COURSE TITLE URBAN FINANCE Course Code 2PLS14

At the end of the course student would be able to. l. Acquire basic knowledge of principles that determines urban finance 2 Learn assessment of financial situation in cities and its Impact 3. Understand alterative financing mechanism to finance functioning of cities

Course Learning Outcomes (CLO)

Syllabus

Unit l: Municipal Finance

Unit 2: Funding sources

Unit 3: Resources Based on Achievement of Urban Reforms

Unit 4:Institutional Capacity Enhancement

Unit 5: Plan forms and Indices

Unit 6: Public Private Partnership

Municipal FinanceU

nit-

1¨ Budgetary allocation from Central and State Government for urban

development

¨ An overview of Plan and Non Plan Financing (Planning Commission andFinance Commission)

¨ Multilateral and bilateral funding from international organizations

¨ Assistance from foreign donors and Multi National agencies, Marketaccess, Pool finance and prerequisite conditions for accessing nontraditionalfunds

¨ Categorization of Municipal Sources of Revenue: Internal Vs. ExternalRevenue, Capital Vs. Revenue Receipt, Municipal Finance AssessmentFramework, Reforms in Municipal Finance

¨ Nature and composition of income and expenditure, limitations and needfor Revenue enhancements

¨ Expenditure control methods and mechanisms

Urban Local Government

The Constitution (74th Amendment) Act, 1992 (main provisions)1. Constitution of Municipalities {(i) Nagar Panchayat (ii) Municipal Council

(iii) Municipal Corporation }2. Composition of Municipalities3. Constitution of Wards Committees 4. Reservation of seats5. Duration of Municipalities6. Powers and Functions of the Municipalities 7. Finances of Municipalities8. Finance Commission9. Elections to Municipalities 10. Audit and Accounts11. Committee for District Planning (Zilla Parishad)12. Metropolitan Planning Committees

List of 18 items covered under the Twelfth Schedule of the Indian Constitution

1. Regulation of land use and construction of land buildings.

2. Urban planning including the town planning.

3. Planning for economic and social development

4. Urban poverty alleviation

5. Water supply for domestic, industrial and commercial purposes

6. Fire services

7. Public health sanitation, conservancy and solid waste management

8. Slum improvement and up-gradation

9. Safeguarding the interests of the weaker sections of society, including the physically handicapped and mentally unsound

List of 18 items covered under the Twelfth Schedule of the Indian Constitution

10. Urban forestry, protection of environment and promotion of ecological aspects

11. Construction of roads and bridges

12. Provision of urban amenities and facilities such as parks, gardens and playgrounds

13. Promotion of cultural, educational and aesthetic aspects

14. Burials and burials grounds, cremation and cremation grounds and electric crematoriums

15. Cattle ponds, prevention of cruelty to animals

16. Regulation of slaughter houses and tanneries

17. Public amenities including street lighting, parking spaces, bus stops and public conveniences

18. Vital statistics including registration of births and deaths

Budgetary allocation from Central and State Government for urban development (Fiscal Dependency of Local Bodies)

The Finance Commission & its Functions

¨ established in 1951

¨ an institutional framework to facilitate Centre-State Transfers.

¨ Constituted every fifth year includes a chairman and four other members.

Functions¨ Distribution of net proceeds of taxes between Centre and the States

¨ Determine factors governing Grants-in-Aid to the states and the magnitudeof the same.

¨ To make recommendations to the president as to the measures needed toaugment the Fund of a State to supplement the resources of the panchayatsand municipalities in the state on the basis of the recommendations madeby the finance commission of the state.

¨ Any other matter related to it by the president in the interest of soundfinance.

14th Finance Commission- Y V Reddy

(Some Recommendations)¨ The share of states in the net proceeds of the shareable Central taxes

should be 42%. This is 10 percentage points higher than the recommendation of 13th Finance Commission.

¨ Fiscal deficit to be reduced to 3% of the GDP by 2017–18.

¨ Both centre and states should conclude the model Goods and Services Ac

Planning Commission- some functions

¨ To make an assessment in the material, capital and human resources of the country called India,

¨ To formulate a plan for the most effective and balanced utilisation of country's resources.

