City Development Plan, Raipur City Finance and Investment Plan

7 FINANCE AND INVESTMENT PLAN

7.1 FINANCIAL PERFORMANCE

This chapter details the municipal finances of the municipal corporation and other following
entities involved in the provision of services and outline the receipts and expenditure over
the last five years.

• Raipur Municipal Corporation

7.2 RAIPUR MUNICIPAL CORPORATION

7.2.1 Municipal Finance Structure

Revenue
The revenue of RMC comes from own tax and non-tax sources, government grants (both
revenue and capital), loans and borrowings and deposits from public. The revenue structure
is dominated by government grants, as it constitutes 60 % share of total revenue of RMC.
Total own tax & non-tax revenue constitutes only 20 per cent of revenue.
The per capita total receipt of RMC in 2001 was about Rs. 1108, while per capita receipt
from own sources (tax and non-tax) was at Rs. 230. Per capita tax revenue stood at Rs.
148.43. RMC received per capita Rs. 632 as total grant (revenue and capital) from State
Government. The own revenue stream of RMC is dominated by property tax, which is
assessed, collected and retained by the Corporation.

Fig.No. 7.1 Ratio of Own Revenue to Total Revenue Income & to Total Income
0.5

0.4

0.3

0.2

0.1

0
2000-01 2001-02 2002-03 2003-04
Ratio of Own Revenue to Toal Revenue Income
Ratio of Own Revenue to Total Income

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Internal Revenue Sources

The main tax sources are property tax, water tax, conservancy tax and fire tax. Octroi was
abolished in 1976 and since then RMC is receiving compensatory grant with annual
increase of 10 percent. In the past four years CAGR of own revenue has been 7.70 %,
which is more than CAGR of total revenue (5.11 %) and grant receipt (3.85 %). Though it is
slightly more than other growth rates, it clearly indicates that RMC has made effort to
improve receipts from own tax and non-tax resources.
Income from tax sources of RMC has been very low, ranging between 13 to 15 percent of
the total income. Non-tax revenues are also low ranging 7 to 9 percent of total revenue.
Property tax's share in total revenue has been on an average only 5 percent while water tax
revenue constituted average 4 percent. Rest of the taxes yields less than 1 percent revenue
individually.

Property Tax

Only about a third (about 35,000) of total likely property tax payers are on the assessment
register of the RMC. An agency which has been working on computerization of property tax
records has identified around 1,10,000 property tax payers. But said agency has not
transferred this data base to RMC as there is dispute between RMC and the agency
regarding payment of consultancy fees or commission of recovering property tax income.
As a result RMC is still sending property tax bills to existing 35000 property tax payers only.
In addition to the narrow base the collection efficiency is also low (around 60 percent). As a
result current yield of property tax revenue is very low.

Grants and Aids

Grants and aids form between 65 to 70 per cent share in total revenue of RMC. RMC
receives revenue and capital grants from GoC. Both types of grants constitute almost equal
share. Revenue grants of RMG primarily come under following heads in the order share as
follows
1) Octroi compensation grant.

2) Surcharge on Sales Tax.

3) State Finance Commission Grants.

4) Passenger Tax Grant.

5) Stamp Duty Act Grant.

6) Other Miscellaneous Grants

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While capital grants are received mainly under two heads - a) programme grants and b)
capital grants. There is high degree of fluctuation in receipts of capital nature grants.

Expenditure Structure
Expenditure structure of RMC is dominated by revenue expenditure. On an average it
constituted more than 75 per cent of total expenditure while capital expenditure constituted
on average less than 25 per cent. Deposits refund and advances constituted very miniscule
percentage. Revenue expenditure has shown constant growth trend while capital
expenditure has been highly volatile as it mainly depends on availability of capital fund in
the form of grants and loans from GoC. RMC has no receipts from own capital resources.
Per capita total expenditure of RMC in 2001 was Rs. 1030.50 out of this per capita revenue
expenditure was Rs. 726.75, while per capita development expenditure was Rs. 303.75.
The revenue expenditure share of 75 per cent of total expenditure is made up of three
components salary related (average 33 per cent), maintenance (average 30 per cent) and
interest payments (10 per cent).
Every year revenue expenditure has remained more than revenue receipts of Raipur Municipal
Corporation thus there is a revenue deficit, which is financed by capital receipts.

