Municipalities in poll-bound Maharashtra are flush with funds, shows RBI report

Municipal corporations (MCs), the third tier of the government in large urban areas, are responsible for local public services.

The Reserve Bank of India (RBI) in a report released on November 13 pointed out that revenue receipts of municipal corporations showed that the top 10 such bodies account for over 58 percent of the total receipts. Leading the ranks is Maharashtra, a state that is headed for an assembly election on November 20.

Municipal corporations, the third tier of the government in large urban areas, are responsible for local public services. They generate their own revenues through taxes and fees, while also receiving grants from the Centre as well as states.

The consolidated budgets of all municipalities indicate a surplus on the revenue account. This surplus fell to Rs 1,034 crore during the covid pandemic (2020-21) from Rs 4,914 crore in 2019-20. It was budgeted higher at Rs 20,819 crore in 2023-24.

At Rs 11,104 crore as per the budget estimates for FY24 Maharashtra’s municipal corporations budgeted the highest revenue surplus, beating 231 other corporations, underlining their fiscal health and urban governance, according to the RBI report.

This is not a surprising development given that Maharashtra includes the Brihanmumbai Municipal Corporation (BMC), one of the richest municipalities in Asia. In fact, in FY22 and FY23 as well, the municipalities in this state held the top spot when it came to revenue surplus.

The revenue receipts of Maharashtra’s municipal corporations were budgeted at Rs 63,371 crore in FY24, with revenue expenditure expected at Rs 52,266 crore. This surplus marks a 40 percent jump from FY23 when revenue receipts stood at Rs 55,370 crore and revenue expenditure was at Rs 47,413 crore.

Maharashtra’s municipal corporations are also expected to see significant growth in their own revenue sources, budgeted at Rs 36,924 crore in FY24, compared to Rs 31,614 crore in the previous fiscal. This includes both tax and non-tax revenues, reflecting their increased financial autonomy.

The financial strength of municipal corporations reflects their efficiency in generating revenue and managing urban infrastructure demands, and is also indicative of lowered dependence on transfers from higher levels of the government, including the Centre.

Maharashtra led the way in expenditure per head, at over Rs 32,000 in FY24, well above the national average of Rs 11,532. Infrastructure development and service delivery are crucial as the demand for high-quality public services rises due to rapid urbanisation.

“The increasing urban population necessitates reliable public services such as water supply, sanitation, transportation and health services,” the report added.

Fees and user charges have emerged as critical revenue streams for Maharashtra’s municipal corporations, surpassing property taxes. This is attributed to the state’s high urbanisation, tourist hotspots and the expansion of municipal services like waste management and transportation.

The report also highlights the fiscal autonomy of Maharashtra’s urban local bodies, with their revenues accounting for 14.1 percent of the state government’s revenue—the second-highest ratio in India after Delhi at 34.5 percent.

“Municipal corporations that rely more on their own revenues enjoy greater financial stability and can plan urban development projects strategically without overdependence on state or central grants,” the RBI report noted.

While municipal corporations in Maharashtra have showcased strong fiscal performance, the report emphasised the need to further develop own-source revenue streams to ensure sustainable growth. This would also help address vertical imbalances in tax and non-tax revenue compared to the state government’s receipts.

“The recent increase in municipal bond financing is a positive development, but it remains modest. The introduction of green bond financing by some MCs is a promising step toward sustainable urban growth,” according to the report.

In the post-goods and services tax era, Maharashtra has compensated its urban bodies for octroi losses, reflecting a proactive approach to maintaining their financial health. However, continued focus on diversifying revenue sources is essential for future urban challenges.

The surplus expected in FY24 by Maharashtra far outstrips other industrialised states like Gujarat, Karnataka, Madhya Pradesh, Haryana and Telangana, each of which budgeted surpluses above Rs 1,000 crore. Additionally, the ratio of capital expenditure to total expenditure for municipal corporations in Maharashtra exceeded 50 percent, placing them among the top-performing states in urban infrastructure spending.

The financial health of municipal corporations is pivotal for India’s urban management and infrastructure development. Policymakers track municipal finances and ensure that spending aligns with broader macroeconomic goals like sustainable growth.