Bangalore pays second highest direct taxes in the country

Bangalore - Pathfinder to laggard
Subir Roy in Business Standard

The state of Bangalore’s civic body, BBMP, provides an object lesson on how not to run a city when the country is going through an unprecedented wave of urbanisation. This is tragic because the country’s IT capital has so much going for itself. It has no dearth of informed and engaged citizens and has the capability to generate as much of resources as it needs to make a showcase of itself. Instead, it wallows in a civic mess created by politicians who must rank among the worst south of the Vindhyas and self-serving bureaucrats.
 
The state of the city is reflected in the state of BBMP’s finances. Its budget presented last week may have created a record of sorts by missing its revenue target (budget versus revised estimates for 2007-08) by 62.5 per cent! This has not left it nonplussed as such underperformance is a regular feature. The budget document itself notes, “This (shortfall in receipts) has been the trend in BBMP over the last 10 years. The gap in some years is as high as 40 per cent.”
 
But past experience has not made the new team at Town Hall more cautious. For 2008-09 it has projected a massive revenue growth rate of 49.5 per cent. The key revenue earner, property tax, under-performed by Rs 180 crore in 2007-08 but has been again projected to go up by Rs 175 core in 2008-09. This is predicated on the state government notifying revised rules for the Sakrama scheme, which will regularise unauthorised constructions on payment of penalties. It has to do this quickly, before the model code comes into play ahead of the polling in May. Eventually it may not, leaving the politically sensitive issue to be sorted out by the next government. The future of a key revenue stream is so very uncertain.
 
Property tax revenue should shower on Bangalore, where IT-BPO expansion has created a real estate boom but its growth rate tells a tale. Property rates were revised after decades in the year 2000 and a system of self assessment by rate payers was introduced. Higher rates and the hassle-free system improved compliance and revenue boomed. But the rate of growth has come down lately. For a consideration, the civic staff have been “advising” rate payers how to assess themselves modestly. Scrutiny of self-assessments has almost ceased.

A key regulatory change has also critically deprived BBMP revenue from new developments. These have mostly taken place in newer areas around the city involving conversion of agricultural land to non-agricultural use. To put a stop to widespread construction on non-converted land, the state government ordered a couple of years ago that the “khata” or “mutation” (recording your right to pay property tax and the de facto claim to ownership) will not be allowed for property built on land not yet regularised. So a lot of new property owners have not been paying any tax at all! This “loophole” has now been removed and BBMP has lately been active bringing within its net new “high density” areas.
 
The change in Bangalore’s national status is best illustrated by its play with the JNNURM, designed to tackle the urban mess by offering funds against adoption of good practices. Karnataka, through Bangalore, was a pioneer in some of these like the fund-based system of civic accounting, which were adopted by the JNNURM for the whole country.
 
Two Bangalore citizens, Infosys Chairman Nandan Nilekani and the NGO Janaagraha’s founder Ramesh Ramanathan, played a key role in creating the programme. So when the JNNURM started, Bangalore got ready funding for having already adopted some of those good practices. But thereafter it fell behind even as some cities in other states forged ahead. One reason why revenue fell short in 2007-08 was JNNURM funding falling short because of missed reform milestones. The path finder has become the laggard.
 
The lack of effective political leadership is natural as the city has not had a popular local body for over a year now. When BMP was made BBMP by adding five peripheral municipalities, it was given a year to put its house in some shape before an elected body took over. Then came delimitation and redefining of urban ward boundaries and thereafter President’s rule. Not that just any elected body will change things. If it is business as usual, popular representation will mean the same least capable corporators will elect non-descript mayors every year. A mayor-in-council system and a heavyweight mayor, both directly elected by the people for five years, is what is needed to put power and responsibility in the same hands by aligning the rights to govern, spend and administer, instead of the current dissonance between the functions of the corporator, municipal commissioner and state government. (See Kasturirangan Committee's recomendations here.)
 
It being business as usual, modern ideas of urban renewal, with emphasis on walking, cycling, bus travel and mixed development (stay near to where you work) have barely reached Bangalore. The civic budget talks of underpass, overpass, elevated highway, and roads on stilts on dirty nullahs, which will apparently have special fences so people can’t dump garbage in the nullahs! A city where some of the business follows global best practices, urban governance follows some of the worst practices. Bangalore, which has put India on the global map, is being ruined by its politicians and bureaucrats. The politics of Deve Gowda and that of the bureaucrats who badmouthed and helped kill a remarkable public-private initiative like the Bangalore Agenda Task Force have been the city’s nemesis.

PS: original budget document here.