This Fiscal Autonomy Primer marks the third edition in a multi-part series on the financial data of cities hosted on CityFinance.in. Each edition in the series will spotlight one key fiscal indicator, offering a focused analysis to demonstrate the different kinds of insights that can be drawn from the data and how they inform a deeper understanding of urban finance. This initiative aims to foster greater understanding and engagement with the financial data of Indian cities, with the broader goal of enabling deeper analysis and further research in this critical area. In this edition, we will be looking at a crucial parameter that determines a city’s financial stability: Own Source Revenue.
What if India’s cities could only spend what they earned? For most Urban Local Governments (ULGs), this would mean dramatic cuts to essential services, revealing a dependence on state and central transfers rather than self-generated revenue. A deeper examination of the Own Source Revenue (OSR) patterns of cities is therefore crucial to enhance urban financial sustainability across India.
Own Source Revenue refers to the income that ULGs generate independently through their own taxation powers, service and other charges. It comprises tax revenue, revenue from fees and user charges, sale and hire charges, rental income from municipal properties, and other sources of income that is not coming from central or state governments.
The data reveals that Own Source Revenue contributed around half of aggregate total revenue of ULGs in FY 2021-22. While this trend appears encouraging at the aggregate level, a closer look at OSR composition across cities of varying sizes is warranted.
A clear pattern emerges: larger cities consistently outperform smaller ones in generating their own revenue.
Geography of Fiscal Self-Reliance
The geographic variation in OSR performance across cities of different sizes and states suggests that outcomes are shaped by a confluence of factors, including levels of urbanisation, economic base, state-level fiscal frameworks, and administrative capacity. However, strong OSR figures must be interrogated further: the critical question is whether these own revenue gains are resulting in measurably better services for urban residents.
Beyond Taxes, Fees and User Charges: Improving Fiscal Autonomy
Improving fiscal autonomy requires more than just strengthening tax collection and rationalising fees and user charges. ULGs can meaningfully expand their fiscal autonomy through municipal bonds and public-private partnerships.
A municipal bond is a marketable debt instrument where a ULG borrows funds from investors for a defined period at a fixed or variable interest rate. The funds raised can be used for infrastructure development. This allows ULGs to access money immediately while paying it back through future revenues, helping them attract long-term capital, build credit profiles, and bring greater accountability and transparency to citizens.
However, municipal bonds remain severely underutilised – only 22 ULGs have issued bonds since the Securities and Exchange Board of India (SEBI) released its guidelines in 2015. The promise of municipal bonds can only be realised if ULGs are genuinely equipped to use them. This calls for enhanced fiscal discipline, robust financial processes, stronger institutional capacity at the local level, and more structured engagement with private partners through Public-Private Partnerships (PPPs). Without these enabling conditions, municipal bonds will remain an instrument available on paper but out of reach in practice for the vast majority of India’s cities.
Bridging the Gap: The Road Ahead
The OSR patterns and the extent of use of instruments like municipal bonds collectively point to an urban fiscal landscape where the capacity for self-finance is heavily skewed toward larger cities with better capacities, leaving smaller ULGs disproportionately dependent on grants and transfers. Bridging this gap will require targeted interventions, modernising tax systems, rationalising fees and user charges, and building administrative capacity in smaller cities. Without deliberate and sustained reforms to strengthen municipal revenue systems at the grassroots, the promise of genuine urban financial autonomy will remain concentrated at the top, widening, rather than narrowing, the divide between India’s metro giants and its smaller cities.
Stay tuned for a deeper look into Own Source Revenue of cities.
Note: All data is sourced from the Annual Financial Statements submitted by the ULGs on the CityFinance platform. To ensure comprehensive representation and account for variations in data coverage and quality across cities, the figures presented are based on extrapolated financial data covering all 4,824 cities. Among these, 2,541 cities (approximately 60%) possess 3 years of contiguous data (2019–20 to 2021–22) in Cityfinance platform. Data from these cities have been systematically extrapolated using the ’per capita scaling methodology’ to reflect the financial performance of the complete set of 4,824 cities. Learn more about the extrapolation methodology here.