Civic bodies must be fiscally empowered

The country’s pace of urbanisation — by 2050, the urban population will rise by more than 50% over the 500 million today — makes cities the focal point for spurring growth. This needs empowered and efficient city governments that have adequate finances to function. Against this backdrop, a just-released Reserve Bank of India (RBI) analysis of municipal finance paints a concerning picture. The share of own-source revenue (taxes and usage charges for services such as parking, and waste collection) in municipal finances has shrunk between 2016-17 and 2023-24 (budget estimates). And within own-source revenues, usage charges outweigh taxes, a more stable revenue source. The share of transfers from central and state governments increasing over the years raises temporal and autonomy risks for urban local governments’ expenditure including delays and politicisation of transfers. The solution lies in increasing own-source revenue, which allows municipal corporations to strategise and respond to constituents’ needs.
But this is easier said than done. There are low-hanging fruits, of course — better targeting for property tax recoveries (coverage in more than 90% of municipal corporations remains below 80%), dynamic pricing for usage charges such as parking, closing the gap between service delivery and usage charge through periodic review, and instruments such as municipal bonds. The long-term solution, however, lies in greater fiscal decentralisation — devolution of revenue streams from the state governments to municipal bodies. This calls for political will, not just at the state level but also at the Centre, since devolution can’t be a mere “give-only” pathway at the state level; the state governments will need to be recipients of fiscal decentralisation as well.