Engines of growth: Cities 25 years after 74th amendment

While the 73rd amendment to the Constitution was meant to empower rural local bodies with decision-making abilities, revenue generation, and independence in expenditure, the 74th amendment, passed in consonance with the 73rd, tried to mandate and establish systems for growing cities.

In terms of fiscal independence or autonomy, urban local bodies (ULBs) have certainly done better than rural counterparts (RLBs). But, no Indian city can still match any of the metros in advanced economies as yet, even after 25 years of structural change.

Major 23 ULBs analysed by Janaagraha, a Bengaluru-based urban development advocacy, earned about 44 per cent of their revenue from own taxes in 2015-16, with the rest funded by transfers from Centre and the states. For RLBs, the own-tax revenues constitute only 5-7 per cent of the revenue pie.

While the per-person spending by RLBs has been less than Rs 1000, according to the analysis of four states presented in the latest economic survey, urban bodies spend more than Rs 5,000 per person, according to data from Janaagraha.

Due to this, only 20-40 per cent — varying among states — of the funds devolved through state finance commissions (SFCs) and other agencies go to ULBs, while the majority goes to rural institutions of local self-governance, says the latest economic survey. 

For 20-odd cities, compiled data from Janaagraha shows the share of own-tax revenue in the entire revenue is slowly and steadily rising. Capital expenditure — that for infrastructure, especially — too is steadily rising.

After the 12th Finance Commission, the FC grants have risen rapidly, compared to negligible FC grants till 2010.

However, many of the cities under consideration have not set up systems to carry out all functions recommended to municipal bodies in the 74th amendment. Among 18 functions recommended, Mumbai and Pune have devolved 14 functions fully, and one function partially by the end of 2017, according to Janaagraha. Patna, Jaipur, Kanpur, and Lucknow have devolved less than eight.

Recent years have shown substantial growth in revenues of tier-I cities from taxes on property. Data from the Centre for Budget and Governance Accountability tells us that property tax revenues have tripled in select big cities. The situation, however, is not getting better with the same strength in small cities.