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Municipal Financing and Infrastructure: A Critical Analysis of the Cities in West Bengal

Municipal Financing and Infrastructure: A Critical Analysis of the Cities in West Bengal Cities, acting as engines of economic growth and generators of public finance for development, will usher in an urban revolution in the developing world. Such an urban revolution is sure to bring in opportunities to millions through the increasing level of urbanisation. This rising trend of urbanisation coupled with the increasing functional responsibilities of the Urban Local Bodies (ULBs) has been creating serious problems for the provision and financing of urban infrastructure. The resource crunch at each level of government in general, and the local level in particular, has instigated the need for analysing the causes behind such adverse state of municipal finance. Against this background, this paper attempts to evaluate the state of municipal finance in West Bengal by performing a comparative analysis of relevant indices. Acknowledging the potential of municipal finances in improving the delivery of basic services, the present study uses secondary data to demonstrate that the higher availability of essential urban services is associated with higher levels of revenue generation. This study presents a spatial and town class-based pattern analysis of the finances of ULBs of West Bengal in terms of their financial base, its adequacy, and their revenue and expenditure performance. The main thrust of this study is to examine the patterns of finances in ULBs in West Bengal and to present a comparative picture thereof along with per capita analysis of revenue and expenditure components based on size categories of the ULBs. Keywords: Urban Local Bodies (ULB); District-Level Analysis; Municipal Finance; Urban Infrastructure; West Bengal Ph.D Scholar, Department of Geography, The University of Burdwan, West Bengal, India Corresponding Author, Email: priyachowdhury2440@gmail.com Professor, Department of Geography, The University of Burdwan, West Bengal, India, Email: gopasamanta@gmail.com © 2021 Chowdhury & Samanta. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 7 Introduction Severe infrastructural deficits and basic service delivery gaps are the main issues that the Cities in India are conceived as ‘engines of majority of the Indian cities are facing. This economic growth’ (Mohanty, 2016), where compromises the quality of life of the urban urban part of India accounts for 31.16% of the inhabitants and weakens the competitive edges total national population (Census of India, 2011) of these cities, and, thereby, their potential as and contributes 60% of the country’s gross critical drivers of economic growth remains domestic product (GDP). According to the 2011 unrealised (Das & Chattopadhyay, 2018b). Census, India’s urban population is 377.1 million, According to researchers (Rao & Bird, 2014; rising from 286 million in 2001. The Census Sridhar & Reddy, 2010), such a miserable state of decade 2001-11 reported a rapid annual growth urban services is typically caused by poor of 2.74% specifically for the large urban financial health and lack of planning, which are population. This refers to an approximate in turn associated with weak institutional addition of annually 10 million persons to the capacities and the absence of effective urban population (Mathur, 2013). On the one governance structures of the Indian cities. hand, the increasing levels of urbanisation call Financing of civic infrastructure and services has for the gearing up of the municipal service gained critical importance in recent times with provided by the ULBs and the emergence of the rising expectations from public. Moreover, growth opportunities; on the other hand, it with increasing urbanisation, the demand for would require an efficient supply of civic urban space has also increased. To cater to these infrastructure, which includes water supply, demands, besides ensuring efficiency in quality street lighting, roads, public transport, drainage and quantity of civic services delivered, the ULBs and solid waste management (Nallathiga, 2009). must be efficient in terms of their financing In India, urban governance is a state subject. abilities. This study, attempts to contribute to State governments have exercised their realising the efficacy of the ULBs of West Bengal discretion in implementing various provisions, in terms of their financial performance. but, in practice, they have only made partial ‘Municipal finance holds the key to the overall devolution of finance and functionaries at the status and progress of service delivery in the municipal level (Das & Chattopadhyay, 2018a). right direction’ (Nallathiga, 2009) — this The provision of municipal service and civic statement strikes the chord to the central theme infrastructure is essentially the functional for the pursuance of this study. The quality and responsibility of the ULBs. Given their strategic efficacy of service delivery essentially depend on position in delivering services in the hierarchy of the state of municipal finance. Nevertheless, the Government set up, following the 74th potential of municipal finance to improve the Constitutional Amendment Act (CAA) of 1992, delivery of public services is enormous and more functions, powers, and resources have worth serious research attention. As mentioned been delegated to them. However, the earlier, the 74th CAA (1992) recognises the infrastructure and services in most cities and principle of local self-government and offers towns are in an abysmal state. They are grossly constitutional recognition to urban local inadequate even for the existing population. 1 th The 74 Constitutional Amendment Act to the Constitution of India was passed by the parliament in the year 1992 relating to devolution of adequate powers, responsibilities and finances upon the urban local bodies so as to enable them to function as effective democratic units of local self-government. The salient features of this act are constitution of municipalities; composition of municipalities; constitution of ward committees; reservation of seats; fixed duration of municipalities; power, authority and responsibilities of municipalities; appointment of state election commission; appointment of state finance commission; constitution of metropolitan and district planning committees. Although the th 74 CAA to the constitution has granted sufficient autonomy to the urban local government, these institutions work within the limits prescribed by the state Municipal Act which creates and governs them (MoHUA, 2010). Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 8 governments. Following the West Bengal expenditure accounts have been published by Municipal Act 1993, the municipalities' the SFC of West Bengal but not at regular decision-making power for service delivery was intervals. The data is often incomparable in devolved (Chattopadhyay, 2012). However, in several ways. Analysis of the fiscal position of practice, the finances of the ULBs of West Bengal municipalities is done based on data collected are in a grossly unsatisfactory state so far as their from the report of the third and fourth West revenue collection is concerned (Das and Bengal SFC published respectively in the year Chattopadhyay, 2018b). 2008 and 2016. Purohit (2016) argues that the financial The study has been arranged into three requirements for managing urban services need following sections. The first section presents the to be supported through increased investment status of municipal finances in West Bengal and strengthening the framework for based on their revenue, expenditure and grant- governance and financing. Assessment of the based performances analysed in terms of their municipal finance of West Bengal is vital to growth. Following this, in the second section, we understanding the cause of such a state. analyse the comparative patterns of finances Therefore, analysis at the micro-level is critical based on size categories of ULBs and on per for having a clear insight into the depth of the capita revenue and expenditure. The third problems and their causes. The real challenge is section, the concluding section, summarises the to identify patterns and trends of municipal overall fiscal position and performance of the finance of West Bengal and to devise means by municipalities in West Bengal. which improvement in service delivery can be State of Municipal Finance in West Bengal realised. The 74th CAA (1992) incorporated the Twelfth Against this background, the present study Schedule to the Constitution that contains documents the state of municipal financing and eighteen functional items of the municipalities infrastructure in West Bengal and an inter- listed under Article 243-W, aiming to revitalise category comparative analysis of the relative and strengthen the city governments so that indices. This study attempts to study the they can function as effective local government. municipal finances of the 128 ULBs of West As noted down by Chattopadhyay (2015), Bengal to examine their fiscal position and the municipal functions range from planning for nature of revenues and expenditure of the ULBs. development, urban poverty alleviation, In doing so, the study brings out the mismatch protection of the environment, slum between their revenue authority and improvement, and