This PPT delivered to CEPT University Students provides detailed and latests information about municipal finances in India as of 2021 and discusses potential of alternative sources of finance for municipal bodies of India

1. MUNICIPAL FINANCES IN INDIA &
ALTERNATIVE FINANCING INSTRUMENT
FOR MUNICIPAL BODIES
Presentation to students of CEPT University
25th June, 2021
Dr Ravikant Joshi

2. CITIES, LIKE STATES, MUST COMPETE WITH EACH OTHER TO
UNLEASH DYNAMISM. TO COMPETITIVE FEDERALISM INDIA MUST
ADD COMPETITIVE SUB-FEDERALISM.
CITIES THAT ARE ENTRUSTED WITH RESPONSIBILITIES, EMPOWERED
WITH RESOURCES, AND ENCUMBERED BY ACCOUNTABILITY CAN
BECOME EFFECTIVE VEHICLES FOR UNLEASHING DYNAMISM SO
THAT TO COMPETITIVE FEDERALISM INDIA CAN ADD, AND RELY ON,
COMPETITIVE SUB-FEDERALISM.
Economic Survey of India 2017
But in reality Cities (Municipal Bodies) are not entrusted with responsibilities,
not empowered with resources and not encumbered with accountability !!

3. Municipal Finances In India – External Factors
■ Inferior nature of local taxes
■ Inadequate local resources in the hands of Municipal Bodies
■ Inroads by state governments on local resources
■ Absence of autonomy with local bodies in respect of tax rate
setting, rate revision and other spheres of working
■ Inadequate devolutions, transfers, grant-in-aids
■ Inadequate borrowing powers / access to market
■ Failure of SFC to revamp municipal finances

4. Municipal Finances In India – Perennial Issues
■ Poor administration in all respect of tax and other powers
■ Non-augmentation of non-tax resource
■ Inadequate borrowing and use of alternative resources
■ Inefficient management of municipal resources, cost inefficiency
■ Rudimentary and weak financial administration, budget making
■ Lack of professional capabilities, lack of capacity to plan,
develop and implement projects and to deliver services
efficiently and economically

5. Issues in Indian Municipal Finance
1. Miniscule and stagnant share of Municipal Finance in GDP @ 1 % during 2002-2018
1. Municipal Own Source revenue growth remained much lower than National and State
revenue growth
2. Investment in urban infrastructure stagnant @ 0.6 to 0.7 % of GDP during 2011-18, in basic
services @ only 0.44 % of GDP
3. Shrinking space of Urban Local Bodies’ Finance /Municipal Finance –
A. Cities are increasingly financed through national resources (grants and transfers share
increased from 73 % to 85 %) than locally raised resources – shrinking of financial
decentralisation –
B. Share of Municipal Own Source Revenue in total declined from 63.5 % to 43 % during
2002-2018.
C. Municipal bodies share in urban investment is 45 % rest is by parastatals and other
State authorities.
4. Skewed state of urban finance across the States
1. Four states (Gujarat (12%), Maharashtra (32%), Tamil Nadu (8.67%), and Karnataka
(8.65%)) have 38% of urban population, accounted 60% of urban investment
2. Against Maharashtra PC MOSR of Rs. 5730, PC MOSR in Bihar, J&K, Odisha,
Jharkhand, Uttarakhand and Uttar Pradesh was Rs. 139, Rs. 174, Rs. 256, Rs. 263,
Rs. 322 and Rs. 348
3. Muni Corps - 48% of urban population but 82% of Total MOSR nationally.

6. Issues in Indian Municipal Finance
5. ULBs are not augmenting their own sources
1. PT revenue remained stagnant at 0.14 – 0.15 % of GDP; only one fourth
(25%) potential is recovered
2. Service cost recovery ranges from 20 to 50 % only
6. Inability of ULBs to absorb the funds – Inability of GOI to devolve the funds
1. GOI has been able to release only 54 % funds against the contribution it
is supposed to release
2. Total Utilisation against the project outlays is around 30 %
3. Unspent balance with municipal bodies increased from Rs. 9000 crore
(12 %) in 2010-11 to Rs. 39000 crore (23%) in 2017-18.
7. Impact of GST is not remedied
1. It has subsumed local taxes like Octroi, entertainment tax
2. It has put end to any types of consumption based local taxes
3. States have not provided formulae based compensation against taxes

7. Issues with alternative financing instruments for
municipal bodies
8. MBs are not leveraging their own sources - debt financing by ULBs is marginal @ 2.8 % of
total municipal receipts
1. Municipal Bodies which have capacity are not leveraging (top 20 MBs have borrowing @ less than 5%
2. Miniscule borrowing through municipal bonds (1996-2005 – 24 issues Rs. 15 bn; 2006-2016 – 4 issues Rs.
2.2 billion; 2017 onwards – 6 issues Rs. 15 bn) total Rs. 32 billion
9. ULBs are not leveraging as they are not creditworthy – lack capacity to borrow
1. Credit rating of 485 MBs – 36 got A grade, 127 got B grade, rest not investment grade
2. Only 21 A grade MB belonged to Smart Cities.
10. Negligible Role of PPP in municipal finance
1. After a peak between 2009 - 2012, there is a lull in number of new project starts
2. Risk appetite for large concessions with demand risk to private sector has sharply waned
3. Recent transactions like Coimbatore water supply and Ganga Waste-water treatment have been done on
hybrid annuity structures
11. Land Value Capture – overrated, constrained
12. Absence of Financial Accountability (FRBM) & Sustainability Framework
13. Narrative of Centralisation, tide – project based devolution with soft budgetary constraints

8. 10. PPP - Context
■ Indian cities grappling with issues of rapid urbanisation including
– Poor service delivery, shortage of housing, decline of quality life
■ Well-developed PPP projects can support cities in
– Improved service delivery through asset-creation bridging capital investment gap
– Bridging managerial and technical capacity gap
– Efficient operation and shift towards cost recovery
■ PPPs ask for complex long term relation relationship with private investor that is built
on apt risk sharing, and monitoring mechanism

9. 10. PPP – Facilitation Efforts
■ PPPs implemented since 1996; after a decade in 2006 national level policy and institutional
initiatives put in place, including
– Extending financing support through the viability gap funding (VGF) Scheme
– Setting up of the India Infrastructure Finance Company Limited (IIFCL)
– Establishment of the India Infrastructure Project Development Fund (IIPDF)
– Preparation of PPP toolkits, guidelines and knowledge dissemination products
– Establishment of National Investment and Infrastructure Fund Limited (NIIFL)
■ These initiative have been enables for PPPs in large infrastructure; their role in urban infra PPPs
have been limited
– In urban sector IIPDF supported projects till 2010-11; not much activity then
– Only one water supply project in Bhubaneswar received VGF till now

10. 10. Role of PPP is still negligible
■ 174 awarded projects involving an outlay of Rs. 41,258 crore awarded during the
last 15 years - more than 100 of these were awarded during 2007-13, with project
awards peaking in 2010.
■ Recently, under the Smart Cities Mission, 82 projects worth Rs. 3704 crore were
awarded (out of 195 projects worth Rs. 15,972 crore that have been proposed)
■ PPPs in urban sector barring exception, have been developed as one-off initiatives
(often champion-led) without backing these with programmatic scale-up efforts and
hence remain consigned to piloting and proof-of-concept efforts nearly every time.
■ Second, weak counterparty capacity, in project development, regulation and
monitoring, and associate risks of contract sanctity adversely impacts risk profile of
projects.
■ Third, given lack of visible opportunities and adverse risk profile, the developer-
bidder ecosystem is weak as there is little incentive to invest in creating requisite
capacity in the first place.
■ Urban PPPs are thus stymied by lack of program-scale initiatives beyond one-off
projects, policy ambivalence on reforms, counterparty risks & contract sanctity
concerns.

