The Comptroller and Auditor General (CAG) is strongly advocating for an upgraded municipal accounts manual to bring about greater transparency and accountability in urban local bodies (ULBs). CAG K Sanjay Murthy has emphasized that a robust and digital accounting system is essential to meet rising expectations and ensure credible spending in ULBs.

With increasing urbanization and funding, transparent urban finances are vital for India's growth. The CAG has highlighted the critical role of cities in the nation's economic progress, noting that fifteen cities contribute 30% of India's GDP. Urban areas, though home to one-third of the population, contribute over two-thirds of the country's GDP, which is expected to rise to 75% by 2030. To fully realize the economic potential of urbanization and achieve a developed India by 2047, addressing the inadequate and poor quality of urban infrastructure and services is crucial.

To improve transparency and attract private investment in urban infrastructure, the CAG is ready to assist states in certifying their municipal accounts. Such certifications add credibility and value, encouraging private players to invest in urban projects. The CAG will soon highlight best practices and models that municipalities can adopt, potentially assuring them of no audit objections if proven models are adopted. However, such an assurance would only be possible if municipal accounts are properly maintained and revenue sources clearly tracked. Transparent and reliable financial systems are essential to attracting serious bidders and funding for urban projects.

The CAG's announcement to certify accounts of municipalities comes ahead of the Centre's anticipated roll-out of the ₹1 lakh crore Urban Challenge Fund, aimed at supporting large-scale projects through public-private partnerships. The housing and urban affairs ministry is finalizing the framework for this, first announced in the Budget. The CAG believes it has a greater role to play in ensuring the transparency of accounts that urban local bodies maintain.

A national workshop was recently held on strengthening financial management in Urban Local Governments (ULGs) through the National Municipal Accounts Manual (NMAM) 2.0. The workshop, organized by the International Centre for Audit of Local Governance (iCAL) of the CAG of India in collaboration with Janaagraha Centre for Citizenship and Democracy (JCCD), marked the beginning of a major push to update municipal financial systems across the country. The discussions focused on the revision of the NMAM, first introduced in 2004, to match the demands of rapid urbanization and decentralization.

However, multiple audits by the Comptroller and Auditor General have revealed that urban local bodies (ULBs) across states are struggling with weak financial management, generating only 32% of their revenue from internal sources. ULBs in 18 states face a significant 42% gap between available resources and actual expenditure. ULBs are only able to realize 56% of their total property tax demand. ULBs in 13 states display significant budget variances. On average, ULBs in 11 states utilized only 61% of their available funds, indicating inefficiency that potentially impacts service delivery. Only 29% of ULB spending goes towards programmatic and development work, while the majority is used for administrative and operational expenses.

Furthermore, the CAG, in its annual technical inspection report on local bodies, stated that there is no social audit mechanism in urban local bodies (ULBs) in the state. The CAG also noted that internal audit and controls in ULBs were inadequate due to the non-reconciliation of the cash book with the passbook, improper maintenance of the cash book, incomplete cash book, non-maintenance of separate cash books for different schemes, and delays in the preparation of annual accounts. ULBs lack control over key areas like recruitment and planning, and vacancies in skilled roles lead to inefficiencies. The CAG recommends increased involvement of ULBs in essential areas like planning to enhance their functionality and decision-making capacity.