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Why is BBMP broke - where is the money?

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Urban DevelopmentGovernance

We are told that BBMP is broke, they have no money. How many of us know the reaon why. A growing city, with so much commerce (IT, BT and all) going on, how exactly would it be broke? No english is required to explain things, numbers always tell their story. One look at summary of receipts in BBMP 2010-2011 budget may tell us something, (pdf available on BBMP website, also see embedded below for convenience), so here are the items where 2009-2010 budgeted and revised estimates have the biggest gap, orderd the way BBMP listed in their budget, only items bigger than 20 crores, leaving out shortages on JNNURM grants.

Table below:

Receipt Item

2009-10 budget (lakhs)

2009-10 revised (lakhs)

Grant - Metro (BMRCL)

7000

1.96

Grant – IDD

3500

1650

Grants from MLA - Development works

4200

200

Grants - state finance commission grants

50000

39895

Beggary Cess

3300

1988

Health Cess

16500

9941.91

Library Cess

6600

3976.76

Improvement Charges

9250

52.31

Khata Transfer charges

3500

1203

Infrastructure User charges

2000

0

Service charge – central govt buildings

2000

0

Service charges on cess collected on behalf of govt

2640

0

Service charges on tax expemt properties

2500

0

Property tax

110000

79500

Rents from shops &  commercial complexes

5000

1107

License fees – hoardings on BBMP land

2800

0

User charges - Solid Waste Management

4000

1.52

Building deviation regularization

5000

0

Building license fees

4864

2505

Borrowing towards other works

57811

155000

Attaching/embedding below for reference - Receipts details from BBMP, from their website. BBMP 2010-11 Budget Receipts

AttachmentSize
Municipal Finance in India, RBI, Dec 2007.pdf1.01 MB
India Municipal Finance Study - ADB, 2009.pdf89.93 KB

Comments

silkboard's picture

quick conclusions

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Some things that numbers say

  • BBMP can't collect money for its assets or services. Problem is not limited to proprty taxes alone, see beggary cess (!), health cess, collections on horading, solid waste management user charges, Infrastructure user charges etc. Some not implemented, some not charged.
  • We are living on borrowed money, see how much BBMP planned, and how much it actually borrowed!
  • 100 Crore shortfall on grant from state finance commission as well. What is that grant based on? Whats the formula?
silkboard's picture

so why is it so?

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The key reason, as noted in RBI report "Municipal Finance in India:An Assessment" (Dec, 2007):

The ULBs depend on the respective State Governments for assignment of revenue sources, provision of inter-governmental transfers and allocation for borrowing with or without State guarantees. Constitutionally built-in imbalances in the functions and finances eventually reflect in the high dependency of urban local bodies on State Governments and of the State Governments on the Central Government

Notice the word imbalance. That is explained in RBI report as:

... there is constitutionally in-built mismatch between the functions and finances of urban local bodies. ... in India the magnitude of the mismatch is much higher than other countries. Out of 18 functions to be performed by the municipal bodies less than half of them have a corresponding financing source.

Yeah, many functions do not have corresponding financing source.

So RBI has researched this. And we see in BBMP's budget every year. What is being done to address this imbalance? Nothing. Don't tell me about the bangalore regional governance act (drafts are floating around) please, it works only on the functions of BBMP, and is absolutely silent on the finances.

silkboard's picture

ADB's study on municipal finance, ETA Feb 2011

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As per India: India Municipal Finance Study, ADB, Aug 2009 (Financed by the Republic of Korea e-Asia and Knowledge Partnership Fund)

Currently, no municipal fiscal policy exists in India. Due to the absence of a basic reference document, efforts to build capacities in the sphere of municipal finance have been ad hoc and perfunctory. ... a major change in federal fiscal relations with regard to introducing state value-added tax (VAT). Recently, all the state governments have adopted VAT and there is a proposal to move towards a goods and services tax starting in April 2010. Some ULBs have taken steps to reform property tax issues.(ex: Bangalore). These initiatives have a multiplier effect in the improvement of taxes. However, issues of India's municipal financing have hardly been addressed in a holistic manner; they have been addressed in a fragmented way as the municipal capacity building component of urban infrastructure projects. A vast knowledge gap needs to be bridged.

