Policy Update
Tanvi Nerurkar
Background
India’s cities are facing a major transition. Urban areas now produce more than 60 % of the country’s GDP and are expected to be home to almost 600 million people by 2036. Urban Local Bodies (ULBs) must keep pace with this rapid growth by providing water, sanitation, waste management, roads, and other local infrastructure. However, they continue to struggle because of a long-standing fiscal deficit.
Indian municipalities rely on their own taxes, fees, and user charges for revenue. Property tax is the main source, accounting for more than 16% of total revenue and over 60% of local tax revenue among the municipal corporations surveyed by the Reserve Bank of India (2024). Still, property tax collections have not met expectations.
RBI’s 2024 survey of 232 municipal corporations found India’s property tax revenues are just 0.12 to 0.15% of GDP. The OECD (Organisation for Economic Co-operation and Development) average is about 1.1%, and the developing countries’ average is 0.7%. India lags globally in municipal property taxation. Municipal corporations collected ₹1.7 lakh crore in total revenue in 2023–24, and property tax accounted for just ₹32,450 crore. Janaagraha reports that total property tax collections grew from ₹26,000 crore in 2018–19 to nearly ₹39,000 crore in 2023–24, showing reform momentum.
But the gap remains large: satellite-based property assessments in Bengaluru and Jaipur found actual collections are only 16 % and 5 % of potential revenue, respectively (India Economic Survey, 2017).
Municipal revenue has remained close to 1% of GDP for nearly ten years, even as cities have grown quickly. By 2024, 54% of ULBs had negative operating balances, up from 32% in 2015. Wage and pension costs now account for almost 48% of revenues, well above the RBI’s benchmark of 35%.
Most agree that administrative reforms, new technology, and better enforcement are needed. However, the role of social accountability, which means involving citizens to make local governance more transparent and participatory, has not received as much focus. This article argues that social accountability is not just an extra feature of fiscal reform but a key requirement for lasting improvements in revenue.
The Fiscal Anatomy of the Problem
Structural Weaknesses in Property Tax Administration
The RBI (2024) survey of 232 municipal corporations reveals a deep administrative challenge. While 96.2% of corporations maintain property registers, 25.5% still rely on manual, paper-based records. These are prone to errors and manipulation. A further 32.1% use paper-based billing mechanisms with door-to-door distribution. They have no provision for timely payment reminders or automated follow-up on arrears. These deficiencies are more acute in smaller urban local bodies.
Collection efficiency is similarly weak. The RBI (2024) report calculates an average Fiscal Effort score of just 0.52 out of 1.0 across municipal corporations. This score measures collection efficiency against demand. Cities with higher levels of informal activity, such as Patna and Lucknow, record scores below 0.4. per capita property tax collections range from ₹63 in Bihar to ₹1,911 in Gujarat. This reflects vast inequalities in administrative capacity and political will.
The problem is not only administrative but also demographic. A large share of taxable properties remains outside the tax net. In Karnataka, state CAG reports found that 38 % of properties in 23 urban local bodies were unassessed as recently as 2016. National estimates suggest the situation has improved incrementally but not fundamentally.
The Revenue Potential at Stake
If Indian municipal corporations could raise their property tax-to-GDP ratio to the developing country average of 0.7 %, which is less than two-thirds of the OECD benchmark, they could unlock approximately ₹12–15 lakh crore in additional annual municipal revenue, illustrating the enormous fiscal potential that remains untapped in India’s urban governance system.
Even small improvements in compliance and assessment accuracy could help close the fiscal gap. Cities that use fully digital tax systems, including GIS mapping, online payments, and improved valuation, achieve 23% higher collection efficiency than those without these systems, according to RBI data. Bengaluru’s e-Swathu portal cut property tax arrears from 42% to 18% between 2019 and 2024. However, by 2024, only 38 out of 100 surveyed ULBs had fully digitised their property tax processes, and smaller cities are three to five years behind because of staff shortages and limited funding.
Social Accountability: Concept and Mechanisms
Social accountability refers to the ways in which citizens, communities, and civil society organisations hold public institutions accountable for their decisions and the use of resources. Unlike administrative accountability, which relies on audits, rules, and inspections, social accountability is based on civic engagement, public disclosure, participation, and feedback that happen outside formal government channels.
