Introduction to BBMP’s finances

On the 17th of January, Ashwin Mahesh analysed the BBMP budget for the B.CLIP students. Despite the common belief that the city’s revenues are more than sufficient to cater to it, he insisted that Bangalore is an underfunded city. Today, Bangalore houses over 10 million people, and this number is increasing by the day with migration and more job opportunities becoming available, making it the second fastest growing city in the country today.

Bangalore over the last few years has reached an infrastructure cliff – be it social, political or demographic. The population density plummets immediately beyond the limits of BBMP jurisdiction, and so does the quality of infrastructure. This is primarily due to the fact that the attention of the government outside BBMP limits has been greatly limited. But if one looks at what goes into the planning of a city like Bangalore, one can see that not everything falls under the official control of the BBMP. But then if you are a municipal corporator the only direct budget that you will have influence over is that of the BBMP.  So how do you influence what is allocated or what’s budgeted?

Calculating cost
Consider the issue of housing for the poor. How many houses will the government of Karnataka have to build? To do this, we need to identify what percentage of the population can be classified as “very very poor”.

  • Define demand: The median income across the country is about Rs. 5400 a month, and in city areas, it is about Rs. 7000 a month. In Bangalore, about 50% of the population makes less than a Lakh per annum. If the threshold of poverty is, say, Rs. 4000 a month, then we can safely estimate that around 10-15% of the people that migrate into the city need some kind of support.
  • Calculate quantity demanded:  Out of about 850-1000 people migrating into the city, 100 people need to be given a house, resulting in the need for about 20-25 houses per day (average of 4 in one house), or 7000 to 8000 houses per year.
  • Calculate cost: The minimum cost of construction is about Rs. 1500 per sqft, and the minimum habitable house is about 300 sqft. So constructing one house alone would come up to 1500 X 300 = Rs. 4,50,000. For 8000 houses, it will amount to around Rs. 350 crores, excluding the cost for land.

What we understand by calculating the cost of providing houses for the poor is that it is much larger than expected. This one small need already eats into a third of the budget. This same cost exercise can be adopted in the other areas that the BBMP works with – education, lake revival etc.

Getting the money
The main sources of funding for these projects are:

  • Levied taxes – predominantly property tax
  • Inter-governmental transfers
    • Aid – State and Federal
    • Devolution – State and Central
    • Other factors
      • Fees
      • Licenses
      • Permits
      • Betterment charges
      • Special assessments
      • Utilities

Discrepancies  – Budget vs. Expenditure
The expenditure on the proposed projects is only 35-40% of the planned amount. Reasons behind this are

  • Under-collection of revenues due. Until 2006, property tax was not self-assessed. Once it became so, around 65,000 people realised that they could either undervalue their property and pay a lesser amount, or pay someone locally to ignore the collection of the tax on their property. Today, nearly 7 lakh properties have not been registered.
  • Inclusion of illegal entries
  • Wild assumptions about the state largesse
  • Bad estimation of the actual cost
  • Contingencies

Although this is well-known, discrepancies still occur for various political reasons.

Constraints in getting funding

  • Mismatch between growth and revenue
  • Poor constitutional framework for taxation
  • Hierarchy of politics
  • No borrowing
  • Long-term financial schemes are limited
  • Greater preference for expenditure-led schemes
  • Reluctance to increase taxes
  • Increasing proclivity to reversing decisions

 How can these be overcome?

  • Collect everything that is due
  • Push the state to make a guaranteed devolution of Rs. 6000 per capita
  • Similar guarantee from the centre to make a devolution of Rs. 2000 per capita
  • Educate the public about true costs
  • Decide the role of the private sector
  • Create sync between growth and revenue
  • Move to reconstitution schemes

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