11. 10 – Constraints in harnessing PPP by MBs
1. Poor project structuring and unbalanced risk allocation
2. Champion-led projects instead of policy-drive programs
3. Land availability, Delays in approvals and clearances
4. Weak frameworks and capacity for project monitoring
5. Managing heterogeneous stakeholder expectations
6. Private developer ecosystem not maturing fast as projects / programs are
one-off and not of scale
7. Persistent aggressive bids and winners’ curse issues reflect lack of rigor in
bidding frameworks and monitoring capacity
8. Weak bidding frameworks and monitoring capacity
9. Bidder reluctance to take on investment, demand, counterparty risks
10.Lengthy dispute resolution process

12. 10. Urban Water and Waster Water PPPs
Tiruppur Water Supply:
Achieved operational
results, with debt
restructuring and Govt.
equity infusion
Project cost of Rs. 1200 crore, 185 MLD Project to service 1000 textile units & about 1.6 million residents on BOT basis
Demand dried up with closure of units, use of ground water
Project debt restructured and additional Government equity infused
KUWASIP – Pilots in
Hubli, Gulbarga and
Belgaum
Project for 24x7 universal metered supply
Structured as a performance based management contract with Government/WB funding; Achieved reasonable success on
operational parameters
Alandur – First sewage
treatment plant on BOT
14 year BOT Concession for STP with a two part tariff (fixed plus variable based on water flows)
Largely successful although operator faced difficulties when sewage network delays led to reduced flow and resultant
payment delays
Mysore – 6 year
Management contract to
shift to city wide 24x7
supply system
Gaps in contract : did not provide for addressing changes in scope. Significant deviation in project scope post preparatory
phase making performance targets impossible to achieve and necessitating re-negotiation
Unrealistic performance targets - Underestimation of technical challenges in achieving targets by operator
Stakeholder multiplicity: Tripartite contract involving KUWSDB, Mysore City corporation and operator meant diffused roles
and accountability
With slightly better scoping and definition of performance measures, this had ingredients for a successful project.
Chennai desalination
and bulk supply
Technical challenges led to severe delays and it took close to 4 years to get project operational
Disputes over compensation claimed by Operator
Takeover by government
Latur, Aurgabad, Surat,
Morbi, Mangalore
Weak progress, public protest, weak structuring, inadequate actions from authority

13. 10. Urban Water and Waster Water PPPs
■ Political uncertainties driven by public unrest have decided fate of number of projects
■ Poor structuring, performance and renegotiation have impacted to large extent
■ Tariff related reforms were not implemented resulting into low performance and
financial failure of the projects
■ The institutional fragmentation in service delivery resulting into delay in decision
leading project to be a non-starter
■ High viability gaps in view of poor ULB financials and low user charge levels
■ Capital grants bridge the financing gap and are important. However, uncertainties in
timing and amount of grant funding availability and reluctance of state government to
commit bridge financing in event of delays/non-availability of grant affected projects
negatively
■ Dispute resolution is largely through concession agreement, long and effort intensive
process; delayed resolution leads to failure of project or higher losses to investors. It
dampens the interest of investors

14. 10. Solid Waste Management PPPs
Hyderabad -
Integrated
SWM
• 30 year DBFOT concession for end-to-end management of waste
• Rs. 430 crore project cost of which 50% from JNNURM grants and rest to be funded by Operator
• Delays in release of Grants, Opposition from ULB conservancy workers, multiple contracts for processing. Delays in setting up
processing facilities
• Contractor continued only collection and transportation for a lower negotiated tipping fee; Investment in processing delayed.
Kanpur • 30 year concession for processing with Rs. 65 crore JNNURM grant; Processing facility and waste-to-energy plant in place
• Collection and transportation responsibility transferred to same concessionaire through a different contract; User charges
introduced and responsibility of collection imposed on private operator with a penalty against collection performance
• Project in troubles for Kanpur Municipal corporation’s inability to pay tipping fees due to the operator
Rajkot – Waste
processing and
land fill
• 20 year concession with a tipping fee payable on 20% of waste quantity
• Processing successful and remunerative – Bio-fertilisers (~ 40 MT) Fluff / Green coal (70 MT) and Eco Bricks (~15000 nos)
• 100 acres of land allocated to private player on nominal lease rentals of Rs 1 per sq meter annually. with 25 acres for waste
processing and rest 75 acres for sanitary landfill development
• Has one of the lowest tipping fees among processing facilities
• Problems inadequate waste-recycling and segregation initiatives by RMC which affected revenues for the private player
Chennai –
collection and
transport –
Phase II
• One of the first cities to introduce PPPs in collection and management in the 1990s; First phase fairly successful in bringing
efficiency in waste collection and transportation
• However, several challenges in managing PPPs after the first contract ended
• Suicidal bidding / Poor service delivery in Phase II led to its premature termination
• Little improvement after the project was re-bid and awarded to a third operator
• Meanwhile the city has no processing / landfill facilities
• Transaction process for PPP in processing /landfill is under progress

15. 10. Solid Waste Management PPPs
■ Diffused accountability across Health/Sanitation Vs Engineering departments
■ Treatment and processing - Land availability, suitability and acceptance by locals
■ Stand-alone initiatives in collection, treatment/processing, land-fill etc face integration
challenges
■ Lack of tariff policy, low user charge, and high expectations for private player
■ Low financial capacity of cities, delays in payments to private player
■ Weak project structuring and without strong background studies

16. 11. LVC - Policy framework at national level
16
■ VCF Policy Framework issued by Ministry of Housing and Urban Affairs (MoHUA) in
2017
– Value Capture Financing identified as one of the five reforms under the Smart Cities Mission
■ Salient aspects of the VCF Policy framework
– Value capture methods and type of value capture
– Approach to implement VCF
– Guidance for including VCF in projects – new and existing
– Success stories in VCF implementation
■ Identifies various tools prevalent globally and in India
– Focuses on potential to mobilize additional resources to capitalize opportunities for creation of
infrastructure
– Does not cover the direct monetization (Sale/ lease) of public land
■ Land Value Capture
a. Three types of instruments – Recurrent, One-time and Sale & Development rights
b. Barring large cities in states like Maharashtra, Gujarat, and AP, LVC revenue streams are non-
buoyant and inadequately tapped
c. Policy / regulatory constraints limit expansion of LVC revenues
d. Recent trends point to greater thrust on one-time streams (FSI premium, Dev charges.) vis-à-
vis recurrent ones (e.g., property taxes)

17. 11. Regulation & operationalisation of LVC instruments– in states
17
Maharashtra Gujarat Tamil Nadu Karnataka AP MP Odisha
One-time levies
Development fee ULB/DA ULB/DA ULB/DA ULB/DA ULB/DA ULB/DA DA
Betterment charge ULB/DA ULB/DA ULB/DA ULB/DA
Impact fee ULB** ULB
Recurring
Property Tax ULB ULB ULB ULB ULB ULB ULB
Vacant Land Tax ULB ULB ULB ULB ULB ULB ULB
Tax Increment financing ULB*
Sale and Development
rights
Transferable Dev rights ULB/DA ULB/DA ULB/DA ULB/DA ULB/UDA ULB/UDA ULB/UDA
Premium FSI ULB ULB/UDA ULB/UDA ULB/UDA
Sale and lease of land ULB/DA ULB/DA ULB/DA ULB/DA ULB/DA ULB/DA ULB/DA
Land pooling VARIOUS ULB/DA VARIOUS ULB/D DA VARIOUS DA
Legislation provides for it. Instrument operationalised
Legislation provides for it. Instrument not operationalised
Legislation does not provide for it. Instrument not operational
Legislation does not provide for it. But Instrument operational
ULB Revenue accrues to ULB Revenue accrues to Development Authority
DA Revenue accrues to both
ULB/DA
*Not in the Act but via government order **Used for regularisation and not used as impact fee
Multiple authorities/ developers
Various

