2. CONTENT
1. INTRODUCTION TO URBAN FINANCE
2. HOW STATE & LOCAL GOVERNMENTS SHARE
FINANCES?
3. CENTRAL GRANTS TO LOCAL GOVERNMENTS
4. EXAMPLES OF URBAN FINANCES
5. FINANCIAL PERSPECTIVE OF URBAN
INFRASTRUCTURE
6. WATER SUPPLY AND SEWERAGES
7. LAND DEVELOPMENT
8. HOUSING FINANCE
9. URBAN TRANSPORTATION AND ROADS
10. INTRODUCTION TO MUNICIPAL FISCAL
ADMINISTRATION
11. REVENUE GENERATION
12. NON-TAX REVENUE – FEES & CHARGE
13. CHALLENGES IN LOCAL TAX COLLECTION
14. PROPERTY TAX- BACKBONE OF MUNICIPAL FINANCE
15. COMPARATIVE TABLE: PUNE VS. BENGALURU -
MUNICIPAL FINANCE
16. CHALLENGES IN LOCAL TAX COLLECTION:-
17. RENT CONTROL SYSTEM
18. REFERENCES
3. INTRODUCTION TO URBAN FINANCE:-
Urban finance refers to the planning, sourcing, allocation and management of financial resources required to deliver urban
infrastructure, public services and promote sustainable urban growth.
Why It Matters:
• Funds essential services like water, roads, sanitation, housing
• Enables inclusive and resilient urban transformation
• Supports local governance, equity and service delivery
📊 According to UN-Habitat (2019), inadequate financing is the most common reason for urban infrastructure failure in developing
countries.
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4. 4
HOW STATE & LOCAL GOVERNMENTS SHARE FINANCES?
Revenue Sharing Mechanism
• State Governments collect taxes and share funds with local bodies (Stamp Duty, Professional Tax).
• Local Governments rely heavily on state grants due to limited revenue sources.
State Finance Commissions (SFCs)
• Established under 73rd & 74th Amendments of the Constitution.
• Recommend resource-sharing methods between states and local governments.
CENTRAL GRANTS TO LOCAL GOVERNMENTS:-
The Central Government provides grants-in-aid to local bodies:
1. Finance Commission Grants
• Allocated by the Central Finance Commission every 5 years.
• Ensures equitable distribution of financial resources.
2. Centrally Sponsored Schemes (CSS)
1. Smart Cities Mission – 1,000 crore per city for urban development.
₹
2. AMRUT (Atal Mission for Rejuvenation & Urban Transformation) – Water supply, sewerage systems.
3. PM Awas Yojana – Affordable housing development.
5. Examples of Urban Finances:-
1.Property Tax – Collected annually by Bengaluru’s BBMP from residential and commercial properties.
2.User Charges – Delhi Jal Board charges households for water supply and sewerage services.
3.Municipal Bonds – Pune Municipal Corporation raised 200 crores through bonds for water supply projects.
₹
4.Government Grants – Smart Cities Mission provides 100 crore per city from central government.
₹
5.Public-Private Partnership (PPP) – Hyderabad Metro Rail developed via PPP with L&T.
6.Land Monetization – Delhi Development Authority (DDA) auctions surplus land for housing projects.
7.Value Capture Financing – Mumbai Metro Line 3 uses betterment charges and development fees.
8.International Loans – Chennai Storm Water Drain Project funded by the World Bank.
9.Green Bonds – Ghaziabad Municipal Corporation issued green bonds for solar and waste projects.
10.CSR (Corporate Social Responsibility) Funding – Tata Trusts contributed to sanitation infrastructure in various Indian cities.
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6. FINANCIAL PERSPECTIVE OF URBAN INFRASTRUCTURE:-
Urban infrastructure underpins a city’s livability, growth and resilience. Financing it
involves mobilizing and managing large-scale resources to build and maintain essential
services.
