srikanth viswanathan annual survey of anil nair india...
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Srikanth Viswanathansrikanth@janaagraha.org
Anil Nairanil.nair@janaagraha.org
Mathangi Chandrasekharmathangi.chandrasekhar@janaagraha.org
October 2017
ANNUAL SURVEY OFINDIA’S CITY-SYSTEMSMunicipal Finance Brief The Annual Survey of India’s City-Systems (ASICS) evaluates the quality of city systems in India across 18 states. ASICS serves as a diagnostic to identify the systemic issues preventing cities from providing good quality of life to their citizens. Urban planning & design, urban capacities & resources, empowered political leadership and transparency, accountability & public participation are the four city-system components covered under ASICS. The ability of Urban Local Bodies (ULBs) to invest adequately in providing infrastructure and services to its citizens is one of the key diagnostic parameters assessed by ASICS. This brief – a precursor to ASICS 2017 – analyses the financial management of ULBs and presents key insights on the state of Municipal Finances based on the audit reports of the CAG on their audits of ULBs in 21 states. Pursuant to recommendations of the 13th Finance Commission (FC), state governments have transferred technical guidance and supervision of the audit of local bodies to the CAG. The CAG undertakes annual audits of local bodies, both ULBs and PRIs, on a sample basis. These reports are presently the only comprehensive and regular source of information on the financial position and financial performance of ULBs in India.
This brief provides 5 insights and recommendations on analysis of the data sets from CAG audit reports. Insights have been drawn from analysis of the following three critical data sets from the CAG audit reports:
Own revenues on average contribute to less than 37% of the total receipts of ULBs, ranging from a low of 5% in Manipur to a high of 74% in Punjab; only 3 states record > 50%share of own revenues
Impact:
Own revenues
Total receipts
Proportion of own revenuesto total receipts (%)
ULBs depend on State and Central grants to a significant extent, constraining their ability to make capital investments to improve infrastructure services and other investments to improve their functioning.
Recommendation: • ULBs need to improve collection efficiencies of own revenues, mainly, property tax, advertising tax and parking fees. • Buoyant sources of revenues such as stamp duties and entertainment taxes should be devolved to ULBs.• States needs to embark on systematic fiscal decentralisation.
Source: CAG reportsOut of 21 states, data on proportion of own revenues and per capita total receipts of ULBs was available only for 12 states
Per capita own revenue and per capita total receipts of urban local bodies across states
1,991
4,119
897
2,712
785
4,800
2,189
2,956
1,818
5,464
663
2,055
648 1,209
432 957 728
1,312 728
22 438
4,692 48%
33%
74%
33% 32%
16%
54%
25%
45%
55%
16%
5%
Gujarat2013
Tamil Nadu2013
Andhra Pradesh2015
212
850
Chandrigarh2015
Punjab2014
Karnataka2013
Rajasthan2015
Uttar Pradesh2011
Assam2013
Goa2012
Himachal Pradesh2014
Manipur2014
Rs in
Cr.
1. Own Revenue of ULBs 2. Status of Accounts of ULBs3. Status of Audits of ULBs
INSIGHT #1:
Impact: This indicates lower per capita spend across smaller cities, resulting in poorer quality of life in such cities.
Recommendation: The focus, currently concentrated only to large cities, must also shift to the smaller cities and towns in order to bridge the gap in per
capita spend, by -
• improving collections of own revenues of the ULBs in smaller cities and towns
• devolving buoyant sources of revenue such as stamp duties and entertainment taxes should be devolved to ULBs, and
• increasing grants devolved to smaller cities and towns to meet the infrastructure needs.
Per capita expenditure of ULBs of capital cities versus average per capitaexpenditure of all ULBs in the corresponding states
�915
�2,244
�3,043
�1,070
�8,113
�2,648
�3,023
�2,540
�2,848
�2,036
�4,241
Source : CAG ReportsNote : Per capita data pertains to different years ranging from 2012-15. However, data of a state and its capital city belong to the same financial year
� Per capita expenditure
0-100
100-200
200-300
300-500
>500
NA
State
Andhra Pradesh
Goa Gujarat
Harayana
Himachal Pradesh
915 4,207
Average per capitaexpenditure of the state (A)
Per capita expenditure of ULBs of the capital (B)
B as a % of A
3,023
2,540
4,241
1,070 5,544
7,503
5,387
3,517
Karnataka 2,648 4,474
Maharashtra
Punjab Rajasthan
Tamil Nadu
Telangana
8,113
2,848
2,036
3,043
2,244
26,657
5,387
1,835
8,948
4,207
518.3
248.2
212.1
82.9
169.0
189.2
90.1
294.1
187.5
459.7
328.6
Per capita expenditure of ULBs of capital cities as a % of averageper capita expenditure of ULBs in the corresponding states
INSIGHT #2
On average (across 12 states), ULBs of capital cities spend 253% higher per capita, on infrastructure and services, as compared to average per capita spend by all ULBs in the corresponding states
Recommendation: Time-bound, transparent responses to CAG audit observations to be mandated in Municipal Corporation Acts, central and state grants to be tied to performance in audits and responses to audit observations.
