Measuring Municipal Fiscal Health: FER And Property Tax – IMPRI Impact And Policy Research Institute

Insight
Himanshu Chhetri

Introduction

India’s urban local bodies (ULBs) are at the frontline of service delivery, yet their fiscal health reveals deep structural imbalances. Recent municipal finance data (FY 2021‑22 to FY 2023‑24) highlights sharp variations across city types, showing how both Fiscal Efficiency Ratios (FER) and per‑capita property tax collections (PPT) shape fiscal sustainability. Metropolitan centres such as Ahmedabad and Hyderabad mobilize relatively higher own‑source revenues (₹8,916 and ₹4,993 in FY‑2023‑24), but diverge in efficiency: Ahmedabad records persistent deficits with FER below 1 despite strong property tax collections (₹2,355), while Hyderabad demonstrates surplus capacity with FER above 1.7, though its property tax receipts remain volatile.

Heritage cities like Jaipur and Ujjain remain fiscally constrained, with modest own‑source revenues (₹1,354 and ₹2,015) and very low property tax bases (₹257 and ₹354), underscoring their limited autonomy despite cultural and tourism potential.

Administrative towns such as Bhopal and Dehradun hover around parity, with FER values close to 1, yet their rising property tax collections – Bhopal at ₹1,559 and Dehradun nearly doubling to ₹1,151 – highlight untapped potential if supported by decentralization. Tourism cities present the sharpest paradox:

Agra struggles with weak property tax mobilization (₹388) and FER consistently below 1 despite its global profile, while Varanasi stands out with a strong FER of 1.74 and moderate property tax growth (₹586), reflecting its ability to convert religious tourism into sustainable receipts.

Methodology

The methodology rests on a comparative fiscal analysis of municipal corporations across four categories of Indian cities: metropolitan, heritage, administrative, and tourism. The dataset covers three financial years (FY 2021‑22 to FY 2023‑24) and includes indicators of revenue, expenditure, and fiscal efficiency.

The key indicator used is the Fiscal Efficiency Ratio (FER), defined as: FER = Per Capita Total Revenue Receipts / Per Capita Total Expenditure. Similar approaches to property tax efficiency have been discussed by Priyadarshni & Pandey (2025). This article adopts the term Fiscal Efficiency Ratio (FER), building on revenue–expenditure ratios used in RBI (2024) and Praja Foundation (2024), but applied here as a standardized per‑capita benchmark across city categories.

The key indicator used is the Fiscal Efficiency Ratio (FER), defined as:

FER =         Per Capita Total Revenue Receipts

                                                                     Per Capita Total Expenditure

This ratio was calculated for each city across the three years. A value greater than one indicates that per capita receipts exceed per capita expenditure, suggesting fiscal sustainability. A value below one signals fiscal stress, where expenditures outpace revenues.

Data points include:

1.      Per capita total revenue receipts (Rs.)

2.      Total revenue receipts (Rs. crore)

3.      Per capita total expenditure (Rs.)

4.      Total expenditure (Rs. crore)

By combining per capita measures with aggregate totals, the analysis captures both the fiscal burden on individual residents and the overall scale of municipal finance. The three‑year span enables trend analysis, showing whether cities are moving towards balance or deeper stress.

This methodological framework positions FER as a practical benchmark for assessing municipal fiscal health, offering policymakers and researchers a simple yet powerful tool to compare cities across categories and time.

The methodology for calculating per‑capita property tax involves dividing the total property tax revenue collected by a municipal corporation in a given financial year by the city’s population. This simple ratio provides the average tax contribution per resident, making it possible to compare fiscal capacity across different city categories and time periods. By linking aggregate revenue to population size, the measure highlights both the efficiency of tax collection and the structural differences in municipal finance – showing how metropolitan cities mobilize higher per‑capita taxes, while heritage and tourism cities often lag. This approach thus serves as a practical benchmark for assessing fiscal sustainability and guiding reforms in urban local bodies.

City Categories

To highlight the diversity of urban fiscal contexts, the study groups eight municipal corporations into four categories: Metropolitan cities like Ahmedabad and Hyderabad, which face challenges of scale and rapid growth; Heritage towns such as Jaipur and Ujjain, balancing cultural preservation with modern service demands; Administrative towns like Bhopal and Dehradun, shaped by government presence and fiscal dependence; and Tourism cities such as Agra and Varanasi, whose finances are influenced by visitor flows. This categorization enables meaningful comparisons, showing how city type affects fiscal sustainability when measured through the Fiscal Efficiency Ratio (FER) and per capita property tax collection.

