Latest News | Municipal Corporations Need to Explore Innovative Financing Mechanisms, Says RBI Report

Mumbai, Nov 10 (PTI) Municipal corporations need to explore different innovative bond and land based financing mechanisms to augment their resources, said a Reserve Bank report released on Thursday.

In India, revenues of Municipal Corporations (MCs) are dominated by property tax collections and devolution of taxes and grants from upper tiers of government.

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This results in lack of financial autonomy, said the RBI's Report on Municipal Finances.

It also pointed out that the size of the municipal budgets in India are much smaller than peers in other countries.

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"MCs need to adopt sound and transparent accounting practices with proper monitoring and documentation of various receipt and expenditure items, and explore different innovative bond and land based financing mechanisms to augment their resources," said the first edition of the report.

The report is compilation and analysis of budget data of 201 MCs across all states, and explores 'Alternative Sources of Financing for Municipal Corporations' as its theme.

MCs' committed expenditure in the form of establishment expenses, administrative costs and interest and finance charges is rising, but capital expenditure is minimal, the report pointed out.

"MCs mostly rely on borrowings from banks and financial institutions and loans from Centre/State governments to finance their resource gaps in the absence of a well-developed market for municipal bonds," it added.

The ratio of revenue expenditure to capital expenditure of MCs was at 2.4 as against 7.1 for the Centre and 5.9 for states in 2017-18.

Various factors, like size of the MC, population density, and nature of expenditure of the parent state government, have impacted the quality of expenditure of municipal corporations in India.

The revenue receipts of MCs -- consisting of own tax revenue, own non-tax revenue and transfers -- were estimated at 0.61 per cent of GDP in 2017-18 and were budgeted to increase to 0.72 per cent of GDP in 2019-20 (based on sample used in the report).

Own tax revenue, comprising property tax, water tax, toll tax and other local taxes, accounted for 31-34 per cent of total revenue during the period under the study.

Large variations are observed, with MCs in Delhi, Gujarat, Maharashtra, Chandigarh and Chhattisgarh collecting higher taxes relative to others, the report added.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)