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Issues in indian urban finance
1. ISSUES IN INDIAN
URBAN FINANCE
Ravikant Joshi
Transforming India 2030: Strategies for Sustainable Development Goals
February 15-17, 2017 Pune, India
Faculty of Humanities & Social Sciences, Symbiosis International University
2. CITIES, LIKE STATES, MUST COMPETEWITH EACH OTHERTO UNLEASH
DYNAMISM.TO COMPETITIVE FEDERALISM INDIA MUST ADD
COMPETITIVE SUB-FEDERALISM.
CITIESTHAT ARE ENTRUSTED WITH RESPONSIBILITIES,
EMPOWERED WITH RESOURCES, AND ENCUMBERED BY
ACCOUNTABILITY CAN BECOME EFFECTIVEVEHICLES FOR
UNLEASHING DYNAMISM SOTHATTO COMPETITIVE FEDERALISM
INDIA CAN ADD, AND RELY ON, COMPETITIVE SUB-FEDERALISM.
Economic Survey of India 2017
3. Issues in Indian Urban Finance
â Shrinking space of Urban Finance /Municipal Finance â
â Cities are increasingly financed through national resources than locally raised
resources
â This is resulting in to cost exportation â cost of city spilling over far beyond its
benefit area
â Unprecedented Project Based Devolution with no or very soft Budgetary
Constraints (with no concern for financial sustainability)
â ULBs are not augmenting their own sources
â ULBs are not leveraging their own sources
â Inability of ULBs to absorb the funds â Inability to devolve the funds
â Absence of Financial Accountability Framework (No FRBM)
4. Issues in Indian Urban Finance â
Shrinking Space of Urban Finance
â Municipal total revenue to GDP ratio which had increased slightly from 61
to 63 per cent during 1997-2001 declined during 2002-12 as Central and
State Governments started devolving more and more project based funds
from 63.5 to 51. 6 per cent.
â In other words funding of Cities through national and regional sources
increased to 49 per cent from 37 per cent during 2002-2012.
â Municipal tax revenue to GDP ratio declined from 0.39 to 0.32 per cent
â Municipal non-tax revenue to GDP ratio declined from 0.20 to 19.8
â With abolition of Octroi now even in Gujarat and Maharashtra ULBsâ
dependence on devolutions is more than 65 per cent.
5. 12 & 13 CFC Data on Municipal Finance*
Details! 2002-2003 2007-2008 2002- 07
Amount
Rs. crore
Per Capita
Rs
Amount
Rs. crore
Per
Capita Rs
CAGR %
OwnTax 8,838.13 311@ 15,277.72 492 % 11.57
Own Revenue 13,279.97 466 # 23,521.38 757 & 12.11
Total Revenue Income 20,919.69 733 44,429.05 1430 16.26
Revenue expenditure 15,691.46 550 28,431.45 915 12.62
Capital expenditure 5,938.28 208 18,594.08 598 25.64
Total expenditure 21,629.74 758$ 47,025.53 1,513 ** 16.80
(GDP) (India) 22,61,415 21,415 43,20,892 37,969 13.83
Own Tax 0.39% to 0.35%@%; Own Revenue 0.59% to 0.54%#
&; Total Revenue Income 0.925% to 1.03%-+; Revenue
Expenditure 0.69% to 0.66% ; Total Expenditure 0.96% to 1.09%$**
; Transfers 0.335% to 0.49% of GDP at Factor Cost (current prices)
6. 13th & 14th CFC Data on Municipal Finance
Structures Year 2007â08
Year 2012â13
Own Sources
INR (Crore) Per cent INR (Crore) Per cent
Tax revenue 18,366 37.2 30,912 32
Non-tax revenue 9,134 18.5 19,002 19.7
Sub total 27,501 55.7 49,913 51.6
Transfers
Government of India 3,515 7.1 5,387 5.6
Finance Commission 986 2 3,760 3.9
State devolution and assignments 9,342 18 18,537 19.2
State grant-in-aid 6,653 13.5 14,809 15.3
Others 1,355 2.7 4,232 4.4
Sub total 21,851 44.3 46,727 48.4
Total 49,352 100.0 96640 100.0
Own source revenue as per cent of
GDP
0.60 0.48
Total municipal revenue as per cent of
GDP
1.08 1.03
MOSR as per cent of GDP declined from 0.60 in 2007 to 0.48 in 2012. MOSR amounted 55.7 per
cent of total revenue in 2007 declined to 51.6 per cent in 2012, during 2002-12 municipal self-
reliance has come down by 12 per cent.
