Municipal corporations and the tyranny of backdoor governance

livemint.com:

₹1.10 trillion, was now controlled by the state. How are these two events connected? Finance Commissions and their work might seem remote from the concerns of most citizens, but in fact they are highly contentious. Most of the controversy centres around how taxes are shared with states, and how certain types of taxes, such as surcharges and cesses, are kept out of the shareable tax pool.

But now, another problem the 16th Finance Commission will have to deal with is precisely the issue raised by the current situation in Maharashtra’s municipal corporations. Indian cities, and urban areas in general, generate a huge amount of wealth and income, but have little say—either politically or financially—on how to use it. Most of the money they generate goes back to the state they are part of, or the centre, and they are then dependent on handouts to survive and provide better amenities and services to their own residents.

Political and financial conflicts within India at a federal level are often framed as being between richer and poorer states. Richer states in the south and west claim they create most of the wealth, but they have little control over much of it—the centre takes a large part of that wealth in taxes, which are then distributed to poorer states in the north and east. So, richer states ‘lose out’ to poorer states.

This argument is of limited value. It ignores the fact that richer states rely heavily on poorer states for cheap labour and a large market. It is pretty much the same argument that Indian cities can make.