Thursday, February 18, 2016

Mudda kya hai ?

Delhi’s case of MCD safaai karamchari not getting wages due to paucity of funds has underscored the significance of reforms in financial management of municipalities. The 4,041 cities in India have a population of over 400 million but the revenues of their municipalities are far from adequate. Further, there is no assurance on whether these funds meet the desired outcomes. Therefore, states need to put in place a roadmap for financial self-sufficiency and financial accountability in municipalities.


What is the SOLUTION ? How could FINANCES could be raised for MUNICIPALITIES and how could they be properly MANAGED ?

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  • Firstly, recognising the city as a distinct unit, and examining both its governance and economy accordingly..Today, credible data at a city-level is unavailable — be it on jobs, investments or tax collections. 
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  • Secondly, municipalities have access to very few buoyant revenue streams. Where they do, as in the case of property tax, the municipalities have limited or no control over the rates. 


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  • Thirdly, states need to devolve a reasonable percentage of stamp duties and registration charges on properties back to the cities since growth in the real estate sector is accompanied by service obligations on the part of municipalities. 
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  • Fourthly, thinner revenue streams such as entertainment tax and profession tax need to be given to municipalities. The Union government, too, needs to chip in with measures like removing the cap on profession tax and making all municipal bond issuances tax exempt to make it attractive to the investors. 

 

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  • Fifthly, government land within municipal limits is the single most valuable asset for a city. The Union and state governments as well as the municipalities will have to work together to make an inventory of such land, and draw up a strategy for land value capture that can benefit the municipal exchequer.
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  • Sixthly, concurrent policy measures are required to ensure that a municipality’s medium-term financial position is sound. In municipalities, only short-term cash flows are measured and managed, and not balance sheets. A state legislation on fiscal responsibility and budget management in municipalities is, therefore, long overdue. Enacting this would protect the financial sustainability of municipalities.
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  • Seventhly, mandate audit of annual accounts by empanelled chartered accountants, as is the case in banks and PSUs.
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  • Lastly, there is an acute shortage of skilled staff in the finance and revenue departments of municipalities. This is a key reason for poor tax collections and weak financial management. A combination of solutions, including skill certifications and outsourcing of collections, etc, would be highly effective.
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All of the above need to be circumscribed by an effective policy on transparency, accountability and citizen participation. The public disclosure law under the Jawaharlal Nehru National Urban Renewal Mission was a good beginning in this regard. But it needs to be strengthened further through the addition of built-in incentives and disincentives, as well as the incorporation of open data standards. Greater disclosures will nudge citizens to take ownership of their city.



The core objectives of Public Disclosure Law under JNNURM  are:  
  • To provide appropriate financial and operational information on various municipal services to citizens and other stakeholders.
  • To promote efficiency and consistency in the delivery of public goods and services by the municipality.
  • To enable comparison over time (of a particular ULB) and space (between ULBs) by disseminating information in a structured, regular and standardized manner. 




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