Why is the fiscal architecture of municipalities flawed?

The story so far: Urban India generates nearly two-thirds of the national GDP, yet its municipalities control less than one per cent of the country’s tax revenue. Indian cities are not generating revenue, not because they are inefficient, but because the fiscal architecture has failed them. Today, municipal finance is dependent on intergovernmental transfers, loans, and schemes. The core of the problem lies in the centralisation of taxation powers.

How did cities lose its tax revenues?

After the introduction of the Goods and Services Tax (GST), Indian cities lost nearly 19% of their own revenue sources. Octroi, entry tax, and local surcharges — the traditional lifelines of municipal budgets — were subsumed into the GST framework. Promised compensatory mechanisms have largely bypassed th