7. Municipal Finances in India
Year
Centre
(Rs. in
crore)
Centreâs
Share in
Total
Publicly-
raised
Resources
(in per
cent)
States
(Rs. in
crore)
Statesâ
Share in
Total
Publicly-
raised
Resources
(in per
cent)
Municipa
l Bodies
(Rs. in
crore)
Municipal
Share in
Total
Publicly-
raised
Resources
(in per
cent)
2012/13 741,877 42.46 974,239 55.77 30,912 1.77
Municipal tax
revenue as a
percentage of
Centre
4.2 per
cent
3.2 per
cent - -
2007/08 439,547 49.45 430,782 48.48 18,366 2.07
Municipal tax
revenue as a
percentage of
States
4.2 per
cent
4.3 per
cent - -
Tax Revenues of the Centre, States, and Municipalities
Source: India Public Finance Statistics, Ministry of Finance 2009â10, and data collected
by the Fourteenth Finance Commission.
8. Issues in Indian Urban Finance â
ULBs not augmenting their own sources
â PropertyTax Potential Unexploited â Economic Survey of India 2017-18
â Evidence from satellite data indicates that Bengaluru and Jaipur collect only between 5% to
20% of their potential property taxes.
â Study conducted (2012-13 data) by the 14th CFC indicated that per capita revenue from property
taxes was at Rs.1677 with a low of just Rs. 42.
â Study of PropertyTax in 36 million plus cities (2007-08 data) for 13th CFC
â Rs. 486 per capita average; Mumbai Rs. 1334, Patana Rs. 25 per capita
â Properties paying tax to total properties â 56%; collection efficiency â 37% of demand; Cities
collected only 21 % of their potential property tax
â Property tax revenue â 0.16 to 0.24 % of GDP much lower compared to developing countries
average of 0.6 % of GDP and developed countries average of 2 % of GDP
â ULBs by and large have not been able to levy adequate user charges to cover even the operation
and maintenance costs.
â Cost recovery ranges on an average from 20 % to 50%
9. Issues in Indian Urban Finance â
ULBs not leveraging their own sources
â ULBs which have capacity are not leveraging funds through bonds / borrowings
â Since announcement of JNNURM in December 2005 in all only four Municipal Bond
issues raising paltry Rs. 221.70 crore have taken place.
â Since 2013 not a single bond issue has taken place.
â One was issued byVishakhapatnam MunicipalCorporation in 2007; rest three bond
issues were issued byTNUDF for smaller municipal bodies.
â During 1998 to 2005 - 26 Municipal Bond issues of Rs. 1590 crore were structured -Two
issues-Kolkata & Chennai did not take place.
â Through 24 issues Rs. 1445 crore were raised.
â 18 issues were by municipal bodies, 4 issues by city level water and sewerage boards
and 2 issues of pooled finance nature by KUIDFC andTNUDF for multiple smaller
municipal bodies.
10. Issues in Indian Urban Finance â Inability to
absorb and to devolve funds
â Total budgeted outlay
â 2015-16 = SCM & AMRUT Rs. 4186 + SBM Rs. 766 Cr. = Rs. 4952 Cr.
â 2016-17 = SCM Rs. 5000 Cr + AMRUT Rs. 4559 Cr + SBM Rs. 2300 Cr = Rs. 11859 Cr.
â 2017-18 = SCM Rs. 4000 Cr + AMRUT Rs. 5000 Cr + SBM Rs. 2300 Cr = Rs. 11300 Cr.
â Smart Cities Mission â (2015-16 to 2019-20) Rs. 48000Crore (per annum Rs. 9500 crore from GOI
to 100 Cities
â No data available how much funds has been devolved
â 2 crore have been given to each of 100 cities = 200 Crore
â It seems 20 first phase I Cities received Rs. 194 Crore each = Rs. 3880 Crore
â Some Cities of Rest of 40 Cities (13 fast track and 27 Phase II Cities) have received. Even if it
assumed they will Rs. 194 Cr each by March 17 it will be = Rs. 7760
â Total devolution by March 17 would be = 3880 + 7760 + 200 = Rs. 11840 Crore
11. Issues in Indian Urban Finance â Inability to
absorb and to devolve funds
â AMRUT â (2015-16 to 2019-20) Rs. 50,000 crore (per annum Rs. 10000 cr.) from GOI for 500 Cities
â PMAY (Urban) â (2015-2022) Construction of 24 lacs housing units
â 2015-16 â Rs. 1487 Cr
â 2016-17 â Rs. 4936 Cr
â 2017-18 â Rs. 6043Cr
â Total amount under three flagship urban schemes during (2015-19) Rs. 150000 Cr.
â Urban sector will fail to devolve and to absorb funds to the extent of 40 to 50 %
â In smart cities mission 60 ULBs have proposed to contribute only 6 % of total outlay
â Under AMRUT scheme again ULBs will not be putting their own share due to lack of funds
State Plans ApprovedTotal Rs. 56727 Crore
2015-16 â Rs. 20652 Crore
2016-17 â Rs. 25182 Crore
Final SAAP â Rs. 10892 Crore
Total DPRs 1856
DPRs Not Approved â (Nos. 1409 )Rs. 26038 Crore
DPRsApproved â (Nos. 447 ) Rs. 9570 Crore
NIT Issued â (Nos. 350) Rs. 10040 Crore
Contract Awarded â (Nos. 605) Rs. 7500 Crore