upgrading to functions expenditure responsibilities along with an related to public health, safety, welfare, analysis of per capita status of revenue and regulation, and developmental activities. expenditure based on size categories to obtain a Despite such direct legislation, the municipalities multi-dimensional view of the financial condition in India are among the weakest in the world in of the ULBs in West Bengal. The study is mainly terms of access to resources, financial based on secondary data on municipal finance of autonomy, and revenue-raising capability West Bengal collected and published by the (Mohanty, 2016). As per the Finance State Finance Commission (SFC) of West Bengal. Commission data, the total revenue in India Detailed reports relating to the revenue and The West Bengal Municipal Act, 1993 was an act to procedure for constitution of a new municipality or consolidate and amend the existing law related to urban inclusion of an area within an existing one; clear municipal affairs in West Bengal. The ULBs in West Bengal determination of administrative structure of the are governed according to the provisions of this act. municipality; constitution of ward committees; powers of Department of Municipal Affairs is entrusted with the municipalities to impose different taxes and fees; responsibility of providing legal and administrative procedure for custody, application and use of municipal support to the ULBs of the State in this regard. Some of the fund (Datta, 2015). salient features of this act are fixing condition and Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 9 accounted for ULBs was only 0.70% of the government has specified the taxes that the local country’s gross domestic product (GDP) in the governing bodies can levy and collect. Therefore, 1990s; it increased marginally to 0.85% in 2002– the revenue base of the municipalities typically 03, and 0.94% in 2007–08. These figures are consists of tax revenue, non-tax revenue, shared substantially lower than the percentage of revenue, grants and loans from the state municipal revenue to the GDP of other countries government, and market borrowings such as South Africa (estimated at 6%) and Brazil (Chattopadhyay, 2015). Tax revenue majorly (estimated at 7.4%) (Afonso and Arajuo, 2006). comprises property tax and minor taxes such as In terms of both revenue and expenditure, in the tax on the advertisement, tax on carts and India, ULBs account for only 2–3% of the carriages, tolls on ferries, bridges and heavy combined revenue and expenditure of the trucks plying on municipal roads, and trade central, state, and local governments, whereas license fees. Among the major sources of non- in develop ped countries, the local governments tax revenue are the rents and fees from account for 20–35% of the total government municipal markets, building plan sanction fees, expenditure (Das & Chattopadhyay, 2018a). mutation fees, sale of forms, parking fees, sale/lease of land (Barma, 2008). These tax and Considering West Bengal, in particular, we do non-tax revenues form the local governing not get much of an encouraging scenario since bodies' own-source revenue (OSR) when added the municipal finances here are also woefully up. The total revenue income of the governing inadequate to meet the pressure of civic bodies is expressed as the sum of the OSR and amenities and basic urban services demanded by revenue income from government funds. an ever-increasing urban population. Census According to Mathur (2006), the principal data reveals that the number of census towns in criterion for measuring the performance of West Bengal increased from 48 in 1971 to 780 in municipalities is internal resource mobilisation. 2011 (Samanta, 2017). As per the 2011 Census, It represents the combined effect of the fiscal West Bengal is the 4th most populous state with powers and the sector’s capacity utilisation. a population of 91,276,115 in the country and having a population density of 1,029 persons per The total revenue of 128 ULBs of West Bengal sq. km. The current urbanisation rate of West reveals an increasing tax revenue trend (Table Bengal is 31.87% which is slightly above the 1). However, the non-tax revenue has varied national average (Ghosh & Chakma, 2014). This over time. The variations have ultimately been essentially worsens the situation and urges for reflected in OSR patterns as estimated by adding an immediate need to resolve the municipal up both tax and non-tax revenues, and the tax financing and infrastructure issues in West revenue has remained more or less static over Bengal. To resolve the problems, first, we need time compared to the non-tax revenue. Among to look into the state of the municipal finances the various revenue sources, total OSR income of West Bengal. In this section, the current assumes greater importance in terms of both financial status of West Bengal has been sizes and share in the total revenue. The annual analysed in terms of their: growth rate pattern of OSR in the accounts of West Bengal’s municipal finances unfolds a  Revenue-based performance phenomenal increase in 2006–07 at 42.49%,  Expenditure-based performance following which is a year of highest negative  Grant-based performance growth rate registered -29.14% in 2007–08.  Financial Dependence However, the growth rates have, after that, Revenue-based Performance gradually been improving. The revenue base for the local governing bodies Percentage shares are important measures to has not been laid down in the Constitution of analyse the proportion of a particular India. The power to determine their revenue component in the whole structure. Achieving a base rests with the state government. The state good proportion OSR to total revenue receipts is Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 10 one way of establishing creditworthiness, and a 2003). However, in the case of West Bengal, the more significant share of tax revenue in it is proportion of tax revenue in OSR has more or desirable as it is a reliable revenue source less varied over the undertaken period, but if we (Nallathiga, 2009). A proportion of more than look into the decadal average, it stands around 50% is considered to be good, and more than 55%, which is good, indicating the growing 70% is deemed to be favourable from the importance of tax revenue in the OSR viewpoint of creditworthiness (Mathur & Ray, mobilisation of the ULBs. Table 1: Revenue Totals (INR in Million), the Growth Rate of OSR and % Share of Tax Revenue to Total OSR 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- Items 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 3679.2 5302.5 4064.4 4625.4 5355. 5549.6 5739. 6324.9 7815. 10516.1 Tax Revenue 9 7 3 3812.3 3138.5 3695.5 6431.8 2479. 2880.8 3265. 3715 4552. 5264.1 Non-Tax Revenue 2 6 4 7491.5 8440.9 7759.9 11057. 7835. 8430.4 9005. 10039. 12367 15780.2 Total Own Source Revenue 2 1 3 9 .7 (OSR) Income - 12.67 -8.08 42.49 - 7.60 6.82 11.49 23.19 27.59 Annual Growth Rate of OSR in 29.14 49.11 62.82 52.38 41.83 68.36 65.83 63.74 63.00 63.19 66.64 % of Tax Revenue to Total Own Source Revenue Income Source: Calculation based on information provided in Finance Commission reports. Expenditure-based Performance the same for other revenue expenditure, as a Expenses reflect the amount of money spent. slight decrease in other revenue expenditure has The Twelfth Schedule in the 74th CAA consists of been noted for the years 2007–08 and 2011– 18 services that are to be provided by the local 12. The percentage share of salary and wages to governing bodies. These are the items on which total revenue expenditure shows that almost the ULBs are expected to spend (Pethe & Lalvani, half the amount of expenditure is incurred on 2006). Revenue expenditure includes salaries and wages. Expenditure on salaries and expenditure on salaries and the wages and wages accounts for 51.26% of the total municipal maintenance costs of assets and contingencies expenditure on an average for the period under (Barma, 2008). The level of revenue expenditure, study. therefore, reflects the level of services provided The performance of ULBs in West Bengal on the by the local bodies. The higher the expenditure, criterion of expenditures runs along the same it is assumed, the higher are the levels of services track as that of the total municipal revenues. (Mathur, 2006). Municipal finance accounts Mathur (2006) asserted that the level of have mainly two types of expenses – (a) expenditure on operations and maintenance is expenditure on salaries and wages, and (b) an important indicator of the quality of services. expenditure on operation and maintenance of Therefore, the more the expenses incurred on assets. Therefore, we have examined the levels salaries and wages, the poorer is the quality of of revenue expenditure in terms of size, trends, services. What is important to note here is that and composition to distinguish between these functional devolution to the ULBs has not been two types of expenditure and understand their matched by supporting financial devolution. This relative importance. Also, the expenditure has led to too many responsibilities chasing a performance through their growth pattern over narrow resource base (Pethe & Lalvani, 2006). time has been analysed. Moreover, a challenge in analysing municipal Among the two expenditure components, salary expenditure data in West Bengal is that it is and wages are more important in terms of both difficult to differentiate between revenue size and share (Table 2). Expenditure on salary expenditure and capital expenditure due to and wages unfolds an increasing trend from faulty accounting procedures (Barma, 2008). 