While occupying just 3 per cent of India’s total land, cities contribute 60 per cent of GDP. But the urban local bodies will not be in a position to operate as engines of economic growth and job creation unless the union and states agree to proportionate revenue sharing with them, say experts. 

“Everybody has to push for more revenue for cities,” said the former finance secretary and chairman of the 13th Finance Commission, Vijay Kelkar. The State and Union Governments should reduce their GST share by one per cent each and allocate this two per cent GST share to municipal corporations at the collection stage itself. Municipal corporations could fight resource scarcity to some extent with this arrangement, he told businessline

The NITI Aayog and Asian Development Bank in the study titled ‘Cities as Engines of Growth’ released in May 2022 said economic dynamism in cities is primarily limited to Bengaluru, Delhi, Chennai, Mumbai, Kolkata, Hyderabad, and Pune. 

“It is clear that the State and Union Finance Commissions have failed to provide support to cities. Cities need funds to develop and grow, and must get their share of revenue to fuel their growth, or else we will have to face a major urban crisis,” said former IAS officer Mahesh Zagade. Such a crisis could have a major impact on the economy. he said.    

Kelkar adds that big cities like Mumbai don’t need help from the government, but its share of revenue proportionate to taxes. 

“Despite an annual budget of more than Rs 45,000 crore, Mumbai Municipal Corporation is unable to provide even basic amenities such as roads and water to its citizens. Other metropolises face the same situation. After the scrapping of octroi, which was a major source of revenue for the civic bodies, cities have to depend on the State and Union Government for support. This has crippled the civic bodies,” said a Maharashtra government official requesting anonymity.     

Smaller cities facing crisis 

While major metropolises are struggling to strengthen their place as engines of growth, smaller cities are unable to cope with the financial crisis. 

The NITI Aayog report states that apart from big cities, even other cities are not meeting their potential to serve as engines of economic growth and job creation because of inadequate investment in urban infrastructure and fragmentation of responsibilities and limited ownership of economic initiatives between urban local bodies and state government agencies. Also, there is a lack of business- and investment-friendly initiatives and regulations in the urban and peri-urban areas, according to the study. 

Reports had earlier indicated that smaller cities were emerging as counter-magnets to big megapolises, attracting inter-state migrant populations. The first ever estimate of internal work-related migration using railways data for 2011-2016 indicates an annual average flow of close to 9 million people between the States.