This PPT discusses practices with regard to local planning, budgeting and fiscal discipline in Indian Municipal Bodies.

1. Local Planning, Budgeting
and Fiscal Discipline
Workshop on Fiscal Decentralization and Local Governance in India
Organized by
The Indian Institute of Public Administration in partnership with the
Government of Japan and the World Bank Institute
December 11-15, 2006 Goa
Dr. Ravikant Joshi
Advisor – CRISIL Risk & Infrastructure Solutions Ltd - Mumbai
Chair Professor – Urban Management - St. Joseph’s College of Business
Administration - Bangalore

2. Local Planning, Budgeting and
Fiscal Discipline
All these three aspects
are either absent or
defective at local level

3. Local Planning, Budgeting and
Fiscal Discipline
In India local planning at rural level is part of
formal (five year) long term planning process
But local planning at urban level is not part of
formal (five year) long term planning process
Local planning at urban level consist of –
Development plan under Town Planning Act prepared
by a city development authority or Town Planning
Department of State Government
Annual budget prepared by a municipal body

4. What is Local (Urban)
Planning?
PHYSICAL DESIGN / MANAGEMENT OF SPACE
REGULATION of
Development of infrastructure – ensuring equitable access and
distribution to all
Land use - where to build and what to build and how much
Provisions by private sector
PUBLIC PROVISION of services, infrastructure by government
or private sector
PLANNING FOR SOCIAL IMPACTS of development projects
and programmes
addressing displacement & relocation
ensuring environmental quality
ATTRACTING ECONOMIC DEVELOPMENT
SPECIAL FOCUS ON POVERTY/ POOR PEOPLE

5. Local Planning - Issues
Mainly remained confined to
physical planning on drawing board
rigid cum inadequate implementation of
developmental control rules
Non-participative formulation process
Marked by enormous delay in preparation and
finalization of development plan
DPs (Reservations and infrastructure) got
inadequately implemented as they were not
integrated with local budgeting or multi-year
investment planning

6. Local (Municipal)
Budgeting
IntroductionInvented originally as tool of controlling, first in
governmental form of organisation and later on in
corporate sector.
Budget - Formal statements of the financial resources
set aside for carrying out specific activities in a given
period of time.
Involves both the basic functions of management -
Planning and Controlling
Very important tool of management and financial
management
An instrument of economic and social reforms or
changes. It expresses government’s view.
Evolving as per the change in the philosophy or role
of government

7. Local (Municipal) Budgeting
Components of Budget
A Policy Document
A Financial Plan
An Operations Guide
A Communication Device
As per GASB Of USA-
Expression of Public Policy
A Financial Plan
A Form of Control
A Basis for Evaluating Performance

8. Local (Municipal) Budgeting in
India
Historical Background1860-Sir James Wilson - First finance member
introduced the first budget in Government of India.
Highly centralized system of financial control.
Introduced line-item budgeting technique.
1968-introduction of performance budgeting system
by G.O.I
Recently decided to introduce zero-base budgeting
system.
No efforts till 2002 to reform municipal budgeting
C & AG Task Force Report on Municipal Accounting
Model National Municipal Accounting Manual

9. Local (Municipal) Budgeting In
India Drawbacks
Defective structure
Improper classification of budget items
Improper distinction between various natures of
expenditure
Excessive reliance on incremental approach
Absence of overall targets / ceilings
Unrealistic past figures due to defective accounting
system
Absence of proper resource allocation mechanism

10. Local (Municipal) Budgeting In
India Drawbacks
Excessive reliance on deficit financing
Expenditure not contingent on resource
realization
Spending psychology
Budgeting of ‘how much’ rather than ‘how best’
No scope for cost-analysis/cost-reduction
Non-charging of in-house services provided

11. Local (Municipal) Budgeting In
India Drawbacks
Non-allocation of loan charges to respective services
Non-importance to revised budget formulation
Lacking of long term perspective
Non-linking of financial & physical outlays
Highly rigid, fixed (absence of concept of contingency
budgeting)
Absence of ‘Rolling Plan’ Budgeting Concept
Non-user friendly
Non-participative

12. Implementing Municipal
Budgetary Reforms
Reorganize & restructure budget
Introduce subsidiary appendixes / BIDS
Judicious use of budgeting techniques
Streamline and prune down budget
Tune it with accounting system
Regularize accounting system and work
Make it part of long term planning

13. Implementing Municipal
Budgetary Reforms
Expenditure linked to resource realization
(contingency budgeting)
Separate revise budget approval process
Increased Councilor's Participation
Increased Peoples’ Participation
Follow rational process of budget formulation
Devise model for budget / resource allocation

14. Fiscal Discipline at Local Level
Absent in most of the cases, exists in weak or
defective form in the remaining
Defective budgeting failed to foster fiscal discipline
Fiscal Responsibility and Budget Management
concept has not percolated to Local level
Municipal Acts, Account codes and other government
regulations consist very narrow interpretation
(procedural and propriety adherence) of fiscal
discipline concept
Absence of qualitative fiscal discipline norms
Only Tamil Nadu Second SFC Report has made some
thinking in this direction

15. TN SFC suggested Fiscal
Responsibility Norms for local
bodiesPreparing budget based on the need and performance
covering a 3 year rolling plan of expenditure and revenue
projections.
Fix pre-determined target for achieving revenue surplus of 5%
Strictly adopt right size of staff strength based on norms.
Widen Tax Base
Eliminate Fiscal deficit
Fix limit on Debt.
Cut the time, and cost over run of capital expenditure on
projects on internal rate of return basis.
Levy right level of User Charges
Target for Collection :
Current Demand 95 %
Arrear Demand 75%
Assess returns and recovery for new projects.

16. Local Planning, Budgeting and
Fiscal Discipline - In Sum
Local Planning has too much physical planning, rigid space
management and building control overtone
No linkage with long term plan, annual local budgeting and actual
infrastructure development
Failed to become real local economic, social and infrastructure
planning and development
LB Budget is structurally and procedurally defective, unaugmented,
not backed by good planning
Budgetary control is almost absent as a result even fails as a tool
of control, so not to talk of instrument of socio-economic
transformation
Local Budgeting fails to foster fiscal discipline
Fiscal responsibility norms are absent in the act or account codes
or subsequent government orders

17. Local Planning, Budgeting
and Fiscal Discipline
Thank You