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City Development Plan, Raipur City

Finance and Investment Plan

7
7

7.1 FINANCIAL PERFORMANCE

FINANCE AND INVESTMENT PLAN

This chapter details the municipal finances of the municipal corporation and other following entities involved in the provision of services and outline the receipts and expenditure over the last five years.

Raipur Municipal Corporation

7.2

RAIPUR MUNICIPAL CORPORATION

7.2.1

Municipal Finance Structure

Revenue

The revenue of RMC comes from own tax and non-tax sources, government grants (both revenue and capital), loans and borrowings and deposits from public. The revenue structure is dominated by government grants, as it constitutes 60 % share of total revenue of RMC. Total own tax & non-tax revenue constitutes only 20 per cent of revenue.

The per capita total receipt of RMC in 2001 was about Rs. 1108, while per capita receipt from own sources (tax and non-tax) was at Rs. 230. Per capita tax revenue stood at Rs. 148.43. RMC received per capita Rs. 632 as total grant (revenue and capital) from State Government. The own revenue stream of RMC is dominated by property tax, which is assessed, collected and retained by the Corporation.

Fig.No. 7.1 Ratio of Own Revenue to Total Revenue Income & to Total Income

0.5 0.4 0.3 0.2 0.1 0 2000-01 2001-02 2002-03 2003-04
0.5
0.4
0.3
0.2
0.1
0
2000-01
2001-02
2002-03
2003-04

Ratio of Own Revenue to Toal Revenue IncomeRatio of Own Revenue to Total Income

Ratio of Own Revenue to Total IncomeRatio of Own Revenue to Toal Revenue Income

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Internal Revenue Sources

The main tax sources are property tax, water tax, conservancy tax and fire tax. Octroi was abolished in 1976 and since then RMC is receiving compensatory grant with annual increase of 10 percent. In the past four years CAGR of own revenue has been 7.70 %, which is more than CAGR of total revenue (5.11 %) and grant receipt (3.85 %). Though it is slightly more than other growth rates, it clearly indicates that RMC has made effort to improve receipts from own tax and non-tax resources.

Income from tax sources of RMC has been very low, ranging between 13 to 15 percent of the total income. Non-tax revenues are also low ranging 7 to 9 percent of total revenue. Property tax's share in total revenue has been on an average only 5 percent while water tax revenue constituted average 4 percent. Rest of the taxes yields less than 1 percent revenue individually.

Property Tax

Only about a third (about 35,000) of total likely property tax payers are on the assessment register of the RMC. An agency which has been working on computerization of property tax records has identified around 1,10,000 property tax payers. But said agency has not transferred this data base to RMC as there is dispute between RMC and the agency regarding payment of consultancy fees or commission of recovering property tax income. As a result RMC is still sending property tax bills to existing 35000 property tax payers only. In addition to the narrow base the collection efficiency is also low (around 60 percent). As a result current yield of property tax revenue is very low.

Grants and Aids

Grants and aids form between 65 to 70 per cent share in total revenue of RMC. RMC receives revenue and capital grants from GoC. Both types of grants constitute almost equal share. Revenue grants of RMG primarily come under following heads in the order share as follows

1)

Octroi compensation grant.

2)

Surcharge on Sales Tax.

3)

State Finance Commission Grants.

4)

Passenger Tax Grant.

5)

Stamp Duty Act Grant.

6)

Other Miscellaneous Grants

City Development Plan, Raipur City

Finance and Investment Plan

While capital grants are received mainly under two heads - a) programme grants and b) capital grants. There is high degree of fluctuation in receipts of capital nature grants.

Expenditure Structure

Expenditure structure of RMC is dominated by revenue expenditure. On an average it constituted more than 75 per cent of total expenditure while capital expenditure constituted on average less than 25 per cent. Deposits refund and advances constituted very miniscule percentage. Revenue expenditure has shown constant growth trend while capital expenditure has been highly volatile as it mainly depends on availability of capital fund in the form of grants and loans from GoC. RMC has no receipts from own capital resources.

Per capita total expenditure of RMC in 2001 was Rs. 1030.50 out of this per capita revenue expenditure was Rs. 726.75, while per capita development expenditure was Rs. 303.75.

The revenue expenditure share of 75 per cent of total expenditure is made up of three components salary related (average 33 per cent), maintenance (average 30 per cent) and interest payments (10 per cent).

