Innovative Resource Mobilisation Practices by Urban Local Bodies in India

Indian cities are growing at breakneck speed, but their financial engines often sputter. Urban Local Bodies (ULBs) are handed the responsibility of delivering water, sanitation, roads, street lights and a hundred other services, yet their revenue base is famously weak. A recent audit by the Comptroller and Auditor General flagged a 42 per cent gap between the resources and expenditure of ULBs across 18 states. To close this gap, cities are now experimenting with a fresh toolkit – sharper property tax systems, better user charges, municipal bonds, pooled finance, public-private partnerships and land monetisation. Let’s unpack how these innovations are reshaping municipal finance.

Why resource mobilisation matters for urban India
Property tax reforms: the first frontier
The Bengaluru story: self-assessment meets technology
Greater Vishakhapatnam: doubling revenue through reform
User charges: making services pay for themselves
Indore’s water tax drive
Surat and Mumbai: charging for what it actually costs
Municipal bonds: cities tapping capital markets
The post-2015 revival
The current scorecard
Pooled finance: strength in numbers
Public-private partnerships: sharing risk, sharing reward
Monetising what the city already owns
Challenges that remain
The road ahead

Why resource mobilisation matters for urban India

The 74th Constitutional Amendment of 1992 made ULBs the third tier of government and assigned them 18 functional items under the Twelfth Schedule. But the funds did not follow the functions. Property tax rates and exemptions are typically set by the state government, leaving cities with limited autonomy over their most important own-source revenue. Add to this the abolition of octroi after the roll-out of the Goods and Services Tax, and many cities lost a major slice of their independent income.

The numbers tell the story. Only 41 per cent of ULB revenue comes from own sources, with 54 per cent relying on government transfers. Property tax, the workhorse of municipal finance, contributes just 0.17 per cent of GDP. Compared to the developing-country average of around 0.7 per cent, the scope for mobilising more is enormous. This is precisely where innovation enters the picture.

Property tax reforms: the first frontier

Property tax is the single largest own-source revenue for most ULBs, but collection efficiency has historically been poor. The World Bank notes that historically only about 60 to 70 per cent of properties in urban areas were assessed. Updating tax rolls, moving to capital-value-based assessment, and using GIS mapping are now the pillars of reform.

The Bengaluru story: self-assessment meets technology

The Bruhat Bengaluru Mahanagara Palike (BBMP) is often cited as a pioneer. According to a NITI Aayog compendium, the erstwhile Bangalore Mahanagara Palike introduced an optional Self Assessment System in 2002 under the existing Annual Rental Value framework. When the corporation expanded in 2007 by merging seven City Municipal Councils, one Town Municipal Council and 110 villages, the state amended the law to bring uniformity – moving to a formula-driven Unit Area Value system. The result was a citizen-friendly regime where property owners could calculate their own tax, backed by GIS mapping to bring unlisted properties into the net.

Greater Vishakhapatnam: doubling revenue through reform

Similar reforms in Greater Vishakhapatnam delivered dramatic results. Property tax revenue there rose from Rs 7,785 lakh in 2010-11 to Rs 14,433 lakh in 2013-14 – nearly doubling in just four years. The lesson? When assessment is clean, billing is transparent, and enforcement is consistent, collections follow.

User charges: making services pay for themselves

User charges on water, sewerage, parking and solid waste management are another untapped lever. The principle is simple: those who use a service should pay a reasonable price for it. In practice, charges are often set far below cost recovery, leaving ULBs to subsidise services from their general budget.

Indore’s water tax drive

Indore Municipal Corporation (IMC), already celebrated for cleanliness rankings, has been aggressive in regularising water connections and recovering arrears. In 2024, IMC rolled out a One Time Settlement Scheme offering a 50 per cent discount on outstanding water tax. Within weeks of its launch, the corporation had collected over Rs 32 crore from 30,282 taxpayers. Alongside the amnesty, officials were instructed to disconnect illegal connections and file FIRs against offenders. The twin strategy – carrot for defaulters who came forward, stick for those who didn’t – pushed up compliance sharply.

Surat and Mumbai: charging for what it actually costs

Surat Municipal Corporation and the Municipal Corporation of Greater Mumbai have long been case studies in user-charge reform, particularly for water supply. Moving towards volumetric metering, telescopic tariffs that charge heavier users more, and revising rates periodically have allowed these cities to recover a larger share of operating costs without relying solely on the property tax base.

Municipal bonds: cities tapping capital markets

For capital-intensive projects, grants and loans are rarely enough. Municipal bonds let a ULB borrow directly from investors, repaying them from project revenues or general funds. India’s first municipal bond was issued in 1997 by the Bengaluru Municipality, followed by Ahmedabad in 1998. The market then went dormant for nearly two decades.

The post-2015 revival

SEBI’s 2015 regulations on the Issue and Listing of Debt Securities by Municipalities, combined with the Smart Cities Mission and AMRUT, breathed new life into the market. Pune Municipal Corporation broke the ice in 2017, and Indore Municipal Corporation listed its bond on the NSE debt platform in 2018. In April 2021, Ghaziabad became the first city to issue green municipal bonds, raising ₹150 crore to fund a Tertiary Sewage Treatment Plant. Indore’s 2023 green bond was oversubscribed several times and was India’s first municipal bond open to retail investors.