2003-04 to 2012-13, whereas the scenario is not Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 11 Table 2: Expenditure Totals (INR in Million) with an Annual Growth Rate of Revenue Expenditure 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- Items 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 6034.4 6344.9 6540.1 6739.2 9557.3 11371. 16848. 18889. 19388. 21111. Expenditure on Salary and 1 6 6 4 3 Wages 5155.8 6413.5 6808.4 10473. 9666.2 12364. 12945. 15953. 14073. 17623. Other Revenue Expenditure 5 2 4 1 5 7 11190.2 12758.5 13348.5 17212. 19223. 23733. 29794 34842. 33461. 38735 Total Revenue Expenditure 7 5 5 7 9 - 14.02 4.62 28.94 11.68 23.47 25.52 16.95 -3.96 15.76 Growth of Total Revenue Expenditure in % 53.9 49.7 49.0 39.2 49.7 47.9 56.6 54.2 57.9 54.5 % of Salary & Wages to Total Revenue Expenditure Source: Calculation based on Information Provided in Finance Commission Reports. Grant-based Performance Revenue income from government funds has only increased with time which reveals that Most of the ULBs receive financial support in the there has been an increase in the amount of form of revenue grants from State governments grants received by all the ULBs of West Bengal to meet their current expenses, which they fail from the State government (Table 3). However, to do when there is a deficit in their fiscal the annual growth rate in grant receipts hovered accounts. Similarly, capital grants are provided around 15% during the time period on average. to meet project-related expenditures. According The revenue dependency ratio, which is the to Nallathiga (2009), these grants are primarily percentage share of grant receipt in ULBs’ total intended to compensate for the mismatch revenue, has also been calculated. Grants between functions and finance. State transfers constituted 50–60% of the total revenue of ULBs have several roles, the foremost being to bridge in West Bengal. Thus, the dependency ratio has the fiscal gap since it would be unusual for the been very high (above 50%) since 2007–08, and revenue-raising capacity of ULBs to be perfectly the ULBs have to rely on the state for nearly half matched with their expenditure needs (Mathur, or more of their total revenue. 2006). Table 3: Grant Totals (INR in Millions), Growth Rate (in %) and % Share of Grants in Revenue Income 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- Items 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 7491.5 8440.9 7759.9 11057. 7835.1 8430.4 9005.3 10039. 12367.7 15780. Total OSR 2 9 2 5434.2 6285.2 6761.9 7826.2 8196.5 9640.6 12867. 15212. 17519.2 18254. Revenue Income from 4 9 7 Grants 12925. 14726. 14521. 18883. 16031. 18071 21872. 25252. 29886.9 34034. Total Revenue Income 7 1 8 4 6 7 8 9 - 15.66 7.58 15.74 4.73 17.62 33.47 18.23 15.16 4.20 Annual Growth Rate of Grants in % 42.04 42.68 46.56 41.55 51.13 53.35 58.82 60.24 58.61 53.64 % of Grants in Total Revenue income Source: Calculation Based on Information Provided in Finance Commission Reports. Financial Dependence receipts. The trend of revenue autonomy ratio reveals that own revenue constituted about Recent years have shown increased financial 57.96% of the total revenue of the ULBs in West dependence, as revealed from the analysis of Bengal in 2003–04, but that figure declined to their revenue autonomy and financial autonomy 39.76% in 2010–11 (Table 4). However, it shows ratios. Revenue Autonomy ratio is defined as the an increase in years thereafter, which indicates ratio of own income (tax and non-tax) in the that initially, the dependency on government ULB’s total income (Chattopadhyay, 2015). It funds was high, but after 2010–11, the effort on shows the share of OSR in the total revenue Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 12 the part of the ULBs to raise their own resources residents, which can result in improvement in and, conversely, to become less dependent on the delivery of urban services. However, OSR the government has been noteworthy. was insufficient to meet even the revenue expenditure as the financial autonomy ratio Financial Autonomy ratio is defined as the ratio hovered between 30-60% during the period of ULB’s total expenditure funded out of own under consideration (Table 4). Pierce (2016), in revenue, total own-source revenue/total his study on urban dependency, also noted that expenditure (Das & Chattopadhyay, 2018a). the municipalities in West Bengal are in poor Financial autonomy enhances accountability financial health and depend on government among the local decision-makers to the local funds for nearly three-fourths of their revenue. Table 4: Revenue Autonomy and Financial Autonomy Ratios 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- Items 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 57.96 57.32 53.44 58.56 48.87 46.65 41.17 39.76 41.38 46.36 % of OSR in Total Revenue income 66.95 66.16 58.13 64.24 40.76 35.52 30.23 28.81 36.96 40.74 % of OSR in Total Revenue Expenditure Source: Calculation Based on Information Provided in Finance Commission Reports. Nature of Municipal Finance based on Size further analysis has been done looking into their Categories of ULBs per capita revenue base and expenditure incurred for the given size categories. ULBs are expected to provide certain minimum levels of services to the citizens. Different sizes Table 5 clearly depicts that with an increase in of ULBs vary in fiscal capacity and governance size, per capita tax revenue increases processes. Larger ULBs enjoy a strong base for considerably, while the per capita non-tax manufacturing and tertiary activities and revenue shows a decreasing trend with the correspondingly have higher per capita income increasing size of the ULBs based on population. (Kundu, 2003), but a poor economic base and The explanation lies in the fact that ULBs of lack of employment opportunities in smaller bigger size have a wider tax base and have more municipalities result in lower per capita income. excellent tax rates leading to more per capita tax Inadequacy of human resources in smaller ULBs charges than the smaller ones. Non-tax revenue aggravates the problem of weak institutional shows a declining trend because the other capacity, which makes it more challenging for revenue receipt sources of the government are them to raise sufficient financial resources and constant, but as a result of being divided by a deliver adequate urban services (Raman et al., greater population base, it shows a declining 2015). The per capita income and expenditure of trend with increasing size. There has been a a ULB are essential parameters that determine general improvement in revenue receipts in the the availability of civic services, which reflect the case of both taxes and non-tax revenue during municipal performance (Nallathiga, 2009). the period under consideration. In this context, Therefore, in this section, relative performances Das and Chattopadhyay (2018a), in their paper of the ULBs have been looked into by performing on fiscal decentralisation, noted that with a an inter-category comparative analysis based on larger population base, ULBs have been able to their size categories within the group of these generate more significant resources than their parameters. The ULBs have been divided based smaller counterparts, mainly due to on their population into six size categories, and agglomeration effects, more developed then for each category, 3-5 ULBs are randomly infrastructure, and greater capacity to levy taxes selected. The tax revenue, non-tax revenue, and user fees. expenditure on civic services, and expenditure In the case of expenditure, the per capita on salaries and wages have been recorded, and expenditure on civic services shows an Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 13 increasing trend over time (Table 5). The per is a high dependency among the ULBs on the capita expenditure on salary and wages state government transfers (Barma, 2008). The decreases with size as the administrative increase in state government grants to all expenses get reduced when divided by a more categories of cities has caused ULBs to increase extensive population base. Moreover, municipal expenditure in West Bengal. The expenditure on salaries and wages (for general smaller and larger ULBs incur almost the same administration and operation) can be treated as expenditure on civic services, which Das and fixed costs that need to be incurred for the daily Chattopadhyay (2018a) have explained as bias functioning of ULBs. Therefore, these costs do towards municipalities with a smaller population not vary much with the population size of the in West Bengal in allocating grants. ULBs. As seen previously, in West Bengal, there Table 5: Per Capita Revenues and Expenditures (in INR) ITEMS Tax Revenue Non-Tax Revenue Expenditure on Civic Expenditure on Salary Services and Wages Size Categories 2007-08 2012-13 2007-08 2012-13 2007-08 2012-13 2007-08 2012-13 <50000 6945.78 4622.34 5038.34 12551.65 23762.69 53945.01 209963.7 338813.16 50000-100000 6297.25 8359.33 19110.51 28659.03 21935.03 56221.54 25265.51 23525.91 100000-200000 6318.05 6151.98 14264.54 27003.34 19755.75 42714.55 25689.30 44530.54 200000-500000 