Fiscal Health Of Selected IndianCities

Abstract

This paper provides an overview of the fiscal problems faced by five urban agglomerations in India, namely, Delhi, Hyderabad, Kolkata, Chennai, and Pune. It analyzes the fiscal health of the five urban agglomerations, quantifies their revenue capacities and expenditure needs, and draws policy recommendations on the means to reduce the gaps between revenue raising capacities and expenditure needs. The main findings suggest that, except for five small urban local bodies in Hyderabad, the others are not in a position to cover their expenditure needs by their present revenue collections. All the urban agglomerations have unutilized potential for revenue generation; however, with the exception of Hyderabad, they would fail to cover their expenditure needs even if they realized their revenue potential. Except in Chennai, larger corporations are more constrained than smaller urban local bodies.This paper-a product of the Poverty Reduction and Economic Management Division, World Bank Institute-is part of a larger effort in the department to reform fiscal management for better governance. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at simantib@nipfp.org.in.The paper recommends better utilization of "own revenue" through improved administration of property taxes, implementation of other taxes, and collection of user charges. It recommends that state governments should explore the option of allowing local bodies to piggyback a small proportion on their value-added tax collections. Another way to reduce the fiscal gap would be to earmark a portion of the sales proceeds from land and housing by state governments sold through their development agencies for improvements in urban infrastructure. The paper also recommends that the State Finance Commissions should develop appropriate norms for estimating expenditure needs, based on which transfers from the state to local governments can be decided.

Financing India’s Urban Infrastructure

“…Importantly, even full realisation of available revenue instruments would be insufficient to cover municipal revenue shortfall (Bandyopadhyay and Rao 2009). It is, therefore, imperative to look for new municipal revenue sources that have a broad base, high buoyancy and are relatively simple to administer.…”

Urban Governance and Finance in India

“…Two-tier structures already exist in many Indian cities. For example, Hyderabad Municipal Corporation has 11 municipalities, Chennai Municipal Corporation has 36 municipalities, and Kolkata has 41 municipalities within its area (Bandyopadhyay and Rao, 2009). In principle, the two-tier model may have potential advantages over the one-tier model owing to its greater responsiveness, efficiency and accountability.…”