18. 11. Land Value Capture – overrated, constrained
1. LVC – Constraints
1. Volatility in land markets, and opaqueness of land transactions
2. Weak capacity to develop master plans; enforce dev. regulations
3. Institutional fragmentation and diffused accountability
4. Ambiguity, and overlaps in legislation on LVC instruments and their use –base, intent,
buoyancy, jurisdiction,
5. Non-buoyant base for fixation and timeliness of revision
6. Non-progressive nature of some of the instruments
7. Multiplicity of use of instruments without strategic clarity
8. Over-reliance on one-time charges over recurrent income streams

19. 11. LVC - Constraints….1
Land based tools not being designed to capture incremental value
19
Demand Side
■ Lack of planning for city investment needs –Thus the levies collected by the ULBs are not
based on any scientific calculation and do not reflect the cities’ investment requirement.
These revenues are not even adequate to meet the administrative and O&M costs in the
cities.
■ Revenue losses due to existence of multiple stakeholders such as State Government, Central
organizations, ULBs, Development Organisations etc.
■ LVC are susceptible to cycles of volatility in real estate market
Supply side
■ Lack of techniques to capture true capital value: Capturing the value of land and/or property
requires data on land and property sales as well as data on land and property attributes.
Guideline values determined by the state governments provides the database, but values
generally do not reflect the open market prices
■ Tools such as TDR, premium FSI, etc. have potential in cities with high demand for real estate.

20. 11. LVC - Constraints ….1
20
Regulatory
■ Weak legislative backing – Lack of provision for the tools in the various state acts restricts ULBs from using the
value capture financing mechanisms. Ambiguity in the acts for defining the LBFTs – in terms of base, intend,
buoyancy, jurisdiction, etc. results in restricting the ULBs from using the tools or attain full revenue potential of
these tools.
■ Land based tools not defined to capture incremental values - Most of the LBFTs are levied based on rates defined
on the area and not the value. Thus these tools do not capture the impact of the changes in the value of the land.
■ Low Tax rate - It is observed that the rates are not being revised for longer duration. Infrequent revision result in non
buoyant base resulting in low revenues from the LBFTs hardly meet the administrative and O&M expenditure of
municipal corporations and do not contribute significantly to capital expenditure.
■ Lack of equity - The current area-based system is inequitable. Applicant for a 1000 sq. m in a posh area (where
property values are high) will pay the same amount of development charges as compared to an applicant in a
peripheral area (where property values are low);
■ Multiple levies with no definite intent – The State acts defines multiple levies viz. betterment fee, betterment tax,
development charges but the purpose for which the funds can be used is not explicitly defined.
Institutional
■ Capacity constraints - Many of the states in spite of having legal provision, do not put these tools in practice due to
capacity constraints.
■ Absence of monitoring of utilisation of revenue – Due to the absence of ring-fencing of the levies, the revenue from
these levies is not being monitored for its utilisation. This defeats the purpose of levying the charge.

21. 12. Absence of Financial Accountability Framework (FRBM)
■ India adopted Fiscal Responsibility and Budgetary Management framework for
centre and state 2003 onwards
■ But there is no such FRBM for Urban Local Bodies – as result ULBs are not
bothering to raise resources, are not adopting expenditure management to improve
productivity of Rs. spent, not bothering to adopt budgetary reforms
■ Also there is no Financial Accountability Framework developed for ULBs –
– ULBs do not sound accounting system,
– ULB accounts are not regularly audited,
– Auditing system is of proprietary nature. There is no financial or efficiency or
performance auditing of ULBs
– Annual accounts and audit reports are not placed in public domain
■ No financial or credit rating system for ULBs
– We have Service Level Benchmarking (JNNURM reform now defunct),
Swachhata survekshan (now widely known) or recently Liveability Index but we
do not have financial or credit rating system.

22. 13. Narrative of Centralisation, tide – project
based devolution with soft budgetary constraints
■ Post 2005 (post JNNURM) narrative has changed for worse –
– Barring sharing of professional tax revenue in some states no new tax resource
or charge has been given to ULBs in past 26 years (even after 74th CAA)
– Devolution has become tide - project based (CAPEX) with soft budgetary
constraints – not linked to service level improvement
– Financial sustainability is not examined with respect to projects submitted by
ULBs – in fact financial sustainability is not the criteria under central or state
grant schemes. – best recent example is proposals approved under Smart
Cities Mission (Pune Vs Dharmashala or 55 cities of SCM lacked capacity to
put in their share in any form)
– OPEX is left to ULB but there is no accountability and monitoring regarding
resource augmentation by ULB to take care of OPEX – financial sustainability is
not ensured pre or post project

23. MUNICIPAL FINANCES IN INDIA AND
ALTERNATIVE FINANCIAL INSTRUMENTS
FOR MUNICIPAL BODIES
Thank You

24. SUPPORTING DATA

25. 1. Miniscule and Stagnant share of Municipal
Finance in GDP (around 1 percent)
■ During 2002-2018
– State transfers increased from Rs. 5917 crores to Rs. 55574 crores at CAGR of
16.11%, and
– Central transfers increased from Rs. 585 crores to Rs.20569 crores at CAGR of
26.78%)
– in spite the share of municipal finance in GDP has remained around 1.0 percent.
– Because MOSR increased from Rs. 13280 crores to Rs. 73331 crores at the CAGR
of mere 12.07 %
– Story of municipal expenditure is little worse compare to municipal revenue. Its
share in GDP was 0.96 % in 2002 which increased to 1.09 % but has decelerated
to 0.83 % in 2012-13 and to 0.78 % in 2017-18
■ Against this the ratio of municipal revenue to GDP was 4.5 per cent for Poland, 6.0 per
cent for South Africa, 7.4 per cent for Brazil, 13.9 per cent for the United Kingdom and
14.2 per cent for Norway in 2010 (OECD 2012).

26. 1. Miniscule and Stagnant share of Municipal
Finance in GDP (around 1 percent)

27. 1. Components of Municipal Finance as per cent of GDP
Accounting Heads 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Municipal Own Revenue 0.48 0.49 0.53 0.52 0.51 0.51 0.47 0.43
Tax Revenue 0.30 0.31 0.32 0.30 0.30 0.30 0.28 0.25
Non-Tax Revenue 0.18 0.18 0.20 0.21 0.21 0.21 0.19 0.18
Central Transfers 0.07 0.07 0.08 0.09 0.08 0.10 0.13 0.12
CFC Grants 0.03 0.03 0.04 0.05 0.04 0.05 0.08 0.07
Other Central Transfers 0.04 0.04 0.04 0.04 0.04 0.04 0.05 0.05
State Transfers 0.28 0.30 0.34 0.35 0.35 0.34 0.34 0.33
Borrowings 0.04 0.03 0.02 0.03 0.03 0.03 0.03 0.02
Other Sources of Revenue 0.07 0.09 0.08 0.08 0.09 0.08 0.08 0.10
Municipal Revenue Total 0.94 0.98 1.05 1.06 1.05 1.06 1.05 1.00
Municipal Expenditure 0.82 0.81 0.83 0.83 0.86 0.86 0.81 0.78

