COMMENTS

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?

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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.

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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.

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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

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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...

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