Strengthening Finances of Local Bodies

Abstract

Abstract This chapter focuses on the critical role of local bodies in strengthening the finances of subnational governments (SNGs) It emphasizes the necessity for greater administrative and financial autonomy for local bodies in India. By augmenting their revenue collections, local bodies can effectively deliver services to citizens, creating an environment conducive to economic growth. This, in turn, helps reduce the debt burden on SNGs, as economic growth leads to improved financial health of the SNGs. Drawing lessons from China, the chapter suggests that India can leverage local bodies to simulate economic growth at the grassroots level. Local bodies, specifically urban local bodies (ULBs), play a vital role in providing essential infrastructure and public services, which are crucial for cultivating a competent workforce and aiding economic activity. The rural local bodies in India have limited sources of revenues, with most expenditure supported through intergovernmental transfers. The chapter recommends multiple ways to augment their revenue, for example, focusing on user fees and betterment levies, improving property tax and professional tax collection. Addressing the challenges faced by ULBs, this chapter emphasizes the need for financial autonomy and adequate resources to address India’s urbanization challenge. It suggests measures to augment ULBs’ revenues, including property tax reforms, streamlined collection of user charges, and exploring alternative financing methods such as municipal bonds. The chapter highlights that by empowering local bodies with greater financial autonomy and implementing revenue collection reforms, India can harness the potential of local economic development to drive inclusive and sustainable growth.