State
Andhra Pradesh
Gujarat
Karnataka
Maharashtra
Tamil Nadu
110 NA
Total No ofULBs
Pendency in audit* Pendency by year Pendency in preparationof Accounts
275
265
664
187 339
173
139
122
Pendency by year
Telangana 68 41
Uttar Pradesh 630 NA
West Bengal 130 NA
NA
2010-11 (5),2011-12 (167),2012-13 (167)
2012-13 (23),2013-14 (116)
2013-14 (122)
2008-09 (38),2009-10 (67),2010-11 (82)
NA
25
159
132
NA
707
NANA
NA
187
658
From 2016
From 2015-16
2012-13 (3),2013-14 (52),
2014-15 (652)
NA
NA
NA
NA
From 2012-13 (as on 31.03.2014)
Over 33,198 unanswered audit observations from CAG Audits across 16 states, relating to several thousand crores in financial terms; no implications for open audit observations
Impact: Constraining the ability of state governments to hold ULBs accountable and of ULBs themselves to take informed decisions or raise funds from the capital markets.
Recommendation: To clear the pendency in accounts and audit, States should actively consider empanelling Chartered Accountants. Karnataka, Bihar, Chhattisgarh, Gujarat, Odisha and Rajasthan are among the states that have empanelled Chartered Accountants to clear the backlog in audit and accounts.
Impact: Open audit observations are a sign of weak internal controls and poor financial hygiene in ULBs, exposing them frauds and losses.
Source –CAG ReportsNote: 1. Data on pendency in audit/account preparation is available only for states mentioned above. 2. *Audit by the state audit department.
The NITI Aayog’s three year Action Agenda recommends that the introduction of standardized, time-bound, audited balance sheets across 4,041 ULBs would help improve financial management as well as spur further reforms in the area of Municipal Finance. Publishing of Audited Financial Statements is one of the mandatory conditions for availing performance grants as per recom-mendations of 14th Finance Commission as well as a mandatory reform under AMRUT.
INSIGHT #3
INSIGHT #4
Significant delay in preparation of Accounts and Audit of ULBs across states, inability to ascertain accurate financial position and performance of ULBs
Janaagraha Centre for Citizenship and Democracy is a Bengaluru based not-for-profit having the mission of transforming quality of life in India’s cities and towns. It defines quality of life as comprising quality of citizenship and quality of infrastructure and services. It works with citizens to catalyse active citizenship in neighbourhoods and works with governments to institute city-system reforms to city governance in India. Janaagraha’s City-Systems framework comprises four components: Urban Planning and Design, Urban Capacities and Resources, Empowered and Legitimate Political Representation and Transparency, Accountability and Participation. Municipal Finance is an integral part of the Urban Capacities and Resources city-system component.
Acknowledgement : We would like to acknowledge the contributions made by Bharathy Jayprakash and Kartika Nair in the preparation of this brief.
Year for which latestCAG report is available
2016 4 Andhra Pradesh, Assam, Karnataka, Telangana
No of States States
2015 9 Chhattisgarh, Himachal Pradesh, Maharashtra, Punjab, Rajasthan, Tamil Nadu, Madhya Pradesh, Bihar, Kerala
2014 2 Manipur, West Bengal
2013 2 Gujarat, Haryana
2012 1 Goa
2011 2 Uttar Pradesh, Jharkhand
2010 1 Odisha
Recommendation:
Impact: CAG audits are the last line of defence around internal controls in ULBs. Delays in CAG audit reflects lackadaisical approach to the audit process.
Fix accountability for submission of financial records of ULBs on time to CAG; make transparent time table of CAG audits and reasons for delays in CAG audits.
Source: CAG reports
Significant backlog in CAG audits of local bodies undermining quality of TG&S by CAG INSIGHT #5:
Source: CAG reports
2,618 unanswered audit paragraphs,amounting to Rs. 2,190 Crores
1,755 unanswered audit paragraphs,amounting to Rs. 557 Crores
3,700 unanswered audit paragraphsamounting to Rs.5,854 crores; includingobservations pending from 2003-04
2,123
1,244
4,1963,807
429 361 324
2,507
1,755
2,767
825
3,700
2,984
813
2,6182,745
Andh
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Him
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Jhar
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Mah
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Mad
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Unanswered audit paragraphs by state
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