Except Mumbai, large municipal bodies hugely dependent on govt for grants: Study
Milind Mhaske, chief executive officer of Praja Foundation said multiple aspects need to change to improve this poor financial situation of cities
NEW DELHI: Except for Mumbai, municipal bodies of the largest Indian cities such as Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Jaipur, and Kolkata, depend on grants from state and central governments for a significant portion of their income, a new analysis by Praja Foundation released on Thursday found.
These findings are based on financial data gathered from 43 cities across 28 states and two union territories for seven financial years between 2017-18 and 2021-22. This conclusion, which reflects the poor financial situation of Indian cities, is consistent across large metropolises and smaller urban centres.
While Jaipur fares the worst among the biggest 10 cities, with grants accounting for 73% of its income, Delhi’s civic body depends on grants for one-third. In contrast, Mumbai, the most financially independent city, receives only 20% of its income through grants.
The situation is no different in cities with populations between one and three million with an average dependency of 61.89% on grants for income while the same for sub-million population cities is 63.98%. Patna has the highest average percentage share of grants to total income of 82.56%. Dehradun, a sub-million population city fares worst in its category with 92.29% of its income coming through grants. Other than grants, cities earn through their own source revenue (rental income, user-free), property tax and other taxes.
The analysts explained that a healthy financial system can support the capital development of the city and lack of that leads to limited funds for the establishment and administrative expenses, but their own-source incomes have not gone up when accounted for inflation.
The authors also noted that the introduction of GST and the abolition of octroi has resulted in a significant reduction of municipal income. In fact, Mumbai has registered a negative growth in real tax revenue (CAGR or compound annual growth rate) terms at 13.80%. “Octroi was the main source of revenue for Mumbai, but the loss of this revenue source due to the implementation of the Goods and Services Tax (GST) has significantly impacted the revenue generation for Brihanmumbai Municipal Corporation (BMC),” the report said.
In this context, the average real tax revenue CAGR for the seven most populous cities after Mumbai is -0.75%. Ahmedabad fares best with a real growth of 4.22% while Jaipur fares worst with a -9.21% in CAGR terms. For cities with a population between one to three million is 7.76% nominally and 3.88%.in real CAGR terms. Kanpur with a real tax revenue growth of 10.59% growth fares best among sub-million cities while the average is 3.88%.
The trend is similar for property tax collection growth with real property tax in Mumbai being 0.5% while the average of Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Jaipur, and Kolkata registering a negative growth of 0.65%. Ahmedabad has the highest growth with 4.63% in real CAGR terms while Jaipur fares worst with -9.21%. Among the mid-size cities Nagpur fared best with 22.75% growth and Vishakhapatnam with the worst with 2.22%.
Even in its own source revenues, Mumbai is better than all other Indian cites. While Mumbai has an average per capita own source revenue of Rs17,807.05. Other cities lack far behind with Delhi having less than third of Mumbai’s. The average per capita own source revenue for the seven most populous cities is ₹3,600.79. Hyderabad has the highest average per capita own source revenue of ₹6,184.14 while Jaipur correspondingly has the lowest of ₹472.69. Cities with population of 1 to 3 million fare worse in per capita own source the average being ₹1,622.55. Coimbatore and Patna are the best and worst in the category with per capita own source incomes of ₹3,248.8 and ₹437.19 respectively.
Milind Mhaske, chief executive officer of Praja Foundation said multiple aspects need to change to improve this poor financial situation of cities. “One of them is devolution of funds as per state finance commissions is not transparent unlike in the case of funding to states from central finance commission, so this is the role of the state government.”
Other than that, he said, cities in Maharashtra and Gujrat have traditionally collected taxes better, which can be emulated by other states. “In both these states, another commonality is that there is a strong municipal accounts cadre which ensures efficiency and enables them to access capital from markets “ he added.