Key Urban Sectors Requiring Investment:
1.💧 Water Supply & Sewerage
– Infrastructure like pipelines, treatment plants, STPs
– Challenges: Non-revenue water, affordability vs. cost recovery
– Funded via AMRUT, PPPs, user charges, multilateral loans
2.️
🏘️Land Development & Housing
– Costs include land servicing, infrastructure, housing subsidies
– Challenges: Informality, legal disputes, low-cost finance access
– Financed through HUDCO, NHB, TDR, land pooling, PMAY
3.🚉 Urban Transportation & Roads
– Includes roads, metros, bridges, EV infrastructure
– Challenges: High capital need, poor last-mile access
– Funded by transport funds, tolls, BOT models, value capture
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FINANCIALAPPROACHES:-
1. Budgetary Allocations: From state and central governments via schemes like AMRUT, Smart Cities Mission.
2. Public-Private Partnerships (PPP): Involve private sector participation for risk-sharing and efficiency.
3. Multilateral Funding: From World Bank, ADB, JICA.
4. Land-Based Financing Tools:
• Impact Fees: Developer charges
• Betterment Levy: For surrounding property owners who benefit from infrastructure
• Land Value Capture (LVC): Used in Mumbai Metro
• TDRs: Used in Hyderabad, Mumbai
The World Bank invests in urban projects that aim to improve infrastructure, service delivery, governance and sustainability,
especially in developing countries.
8. WATER SUPPLY AND SEWERAGES:-
Components:
• Water treatment, pipelines, pumping stations, STPs (Sewage Treatment Plants)
Funding Mechanisms:
1. Capital grants: AMRUT, Jal Jeevan Mission
2. External Assistance: ADB-funded urban water projects
3. PPP: Nagpur 24x7 Water Supply Model
Challenges:
• High upfront capital investment
• Operation & Maintenance cost recovery
• Non-revenue water (NRW) issues
• Affordability vs full-cost pricing dilemma
Reform Example:
Hydraulic modelling + smart metering in cities like Surat improved water distribution and billing efficiency.
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9. AMRUT launched in June 2015 by the Ministry of Housing and Urban Affairs (MoHUA), AMRUT targets urban populations in
500+ cities with over 1 lakh residents.
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Feature Description
🎯 Objective
Provide basic urban infrastructure especially water supply, sewerage,
and mobility to improve quality of life
🌍 Coverage
Initially 500 cities with population >1 lakh; later expanded under
AMRUT 2.0
💧 Core Focus Areas
Water supply, sewerage, stormwater drainage, non-motorized
transport, green spaces
🧠 Reform-Driven
Encourages urban local bodies (ULBs) to implement reforms like e-
governance, property tax improvement, and credit rating
️
🛠️Execution Model
State Annual Action Plans (SAAPs) based on city-level Service Level
Improvement Plans (SLIPs)
💵 Funding Pattern
50:50 (Centre:State) for general states, 90:10 for NE and Himalayan
states, 100% for UTs
10. Jal Jeevan Mission (JJM) is a flagship initiative launched by the Government of India under the Ministry of Jal Shakti in August
2019, with the goal of providing safe and adequate drinking water through individual household tap connections (FHTCs) to all
rural households in India by 2024.
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Feature Description
🎯 Objective Ensure Har Ghar Jal piped water supply to every rural household
🌍 Coverage Rural India (urban areas covered under AMRUT 2.0)
🏠 Target ~19 crore rural households
💧 Water Quality
Emphasis on safe and potable water with regular quality
monitoring
📊 Funding Pattern
90:10 for NE and Himalayan states, 100% for UTs, 50:50 for others
(Centre:State)
🛠️Implementation
Village-level water supply schemes managed by Gram Panchayats
and local communities
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️
️
️
️
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️ ️Components
Source development, treatment, distribution, greywater
management
👥 Community Participation
Village Water & Sanitation Committees (VWSCs) are formed for
planning and operation
11. LAND DEVELOPMENT:-
Land Development is the process of preparing land for urban use through planning, servicing, and infrastructure provision, enabling
it for residential, commercial, or institutional use.
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Key Stages:
1.Land Acquisition - Buying or pooling land for urban use
2.Planning & Layout Design - Zoning, subdivision, access
3.Servicing with Infrastructure - Roads, drainage, water, power
4.Allotment/Disposal - Sale or lease of developed plots
Instruments & Financing Tools:
• Land Pooling - Landowners contribute land; receive serviced
plots in return (e.g., Delhi, Gujarat)
• Transferable Development Rights (TDR) - Rights given for
using land for infrastructure transferable for densification
elsewhere.
