RBI calls for more financial autonomy for the municipalities -

RBI calls for more financial autonomy for the municipalities

Municipal and local bodies have performed well in handling the pandemic hence there may be a case for raising their financial autonomy and reforms of municipal finances for better public services such as healthcare and other civic amenities, a Reserve Bank of India study of state finances show.

A strong fiscal position of local bodies could help them tackle future crisis successfully and also manage higher vaccinations, RBI said in its latest report titled “State Finances: A study of Budgets”. ” As MCs with higher per capita receipts could achieve a higher vaccination rate, strengthening local government finances is key to augment India’s capacity to tackle future health crises successfully” RBI said in its report.

Going forward, increasing the financial autonomy of civic bodies, strengthening their governance structures and financially empowering them via higher resource availability, including through own resource generation are critical for their effective intervention at the grassroot level, the RBI said

The central bank has also outlined several areas of reform of municipal finances like greater fiscal transparency, revitalising the municipal bond market, boosting developmental/infrastructure finance and green finance, exploiting land-based financing opportunities and developing partnerships with impact finance in the private space would all strengthen the third tier, and make it viable and effective, especially in managing and mitigating future crises.

Like in the case of State governments, the finances of the third-tier governments or the local bodies such as municipal corporations and Village Panchayats were impacted severely during the pandemic. Restrictions on movement of people, goods and services, ramping up of health infrastructure, measures taken to protect livelihood and efforts taken to inoculate the citizens in a short span of time inflicted a heavy toll on their finances, RBI said.

In India, statutorily, municipal corporations cannot run a deficit and their revenue receipts must exceed revenue expenditure while presenting budgets. The municipal corporations can resort to borrowings only after explicit approval from their respective state governments. RBI surveys showed that show that around 30 to 35 per cent of the out of 221 corporations it surveyed are severely fiscally stressed on account of lower share of its own revenue or higher dependence on upper tiers of the government or higher share of committed expenditure.

They also took extensive support from private sector and non-governmental organisations (NGOs) to bridge the gap between the steep rise in demand for health and quarantine facilities and the existing infrastructure.

RBI surveys of major municipal corporations in the country indicate that in line with the global experience, the pandemic has worsened the finances of local governments in India substantially in 2020-21 and 2021-22. It is estimated that local authorities would lose around 15-25 per cent of their revenues in 2021, which may make the maintenance of the current level of service delivery difficult to sustain. In rural India, village panchayats struggled for funds during the pandemic. Similar challenges were encountered by the ULBs.

70 per cent of MCs reported a decline in revenue while 71 per cent reported an increase in expenditure. Several MCs had to cut down expenditure on other areas to make available funds for the COVID response. The loss of revenue seems to have been steeper during the second wave. Many corporations reported lack (or delayed release) of funds from the State governments during the second wave of the pandemic, the report said.

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