Every year revenue expenditure has remained more than revenue receipts of Raipur Municipal Corporation thus there is a revenue deficit, which is financed by capital receipts.

Gap funded by capital income

Fig. No.7.2 Gap Funded by Capital Income

60.0 50.0 40.0 30.0 20.0 10.0 0.0 2000-01 2001-02 2002-03 2003-04 Revenue Income Revenue Expenditure
60.0
50.0
40.0
30.0
20.0
10.0
0.0
2000-01
2001-02
2002-03
2003-04
Revenue Income
Revenue Expenditure
In Rs Crores

7.2.2 Key Observations

Quality of Data

The financial data for the year 2003-04 is not in confom1ity with the trend or time series. When it was crosschecked, the municipal authority certified that at aggregate level data is

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Finance and Investment Plan

correct and errors exist in categorization. Even if aggregate level data can be accepted as correct, there is certainly a different form of classification of receipts and expenditure either in 2003-04 or in the earlier years.

It can also be observed that opening and closing balances are matching on year-to-year basis but not over the years. This figure tally for one year but previous year closing balance is not carried to next year in correct manner. It indicates that there is a problem with accounting system and there is no proper integration of accounting and budgeting.

Continuous Revenue Deficit

It can be observed from the Table 7.1 below that at aggregate level Raipur Municipal Corporation was in surplus in the years 2000-2003, but as next Table 7.2 reveal there was a revenue deficit every year and capital funds have financed revenue expenditure over the years. Finally at aggregate level also it has entered into deficit in the last year 2003-04, mainly due to lack of growth in the revenue side.

Table 7.1: Total receipts and payments of RMC in actual terms (Rs. In crore)

Particulars/Heads

1993-

1994-

1995-

1996-

1997-

1998-

1999-

2000-

2001-

2002-

2003-

94

95

96

97

98

99

00

01

02

03

04

Actual total income

12.52

16.99

20.08

20.21

23.10

36.5

41.63

61.43

76.47

79.20

67.83

Annual Growth Rate of Total Income %

 

35.70

18.19

0.65

14.30

58.01

14.05

47.56

24.48

3.57

14.36

Actual Total Expenditure

12.35

15.62

20.80

21.12

22.66

33.63

36.22

53.48

71.10

74.19

7.63

Annual Growth Rate of Total Expenditure %

 

26.48

33.16

1.54

7.29

48.41

7.70

47.65

32.95

4.35

7.33

Table 7.2 - Revenue Income and Expenditure of RMC

 

2000-01

2001-02

2002-03

2003-04

2004-05

Particulars/Heads

Actual

Actual

Actual

Actual

Budgeted

Own Revenue

1232.5

1590.6

1964

1386.1

3669.1

Sub-total - Grants

2188.5

2542.2

2825.5

2380.7

3567.4

Total Revenue of RMC

3421

4132.8

4789.5

3766.8

7236.5

Sub-Total Revenue Exp

4412.2

5014.8

5714.6

3640.4

12950

Revenue Deficit

-991.2

-882

-925.1

126.4

-5713.5

High

Expenditure

The detailed break up of the revenue and expenditure is given in Error! Reference source not found. It can be observed that ratio between revenue income and capital income has

Level

of

Capital

Income

(not

from

own

sources)

but

Low

Level

of

Capital

City Development Plan, Raipur City

Finance and Investment Plan

been around 55:45 which indicates high level of capital income in RMC. Though share of capital income is very high, it is not from own resources, but in the form of capital grants.

Error! Reference source not found. Also indicates that the share of capital expenditure in the total expenditure has ranged between 18 to 29 percent, much less compare to ratio between revenue and capital income. It indicates that in comparison to capital income RMC has spent much less amount every year, as capital expenditure, which could be an indicator of a low absorption capacity, but is more likely to be due to the need to fund the revenue deficit.

State Revenue and Capital Income Structure

Though the revenue of RMC has increased -in absolute terms and especially after formation of Chhattisgarh State, the relationship between different components of its receipts like revenue and capital, own resource and government grants or property tax and total receipts has not undergone major change.

Unrealistic Budgeting

The quality of budget estimates can be observed from Annexure 2. It can be observed that budget formulation exercise is highly unrealistic in Raipur as actual revenue or expenditure falls short of budgeted figure by more that 60 percent. This is a serious f1aw in budgeting exercise and RMC needs to address it urgently.