8278.87 10772.00 7222.07 12760.26 18202.27 38185.70 21247.99 39943.30 500000-1000000 9581.63 12609.86 10722.96 19107.77 10998.92 26213.21 7866.83 20087.63 >10.00,000 58967.30 154748.00 55264.92 101650.53 97767.61 218233.37 600.69 1562.26 Per Capita figures are calculated using population data from Census 2011. Source: Calculation based on information provided in Finance Commission reports. Conclusion responsibilities. Also, there are significant inter- category disparities in terms of the size of the The key aim of this study was to critically analyse ULBs and their revenue expenditure municipal financing and infrastructure of ULBs of performances. In West Bengal, larger ULBs West Bengal. The finances of ULBs of West generate more significant revenue mainly Bengal are in a grossly unsatisfactory state. because of their strong economic base and the However, the proportion of tax revenue in OSR capacity to mobilise sufficient tax and non-tax shows an increasing trend over the years yet revenues compared to the smaller ones. In all spins around 50-60%. An increased collection of cities irrespective of their sizes, expenditure on tax revenue should ensure own source revenue salaries and wages is greater than expenditure mobilisation. The growing importance of non-tax on civic services. revenue cannot be neglected, but political compulsions and dissatisfaction with municipal The ULBs of West Bengal are yet to be put services sometimes play a big role in restricting prominently on the public finance map of the the local government from increasing taxes and country. In terms of revenue-raising capacity and fees (Mohanty, 2016). A review of the fiscal autonomy, the ULBs of West Bengal are expenditure account revealed that pretty weak. The ULBs need to be financially administrative expenses eat up almost the entire stable to address the growing needs and recent revenue generated by the ULBs, and little is left trends of urbanisation. With increasing pressure over to provide basic services. This forces the on the central and the state government to fund ULBs to rely mostly on state government the fiscal deficiency of the ULBs, there has been transfers to fund the developmental projects, an increased flow of funds in the form of grants, limiting their fiscal autonomy and increasing which has made the lower-tiers of the their dependency ratio. Grants from higher government dependent on the upper-tiers. This levels of government need to be utilised to leads to a very high level of centralised control supplement municipal resources and not to by the state on the ULBs in West Bengal substitute for funding their functional (Samanta, 2020), which sometimes leads to Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 14 political violence. For example, the ULBs, not Washington, DC: The World Bank. being under the same party in power of the http://hdl.handle.net/10986/7192 state, get limited grants from the state Barma, S. (2008). 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Financing India’s adequate taxation powers commensurate with Urban Infrastructure: Current Practices and their financing needs of the functions mandated Reforms. Journal of Infrastructure Development, by the 74th CAA. Further, wrongly designed 7(1), 55–75. doi: 10.1177/0974930615581224 numerous tax exemptions and not well-targeted Das, M., & Chattopadhyay, S. (2018). subsidies can be revised and properly Strengthening Fiscal Health of Urban Local implemented to check corruption. Also, the Bodies. Economic and Political Weekly, 53(39), collection and assessment procedures for taxes 53–61. can be simplified to prevent tax evasion. Some necessary tax reforms could be brought in to Das, M., & Chattopadhyay, S. (2018). Urban check the under coverage and leakages in the tax Service Delivery in West Bengal: Current base, apart from inefficiency in the collection. Scenario and New Challenges. 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Centre for Good Governance, Hyderabad. is not being considered elsewhere. We declare Pethe, A., & Lalvani, M. (2006). Towards that we have no conflict of interest. Economic Empowerment of Urban Local Bodies Acknowledgements in Maharashtra. Economic and Political Weekly, The authors would like to acknowledge all the 41(7). anonymous reviewers who provided quality Pierce, G. (2016). Fiscal Transfer and Urban input and suggestions for improving and Policy: Magnitude and Mechanisms of Urban finalising this manuscript. Dependency”, Economic and Political Weekly, About the Authors 51(42), 44–52. Priya Chowdhury completed M.Sc. in Geography Purohit, M. (2016). Financing Urban from the Department of Geography, The Infrastructure in India an Overview of Policy University of Burdwan, in the year 2019. As part Lessons, Discussion Paper 04, Bangkok: of the Master's programme, Priya opted for Macroeconomic Policy and Financing for specialisation in Urban Geography. Her research Development Division, United Nations ESCAP. interests are urban policy, urban infrastructure, Raman, B., Aleyamma, M. P., Bercegol, R. D., urban housing and urban informality. Dennis, E., & Zerah, M. H. (2015). Selected Gopa Samanta’s research interests cut across Readings on Small Town Dynamics in India. the fields of Urban, Gender, and Water. She Working Papers Series No. 7; SUBURBIN acted as the ‘Gender Chair’ of the Paris Sorbonne Rao, G., & Bird, R. (2014). Governance and Fiscal University, France, in 2016. She was visiting Federalism. In I. J. Ahluwalia, R. Kanbur and P. K. fellow at Paris Diderot University, France, Mohanty (Eds.), Urbanisation in India Australian National University, Australia, and Challenges, Opportunities and the Way Forward. French Institute of Pondicherry, India. Yale Sage Publications. University Press published her first book, Samanta, G. (2017). New Urban Territories in Dancing with the River: People and Life on the West Bengal: Transition, Transformation and Chars of South Asia. Her second book titled Governance. In Eric Denis and Marie-Helene Negotiating Local Terrain in Urban Governance: Zerah (Eds.), Subaltern Urbanisation in India: An Freedom and Functioning of Women Councillors Introduction to the Dynamics of Ordinary Town in India has been published by the Springer Local (pp. 421–442). Springer. Governance series. Her recent book, Mobilities in India: The Experience of Suburban Rail Samanta, G. (2020). Decentralised governance Commuting has been published from the Urban versus state dependence: financial challenges Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 16 Book Series of Springer. She has also contributed Author Contribution Statement immensely through publishing journal articles Ms. Priya Chowdhury and Dr. Gopa Samanta and book chapters. She acts as a peer reviewer have jointly designed the paper. of articles in academically acclaimed journals. Ms. Priya Chowdhury has contributed to She is dedicated to disseminating the knowledge collecting data from Census of India and Finance of Social Science in general and Geography in Commission Reports, data curation, writing the particular beyond the classroom and academic first draft, working on the comments and community. She contributes highly to popular finalising the revised version. writing in Bengali, the provincial language, through news articles and other popular Dr. Gopa Samanta has contributed to the magazine articles to reach a wider audience. conceptualisation of the article, revision of the first draft, incorporating new ideas and relevant sources, correcting the final version. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Space and Culture, India Unpaywall

Municipal Financing and Infrastructure: A Critical Analysis of the Cities in West Bengal

Space and Culture, IndiaNov 30, 2021

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Abstract

Cities, acting as engines of economic growth and generators of public finance for development, will usher in an urban revolution in the developing world. Such an urban revolution is sure to bring in opportunities to millions through the increasing level of urbanisation. This rising trend of urbanisation coupled with the increasing functional responsibilities of the Urban Local Bodies (ULBs) has been creating serious problems for the provision and financing of urban infrastructure. The resource crunch at each level of government in general, and the local level in particular, has instigated the need for analysing the causes behind such adverse state of municipal finance. Against this background, this paper attempts to evaluate the state of municipal finance in West Bengal by performing a comparative analysis of relevant indices. Acknowledging the potential of municipal finances in improving the delivery of basic services, the present study uses secondary data to demonstrate that the higher availability of essential urban services is associated with higher levels of revenue generation. This study presents a spatial and town class-based pattern analysis of the finances of ULBs of West Bengal in terms of their financial base, its adequacy, and their revenue and expenditure performance. The main thrust of this study is to examine the patterns of finances in ULBs in West Bengal and to present a comparative picture thereof along with per capita analysis of revenue and expenditure components based on size categories of the ULBs. Keywords: Urban Local Bodies (ULB); District-Level Analysis; Municipal Finance; Urban Infrastructure; West Bengal Ph.D Scholar, Department of Geography, The University of Burdwan, West Bengal, India Corresponding Author, Email: priyachowdhury2440@gmail.com Professor, Department of Geography, The University of Burdwan, West Bengal, India, Email: gopasamanta@gmail.com © 2021 Chowdhury & Samanta. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/2.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 7 Introduction Severe infrastructural deficits and basic service delivery gaps are the main issues that the Cities in India are conceived as ‘engines of majority of the Indian cities are facing. This economic growth’ (Mohanty, 2016), where compromises the quality of life of the urban urban part of India accounts for 31.16% of the inhabitants and weakens the competitive edges total national population (Census of India, 2011) of these cities, and, thereby, their potential as and contributes 60% of the country’s gross critical drivers of economic growth remains domestic product (GDP). According to the 2011 unrealised (Das & Chattopadhyay, 2018b). Census, India’s urban population is 377.1 million, According to researchers (Rao & Bird, 2014; rising from 286 million in 2001. The Census Sridhar & Reddy, 2010), such a miserable state of decade 2001-11 reported a rapid annual growth urban services is typically caused by poor of 2.74% specifically for the large urban financial health and lack of planning, which are population. This refers to an approximate in turn associated with weak institutional addition of annually 10 million persons to the capacities and the absence of effective urban population (Mathur, 2013). On the one governance structures of the Indian cities. hand, the increasing levels of urbanisation call Financing of civic infrastructure and services has for the gearing up of the municipal service gained critical importance in recent times with provided by the ULBs and the emergence of the rising expectations from public. Moreover, growth opportunities; on the other hand, it with increasing urbanisation, the demand for would require an efficient supply of civic urban space has also increased. To cater to these infrastructure, which includes water supply, demands, besides ensuring efficiency in quality street lighting, roads, public transport, drainage and quantity of civic services delivered, the ULBs and solid waste management (Nallathiga, 2009). must be efficient in terms of their financing In India, urban governance is a state subject. abilities. This study, attempts to contribute to State governments have exercised their realising the efficacy of the ULBs of West Bengal discretion in implementing various provisions, in terms of their financial performance. but, in practice, they have only made partial ‘Municipal finance holds the key to the overall devolution of finance and functionaries at the status and progress of service delivery in the municipal level (Das & Chattopadhyay, 2018a). right direction’ (Nallathiga, 2009) — this The provision of municipal service and civic statement strikes the chord to the central theme infrastructure is essentially the functional for the pursuance of this study. The quality and responsibility of the ULBs. Given their strategic efficacy of service delivery essentially depend on position in delivering services in the hierarchy of the state of municipal finance. Nevertheless, the Government set up, following the 74th potential of municipal finance to improve the Constitutional Amendment Act (CAA) of 1992, delivery of public services is enormous and more functions, powers, and resources have worth serious research attention. As mentioned been delegated to them. However, the earlier, the 74th CAA (1992) recognises the infrastructure and services in most cities and principle of local self-government and offers towns are in an abysmal state. They are grossly constitutional recognition to urban local inadequate even for the existing population. 1 th The 74 Constitutional Amendment Act to the Constitution of India was passed by the parliament in the year 1992 relating to devolution of adequate powers, responsibilities and finances upon the urban local bodies so as to enable them to function as effective democratic units of local self-government. The salient features of this act are constitution of municipalities; composition of municipalities; constitution of ward committees; reservation of seats; fixed duration of municipalities; power, authority and responsibilities of municipalities; appointment of state election commission; appointment of state finance commission; constitution of metropolitan and district planning committees. Although the th 74 CAA to the constitution has granted sufficient autonomy to the urban local government, these institutions work within the limits prescribed by the state Municipal Act which creates and governs them (MoHUA, 2010). Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 8 governments. Following the West Bengal expenditure accounts have been published by Municipal Act 1993, the municipalities' the SFC of West Bengal but not at regular decision-making power for service delivery was intervals. The data is often incomparable in devolved (Chattopadhyay, 2012). However, in several ways. Analysis of the fiscal position of practice, the finances of the ULBs of West Bengal municipalities is done based on data collected are in a grossly unsatisfactory state so far as their from the report of the third and fourth West revenue collection is concerned (Das and Bengal SFC published respectively in the year Chattopadhyay, 2018b). 2008 and 2016. Purohit (2016) argues that the financial The study has been arranged into three requirements for managing urban services need following sections. The first section presents the to be supported through increased investment status of municipal finances in West Bengal and strengthening the framework for based on their revenue, expenditure and grant- governance and financing. Assessment of the based performances analysed in terms of their municipal finance of West Bengal is vital to growth. Following this, in the second section, we understanding the cause of such a state. analyse the comparative patterns of finances Therefore, analysis at the micro-level is critical based on size categories of ULBs and on per for having a clear insight into the depth of the capita revenue and expenditure. The third problems and their causes. The real challenge is section, the concluding section, summarises the to identify patterns and trends of municipal overall fiscal position and performance of the finance of West Bengal and to devise means by municipalities in West Bengal. which improvement in service delivery can be State of Municipal Finance in West Bengal realised. The 74th CAA (1992) incorporated the Twelfth Against this background, the present study Schedule to the Constitution that contains documents the state of municipal financing and eighteen functional items of the municipalities infrastructure in West Bengal and an inter- listed under Article 243-W, aiming to revitalise category comparative analysis of the relative and strengthen the city governments so that indices. This study attempts to study the they can function as effective local government. municipal finances of the 128 ULBs of West As noted down by Chattopadhyay (2015), Bengal to examine their fiscal position and the municipal functions range from planning for nature of revenues and expenditure of the ULBs. development, urban poverty alleviation, In doing so, the study brings out the mismatch protection of the environment, slum between their revenue authority and improvement, and upgrading to functions expenditure responsibilities along with an related to public health, safety, welfare, analysis of per capita status of revenue and regulation, and developmental activities. expenditure based on size categories to obtain a Despite such direct legislation, the municipalities multi-dimensional view of the financial condition in India are among the weakest in the world in of the ULBs in West Bengal. The study is mainly terms of access to resources, financial based on secondary data on municipal finance of autonomy, and revenue-raising capability West Bengal collected and published by the (Mohanty, 2016). As per the Finance State Finance Commission (SFC) of West Bengal. Commission data, the total revenue in India Detailed reports relating to the revenue and The West Bengal Municipal Act, 1993 was an act to procedure for constitution of a new municipality or consolidate and amend the existing law related to urban inclusion of an area within an existing one; clear municipal affairs in West Bengal. The ULBs in West Bengal determination of administrative structure of the are governed according to the provisions of this act. municipality; constitution of ward committees; powers of Department of Municipal Affairs is entrusted with the municipalities to impose different taxes and fees; responsibility of providing legal and administrative procedure for custody, application and use of municipal support to the ULBs of the State in this regard. Some of the fund (Datta, 2015). salient features of this act are fixing condition and Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 9 accounted for ULBs was only 0.70% of the government has specified the taxes that the local country’s gross domestic product (GDP) in the governing bodies can levy and collect. Therefore, 1990s; it