Municipal finance refers to the financial management of local governments or municipalities, which includes planning, budgeting, accounting, and reporting of financial activities. Municipal finance is crucial for the provision of public services and infrastructure to citizens and the overall economic development of a city or town.
In India, municipal finance is mainly regulated by the provisions of the 74th Constitutional Amendment Act, which gave constitutional recognition to urban local bodies (ULBs) and made it mandatory for them to prepare and implement their own plans for economic development and social justice.
Municipal finance in India is primarily generated through property tax, user fees, and grants from the central and state governments. Property tax is the most significant source of revenue for ULBs, which is levied on the value of property or land owned by individuals or entities. User fees, such as water and sewage charges, are also an important source of revenue for ULBs.
In recent years, the central government has launched several schemes to promote the financial sustainability of ULBs, such as the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and the Smart Cities Mission. These schemes provide financial assistance to ULBs for the implementation of infrastructure projects and the provision of basic services.
Municipal bonds are another important source of financing for ULBs. Municipal bonds are debt securities issued by ULBs to raise funds for infrastructure development projects. However, the market for municipal bonds in India is still underdeveloped compared to other countries, and there is a need to develop the market to provide long-term financing options for ULBs.
Urban Local government in most of the states have been empowered to drive their income from several sources such as taxes, fees, fines and penalties and remunerative enterprises. Apart from these, local bodies also depend upon grants and contributions, loans and some miscellaneous sources. There is tradition to classify the sources of finances into four categories viz.
1. Tax revenue.
2. Non-tax revenue
3. Grants and Contributions
4. Loans
According to the study by the National Institute of Urban Affairs Income from taxes constitute about two third of the revenue accounts of the municipalities and over one half of the total income from all the sources. In Punjab and Haryana, the revenue from taxes constitute approximately 80% of the total local bodies income from all sources.
Overall, municipal finance is crucial for the sustainable development of cities and towns in India. With the implementation of effective financial management practices, ULBs can improve their revenue generation, enhance their financial sustainability, and provide better services to their citizens.
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FD Planning Community Forum Discussion
- State Finance Commissions and Rural Local Bodies Devolution of Resources
- Interview with B K Sinha – The Municipal midas
- Municipal bond in India
- Bilateral and Multi-lateral Financial Institutions
- Cost recovery
- Investment needs and Budgeting for Infrastructure and Service in Metro towns
- Subsidy Reduction
- Revenue Sources of Controlling Authorities
- Public Private partnership
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