2025, Vol. 8, Issue 2

author(s)
CA Pankaj Goel, Shalu Mahajan and Shikha Gupta

abstract
This study evaluates the financial sustainability of municipalities located in hilly states in India and assesses their preparedness to participate in the Urban Challenge Fund, with a specific focus on their potential to access the bond market. The analysis includes eight urban local bodies, using panel data spanning fiscal years 2019-20 to 2022-23. Employing panel data regression techniques, the study uses the proportion of municipal surplus to total revenue receipts as a proxy for financial sustainability. The key explanatory variables include Earnings before Interest, Depreciation, and Amortization (EBIDA) as a share of total revenue and interest payments relative to total revenue. Control variables include regional classification (hill versus northeastern states) and municipal population. To ensure robustness, statistical diagnostics and tests for normality were conducted. Findings reveal significant fiscal stress among hilly municipalities, characterized by consistently negative EBIDA-to-revenue ratios and persistent revenue deficits, with negligible interest payments, suggesting limited capacity for market-based borrowing. These structural financial weaknesses raise concerns about the financial viability and sustainability of Government initiatives, such as AMRUT and the Urban Challenge Fund in hill regions. The study is geographically limited, focusing exclusively on eight municipalities from hill states, and does not account for governance quality or service delivery performance. Consequently, findings may not be generalizable to other regions or broader urban contexts in India.