5.9 Revenue Significance ofMunicipalities

196 Om Prakash Mathur

the state and municipal initiatives taken to improve the finances and functioning ofmunicipalities.We begin with an assessment ofthe size ofthe municipal sector and follow with an analysis ofsector performance on a statewide basis,using three indicators:internal resource generation (own resources),municipal revenue receipts,and revenue expenditures.A number offeatures are noted.

The size ofthe municipal sector in terms ofwhat is raised through municipalities’revenue efforts is tiny—0.63 percent ofthe gross domestic product (GDP).Between 1997/98 and 2001/02,however,the size of the municipal sector registered a marginal expansion,in terms ofboth its share in the total publicly raised revenues and combined GSDP.Municipal share in the total revenues ofthe three tiers ofgovernment rose from 2.84 percent in 1997/98 to 3.07 percent in 2001/02,while relative to GSDP,its share increased from 0.61 to 0.63 percent (table 5.9).Municipal own-source revenues (in nominal terms) have risen at an annual average growth rate of10.32 percent.As a proportion ofthe combined GSDP,aggregate municipal expenditures have also risen from 0.74 percent in 1997/98 to 0.75,0.77,and 0.75 percent respectively in the following years.

Revenue expenditure is a proxy for service levels.The higher the expenditure is,the higher are the levels ofservices.The expenditure levels of municipalities in terms ofsize and trends,and also in terms ofcomposition are given in table 5.10,in an attempt to distinguish between expenditure on salaries and wages (the nondiscretionary component) and other discretionary spending consisting ofexpenditures on the operation and maintenance ofservices.

TABLE 5.9 Revenue Significance ofMunicipalities

Relative share ofown-source revenues (%)

Municipalities’ own-source revenue Percentage State Central Year (Rs million) ofGDP Municipalities governments government

1997/98 84,349 0.61 2.84 33.4 63.8 1998/99 94,517 0.59 2.97 34.3 62.7 1999/2000 103,727 0.59 2.80 34.4 62.8 2000/01 120,184 0.63 2.98 35.1 61.9 2001/02 127,481 — 3.07 39.5 57.5

Source: Mathur and Thakur 2004. Note: — = not available. Figures for municipalities’ own-source revenues are adjusted to reflect the revenues for all statutory towns and cities.