Tha ADB preamble says that the study will be ... ending by 28 February 2011.

silkboard's picture

sources of income for BBMP, disparity?

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As per this report titles "Municipal Finance Systems in Conflict Cities: Case studies on Ahmedabad and Srinagar, India", sources of revenue for BBMP like body are:

local revenue sources are a combination of tax and non-tax charges that are internally generated and transfers from the higher levels of government. Tax revenues include personal and corporate income tax, property tax and tax on goods and services. Non-tax revenues comprise fees, fines, user charges and sales income.

Also ...

The 74th Amendment also proposes the formation of State Finance Commissions (SFC) ... to strengthen municipal finances through assigned taxes, devolved taxes, and grants-in-aid from the State. However, the actual degree of devolution has been left to the discretion of respective state governments, resulting in conspicuous disparities in the extent of decentralization across India.

And how much is this disparity? See table below

Table 3: Government revenues in India. Source: Mathur (2000), RBI Bulletin February 1994).

 

Level of government

Revenue (Rs. million)

Per capita income (Rs.)

Centre

833.20

987

State

486.60

574

Local

39.00

205

n's picture

Some of the above and

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Some of the above and solutions had already been enumerated in the BBMP gyan. See constraints, recommendations and reference links.  A medium term fiscal policy has also been prepared (reference 19) but implementation status is unknown as in most things govt. ;-) The ADB report may be yet another redundancy again as in all things govt. The IT companies don't pay tax owing to the STPI act (?) or similar that provided for a 10-year tax holiday. Hue and cry was raised when the DTC would start taxing them next fiscal but IIRC the tax holiday was extended by another 5 years. So, all that $16-$18 billion worth of software exports from K'taka are tax-free.  But, all companies irrespective of their contribution do want subsidised land, top-notch infrastructure...


silkboard's picture

our income tax, back to our city?

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And if you notice all items listed in BBMP receipts, you would be hard pressed to find clear or direct ways for our income taxes to return to the city. So what you have is a situation where most big companies are enjoying tax benefits, and tax paying professionals just don't have a big way available to "fund" their own city.

The only indirect way the income tax returns to our city would perhaps be those Grants (JNNURM, Stata Finance Commission). Grants to BMTC, BWSSB etc would also count as those two agencies also run our city, which reminds us all that of water, power, mobility and telecom, BBMP is not responsible for providing any service, and it is supposed to "run" our city. Strange.

Back to talk of fiscal dependency, talk as much as you would about property taxes, but even if BBMP had collected as much as it planned, it would still have had to borrow money. Numbers say this:

  • Property tax shortfall = 1100 crore - 795 crore = Rs 305 crore
  • Excess borrowing = 1550 crore - 578 crore = Rs 972 crore

So with 100% property tax collection, BBMP would still have had to borrow Rs 600 cr+ if I interpret the numbers right.

Public Agenda's picture

pl refer the MTFP of 2009-10

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Last year the BBMP commsiioner issued an Mdium Term Fiscal plan which said that according to his own calucations of a debt limit the BBMP could borrow Rs 5000 crs This is itself illgeal since the MTFP is not meant for BBMP and there are still no rules framed for the Local Fund Authorities Fiscal responsibility act which applies to urban and PRIs 

That is why BBMP is now broke because all the ways of paying back have gone awry 

That is why they have increased the ad rents on billboards and are trying means such as betterment charges (proposed Rs 120 crs) and akrama sakrama etc

the fact is with the extreme infrastrcuture focus in the Adminsitrators period 2007-10 all kinds of ways of the State to ruin Bangalores funds were tried out and it is no wonder that the scam revelaed last month amounts to 3500 crs almost the total borrowed amount

 SO THAT IS WHERE THE MONEY HAS GONE AND THAT IS WHY BBMP IS BROKE !!!


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