Fix finances to fix Bengaluru

The new Greater Bengaluru Authority cannot fix the city’s infrastructure gaps unless municipal finances are strengthened. The GBA’s replacement of the Bruhat Bengaluru Mahanagara Palike (BBMP) marks an important shift in the city’s urban governance. Designed to improve coordination among multiple municipal corporations and parastatal agencies, the new authority seeks to address long-standing concerns over fragmented governance.

While this is touted as a milestone in governance reform, the recently released State Finance Commission (SFC) report makes it clear that Bengaluru’s challenges are not merely institutional; they are fundamentally fiscal. The SFC findings highlight the scale of the city’s infrastructure deficit. For instance, Bengaluru will require more than 1,000 km of additional road network over the next four years, even as its road length has remained largely stagnant for over a decade. Meanwhile, vehicle numbers have expanded rapidly, intensifying congestion and placing enormous pressure on infrastructure, air quality and public health.

These challenges are often attributed to poor planning and fragmented administration. While governance inefficiencies continue to exacerbate infrastructure deficits, such explanations often overlook a structural constraint: municipal governments lack adequate financial resources to meet the city’s growing needs.

Urban Local Bodies (ULBs) are responsible for providing essential services such as roads, drainage, solid waste management, and neighbourhood infrastructure. Yet the quality and reliability of these services remain uneven, largely because their revenue base is weak, with poor cost recovery and significant subsidy burdens.

Property taxes and user charges form a significant share of municipal revenue, while fiscal transfers from state governments remain modest and unpredictable. Recognising this imbalance, the SFC report recommends that 5% of state GST revenue be allocated to municipal bodies. Such transfers are critical, as rapidly expanding cities like Bengaluru require investments that cannot be financed through municipal taxation alone.

The SFC has also proposed diversifying the revenue powers of ULBs. Among its suggestions is the reintroduction of an entertainment tax, enabling municipal governments to tap revenue from cinemas, cultural events, and other urban activities. Expanding local revenue sources could meaningfully strengthen municipal finances and improve public service delivery.

These fiscal considerations are particularly important in the context of Bengaluru’s ongoing institutional restructuring. The government has established the GBA and is considering further dividing the BBMP into multiple municipal corporations. While smaller municipal units may improve administrative manageability, they could face greater fiscal stress if cost recovery, revenue bases, and intergovernmental transfers are not strengthened simultaneously.

Institutional restructuring without fiscal empowerment risks creating multiple municipal corporations with expanded responsibilities but limited financial capacity. This creates additional fiscal burden on the newly created ULBs as they are expected to provide and manage various public services for rapidly growing populations without adequate financial support. Urban governance reforms must therefore go beyond institutional restructuring. Therefore, the SFC report provides a clear roadmap by emphasising the need for stronger fiscal decentralisation.

Amid rapid urbanisation, Bengaluru’s infrastructure requirements are not modest and are curtailed by persistent gaps. Expanding road networks, managing drainage systems, improving mobility, and maintaining urban services in a rapidly growing metropolitan region demand sustained financial investments. Municipal governments must have predictable revenue streams such that the urban public services are delivered effectively.

International experience shows that successful urban governance reforms combine institutional coordination with strong fiscal empowerment of local governments. Cities require both effective administrative structures and adequate financial resources to address critical infrastructure gaps and needs.

The creation of the GBA is an important step towards improving Bengaluru’s governance. But institutional reform alone cannot resolve the city’s infrastructure challenges. If Bengaluru’s governance reforms are to succeed, the state government must also implement the fiscal recommendations of the SFC, including greater GST transfers, and expand revenue powers for municipal bodies. Only by strengthening the fiscal foundations of ULBs can Bengaluru’s municipal institutions effectively respond to the demands of a rapidly expanding metropolis.

(Muhammed is an assistant professor at Symbiosis Institute of Business Management, and Ashwin is an assistant professor at the School of Economics and Public Policy, RV University, Bengaluru)