World Bank’s Social Accountability: An Introduction to the Concept and Emerging Practice (Malena, Foster, and Singh, 2004) identifies social accountability as complementary to, but distinct from, conventional accountability mechanisms. In municipal finance, it covers many instruments. These include Ward Committees and Area Sabhas mandated under the 74th Constitutional Amendment, Resident Welfare Associations (RWAs), and Self-Help Groups (SHGs) operating as civic intermediaries. It also involves participatory budgeting, citizen report cards, social audits, public expenditure tracking, and digital grievance redress platforms.
There is a theoretical link between social accountability and tax compliance, based on the idea of a fiscal social contract. This contract is an unspoken agreement in which citizens pay taxes in return for good services, transparent governance, and the responsible use of public money. When this contract is strong, people are more willing to pay taxes. When services are poor, taxes seem unfair, or spending is unclear, more people avoid paying, and enforcement costs rise.
Transparency and fairness are important. When municipalities show how property tax revenues are used at the ward level and provide details about project spending, taxpayers are more likely to view their payments as fair and worthwhile. Research shows that people’s sense of fairness is a strong predictor of voluntary tax compliance in both developed and developing countries.
Participatory grievance resolution helps. Forums such as Ward Committees and Area Sabhas give citizens structured channels to challenge assessments they find erroneous. This reduces a common reason for non-payment. More than half of respondents in surveys of urban service delivery have reported never registering a complaint. Among those who did, most found their grievances unresolved. This suggests a significant unmet demand for effective redress.
Community-led awareness and support are important. RWAs and SHGs can serve as trusted intermediaries by running tax literacy campaigns, helping with payments in informal settlements, and giving feedback on assessment accuracy. Kerala’s experience with People’s Plan Campaigns and participatory planning shows that when citizens are involved in every stage of local development, their engagement and sense of responsibility, including tax compliance, improve noticeably.
Digital platforms, such as integrated e-governance portals, make it easier for taxpayers to pay online, check property records, and register complaints. By reducing hassle and increasing transparency, these tools help boost compliance rates.
In essence, social accountability helps transform taxation from a coercive process into a collaborative relationship between citizens and local governments.
Performance: Current Status in India
The performance of property tax systems varies significantly across Indian cities. The most credible evidence for technology-enabled social accountability comes from cities that have systematically combined administrative reform with citizen engagement.
In Pune, GIS-based property mapping identified previously unassessed properties, and digitised administration improved billing accuracy. The Pune Municipal Corporation also piloted participatory budgeting, one of the few such experiments in India outside Kerala, in which citizens determined development spending priorities.
Indore improved its administration by using digital tools, online tax portals, and ongoing outreach to citizens. As a result, it has consistently ranked among the top cities for raising its own revenue.
Bengaluru’s e-Swathu platform, which integrates property records, assessment, and payment into a single digital interface, reduced arrears from 42% to 18% between 2019 and 2024. Cities in Ahmedabad, Surat, and Hyderabad have similarly used digital property tax systems and e-governance reforms to improve transparency and ease of compliance.
Nashik Municipal Corporation reported record property tax collections in FY 2025–26, attributing gains to a combination of digital reforms, amnesty schemes for arrears clearance, and early payment incentives.
National initiatives have further accelerated reforms. The Fifteenth Finance Commission introduced performance-linked grants and encouraged property tax reforms as a condition for improved fiscal transfers. Urban Local Bodies were incentivized to improve revenue mobilization, maintain audited accounts, and strengthen governance systems.
The Atal Mission for Rejuvenation and Urban Transformation (AMRUT) and the Smart Cities Mission have promoted digital governance, integrated municipal information systems, and citizen engagement platforms. These initiatives have improved transparency, service delivery, and financial management in participating cities.
Despite these improvements, performance remains uneven across the country. Many ULBs continue to struggle with outdated records, weak enforcement capacities, and limited citizen engagement.
Emerging Issues and Challenges
Despite this progress, several structural barriers constrain the effectiveness of social accountability in the property tax domain.
Weak constitutional structures: Even though the 74th Constitutional Amendment was passed in 1992, Ward Committees and Area Sabhas remain inactive in most Indian cities outside Kerala. Without a steady system for citizen participation at the ward level, social accountability remains inconsistent and fragile.
Exclusion and inequality: Participation in local governance often favours organised, higher-income residents. Marginalised groups such as women, people living in informal settlements, daily wage workers, and low-income households are often left out of Ward Committees and public meetings. This exclusion skews service priorities and weakens the fiscal social contract for most urban residents.
