Kolkata Municipal Corporation: A Case Study on Finance

Bhoomika U
2067608
Kolkata Municipal Corporation: A Case Study on Finance
Own source of funds
The Kolkata Municipal Corporation maintains a fund called the Municipal Fund. The Municipal fund is maintained in the following six accounts viz. –
i. the water supply, sewerage and drainage account
ii. the road development and maintenance account
iii. the bustee service account
iv. the commercial project account
v. the solid waste account
vi. the general account – which relates to all money received by or on behalf of the corporation other than those specified in (i) – (v)

Finances to these funds are from multiple sources viz. percentage of property tax realized, percentage of income realized from water supply and
drainage & sewerage services, percentage of untied funds received from the state government. Of these, although the contribution of Own Source
Revenue (OSR) is maximum, the dependence on state government funds is above 40% on an average.
Composition of the different sources of income for Kolkata Municipal Corporation for 2010-11

Source-Constraints and Prospects of Financing via Municipal Bonds in India

The KMC spans an area of 207 sq. km as per the Census of India, 2011 data, which was 186 sq. km in 2001. While the area has increased,
we witness a fall in the population from 4,580,546 in 2001 to 4,496,694 in 2011. Despite this, the KMC has a population density as high as
21,739 persons per sq. km

The own revenue, which comprises of tax and non-tax revenue, signal about the self-reliance of the ULBs. Of the total revenue receipts, on an
average the own revenue comprises only around 51 percent of the receipts for the period 2007-08 to 2017-18. The tax revenue constitutes about 59
percent of the own revenue, with non-tax revenue having a share of 40 percent on an average.

Source-Assessing the Performance of Kolkata Municipal Corporation: Implications for Service Delivery
(International Center for Public Policy)
The tax revenue, its average share of tax revenue in total receipts stands there has been a consistent increase in the grants from 2014-15
at 29 percent over the years. Since 2011-12 we see that the actual onwards, featuring much above the average value. It was as high as 55
proportion remains above, albeit slightly, the average value of this percent in 2017- 18.
proportion.

The non-tax revenue, its average share is 21 percent of the total

revenue, only a little less than the tax revenue. Source: Annual Budgets, KMC, Various years
Composition of Revenue Expenditure (average from 2009-10 to 2017-18)

The services (that is water supply, sewerage and drainage, roads, streetlights and solid waste management) have a share of only 45.4 percent on
an average (from 2009-10 to 2017-18) in the total revenue expenditure. Of the total revenue expenditure KMC spends as high as 33.7 percent of
the total revenue expenditure on electricity charges, pension funds, and administration and support combined together. Such a huge burden of
these expenditures can also act as a constraint on the expenditure that KMC incurs on services.

Source-Assessing the Performance of Kolkata Municipal Corporation: Implications for Service Delivery
(International Center for Public Policy)
 We find that over time the revenue expenditure on all services has fallen
and has been less than the average values in the more recent years.

• The per capita revenue expenditure has persistently exceeded the

own revenue of the KMC.
• While the total revenue receipts from 2009-10 to 2017-18 stood at
rupees 4594 per capita on an average, the own revenues were much
below at average rupees 2084 per capita for the same period.
• It is ideal of a ULB to depend on its own revenue to meet its
expenditures and not rely on the grants or loans; depending on own
revenues would help them perform more efficiently while grants can
lead to a lax attitude with respect to delivering services.

The gap between actual revenue expenditure and expenditure norms

increases over time. While the norms remain the same for each year, there
has been a consistent fall in the revenue expenditure by the KMC over time.
An average annual fall of 1.96 percent per annum during the same period.
 The year-on-year growth rate of Revenue Receipts and Revenue Expenditure

The following table will indicate the growth of Receipts

under various sources and expenditure of Revenue Fund:

• In most of the years that the year-on-year growth rate of revenue receipts remains below the year-on-year growth rate of revenue expenditure.
• The average value, we see that on an average the annual growth rate of revenue expenditure has been negative standing at (0.48) percent, while
the average growth rate of revenue receipts has been even less with (4).
• When bifurcated different components of the total revenue receipts, the tax revenue fell on an average by only 0.88 percent, the fall was drastic in
case of non-tax revenue at 6.4 percent per annum.
Key Rating Drivers & Detailed Description

Strengths
• Stable financial performance supported by sustained support from state government of West Bengal compared to other cities
The grants from state government contribute about 63% of the total revenue receipts in fiscal 2019. Sustained support from state government is
expected to continue given the strategic importance of the capital city and due to obligatory responsibility as mandated by the state finance
commission.
• Favorable legal framework
The Kolkata Municipal Corporation Act gives the corporation the right to borrow and provide its tax revenue as security, though the legal framework
requires prior permission from the state government.
• Good reforms and organizational development
KMC has traditionally focused on financial reforms and was one of the first corporations to introduce the double-entry accounting system into
municipal finances.

Weaknesses
• Modest but improving service arrangements and large capital expenditure plans
Service arrangements of KMC are modest as compared to other large corporations. To improve service arrangements in newly inducted areas, KMC is
implementing projects under Kolkata Environment Improvement Programme (KEIP) and KEIIP at a total estimated cost of Rs 4000 crore.

Four problems with respect to the poor performance of the KMC which have direct implications on the service delivery in KMC:
a) falling non tax revenues
b) a fall in property tax
c) a high dependence on grants and loans,
d) insufficient expenditures

Source- crisil.com