Fig.No.7.3 Actual Income & Expenditure Figures against Budgeted Figures 60.0 50.0 40.0 30.0 20.0 10.0
Fig.No.7.3 Actual Income & Expenditure Figures against Budgeted Figures
60.0
50.0
40.0
30.0
20.0
10.0
0.0
2001-02
2002-03
2003-04
Income
Expenditure
Actuals as a % of budgete

Poor Revenue Collection Efforts

The actual figures for the year 2003-04 are not available but limited data clearly indicates that compared to the earlier two years RMC has fared badly on revenue collection front.

City Development Plan, Raipur City

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Inadequate Accounting System and No Inventory of Assets

Raipur has initiated implementation of accrual based double entry accounting system but accounting reforms are still not complete. Inventory of Assets of RMC is not in place but it has started initiatives in this direction.

High Outstanding liabilities

RMC has high outstanding liabilities of about 40 Crores, which is roughly 4 times annual own revenue levels. Bulk of these liabilities are outstanding electricity payments (approximately 21 crores) and payments due to contractors (about 14 crores). The outstanding liability of Raipur Municipal Corporation is shown in Figure 8 below. The year wise break up of the outstanding liability is not available, but year wise revenue expenditure of RMC is underreported in its budgets and tables to the extent these dues have not been paid by RMC.

The responsibilities of Municipal Corporation are of various types right from providing, operating and maintaining up keeping and charging for the services. It is true that the work force required for all these activities to perform is of a greater magnitude but optimum work force need to be worked out and due reduction in work force is appreciate. The budgetary provision of expenditure expresses the establishment charges with in the prescribed limit of the project but actual expenditures often exceed the provisions of budget. Reduction in establishment cost can be achieved through public participation, BOT and private participation. It is proposed to reduce this cost considerably during the period of mission.

7.3

FINANCIAL STATUS OF RAIPUR MUNICIPAL CORPORATION

7.3.1

Need And Directions of Change

Positioning of Raipur in the State

Raipur city is in a transition stage. While, it has traditionally been a commercial hub and a part of a larger economic cluster, its new status as a capital city is providing it the character of an administrative hub. Raipur City would continue to absorb the growth pressures due to economic development of the State as a whole as also due to the economic activities generated due to its national and regional roles. Thus Raipur city continues to be a focus area for the State Government, inspite of a separate capital city being planned to house administrative activities. The expected growth in the Raipur's population, its increasing role as a capital city and the expanding trade is expected to increase the demand for better urban services in the city of Raipur.

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The growth in the Raipur - Durg - Bhilai corridor would necessitate that throughout this corridor, quality urban services are provided, including high quality transportation facilities.

Its interface with the State Government

State Government does not closely control Raipur but in future it will get controlled.

At present the Government of Chhattisgarh has focused on a leaner administrative set-up across the State administration. In line with this, Raipur Municipal Corporation (RMC) plays the dominant role in civic governance with only limited involvement of other authorities or parastatals. But growing economic and political capital status of Raipur and the level of financial dependence of RMC on the State Government will increase the level of Government control over the city.

RMC is financially weak and is dependent on state grants

RMC has weak income levels and a high reliance on State Government transfers and grants. RMC has an average shortfall of 20 % in the revenue budget. Weak income levels have led to a large reliance on State Government transfers and grants, amounting to about 60 % of total income every year. Even the capital grants provided by the Government are used to bridge the revenue deficit.

7.3.2 Priorities of Stakeholders

The priorities of stakeholders are detailed below

Raipur Municipal Corporation

Discussions with Mayor, Municipal Commissioner and other officers revealed following reform priority for Raipur

1)

Sewerage System

2)

Road Network Improvement and solving traffic management

3)

Solid waste management

4)

City transport system

5)

Water supply

6)

Internal systems

A strong need is felt for system improvements in RMC.

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CIDC

From Chhattisgarh Infrastructure Development Corporation's point of view the following is the priority for infrastructure development for Raipur City

1)

Mass Rapid Transport System including city transport - Raipur along with nearby cities likes Durg, Bhilai and Rajnandgaon forms an interdependent cluster of cities. MRTS is the urgent need of not only Raipur but of all these other cities.