The current scorecard

As of April 2025, 18 bonds with outstanding maturity issued by 13 ULBs are listed on the NSE and BSE. Cities like Pune, Ghaziabad, Lucknow, Hyderabad, Visakhapatnam, Indore, Bhopal, Surat, Ahmedabad and Vadodara have all tapped the market. The Ministry of Housing and Urban Affairs now offers significant incentives under AMRUT 2.0: ULBs can receive ₹13 crore per ₹100 crore raised, capped at ₹26 crore, with an additional ₹10 crore per ₹100 crore for green bonds meeting SEBI’s framework.

Pooled finance: strength in numbers

Not every ULB is big enough or credit-worthy enough to issue its own bond. Evidence suggests only large ULBs with good technical competencies can meet the requirements of bond issuance. Enter pooled financing – where several small municipalities combine their borrowing needs into a single bond issue through a state-level Special Purpose Vehicle. The risk is spread, administrative costs fall, and individual ULBs bypass the need for an independent credit rating.

The Tamil Nadu Water and Sanitation Pooled Fund was the earliest Indian example, combining borrowings from 14 small municipalities. In 2006, the Union government launched the Pooled Finance Development Fund Scheme to provide credit enhancement through state-level pooled finance mechanisms, with income-tax exemptions to boost investor appetite. Today, cities in Uttar Pradesh such as Agra, Varanasi and Prayagraj are preparing pooled issuances that could expand the ecosystem significantly.

PPPs allow ULBs to bring in private capital and expertise for projects they could not finance alone – sewage treatment plants, bus terminals, parking facilities, street-lighting modernisation and solid waste processing. The ULB typically contributes land or guarantees revenue, while the private partner builds and operates the asset for a concession period.

Surat’s solid waste management, Nagpur’s 24×7 water supply project, and Bhopal’s bus rapid transit are frequently cited examples. PPPs are not a silver bullet – contract design, tariff regulation and dispute resolution remain challenging – but for large, lumpy investments, they expand a municipality’s effective balance sheet without an immediate cash outlay.

Monetising what the city already owns

Cities sit on enormous land banks, often unused or underused. Land monetisation – leasing or selling parcels, auctioning development rights, or creating Transferable Development Rights – converts dormant assets into revenue. The Greater Hyderabad Municipal Corporation (GHMC) has long seen its land holdings across surrounding municipalities as a major asset. Commentators have observed that public land can be sold to service debt, pay interest and fund projects, making land banks a central feature of fiscal strategy in the region. Mumbai’s monetisation of mill land, Delhi’s land-based financing for metro expansion, and Ahmedabad’s Sabarmati Riverfront land sales are other variations on the same theme – turning urban real estate into infrastructure.

Challenges that remain

Despite these innovations, structural weaknesses persist. Cities currently realise only 56 per cent of their own property tax demand. Only a handful of ULBs meet SEBI’s investment-grade rating requirement. State governments often delay the constitution of State Finance Commissions, disrupting predictable transfers. Secondary-market liquidity for municipal bonds is thin, and retail investor participation remains negligible.

Capacity is the quiet bottleneck. Smaller ULBs frequently lack trained finance staff, audited accrual-based accounts, or the digital systems needed to generate credible disclosures. Without these foundations, even the best-designed bond framework or PPP contract is hard to execute.

The road ahead

A healthy municipal finance system in India will need to combine all these instruments rather than rely on any single one. Strong property tax administration creates the credit story that attracts bond investors. User charges build the revenue streams that underpin PPP concessions. Pooled finance brings smaller cities into the market. Land monetisation unlocks patient capital for long-horizon infrastructure. And transparent, audited finances are the glue that holds the whole system together.

The good news is that the direction of travel is clear. From Bengaluru’s self-assessment scheme to Indore’s retail-friendly green bond, from Ghaziabad’s sewage treatment plant to Hyderabad’s evolving land strategy, Indian cities are experimenting, learning and scaling. The next decade will test whether this experimentation can be institutionalised across hundreds of ULBs – not just the frontrunners.

What do you think? Which of these financial innovations do you believe holds the greatest promise for smaller, non-metro ULBs in your state? And how might a city balance the need to raise revenue from user charges with the equally important goal of keeping essential services affordable for poorer residents?

References

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Table of Contents

Why resource mobilisation matters for urban India 🔗

Property tax reforms: the first frontier 🔗

The Bengaluru story: self-assessment meets technology 🔗

Greater Vishakhapatnam: doubling revenue through reform 🔗

User charges: making services pay for themselves 🔗

Indore’s water tax drive 🔗

Surat and Mumbai: charging for what it actually costs 🔗

Municipal bonds: cities tapping capital markets 🔗

The post-2015 revival 🔗

The current scorecard 🔗

Pooled finance: strength in numbers 🔗

Public-private partnerships: sharing risk, sharing reward 🔗

Monetising what the city already owns 🔗

Challenges that remain 🔗

The road ahead 🔗