 "Financial crisis brews in Delhi's municipal corporations")
The financial crisis in Delhi's civic bodies can be traced to the uneven distribution of assets among the three in 2012 but the situation slipped out of hand because of a reduction in budgetary grants, the reluctance of the Delhi government to implement the recommendations of the Fourth Finance Commission and the failure of the municipalities to generate additional revenue.
The East Delhi Municipal Corporation (EDMC) inherited debts of around Rs 451 crore, while the North Delhi Municipal Corporation (NMC) inherited debts of around Rs 750 crore. The South Delhi Municipal Corporation (SDMC) had the highest share of debt at Rs 850 crore. On trifurcation, the Delhi government extended the municipal corporations loans at an interest rate of 10.5 per cent. NMC, SDMC and EDMC have budget deficits of Rs 2,753 crore, Rs 199 crore and Rs 2,196 crore, respectively.
EDMC mayor Harshdeep Malhotra says "the actual problem started after the Sheila Dikshit-led Delhi government refused to allocate the promised money at inception, after the Bharatiya Janata Party defeated the Congress in the municipality elections and captured all the three civic bodies." In response to the allegations, former Delhi chief minister Sheila Dikshit told The Indian Express that "if trifurcation was to lead to a crisis, it would have happened immediately and not four years after implementation."
The debt-ridden civic bodies had to further wait for funds till the AAP government took charge following almost a year of President's Rule in the Capital. Their hopes were dashed after the AAP government delayed the implementation of the report of the Fourth Finance Commission, which was tendered in 2012. According to sources, the commission had called for substantially increasing the municipalities' share in the Delhi government's tax revenues. In fact, the AAP government withheld around 1.5 per cent of the money that should be disbursed to these bodies citing poor performance.
Data obtained by Business Standard show that over the past three years the budgetary grants from the Delhi government to the three civic bodies have declined from Rs 1,881.30 crore in 2013-14 to Rs 1,581.10 crore in 2015-16.
SDMC's share in total grants fell from 34.90 per cent to 34.60 per cent over the three-year period. By comparison, EDMC saw a larger decline from 24.60 per cent to 22.80 per cent, or roughly Rs 103 crore in the current financial year.
EDMC accounts for 24 per cent of the city's population and it has received a commensurate share in grants, NMC, which services 31 per cent of the population, received a significantly higher share at 42.6 per cent of the total grants. Of the three municipalities only NMC saw a slight rise in its share of grants.
These annual outlays are provided to the civic bodies under various heads such as transport, education and health. The data show that the three corporations experienced large cuts in the health (medical) and urban development heads over the years. For instance, EDMC's outlay for health declined from Rs 41 crore in 2013-14 to Rs 19 crore in 2015-16, and NMC witnessed a sharp decline from Rs 110 crore in 2013-14 to Rs 76 crore in the same corresponding period. Similarly, the health (medical) outlay for SDMC was reduced from Rs 19 crore to Rs 12 crore. The three civic bodies witnessed a decline of Rs 64 crore each in urban development outlays.
This suggests that in the absence of any increase in the municipalities' own revenue collection to offset this decline, the fiscal space for EDMC and NDMC is bound to be severely constrained.
For municipal corporations, property tax is a major source of revenue. But this is where the original distribution of assets constrains EDMC and NDMC from increasing their share of property taxes.
In Delhi, for the purpose of tax calculation, colonies are classified into seven categories ranging from A to G. Colonies under category A pay the maximum tax, whereas unauthorised colonies are classified in category G.
Under the current classification, while EDMC has 466 colonies, not a single colony falls in the "posh" A, B and C categories, according to Bhanu Joshi and Shahana Sheikh, researchers at the Centre for Policy Research (CPR). By comparison, NMC has 22 colonies and SDMC has 121 colonies in the A, B and C categories. This implies that SDMC receives a lion's share of the collections from property tax, while EDMC barely receives a fraction of the amount. Even if EDMC wants to increase its share of property taxes, barring a hike in property taxes, this classification doesn't allow it.
Reworking the existing classification of colonies and widening the property tax base could help these cash-stricken bodies to raise resources. "Political will is required to increase property tax or even parking charges in a city, which witnesses three elections every five years. The current crisis has been blown out of proportion keeping in mind the impending municipal elections in 2017," said a senior municipal official. "It is unofficially talked in the corridors of power that these three bodies should be united so that administrative expenses are significantly brought down," said the official.
Even the relatively well off SDMC is likely to face a challenging position if the current impasse continues. "We have enough money to pay salaries but if the Delhi government does not give us our dues, it will slow down the development work," says Subhash Arya of South Delhi municipality.
All municipalities are banking on the implementation of the Fourth Finance Commission to boost their flagging finances. But this is where politics comes into play. According to officials, the finance commission has recommended a substantial increase in the civic bodies' share of state taxes. But this is being held up by the AAP.
"Arvind Kejriwal's reasons for not implementing the Fourth Finance Commission report are totally unacceptable. He is asking the Delhi Development Authority to be made part of the Delhi government. This demand is unacceptable and unreal," Malhotra said.
