This book asks why local city governments are struggling despite accounting for 60% of India’s GDP

Cities account for 60% of India’s GDP. Since economic activities create an avenue for mobilising tax revenues, our city governments should have been rich too. But you only need to feel the AQI levels in Delhi or experience the crumbling roads of Bengaluru to realise that the pipeline connecting economic activities to revenues is broken. Here are some figures from the RBI’s annual report on municipal finances from 2024 to put this imbalance in context. One, even though urban areas contribute 60% of India’s GDP, the total self-generated revenue of all municipal corporations combined is merely 0.4%. It’s not a typo. Two, even in an urbanised state such as Tamil Nadu, which has several mid-sized cities, the ratio of the tax revenue raised by all municipal corporations to the tax revenue raised by the state government is an abysmal 1.8%. And three, of all large states, only in Maharashtra is the ratio of municipal corporations’ revenue to state government revenue greater than 10%.

Let’s make sense of these numbers through an example. A city typically houses various businesses, such as factories and other business establishments. A factory would have to pay corporate taxes on the profit it generates. The managers and factory...

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