The State Finances 2021 -- 22 report from the Reserve Bank of India notes that the third-tier of government urban local bodies and municipal corporations have come under severe strain, forcing them to cut down expenditures and mobilise funding from various sources.
The survey also found that revenue lost for municipal corporations was more during the second wave, with 22 per cent of them reporting revenue loss of more than 50 per cent in the second wave compared to 16 per cent in the first wave.
The RBI conducted a qualitative survey of 141 municipal corporations between July and August 2021 and examined the budgetary data on the 20 largest municipal corporations, which account for around 60 per cent of revenue and 55 per cent of the expenditure of all municipal corporations.
The RBI report stresses that the diversion of the municipal corporation funds can have serious consequences for the financial sustainability of cities in the short to medium term. As municipalities and gram panchayats implemented pandemic-related duties, it impacted their ability to provide services to local communities.
The report said that there was a need to strengthen the financial autonomy of civic bodies, strengthen governance structures and financially empower them.
The RBI analysis found that municipal corporations had a fall in revenues and increased expenditure. Both village panchayats and urban municipal corporations struggled for funds, the RBI report said.
The survey found that up to 98 per cent of respondents faced financial challenges, including an increase in expenditure, decline in revenue collection and lack of funds disbursements from the state governments during the second wave of the epidemic.
According to an earlier World Bank study, local authorities would lose between 15 and 25 percent of revenues in 2021.
A decline in revenue was reported by 71 percent of municipal corporations, and 70 percent reported an increase in expenditure.
The COVID- 19 response required municipal corporations to cut core expenditures.
The RBI also looked at the budgets of 20 large municipal corporations. Before the outbreak of the epidemic, the consolidated revenue balance of the municipal corporations was in surplus. The revenue surplus fell in 2020 -- 21, with many of them recording a fall in revenue surplus or an increase in revenue deficit, according to budgetary data relating to 20 large municipal corporations.
The decline in surplus was morepronounced than the increase in deficit, it said.
According to the survey, municipal corporations mobilised additional funding through sources such as borrowing, grants from the states and centre, reserves, municipal deposits in state disaster response funds, issuances of COVID 19 bonds, donations and contributions.
Nearly 43 percent of the respondents reported using grants from the state governments to meet the pandemic-related funding. 19 per cent of the respondents said they were withdrawing from reserve funds to meet the resource gap. Approximately 6 per cent of the surveyed companies borrowed money from state governments and another 2 per cent from banks.
Five companies responding to the survey also issued bonds to finance COVID 19 related expenditure.
The RBI report concluded that local governments suffered from insufficient budgets, overreliance on funds from upper tiers of government, lack of access to new sources of revenue, and limited autonomy, which was further amplified by the COVID 19 crisis. The report stated that this was particularly important at a time when the responsibilities of local governments towards the delivery of public services have increased.