Fiscal Health of Selected Indian Cities

This paper provides an overview of the
fiscal problems faced by five urban agglomerations in India,
namely, Delhi, Hyderabad, Kolkata, Chennai, and Pune. It
analyzes the fiscal health of the five urban agglomerations,
quantifies their revenue capacities and expenditure needs,
and draws policy recommendations on the means to reduce the
gaps between revenue raising capacities and expenditure
needs. The main findings suggest that, except for five small
urban local bodies in Hyderabad, the others are not in a
position to cover their expenditure needs by their present
revenue collections. All the urban agglomerations have
unutilized potential for revenue generation; however, with
the exception of Hyderabad, they would fail to cover their
expenditure needs even if they realized their revenue
potential. Except in Chennai, larger corporations are more
constrained than smaller urban local bodies. The paper
recommends better utilization of "own revenue"
through improved administration of property taxes,
implementation of other taxes, and collection of user
charges. It recommends that state governments should explore
the option of allowing local bodies to piggyback a small
proportion on their value-added tax collections. Another way
to reduce the fiscal gap would be to earmark a portion of
the sales proceeds from land and housing by state
governments sold through their development agencies for
improvements in urban infrastructure. The paper also
recommends that the State Finance Commissions should develop
appropriate norms for estimating expenditure needs, based on
which transfers from the state to local governments can be decided.