1.Fiscal Empowerment of Municipal Bodies (Municipal Finance)
What & Where
Urban Local Bodies (ULBs): constitutionally recognised city governments under 74th Constitutional Amendment Act, 1992.
Types: Nagar Panchayat, Municipal Council, Municipal Corporation across Indian States/UTs.
Context: Urban India generates ≈65 % GDP, yet ULBs control <1 % national tax revenue, causing fiscal mismatch.
Quick Facts for MCQs
Fiscal Imbalance
- Grants-dependence: tied/discretionary transfers delay projects, hinder planning.
- GST effect: octroi & entry tax subsumed, shrinking own revenue by ~19 %.
- Service-fund gap: ULBs manage waste, housing, climate resilience without matching fiscal tools.
Legislative Framework
- 74th CAA: Part IX-A, State Election Commissions, reservations, five-year polls ensured urban self-governance.
- Finance Commissions: 12th FC pushed GIS-based property tax; 14th FC enabled vacant land levy authority.
- Credit-rating lacuna: metrics ignore predictable state/central transfers, lowering borrowing potential.
Reform Measures
- Incentive schemes: AMRUT 2.0 & SASCI reward property-tax reforms, bond issuance for capital projects.
- Proposed fixes: treat shared taxes as stable income, allow GST compensation as borrowing collateral, adopt formula-based transfers.
- Innovative finance: promote Social Stock Exchanges, Value Capture Financing, PPPs to fund urban infrastructure.
Key Data Points
| Feature | Data-Point |
|---|---|
| 74th Amendment year | 1992 |
| Constitutional articles | 243P–243ZG |
| Schedule listing ULB functions | 12th Schedule |
| Urban share of national GDP | ≈ 65 % |
| ULB share of national tax | < 1 % |
| Revenue loss post-GST | ≈ 19 % |
| Mandatory ULB election cycle | 5 years |
| SASCI Part-IV release (2023-24) | ₹ 3,298.23 crore |
| Cities with municipal bonds | Ahmedabad, Pune, Surat, Hyderabad, Lucknow |
| Finance Commission urging vacant-land tax | 14th FC |
Related UPSC Prelims PYQs
89. Which one of the following is incorrect in respect of Local Government in India?
Which of the following is/are among the noticeable features of the recommendations of the Thirteenth Finance Commission?





