The finances of municipalities in India are governed by various provisions in the Constitution, statutes, and rules enacted by the central and state governments.
Article 243X:
- Article 243X of the Constitution, which was inserted by the Seventy-Fourth Amendment Act, 1992, empowers the State Legislature to make provisions with respect to the matters enumerated in the Twelfth Schedule, including:
- The levy of taxes by and the allocation of funds to the municipalities.
- The grants-in-aid to the municipalities from the Consolidated Fund of the State.
- The assignment of taxes to the municipalities.
- The representation of the municipalities in the State Finance Commission.
- Any other matter referred to by the President in the interest of sound finance of municipalities.
In addition to Article 243X, various other provisions, laws, and mechanisms govern the finances of municipalities:
- State Finance Commission (SFC):
- The State Finance Commission is a constitutional body constituted by the Governor of the State every five years.
- It recommends the principles governing the distribution of finances between the State Government and the municipalities, as well as among different tiers of municipalities.
- The recommendations of the State Finance Commission are binding on the State Government.
- Grants-in-Aid:
- Municipalities receive grants-in-aid from the State Government as well as the Central Government to meet their expenditure requirements.
- These grants can be both tied (for specific purposes) and untied (for general purposes), and they are essential for municipalities, particularly those with limited revenue-raising capacities.
- Own Source Revenue:
- Municipalities have the authority to levy and collect various taxes, fees, charges, and rents within their jurisdiction.
- These revenue sources may include property taxes, octroi or local body taxes on goods and services, entertainment taxes, professional taxes, etc.
- Transfers from the State Government:
- In addition to grants-in-aid, municipalities may receive funds from the State Government through other channels, such as grants for specific projects or schemes.
- Borrowing Powers:
- Municipalities may also have limited borrowing powers, subject to certain conditions and approval processes.
- However, borrowing is often viewed as a measure of last resort due to the potential implications for municipal debt and financial sustainability.
Overall, the financial autonomy and stability of municipalities depend on a combination of own-source revenues, grants-in-aid, transfers from the State Government, and prudent financial management practices. The Constitution and relevant laws aim to ensure adequate financial resources for municipalities to discharge their functions effectively and efficiently.
