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Om Prakash Mathur
proceeds of taxes, duties, tolls, and fees leviable by the state; (b) the determination of the taxes, duties, tolls, and fees that may be assigned to, or appropriated by, the municipalities; and (c) the grants in aid to municipalities from the consolidated funds of the state. Apart from serving the larger purpose of strengthening the forces of decentralization in the country, these amendments have three implications: The system of assigning tax powers and authority to municipalities and sharing the state resources with municipalities was inadequate to meet the financial requirement of municipalities. As municipalities under the provision of schedule 12 acquire additional expenditure responsibilities, several of which have interjurisdictional implications, a new fiscal system may have to be put in place. An institution outside the government framework may be able to better assess the financial requirements of municipalities and devise an appropriate fiscal package for them. As a result of the constitution of state finance commissions, the system of transfers between the state and municipalities has undergone a dramatic shift, with far greater emphasis being given to stability. Several states, instead of sharing individual tax revenues with municipalities, have opted for “pool sharing” of state resources. This system permits municipalities to benefit from the buoyancy of state revenues. In such states, the relative importance of general-purpose grants has declined. In many states, the system of sharing revenues from individual state-level taxes continues. Table 5.7 gives the share of municipalities in states’ resources as recommended by the first state finance commission.
Borrowing by Municipal Governments Municipal government borrowing is regulated by the Local Authorities Loans Act 1914.17 This act specifies purposes for which local bodies may contract a loan, limits on the amount of the loan, duration of loans, security or collateral, and repayment procedures. Subject to these limits, a state government has the flexibility to determine the framework within which local governments (all forms of local bodies including parastatals) can borrow from the market. The framework laid out in the state-level municipal laws contains rules about (a) the nature of the funds on the security of which money may be borrowed, (b) the works for which money may be borrowed, (c) the manner of applying for permission to borrow, (d) the manner of raising
