Municipal bonds can help cash-starved urban local bodies to raise funds for improving their service quality
Most municipalities are plagued by abysmally poor financial management, political wrangling and corruption. So when the Pune Municipal Corporation raised Rs. 200 crores last July through issue of oversubscribed bonds it was astonishing.opinion Updated: Jan 10, 2018 10:57 IST
Even as urban India has burst its carrying capacity, hundreds of municipal bodies remain cash strapped and helpless to revamp the crumbling infrastructure of their corporations— leave alone invest in capacity addition. Critical functions such as providing water and sewage treatment have been neglected for decades causing serious health hazards. Beset with corruption and empty coffers most urban local bodies (ULBs) have evinced no interest in overhauling anything. Which is why the Centre’s plans to provide an ecosystem to help them raise funds through municipal bonds has generated much hope.
Global examples show that municipal bonds are widely considered safe investments. India has a good track record of issuing bonds through its highly performing central corporations, mostly in the energy, railways and highway sectors. Sadly this does not extend to the urban development sector whose track record of inefficiency belies trust in the ULBs’ capabilities.
Most municipalities are plagued by abysmally poor financial management, political wrangling and corruption. So when the Pune Municipal Corporation raised Rs 200 crore last July through the issue of bonds (the issue was oversubscribed) it was astonishing. The most recent issue before that was in 2011.
A conversation with the municipal commissioner of Pune, Kunal Kumar, whose last eight years have been spent administrating the Nagpur, Kolahpur and Pune corporations, was instructive. As he put it, all reforms boiled down to reforming two departments: finance and water. The Pune corporation started by adopting a debt management policy and the national accounting system, which placed the corporation’s revenue and expenditure under professional scrutiny.
Meanwhile the water department was armed with ultrasonic water meters (still a rarity elsewhere) enabling the delivery system to be monitored in detail. Not even an air bubble can go unnoticed through the system, leave alone instances of vandalism and theft!
With water charges not having been raised for 15 years, a 30-year-long scheme was announced in 2015 for raising charges by 15% a year for three years, 12% a year for the next two years and 5% a year for the next 25 years. Punekars realised that the amount was not worth agitating over. But the long-term promise of sustainability had given birth to a climate of trust — the foundation to build partnerships.
An unlikely partner who showed the way was the US department of treasury by helping demonstrate how remunerative projects have to be designed and secured before investors are attracted.
Collections from property tax are every ULB’s largest source of revenue. In Pune, GIS mapping and GPS technology were used to closely monitor accruals. This helped increase revenues by 50% in just one year while correspondingly the house tax rate was raised by only 10%. Importantly, protracted litigation was regarded as unremunerative and out-of-court settlements became the preferred route to pull in ready cash.
Municipal bonds had been floated earlier too but the amounts raised over several years did not go into double digits for the most part. Pune’s first tranche of Rs 200 crore was extraordinary.
A conversation with the municipal commissioner of Nagpur revealed that the city’s ULB was moving to the unit area method of house tax collection – one of Delhi’s far reaching reforms introduced far back in 2003. In Nagpur, the survey of properties using GIS /GPS technology has unearthed a huge cache of 1.30 lakh houses, which had for long merrily escaped the house tax net.
For commissioner Ashwin Mudgal, the biggest lesson for governance has been removing discretion and replacing human interface with technology.
With some 4,000 ULBs including over 150 municipal corporations in India, the Pune example is literally a drop in the ocean. But a quick reading of the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) website of the ministry of housing and urban affairs shows every participating state’s annual action plan is in an uncomplicated and user-friendly manner. It gives the 500 participating ULBs a means to check their standing — across states and within them. Comparison is a bureaucrat’s best benchmark and if the claims made by the state or by a particular ULB are inaccurate, someone will call their bluff.
What emerges is that given a free hand, with no political interference, benchmarks to judge progress, with a judicious use of technology, and incentives to push reform; ULBs will have an opportunity to escape the morass they have sunk into.
Shailaja Chandra is former chief secretary of Delhi
The views expressed are personal