Fig. Gap funded

No.7.2 by capital
Gap Funded income
by Capital Income

60.0

50.0
In Rs Crores

40.0

30.0

20.0

10.0

0.0
2000-01 2001-02 2002-03 2003-04

Revenue Income Revenue Expenditure

7.2.2 Key Observations

Quality of Data

The financial data for the year 2003-04 is not in confom1ity with the trend or time series.
When it was crosschecked, the municipal authority certified that at aggregate level data is

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correct and errors exist in categorization. Even if aggregate level data can be accepted as
correct, there is certainly a different form of classification of receipts and expenditure either
in 2003-04 or in the earlier years.

It can also be observed that opening and closing balances are matching on year-to-year
basis but not over the years. This figure tally for one year but previous year closing balance
is not carried to next year in correct manner. It indicates that there is a problem with
accounting system and there is no proper integration of accounting and budgeting.

Continuous Revenue Deficit

It can be observed from the Table 7.1 below that at aggregate level Raipur Municipal
Corporation was in surplus in the years 2000-2003, but as next Table 7.2 reveal there was a
revenue deficit every year and capital funds have financed revenue expenditure over the
years. Finally at aggregate level also it has entered into deficit in the last year 2003-04,
mainly due to lack of growth in the revenue side.

Table 7.1: Total receipts and payments of RMC in actual terms (Rs. In crore)
Particulars/Heads 1993- 1994- 1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003-
94 95 96 97 98 99 00 01 02 03 04
Actual total income 12.52 16.99 20.08 20.21 23.10 36.5 41.63 61.43 76.47 79.20 67.83
Annual Growth Rate of 35.70 18.19 0.65 14.30 58.01 14.05 47.56 24.48 3.57 14.36
Total Income %
Actual Total Expenditure 12.35 15.62 20.80 21.12 22.66 33.63 36.22 53.48 71.10 74.19 7.63
Annual Growth Rate of 26.48 33.16 1.54 7.29 48.41 7.70 47.65 32.95 4.35 7.33
Total Expenditure %

Table 7.2 - Revenue Income and Expenditure of RMC

2000-01 2001-02 2002-03 2003-04 2004-05
Particulars/Heads
Actual Actual Actual Actual Budgeted
Own Revenue 1232.5 1590.6 1964 1386.1 3669.1
Sub-total - Grants 2188.5 2542.2 2825.5 2380.7 3567.4
Total Revenue of RMC 3421 4132.8 4789.5 3766.8 7236.5
Sub-Total Revenue Exp 4412.2 5014.8 5714.6 3640.4 12950
Revenue Deficit -991.2 -882 -925.1 126.4 -5713.5

High Level of Capital Income (not from own sources) but Low Level of Capital
Expenditure

The detailed break up of the revenue and expenditure is given in Error! Reference source
not found. It can be observed that ratio between revenue income and capital income has

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been around 55:45 which indicates high level of capital income in RMC. Though share of
capital income is very high, it is not from own resources, but in the form of capital grants.
Error! Reference source not found. Also indicates that the share of capital expenditure in
the total expenditure has ranged between 18 to 29 percent, much less compare to ratio
between revenue and capital income. It indicates that in comparison to capital income RMC
has spent much less amount every year, as capital expenditure, which could be an indicator
of a low absorption capacity, but is more likely to be due to the need to fund the revenue
deficit.

State Revenue and Capital Income Structure

Though the revenue of RMC has increased -in absolute terms and especially after formation
of Chhattisgarh State, the relationship between different components of its receipts like
revenue and capital, own resource and government grants or property tax and total receipts
has not undergone major change.

Unrealistic Budgeting

The quality of budget estimates can be observed from Annexure 2. It can be observed that
budget formulation exercise is highly unrealistic in Raipur as actual revenue or expenditure
falls short of budgeted figure by more that 60 percent. This is a serious f1aw in budgeting
exercise and RMC needs to address it urgently.