28. 12 & 13 CFC Data on Municipal Finance*
Details! 2002-2003 2007-2008 2002- 07
Amount
Rs. crore
Per Capita
Rs
Amount
Rs. crore
Per
Capita Rs
CAGR %
Own Tax 8,838.13 311@ 15,277.72 492 % 11.57
Own Revenue 13,279.97 466 # 23,521.38 757 & 12.11
Total Revenue Income 20,919.69 733 44,429.05 1430 16.26
Revenue expenditure 15,691.46 550 28,431.45 915 12.62
Capital expenditure 5,938.28 208 18,594.08 598 25.64
Total expenditure 21,629.74 758$ 47,025.53 1,513 ** 16.80
(GDP) (India) 22,61,415 21,415 43,20,892 37,969 13.83
Own Tax 0.39% to 0.35%@%; Own Revenue 0.59% to 0.54%#
&; Total Revenue Income 0.925% to 1.03%-+; Revenue
Expenditure 0.69% to 0.66% ; Total Expenditure 0.96% to 1.09%$**
; Transfers 0.335% to 0.49% of GDP at Factor Cost (current prices)

29. 13th & 14th CFC Data on Municipal Finance
Structures Year 2007–08
Year 2012–13
Own Sources
INR (Crore) Per cent INR (Crore) Per cent
Tax revenue 18,366 37.2 30,912 32
Non-tax revenue 9,134 18.5 19,002 19.7
Sub total 27,501 55.7 49,913 51.6
Transfers
Government of India 3,515 7.1 5,387 5.6
Finance Commission 986 2 3,760 3.9
State devolution and assignments 9,342 18 18,537 19.2
State grant-in-aid 6,653 13.5 14,809 15.3
Others 1,355 2.7 4,232 4.4
Sub total 21,851 44.3 46,727 48.4
Total 49,352 100.0 96640 100.0
Own source revenue as per cent of
GDP
0.60 0.48
Total municipal revenue as per cent of
GDP
1.08 1.03
MOSR as per cent of GDP declined from 0.60 in 2007 to 0.48 in 2012. MOSR amounted 55.7 per
cent of total revenue in 2007 declined to 51.6 per cent in 2012, during 2002-12 municipal self-
reliance has come down by 12 per cent.

30. Municipal Finances in India
Year
Centre
(Rs. in
crore)
Centre’s
Share in
Total
Publicly-
raised
Resources
(in per
cent)
States
(Rs. in
crore)
States’
Share in
Total
Publicly-
raised
Resource
s (in per
cent)
Municipa
l Bodies
(Rs. in
crore)
Municipal
Share in
Total
Publicly-
raised
Resources
(in per
cent)
2012/13 741,877 42.46 974,239 55.77 30,912 1.77
Municipal tax
revenue as a
percentage of
Centre
4.2 per
cent
3.2 per
cent - -
2007/08 439,547 49.45 430,782 48.48 18,366 2.07
Municipal tax
revenue as a
percentage of
States
4.2 per
cent
4.3 per
cent - -
Tax Revenues of the Centre, States, and Municipalities
Source: India Public Finance Statistics, Ministry of Finance 2009–10, and data collected
by the Fourteenth Finance Commission.

31. 2. Stagnant Investment in urban infrastructure @
0.6/0.7 %; in basic services @ only 0.44 %
■ Stagnant Investment in urban infrastructure at 0.6 to 0.7 of GDP during 2011-18
■ India’s urban investment was estimated at Rs. 1.2 lakh crore or 0.7% of GDP in FY
18 increased from Rs. 45000 crore in 2011.
■ Between FY 11-18, India’s cumulative urban investment was Rs. 6.1 lakh crore
0.63% of GDP significantly lower than the 1.1% of GDP recommended in the HPEC
2011 Report
■ This investments covers all basic services (including water, waste-water, sanitation,
municipal solid waste, roads and streetlights), urban housing and metro-rail.
■ If urban housing and metro rail is taken away, then urban investment is just 0.44 %
of GDP which very low compare to 1.1 % of GDP recommended by the HPEC report.
■ Investments in basic services alone is estimated at Rs. 4.2 lakh crore (or 0.44% of
GDP) during FY 11-18. While it grew in absolute terms, its share fell from 74% of all
urban investment during FY 11-14 to 66% during FY 15-18 as investment in urban
housing and metro-rail.
■ In per capita terms, average all-India urban investment is up from Rs. 1182 in FY 11
to Rs. 2771 in FY 18, translating to a 13% CAGR during this period.

32. 2. Stagnant Investment in urban infrastructure @
0.6 - 0.7 % of GDP
32
■ India’s urban capex ~ Rs. 1.2 trillion in FY 18 Has grown at 16% CAGR since FY 11
■ Covers Urban development (incl. Metro rail), Water Supply & Sanitation, & Urban housing
■ @ 0.6%-0.7% of GDP lower than investment need of 1.1% of GDP as assessed by Govt. of India’s HPEC report
■ Central/State share up from 73% to 85%, ULB share down from 22% to 10%; Comm. financing averages ~ 4%
32,733 38,103 45,742 48,078 54,129
68,727
100,774 104,124
44,590
52,186
59,638 64,251 68,506
82,764
115,213
122,450
0.6% 0.6% 0.6% 0.6% 0.5%
0.6%
0.7% 0.7%
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
2011 2012 2013 2014 2015 2016 2017 2018
Centre/ State outlay ULB investments
Commercial finance Total Urban Capital Investment (in Rs. Cr)
% of GDP

33. 3. Shrinking Space of Urban Local Bodies’ Finance –
A. Cities financed through grants and transfers
■ Grants/transfers grew from an estimated Rs. 32,733 crore in FY 11 to Rs. 1.0 lakh
crore in FY 18 (CAGR-18%).
■ The share of grants / transfers (GoI + States) in urban investment grew up from 73%
to 85% during FY 11-18. Commercial finance share averaged ~ 3% during this period
■ GOI’s budgetary outlay on basic services is up from Rs. 25,464 crore during FY 11–
14, (JNNURM & allied schemes), to Rs. 32,268 crore during FY 15-18 (Smart Cities,
Swachh Bharat and AMRUT).
■ Investment on metro rail and urban housing grew faster. In metro rail, GoI spending is
up from Rs. 19,100 crore to Rs. 44,700 crore, while in urban housing, spending is up
from Rs. 7,100 crore to Rs. 16,155 crore across these two periods (FY 06-14 and FY
15-18).
■ The share of States (of GoI and states taken together) is up from 58% to 65 % during
this period. States’ spending driven by
– (i) increased allocation for Central share (+ ULB share for weaker ULBs),
– (ii) higher outlay towards special projects including metro-rail projects and
– (iii) increased outlay towards States’ own urban schemes. However, the share of
states is proportional to the urban population with the top 6 states with 54% of
urban population spending 55% of transfers.

34. 3. Shrinking Space of Urban Local Bodies’ Finance
B. Declining share of Municipal Own Share Revenue
■ Municipal own source revenue to Total Municipal Revenue including
transfers from Centre and State which had increased slightly from 61 to
63.5 per cent during 1997-2001, declined to 51.6 per cent during
2002-12 and to 43 per cent during 2012-18) as Central and State
Governments started devolving more and more funds.
■ In other words funding of Cities through national and state sources
increased to 45 per cent from 31 per cent during 2002-2018.
– Aggregate municipal income (Revenue + Capital) including transfers grew from
Rs. 73,000 crore to Rs. 1.71 lakh crore during FY 11 to FY 18. While this
translated to a CAGR of 13 %, consolidated receipts of ULBs remained largely flat
at around 1% of GDP during this period.
– Central and State transfers grew faster at 14% and 21% during this period but
Own Source Revenue (OSR) grew slower at 10% CAGR leading to its share in total
receipts declining from 51% to 43%.

