State versus Municipal Funds

Roads and streets lined with garbage, non-collection of waste from homes and a deadlock between a municipality and the state government. These were the sights in Delhi around early May 2015 when the employees of the East Delhi Municipal Corporation (EDMC) went on strike over non-payment of salaries while Delhi’s deputy chief minister Manish Sisodia, citing corruption and ill-maintenance of the corporation’s finances, threatened to take over the EDMC. Representatives of the EDMC though, accused the Government of NCT (National Capital Territory) of Delhi (GNCTD) of withholding its grants, worsening the cash-strapped civic body’s financial health. As the city undergoes another political bickering, its municipal finances and ways of making our municipalities self-sufficient have gone haywire.

Trifurcation of Municipal Corporation of Delhi

The Municipal Corporation of Delhi (MCD) was trifurcated into North Delhi, South Delhi and East Delhi Municipal Corporation(s) in 2011 by the erstwhile Delhi government on grounds that a single corporation for the entire city was too large and that, smaller corporations would translate into better service delivery. While the trifurcation itself was mired in controversy, the distribution of assets and liabilities amongst the three was severely questioned and criticised. EDMC, although the smallest of the three, received the highest share of debt while its revenue base remained the smallest, which continues till date.

The question, then, arises: what could be the reason for EDMC’s poor revenue base leading to a situation wherein it is unable to meet its routine expenditures? In the absence of publicly available data on the EDMC’s budget and accounts, we try and answer this question based on closely related data sources on its finances.

Revenue Base of Delhi Corporations

Urban local bodies (ULBs), including the MCDs, have two types of revenues: tax and non-tax. Within non-tax revenues, grants from higher levels of government, especially the corresponding state government (GNCTD in this case) forms the major source. For Delhi, we consider the “approved annual plan outlays” from the GNCTD’s budget to the three DMCs, which get reflected in the income statements of the DMCs as “Contributions from Government Grants”, or simply, budgeted grants.  

As is evident from Table A, in all of the three years under consideration, the EDMC received the lowest share of budgeted grants from the GNCTD. EDMC is the only DMC which has been receiving budgeted grants in near proportion to its population share—having 24% of the population; it has received, on average, 23.6% of the budgeted grants. However, from 2013-14 to the current financial year, this share of grants has declined slightly.  Even though the North Delhi Municipal Corporation (NDMC) accounts for only about 6% more population than EDMC, it received, on average, nearly 20% more in grants than the EDMC. The South Delhi Municipal Corporation (SDMC) is known to have better finances than its East and North counterparts, and hence, its smaller share of budgeted grants, in comparison to its population share, is not surprising. 

Table A: Budgeted Grants to the DMCs from the GNCTD

Source: Census of India, 2011 and Budget documents of the GNCTD for 2013-14, 2014-15 and 2015-16

Each DMC gets these budgeted grants under various sectors: transport, urban development, general education, sports & youth services, health (or medical), public health, and nutrition. The detailed sector-wise, agency-wise data reveals that the grants for the health (or medical) sector for all three corporations have experienced large cuts with the EDMC experiencing the largest cut: from Rs 41 crores for 2014-15 to only Rs 19 crores for 2015-16. From 2014-15 to 2015-16, for the transport sector, the NDMC received an increase in its grants; however, both SDMC and EDMC received decreased grants with the decline being 45% for EDMC. Moreover, across all three corporations, grants for four sectors: general education, sports & youth services, public health and nutrition, have remained unchanged from 2014-15 to the current financial year (2015-16).

Tax Revenues

Having considered the budgeted grants for the DMCs, we now turn to the tax revenues for them. Typically, property taxes constitute a majority of these tax revenues and can contribute around 20% to the total revenues. However, property tax collection varies greatly across the three corporations. Of the three bodies, SDMC’s surplus is largely attributed to its revenue from properties in its jurisdiction.  Why is it then that the EDMC is lagging behind?

Delhi’s property categories, based on which property taxes are collected by the DMCs, are determined by a Municipal Valuation Committee (MVC) which was set up under Section 116 of the Delhi Municipal Corporation Act (DMC), 1957. This Act mandates the creation of an MVC every three years, to devise a methodology for dividing every colony in Delhi for the purpose of collecting property taxes for the corporations. The third MVC for valuation of municipal properties in Delhi was setup in 2009 and submitted its report in 2012. The MVC adopted a “matrix classification” developed by previous committees instead of going for a du novo classification of colonies in Delhi. The matrix classification is an exhaustive set of parameters including the capital value of land, type of social and physical infrastructure like the type of road, schools and access to market and economic status of residents along with type of colony amongst others. The matrix was also complemented by multiplicative factors like usage and type of property. This framework formed the basis of allocating categories from A to G with all “posh societies” categorised as A in a descending order with unauthorised colonies being G and all rural villages as H.

Table B: Colonies in different categories - MVC-III

Source: Colonies in different categories (MVC-III Data), 2012

As is visible from the above data in Table B, the EDMC has majority (87%) of its colonies in the E-H category. It has no colonies in the A, B and C categories while the other two corporations have sizeable number of colonies in these categories. This anomaly was deliberately maintained since the MVC in its draft report had argued that East Delhi post the 2010 Commonwealth Games and other massive infrastructure upgradation projects, had seen an unprecedented uplift in its infrastructure which need reflection in the categorisation of the EDMC. It even went on to annex a list of about 42 Delhi Development Authority (DDA) developed colonies in East Delhi to be upgraded into B & C categories, but owing to criticism from the colony representatives and the then single corporation decided to drop this recommendation.  This implies that currently, the EDMC is not fully exploiting its property tax base, ie if it was to have colonies in the B & C categories, it would be boost to its property tax revenues.

Conclusion

Moving forward, the GNCTD will have to work towards strengthening the grants for the DMCs. This may include a re-examination of the basis on which it decides on these grants, while considering the varied financial characteristics of the three DMCs, as well as ensuring that these grants are released in a timely manner. As Delhi prepares to set up its fourth Municipal Valuation Committee, it would be forthright that this committee should conduct an actual colony wise survey for categorisation. Valuation of colonies will need rethinking. For instance, it is a documented fact that the Delhi Metro increased the real estate rates across the city but this hasn’t yet been built into the property categorisation. Specific to the property taxes, however, the DMCs will also have to improve their collection efficiency. After developing stronger revenue bases, it will be up to the DMCs to spend their revenues more effectively, across various sectors, to improve service delivery. Beyond, state governments across the country need reminding that not giving strong financial, functional and structural powers to municipalities, the contagion of divisions and amalgamations of city governments in the garb of better service delivery would remain a cosmetic adage.