• Betterment Levy - Charges on owners benefiting from public
investments
• Impact Fees - Developer fees for future infrastructure burden
• Public Auction & Land Monetization - Used by authorities
like DDA, CIDCO
Example:
DDA’s land pooling in Delhi and CIDCO’s Navi Mumbai
development financed via land auctions and cross-subsidies.
12. HOUSING FINANCE:-
Housing Finance refers to the mechanisms and institutions that provide funding for the construction, purchase or upgrade of housing
especially for low- and middle-income groups.
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Institutions Involved:
• HUDCO (Housing and Urban Development Corporation)
• NHB (National Housing Bank)
• LIC Housing Finance, HDFC, other private lenders
• PMAY (Urban) – Offers credit-linked subsidy for EWS/LIG
Key Challenges:
• Low-income segment lacks formal credit access
• High land and construction costs
• Legal issues in property titles
Financing Mechanisms:
• Home Loans & Mortgages – Long-term financing through
banks and HFCs
• Credit-Linked Subsidy Scheme (CLSS) – Interest subsidy
under PMAY
• Cross-Subsidization Models – Developers provide
EWS/LIG housing in exchange for higher FSI or incentives
• Rental Housing Finance – Increasingly promoted through
models like Affordable Rental Housing Complexes (ARHCs)
Example:
Ahmedabad’s Slum Networking Project integrated housing
upgrade with secure tenure and access to credit.
13. URBAN TRANSPORTATION AND ROADS:-
Infrastructure Categories:
• Arterial roads, bridges, metros, electric buses, footpaths
Sources of Finance:
• Urban Transport Funds
• Toll-based revenue (BOT/Hybrid Annuity models)
• Land Value Capture (e.g., Mumbai Metro)
Innovative Tools:
• Viability Gap Funding (VGF)
• Value capture (Development Charges, Betterment Levy)
• Commercial exploitation of land around stations
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Key Constraints:
• Poor last-mile connectivity
• High carbon footprint from outdated systems
• Dependence on state/national funds
Best Practice: Bengaluru’s Namma Metro Phase-II funded
through LVC + sovereign loans (JICA)
14. INTRODUCTION TO MUNICIPAL FISCALADMINISTRATION: -
A system of managing income and expenditure at Urban Local Body (ULB) level to ensure efficient delivery of public services.
Core Objectives:
• Maximize internal revenue
• Ensure financial autonomy
• Improve service delivery through sustainable financing
Revenue Structure:
1. Tax Revenue: Property Tax, Advertisement Tax
2. Non-Tax Revenue: User Charges, Lease Rentals
3. Capital Receipts: Municipal Bonds, PPPs
4. Transfers: Central & State Devolution (Finance Commission)
📊 ULBs in India cover only 35–45% of their operational costs through own revenue sources. (NIUA, 2023)
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REVENUE GENERATION :-
Local governments generate revenue through taxes, which form
a major part of municipal income.
1. Property Tax
• Primary revenue source for municipalities.
• Based on property value, size, location and usage
(residential/commercial).
• Example: Delhi Municipal Corporation collects property
tax through online portals.
2. Professional Tax
• Levied on salaried employees, traders, professionals.
• Example: Maharashtra collects up to 2,500 annually per
₹
individual.
3. Entertainment Tax
• Charged on movie tickets, amusement parks, sports events,
gaming zones.
• Example: State Governments like Tamil Nadu and
Maharashtra impose this tax.
4. Advertisement Tax
• Levied on billboards, hoardings, digital displays in public
spaces.
• Example: Municipal Corporations in Mumbai and Delhi
collect advertisement taxes.
5. Vehicle Tax (Partly Local)
• Charged on two-wheelers, four-wheelers, commercial
vehicles.
• Example: Regional Transport Offices (RTOs) collect vehicle
tax.
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NON-TAX REVENUE – FEES & CHARGES:-
Local governments also generate funds from fees and user charges.
1. User Charges
• Water Supply Fees: Collected for drinking water supply.
• Sewage & Sanitation Fees: Paid by residents for sewage treatment.
• Parking Fees: Charged for vehicle parking in public spaces.
2. Development Fees
• Building Permit Fees: Charged for construction approvals.
• Land Use Conversion Fees: Levied when land use changes (e.g., agricultural to commercial).