35. Steady growth in municipal revenue largely by transfers
35
■ Aggregate receipts (Revenue + Capital) grew from Rs. 73,000 crore to 1.71 lakh crore during FY 11 - FY 18 CAGR 13 %. Hovers around 1% of GDP
■ Central and State transfers grew faster at 14% and 21% CAGR respectively, Own income at 10%.
■ Share of OSR in total revenue fell from 51 percent to 43 percent during the same period.
73
86
104
120
131
147
162 172
64 70
83
93
107
119 124
133
0.9%
1.0%
1.1% 1.1% 1.0% 1.1% 1.1%
1.0%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
-
20
40
60
80
100
120
140
160
180
200
2011 2012 2013 2014 2015 2016 2017 2018
Agg. Municipal Revenue - Expenditure
('000 crore)
Total Revenue Rev. + Capex Total Rev. as % of GDP
51% 50% 50% 49% 48% 48% 44% 43%
7% 7% 8% 8% 7% 9% 12% 12%
30% 31% 32% 33% 33% 32% 33% 32%
12% 12% 10% 11% 11% 11% 11% 13%
2011 2012 2013 2014 2015 2016 2017 2018
Share of revenue
Own Rev Central transfer State transfer Others

36. 3. Shrinking Space of Urban Local Bodies’ Finance
27,458 28,080
32,815
39,387
45,764
52,013 49,460
54,357
0.4%
0.3% 0.3%
0.4%
0.4% 0.4%
0.3% 0.3%
0.0%
0.1%
0.2%
0.3%
0.4%
0.5%
-
10,000
20,000
30,000
40,000
50,000
60,000
2011 2012 2013 2014 2015 2016 2017 2018
ULB Capital Expenditure (Rs. Crore)
Capital Expenditure Capex as % of GDP
Capital expenditure by ULBs grew at CAGR of 10% from Rs. 27458 crore to Rs. 54,357
crore or 45 % of all urban investment in FY 18, with the rest being implemented by
government departments and parastatal agencies.
In terms of GDP; the share of CAPEX by ULBs declined from 0.4% of GDP to 0.3 % of
GDP

37. 3. Shrinking Space of Urban Local Bodies’ Finance
■ In per capita terms, the FY 18 capital investment (at Rs.1,464) is still lower than the
HPEC 2011 norm of Rs. 2,733 per capita (adjusted for inflation) and even sharply
lower than the Rs. 6,030 per capita, (MGI 2010 norm USD 134)
■ At an aggregate level, OSR almost equalled revenue expenditure by ULBs but OSR and
Revenue expenditure fell in GDP terms between FY 11 and F18.
■ Revenue expenditure in per capita terms remains very low (relative to inflation
adjusted HPEC norm of Rs. 1750 per capita
■ Tax revenues are major source of OSR: ~ 60% of OSR comes from taxes (Property
tax constitutes nearly half of this). A few states have shown improvement in other
taxes (water tax, sewerage tax, professional taxes) and Non-tax revenues
(including user charges/ town planning fees).
■ Within OSR, Property taxes formed the major revenue head with a 35% share, but
grew slower than Central and State transfers at 13% CAGR during FY 11-18. In GDP
terms, property tax revenue hovered at 0.14-0.15% of GDP.

38. Few States have been able to deliver on services as well
as generate internal revenue
38
Rev.
Exp
per
capita
OSR per capita
Maharashtra’s per capita OSR (Rs. 6700), Rev expenditure (Rs. 5100) and capex (Rs. 2504) are higher than all the States. Since it skews the data of other
states, it is not considered in the above chart
AP
Assam
Bih
Chhat
Goa
Guj
HP
J&K
Jhar
Kar
Ker
MP
Man
Meg
Miz
Nag
Odi
Pun
Raj
Sik
TN
Tel
Trip
UP
Uttar
WB
-
500
1,000
1,500
2,000
2,500
- 500 1,000 1,500 2,000 2,500
HPEC report estimates an annual O&M per capita of Rs. 1750 (adjusted for inflation). However ~40-50% Rev. expenditure in the chart
below is expected to be towards Salary & Establishment expenses. Leaving the actual O&M expenditure at least 40% short of target

39. 4. Skewed state of urban finance across the States
■ Four states (Gujarat (12%), Maharashtra (32%), Tamil Nadu (8.67%), and Karnataka
(8.65%)) with relatively higher functional devolution (water and sanitation being fully
transferred to ULBs), had 38% of urban population, but accounted for close to 60%
of investment done by ULBs nationally.
■ National average annual MOSR per capita is at Rs. 1998, this is skewed by a higher
realisation in the more urbanised states. Maharashtra, with an annual per capita
realisation of Rs. 5730, accounts for 51% of MOSR of all ULBs nationally.
■ Against Maharashtra PC MOSR of Rs. 5730, PC MOSR in Bihar, J&K, Odisha,
Jharkhand, Uttarakhand and Uttar Pradesh was Rs. 139, Rs. 174, Rs. 256, Rs. 263,
Rs. 322 and Rs. 348
■ Property tax constituted 0.15% of GDP against this Maharashtra, Telangana and
Karnataka reported the highest property tax revenue relative to their Gross State
Domestic Product (GSDP) at 0.39%, 0.23% and 0.22% respectively.
■ Maharashtra and Gujarat report the highest property tax realisation in annual per
capita terms at Rs. 1512 and Rs. 1911 respectively. (National avg. ~ Rs. 688).

40. 4. Skewed state of urban finance across the States
■ The share of property tax in own revenue in 2017-18 was the highest in Karnataka
at 68 per cent and the lowest in Punjab at 9 per cent, among major states.
■ Municipal Corporations accounted for 48% of urban population but 82% of reported
MOSR by ULBs nationally. Municipal Corporations in states with a higher functional
devolution dominated OSR share. Maharashtra accounted for 32% of all-ULB
revenue, with Mumbai alone having a 25% share.
■ Municipalities with 31% population accounted 15% share while Nagar Panchayats
with 21 % population accounted only 3 % share of OSR by ULBs nationally.
Per capita MOSR
(Rs.)
Per capita
transfers (Rs.)
Per capita Total Municipal
Revenue (Rs.)
Municipal Corporations 2994.7 2787.8 5782.5
Municipality 840.3 2581.0 3421.3
Nagar Panchayat 484.4 2150.2 2634.6
All India 1988 2636.2 4624.2
Table - Per Capita tax revenue, MOSR and transfers of various types of municipal bodies in 2017-18

41. 5. ULBs not augmenting their own sources
■ Property Tax Potential Unexploited – Economic Survey of India 2017-18
– Evidence from satellite data indicates that Bengaluru and Jaipur collect only between
5% to 20% of their potential property taxes.
■ Study conducted (2012-13 data) by the 14th CFC indicated that per capita revenue from
property taxes was highest at Rs.1677 with a low of just Rs. 42.
■ Study of Property Tax in 36 million plus cities (2007-08 data) for 13th CFC
– Rs. 486 per capita average; Mumbai Rs. 1334, Patana Rs. 25 per capita
– Properties paying tax to total properties – 56%; collection efficiency – 37% of
demand; Cities collected only 21 % of their potential property tax
– Property tax revenue – 0.16 to 0.24 % of GDP much lower compared to developing
countries average of 0.6 % of GDP and developed countries average of 2 % of GDP
■ ULBs by and large have not been able to levy adequate user charges to cover even the
operation and maintenance costs.
– Cost recovery ranges on an average from 20 % to 50%

42. 42
■ India lags even developing country peers on property taxes ~ 0.15% of GDP and Rs. 688 per capita p.a
■ Property tax ~ 37% of own revenue of ULBs in FY 18; Karnataka highest @ 68% of own revenue
■ Maharashtra, Gujarat and Karnataka ~ 60% of all India property tax revenue income of ULBs
0
200
400
600
800
1000
1200
1400
1600
Property tax - Rs per capita
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Property Tax revenue as percentage of GDP
(2017)
Source: OECD.sats and CRIS analysis Source: State of Municipal Finances in India, A Study Prepared for the Fifteenth Finance Commission , 2019
5. ULBs not augmenting their own sources

43. 5. ULBs not augmenting their own sources
■ Within OSR, Property taxes formed the major revenue head with a 35% share but
grew slower than Central and State transfers at 13% CAGR during FY 11-18.
■ In GDP terms, property tax revenue hovered at 0.14-0.15% of GDP.
■ Among the larger states, Maharashtra, Telangana and Karnataka reported the
highest property tax revenue relative to their Gross State Domestic Product (GSDP) at
0.39%, 0.23% and 0.22% respectively.
■ Maharashtra and Gujarat report the highest realisation in annual per capita terms at
Rs. 1512 and Rs. 1911 respectively. (National avg. ~ Rs. 688).

