Panchayati Raj Institutions: Issues and Challenges

Issues related to Urban local bodies


From UPSC perspective, the following things are important :

Prelims level: Article 243X

Mains level: Paper 2- Making urban local bodies financially strong

The inability of ULBs’ to raise revenue

  • Although it is envisaged that municipal revenue should be 1% of GDP, between 2010 and 2018 revenues declined from 0.48% to 0.43%.
  • As against the municipal revenue of Rs 4,624 per capita, own-source revenue was only Rs 1,975 in 2018 (ICRIER, 2019).
  • This affects the low-levels of municipal services and translates into salary delays for employees.

8-way strategy to increase the revenue of ULBs

1) Increasing the property tax base

  • In India, property taxes only account for 0.15% of GDP, whereas in developing economies they account for 0.6% and the global average is 1.04%.
  • To double the property tax collection the property tax base needs to be expanded using GIS mapping, cross-checking with building licenses, ration cards, mutations, electricity/gas accounts, and review of exemptions.
  • This also needs to cover government properties as per GoI circular 2009 and the SC judgment in Rajkot Corporation vs Railways.
  • Similarly, rates need revision in the guiding value for rent or unit area; for instance, in Delhi, rates are fairly low.
  • The collection process needs to be automated too.
  • ABC (Always best Control) analysis should be done to target the top 10-20% properties, and measures such as attaching bank accounts must be implemented.

2) Upward revision of various fees

  • The value capture taxes need to include upward revision of building license fee and new sources like impact fee, as imposed in Telangana, exactions, and betterment levy like the one imposed in Gujarat.

3) Levy advertisement fee

  • An advertisement fee needs to be levied.
  • Thiruvananthapuram listed the sites and plugged leakages for 33,170 unauthorized boards to double its income from 2018 to 2019.
  • South Delhi MC has achieved a three-time increase with revision of rates in a ratio of 1:8 as per location and by dividing the city into clusters.

4) Local fee

  • Local fee/charges also have immense potential such as (i) recovery on user charges (water, etc) which is only 20% (ii) right of way from gas/electricity and fiber optic lines, (ii) cell tower, (iii) leasing electricity poles, etc.

5) Participatory funding

  • The potential of participatory funding (private sector, CSR, and local community) needs to be tapped.
  • This has been done by Bengaluru, Ahmedabad, Mathura (Hybrid Annuity project), Indore, and Pune.

6) Special attention for assigning and activating the fiscal instrument

  • Sixth, small and medium-sized municipal bodies need special attention for assigning and activating fiscal instruments.
  • Better mobilization of own sources may also lead to revenue account surplus.
  • This has been achieved in Ahmedabad, Pune, etc and it also enables access to the capital market.

7) Revision of Article 243X

  • Article 243X needs suitable revision to allow larger inclusion of fiscal instruments above within the scope of a municipality’s own sources.

8) Creating ULBs as per MoHUA’s advisory

  • Over 3,000 census towns not having city government need special attention to create ULBs in line with MoHUA’s advisory in 2016.
  • It will create an innovative and effective financing framework for sustainable urban development.


Financially strong local bodies hold the key to the development of the country. The steps mentioned here needs to be implemented effectively to make the ULBs financially strong.


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