¨ To define the stages, on the basis of priority, in which the plan should be carried out and propose the allocation of resources for the due completion of each stage.

¨ To determine the conditions which need to be established for the successful execution of the plan within the incumbent socio-political situation of the country.

¨ To determine the nature of the machinery required for securing the successful implementation of each stage of the plan in all its aspects.

Note: changed to NITI Aayog (Hindi for Policy Commission), also National Institution forTransforming India, is a policy think tank of the Government of India

Typical local government revenue sources

Revenue Sources of Municipal Corporations in India

Major User Charges and Fees

¨ Water Charges. ¨ Sewerage Charges. ¨ License Fees,¨ Planning Fees. ¨ Betterment Charges. ¨ Building License Fees,¨ Penalty for Late Tax payment ¨ Parking Fees ¨ Dangerous and Offensive Trade License Fees. ¨ Slaughter House Fees

Shared Municipal Taxes

¨ Non-agricultural Assessment Tax. ¨ Entertainment Tax ¨ Motor Vehicles Tax. ¨ Entertainment Tax. ¨ Surcharge on Stamp duty¨ Surcharge on Sales Tax. ¨ Duty on Transfer of Property. ¨ Profession Tax.

Grants-in-Aid provided to Municipal Corporations ¨ Primary and Secondary Education Grant ¨ Dearness Allowance Grant. ¨ Grant to Implement Recommendations of Pay Commission. ¨ Sewerage and Drainage Grants ¨ Octroi Compensation. ¨ Motor-Vehicle Tax Compensation¨ Family Planning Scheme Grants¨ Road Development Grant. ¨ Contributions and Compensation for Toll ¨ Property Tax Compensation. ¨ Motor Vehicle Tax Compensation¨ Medical Grant.

Heads

¨ Tax revenue ¨ Non -Tax revenue ¨ Assigned revenue-used to finance specific items of expenditure

¨ Non-Plan grants ¨ Other revenue receipts ¨ Revenue Receipts ¨ Plan grants ¨ Other capital receipts ¨ Capital Receipts ¨ Total Receipts

Revenue of Municipal Corporations as average percent of Aggregate Total Revenues (2000-04)

Expenditure Category

¨ Establishment expenditureStaff salaries. Allowances. wages. Pensions & Retirement benefits etc.¨ Administrative expenditureRents. rates & Taxes. Office maintenance. Communications. Books &periodicals. Printing & stationary. Travel expenditure. Law charges etc.¨ Operations & MaintenancePower & fuel. Bulk purchases. Stores. Hire charges. Repairs & expenditureMaintenance and Interest payments made on loans¨ Capital expenditureBuildings, Water supply & Sewerage, Energy/lighting, Solid wastemanagement, Roads. Bridges, Culverts. Causeways. Health & sanitation. Parksand recreation spaces. Furniture & fittings, Tools & plant. Equipment etc..Principal repayments of loans.¨ Other expenditureMiscellaneous expenses not accounted for In the above

Composition Of Expenditure Municipal Corporations as average percentage of total expenditure (2000-04)

Composition of Expenditure on Public Services in the MC’s

Organizational structure of Finance department, AMC

EWS: economic weaker section LIG: lower income group

Bilateral and Multi-lateral financial institutions

Multi-lateral financial institutions¨ European Commission (EC)¨ OPEC Fund for International Development (OPEC Fund)¨ multilateral development bank (MDB)-the main MDBs:

· World Bank· Asian Development Bank (ADB)· Asian Infrastructure Investment Bank (AIIB)

Bilateral financial institutions¨ CDC Group (British Development Finance Institution¨ COFIDES (Spanish Development Finance Institution)¨ DEG (German Development Finance Institution)¨ Development Bank of Austria (OeEB)¨ Entrepreneurial Development Bank of the Netherlands (FMO)¨ Japan Bank for International Cooperation (JBIC)¨ Overseas Private Investment Corporation (OPIC, US)¨ SIMEST (Portuguese Development Finance Institution)