44. 6. Inability to absorb and to devolve funds
■ GOI has been able to devolve on 54 % funds against the contribution which it was
supposed to give
■ Even though GOI released less than 50 % of scheme funds ULBs / implementing
agencies at local level failed to utilised it fully – less 30 % of funds were utilised
■ Total expenditure figures by all agencies are not available
■ Even if it is assumed that expenditure is two times more (Rs. 300000 crores) than the
amount (Rs. 147679 crores) GOI has released (which is certainly not the case) the
performance against total project outlay is only 30 %
Description (amount Rs. in crore) PMAY SCM AMRUT SBM Total
Total Projects Outlays 678009 205000 77460 14623 975092
Total GOI Contribution 174738 48000 36990 14623 274351
Total GOI Contribution Released 82440 23224 30966 11049 147679
Total utilisation 65276 44461 14061
Release against contribution % 47 % 48.4% 51.2 % 75.6 % 53.8%
Utilisation against Project outlays % 79%# 21.7% 18.1%

45. 6. Total Amount Budgeted, Released and Utilised
under different missions of GOI
Year (Rs.
In Crore)
PMAY SCM AMRUT SBM Metro
DAY
NULM
Budget
Provision
A G R %
Total Amt
Released
% Amt
Released
2014-15 0 0 0 1690 8026 1003 10719 7532 70.3%
2015-16 4175 2020 3919 1000 8260 510 19884 85.50 15983 80.4%
2016-17 5075 5000 4080 2300 10000 300 26755 34.56 31912 119%
2017-18 6043 4000 5000 2300 18000 349 35692 33.40 35169 98.5%
2018-19 6505 6169 6000 2500 15000 310 36484 2.22 35650 97.7%
2019-20 6853 6450 7300 1300 19152 750 41805 14.58 37553 89.8%
2020-21 8000 6450 7300 2300 20000 795 44845 7.27 21388 47.7%
Total 36651 30089 33599 13390 98438 4017 216184 185187
2021-22

46. 6. Total Amount Budgeted, Released and Utilised
under different missions of GOI
Year (Rs.
In Crore)
PMAY SCM AMRUT SBM Metro
DAY
NULM
Amount
Released
A G R %
Budget
Provision
% Amt
Released
2014-15 0 0 0 859 5998 675 7532 10719 70.3%
2015-16 1487 1484 2702 766 9300 244 15983 112.20 19884 80.4%
2016-17 4881 4412 4864 2135 15327 293 31912 99.66 26755 119%
2017-18 8591 4526 4936 2539 13978 599 35169 10.21 35692 98.5%
2018-19 6135 5902 6183 2462 14470 498 35650 1.37 36484 97.7%
2019-20 6853 3450 6392 1300 18890 668 37553 5.34 41805 89.8%
2020-21 3900 3450 5889 988 6484* 677 21388 -86.94 44845 47.7%
Total 31847 23224 30966 11049 84447 3654 185187 216184
2021-22
* Revised Estimate

47. 6. Inability to absorb and to devolve funds
■ According to Annual Report of the MoHUA for the year 2020-21 at end of March 2021
■ Smart Cities Mission –
– During six years period (2015-16 to 2020-21) total budget provision by GOI was Rs.
30089 crores against which GOI released total amount of Rs. 23224 crores ( 77 %)
– Against the 5151 project proposals amounting to Rs. 205018 crores in all 2651 projects
of Rs. 44461 crores have been completed (22/06/2021). This means combine
performance of 100 smart cities at the end of 6 & quarter years of SCM is 50 % in terms
of number of projects and 22 % only in terms of financial outlay.
■ AMRUT –
– Against scheme outlay of Rs. 100000 crore (GOI + State Govt Share) in all 5637 projects
of Rs. 77460 crores were approved (including central assistance of Rs. 36990 crores)
– During seven years period (2015-to 2020-21) total budget provision made was Rs.
33599 crores against which GOI in all has released Rs. 30966 crores. Thus against the
envisaged Rs. 50000 crore Scheme outlay only Rs. 30966 crores got released (60%).
– Against all these figures 3178 project have got completed and Rs. 14061 crores have
been spent, so performance is 56 % in number of projects terms and 18 % in financial
terms.

48. 6. Inability to absorb and to devolve funds
■ PM Awas Yojana–
– No. of Cities covered - 3305
– Total projects approved 22843 of Rs. 678009 crore (Centre + State + Beneficiary)
– Central assistance approved Rs. 174738 crores, released Rs. 82440 crores, utilised Rs.
65276 crores (37%)
– No. of houses involved - 10901489; construction of houses started – 7020238; houses
completed – 4044819# (40%); houses occupied – 3747207 (37%)
– Credit linked subsidy scheme ( 3 to 6.5 % subsidy) – EWS/LIG – 834503 + MIG –
485313 = total 13,19,816 beneficiary / interest subsidy released = Rs. 30868 crore
– In-situ slum redevelopment (with private sector – Rs. 1 lakh grant) – 4.6 lakhs houses
– Affordable Housing in Partnership (AHP (Rs. 1.5 lakh grant) – 23.54 lakhs
– Beneficiary led construction (Rs. 1.5 lakh grant) – 62 lakhs
# includes incomplete works of earlier schemes taken before 2014

49. 6. Inability to absorb and to devolve funds
■ Swachh Bharat Mission -
– During six years period (2015-16 to 2020-21) total budget provision by GOI was Rs.
11090 crores - GOI released total amount of Rs. 11049 crores (around 82%).
– 66.72 lakh units of Individual Household Toilets (IHHL) have been constructed
– 3 lakh IHHL Units are estimated to be constructed January - March, 2021.
– 6.28 lakh Community and Public Toilet seats (CT/PT) have been constructed
– 25000 CT/PT Seats are estimated to be constructed January to March, 2021.
■ Solid Waste Management
– 83,500 wards (out of 86,284 wards i.e. 97%) are covered by 100% door-to-door
collection. 68% of the total waste generated is currently being processed, and 78%
wards are practicing source segregation
– 1311 functional waste to compost plants (centralized) with capacity to process 0.612
lakh TPD, 408 plants are under construction, with input capacity of 0.14 lakhs TPD.
– 90 waste to energy (waste to electricity / bio gas / bio-methanation) plants are
functional with input capacity of 0.074 lakh tonnes per day
– 44 WTE plants under construction with capacity to process 0.12 lakh TPD of waste.
– 3 functional C&D plants, with input capacity of 7,378 tonnes per day, and 5 plants
under construction with combined input capacity of 2050 tonnes per day.

50. 6. Government of India flagship schemes
50
1,616
3,596
5,488
10,596
6,331
5,284
7,336
5,286
7,558
-
2,000
4,000
6,000
8,000
10,000
12,000
FY 06 FY 07 FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14
Outlay during 2006 to 2014 Rs Cr
UIG UIDSSMT BSUP IHSDP RAY Total
2,401
9,138
16,292
20,592
21,574
23,253
-
5,000
10,000
15,000
20,000
25,000
FY 15 FY 16 FY 17 FY 18 FY 19 (RE) FY 20 (B)
Outlay during 2015 to 2020 Rs Cr
Smart City AMRUT SBM PMAY Total
▪ Centre’s spend up from Rs. 53,000 crore (JNNURM & allied - FY 06-14) to Rs. 93,250 crore (Smart Cities & allied - FY 15-20)
▪ On a per-capita basis, average annual outlay - JNNURM – Rs. 172, Smart City – Rs. 516 and AMRUT – Rs. 237
▪ Centre’s spending in metro-rail projects much higher than under flagship schemes for basic services; Avg. outlay up from Rs.
32,000 crore during FY06-14 to Rs. 79,000 crore in FY15-20.

