Strapped of cash, BMC in fix to meet revenue targets

For the financial year of 2020-21 the BMC is staring at a shortfall of nearly Rs 11,000 crore, after failing to generate only Rs 11,616 crore as income from taxes, fees and premiums as against the revenue target of Rs 28,448 crore.

The Brihanmumbai Municipal Corporation’s (BMC) plan to float municipal bonds to raise Rs 4000 crore, stems from the pinch the country’s richest municipal corporation is feeling due to falling revenues and its failure to tap into newer sources of income.

While the BMC has failed to meet its revenue targets since 2012, the gap between its expectations and reality has never been as stark as in 2021. For the financial year of 2020-21 the BMC is staring at a shortfall of nearly Rs 11,000 crore, after failing to generate only Rs 11,616 crore as income from taxes, fees and premiums as against the revenue target of Rs 28,448 crore.

Since the discontinuation of octroi in 2017, the BMC has had to depend largely on property tax as its revenue source, which makes up 24 per cent of its income. However, the collection of property tax is riddled with issues: there are pending litigations, and due to a lack of strong laws against non-compliance, the list of tax defaulters is long. To mop up revenue from the property tax, the BMC in 2019 had seized moveable properties such as cars and helicopters. However, none of these have been auctioned till date.

To add to these problems, in 2019, there was confusion over exempting houses less than 500 square feet from property tax. The civic administration has now clarified that only the general component of the property tax will be exempted for houses up to 500 square feet. With less than two months for the current financial year to end, BMC has now begun to issue property tax bills to these houses.

The actual property tax collected till December was only Rs 734 crore, against the estimate of over Rs 4,000 crore. The real estate slump also contributed to a steady drop in the income from premiums. The income from real estate premiums fell to Rs 708 crore as of December 2020, as against the target of Rs 3,879 crore.

While the BMCs income is struggling to meet the target, the spending on capital works has already overshot as of December 2020. Against the target of Rs 5,744 crore, BMC has incurred capital expenditure of Rs 5,875 crore as of December 2020. “Our capital expenditure is as good as last year, and all work has taken off post-monsoon. If we exclude the Rs 1,800 crore we spent on Covid-19, our expenditure for other departments and projects has not suffered at all,” said P Velrasu, additional municipal commissioner.

Capital expenditure refers to the money spent on acquiring, creating, upgrading and maintaining physical assets, and is the parameter to look out for to gauge the expenses on infrastructure. The amount spent on salaries, pensions, administrative expenses, interest is termed as revenue expenditure, which is more or less the fixed outgoing of any entity.

The shortfall in revenue has forced the civic body to prepare a plan of cost-saving in all departments. Ahead of the budget 2021-22, BMC has sought departments to find new sources of income and strictly implement the existing ones. The dip in the revenue source has pushed the civic body to take a harder look at how much it can spend. It means either the civic body will have to find new areas to increase its income or find a way to fund its infrastructure projects.

Implementation of the increase in the lease, rent and premiums of all vacant land tenancy properties, through which BMC expects to mop up Rs 500-600 crore annually, cutting down administrative expenditure including electricity, internet and transportation bills, emphasis on property tax collection and reformation in tax collection mechanism, implementation of estate and market redevelopment policy, the introduction of fire service fee amounting to Rs 50 crore annually, are a few steps likely to be proposed in the upcoming budget.

“The idea that BMC is sitting on cash reserves is false. It might be true five years back, but not anymore. Tapping into new revenue sources, disciplined spending, streamlining of administrative expenditure, municipal bonds, levying charges, the entry fee for the floating population that uses BMCs infrastructure, among others, are some of the methods,” said a senior civic official.

In 2020-21, the then municipal commissioner, Praveen Pardeshi dipped into the reserves to withdraw Rs 4,380 crore. If the BMC continues to dip into its available reserves of ?52,286 crore in every budget, the reserves are sure to run dry in about a decade with the civic body’s increasing expenditures. The BMC has another Rs 26,382 crore in its reserves which cannot be utilised even in emergencies as it has been allotted for committed liabilities like provident fund, pensions, gratuity and other deposits.

For the first time since it was suggested by former BMC Commissioner Sitaram Kunte in 2014, the BMC is considering raising municipal bonds. “BMC cannot forever tap into its reserves. Presently, BMCs credentials are good and we can get an interest rate of 6-6.5 per cent if we float the bonds now. The bond period will be 10-15 years,” the official said.

Raising of municipal bonds comes in with caution. “The money raised from these bonds need to be linked with the specific planned future projects. Otherwise, these earnings would go waste in the routine work like upkeep of drains or roads among others,” said a senior official

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