Don’t spend more than you actually earn, new Act teaches BBMP fiscal discipline

Interview with Aditi Raja, formerAccountant General of West Bengal on implications of bringing BBMP under the Fiscal Responsibility Act, 2003

Faced with mounting criticism of the Bruhat Bengaluru Mahanagara Palike (BBMP) for inflating revenue receipts, the Karnataka Government earlier this month brought the BBMP under the Karnataka Local Fund Authorities Fiscal Responsibility Act, 2003.

The government also issued a draft notification of the BBMP Fiscal Responsibility and Budget Management Rules, 2021, inviting suggestions from citizens within 30 days before issuing the final gazette notification.

The objective is to ensure basic that BBMP’s expenditure doesn’t exceed income. As per the notification, BBMP must prepare its budget on the basis of actual revenues collected in the last fiscal year. The draft notification has also introduced medium-term fiscal plans and holding of at least two meetings every year in wards to bring about transparency.

Other measures specified in the notification:

  • The deficit in the final approved budget cannot exceed 3% of the total receipts of the previous year.
  • Increase in revenue cannot be more than the actual CAGR (compound annual growth rate).
  • BBMP should set aside 10% of the annual available amount for development works recommended by citizens.

Read more: A citizens’ wish list on what the BBMP’s budget should focus on this year

Citizen Matters spoke to Aditi Raja, an Indian Audit and Accounts Service officer who has served as Accountant General of West Bengal and as Finance Director of Karnataka Power Transmission Corporation Limited about the implications of this move and how it will affect BBMP’s budgeting and expenditure.

What does The Karnataka Local Fund Authorities Fiscal Responsibility Act do

It mandates a medium-term fiscal plan. This is expected to be a four year rolling plan with specific objectives, goals, and performance evaluation. Compliance to the plan will be overseen by the urban development department with periodic reviews.

The Act also lays down some basic principles that BBMP should follow:

  • There should be financial discipline.
  • There should be an improvement in macroeconomic management.
  • And there should be transparency and greater accountability.

Citizen participation is another objective. Citizens should know how the budget is made by actively participating in ward committee discussions. It needs to be noted here that in recent years many Ward Committees are having regular meetings.

There should be proper procedures for preparation, submission and the auditing of accounts. There should be proper scrutiny and adherence to audit reports.

Another issue is compliance and what should be done if people do not comply. Can one simply modify the targets set in the budget as is seen in the case of the Karnataka Fiscal Responsibilities (Amendment) bill wherein the fiscal deficit is sought to be increased to 3.5%.

Will the Act help inculcate financial discipline?

It is a pity that one has to bring in an Act to mandate financial discipline! The Act will definitely enhance the importance of a transparent and accountable financial system. However, the parameters laid down in accordance with the Act should not be diluted through amendments.

When the BBMP is anyway dependent on the state to plug the gap through various grants (since its revenues are never enough for its expenses) what can it do? Is there any way for BBMP to increase its revenues, especially without an elected body?

These questions are interdependent. The BBMP needs to plug several leakage points to increase its income. For instance, several property owners do not pay property tax. Field officers must be encouraged to increase their tax collection. The causes for non-collection could be lack of knowledge of properties in their areas (unlikely) to corruption (highly possible).

Read more: How does BBMP compute Property Tax

Once income increases, dependence on government will come down. This coupled with better management of ongoing works and appropriate selection of ‘things to be done’ will surely improve matters.

Why does BBMP budget more than it executes?

BBMP shows greater amounts of revenue in terms of Property Tax. For example, instead of giving a reasonable number, large prospective incomes are shown. In the 2020- 2021 budget, it estimated a total receipt of Rs 10,716 crores. The previous year’s accounts show that BBMP could only collect Rs 6,345 crores.

Ultimately, the Revised Budget for 2020-21 was cut down to Rs 6,700 crores from Rs 10,760 crores.  The moment BBMP blows up income, there is pressure on them to include more works. BBMP has to be clear about how much work they are capable of doing.

Also required is better co-ordination of BBMP with other organizations, such as BESCOM and BWSSB.

A transparent system of payments to contractors has to be put in place. If you don’t get paid on time then how is the contractor supposed to get the work done properly? Fortunately, the BBMP has begun – on its web site, a Works Bill Public Viewing page. This is an excellent initiative. Now anybody can see which works are going on, where they are happening and how the contractors are being paid. This move will hopefully result in better inspection and better quality of work.

In the absence of an elected BBMP Council, how effective is budgetary allocation?

In the absence of an elected body, the views of the citizens cannot be included. Decisions on what is required for the city, in such a situation, can at best be taken by a group of officials who may or may not know the ground realities and requirements.

Read more: Webinar: How ward committees are utilising funds for potholes, footpaths, borewells

Citizens and experts point to the need to plan the budget strategically and invest in long-term solutions instead of short term/temporary fixes. How can this be achieved? 

This where the medium-term fiscal plan is relevant, it will address these issues if it is implemented effectively.

BBMP head office
Without an elected body there is no connect between the citizen and the BBMP. Also an elected body is answerable to the people whereas bureaucrats are not. File pic of BBMP head office. Pic: BBMP

It is also important to increase the budget on education and health. While acknowledging the wonderful work done by the BBMP during COVID, we need to ensure that better health care facilities such as a dispensary or a clinic per ward should be financially supported. Similarly, more funds are required for education too. The BBMP Budget has to go beyond being a drain-road-culvert budget to something more.

Without an elected body there is no connect between the citizen and the BBMP. An elected body will be much better aware of the requirements of a particular area or activity. For instance, my ward committee may want a school in my area instead of a footpath. The elected representatives will be much more aware of these needs.

An elected body is answerable to the people whereas bureaucrats are not.

Understanding discretion in the budget

In the budget there is something called discretion with the mayor, discretion with the state government, discretion with the chief minister. This discretion, if not used properly, can end up favouring certain people.

How should the discretion function? It is this area where citizen’s involvement becomes very important. Discretion should be dealt with differently from emergency funds. Discretionary money, if at all permitted, should not be used for an emergency and emergency money should not be used for discretionary purposes.

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