2)

Underground Sewerage System

3)

Solid Waste Management

4)

Better urban planning of the city

5)

Development of adequate Road Network

State Government

The formation of new capital city is a priority agenda for the State Government and, by constitution, for CADA. The present facilities in Raipur are not adequate to handle the administrative requirements of a capital for a long term. In addition the following priorities emerged:

1)

Raipur needs to address the strong needs of transportation and housing in the Raipur - Bhilai Durg economic cluster.

2)

In the existing city, the levels of urban services are poor and need to be upgraded.

3)

The Raipur Municipal Corporation also needs to improve its fiscal position to reduce its reliance on transfers and grants from the State Government.

The priorities and associated costs result in four levels of initiatives that are felt needs in Raipur.

Level I - the capital city formation is a need that is owned by the State Government. It would also need to be driven by the State Government since the resource requirements are large.

Level 2 - The transportation and housing requirements for the emerging economic and industrial corridor of Raipur - Durg - Bhilai is also a state level priority and similar to the capital city requires large resources.

Level 3 - Upgradation of infrastructure at the city level requires efforts by RMC. Given its current level of dependence on the State Government, it is unlikely that this could be done without the support of the State

Level 4 - Fiscal and systems improvements that can be driven entirely by RMC.

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7.3.4 Roadmap For Reform Oriented Fund In Raipur

Enablers for change

The State Government has had a consistent reform agenda since inception; the State Government of Chattisgarh had adopted reform agendas in several sectors. Specifically for Raipur, the planning function has been integrated with the local body and RMC today has responsibility for delivering most of the urban services. These places RMC in a favorable reform climate with enough autonomy to undertake a reform programme focused on the city.

The State Government also has a special focus on developing Raipur as a world-class city, consistent with its growing status as a trading and administrative hub.

.

Raipur's along with its neighbouring cities forms a high growth economic corridor

The Raipur-Bhilai-Durg corridor has historically been a commercially active cluster, and with the emergence of Raipur as capital of the state, these activities, have grown manifold. There is an underlying need to focus on economic growth of this corridor and to plan for integrated urban services for all three cities that form this corridor. This need has been recognized by the Government and has officially been stated as a priority.

The new capital city would decongest Raipur, and can be planned as a model for urban governance

The new capital city could be an ideal starting point for introducing a model urban governance system. This provides a non-conventional opportunity to introduce the right political, institutional and administrative structures of urban governance. Such a structure could also function as a model for the rest of the State in its urban agenda.

CIDC and CADA could function as reform partners

Both CIDC and CADA have been formed recently, to assist the State in its agenda. These agencies, due to the nature of their function, are well placed to assist RMC in a reform programme.

Potential for generation of funds through revenue reforms

The current levels of inefficiency in internal revenue generation of RMC indicate that a well- designed revenue reform programme could generate significant funds to carryout some of the investment needs. RMC also has control of the planning and building regulation

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functions. With adequate changes in the legislation, RMC would be able to leverage the revenue potential of these functions.

7.3.5 Constraints for change

State Government is keen and is able to fund moderate investments

After the division of the State, the financial position of Chhattisgarh State has improved As a result; the allocation to the urban sector has quadrupled in the past three years. The total budget size (total income) of the RMC was about Rs. 79.2 crores in 2002-03, which included revenue and capital grant of about Rs. 59.6 crores. In this scenario, the stakeholders have a stable source of financial support to meet their operation and investment requirements. The process of securing these funds is also easy for the local body. Being the State capital, there is also a willingness on the part of the State Government to provide support to the City. This reduces the attractiveness of an external incentive fund.

Keenness for simple fund procedures

Possibly as a result of the existing support from State Government, the keenness to follow complex funding conditions is very low. We understand from the stakeholders that they would be interested in parallel support mechanisms, but would look forward to a simple process for appraisal and disbursement.

The larger priorities of Raipur need much larger funds

The priority needs for Raipur are the creation of transportation infrastructure and the new capital city, which will lessen the strain on the existing city. Both these are also a part of the State Government agenda. The funding required for these priorities is large and may quite exceed the limits of any reform-oriented fund.

7.3.6 The best scenarios cannot be achieved

Since an assured level of funding exists, possibly relatively large compared to what a reform oriented fund could provide, it would be difficult to incentives Raipur to adopt a set of initiatives which are at, variance with its agenda.

