MCD strike: Kejriwal's Rs 551 crore loan isn't enough to clean Delhi's mess

QUICK PILL

Municipal mess

• MCD workers have been on strike as their salaries haven\'t been paid

• Delhi CM Arvind Kejriwal has offered a Rs 551 crore to bail out the debt-ridden MCD

The crisis

• This might not be enough. MCD\'s problems are more structural

• The root cause is that MCD\'s sources of revenue have shrunk

More in the story

• Is Kejriwal\'s \"bailout\" enough?

• Who is to blame for this mess?

• What is the way out?

The tug-of-war between the Arvind Kejriwal government and the BJP-led MCD has plagued Delhi since February last year. On Wednesday, CM Kejriwal has offered to bail out the Municipal Corporation of Delhi (MCD) with a Rs 551 crore loan so that striking workers of 2 corporations can be paid their salaries.

Additionally, the North Delhi Municipal Corporation will be paid Rs.142 crore against the stamp duty bill.

"An impression is being created that the Delhi government is responsible for the financial mess in the MCDs which have been ruled by BJP for the last 10 years. There are huge scams in MCDs. A situation is being created through the strike of the municipal workers to show that there is a crisis in Delhi," Kejriwal stated.

Taking a dig at the Narendra Modi government, he added, "The Centre wishes to impose President's rule in Delhi".

Delhi Deputy Chief Minister Manish Sisodia with Government officials during a press conference over the issue of MCD Strike at Delhi Secretariat on 3 February, 2016 in New Delhi, India. Photo: Sonu Mehta/Hindustan Times/Getty Images

He emphasised that the state government did not owe any money to the MCD and the crisis is entirely of their own making. He reiterated that his government has allocated double the amount of funds to the three civic bodies in the current fiscal compared to the previous year which, he alleged, has been diverted.

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With this, he prodded the CBI to look into the alleged mismanagement of funds that is ostensibly plaguing the corporation and keeping them in the red.

However, Kejriwal Rs.551 crore loan is merely cold comfort for the MCD. A look at the MCD's past reveals that there is no sustainable way out of this mess unless the corporation sets its house in order.

Who is to blame?

AAP's view:

The Delhi government claims that it has given the MCDs all its dues for the current financial year. But corporation officials say that the government has only provided funds as per its own budget estimates and not the budget requirements of the civic bodies.

According to AAP, compared to the corresponding period in 2014, the Delhi government had so far released 75% of the funds earmarked for the current financial year to the North Delhi corporation, 69% to the South Delhi corporation and 64% to East Delhi corporation.

AAP also claims that if the Rs 1,551 crores owed by the central government controlled DDA to the MCD is released, the corporation would be able to tide over this crisis.

MCD's view:

The corporations said that while grant-in-aid has been provided "in full", the Municipal Reform Fund remains unpaid since Sheila Dikshit was voted went out of power in 2013. This amount, as per the corporations, is Rs 1,322 crore.

Apart from this, they criticised the government for delaying the implementation of the Fourth Finance Commission report. It was ultimately tabled in the assembly and accepted by the AAP government on 2 December last year. The report recommends higher share of the state government's taxes to the corporations.

However, the government said it will implement the report when the Centre does. The corporations apply this retrospectively and calculate a fund deficit of Rs 6,176 crore for all three civic bodies since 2013.

Apart from this, the MCD was promised Rs 500 crore by the Union urban development ministry for the Swachh Bharat Abhiyan, but no funds have been released as yet.

Centre-state blame game: who is in-charge of MCD?

At the core of this issue lies Delhi's unique power sharing arrangement with the Centre. The BJP-ruled municipal corporations report to the Centre as well as the state. However, they receive their funds from the Delhi government which allocates a part of the budget is sanctioned by the Centre, to MCD.

Mayors of the three municipal corporations recently issued a newspaper advertisement claiming that the Delhi government was "constitutionally mandated and fully responsible for the management of the civic bodies".

However, the state government has consistently maintained that apart from their cursory financial responsibility, which they have fulfilled, the state does not have direct power over MCD.

In an open letter published on 30 October, the CM had said that there was a misconception among the people that municipal corporations fell under the jurisdiction of the Delhi government. He termed it "absolutely incorrect".

So, how does MCD generate funds?

In addition to the revenues earned through taxes, licensing, and parking fees, the corporations are supposed to receive funds from the Delhi government. Property tax is the biggest source of revenue. Corporations take up projects on behalf of the state or Central government, such as sanitation or family planning, for which they are reimbursed.

The state gives two types of grants to the MCD every fiscal. The Ways and Means grant can be utilised by the corporations as they please - to pay salaries or for other expenses.

The other is the global share ie. 5.5% of the tax revenue collected by the state through transfer of duty, vehicle registration, parking charges and electricity tax.

