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Wednesday, August 12, 2020

Covid-19 and city finances: Time to come clean on accounts and go for reforms

To begin with, the Ministry of Housing and Urban Affairs, in association with a Bengaluru-based non-profit organisation, has launched a new portal to encourage urban local bodies to publish their audited accounts.

Written by Venkatesh Kannaiah | Updated: July 10, 2020 8:50:27 pm
coronavirus, coronavirus india latest updates, coronavirus impact on economy, covid-19, covid-19 funds to states, covid-19 economic data Of the 4000-odd urban local bodies, many of them don’t publish their annual audited accounts, and if they do, it is in different formats across the country.

City finances and revenues in India, already shaky before the Covid-19 pandemic, have become more precarious now with no visibility on grants from the Centre and states, and poor economic conditions dealing a blow to their ability to raise resources on their own.

Indian cities, also called Urban Local Bodies in bureaucratic parlance, are amongst the most financially precarious institutions in the country.

Of the 4000-odd urban local bodies, many of them don’t publish their annual audited accounts, and if they do, it is in different formats across the country. Many of them even take as long as three years to publish the same.

This is happening in an economy and governance culture where listed companies are expected to file quarterly results and the same are discussed threadbare real-time by analysts. All companies are expected to file their audited accounts within six months of the end of the financial year.

The issue is that urban local bodies come under the state governments, which have a tendency to concentrate power in the hands of the chief ministers and the cabinet, leaving mayors and urban local bodies outside the ambit of the power equation.

Indian cities also get the short shrift owing to inelastic revenue opportunities, high expectations from citizens, minimal investments in capacity-building, and a reluctance of state governments to share power and responsibility with them.

It is not that Indian cities don’t get funds. They do get grants from union and state governments and their various infrastructure projects, too, get funds. Only that city managers, mayors and lawmakers are not aware where the funds for a particular year come from as also their purpose. This renders them into a kind of an implementing agency, without them planning for their own growth, with their own resources. The quantum of funds is also insufficient compared to both investment and maintenance needs.

Now, the union ministry of housing and urban affairs is trying to correct the devil-may-care attitude of the urban local bodies with respect to auditing of accounts.

The Fifteenth Finance Commission makes it mandatory for urban local bodies to submit audited accounts and the commission’s grants to ULBs are dependent on these submissions. These grants are to the tune of Rs 1.5 lakhs crores to all ULBs over a period of five years.

Now taking it forward from here, the Ministry of Housing and Urban Affairs, in association with Janaagraha, a Bengaluru-based non-profit working on urban governance issues, has launched a new portal — http://www.cityfinance.in — to encourage ULBs to publish their audited accounts.

Since 2013, Janaagraha has been publishing Budget Briefs to empower citizens with information and analysis on budgetary allocations for each assembly constituency and wards in Bengaluru.

Speaking to Indianexpress.com, Srikanth Viswanathan, CEO, Janaagraha says the new portal would allow for all published audited accounts of ULBs to be available in one place. It would also help city managers and mayors to benchmark their performance indicators.

He says that large public sector pension and insurance funds are open to invest in bankable long-term infrastructure projects and cities can tap into these valuable long-term funding option if they clean up their accounts and provide audited accounts in a timely manner, besides demonstrating project execution capability and intent.

Apart from fund-raising, city governments also have an obligation to their citizens, civic groups and researchers to provide them with audited annual accounts, which are transparent and comparable across India, if not globally.

He says that some big ULBs have been providing accounts and were also raising funds from the open market but they could only raise a pittance. The total amount raised so far by all ULBs in the country does not exceed Rs 5000 crore, which is a very small amount when compared to the overall bond market.

Moreover, most urban local bodies do not have the institutional capacities for raising funds and putting up projects that are bankable. They would also need to raise their internal capacities apart from working on creating projects that can attract outside investors.

However, the first step in this journey is for cities to publish their accounts and audit it with credible third parties. The portal, cityfinance.in, would in due course have tools for ULBs to automate the administration of the 15th Finance Commission grants. It would also build tools to administer the facility for increased borrowing which has been allowed for the states as part of Atmanirbhar Bharat Abhiyan package, based on potential reform of the urban property tax regimen. This would be an additional Rs 50,000 crore spread over a five-year period.

Conceived and managed by Janaagraha, the portal would be a one-stop shop for potential investors in municipal finance bonds to gather detailed financial reports of ULBs and also compare the same.

As of now, we have collected the financial statements of approximately 1,500 urban local bodies, which is a humongous task, but we assume it would be easier going forward, Viswanathan added.

Publication of audited accounts verified by third-parties is the first step for urban local bodies to raise more funds and also become financially independent and sustainable in the long run, he added.

Covid-19 might have made the finances of urban local bodies precarious, but it also gives them an opportunity to shed old practices, come clean about their accounts, and look out for more finances.

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