Municipal Finance in India –

Status, Issues and Way Forward

Municipal Finance in India – Introduction
Municipal Finance in India – Status & Issues
Municipal Finance – Way Forward
Municipal Finances In India

• In combined revenues of three tiers of

governments, share of municipal finance is only
2.75 percent
• MORR as % of state own revenue receipts is
around 8.24 percent
• MORR as % of GSDP is only 0.66 percent
• Per capita MORR is just around Rs. 450
• Transfers and devolutions amount 35 % but in
some cases it was more than 80 percent
 Local bodies rely too heavily on
Government support at present
Punjab

Maharashtra

Gujarat

Assam

Goa

Haryana

Orissa

Kerala

Tamil Nadu

Andhra Pradesh
Karnataka

Chattisgarh

Madhya Pradesh

Himachal Pradesh

Uttaranchal

West Bengal

Transfers as a Jharkhand

Bihar
% of total Uttar Pradesh

revenues of Rajasthan

local bodies Jammu & Kashmir

0 20 40 60 80 10
Source - NIPFP %Reliance on State Transfers
 Municipal Finances In India
• In case of municipal corporations dependence is 20 to
25 %
• Municipalities – 41%, Nagar Panchayats 60 %
• Per capita revenue expenditure is Rs. 525
• Gap between normative & actual expenditure is 60 &
in Maharashtra, 70 % Gujarat, TN Haryana, 90 % in
case of AP, Kerala, Karnataka
• Esta. Expenditure constitutes 56 %, O & M 40%
• Except Maharashtra and Punjab all other states show
municipal revenue account deficit
Recent Data on Municipal Finance

• Only 38 JNNURM cities with per capita

operative surplus above Rs. 25 and only 23
cities with per capita surplus of Rs. 100 and
above
• No AAA rated ULB, highest rating so far AA+
(SO)
• 35 JNNURM cities have operative loss even
after receiving sizeable government grants
Flow of Funds did not match the need
 Municipal Finances In India
• Inferior nature of local taxes
• Inadequate local resources
• Inroads by state governments on local resources
• Absence of autonomy with local bodies in respect of
tax rate setting, rate revision and other spheres of
working
• Inadequate borrowing powers and options
• Failure of SFC to revamp municipal finances
Municipal Finances In India

• Inadequate devolutions, transfers, grant-in-aids

• Poor administration in all respect of tax and
other powers
• Non-augmentation of non-tax resource
• Inefficient management of municipal resources,
cost inefficiency
• Rudimentary and weak financial administration
• Lack of professional capabilities
Municipal (Urban) Finance
Issues/reasons for Today’s Sorry State
• Continued dominance of government – How?
– Urban services are considered as basic or essential
(public/social goods, natural monopolies)
– Provision through market operations may marginalise
a large number of urban population
– Political non-exclusivity
– Long term, capital intensive investment
– Long gestation and payback periods
– Externality induced pricing
– Inelastic demand
Municipal (Urban) Finance
Issues/reasons for Sorry State

• Inadequacies of Conventional Sources

– Not updated with passage of time – Same as
per Charter of Lord Rippon 1882.
– Inroads by state government on local sources
– Based on Wealth or Property and not on
income or expenditure of a person.
– Proximity to people.
– Lack inherent buoyancy, inelastic.
Municipal (Urban) Finance
Issues/reasons for Sorry State
• Poor financial status of ULBs
– Inadequate resources – tax, non-tax
– Inferior Nature of Local Taxes
– Un-augmentation of all available resources
– Inefficient recovery administration
– Inefficient management of municipal resources, cost
inefficiency, wasteful expenditure
– No linkage between cost of production & price of
consumption due to political decisions
– Absence of financial management
– Absence of qualified and professional personnel
Municipal (Urban) Finance
Issues/reasons for Sorry State

• Lack of Institutional Framework

– Absence of legal framework for PPP.
– Absence of concept of regulatory authority
– Absence of enough financial institutions catering
specific needs of municipal bodies

• Lack of Demand Management

– Over emphasis of supply side of urban infrastructure
First and Foremost Solution to poor state
of Municipal Finance is adopting sound
principles of finance and municipal
(public) finance