What is the issue?
Beyond focussing on national and State budgets, forward planning is important at the municipal level as well.
What are the recent developments in this regard?
- Pune Municipal Corporation raised Rs.200 crore in June 2017 for a water supply project.
- Greater Hyderabad Municipal Corporation raised Rs.200 crore recently to fund their road project.
- Municipal bond market has seen an issuance of around Rs.2,000 crore since the first bond issue two decades ago.
- While regulators and the Government are keen on more such bonds, the markets are yet to share the enthusiasm.
Why is the municipal bond market unattractive?
- Information - Among the many factors withholding the development of municipal bonds market is the lack of information infrastructure.
- The RBI publishes annually a report on the State budgets analysing the fiscal position of State governments based on primary data.
- But notably, there is no such compendium on the budgets of local bodies giving real data on the overall receipts or expenditure.
- Reports - The available data if any comes from the Comptroller and Auditor General (CAG) audit reports.
- These give a consolidated picture of the municipal finances.
- However, even the latest available CAG reports on local bodies date as far back as 2014-15.
- Primary Source - The primary source of data is the website of the municipal corporation.
- But the governance of the local bodies in some states leads to doubting the credibility of such reports.
- The details of service delivery or the properties assessed for tax are not published in the budget.
What are the concerns with municipal bodies?
- Accounting - Very few municipalities adhere to the national/State municipal accounting manual (NMAM/SMAM).
- Even among the mega cities, Bengaluru and Kolkata present budgets that are not compliant with the NMAM.
- NMAM mandates presenting budget information both function-wise (type of service rendered) and account code-wise (nature of revenue or expenditure item).
- However, most municipal corporations present the data only account code-wise.
- Also, the chart of accounts is fluid in many municipalities as they are still transitioning to the accounting manual.
- Accounting quality - The accounting quality largely varies and is not linked to the size of the corporation.
- The most common errors are the confusion between revenue and capital items, and wrong account coding in the budget document.
- Disparities - The reporting units are not the same in the budget data of various corporations.
- Most municipal bodies present it in rupees lakh, and some in rupees thousands and rupees.
- The differences in data from the municipal budget documents make it hard to compare data across municipals.
What is the way forward?
- Building a national municipal data base ought to be a priority.
- Integrated database with operational, economic data and financial data is essential.
- Making it user-friendly is the first step to building an information infrastructure for the municipal bonds market.
- It facilitates analytics on the operational efficiency of the corporation, the potential for revenue growth, the debt bearing capacity, etc.
- Presently, the lender weighs in the tacit or explicit support of the state government while lending to a municipal corporation.
- A national database can promote a culture of credit analysis among lenders to municipalities, to make informed decisions.
- The increased levels of transparency will attract public private partnerships in infrastructure delivery and improve ease of doing business.
Source: BusinessLine
