NEW DELHI: Multiple audits by the Comptroller and Auditor General have revealed that urban local bodies (ULBs) across states are struggling with weak financial management, generating only 32% of their revenue from internal sources. This heavy reliance on Union and state govt funding has left ULBs in a state of persistent financial crisis. On average, only 29% of current expenditures by ULBs is allocated to development works and implementation of civic programmes.
These findings have been highlighted in the Compendium of Performance Audits on the implementation of the 74th Constitutional Amendment by the CAG in 393 ULBs across 18 states, including Andhra Pradesh, Assam, Himachal Pradesh, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Rajasthan and Tamil Nadu between 2014 and 2021. The landmark amendment of 1992 gave constitutional status to these self-govt entities and had laid down the provisions for devolution of 18 functions — including urban planning, regulation of land use and construction, water supply, planning for economic and social development and public health — to the urban local bodies.
The auditor has highlighted that the states had shown weak compliance with the “in-spirit reading” of the amendment and only four of the functions devolved to urban local bodies were with “complete autonomy” even 30 years after the law came into force.
As per the compendium, which was released this week, the federal auditor observed unrealistic budgeting across the ULBs in 13 states, with maximum budget variance of 403% in receipts and a high 274% budget variance in expenditure in Himachal Pradesh. The other states that have high variance include Odisha, Rajasthan, Punjab, Haryana, Karnataka, Kerala and Telangana.
The CAG has also found that in 11 states, civic bodies were facing a 42% gap between their own revenue and expenditure. It said the ULBs are largely dependent on grants as they are unable to generate adequate funds. On average, grants constituted about 56% of the total revenue of the 17 states analysed by the CAG. It found that the share of grants to the total municipal revenue of states such as Uttarakhand, Jharkhand and Tripura has been more than 85%. “A higher share of municipal own revenue can make a significant impact on the financial sustainability of ULSGs (read ULBs),” it said.
As per the report though property tax on land and buildings is the mainstay of ULBs own revenue, the audit observed that while municipal laws have authorised these entities to collect taxes like property tax, powers pertaining to the fixation of rates and revision, the procedure of collection, method of assessment, exemptions and concessions are vested with state govts. They also have limited autonomy over profession tax, water charge, solid waste management cess/ charge and entertainment tax.
“The lack of complete autonomy for ULSGs with respect to taxes and user charges limits their ability to adequately raise revenues commensurate with the cost of operations and maintenance,” it said.
The report mentioned that limited financial autonomy and weak financial management of UBLs appear to result in low fund utilisation and on average, ULBs in 11 states have utilised only 61% of the funds made available to them, potentially impacting municipal service delivery.
“The CAG’s compendium is a very timely reminder to us of the urgency to strengthen urban local governments. Hopefully these audit reports which have been placed in state legislative assemblies will finally make the agenda of decentralisation politically salient, in a positive way. Our cities cannot be effectively governed by state governments and parastatals alone. ULSGs are our first mile govt. Globally too, no city in the world offers ease of living and ease of doing business without autonomy and empowerment,” said Srikanth Viswanathan, CEO of Janaagraha, an NGO working on urban governance.