Comparative Analysis

The Fiscal Efficiency Ratio (FER) reveals striking contrasts across the eight cities studied, underscoring how urban type influences fiscal sustainability.

The Fiscal Efficiency Ratio (FER) highlights clear differences across city categories. Among metros, Ahmedabad consistently shows fiscal stress with FER below 1, meaning receipts fail to cover expenditures, while Hyderabad demonstrates strong surpluses with FER well above 1, reflecting better revenue mobilization. Heritage towns like Jaipur and Ujjain show fluctuating but generally balanced finances, underscoring the challenge of maintaining cultural infrastructure while meeting modern service demands. As Rao & Bird (2010) note, fiscal decentralization remains uneven across Indian ULBs, which explains the mixed outcomes in administrative towns. Administrative centers present mixed outcomes: Bhopal slipped into deficit in FY 2023‑24 after earlier surpluses, while Dehradun remained close to balance, reflecting dependence on state transfers and limited revenue autonomy.

The sharpest contrasts appear in tourism cities. Agra, despite its global profile, consistently records FER below 1, indicating fiscal stress and weak revenue capture from tourism flows. In contrast, Varanasi shows strong surpluses, with FER rising to 1.74 in FY 2023‑24, suggesting effective mobilization linked to religious tourism. Taken together, these findings reveal that city type significantly shapes fiscal sustainability: metros face uneven capacity, heritage towns remain vulnerable, administrative hubs hover around balance, and tourism cities show both extremes. The FER thus provides a simple yet powerful benchmark for identifying where reforms in municipal finance are most urgent.

Source: City Finance Portal, MOHUA

The per‑capita own source revenue data across eight municipal corporations reveals clear fiscal disparities between different city types.

Metropolitan centres like Ahmedabad and Hyderabad mobilize significantly higher revenues, with Ahmedabad rising sharply to ₹8,916 in FY‑2023‑24, while Hyderabad shows relative stability around ₹5,000.
In contrast, heritage cities such as Jaipur and Ujjain remain constrained, with Jaipur at only ₹1,354 and Ujjain modestly better at ₹2,015. Administrative towns present a middling profile: Bhopal maintains moderate growth from ₹2,833 to ₹3,228, while Dehradun fluctuates, slipping from ₹1,543 to ₹1,497.

The tourism cities highlight the sharpest contrasts – Agra improved from a very low ₹493 to ₹1,597, while Varanasi rose steadily from ₹591 to ₹1,396.

Overall, the data underscores that metropolitan cities dominate in revenue generation, heritage and administrative towns struggle with limited fiscal bases, and tourism cities show divergent trajectories, with Varanasi emerging stronger than Agra.

Source: City Finance Portal, MOHUA         

Source: City Finance Portal, MOHUA                                Table 1: Per-Capita Property Tax collection (Rs.)

The per-capita property tax data shows sharp contrasts across city categories and fiscal years. Metropolitan centers like Ahmedabad maintain consistently high values, rising from ₹2,076 in FY-2021-22 to ₹2,355 in FY-2023-24, while Hyderabad shows volatility, peaking in FY-2021-22 before stabilizing lower.

Heritage cities such as Jaipur and Ujjain remain at the bottom, though Jaipur records steady growth, whereas Ujjain’s figures dropped significantly after FY-2021-22. Administrative towns like Bhopal and Dehradun demonstrate strong upward momentum, with Dehradun nearly doubling its tax base in three years. Tourism cities, Agra and Varanasi, show moderate but stable collections, with Varanasi gradually improving. Overall, the data reflects how metropolitan and administrative towns are driving property tax growth, while heritage and tourism cities lag, highlighting structural differences in fiscal capacity.

Source: City Finance Portal, MOHUA

Policy Recommendations

Strengthening municipal finances requires reforms tailored to the fiscal realities of different city types. Property tax modernization through GIS mapping, digitized records, and improved collection efficiency can significantly raise revenues in metropolitan and administrative towns. The National League of Cities (2025) shows how property tax collections stabilize municipal finances in the US, offering a useful benchmark for Indian reforms. Roy (2026) highlights GIS mapping and digitized property records as reform pathways, aligning with the recommendations here for metropolitan and administrative towns. For tourism‑driven cities like Agra and Jaipur, introducing tourism levies and visitor charges is essential to capture the economic value of larges visitor inflows. Heritage towns such as Ujjain and Jaipur need dedicated heritage grants to balance cultural preservation with modern service delivery. Administrative hubs like Bhopal and Dehradun require deeper fiscal decentralization to reduce dependence on state transfers and empower local bodies to mobilize resources more effectively. Rao & Bird (2010) argue that uneven decentralization constrains municipal autonomy, which explains the dependence observed in administrative hubs like Bhopal and Dehradun. Collectively, these measures can strengthen fiscal sustainability, reflected in improved Fiscal Efficiency Ratios and rising property tax bases.

