Urban Local Bodies Finances
- March 26, 2022
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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Urban Local Bodies Finances
Subject: Polity
Section: PRI & ULBs
Context: CAG reports that TN Urban Local Bodies face shortage of funds
Present Status of Urban Local Bodies Finances:
- Study conducted by the 15th Finance commission, highlight the following concerning trends in Municipal finances:
- Low municipal revenue to GDP Ratio, which has remained stagnant at around 1% of GDP during the period from 2007 to 2017-18
- The same ratio is 6% for South Africa, 13.9% for United Kingdom
- Declining own revenue: The share of municipal own revenue in total municipal revenues has declined significantly from 55% in 2007-08, to 43% in 2017-18
- Low diversification of tax resources
- At present, property tax remains the only major tax in the municipal portfolio in India, and it has contributed to about 60% to municipal tax revenue in India
- By contrast, municipalities in other parts of the world have access to a much wider basket of taxes
- Inadequate intergovernmental transfers: While share of intergovernmental transfers in municipal revenue has been increasing since 2010-11, it still remains insufficient
- Low per capital expenditure
- Even though per capita municipal expenditure has increased in India, it still lags far behind in per capita spending when compared to other countries
- India’s per capita spending is $17, as against $116 of China
Financial Power of Municipalities
- The State Legislature by law:
- Authorize a municipality to collect, collect and appropriate taxes, duties, tolls and fees.
- Allocate the taxes, duties, tolls and taxes collected and collected by the state government to a municipality.
- Granting of aid to municipalities from the Consolidated Fund of the State.
- Establishment of funds for the credit of all municipal funds.
Ways for raising finances
- Mobilise their own resources by increasing their tax base in terms of property tax, service tax so on
- Issue Municipal Bonds to mobilise funds
- Land monetisation and betterment levy may be tried to ensure land values used for socially relevant purposes.
- Regular Constitution of State finance commission by governor to devolve funds to Local bodies on time.