Context: 

• An effective local government at the grassroot level can not only promote healthy urban growth but also ensure ease of living for the population.

About Local governments in India

• Urban Local Bodies (ULBs) are institutions that administer cities or towns with a specified population. 
• Created in: In India, local governments in cities are established in accordance with the 74th Amendment Act, which creates the ground for democratic decentralization in urban areas. 
• Functions: These local bodies are entrusted with functions related to welfare, public health and safety, infrastructural works and other activities related to city development. 
• Types: Municipal corporations, municipalities, notified area committees, and town area committees are some types of urban local bodies. 

Mandate of 74th amendment Act in ensuring adequate funding to urban local bodies

• The ways mandated under the 74th Amendment act, through which adequate funding of municipalities is envisaged are as follows:
• Means for creating their own revenue: The 74th Amendment to the Constitution gives state legislatures the authority to enact levies that support local government budgets.
  • Accordingly, it is constitutionally required for state governments to establish means for ULBs to raise money. 
  • They should provide ULBs authority to impose taxes on behalf of municipalities and collect funds on their behalf. 
  • This covers taxes, duties, fees, and other assessments that local governments may levy and collect in accordance with the rules outlined in state law. 
• Distributing the created revenue: The state government may also levy and collect taxes, duties, fees, and other similar charges, of which a portion is then distributed to the municipalities. 
• State grants-in-aid: State grants-in-aid provided to the municipalities and establishment of funds for municipal crediting and withdrawal of funds. 

Issues and challenges

• • Lack of adequate resources: 
    • According to the Reserve Bank of India, financially starved Indian cities are unable to create the resources needed to offer their residents high-quality facilities and services. 
    • India’s access to basic urban infrastructure falls short of what has been accomplished in the OECD and other BRICS countries. 

• Financial Paucity

• • Small Budget size: According to the report on municipal finances by the Reserve Bank of India, the aggregate budget size of the municipal corporations in India is significantly less than those of the Central and state governments. 
  • Lack of transfer of financial authority: The transfer of duties from the national and subnational governments to local governments has not always been accompanied by a corresponding transfer of financial authority.
  • Heavy dependence on subsidies: Municipal corporations in India rely heavily on subsidies from the Central and state governments to cover their spending needs because they have few other sources of income. 
  • Over-reliance on property taxes has prevented local governments from fully utilizing other revenue streams such as trade permits, entertainment taxes, mobile tower taxes, solid waste user fees, water fees, and value capture finance. 
  • Less own revenue: The proportion of municipal corporations’ own sources of income decreased from 89.1 per cent of total earnings in 1960-1961 to roughly 65 per cent in 2012-2013. 

Way forward

• • Financially independent: 
    • According to the third State Finance Commission Report of Uttarakhand (2018-19), the ULBs in India must increase their efficiency in collecting parking fees, advertisement taxes, user fees, lease rentals, and property taxes.
    • The 14th Finance Commission recommended that municipalities be enabled to levy vacant land tax.

• Ease resource restrictions: The focus should be on easing resource restrictions for the operation of ULBs when developing capacity for sustainable urbanization. 

• Digitization: 
  • A web-based e-governance system can be participatory and improve the effectiveness of local governments’ operations.
  • The range of e-services can be much expanded
    • Recent initiative of municipal corporations to establish web-based property tax payments is a significant milestone in this direction. 
• Ensuring greater citizen participation: Greater public participation and better public service delivery will be made possible by modernizing local governance systems and getting them to work closely with local communities in accordance with a clear and effective administrative structure.

Conclusion

• As noted in the Sustainable Development Goal (SDG) 11: Sustainable Cities and Communities, an effective city government is essential for sustainable development. 
• In order to create inclusive, secure, resilient, and sustainable cities, national development strategies must be put in place.