Report On Municipal Finances : RBI
The Reserve Bank of India (RBI) has released the Report on Municipal Finances, compiling and analyzing budgetary data for 201 Municipal Corporations (MCs) across all States.
- The RBI Report explores ‘Alternative Sources of Financing for Municipal Corporations’ as its theme.
- There have been several lacunae in the working of MCs and no appreciable improvement in their functioning despite institutionalisation of the structure of local governance in India.
- The availability and quality of essential services for urban populations in India has consequently remained poor.
- Most municipalities only prepare budgets and review actuals against budget plans but do not use their audited financial statements for balance sheet and cash flow management, resulting in significant inefficiencies.
- While the size of the municipal budgets in India are much smaller than peers in other countries, revenues are dominated by property tax collections and devolution of taxes and grants from upper tiers of government, resulting in lack of financial autonomy.
- Minimal Capital Expenditure committed expenditure in the form of establishment expenses, administrative costs and interest and finance charges is rising, but capital expenditure is minimal.
- 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.
- Municipal revenues/expenditures in India have stagnated at around 1 % of GDP (Gross Domestic Product) for over a decade.
- In contrast, municipal revenues/ expenditures account for 7.4 % of GDP in Brazil and 6 % of GDP in South Africa.
- Governments have not set up State Financial Commissions (SFCs) in a regular and timely manner even though they are required to be set up every five years.
- Accordingly, in most of the States, SFCs have not been effective in ensuring rule-based devolution of funds to Local governments.