increased marginally to 0.85% in 2002– the revenue base of the municipalities typically 03, and 0.94% in 2007–08. These figures are consists of tax revenue, non-tax revenue, shared substantially lower than the percentage of revenue, grants and loans from the state municipal revenue to the GDP of other countries government, and market borrowings such as South Africa (estimated at 6%) and Brazil (Chattopadhyay, 2015). Tax revenue majorly (estimated at 7.4%) (Afonso and Arajuo, 2006). comprises property tax and minor taxes such as In terms of both revenue and expenditure, in the tax on the advertisement, tax on carts and India, ULBs account for only 2–3% of the carriages, tolls on ferries, bridges and heavy combined revenue and expenditure of the trucks plying on municipal roads, and trade central, state, and local governments, whereas license fees. Among the major sources of non- in develop ped countries, the local governments tax revenue are the rents and fees from account for 20–35% of the total government municipal markets, building plan sanction fees, expenditure (Das & Chattopadhyay, 2018a). mutation fees, sale of forms, parking fees, sale/lease of land (Barma, 2008). These tax and Considering West Bengal, in particular, we do non-tax revenues form the local governing not get much of an encouraging scenario since bodies' own-source revenue (OSR) when added the municipal finances here are also woefully up. The total revenue income of the governing inadequate to meet the pressure of civic bodies is expressed as the sum of the OSR and amenities and basic urban services demanded by revenue income from government funds. an ever-increasing urban population. Census According to Mathur (2006), the principal data reveals that the number of census towns in criterion for measuring the performance of West Bengal increased from 48 in 1971 to 780 in municipalities is internal resource mobilisation. 2011 (Samanta, 2017). As per the 2011 Census, It represents the combined effect of the fiscal West Bengal is the 4th most populous state with powers and the sector’s capacity utilisation. a population of 91,276,115 in the country and having a population density of 1,029 persons per The total revenue of 128 ULBs of West Bengal sq. km. The current urbanisation rate of West reveals an increasing tax revenue trend (Table Bengal is 31.87% which is slightly above the 1). However, the non-tax revenue has varied national average (Ghosh & Chakma, 2014). This over time. The variations have ultimately been essentially worsens the situation and urges for reflected in OSR patterns as estimated by adding an immediate need to resolve the municipal up both tax and non-tax revenues, and the tax financing and infrastructure issues in West revenue has remained more or less static over Bengal. To resolve the problems, first, we need time compared to the non-tax revenue. Among to look into the state of the municipal finances the various revenue sources, total OSR income of West Bengal. In this section, the current assumes greater importance in terms of both financial status of West Bengal has been sizes and share in the total revenue. The annual analysed in terms of their: growth rate pattern of OSR in the accounts of West Bengal’s municipal finances unfolds a  Revenue-based performance phenomenal increase in 2006–07 at 42.49%,  Expenditure-based performance following which is a year of highest negative  Grant-based performance growth rate registered -29.14% in 2007–08.  Financial Dependence However, the growth rates have, after that, Revenue-based Performance gradually been improving. The revenue base for the local governing bodies Percentage shares are important measures to has not been laid down in the Constitution of analyse the proportion of a particular India. The power to determine their revenue component in the whole structure. Achieving a base rests with the state government. The state good proportion OSR to total revenue receipts is Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 10 one way of establishing creditworthiness, and a 2003). However, in the case of West Bengal, the more significant share of tax revenue in it is proportion of tax revenue in OSR has more or desirable as it is a reliable revenue source less varied over the undertaken period, but if we (Nallathiga, 2009). A proportion of more than look into the decadal average, it stands around 50% is considered to be good, and more than 55%, which is good, indicating the growing 70% is deemed to be favourable from the importance of tax revenue in the OSR viewpoint of creditworthiness (Mathur & Ray, mobilisation of the ULBs. Table 1: Revenue Totals (INR in Million), the Growth Rate of OSR and % Share of Tax Revenue to Total OSR 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- Items 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 3679.2 5302.5 4064.4 4625.4 5355. 5549.6 5739. 6324.9 7815. 10516.1 Tax Revenue 9 7 3 3812.3 3138.5 3695.5 6431.8 2479. 2880.8 3265. 3715 4552. 5264.1 Non-Tax Revenue 2 6 4 7491.5 8440.9 7759.9 11057. 7835. 8430.4 9005. 10039. 12367 15780.2 Total Own Source Revenue 2 1 3 9 .7 (OSR) Income - 12.67 -8.08 42.49 - 7.60 6.82 11.49 23.19 27.59 Annual Growth Rate of OSR in 29.14 49.11 62.82 52.38 41.83 68.36 65.83 63.74 63.00 63.19 66.64 % of Tax Revenue to Total Own Source Revenue Income Source: Calculation based on information provided in Finance Commission reports. Expenditure-based Performance the same for other revenue expenditure, as a Expenses reflect the amount of money spent. slight decrease in other revenue expenditure has The Twelfth Schedule in the 74th CAA consists of been noted for the years 2007–08 and 2011– 18 services that are to be provided by the local 12. The percentage share of salary and wages to governing bodies. These are the items on which total revenue expenditure shows that almost the ULBs are expected to spend (Pethe & Lalvani, half the amount of expenditure is incurred on 2006). Revenue expenditure includes salaries and wages. Expenditure on salaries and expenditure on salaries and the wages and wages accounts for 51.26% of the total municipal maintenance costs of assets and contingencies expenditure on an average for the period under (Barma, 2008). The level of revenue expenditure, study. therefore, reflects the level of services provided The performance of ULBs in West Bengal on the by the local bodies. The higher the expenditure, criterion of expenditures runs along the same it is assumed, the higher are the levels of services track as that of the total municipal revenues. (Mathur, 2006). Municipal finance accounts Mathur (2006) asserted that the level of have mainly two types of expenses – (a) expenditure on operations and maintenance is expenditure on salaries and wages, and (b) an important indicator of the quality of services. expenditure on operation and maintenance of Therefore, the more the expenses incurred on assets. Therefore, we have examined the levels salaries and wages, the poorer is the quality of of revenue expenditure in terms of size, trends, services. What is important to note here is that and composition to distinguish between these functional devolution to the ULBs has not been two types of expenditure and understand their matched by supporting financial devolution. This relative importance. Also, the expenditure has led to too many responsibilities chasing a performance through their growth pattern over narrow resource base (Pethe & Lalvani, 2006). time has been analysed. Moreover, a challenge in analysing municipal Among the two expenditure components, salary expenditure data in West Bengal is that it is and wages are more important in terms of both difficult to differentiate between revenue size and share (Table 2). Expenditure on salary expenditure and capital expenditure due to and wages unfolds an increasing trend from faulty accounting procedures (Barma, 2008). 2003-04 to 2012-13, whereas the scenario is not Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 11 Table 2: Expenditure Totals (INR in Million) with an Annual Growth Rate of Revenue Expenditure 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- Items 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 6034.4 6344.9 6540.1 6739.2 9557.3 11371. 16848. 18889. 19388. 21111. Expenditure on Salary and 1 6 6 4 3 Wages 5155.8 6413.5 6808.4 10473. 9666.2 12364. 12945. 15953. 14073. 17623. Other Revenue Expenditure 5 2 4 1 5 7 11190.2 12758.5 13348.5 17212. 19223. 23733. 29794 34842. 33461. 38735 Total Revenue Expenditure 7 5 5 7 9 - 14.02 4.62 28.94 11.68 23.47 25.52 16.95 -3.96 15.76 Growth of Total Revenue Expenditure in % 53.9 49.7 49.0 39.2 49.7 47.9 56.6 54.2 57.9 54.5 % of Salary & Wages to Total Revenue Expenditure Source: Calculation based on Information Provided in Finance Commission Reports. Grant-based Performance Revenue income from government funds has only increased with time which reveals that Most of the ULBs receive financial support in the there has been an increase in the amount of form of revenue grants from State governments grants received by all the ULBs of West Bengal to meet their current expenses, which they fail from the State government (Table 3). However, to do when there is a deficit in their fiscal the annual growth rate in grant receipts hovered accounts. Similarly, capital grants are provided around 15% during the time period on average. to meet project-related expenditures. According The revenue dependency ratio, which is the to Nallathiga (2009), these grants are primarily percentage share of grant receipt in ULBs’ total intended to compensate for the mismatch revenue, has also been calculated. Grants between functions and finance. State transfers constituted 50–60% of the total revenue of ULBs have several roles, the foremost being to bridge in West Bengal. Thus, the dependency ratio has the fiscal gap since it would be unusual for the been very high (above 50%) since 2007–08, and revenue-raising capacity of ULBs to be perfectly the ULBs have to rely on the state for nearly half matched with their expenditure needs (Mathur, or more of their total revenue. 