Context:
Report on Municipal Finances Released by Reserved Bank of India (RBI).
Key Findings:
- Low Revenue Collection – Municipal Corporations (MCs) generate only 0.6% of GDP in revenue (2023-24), significantly lower than the central (9.2%) and state governments (14.6%).
- Heavy Reliance on Transfers – MCs depend heavily on government transfers, with grants from central and state governments increasing by 24.9% and 20.4% respectively (2022-23).
- Municipal Borrowings have risen from ₹2,886 crore (2019-20) to ₹13,364 crore (2023-24).
- Municipal bonds total ₹4,204 crore (0.09% of corporate bonds), mostly privately placed.
Recommendations:
- Enhancing Revenue Sources – Reform property tax using GIS mapping and rationalize user charges.
- Transfers from State Governments – State Finance Commissions (SFCs) should recommend timely state transfers.
- Innovative Financing – Smaller MCs should utilize digitalization and Public-Private Partnership models (PPPs) and explore Municipal Bonds and Green Bonds.
- Financial Transparency – Adopt practices such as the National Municipal Accounting Manual.
Revenue sources of Urban Local Bodies:
- Own Revenue Sources –
- Taxes – This includes property tax (on land and buildings), taxes on vehicles, and other local taxes.
- Non-Tax Revenue – This comes from fees and charges for services like water supply, rent from municipal properties, trade licenses, and fines.
- Intergovernmental Transfers –
- Grants – ULBs receive grants from the central and state governments. These can be general grants or specific ones for particular projects.
- Shared Revenue – A portion of certain state taxes is shared with ULBs. For example, a part of the stamp duty collected by the state might be given to the local bodies.
- Borrowings – ULBs can borrow money through loans or by issuing municipal bonds to finance large projects like infrastructure development.
Source: Economic Times
Previous Year Question
The fundamental object of the Panchayati Raj system is to ensure which among the following?
1. People’s participation in development
2. Political accountability
3. Democratic decentralisation
4. Financial mobilisation
Select the correct answer using the code given below:
[UPSC Civil Service Exam – 2015 Prelims]
(a) 1, 2 and 3 only
(b) 2 and 4 only
(c) 1 and 3 only
(d) 1, 2, 3 and 4
Answer: (c)
Explanation:
The fundamental object of the Panchayati Raj system is to ensure People’s participation in development and Democratic decentralisation.