The paper addresses issues which hamper the functioning of the local governments in India. In view of the fact more independence has been given to these institutions, there is room for more discussion about their efficient and equitable operations. The major issue is that State governments influence decision making of the local governments. The octroi (Bombay) and no-octroi (Cochin) cities which are policies of the States are vivid examples of how the States accentuate regional inequality. Octroi cities could be considered to be the better-off ones than the no-octroi cities. The property tax, a direct tax is alleged to be potential for unpopularity and therefore dependence on this is relatively less favored than its potential. This initial differentiation widens the disparity in the budget outlook of the local bodies with impacts on their infrastructural development. No-octroi cities rely more on the Property taxes to sustain their expenditures. In addition, other issues come into play, such as the difficulties in property tax administration. Any attempt to hike up property tax base and rate involves a political cost, which politicians are not willing to face. Other than the tax, the Rent Control Act (RCA) tends to freeze rental values, which consequently dampens housing construction and renovation, which in turn dampens the property tax base. The dampening of the housing industry suggests loss of revenue in terms of property taxes for the local bodies. To overcome these impediments, new funding methods such as the issue of Bonds and external Technical Assistance Projects were implemented.
Another issue addressed in this paper is the quality of the services provided. The lethargic performance of personnel in these institutions is a contributing factor to low performance as evidenced by poor water quality, and low quantity, bad sewerage and drainage, poor road conditions and pollution. To cope with these problems, some suggestions are made in this paper. In the first instance, revenue generation is very Important for the provision of services. On the cost side, over-staffing should be avoided in order to maintain expenditures within reasonable levels. The option for selective privatization, proper integration of NGOs and the Ward Committee in the local affairs need to be considered. Accountability is an additional tool which could be used to enhance productivity at the personnel level. Working Paper Number 00-08.