Local Government Organization and Finance: Urban India
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bringing onto the statute a new tax called the local area development tax. Other states have abolished octrois, notwithstanding their buoyancy, on the ground that they impede the free flow of goods and services and have a cascading effect. State limits on local revenue-raising authority are, of course, not new, nor are they unique to India’s federal structure. In the United States, property tax limits began in the 19th century, originating in Rhode Island in 1870. Central Finance Commissions are set up once every five years. Until the amendment of article 280 (under which they are established), their primary task was related to center-state fiscal relations. State government borrowing is regulated by article 293(3) of the constitution. All state government borrowing is subject to approval by the government of India, which is empowered to impose such conditions as are considered necessary. In addition to the Local Authorities Loan Act 1914, which regulates local government borrowing, several other statutes are relevant. The Public Debt Act 1944 empowers the Reserve Bank of India to regulate the primary issuance of debt securities by the central and state governments. The Companies Act 1956 sets out the code of conduct for the corporate sector in relation to the issue, allotment, and transfer of securities. The Securities and Exchange Board of India regulates primary issuance in capital and debt markets, other than government securities, and ensures sound trading practices in the secondary market through stock exchanges. Expenditure norms for municipal services were established in 1963 by a committee headed by Rafiq Zakaria. Although these norms have lost their relevance, they are still widely used in assessing the level of understanding by municipalities.
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