2006). Table 3: Grant Totals (INR in Millions), Growth Rate (in %) and % Share of Grants in Revenue Income 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- Items 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 7491.5 8440.9 7759.9 11057. 7835.1 8430.4 9005.3 10039. 12367.7 15780. Total OSR 2 9 2 5434.2 6285.2 6761.9 7826.2 8196.5 9640.6 12867. 15212. 17519.2 18254. Revenue Income from 4 9 7 Grants 12925. 14726. 14521. 18883. 16031. 18071 21872. 25252. 29886.9 34034. Total Revenue Income 7 1 8 4 6 7 8 9 - 15.66 7.58 15.74 4.73 17.62 33.47 18.23 15.16 4.20 Annual Growth Rate of Grants in % 42.04 42.68 46.56 41.55 51.13 53.35 58.82 60.24 58.61 53.64 % of Grants in Total Revenue income Source: Calculation Based on Information Provided in Finance Commission Reports. Financial Dependence receipts. The trend of revenue autonomy ratio reveals that own revenue constituted about Recent years have shown increased financial 57.96% of the total revenue of the ULBs in West dependence, as revealed from the analysis of Bengal in 2003–04, but that figure declined to their revenue autonomy and financial autonomy 39.76% in 2010–11 (Table 4). However, it shows ratios. Revenue Autonomy ratio is defined as the an increase in years thereafter, which indicates ratio of own income (tax and non-tax) in the that initially, the dependency on government ULB’s total income (Chattopadhyay, 2015). It funds was high, but after 2010–11, the effort on shows the share of OSR in the total revenue Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 12 the part of the ULBs to raise their own resources residents, which can result in improvement in and, conversely, to become less dependent on the delivery of urban services. However, OSR the government has been noteworthy. was insufficient to meet even the revenue expenditure as the financial autonomy ratio Financial Autonomy ratio is defined as the ratio hovered between 30-60% during the period of ULB’s total expenditure funded out of own under consideration (Table 4). Pierce (2016), in revenue, total own-source revenue/total his study on urban dependency, also noted that expenditure (Das & Chattopadhyay, 2018a). the municipalities in West Bengal are in poor Financial autonomy enhances accountability financial health and depend on government among the local decision-makers to the local funds for nearly three-fourths of their revenue. Table 4: Revenue Autonomy and Financial Autonomy Ratios 2003- 2004- 2005- 2006- 2007- 2008- 2009- 2010- 2011- 2012- Items 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 57.96 57.32 53.44 58.56 48.87 46.65 41.17 39.76 41.38 46.36 % of OSR in Total Revenue income 66.95 66.16 58.13 64.24 40.76 35.52 30.23 28.81 36.96 40.74 % of OSR in Total Revenue Expenditure Source: Calculation Based on Information Provided in Finance Commission Reports. Nature of Municipal Finance based on Size further analysis has been done looking into their Categories of ULBs per capita revenue base and expenditure incurred for the given size categories. ULBs are expected to provide certain minimum levels of services to the citizens. Different sizes Table 5 clearly depicts that with an increase in of ULBs vary in fiscal capacity and governance size, per capita tax revenue increases processes. Larger ULBs enjoy a strong base for considerably, while the per capita non-tax manufacturing and tertiary activities and revenue shows a decreasing trend with the correspondingly have higher per capita income increasing size of the ULBs based on population. (Kundu, 2003), but a poor economic base and The explanation lies in the fact that ULBs of lack of employment opportunities in smaller bigger size have a wider tax base and have more municipalities result in lower per capita income. excellent tax rates leading to more per capita tax Inadequacy of human resources in smaller ULBs charges than the smaller ones. Non-tax revenue aggravates the problem of weak institutional shows a declining trend because the other capacity, which makes it more challenging for revenue receipt sources of the government are them to raise sufficient financial resources and constant, but as a result of being divided by a deliver adequate urban services (Raman et al., greater population base, it shows a declining 2015). The per capita income and expenditure of trend with increasing size. There has been a a ULB are essential parameters that determine general improvement in revenue receipts in the the availability of civic services, which reflect the case of both taxes and non-tax revenue during municipal performance (Nallathiga, 2009). the period under consideration. In this context, Therefore, in this section, relative performances Das and Chattopadhyay (2018a), in their paper of the ULBs have been looked into by performing on fiscal decentralisation, noted that with a an inter-category comparative analysis based on larger population base, ULBs have been able to their size categories within the group of these generate more significant resources than their parameters. The ULBs have been divided based smaller counterparts, mainly due to on their population into six size categories, and agglomeration effects, more developed then for each category, 3-5 ULBs are randomly infrastructure, and greater capacity to levy taxes selected. The tax revenue, non-tax revenue, and user fees. expenditure on civic services, and expenditure In the case of expenditure, the per capita on salaries and wages have been recorded, and expenditure on civic services shows an Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 13 increasing trend over time (Table 5). The per is a high dependency among the ULBs on the capita expenditure on salary and wages state government transfers (Barma, 2008). The decreases with size as the administrative increase in state government grants to all expenses get reduced when divided by a more categories of cities has caused ULBs to increase extensive population base. Moreover, municipal expenditure in West Bengal. The expenditure on salaries and wages (for general smaller and larger ULBs incur almost the same administration and operation) can be treated as expenditure on civic services, which Das and fixed costs that need to be incurred for the daily Chattopadhyay (2018a) have explained as bias functioning of ULBs. Therefore, these costs do towards municipalities with a smaller population not vary much with the population size of the in West Bengal in allocating grants. ULBs. As seen previously, in West Bengal, there Table 5: Per Capita Revenues and Expenditures (in INR) ITEMS Tax Revenue Non-Tax Revenue Expenditure on Civic Expenditure on Salary Services and Wages Size Categories 2007-08 2012-13 2007-08 2012-13 2007-08 2012-13 2007-08 2012-13 <50000 6945.78 4622.34 5038.34 12551.65 23762.69 53945.01 209963.7 338813.16 50000-100000 6297.25 8359.33 19110.51 28659.03 21935.03 56221.54 25265.51 23525.91 100000-200000 6318.05 6151.98 14264.54 27003.34 19755.75 42714.55 25689.30 44530.54 200000-500000 8278.87 10772.00 7222.07 12760.26 18202.27 38185.70 21247.99 39943.30 500000-1000000 9581.63 12609.86 10722.96 19107.77 10998.92 26213.21 7866.83 20087.63 >10.00,000 58967.30 154748.00 55264.92 101650.53 97767.61 218233.37 600.69 1562.26 Per Capita figures are calculated using population data from Census 2011. Source: Calculation based on information provided in Finance Commission reports. Conclusion responsibilities. Also, there are significant inter- category disparities in terms of the size of the The key aim of this study was to critically analyse ULBs and their revenue expenditure municipal financing and infrastructure of ULBs of performances. In West Bengal, larger ULBs West Bengal. The finances of ULBs of West generate more significant revenue mainly Bengal are in a grossly unsatisfactory state. because of their strong economic base and the However, the proportion of tax revenue in OSR capacity to mobilise sufficient tax and non-tax shows an increasing trend over the years yet revenues compared to the smaller ones. In all spins around 50-60%. An increased collection of cities irrespective of their sizes, expenditure on tax revenue should ensure own source revenue salaries and wages is greater than expenditure mobilisation. The growing importance of non-tax on civic services. revenue cannot be neglected, but political compulsions and dissatisfaction with municipal The ULBs of West Bengal are yet to be put services sometimes play a big role in restricting prominently on the public finance map of the the local government from increasing taxes and country. In terms of revenue-raising capacity and fees (Mohanty, 2016). A review of the fiscal autonomy, the ULBs of West Bengal are expenditure account revealed that pretty weak. The ULBs need to be financially administrative