Why is BBMP broke - where is the money?

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.

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).

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.