Based on data from 232 municipal corporations, the report, released on November 13, highlights growing dependence on transfers from both central and state governments, while encouraging reforms to bolster local revenue sources.
Of the total ₹14,731 crore, ₹7,067 crore came as Finance Commission grants, while the remaining ₹7,664 crore was from other central sources. Grants from state governments rose by 20.4% to ₹41,872 crore, reflecting continued reliance on these transfers to sustain municipal functions.
Between FY20 and FY23, transfers from state governments, including assigned revenues, State Finance Commission (SFC) grants, and other compensations, contributed around 30% of municipal revenue receipts, a figure budgeted at 28.7% for FY24. Contributions from the Centre remained modest, accounting for 2.5% of total revenue receipts.
Also read: View | India’s inflation is high but that’s not RBI’s only worry
Despite recording revenue account surpluses, municipal corporations remain heavily reliant on grants, limiting their operational autonomy, the RBI noted.
The report suggests enhancing property tax systems — by using Geographic Information Systems (GIS), digital payments, and refined valuation models — to increase efficiency and revenue, reducing leakage.
The report reveals that property tax and user charges remain underdeveloped across municipalities, impacting fiscal autonomy. The RBI has called for a state-specific strategy focused on strengthening municipal finances through better enforcement, institutional capacity building, and financial transparency.
After revenue setbacks during the pandemic, municipal revenue receipts grew by 22.5% in FY22, though this moderated to 3.7% in FY23. They are budgeted to rise by 20.1% in FY24, though they still represent only 0.6% of the GDP, compared to 9.2% and 14.6% for the central and state governments, respectively.
Also read: RBI retains SBI, HDFC Bank, ICICI Bank in too-big-to-fail list
Surpluses are expected in states such as Maharashtra (₹11,104 crore), Gujarat, and Karnataka, while states like Kerala, Uttar Pradesh, and Jharkhand have budgeted for deficits.
The nascent Indian municipal bond market, with ₹4,204 crore in outstanding municipal bonds as of March 2024 (0.09% of corporate bonds), was also highlighted as a potential avenue for long-term funding.
About The Author