Urban local bodies should also align their fiscal practices with the principles of the FRBM Act, emphasizing transparency, accountability, and sustainable debt management. Embedding FRBM‑style rules at the municipal level – such as setting clear deficit targets, mandating disclosure of contingent liabilities, and adopting medium‑term fiscal frameworks – will enhance fiscal discipline. This approach not only reduces reliance on state transfers but also builds credibility with investors and citizens, ensuring that municipal finances remain resilient, transparent, and sustainable.

Conclusion

The comparative analysis of eight municipal corporations over three years shows that fiscal sustainability in Indian cities is shaped not only by their type and revenue base but also by their capacity to mobilize property tax.

Metropolitan centres like Ahmedabad and Hyderabad illustrate this divergence clearly: Ahmedabad records persistent fiscal stress despite high own‑source revenues and strong property tax collections (₹2,355 in FY‑2023‑24), while Hyderabad achieves surpluses with more efficient fiscal management despite volatility in property tax receipts. Heritage towns such as Jaipur and Ujjain remain vulnerable, with very low property tax bases (₹257 and ₹354 respectively in FY‑2023‑24), underscoring their limited fiscal autonomy.

Mohanty (2014) highlights structural revenue constraints in Indian cities, consistent with these vulnerabilities, reinforcing the need for targeted fiscal reforms in heritage towns. Administrative hubs like Bhopal and Dehradun hover around parity, yet their rising property tax collections – Bhopal at ₹1,559 and Dehradun nearly doubling to ₹1,151 – highlight their potential to strengthen local finances if supported by decentralization. The sharpest contrast lies in tourism cities:

Agra struggles with weak property tax mobilization (₹388) and fiscal stress despite its global profile, while Varanasi demonstrates strong surpluses, combining moderate property tax growth (₹586) with effective mobilization of religious tourism.

References

Roy, D. (2026). Enhancing property tax: Reform pathways for Indian municipalities. Centre for Social and Economic Progress (CSEP).

Priyadarshni, A., & Pandey, R. (2025). Property taxation systems and revenue performance of urban local governments: A comparative analysis of select Indian cities. Journal of Social and Economic Development, 27(2), 145–162. Springer.

National League of Cities. (2025). City fiscal conditions 2025: Property tax collections and local fiscal health. Washington, DC: NLC.

Rao, M. G., & Bird, R. M. (2010). Urban governance and finance in India. India Infrastructure Report 2010, 45–67. Oxford University Press.

Mohanty, P. K. (2014). Financing cities in India: Municipal revenues and fiscal health. New Delhi: Cambridge University Press.

Ministry of Housing and Urban Affairs (MOHUA). (2024). City Finance Portal: Municipal finance data FY 2019‑20 to FY 2023‑24. Government of India.

Priyadarshni, A., & Pandey, R. (2025). Property taxation systems and revenue performance of urban local governments: A comparative analysis of select Indian cities. Journal of Social and Economic Development, 27(2), 145–162. Springer.

National League of Cities. (2025). City fiscal conditions 2025: Property tax collections and local fiscal health. Washington, DC: NLC.

Rao, M. G., & Bird, R. M. (2010). Urban governance and finance in India. In India Infrastructure Report 2010 (pp. 45–67). Oxford University Press.

Mohanty, P. K. (2014). Financing cities in India: Municipal revenues and fiscal health. Cambridge University Press.

About the Contributor

Himanshu Chhetri is a development and public policy practitioner with a Post Graduate Diploma in Cities and Governance from the Tata Institute of Social Sciences (TISS), Hyderabad. He has experience in public policy analysis, economic analysis, public finance, and development consulting, having worked with PricewaterhouseCoopers (PwC) and the School of Planning and Architecture, Bhopal. His areas of interest include urban governance, economic development, and evidence-based policymaking.

Disclaimer

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