Fig.No.7.3 Actual Income & Expenditure Figures against Budgeted Figures

60.0
Actuals as a % of budgete

50.0

40.0

30.0

20.0

10.0

0.0
2001-02 2002-03 2003-04

Income Expenditure

Poor Revenue Collection Efforts

The actual figures for the year 2003-04 are not available but limited data clearly indicates
that compared to the earlier two years RMC has fared badly on revenue collection front.

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Inadequate Accounting System and No Inventory of Assets

Raipur has initiated implementation of accrual based double entry accounting system but
accounting reforms are still not complete. Inventory of Assets of RMC is not in place but it
has started initiatives in this direction.

High Outstanding liabilities

RMC has high outstanding liabilities of about 40 Crores, which is roughly 4 times annual
own revenue levels. Bulk of these liabilities are outstanding electricity payments
(approximately 21 crores) and payments due to contractors (about 14 crores). The
outstanding liability of Raipur Municipal Corporation is shown in Figure 8 below. The year
wise break up of the outstanding liability is not available, but year wise revenue expenditure
of RMC is underreported in its budgets and tables to the extent these dues have not been
paid by RMC.
The responsibilities of Municipal Corporation are of various types right from providing,
operating and maintaining up keeping and charging for the services. It is true that the work
force required for all these activities to perform is of a greater magnitude but optimum work
force need to be worked out and due reduction in work force is appreciate. The budgetary
provision of expenditure expresses the establishment charges with in the prescribed limit of
the project but actual expenditures often exceed the provisions of budget. Reduction in
establishment cost can be achieved through public participation, BOT and private
participation. It is proposed to reduce this cost considerably during the period of mission.

7.3 FINANCIAL STATUS OF RAIPUR MUNICIPAL CORPORATION

7.3.1 Need And Directions of Change

Positioning of Raipur in the State

Raipur city is in a transition stage. While, it has traditionally been a commercial hub and a
part of a larger economic cluster, its new status as a capital city is providing it the character
of an administrative hub. Raipur City would continue to absorb the growth pressures due to
economic development of the State as a whole as also due to the economic activities
generated due to its national and regional roles. Thus Raipur city continues to be a focus
area for the State Government, inspite of a separate capital city being planned to house
administrative activities. The expected growth in the Raipur's population, its increasing role
as a capital city and the expanding trade is expected to increase the demand for better
urban services in the city of Raipur.

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The growth in the Raipur - Durg - Bhilai corridor would necessitate that throughout this
corridor, quality urban services are provided, including high quality transportation facilities.

Its interface with the State Government

State Government does not closely control Raipur but in future it will get controlled.
At present the Government of Chhattisgarh has focused on a leaner administrative set-up
across the State administration. In line with this, Raipur Municipal Corporation (RMC) plays
the dominant role in civic governance with only limited involvement of other authorities or
parastatals. But growing economic and political capital status of Raipur and the level of
financial dependence of RMC on the State Government will increase the level of
Government control over the city.

RMC is financially weak and is dependent on state grants

RMC has weak income levels and a high reliance on State Government transfers and
grants. RMC has an average shortfall of 20 % in the revenue budget. Weak income levels
have led to a large reliance on State Government transfers and grants, amounting to about
60 % of total income every year. Even the capital grants provided by the Government are
used to bridge the revenue deficit.

7.3.2 Priorities of Stakeholders

The priorities of stakeholders are detailed below

Raipur Municipal Corporation

Discussions with Mayor, Municipal Commissioner and other officers revealed following
reform priority for Raipur
1) Sewerage System

2) Road Network Improvement and solving traffic management

3) Solid waste management

4) City transport system

5) Water supply

6) Internal systems
A strong need is felt for system improvements in RMC.

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CIDC

From Chhattisgarh Infrastructure Development Corporation's point of view the following is

the priority for infrastructure development for Raipur City
1) Mass Rapid Transport System including city transport - Raipur along with nearby cities likes
Durg, Bhilai and Rajnandgaon forms an interdependent cluster of cities. MRTS is the urgent
need of not only Raipur but of all these other cities.

2) Underground Sewerage System

3) Solid Waste Management

4) Better urban planning of the city

5) Development of adequate Road

Network

State Government

The formation of new capital city is a priority agenda for the State Government and, by
constitution, for CADA. The present facilities in Raipur are not adequate to handle the
administrative requirements of a capital for a long term. In addition the following priorities
emerged:
1) Raipur needs to address the strong needs of transportation and housing in the Raipur - Bhilai
Durg economic cluster.

