Revenue Base ofMunicipalities

Local Government Organization and Finance: Urban India 179

Second,the significance ofschedule 12 functions for municipalities lies not so much in enlarging the scope ofmunicipal operations as in the fact that many ofthe functions are drawn from the concurrent list ofthe constitution.At a minimum,this fact would suggest that there is a group offunctions wherein concurrency ofinterests by all three tiers ofgovernment exists. The 1992 constitutional amendment,however,is vague;it does not spell out the responsibilities required oflocal governments regarding such functions as planning for economic and social development,protecting the environment and promoting ecology,and safeguarding the interests ofweaker sections ofsociety.Nor does it enumerate the tasks to be performed by the central and state governments.

Third,many ofthe functions listed in schedule 12 have distributional attributes.This fact both represents a major departure from the past and marks a deviation from the typical Musgrave model offiscal federalism.It is extensively argued in the literature on fiscal federalism that redistribution in a federal system is a central function.Musgrave (1959),for instance,argued in his seminal book that distributive adjustments at local levels can be nullified by interstate movements,adding that conflicting goals for redistribution between the levels ofgovernment could result in a continuous set of adjustments and readjustments without reaching equilibrium.11 For this reason,functions such as poverty alleviation,environmental protection and preservation,and even slum upgrading have continued to lie within the ambit ofcentral and state governments,with a minimal role for municipalities.The 74th amendment has altered this position,without any formal or informal suggestion on how these functions might be financed,with what tax bases,and with what intergovernmental transfer arrangements.

The relative importance ofexpenditure responsibilities varies between states.Comparing the per capita expenditures on different services shows that provision ofwater supply and conservation and sanitation are the key services,followed by sewerage and drainage and citywide roads.However, though conservation and sanitation are important in all municipalities, there is considerable interstate variation with regard to water provision, because in some states it is entrusted to a state- or city-level parastatal agency.Table 5.4 gives the relative importance ofcore services,measured in terms ofper capita revenue expenditure.

Revenue Base ofMunicipalities

The constitution does not lay down the revenue base for municipalities.The power to determine the revenue base—be it the tax authority,tax base,tax