Assessing the Impact of Intergovernmental Transfers on the Fiscal Health of ULBs:

Abstract

In India, Urban Local Bodies (ULBs) are crucial to ensuring the delivery of basic services to the citizens. However, their limited revenue base frequently imposes limitations on their capacity to carry out responsibilities. ULBs have historically been underfunded and lack fiscal autonomy, relying heavily on central and state government transfers known as intergovernmental transfers. Currently, there has been a lack of study to examine the impact of intergovernmental transfers on the fiscal health of ULBs in India, so this is an attempt to explore this study gap. Owing to India's reforms on fiscal federalism, accompanied by the 74th Constitutional Amendment Act (CAA), grants under the Central Finance Commission (CFC) and State Finance Commission (SFC) led to the enhancement of municipal finances. The financial situation of municipal governments in the country has improved although at varying scales across the municipalities due to the intergovernmental transfers and various other reforms. After the abolition of the Octroi which was one of the major sources of own revenue for all ULBs, the state government’s compensation for the Octroi as an assigned revenue to the ULBs also improved the fiscal health of ULBs. Intergovernmental transfers from the state and central government under various schemes have impacted positively on the fiscal health of ULBs to a certain extent. This research shall assess the revenue sources and expenditure flow for service delivery of the municipalities, while identifying obstacles to their financial autonomy, including grant dependency, regulatory limitations, and institutional difficulties. It assessed the fiscal health of the ULB and the impact of intergovernmental transfers on the fiscal health of the ULB by analyzing the trends in capital expenditure for different services provided by the ULB. This study proposes evidence-based interventions toward the fiscal strengthening of municipalities to exploit the input of intergovernmental transfers by providing a methodology to asses its impact on the fiscal health of any ULB. Key Words: 74th CAA, CFC, SFC,, , State Government Grants, Central Government Grants