Civic bodies need major reforms to enhance revenue sources: RBI report

Central bank says revenue sources not adequate for meeting revenue expenditure of most of the MCs, which affects their functional and financial autonomy

The Municipal corporations (MCs) in the country need comprehensive reforms to boost their own sources of revenue through tax reforms, rationalisation of user charges, and strengthening of collection mechanisms to plug leakages, according to a report released by the Reserve Bank of India (RBI) on Wednesday.

 

The report titled ‘Own Sources of Revenue Generation in Municipal Corporations: Opportunities and Challenges’ analysed the budgetary data for 232 MCs, covering more than 90 per cent of the total MCs in the country.

 

While the revenue account of the MCs has remained in surplus, their heavy reliance on transfers and grants from upper tiers of government continues. The own revenue sources are not adequate for meeting the revenue expenditure of most of the MCs. This affects their functional and financial autonomy, it said.

 

 

The revenue receipts of MCs rose by 20.1 per cent year on year (Y-o-Y) to Rs 1.7 trillion till March 2024 (FY24). In the preceding year, their revenues were Rs 1.42 trillion, and Rs 1.37 trillion in FY22. 

The share of own resources in receipts stood at 61.9 per cent (Budget estimates) in FY24, up from 59.7 per cent (revised estimates) in FY23.

 

The report said the municipal revenues, which were hit during the COVID-19 pandemic in 2020-21, recovered in 2021-22 and 2022-23. Despite significant responsibilities, the revenue streams of municipalities are limited and pale in comparison to those of State and Central governments. The revenues of MCs show concentration, with the top 10 MCs accounting for over 58 per cent of the total municipal revenue receipts in India, it said.

 

The revenue expenditure of MCs grew by 13.9 per cent to Rs 1.49 trillion in FY24 from Rs 1.31 trillion in FY23 and Rs 1.23 trillion in FY22.

 

The consolidated budgets of the municipalities indicate a surplus in the revenue account. The surplus fell to Rs 1,034 crore in 2020-21 from Rs 4,914 crore in 2019-20. It was budgeted higher at Rs 20,819 crore in 2023-24.

 

The report said the property tax revenues of MCs would benefit from steps like the adoption of Geographic Information System (GIS) mapping, digital payment systems, dynamic valuation systems, and better monitoring to plug leakages.

 

Timely and direct transfers from the state governments to the MCs remain crucial for their financial stability and effective service delivery. The municipal corporations should be compensated adequately and predictably through a clearly defined formula that accounts for the revenue foregone, adjustments for inflation, and the growth potential of the city economy.

 

The state finance commissions (SFCs), which recommend the magnitude and frequency of the grants and transfers from the state governments, must be formed regularly. The reports from SFCs must be tabled in state assemblies and their recommendations implemented in a time-bound fashion, it added.