Remember the July 26 rains that marooned India?s financial capital Mumbai in 2005? Or the familiar long queues for water in the political capital, Delhi? As a taxpayer, if you are frustrated about why such things continue to happen, here are some telling facts about the way municipal finances are managed?

Capital expenditure by 35 municipal corporations, which includes spending on water supply, sewerage, buildings, energy, solid waste management and urban infrastructure, was less than 13% of total expenditure during 2000-2004. In fact, expenditure on salary and administration constituted 36.25% of the total spending by these urban local bodies (ULBs), according to a recent Reserve Bank study on municipal finances. This at a time when in a few decades India may have 50% of its population living in cities and towns.

Also, the municipal corporations spent more money on roads, parks and playgrounds than on basic civic amenities. Public works accounted for about 44% of total expenditure during this period, with roads, parks and playgrounds taking up 19.5% of total expenditure, while spending on essential services like water supply, drainage, sewerage, health and sanitation, solid waste management was comparatively low, according to the study, Municipal Finance in India: An Assessment, which used data from 35 corporations across India to assess their financial performance.

With growing urbanisation, ULBs need to play a more crucial role in providing basic amenities. As per the 12th Finance Commission, there are 3,723 ULBs, of which 109 are municipal corporations, 1,432 municipalities and 2,182 nagar panchayats. However, per capita spending on core services by municipal corporations indicated under-spending at an average of 76%, varying between 30.78% in the case of Pune to 94.43% in the case of Patna. The highest under-spending was found by municipal corporations in Bihar and Uttar Pradesh, while those in Maharashtra and Gujarat were among the best performers.

Estimating a shortfall of about Rs 10,000 crore for providing basic civic amenities alone, the study called for sweeping reforms in the existing system of municipal finance. It said an investment of about Rs 63,000 crore per annum was required for urban infrastructure, including basic civic amenities, mass transport and roads for the 10-year period (2004-05 to 2013-14). Of this, Rs 28,000 crore pa was needed for civic amenities alone. ??Assuming the current status quo in the fiscal-federal relationship??, the study projected that ULBs had the potential to raise revenue of only about Rs 27,285 crore or 1.0% of GDP.

Calling for granting municipal corporations greater access to borrowed funds, the study said while this might lead to higher user charges, it would make new projects economically viable. Some suggested options were: specialised banks for municipal lending, municipal bond markets and specialised municipal funds, as in

Tamil Nadu.

The study suggested that ULBs be given autonomous authority to set realistic tax rates and user charges as also pursue hire and fire policies. It also suggested setting up a Centre-state local partnership for development of urban infrastructure as also focus on maximising revenue from property taxes, user charges and use of urban land as a resource.