aRTICLE | Municipal Finance
How is the third tier government faring in terms of finance? Three decades have passed since the idea of Urban Local Bodies (ULB) as third level of government was crystallized into the Constitution, yet there seems a lot remaining to be done. Lack of autonomy, paucity of funds, and procedural hurdles, are some of the issues the ULBs are facing. Even now, financial issues of the ULBs are far from resolved Ayesha Saeed | Reporter
What is the issue?
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40 April 2022 | www.urbanupdate.in
programsor schemes. Non-plan grants are given as compensation for loss of income or some specific transfers Borrowings: These form the smallest share of revenues. They include loans undertaken by the local authorities from Center or State government, banks, etc.
ost of the ULBs in India need to learn to manage their finances for effectively managing their operations. The revenue sources are classified as follows: Tax Revenue: Taxes are an important source of income for the ULBs. They include property tax, octroi, advertisement tax, water tax, sewerage tax, and professional tax. Amongst these, property tax is the biggest source of income for the municipalities. Octroi, once a large source has since been abolished in most ULBs. Non-tax revenue comprises fees levied such as fees on tehbazaari (imposed on hawkers etc.), license fees on cycle rickshaws, bicycles, etc. Non tax revenue: Municipal fees, sale and hire charges, user charges, lease amounts Other receipts: Sundry receipts, lapsed deposits, fees, fines and forfeitures, Law charges cost covered, rent on tools and plants, miscellaneous sales Assigned (Shared) revenue: Assigned or shared revenue is that part of the State revenue, distributed to the urban local bodies from the divisible pool of taxes. Profession tax, surcharge on stamp duty, entertainment tax, motor vehicles tax, etc. Grant in aid: Plan grants are budgetary allocations from the center/ state governments for specific projects,
The Finance Minister in this year’s budget speech acknowledged the growing boundaries of cities and the need to improve cities’ infrastructure. It is estimated that half of India’s population would be living in cities by the time India achieves 100 years of independence. According to 2011 census, 31.16 per cent population was living in cities. By 2050, more than 50 per cent of the country’s population will be urban, as per World Urbanization Prospects. The official data tends to be understated as they may not have included the population living in the urban areas which have not been declared as such, hidden urbanization in cities’ periphery. Planners are unanimous on the fact that cities will, therefore, be at the center of all development activities. This underlines the growing significance of ULBs, granted constitutional status through the 74th Amendment Act, 1992. It granted them the status of third tier governments at the local level defining its scope, powers and functions. However, it did not include any specifics on the regulation of finances. The powers of financial regulation have been entirely devolved to the State Finance Commission (SFC). The problem is that the SFCs, along with the Finance Commission of India, are advisory bodies. In order to implement their recommendations
