 lakh and 1 lakh-10 lakh, respectively) primarily rely more on IGTs.<\/p>\n

(D) Operations and maintenance(O&M)<\/strong><\/h5>\n

The O&M expenses refers to expenses used to upkeep of infrastructure and for maintaining quality of service delivery like water supply, solid waste management, etc.<\/p>\n

The share of O&M expenses<\/strong> in ULBs\u2019 total revenue expenditure has increased from about 30% in 2012-13 to about 35% in 2016-17. However, these expenses remain inadequate.<\/p>\n

Way Forward<\/strong><\/p>\n

The share of own revenue (property taxes, advertisements, and non-tax revenue from user charges and fees from building permissions and trade licencing etc.) to total revenue is an important indicator <\/strong>of ULBs\u2019 fiscal health <\/strong>and autonomy.<\/strong> Therefore, it should be improved<\/p>\n

The ULBs can mobilise their own revenue resources<\/strong> like property taxes, other land-based resources and user charges. The ULBs can also explore market-based instruments.<\/strong><\/p>\n

IGTs can be improved by increasing the revenue assigned to ULBs from the State governments. Further, a share of the State and Centre\u2019s GST proceeds can be allocated to ULBs.<\/p>\n

–<\/strong> IGTs can also incentivise ULBs to deliver better service quality and maintain fiscal discipline.<\/p>\n","protected":false},"excerpt":{"rendered":"

Source: The post is based on an article \u201cThe scale of municipal finances is inadequate” published in the \u201cThe Hindu\u201d on 13th July 2022. Syllabus: GS2 Devolution of\u00a0Powers and Finances up to Local Levels and Challenges Therein. Relevance: Financial Issues in the ULBs News: Recently, the Indian Institute for Human Settlements (IIHS) analysed data from… Continue reading The scale of municipal finances is inadequate<\/span><\/a><\/p>\n","protected":false},"author":10328,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,9],"tags":[212,10498],"class_list":["post-195471","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-public","tag-gs-paper-2","tag-the-hindu","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1700208004},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/195471","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/10328"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=195471"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/195471\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=195471"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=195471"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=195471"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}