A Reserve Bank of India study on municipal finances has projected an investment of about Rs 63,000 crore per annum for the ten-year period (2004-05 to 2013-14) for developing urban infrastructure in the country. The projected investment does not include needs for redistributive functions like urban poverty alleviation.
However, assuming a status quo in the federal fiscal relationships in the country, municipal bodies in India can at best raise up to about Rs 27,285 crore annually, said the study titled ?Municipal Finance in India – An Assessment?. Within this, the resources available for asset creation after meeting current expenditure would at best, be of the order of Rs 17,736 crore, implying an annual shortfall of at least Rs 10,000 crore (2004-05 prices), even for providing core urban services, says the study.
Based on the per capita spending on core services by metropolitan municipal corporations, the study indicates that the level of underspending on an average, works out to about 76 %. The study suggests that urban local bodies (ULBs) have considerable scope for debt financing as they have low debt and interest coverage ratios.
Elaborate state government controls on municipal authorities to levy taxes and user charges, to set rates, to grant exemptions, to borrow funds, etc, and on the design, quantum and timing of inter-governmental transfers constrain the ability of the ULBs in mobilising resources, said the study.
The study states that the conventional method for assessing municipal finances in terms of analysis of revenue and expenditure of municipalities may not be appropriate as the ULBs are required to generate a revenue surplus due to statutory requirements. It emphasises the need for developing new benchmarks in estimating the costs of municipal services by constituting new groups and undertaking primary studies.
The study was co-authored by PK Mohanty, mission director, JNNURM along with three members from the RBI.