2) In the existing city, the levels of urban services are poor and need to be upgraded.

3) The Raipur Municipal Corporation also needs to improve its fiscal position to reduce its reliance
on transfers and grants from the State Government.

The priorities and associated costs result in four levels of initiatives that are felt needs in
Raipur.
Level I - the capital city formation is a need that is owned by the State Government. It would
also need to be driven by the State Government since the resource requirements are large.
Level 2 - The transportation and housing requirements for the emerging economic and
industrial corridor of Raipur - Durg - Bhilai is also a state level priority and similar to the
capital city requires large resources.

Level 3 - Upgradation of infrastructure at the city level requires efforts by RMC. Given its
current level of dependence on the State Government, it is unlikely that this could be done
without the support of the State Government. .
Level 4 - Fiscal and systems improvements that can be driven entirely by RMC.

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7.3.4 Roadmap For Reform Oriented Fund In Raipur

Enablers for change

The State Government has had a consistent reform agenda since inception; the State
Government of Chattisgarh had adopted reform agendas in several sectors. Specifically for
Raipur, the planning function has been integrated with the local body and RMC today has
responsibility for delivering most of the urban services. These places RMC in a favorable
reform climate with enough autonomy to undertake a reform programme focused on the city.
The State Government also has a special focus on developing Raipur as a world-class city,
consistent with its growing status as a trading and administrative hub.
.
Raipur's along with its neighbouring cities forms a high growth economic corridor

The Raipur-Bhilai-Durg corridor has historically been a commercially active cluster, and with
the emergence of Raipur as capital of the state, these activities, have grown manifold.
There is an underlying need to focus on economic growth of this corridor and to plan for
integrated urban services for all three cities that form this corridor. This need has been
recognized by the Government and has officially been stated as a priority.

The new capital city would decongest Raipur, and can be planned as a model for urban
governance

The new capital city could be an ideal starting point for introducing a model urban
governance system. This provides a non-conventional opportunity to introduce the right
political, institutional and administrative structures of urban governance. Such a structure
could also function as a model for the rest of the State in its urban agenda.

CIDC and CADA could function as reform partners

Both CIDC and CADA have been formed recently, to assist the State in its agenda. These
agencies, due to the nature of their function, are well placed to assist RMC in a reform
programme.

Potential for generation of funds through revenue reforms

The current levels of inefficiency in internal revenue generation of RMC indicate that a well-
designed revenue reform programme could generate significant funds to carryout some of
the investment needs. RMC also has control of the planning and building regulation

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functions. With adequate changes in the legislation, RMC would be able to leverage the
revenue potential of these functions.

7.3.5 Constraints for change

State Government is keen and is able to fund moderate investments

After the division of the State, the financial position of Chhattisgarh State has improved As a
result; the allocation to the urban sector has quadrupled in the past three years. The total
budget size (total income) of the RMC was about Rs. 79.2 crores in 2002-03, which
included revenue and capital grant of about Rs. 59.6 crores. In this scenario, the
stakeholders have a stable source of financial support to meet their operation and
investment requirements. The process of securing these funds is also easy for the local
body. Being the State capital, there is also a willingness on the part of the State
Government to provide support to the City. This reduces the attractiveness of an external
incentive fund.

Keenness for simple fund procedures

Possibly as a result of the existing support from State Government, the keenness to follow
complex funding conditions is very low. We understand from the stakeholders that they
would be interested in parallel support mechanisms, but would look forward to a simple
process for appraisal and disbursement.

The larger priorities of Raipur need much larger funds

The priority needs for Raipur are the creation of transportation infrastructure and the new
capital city, which will lessen the strain on the existing city. Both these are also a part of the
State Government agenda. The funding required for these priorities is large and may quite
exceed the limits of any reform-oriented fund.

7.3.6 The best scenarios cannot be achieved

Since an assured level of funding exists, possibly relatively large compared to what a reform
oriented fund could provide, it would be difficult to incentives Raipur to adopt a set of
initiatives which are at, variance with its agenda.