On the other hand, the priorities of Raipur and the State Government, which they would not be able to implement with their funding capability, also go far beyond the capability any

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reform oriented fund. As a result, neither can the full set of priorities of the stakeholders, be addressed by a reform-oriented fund.

7.3.7 Potential exists to align with some of the priorities

Given the focus the State Government has on Raipur, it is inevitable that it continues to support RMC in its investment needs. Such support would gradually weaken the financial independence of RMC (even at present it relies on Government support for revenue expenditure). A reform-oriented fund can work with RMC to correct such a possibility through internal revenue reforms.

Similarly, the State Government would continue to place a priority on economic growth in the Raipur-Durg-Bhilai corridor. Technical support to the Government in developing a sound plan for economic growth coupled with sound urban services in the corridor is another possible option.

The State Government has already identified internal reforms in RMC as apriority so that urban services are delivered better. A reform-oriented fund could leverage this priority and work Witi1 both RMC and the Government to set up a service delivery focus within RMC. A linkage between service delivery improvement and Government support is also possible, given the keenness of the Government on these improvements.

Thus a reform oriented in Raipur would align with the existing agenda of the RMC and the State Government. Even within this a large scope exists

1)

To improve financial management so that priority investments can be undertaken

2)

To help the State Government develop an economic plan for its key corridor of growth

3)

To design a linkage between Government support and service delivery

7.4

Design characteristics of a reform oriented fund in Raipur

7.4.1

What would the fund seek to achieve

The fund should target to achieve

I) Financial management improvements in the Raipur Municipal Corporation to enable it to

a)

Improve

own

revenues,

specifically

property

tax

through

coverage

and

collection

improvements

 

b) Bridge the existing revenue deficit

c) Generate

a

revenue

surplus

with

which

city

level

investments

can

be

undertaken

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d) Through these measures reduce the reliance on the State Government on both the revenue and the capital account

e) Improve the quality of accounting and budgeting practices

2)

Service delivery improvements in the short term, specifically

a) Door to door collection of solid waste

b) Coverage of water supply network

c) Number of households connected to the sewerage network

3) Service delivery improvements in the medium term

a) Disposal of solid waste in line with MSW Rules 2000

b) Full coverage of water supply in the town and improvements in the hours of supply

c) Expansion of the sewerage network and treatment infrastructure

d) Transportation solutions for the Raipur - Durg - Bhilai corridor

4) Initiate a planning process fur integrated urban services delivery in the Raipur-Durg- Bhilai corridor

4)

Initiate changes in planning legislation

7.4.2 Where should the dialogue be targeted

The fund should leverage the priority that the Government of Chattisgarh has placed on Raipur. The fund objectives are similar to that of the State Government. Hence the dialogue should be targeted at the State Government. Such a dialogue can also leverage the revenue support that the Government of Chattisgarh today provides to Raipur city. At present, the support (both on the revenue and the capital accounts) is without any outcome expectations.

Through such a dialogue, the fund would also be able to assist the State Government in its priorities, such as economic planning for the Raipur - Durg - Bhilai corridor and the plans for the new capital city.

7.4.3 What should the fund offer

The fund would seek initiatives from both the State Government and the RMC. From RMC, the initiatives would be in line with the objectives listed in Section 7.4.1. The fund should seek the Government of Chattisgarh to redesign the current unconditional revenue support to a performance based revenue support. Specifically the performance requirements should include

1)

2)

Revenue and financial management improvements

Service delivery outcomes

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To incentives the State Government to reorient its revenue support, the fund could offer a combination of

1)

Financial support to. RMC proportionate to the performance based support from the Government of Chattisgarh

2)

Technical assistance to meet the Government's priorities, in economic planning and in capital city initiatives.

3)

Partial financial assistance for the capital city initiatives and for improving transportation in the Raipur -Durg - Bhilai corridor

3)

Partial financial assistance for urban infrastructure improvements in Raipur city (such as sewerage network, solid waste disposal facilities)

Current Situation With the reform fund Initiatives for the economic GoC corridor and capital city
Current Situation
With the reform fund
Initiatives for
the economic
GoC
corridor
and
capital city
GoC
Fund
Matching
Performance
assistance
based support
Revenue
Support
Part financial support
for urban
infrastructure
RMC
Raipur-Durg-Bhilai
economic corridor.
Capital City
RMC
Improved financial
Improved urban
management
services