Ambitious capex plan, BMC to dip into reserves amounting to over Rs 18000 cr

Last year, BMC’s fixed deposits were at Rs 87,131.6 crore. In 2021, it amounted to Rs 77,634.3 crore, while in 2020 it was Rs 78,668.8 crore. It is noteworthy that BMC has seen a dip in its revenue estimate for 2022-23 at Rs 28,887 crore, revised from the budget estimate of Rs 30743.61 crore. Until December 31, 2022, BMC collected 65 per cent or Rs 18,769.28 crore of its revised revenue income.

The dip has been mainly attributed to property tax collection. As per budget estimates of 2022-23, property tax collection was estimated to be Rs 7,000 crore, but was revised to Rs 4,800 crore. Till December 31, 2022, BMC has collected 66% or Rs 3174.46 crore from property tax. However, its income from interest on investments exceeded its estimate by 227 crore.

To meet its ambitious budget target and capital expenditure, this year, the BMC has estimated revenue income of Rs 33,290 crore, higher by Rs 4,403 crore over the RE of last year. The key sources include Rs 12,344.1 crore from grant-in-aid on account of compensation in lieu of Octroi, Rs 6,000 crore income from property tax, Rs 4,400 crore income from development plan (DP) department, Rs 1,707.24 crore as income from interest on investments and Rs 1,965.64 crore income from water and sewerage charges.

The BMC is also asking the state for Covid-19 reimbursements to the tune of Rs 1,941.9 crore and Rs 1,958.1 crore. It has estimated capital receipts of Rs 582.95 crore.

Apart from revenue income, the BMC has proposed to meet its estimated budget needs by internally raising Rs 18,168 crore from reserves. It has proposed to draw Rs 5,970 crore as an internal temporary transfer from its reserves. Rs 7,400 crore will be withdrawn for projects like coastal road, GMLR and Sewage Treatment Plants (STPs), and another Rs 5,376.1 crore for other capital expenditure.

Municipal Commissioner Iqbal Singh Chahal said, “I want to clarify what dipping into reserves is. BMC has an infrastructure fund of Rs 15,000 crore. When we collect premiums from real estate industry, this amounts to around Rs 4,000 crore every year. A portion of this goes to the infrastructure fund. The idea to create a fund to pump money back into creating infrastructure for the city. When we transfer this fund to the budget, it is wrong to criticise that we are tapping into our reserves.”

Of its reserves, Rs 51147.36 crore has been linked to infrastructure and development projects in the city and includes an infrastructure development fund of Rs 15,657.73 crore, while Rs 37,156 crore has been linked toward BMC’s liabilities such as provident fund, pension and gratuity.

The increase in BMC’s reserves in the last three years by almost Rs 11,000 crore can be attribute mainly to the DP department and to the security deposits made by contractors. In 2021-22, BMC had estimated an income of Rs 2,000 crore from it, but earned Rs 14,750 crore, an increase of Rs 12,750 crore, owing to the state government’s decision on January 14, 2020, to offer 50% concession in premiums payable to it, to pull the housing sector out of its financial crisis due to the pandemic.

While this is the first time that capital expenditure has exceeded the revenue expenditure proposed in the budget, BMC’s capital expenditure has seen a steady increase over the last five years, not just in amount, but also as a share of the budget. This comes with a rapid increase in the size of the BMC budget as well, which has doubled in in 2023-24, in comparison to budget of 2017-18, five years ago.

In 2017-18, Capital expenditure was 32.33% of the budget; in three years alone, in 2020-21, it was 43.77% of the budget; in 2021-22, it was 48.03% of the budget; and in 2022-23 it was 49.29%. In 2020-21, the size of the budget was Rs 33,441.02 crore, where as the actuals were Rs 29,373.46 crore; in 2021-22, the estimates of the budget were Rs 39038.32 crore, where as the actuals were Rs 35962.09 crore. About 42% of BMC’s budget 2022-23 has been spent, until December 2023.

Economists and the opposition alike have criticised the civic body for its ambitious budget. Abhay Pethe, a senior economist said, “There seems to be a lack of learning in the administration. When ever you find there is a difference in actual and estimate, you have to learn from it, and revise your budget accordingly. People are not learning. As far as capital expenditures are concerned, unless they have done serious work on capacity building, increasing capital expenditure does not hold much meaning. If you are going to spend the budget, then give an outlay, no problem. This shows a tendency of deliberate gamesmanship rather than fiscal marksmanship. This is not about budget, but about governance. I have no problem with BMC dipping into its reserves for capital expenditure, though.”

BMC has also been criticised for not exploring new sustainable models of revenue generation. Ravi Raja, former leader of the opposition in BMC tweeted, “The Budget Estimates of @mybmc is proposed to ₹52619.07 crore which exceeds the Budget Estimates of 2022-23 i.e. ₹45949.21 crore by 14.52%. I don’t understand how @mybmc is going to support this rise of roughly 7000 crores? especially when revenue stream are shrinking. (sic)”

Chahal told the Indian Express, “Now we are bringing in e-auction procedure of properties who have defaulted on tax. In e-auction, it will boost our recovery and pending dues will get cleared. We are quite sure we will achieve our targets.”