Paper Details

ABSTRACT

The study is focused on financing of municipalities in Gujarat state. An investigation into their finances reveals that the share of own sources in own revenue income varies in the range of 22% to 32% during Budget year 2006-07 to 2010-11. This implies that the municipalities are heavily dependent on the state government for grants. Share of grants received from state govt. varies in the range of 45% to 70% during Budget year 2006-07 to 2010-11. Amount of per-capita expenditure incurred by a local body is an indirect indicator of the quality of the services offered by that local body to its citizens. This in turn reflects the quality of life of that town. The study assessing financial sustainability of water supply, waste water & solid waste management services of municipalities in Gujarat state. Further class of municipality compared with its key performance indicators viz. coverage, equity in service delivery, efficiency in service operation, service level indicators. The rapid pace of urbanization has direct impact on the demand of urban services. Questions are beginning to be asked if Indian cities will be able to meet the incremental infrastructure demands that may be generated by the process of economic liberalization and our institutions has capacity to manage the growing needs. The state of Gujarat has always been one of the most urbanized states in the country. Urban centers contribute around 50% to the GDP of India, and this contribution is likely to grow [1]. The 74th Constitutional Amendment Act was an attempt towards empowerment of urban local bodies through functional devolution. However, it listed only the expenditure responsibilities of municipalities and did not specify any sources of revenue for the same. Decentralization and Urbanization are putting increasing pressure on the fiscal position of Municipalities to provide civic infrastructure facilities and services, which continues to be amongst the core functions of the Urban Local Bodies. Hence there is a need to strengthen the finances of the urban local bodies. Municipalities in India are confronted with a number of problems, such as inefficiency in the conduct of business, ineffective participation by the weaker sections of the population in local governance, weak financial condition, lack of transparency in the planning and implementation of projects, etc., which affect their performance adversely. The study aims at analyzing the trends of municipal finances in the state of Gujarat with objectives of examining the provisions relating to income and expenditure of municipalities, assessing the trends in major income sources and expenditures of municipalities analyzing the fiscal performance of urban local bodies with respect to fiscal parameters viz. cost recovery and collection efficiency for water supply, solid waste management and waste water treatment services. State governments determine the fiscal options of municipal governments. Both the expenditure responsibilities and revenue powers of the municipalities are therefore determined by State governments. State laws specify the taxes that municipalities can levy and collect. Constitutionally in-built imbalances in functions and finances assigned to various levels of government reflect in the high dependency of local bodies on state governments and the latter in turn, on the Central Government for funds. Thus the municipalities are faced with fiscal stress as a result of which their capacity to contribute to national development is severely constrained. Cost recovery is considered to be low priority by most of the urban local bodies. The urban local bodies are not quick in revising the rates of taxes while rise in inflation is steep. To affect quick recovery of the taxes positive measures like introduction of incentives, charging interest for arrears, maintenance of proper records are required to be considered. The revenue account can be strengthened by rationalizing the base of existing taxes and improving their collection efficiency. The total income of municipalities in Gujarat grew at CAGR of 22% during 2007-08 to 2011-12. Similarly, the total expenditure has increased at CAGR of 15%. Till 2000-01, Octroi constituted about 50 percent of the ULB’s income. It has been considered as the most buoyant source of income. However, octroi being conceptually a regressive tax was removed from the municipalities in 2000-01. Now property tax is being pushed as the most promising source of revenue for the ULBs and efforts are being made to make relevant reforms to achieve the same. Share of property tax in total tax revenue income is almost about 50% in municipalities of Gujarat.