The Municipal Corporation of Greater Mumbai (MCGM), the local self-government of Mumbai, presented its budget for 2012-13 on Tuesday. The budgeted expenditure of MCGM for 2012-13 is a staggering 26,581crore. Its balance sheet size as on 31 March 2010 was 62,000 crore.

If Mumbai (used interchangeably with MCGM here) were a company, it would find a place in the top 35 firms in India by assets and revenue (anecdotally compared with the budget size). Its budgeted expenditure is 2.1% of the total expenditure for India as a whole as per Union budget 2012-13. This number will exceed 2.5% if the remaining five municipal corporations governing Mumbai are counted (municipal corporations of Thane, Navi Mumbai, Kalyan-Dombivli, Vasai-Virar and Mira-Bhayander).

Yet, the budget of the entity that governs India’s financial capital neither finds favour among analysts who track the 5,000 companies listed on BSE nor is it a crowd-puller like the Union budget. We have discussed the possible drivers of this phenomenon; its fallout, however, is more relevant as much of the quality of life in our cities or the lack of it has to do with how urban local bodies such as MCGM manage their money. Against this backdrop, we look at four basic, but crucial principles that need to be followed by city governments to achieve both high quality service delivery and prudent financial management.

Make realistic estimates

Photo by Hindustan Times

Collect and pay when due

City governments in India have demonstrated poor collection efficiency in respect of property and other taxes, and have been equally remiss in settling contractor payments. Besides playing havoc with cash flows, some of these delays could result in losses. While certain fundamental reforms on property tax are due in the medium term, city governments can adopt a simple credo of “collect and pay when due" even before such reforms kick in. Long outstanding receivables on the asset side and short-term liabilities in the form of contractor payments on the liabilities side have often left city governments in a tight cash crunch. More than one state government has been guilty of delays in remitting funds to their city governments. The municipal commissioner of MCGM, in his budget speech on Tuesday, indicated that receivables from the state government amount to more than 2,100 crore, which is 8% of the budget size for 2012-13.

Manage the balance sheet

Financial management of city governments very often is relegated to simply annual budgeting and managing working capital. Financial statements comprising income and expenditure statements and balance sheets or other performance data do not form the mainstay of municipal financial management.

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As a result, financial decisions such as investments in infrastructure and raising of debt are not taken based on the balance sheet or assessed for their impact on the balance sheet. This has left certain city governments such as BBMP struggling with debt repayment obligations. The balance sheet reflects the financial health of an entity and needs to be managed closely especially in the case of governments that need to spend large amounts on civic infrastructure.

Adopt value-for-money spending

Lastly, the purpose of spending by city governments is better civic service delivery to citizens at reasonable prices through a sustainable model. Given competing priorities and financial constraints of city governments, efforts need to be made to ensure that focus is not on the extent of budgetary spending, but instead on service outcomes. A good start is to link budget estimates with service-level benchmark (SLB) targets set for the forthcoming year. This will ensure that funds find their way to where they are needed most and also, in turn, show up in cost efficiency SLBs. Only a standardized and timely performance reporting framework can properly report, monitor and compare value-for-money spending between cities. Comparisons between cities in terms of cost of laying a kilometre of road or cost per tonne of garbage dealt with, will provide useful insights to citizens and governments and strengthen accountability.

As a first step, our cities would do well to have a standardized, audited and timely performance reporting framework. If Mumbai were a company, it would have had one.

Srikanth Viswanathan is manager, Public Record of Operations and Finance (PROOF), Janaagraha Centre for Citizenship and Democracy. Janaagraha’s PROOF initiative was instrumental in formulating the service-level benchmarking framework and enactment of the Public Disclosure Law reform under the flagship Jawaharlal Nehru National Urban Renewal Mission, which mandates disclosure of annual and quarterly financial statements and service levels by urban local bodies.

Graphics by Ahmed Raza Khan/Mint

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