The municipal corporations (MC) in the country need to explore different innovative bond and land based financing mechanisms to augment their resources, said a Reserve Bank of India’s study.
In a first ever comprehensive analysis of Municipal finances, it said MCs need to adopt sound and transparent accounting practices with proper monitoring and documentation of various receipt and expenditure items. The study on the theme — ‘Alternative Sources of Financing for Municipal Corporations’ covered 201 municipal corporations (MCs) across all States.
The rapid growth of urbanisation in India has not been accompanied by a corresponding increase in urban infrastructure, which is reflected in the performance of the urban local bodies, especially MCs, it added.
The size of the municipal budgets in India are much smaller than peers in other countries. However, revenues are dominated by property tax collections and devolution of taxes and grants from upper tiers of government, resulting in lack of financial autonomy, RBI said.
MCs’ 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 and State governments to finance their resource gaps in the absence of a well-developed market for municipal bonds.