51. 6. Inability to absorb and to devolve funds
Year-end unspent balance is increasing
Head
(Rs. Crores)
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-17
Total Municipal
Revenue
73259.8 85627.2 104476.1 119620.2 130794 146578.5 161978.9 171697.1
Total Municipal
Expenditure
64192.8 70380.2 82701.9 93297.6 106916.7 118937.7 124006.9 132552.6
Unspent year-
end balance
9067 15247 21774.2 26322.6 23877.3 27640.8 37972 39144.5
Unspent
balance in %
12.37 17.80 20.84 22.0 18.25 18.85 23.44 22.79

52. 7. Impact of GST not remedied
■ Municipal finances have been the worst hit by this structural reform. GST subsumed
all local taxes based on consumption like octroi, entry tax, account based octroi and
advertisement tax
■ Urban Local Bodies have lost powers to tax consumption of goods and services. This
is in contrast with many countries around the world which have provided their urban
local governments access to goods and services tax and income tax.
■ To maintain fiscal "balance" across the three levels of government, the combined
revenues from GST ought to have been shared among all the three levels of
government. Instead the sharing has been half and half between centre and states
and in the process the independent power of local governments to raise their own
sources of revenue has been appropriated by the centre and states.
■ States have not provided formula-based compensation to Urban Local Bodies for
loss of these taxes.

53. 8. ULBs not leveraging their own sources
■ Information on debt accessed by ULBs in unavailable in the public domain,
■ The 15th FC 2019 report pegs borrowings of ULBs nationally at Rs. 27,427 crore or just 2.8% of all
municipal receipts during FY 11 to FY 18. Of this, Rs.14,171 crore (or 52% of this) is reported to have
been accessed by ULBs in Gujarat alone.
■ An earlier study for the 14FC pegged total debt in FY 13 at Rs. 920 crore or 1.4% of all ULB receipts.
Irrespective of how we look at it, borrowings by ULBs have been negligible relative to revenue receipts
or investments.
■ ULBs which have capacity are not leveraging funds through bonds / borrowings - A review of finances
of 20 relatively credit worthy cities (~ 20% of urban population and 63% of all India ULB revenue
receipts) reveals that though their borrowing capacity stands at Rs. 71000 crore, less than 5 percent of
their capital expenditure was financed through borrowings.
■ Municipal Bonds have seen recent spurt post 2017 – 5 ULBs raising Rs. 1300 crore
■ During 2006-16( JNNURM announcement in December 2005) only four Municipal Bond issues raising
paltry Rs. 221.70 crore (one by Vishakhapatnam Municipal Corporation in 2007; rest three bond
issues were issued by TNUDF for smaller municipal bodies)
■ During 1998 to 2005 - 26 Municipal Bond issues of Rs. 1590 crore were structured - Two issues-
Kolkata & Chennai did not take place.
– Through 24 issues Rs. 1445 crore were raised.
– 18 issues were by municipal bodies, 4 issues by city level water and sewerage boards and 2
issues of pooled finance nature by KUIDFC and TNUDF for multiple smaller municipal bodies.

54. 8. Municipal Borrowings – Demand Side Constraints
1. Weak Financial Management and Planning capacity
– Poor financial management and accounting expertise and capacity
– Planning cycle limited by an annual budget cycle with limited multi-year planning /
expenditure frameworks
– Inadequate Awareness and capacity to assess of debt capacity, and potential / options to
leverage the same
– Poor accounting and information disclosure practices
2. Narrow Financial Base
– Non-buoyant own revenue sources
– Uncertain, non-timely and conditional fiscal transfers
– Inability / reluctance to charge for services
3. Poor autonomy and capacity for Project planning
– Inadequate capacity to develop and implement bankable projects
– Weak functional delegation and autonomy
– Weak asset management practices, and service delivery orientation
– One-off pilots for commercial financing instead of programmatic initiatives

55. 8. Municipal Borrowings – Supply Side Constraints
4. Lack of awareness / appetite for municipal debt
o Inadequate awareness of municipal credit among investors / developers
o Size and periodicity of borrowings limits ability to tap new investors
o Low awareness of municipal credit among institutions / investors
5. Market ecosystem and regulations
o Bond market limited to AA and above issuers and issuances
o Narrow investor ecosystem and weak secondary market
o Investment caps in IRDA / PFRDA regulations
POLICY / REGULATORY
6. Slow pace of State-level structural reforms
o Weak SFCs, Adhoc/conditional transfers, poor functional devolution
o Passive or non-existent efforts to wean dependence on Grants
o Regulations to operationalize even borrowing provisions available in municipal legislation (timely
audits, security, asset cover and security definition and fixation of borrowing limits etc., Recovery
mechanisms and protection against defaults, Collateralisation of municipal assets and fiscal transfer
restriction under State Laws)

56. 8. ULBs not leveraging their own sources
Municipal bonds - Status and issuances till date
56
■ Over 30 municipal bond issuances raising ~ Rs 29 billion till date.
Three phases:
– Phase 1 – 1997 to 2005 Pre- JNNURM period saw a spurt in one-off issuances. Rs. 12
billion was raised during the period
– Phase 2 – 2006 to 2016 Slump in issuances post 2005 partly due to crowding out effect
of JNNURM and only Pooled bond issuances accounted for two-thirds of value of
issuances. Of Rs. 3 bn, only Rs. 1 bn was by ULBs.
– Phase 3 – Since 2017, Rs. 15 billion was raised through Municipal/ Pooled bonds. Only a
handful of ULBs have done issuances
■ ~ 80 % utilized for Water supply, and sewerage
■ A mix of tax-free (46 percent), taxable bonds (30 percent) and pooled
bonds (24 percent). Recent issues have been taxable bonds
■ Except one issuance by Ahmedabad, all are structured obligations with
credit enhancement of some form
■ All issuances had a rating > A; 80% issuances > = AA

57. 8. ULBs not leveraging their own sources
Municipal bonds - Status and issuances till date
57
125
100 110
10
80
150
205
128
296
0
21
45
0
30
83
51 51
0 0 0
280
535
475
0
100
200
300
400
500
600
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Municipal bond issuances till date (Rs. crore)
Muni bonds Pooled bonds Total issuances

58. 9. ULBs are not creditworthy – lack borrowing capacity
■ Credit rating work of 485 cities (Under AMRUT and
SCM) was awarded and by end of November 2018
credit rating of 466 cities have been completed.
■ Out of 466 cities, in all 163 cities (35 per cent) have
received investment grade rating (BBB--- and above).
■ But Only 36 cities belonging to 12 States out of 163
cities have received high or adequate investment (A-
and above)
■ Out of these 36 cities only 21 cities belonged to
Smart Cities Mission
0
50
100
150
200
250
300
350
400
450
500
485 463
22
No.
of
cities
0
100
200
300
400
500
161
300
*
No.
of
cities
Non-
IGR
*Rating of 2 cities awaited