The digital divide: As property tax systems become more digital, people with limited digital skills or poor internet access may be left out. According to the RBI (2024) survey, 65% of Class B ULBs (smaller municipal bodies) had fewer than five IT staff, which creates capacity and access problems.
Low tax literacy: Many urban property owners lack basic knowledge of assessment procedures, tax obligations, and available grievance mechanisms. This information deficit depresses compliance even among residents who are otherwise willing to pay.
Political economy of property taxation: Property taxes are a sensitive political issue. Updating assessments to reflect current market values could raise significantly more revenue, but it also risks upsetting voters. As a result, elected officials may keep assessments low, avoid strict enforcement, or delay digitisation efforts that would reveal gaps in property values.
Opacity of expenditure: One of the biggest barriers to voluntary compliance is the lack of transparency at the ward level about how property tax revenues are used. If taxpayers cannot see how their money is spent on public goods, the fiscal social contract feels abstract and distant.
Way Forward: A Policy Framework for Reform
To better connect social accountability with property tax compliance, there needs to be a clear policy framework that addresses both municipal administration and citizen engagement.
Revitalise Ward Committees and Area Sabhas with legally mandated meeting schedules, dedicated budget allocations, and clearly defined powers over local infrastructure prioritisation. States should be required, as a condition of fiscal transfers, to report on the functional status of these bodies.
Institutionalise participatory budgeting at the ward level for a defined portion of discretionary municipal expenditure. Kerala’s decades-long experience with the People’s Plan Campaign provides a replicable model; Pune’s partial experiment offers lessons for metropolitan contexts.
Mandate ward-level expenditure disclosure. Municipalities require municipalities to disclose spending at the ward level. They should publish quarterly reports in easy-to-understand formats that show how property tax collected in each ward is spent on specific public goods. This helps make taxation feel fairer and more transparent. The RBI (2024) survey found that 25.5 % of ULBs still use manual registers; eliminating this entirely within a defined timeframe should be a condition of Finance Commission grants.
Support tax literacy campaigns through SHGs, RWAs, and community health and education workers. These campaigns should clearly show how paying taxes leads to better services and explain the assessment process to make it feel less arbitrary.
Introduce social audits for property tax administration, modelled on the MGNREGA social audit framework, allowing communities to independently verify assessment records and expenditure claims.
Create digital infrastructure that is accessible to everyone. Digital portals should be backed up by help desks in low-income areas and offer support in multiple languages. There should also be options for making complaints and payments offline.
Structured incentives for compliance: Offering early-payment discounts, recognising wards with strong compliance, and linking services to tax payments can help people see paying taxes as a form of civic participation rather than just an obligation.
Conclusion
The fiscal weakness of Indian ULBs is not mainly a technical issue. Property tax revenues at 0.12 % of GDP, which is just one-sixth of the OECD average and less than one-fifth of the developing country average, show a deeper problem in the relationship between citizens and local governments. While digital systems, GIS mapping, and enforcement are important, they are not enough on their own.
Social accountability mechanisms, transparent expenditure reporting, functional Ward Committees and Area Sabhas, participatory budgeting, community intermediation, and inclusive digital access provide the demand-side foundation without which administrative reforms remain brittle and contested. Cities that have made the most progress, whether Bengaluru with its e-Swathu portal or Kerala with its institutionalised participatory governance, have combined the technical and civic dimensions of reform.
As Indian cities welcome hundreds of millions more residents over the next decade, the quality of public services and the financial strength of municipalities will depend largely on whether citizens trust their local governments enough to willingly pay taxes. Building that trust is not a side issue in urban governance; it is the foundation.
About the Contributor
Tanvi Nerurkar is currently working as a Research & Editorial Intern at IMPRI. She holds a Bachelor’s degree in Architecture from VESCOA, University of Mumbai and is presently pursuing a Master’s in Urban Management at CEPT University, where she explores cities through research-driven policy approaches, adaptive governance frameworks, and sustainable development initiatives. Her objective is to contribute implementation-oriented policy research that supports the efficient functioning of cities and creates meaningful value for society at large.
Acknowledgement
The author extends her sincere gratitude to Shruti Sethi, Sneha Sharma and the IMPRI team for their invaluable guidance throughout the process. The author acknowledges data from the Reserve Bank of India’s Report on Municipal Finances (2024), Janaagraha’s urban governance research, and World Bank and OECD comparative tax studies.
Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.
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