On the other hand, the priorities of Raipur and the State Government, which they would not
be able to implement with their funding capability, also go far beyond the capability any

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reform oriented fund. As a result, neither can the full set of priorities of the stakeholders, be
addressed by a reform-oriented fund.

7.3.7 Potential exists to align with some of the priorities

Given the focus the State Government has on Raipur, it is inevitable that it continues to
support RMC in its investment needs. Such support would gradually weaken the financial
independence of RMC (even at present it relies on Government support for revenue
expenditure). A reform-oriented fund can work with RMC to correct such a possibility
through internal revenue reforms.
Similarly, the State Government would continue to place a priority on economic growth in
the Raipur-Durg-Bhilai corridor. Technical support to the Government in developing a sound
plan for economic growth coupled with sound urban services in the corridor is another
possible option.
The State Government has already identified internal reforms in RMC as apriority so that
urban services are delivered better. A reform-oriented fund could leverage this priority and
work Witi1 both RMC and the Government to set up a service delivery focus within RMC. A
linkage between service delivery improvement and Government support is also possible,
given the keenness of the Government on these improvements.
Thus a reform oriented in Raipur would align with the existing agenda of the RMC and the
State Government. Even within this a large scope exists
1) To improve financial management so that priority investments can be undertaken

2) To help the State Government develop an economic plan for its key corridor of growth

3) To design a linkage between Government support and service delivery

7.4 Design characteristics of a reform oriented fund in Raipur

7.4.1 What would the fund seek to achieve
The fund should target to achieve
I) Financial management improvements in the Raipur Municipal Corporation to
enable it to
a) Improve own revenues, specifically property tax through coverage and collection
improvements

b) Bridge the existing revenue deficit

c) Generate a revenue surplus with which city level investments can be

undertaken

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d) Through these measures reduce the reliance on the State Government on both the revenue
and the capital account

e) Improve the quality of accounting and budgeting practices

2) Service delivery improvements in the short term, specifically

a) Door to door collection of solid waste

b) Coverage of water supply network

c) Number of households connected to the sewerage network

3) Service delivery improvements in the medium term

a) Disposal of solid waste in line with MSW Rules 2000

b) Full coverage of water supply in the town and improvements in the hours of supply

c) Expansion of the sewerage network and treatment infrastructure

d) Transportation solutions for the Raipur - Durg - Bhilai corridor

4) Initiate a planning process fur integrated urban services delivery in the Raipur-Durg-
Bhilai corridor

4) Initiate changes in planning legislation

7.4.2 Where should the dialogue be targeted

The fund should leverage the priority that the Government of Chattisgarh has placed on
Raipur. The fund objectives are similar to that of the State Government. Hence the dialogue
should be targeted at the State Government. Such a dialogue can also leverage the
revenue support that the Government of Chattisgarh today provides to Raipur city. At
present, the support (both on the revenue and the capital accounts) is without any outcome
expectations.

Through such a dialogue, the fund would also be able to assist the State Government in its
priorities, such as economic planning for the Raipur - Durg - Bhilai corridor and the plans for
the new capital city.

7.4.3 What should the fund offer

The fund would seek initiatives from both the State Government and the RMC. From RMC,
the initiatives would be in line with the objectives listed in Section 7.4.1. The fund should
seek the Government of Chattisgarh to redesign the current unconditional revenue support
to a performance based revenue support. Specifically the performance requirements should
include
1) Revenue and financial management improvements

2) Service delivery outcomes

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To incentives the State Government to reorient its revenue support, the fund could offer a
combination of
1) Financial support to. RMC proportionate to the performance based support from the Government
of Chattisgarh

2) Technical assistance to meet the Government's priorities, in economic planning and in capital
city initiatives.

3) Partial financial assistance for the capital city initiatives and for improving transportation in the
Raipur -Durg - Bhilai corridor

3) Partial financial assistance for urban infrastructure improvements in Raipur city (such as
sewerage network, solid waste disposal facilities)

Current Situation With the reform fund

Initiatives for
the economic
GoC corridor and
capital city

GoC Fund Matching Performance

assistance based support

Revenue
Support Part financial support Raipur-Durg-Bhilai
for urban
RMC economic corridor.
infrastructure Capital City
RMC
Improved financial Improved urban
management services

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