59. 9. Creditworthiness of Urban Local Bodies
59
■ As per the latest rating info, almost 35 cities are rated A and above
(During the JNNURM period it was 24 cities). The 35 cities have an
aggregate population of ~9 crores (almost 25% of total urban pop)
■ Outstanding ratings for many cities withdrawn due to inability to meet the
compliance standards for credit rating – Sustainability challenges
■ Entity credit rating and bond issue rating indicate at max a 3-4 level
notch-up for the structured payment/ credit enhancement measures
– Indore (A+) – Bond issue – AA
– Bhopal (A-) – Bond issue – AA
– Ahmedabad (AA) – Bond issue – AA+
– Pune (AA+) – Bond issue – AA+
– GHMC (A+) – Bond issue – AA
No. State ULB Rating
1
Andhra Pradesh
GVMC AA
2 Vijayawada Ir A-
3
Delhi
N.D.M.C. AAA
4 South DMC (U) AAA
5 East DMC A+
6 North DMC A
7
Gujarat
Ahmedabad CCR AA
8 Rajkot A
9 Surat CCR AA
10 Vadodara CCR A+
11
Haryana
Faridabad AA+
12 Gurugram A-
13
Karnataka
Mangalore A
14 Mysore A
15
Madhya Pradesh
Bhopal CCR A-
16 Indore CCR A+
17 Jabalpur CCR A-
18
Maharashtra
Kalyan Dombivali A+
19 Mira Bhayandar AA-
20 Nashik AA-
21 Navi Mumbai AA+
22 Pimpri Chinchwad AA+
23 Pune AA+
24 Thane AA-
25 Greater Mumbai AA+
26 Vasai-Virar City A-
27
Rajasthan
Bhiwadi A-
28 Jaipur A-
29 Jhunjhunun A
30 Kishangarh A+
31
Telangana
GHMC A+
32 Warangal A
33
Uttar Pradesh
Lucknow A-
34 Ghaziabad A-
35 West Bengal Kolkata AAA
Non-investment
grade
76%
AAA
3%
AA+
5%
AA-
1%
AA
3%
A+
5%
A-
4%
A
3%
Other
24%
Urban Population according to rating
List of ULBs with A and above rating

60. 9. Creditworthiness of SCM ULBs
Credit Rating
Symbol
Safety of the
investment
Name of the smart city municipal body No. of
cities
AAA Highest Safety
AA+ Pune, Ahmedabad, Faridabad, Pimpari-Chinchwad, New Delhi 5
AA High Safety Vishakhapatnam, Surat, 2
AA- Thane, Nashik, 2
A+ Indore, Kalyan-Dombivali, Vadodara, 3
A Adequate Safety Chennai, Warangal, Mangaluru, Rajkot, 4
A- Jaipur, Jabalpur, Bhopal, Lucknow, New Town Kolkata, Madurai 6
BBB+ Bhubaneshwar, Coimbatore, Udaipur, Ludhiana, Raipur, Kota, Kanpur, Ajmer, Tiruchirappalli, Ujjain,
Gwaliar
11
BBB Moderate Safety Kochi, Davangere, Kakinada, Chandigarh, Panaji, Tirupati, Nagpur, Jalandhar, Hubali Dharwad,
Thiruanantpuram, Patna, Karimnagar, Shimla, Bilaspur, Tirunelveli,
15
BBB- Belagavi, Ranchi, Tanjavur, Pasighat, Toothikodi, Moradabad, Tumakuru, Tirupur, Sagar, Amaravati,
Deharadun
11
BB+ Solapur, Bhagalpur, Amritsar, Raurkela, Karnal, Erode, Bareilly, Saharanpur, Aligarh, Dharamshala 10
BB Inadequate safety Vellore, Salem, Mujhafarpur, Puducherry, Bengaluru, Jhansi, Aizwal, Gangatok, Satana 9
BB- Agartala, Shrinagar, Jammu, Bihar Sharif, Agra, Guwahati 6
B+ Aurangabad, Allahabad, Shilong, Varanasi 4
B High Risk Kohima 1
B- Imphal 1
C Substantial Risk
D Default
No Information Port Blair, Namachi, Shivamogga, Naya Raipur, Gandhinagar, Dahod, Silvassa, Diu, Karavati,
Itanagar
10
Total 100

61. 11. Land Value Capture (LVC)
– Conceptual basis and typology of instruments
61
■ Land recognized as a buoyant productive asset to be developed efficiently
■ Public infrastructure investment lead to increment in value of land &
properties
■ Value capture refers to recovery of a share of this increment in
land/property value by Government to help finance new infrastructure
▪ Design and use of efficient LVC instruments critical to tap and realize this
potential
■ Continually augmenting this revenue source can help sustain infrastructure
development
value
creation
value
realizatio
n
value
capture
value
recycle
Value capture typologies
1. Recurring streams viz., Property Tax, Vacant Land Tax, Tax-Increment Financing
2. One-time levies viz., Development Charges, Betterment charges, Impact fee
3. Asset monetisation viz., Sale and Lease of land, Sale of Development Rights, Premium FSI, etc.
Could be applied City-wide or in influence zone of a specific infrastructure project

62. 11. Select LVC Instruments..1
62
Property Tax
■ Basis: Rental Value / Capital Value / Unit-Area based
■ Annual levy typically revised once every five years
■ Low rates and ineffective revisions
Vacant Land Tax
▪ Annual recurring levy
▪ US, Australia and Taiwan as variant of property tax
▪ Maharashtra, Tamil Nadu, AP have Urban Land Tax
Tax Increment financing
▪ Incremental revenues from future tax increases on
property, is ring-fenced to finance new investments
▪ Used in the US
Recurring streams One-time levies
Development charge
Betterment charge
Impact fee
▪ Charge on value gain from infra investment
▪ Levied on improvement schemes / Projects
▪ MMRDA Mumbai, Hyderabad (external betterment)
▪ Upfront area-based charge (in some cases value based)
▪ Widely used – AP, Guj, Mah, TN, MP and others
▪ Also levied as an betterment tax in Karnataka
▪ Levied to recover at least a share of the investment
from project influence area (PIA)
▪ Used in US; Hyderabad ORR

63. 11. Select LVC Instruments..2
63
Asset monetisation and Dev rights related
Sale or lease of land
Transfer of development rights
▪ Non-cash compensatory right to landowners for
Open space, Road widening, affordable housing
▪ Used as land acquisition tool by government
▪ Tradable rights which can be used in other locations
Land pooling
▪ Land pooled, into a layout, infrastructure developed,
and a share is returned to owners
▪ Gujarat cities, Haryana and Japan / Germany
▪ Sao Paolo, Brazil sell development rights through
auctions
▪ Auction of BKC land by MMRDA; lease of Municipal
properties
Premium on relaxation of rules or additional FSI
▪ Fee to develop beyond permissible FSI
▪ Several states – Mah, Ktka, Guj, TN
▪ Brazil and France internationally

64. Financial Sustainability of Smart City Proposals
■ 46 cities under SCM will not be putting any amount in smart cities mission implementation
■ These 46 cities have submitted smart city proposals which are unrealistic in terms of size of
Smart City Proposal, per capita cost, per sq. kms cost, per capita ABD cost,
■ . In other words 26 Smart City SPVs are having less or equal annual expenditure compare to
their respective ULB. In case of remaining 74 cities of SCM, the Smart City SPV is or will be
having more funds and more expenditure on annual basis than their respective ULB (which
actually owns 50 % of SPV). Out of these 74 cities of SCM -
– in case 21 cities an annual outlay in the hands of smart city SPV will be more than 1
but less than 2 times;
– in case of 25 cities an annual outlay in the hands of Smart City SPV will be more than
2 times but less than 5 times, and
– in case of remaining 28 cities an annual outlay in the hands of Smart City SPV will be
more than 5 times and in many cases, it is more than 50 times also. For example, in
case of Dharmashala City annual outlay of its smart city proposal implementation is
whopping 36.7 times of average annual revenue or expenditure of the Dharmashala
City, while it is 50 times in case of Gangtok and 86 times in case of Kohima.
■ Dharmashala – SCP of Rs. 2318 crore = annual expenditure = Rs. 463 crores. Annual
average operating revenue of Dharmashala Rs. 6 crores = Rs. 463/6 = SCP 77 times larger
than operating revenue.