Issues associated with Urban Local Government
Urban governance and management have predominantly been the constitutional domain of state government.
These local institutions of urban government have become weak over the years due to many factors, including encroachment on traditional and legitimate municipal functions by creating parastatals and urban development authorities, a weak executive system, fragile fiscal health, and inadequate staffing and expertise in municipal management.
There are various limitations to urban local governance. It can be categorised in the issues in the function, functionaries and financial as follows:
Issues related to Functions:
Under the 74th Constitutional Amendment Act, states have incorporated provisions in their Municipal Acts for transferring additional functions to the municipal body, but it has several issues:
- Huge variation in powers: The extent of functions transferred differs from state to state and also varies from city to city in the same state.
- Not enough powers: The devolution of the function was not satisfactory, as only 18 subjects were given to local urban bodies. Still, states have not devolved all the functions, as states are reluctant to do this.
- Parallel Bodies: In some states, there is some ambiguity regarding the functional domain of Urban Local Bodies (ULBs) and parastatal bodies, making municipal governance further remote and inaccessible for the citizens. The multiplicity of agencies providing various services in the urban sector has led to overlapping, ambiguity, and resource wastage. Over and above that, the parastatal bodies are not elected Bodies and are not directly answerable to the citizens.
- District Collector: Many functions of the local bodies under the mayor in terms of planning come into conflict with the district collector.
- Transfer of functions in Central schemes: For example, Smart cities mission transfers the functions of planning and management to special purpose vehicles (a corporate entity jointly owned by the central and the state governments)
- Weak constitutional Mandate: The 74th Amendment leaves it to the discretion of state legislatures to devolve finances so that ULBs can fulfil their functions.
Issues related to funds:
There are various constraints on the capacity and resources of the municipal bodies. This is the major reason for this difference in their performance.
- High dependence on external resources: Funds were devolved to ULBs through transfer by the Central and State Governments in the form of grants. The fiscal transfers from the Government in the form of grants formed the major portion, i.e. 50.22% of the total revenue for the period 2015-20. Own and assigned revenue constituted 30.04 and 19.74% of total revenue, respectively, during the period 2015-20.
- Resource-expenditure gap: CAG observed that the ULBs in the State were not able to generate their own revenue resources to meet their revenue expenditure during 2015-20. It can be seen in the following chart
- Weak financial powers: There are glaring inter-state disparities in terms of the devolution of financial powers to the ULBs. Some states have not even allowed the municipalities to levy property taxes. There are issues in the levying of property taxes: the tax rate is not being levied periodically, and even the list of taxable properties is not updated periodically; thus, the property tax is not adequately levied.
- Abolition of Octroi: Before GST, the Octroi tax was one of the major sources of income for cities. Pimpri-Chinchwad and Pune are examples of two very high revenue-earning municipalities dependent on octroi. But this is taken away by the State and the central governments.
- Inadequate user charges: While the larger municipal corporations still have access to funds, the smaller municipal councils are financially weak. The provision to levy and collect adequate usercharges is not fully utilised.
- Weak constitutional Mandate: The 74th Amendment leaves it to the discretion of state legislatures to devolve finances so that ULBs can fulfil their functions.
- Delays in issue in grant: State government delays in issuing grants to the ULBs. The delay in the constitution of the SFC and acceptance of its recommendations has a bearing on the assured transfer of funds to ULBs.
- Tied funds: Local authorities have little freedom to use the scheme-related funds independently. Of the total grants recommended by the 15th Finance Commission for Non-Million Plus cities, 40% is a basic (untied) grant, and the remaining 60% is a tied grant.
- The low extent of utilisation of Funds: A comparison of the total expenditure with total revenue for the period 2015-16 to 2019-20 showed that ULBs were able to utilise, on average, about 57% of the available funds each year.
