Civic bodies must enhance their revenue sources, says RBI report

“Despite significant responsibilities, civic bodies’ revenue receipts are quite modest (0.6 percent of GDP in 2023-24) and pale in comparison to those of the Centre and states (9.2 percent and 14.6 percent of GDP in FY24, respectively,” the report said.

The surplus in FY24 was budgeted at above Rs 1,000 crore in states like Maharashtra, Gujarat, Karnataka, MP, Haryana and Telangana, led by Maharashtra (Rs 11,104 crore).

Own tax revenue, inclusive of property tax, water tax, electricity tax, education tax and other local taxes, constituted 30 percent of total revenue in FY24, with significant variations across states.

The report also noted that the demand for high-quality public services in urban areas is growing rapidly with a rising urban population.

The elasticity of property tax revenue, the predominant source of tax revenue for a municipal body, can be improved through adopting property tax formulae which are more reflective of property valuation, it said. However, it added, “Yet municipal corporations invested with this responsibility generate limited revenue and rely heavily on the upper tiers of the government for their funding needs, limiting their operational flexibility.”

Since civic bodies remain heavily reliant on the Centre and state for their funding needs through revenue transfers, the report said “a state-level rule-based system of compensation and transfers, including the regular setting up of state finance commissions assumes importance.”