expenses eat up almost the entire stable to address the growing needs and recent revenue generated by the ULBs, and little is left trends of urbanisation. With increasing pressure over to provide basic services. This forces the on the central and the state government to fund ULBs to rely mostly on state government the fiscal deficiency of the ULBs, there has been transfers to fund the developmental projects, an increased flow of funds in the form of grants, limiting their fiscal autonomy and increasing which has made the lower-tiers of the their dependency ratio. Grants from higher government dependent on the upper-tiers. This levels of government need to be utilised to leads to a very high level of centralised control supplement municipal resources and not to by the state on the ULBs in West Bengal substitute for funding their functional (Samanta, 2020), which sometimes leads to Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 14 political violence. For example, the ULBs, not Washington, DC: The World Bank. being under the same party in power of the http://hdl.handle.net/10986/7192 state, get limited grants from the state Barma, S. (2008). Report on Third State Finance government only because of their political Commission of West Bengal, Tanuja Bhaban, Salt affiliation with the opposition party. Thus, to Lake, Kolkata. strengthen their fiscal health, the ULBs must Census of India (2011): Population of Cities and check the unnecessary expenses made and Towns of the Districts of West Bengal. devise new means of revenue generation to https://www.censusindia.gov.in improve their revenue base. Service quality and its delivery should be enhanced by the municipal Chattopadhyay, S. (2012). Decentralised and authorities so that the unwillingness of the delivery of urban basic services: the West Bengal citizens to pay taxes, charges, and fees can be experience. Development in Practice, 22(1), 57– negotiated. 70. doi:10.1080/09614524.2012.634175 Moreover, ULBs are to be handed over with Chattopadhyay, S. (2015). Financing India’s adequate taxation powers commensurate with Urban Infrastructure: Current Practices and their financing needs of the functions mandated Reforms. Journal of Infrastructure Development, by the 74th CAA. Further, wrongly designed 7(1), 55–75. doi: 10.1177/0974930615581224 numerous tax exemptions and not well-targeted Das, M., & Chattopadhyay, S. (2018). subsidies can be revised and properly Strengthening Fiscal Health of Urban Local implemented to check corruption. Also, the Bodies. Economic and Political Weekly, 53(39), collection and assessment procedures for taxes 53–61. can be simplified to prevent tax evasion. Some necessary tax reforms could be brought in to Das, M., & Chattopadhyay, S. (2018). Urban check the under coverage and leakages in the tax Service Delivery in West Bengal: Current base, apart from inefficiency in the collection. Scenario and New Challenges. Journal of Property tax exemptions and concessions Infrastructure Development, 10(1), 18–36. backed by compensatory transfers from the doi:10.1177/0974930618773253. state government could be eliminated. Datta, L. N. (2015). The West Bengal Municipal Expanding the tax base coverage, taxation of Act, 1993. Tax ‘N Law, Kolkata. government properties, improving property https://www.wburbanservices.gov.in/upload_fil valuation, strengthening the institutional e/act_&_rules/west_bengal_municipal_act.pdf framework, revamping tax administration, and Ghosh, B., & Chakma, N. (2014). Urbanisation in promoting ownership of reforms are some West Bengal: An Analysis of Recent Processes, measures to ensure tax reforms (Mohanty, Space and Culture, India, 2016). These are a few approaches to designing doi:10.20896/saci.v2i2.86. reforms in municipal financing that can go a long way in improving the fiscal position of the ULBs Kundu, A. (2003). Urbanisation and Urban of West Bengal. After all, it is high time to ensure Governance: Search for a Perspective beyond that the precarious state of municipal finances Neo-Liberalism. Economic & Political Weekly, does not pull back the cities to function as the 38(29). engines of economic growth. Mathur, O. P. (2006). Urban Finance. India References Infrastructure Report, 82–105. Afonso, J. R., & Arajuo, E. A. (2006). Local Mathur, O. P. (2013). Finances of Municipalities: Government Organization and Finance: Brazil. In Issues before the Fourteenth Finance Anwar Shah (Ed.), Local governance in Commission. Economic and Political Weekly, developing countries, public sector governance 48(22), 23–27. and accountability Series (pp. 318–418). Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 15 Mathur, O. P., & Ray, S. (2003). Financing and participatory development in small cities of Municipal Services: Reaching out to Capital West Bengal. In R. Ra. Thakur, A. K. Dutt, S. K. Markets, National Institute of Public Finance and Thakur and G. M. Pomeroy (Eds.), Urban and th Policy, New Delhi. Regional Planning and Development: 20 st Century Forms and 21 Century Transformations Mohanty, P. K. (2016). Financing Cities in India: (pp. 321–336). Springer. Municipal Reforms, Fiscal Accountability and Urban Infrastructure. Sage Publications. Sarkar, A. (2016). Report on Fourth State Finance Commission of West Bengal. Indian Statistical th MoHUA. (2010). The Constitution (74 Institute, Kolkata. Amendment) Act, 1992. Ministry of Housing and Urban Affairs. Sridhar, K. S., & Reddy, A. V. (2010). State of https://mohua.gov.in/upload/uploadfiles/files/ Urban Basic Services in India’s Cities Spending 74th_CAA13.pdf and Financing. Oxford University Press. Nallathiga, R. (2009). Analysing the Finances of Conflict of Interest Urban Local Bodies in India: A Cross-sectional This manuscript is an original research paper and Study. Centre for Good Governance, Hyderabad. is not being considered elsewhere. We declare Pethe, A., & Lalvani, M. (2006). Towards that we have no conflict of interest. Economic Empowerment of Urban Local Bodies Acknowledgements in Maharashtra. Economic and Political Weekly, The authors would like to acknowledge all the 41(7). anonymous reviewers who provided quality Pierce, G. (2016). Fiscal Transfer and Urban input and suggestions for improving and Policy: Magnitude and Mechanisms of Urban finalising this manuscript. Dependency”, Economic and Political Weekly, About the Authors 51(42), 44–52. Priya Chowdhury completed M.Sc. in Geography Purohit, M. (2016). Financing Urban from the Department of Geography, The Infrastructure in India an Overview of Policy University of Burdwan, in the year 2019. As part Lessons, Discussion Paper 04, Bangkok: of the Master's programme, Priya opted for Macroeconomic Policy and Financing for specialisation in Urban Geography. Her research Development Division, United Nations ESCAP. interests are urban policy, urban infrastructure, Raman, B., Aleyamma, M. P., Bercegol, R. D., urban housing and urban informality. Dennis, E., & Zerah, M. H. (2015). Selected Gopa Samanta’s research interests cut across Readings on Small Town Dynamics in India. the fields of Urban, Gender, and Water. She Working Papers Series No. 7; SUBURBIN acted as the ‘Gender Chair’ of the Paris Sorbonne Rao, G., & Bird, R. (2014). Governance and Fiscal University, France, in 2016. She was visiting Federalism. In I. J. Ahluwalia, R. Kanbur and P. K. fellow at Paris Diderot University, France, Mohanty (Eds.), Urbanisation in India Australian National University, Australia, and Challenges, Opportunities and the Way Forward. French Institute of Pondicherry, India. Yale Sage Publications. University Press published her first book, Samanta, G. (2017). New Urban Territories in Dancing with the River: People and Life on the West Bengal: Transition, Transformation and Chars of South Asia. Her second book titled Governance. In Eric Denis and Marie-Helene Negotiating Local Terrain in Urban Governance: Zerah (Eds.), Subaltern Urbanisation in India: An Freedom and Functioning of Women Councillors Introduction to the Dynamics of Ordinary Town in India has been published by the Springer Local (pp. 421–442). Springer. Governance series. Her recent book, Mobilities in India: The Experience of Suburban Rail Samanta, G. (2020). Decentralised governance Commuting has been published from the Urban versus state dependence: financial challenges Chowdhury & Samanta. Space and Culture, India 2021, 9:3 Page | 16 Book Series of Springer. She has also contributed Author Contribution Statement immensely through publishing journal articles Ms. Priya Chowdhury and Dr. Gopa Samanta and book chapters. She acts as a peer reviewer have jointly designed the paper. of articles in academically acclaimed journals. Ms. Priya Chowdhury has contributed to She is dedicated to disseminating the knowledge collecting data from Census of India and Finance of Social Science in general and Geography in Commission Reports, data curation, writing the particular beyond the classroom and academic first draft, working on the comments and community. She contributes highly to popular finalising the revised version. writing in Bengali, the provincial language, through news articles and other popular Dr. Gopa Samanta has contributed to the magazine articles to reach a wider audience. conceptualisation of the article, revision of the first draft, incorporating new ideas and relevant sources, correcting the final version.

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