Of the global share, 1.5% is a grant for municipal reforms and it's released at the government's discretion.

The mayors have claimed that the state government owed Rs 1,139 crore to the three municipal corporations in grants and Rs 1,322 crore in municipal reform funds.

It should be noted that the woes of MCD go back to the late 1990s.

The corporations claim their balance sheets are in the red because their sources of revenue have been drastically slashed in the past few years. The Sheila Dikshit government took away a large chunk of the services offered by the Municipal Corporation of Delhi.

AAP says Delhi govt owes no money to the MCD. MCD claims it owes Rs 6,176 crore

Most of the corporations' revenue-generating services - roads, rural development, development of unauthorised colonies, Delhi Jal Board, Fire Department - are now under the Delhi government. And most of their advertising sites have been handed over to the PWD, Delhi Metro and other government bodies. Transfer duties have also been reduced.

To make up the shortfall, the MCD hiked rates for services like parking, which only anger ed the public.They have also sold portions of their civic centres and diverted funds from central government grants.

The corporations later demanded a "return" of the civic services and authority that was granted to urban local bodies by the 74th amendment Act, but to no avail.

Impact of trifurcation

The MCD was trifurcated into North, South and East corporations by the Congress government in 2011. Some say it was to keep a check on the BJP-controlled corporation.

Soon after the split, the corporations took a loan of more than Rs 2,000 crore from the state government to get going.

As for the pre-trifurcation MCD's accumulated grants of Rs 1,800 crore, North got Rs 700 crore, East Rs 335 crore and South the rest.

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North and East, devoid of good sources of revenue, have taken loans from the state and the centre every year since then, piling up huge debts.

In fact, the two corporations barely managed to pay salaries and things got progressively unmanageable during the past fiscal.

The South corporation, however, has managed to stay just above the water thanks to good sources of revenue.

Rich South and inequality between corporations

The fact that the South corporation has managed to steer clear of debt and even generate profits is largely due to the trifurcation process.

Long queue of vehicles at NH-24 as MCD Employees blocked the road in protest against the government for non-payment of their salaries. Photo: Arun Sharma/Hindustan Times via Getty Images

The sources of income of the erstwhile MCD were distributed unevenly during trifurcation.The financial implications of the trifurcation were not thought through - the East Corporation received the largest share of the unpaid loans of the unified MCD.

The East also loses out on property tax because most of its areas come in category H, the lowest of the 8 categories into which properties in Delhi are divided. East corporation's annual property tax revenue is a fifth of what the South corporation, which has properties in categories A-D, collects.

Some say that the only viable solution to address this inequality would be unify the three corporations.

Inefficacy and 'diversion of funds'

The AAP led Delhi government has time and again reiterated that there is a salary scam plaguing the MCD, because of which the annual budget is not being spent on salaries.

A major problem is that enforcement of property taxes have been trumped by populism and the MCD has failed to streamline their tax system.

For example, the East and North corporations together spend Rs 125 crore on old-age pension even though it's not their core obligation.

When MCD was trifurcated, the areas with lucrative sources of revenue went to the South corporation

Bureaucratic laziness and lack of accountability have further crippled the system.As per a survey conducted for the year 2014-15, Mumbai Praja Foundation revealed that the three corporations of the MCD are "non-responsive and non-accountable" while the councillors in charge of looking after their wards have been "disengaged".

The survey also reveals that 28 of the 272 councillors, including current and former mayors, had never raised a single query in their term as more than 1,100 of the 31,000 complaints filed with the MCD in that period were not legible.

The state government alleges scams and inefficacy on two other grounds. Despite administering a huge area, MCD's ad revenue in the past fiscal was just Rs 95 crore. The North, the biggest municipality, made just Rs 17 crore. And revenue from property taxes has declined in the past 3 years even though real estate prices have skyrocketed.

Solution

Even though the Delhi government has offered to bail out the MCD, the corporation won't be financially viable unless a long term solution is adopted. The North corporation generates a revenue of Rs 2,000 crore. Its basic annual expenditure touches Rs 2,800 crore.

The state government will not be able to fill this gap every year. The recommendations of the Fourth Finance Commission can help in increasing the chunk allocated to the corportions annually. However, for a long term solution, the MCDs themselves will have to risk political and electoral gains and implement some non-popular reforms that could save their sinking ship.

The coporations could increase in taxes and revise upwards the classification of some areas to get higher property taxes.

Unification of the MCD or bringing it under the state government's purview could be considered but this ties it up with the vexed statehood issue.

In this situation, the corporations should ideally demand that their loans be waived. The MCD had, in fact, raised this demand with the Sheila Dikshit government, but to no avail.

Edited by Aditya Menon

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