The Union Budget, presented by Finance Minister Nirmala Sitharaman on Sunday, alongside the recommendations of the Sixteenth Finance Commission, outlines a set of fiscal and institutional reforms aimed at strengthening urban local bodies by improving their own source revenues, expanding access to capital markets and enforcing greater financial transparency. For the BMC, which is grappling with rising infrastructure costs and a narrowing pool of usable reserves, these measures are expected to provide much needed fiscal headroom.
The 16th Finance Commission, in its report tabled on Sunday, has maintained that there is a need to augment the property tax collection in urban local bodies (ULBs) and have laid down a slew of guidelines for the state government to follow.
Property tax is one of the major sources of revenue for the BMC, with Mumbai having the highest property tax rates in the country.
In the previous fiscal year, which ended on March 31, 2025, BMC collected Rs 6,172 crore or nearly 99.54 per cent of its estimated property tax target of Rs 6,200 crore for the 2024-25 financial year.
Some of the guidelines that have been proposed by the Finance Commission include adoption of a Geographic Information System (GIS)-based digital property tax register and linking it with a GIS-based master plan of the cities to ensure automatic updation of the property tax register whenever the master plan is revised.
“The register hence will reflect accurate current land use enabling upward revision of property tax,” the report states.
Furthermore, the report has also mandated periodic enumeration and regular updating of property tax in line with the increase in guidance value in state acts and rules. The commission has also mandated an online common property database.
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“This property database may be appropriately linked with other data bases like water, sewerage, electricity, trade license and building permission for automatic verification of property attributes and assessment records,” the report states.
Meanwhile, when contacted, the civic officials maintained that the BMC has already initiated the process of GIS tagging of properties in Mumbai.
“Besides carrying out GIS tagging of properties we are also developing a 3D mapping feature of all the existing properties and structures that are assessed by BMC. Under this project a 360-degree 3D module of the properties will be created and stored in our databases and if the property owners make any changes in them it will get caught in the system easily, allowing us to proper assessment,” an official from the BMC’s property tax department told the Indian Express.
Municipal bonds to fund infra projects
While making her budget speech, Sitharaman had also proposed a rebate of Rs 100 crore for municipal corporations in the country aiming to issue municipal bonds above Rs 1,000 crore to generate revenue.
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Municipal bonds are debt securities issued by municipal corporations or ULBs to raise capital for funding key public infrastructure projects. At present, the BMC has taken up infrastructure project works having a total capital size of Rs 1.5 lakh crore – nearly double than BMC’s current reserve corpus which stands at Rs 81,774 crore.
“Out of the Rs 81,000 crore reserve that we have, only 49 per cent or Rs 39,500 crore could be used for the infrastructure projects, while the overall size of these projects is nearly four times to this usable amount. This clearly indicates that in the next few years, there is going to be a liquidity crisis in the BMC,” said a civic official on condition of anonymity.
Therefore, the BMC is in process of raising capital from the market by issuing municipal bonds.
“The Union ministry’s announcement to incentivise municipal bonds comes at a time when we are already working towards fulfilling the credit rating criteria. Once this process is completed, we can move ahead in terms of listing bonds in exchange for a fixed interest,” an official said.
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Speaking to the Indian Express the civic officials maintained that initially the BMC is eyeing to float bonds upto Rs 12,000 crore to fund some of the key infrastructure projects including the STP and water conveyance tunnel projects. The BMC may also float toll-based bonds for the upcoming Mumbai Coastal Road project aiming to pay back the interest rates by collecting toll taxes from the high-speed corridor.
In 2021, when the BMC was mooting the idea of floating these high-cost projects, the authorities had explored the possibility of raising municipal bonds, however that process didn’t materialise.
Push towards transparency
The Finance Commission, in its report, has also laid down a key set of conditions on the basis of which these funds would be released.
One such key parameter includes making the audited financial records of local bodies available on public domain.
Furthermore, the report also states that there needs to be an annual increase in own source revenue (OSR) of all ULBs by atleast 5 per cent in order to receive these grants.
