Report On Municipal Finances Released By Reserved Bank of India (RBI)

Posted 14 Nov 2024

2 min read

It analyzes budgetary data for Municipal Corporations (MCs), identifying opportunities, challenges and suggests measures to improve their financial health.

Key Findings

Low revenue collection: MCs generate only 0.6% of GDP in revenue (2023-24), much lower than central government (9.2%) and State Governments(14.6%).
Heavy reliance on transfers:MCs rely heavily on government transfers.Grants from Central and State governments have increased by 24.9% and 20.4%, respectively (2022-23)
Increased municipal borrowings:It has risen from ₹2,886 crore (2019-20) to ₹13,364 crore(2023-24)
Bonds:It totals ₹4,204 crore (0.09% of corporate bonds), with most bonds privately placed

Challenges in Municipal Finances: lower revenue compared to advanced economies, underdeveloped municipal bond market, low operational flexibility

Recommendations

Enhancing Revenue Sources: Reform property tax (with use of GIS mapping), rationalize user charges
Transfers from State governments: SFCS should recommend timely and predictable state transfers
Improvement in Cost Efficiency: by digitalization, use of Public Private Partnerships in urban transport, waste management, and renewable energy
Innovative Financing: Smaller MCs should explore options of Municipal Bonds, Green Bonds
Financial Transparency: Adopt of practices such as National Municipal Accounting Manual

Revenue Sources of Urban Local Bodies

Own sources
- Tax Revenue-Property tax,water benefit tax etc.
- Non-tax Revenue-User charges,developmental charges etc.
- Other receipts-lease rent,sale of rubbish etc.
Assigned(Shared) Revenue: Entertainment tax (subsumed under GST, except when levied by the local bodies), professional tax etc.
Grants-in-aid: Central and State Finance Commission (SFC) devolution,Grants under programmes like SBM,AMRUT
Borrowings: Loans from state and central governments,banks etc