Navigating the Financial Landscape of Municipal Bodies in India

What Are Their Needs?

Municipal bodies play a critical role in maintaining and improving urban infrastructure and services. Their key needs encompass:

• Maintenance of Infrastructure: This includes storm water drains, underground drainage systems, roads, and public buildings.
• Public Services: Essential services such as water supply, waste management, public health, and education.
• Disaster Preparedness: Managing and mitigating the impacts of seasonal crises, notably during monsoon seasons.

Sources of Revenue

Municipal bodies generate revenue from various sources, including:

• Property Taxes: A major source of income, yet it accounts for less than 1% of India’s GDP.
• Own Tax Revenue: This includes local taxes such as water, electricity, and entertainment taxes.
• Non-Tax Revenue: Income generated from municipal services, fines, and fees.
• Grants and Transfers: Funding received from the central and state governments, including specific purpose grants and general transfers.
• Municipal Bonds: A financing option that allows municipalities to raise capital through the issuance of bonds to the public.

Financial Strain and Expenditure

• Expenditure Areas: Key areas include maintenance and repairs, capital projects, and essential services.
• Challenges: Municipal bodies face high dependency on transfers, limited own tax revenue, and insufficient non-tax revenue.

Breakdown of Financial Strain

1. Brihanmumbai Municipal Corporation (BMC)
   • Property Tax (% of Total Revenue): Decline from 13-19% over the past five years.
   • Capital Expenditure: A significant portion is allocated to essential infrastructure, yet remains underfunded.
2. Municipal Corporation of Delhi
   • Own Tax Revenue: Increased over the years but still relies heavily on central grants.
   • Capital Expenditure: Allocated for essential services but insufficient for comprehensive urban development.
3. Greater Chennai Corporation
   • Property Tax: A major source but limited in scope.
   • Capital Expenditure: Focused on storm water management and urban infrastructure, yet underfunded.
4. Bengaluru Bruhat Mahanagara Palike (BBMP)
   • Own Tax Revenue: Significant but not enough to cover all expenses.
   • Expenditure on Maintenance: High costs for water management and infrastructure repairs.
5. Greater Hyderabad Municipal Corporation (GHMC)
   • Own Tax Revenue: Increased over time but still insufficient.
   • Capital Expenditure: Focused on essential services, yet limited by budget constraints.

Option of Municipal Bonds

Definition: Municipal bonds are debt securities issued by municipalities to finance capital projects such as building infrastructure, schools, and other public works.

• Benefits:
  • Capital Raising: Provides an alternative source of funding for large-scale projects.
  • Financial Stability: Reduces dependency on government grants and transfers.
  • Public Participation: Engages citizens in the development of their cities.

Conclusion

Municipal bodies in India encounter significant financial challenges due to limited revenue sources and a high dependency on grants and transfers. Incorporating municipal bonds as a financing option can help address these challenges by providing additional capital for urban development projects. Addressing these financial constraints is crucial for improving the quality of urban life and ensuring better preparedness for seasonal crises.