3. Betterment Levy
• Charged from property owners benefiting from new infrastructure projects (e.g., new roads, metro stations).
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CHALLENGES IN LOCAL TAX COLLECTION:-
• Outdated Valuation Methods – Property assessments are often done manually, leading to errors, undervaluation, and
revenue leakage.
• Limited Taxing Power – Local governments depend on state approvals for tax policy changes, restricting their financial
independence.
• Lack of Digital Infrastructure – Many local bodies still use paper-based records, making tax collection inefficient and prone
to corruption.
• Inadequate Enforcement Mechanisms – Weak legal frameworks result in low penalties for tax evasion, reducing
compliance.
• Political Interference – Elected officials often hesitate to revise tax rates due to fear of voter backlash.
• Taxpayer Awareness Issues – Many residents do not understand the importance of paying local taxes, leading to low
voluntary compliance.
• Lack of Skilled Personnel – Many municipal tax departments lack trained professionals to handle assessments, collections,
and dispute resolution.
• High Litigation & Disputes – Property owners often challenge tax assessments, leading to legal delays and revenue losses.
18. PROPERTY TAX- BACKBONE OF MUNICIPAL FINANCE: -
Overview:
• Largest and most stable revenue source for ULBs
Problems:
• Low coverage and outdated valuation
• Manual assessments = inefficiencies
• Political resistance to increasing rates
Modern Reforms:
• GIS mapping (Indore, Hyderabad)
• Unit Area Value System
• Digital payments and e-governance portals
Impact:
Property tax revenue in Indore increased by 180% after digital property mapping and e-collections.
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Parameter Pune Municipal Corporation (PMC)
Bruhat Bengaluru Mahanagara Palike
(BBMP)
Total Revenue (FY 2022–23) ₹6,229 crore ₹10,000+ crore
Property Tax Collection ₹1,598 crore ₹2,500 crore
Property Tax Share (%) ~25.6% ~25%
User Charges ₹750 crore (approx) ₹600 crore (approx)
Main User Charges Sources Water, SWM, Parking Water, SWM, Licensing
Revenue Composition
50% own-source, 30% transfers, 20% loans
& grants
48% own-source, 32% state grants, 20%
loans/others
Pricing System
Graded tariffs for SWM & water incentives
for timely payment
Zonal property tax system, SWM user fee
added to bills
Tech Adoption
100% e-payment, GIS mapping, digital
billing
GIS mapping in progress, e-payment partially
adopted
Challenges
Poor collection in fringe areas, political
resistance to rate hikes
Outdated property database, high exemptions,
under-assessment
Comparative Table: Pune vs. Bengaluru – Municipal Finance
20. RENT CONTROL SYSTEM: -
Rent control in the context of urban finance refers to government-imposed limits on how much landlords can charge or
increase rent for residential properties. It is a tool used in urban policy and housing finance to address affordability, equity, and
social stability in cities.
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Purpose in Urban Finance:
• Protect tenants from sudden or excessive rent hikes
• Ensure affordable housing in rapidly urbanizing areas
• Stabilize neighborhoods and prevent displacement due to
gentrification
• Control inflation in the housing sector
Types of Rent Control:
1. Strict rent ceilings - Limits on the maximum rent that can
be charged.
2. Rent stabilization - Allows limited annual rent increases
(e.g., tied to inflation).
3. Vacancy decontrol - Rent controls apply only while the
tenant stays; landlords can reset rent when a new tenant
moves in.
Relevance to Urban Finance:
• Municipal revenue: May impact property values and therefore, property tax income.
• Housing supply: Can discourage new rental housing investment if not well-designed.
• Public spending: May reduce the need for direct subsidies or public housing in some cases.
• Urban equity: Plays a role in fiscal justice and inclusive growth by supporting lower-income tenants.
21. REFERENCES: -
• NIUA. (2022). Urban Finance Handbook
• World Bank. (2021). Financing India's Urban Infrastructure Needs
• MoHUA. (2023). Urban Infrastructure Reports and Scheme Guidelines
• UN-Habitat. (2019). Global Report on Human Settlements
• India Infrastructure Report. (2021). Urban Public Finance & Reform
• Reserve Bank of India (2023). Municipal Finance in India: Policy Notes
• Smart Cities Mission Reports (MoHUA)
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