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The Finance Minister, Ms. Nirmala Sitharaman, presented the Union Budget for the financial year 2019-20 in Parliament on July 5, 2019. In the 2019-20 budget, the government presented the estimates of its expenditure and receipts for the year 2019-20. The budget also gave an account of how much money the government raised or spent in 2017-18. In addition, the budget also presented the revised estimates made by the government for the year 2018-19 in comparison to the estimates it had given to Parliament in the previous year’s budget.
What are revised estimates?
Some of the estimates made by the government might change during the course of the year. For instance, once the year gets underway, some ministries may need more funds than what was actually allocated to them in the budget, or the receipts expected from certain sources might change. Such deviations from the budget estimates get reflected in the figures released by the government at later stages as part of the subsequent budgets. Once the year ends, the actual numbers are audited by the Comptroller and Auditor General of India (CAG), post which they are presented to Parliament with the upcoming budget, i.e. two years after the estimates are made.
For instance, estimates for the year 2018-19 were presented as part of the 2018-19 budget in February 2018. In the 2019-20 interim budget presented in February 2019 (10 months after the financial year 2018-19 got underway), the government revised these estimates based on the actual receipts and expenditure accounted so far during the year and incorporated estimates for the remaining two months.
The actual receipts and expenditure accounts of the central government are maintained by the Controller General of Accounts (CGA), Ministry of Finance on a monthly basis. In addition to the monthly accounts, the CGA also publishes the provisional unaudited figures for the financial year by the end of the month of May. Once these provisional figures are audited by the CAG, they are presented as actuals in next year’s budget. The CGA reported the figures for 2018-19 on May 31, 2019.[1] The Economic Survey 2018-19 presented on July 4, 2019 uses these figures.[2]
The budget presented on July 5 replicates the revised estimates reported as part of the interim budget (February 1, 2019). Thus, it did not take into account the updated figures for the year 2018-19 from the CGA.
Table 1 gives a comparison of the 2018-19 revised estimates presented by the central government in the budget with the provisional unaudited figures maintained by the CGA for the year 2018-19.[3]
Table 1: Budget at a Glance: Comparison of 2018-19 revised estimates with CGA figures (unaudited) (Rs crore)
Actuals |
Budgeted |
Revised |
Provisional |
Difference |
|
Revenue Expenditure |
18,78,833 |
21,41,772 |
21,40,612 |
20,08,463 |
-1,32,149 |
Capital Expenditure |
2,63,140 |
3,00,441 |
3,16,623 |
3,02,959 |
-13,664 |
Total Expenditure |
21,41,973 |
24,42,213 |
24,57,235 |
23,11,422 |
-1,45,813 |
Revenue Receipts |
14,35,233 |
17,25,738 |
17,29,682 |
15,63,170 |
-1,66,512 |
Capital Receipts |
1,15,678 |
92,199 |
93,155 |
1,02,885 |
9,730 |
of which: |
|
|
|
|
|
Recoveries of Loans |
15,633 |
12,199 |
13,155 |
17,840 |
4,685 |
Other receipts (including disinvestments) |
1,00,045 |
80,000 |
80,000 |
85,045 |
5,045 |
Total Receipts (without borrowings) |
15,50,911 |
18,17,937 |
18,22,837 |
16,66,055 |
-1,56,782 |
Revenue Deficit |
4,43,600 |
4,16,034 |
4,10,930 |
4,45,293 |
34,363 |
% of GDP |
2.6 |
2.2 |
2.2 |
2.4 |
|
Fiscal Deficit |
5,91,062 |
6,24,276 |
6,34,398 |
6,45,367 |
10,969 |
% of GDP |
3.5 |
3.3 |
3.4 |
3.4 |
|
Primary Deficit |
62,110 |
48,481 |
46,828 |
62,692 |
15,864 |
% of GDP |
0.4 |
0.3 |
0.2 |
0.3 |
|
Sources: Budget at a Glance, Union Budget 2019-20; Controller General of Accounts, Ministry of Finance; PRS.
The 2018-19 provisional figures for revenue receipts is Rs 15,63,170 crore, which is Rs 1,66,512 crore less than the revised estimates. This is largely due to Rs 1,67,455 crore shortfall in centre’s net tax revenue between the revised estimates and the provisional estimates (Table 2).
Major taxes which see a shortfall between the gross tax revenue presented in the revised estimates vis-à-vis the provisional figures are income tax (Rs 67,346 crore) and GST (Rs 59,930 crore). Non-tax revenue and disinvestment receipts as per the provisional figures are higher than the revised estimates.
Table 2: Break up of central government receipts: Comparison of 2018-19 RE with CGA figures (unaudited) (Rs crore)
|
Actuals |
Budgeted |
Revised |
Provisional |
Difference |
Gross Tax Revenue |
19,19,009 |
22,71,242 |
22,48,175 |
20,80,203 |
-1,67,972 |
of which: |
|
|
|
|
|
Corporation Tax |
5,71,202 |
6,21,000 |
6,71,000 |
6,63,572 |
-7,428 |
Taxes on Income |
4,30,772 |
5,29,000 |
5,29,000 |
4,61,654 |
-67,346 |
Goods and Services Tax |
4,42,562 |
7,43,900 |
6,43,900 |
5,83,970 |
-59,930 |
Customs |
1,29,030 |
1,12,500 |
1,30,038 |
1,17,930 |
-12,108 |
Union Excise Duties |
2,59,431 |
2,59,600 |
2,59,612 |
2,30,998 |
-28,614 |
A. Centre's Net Tax Revenue |
12,42,488 |
14,80,649 |
14,84,406 |
13,16,951 |
-1,67,455 |
B. Non Tax Revenue |
1,92,745 |
2,45,089 |
2,45,276 |
2,46,219 |
943 |
of which: |
|
|
|
|
|
Interest Receipts |
13,574 |
15,162 |
12,047 |
12,815 |
768 |
Dividend and Profits |
91,361 |
1,07,312 |
1,19,264 |
1,13,424 |
-5,840 |
Other Non-Tax Revenue |
87,810 |
1,22,615 |
1,13,965 |
1,19,980 |
6,015 |
C. Capital Receipts (without borrowings) |
1,15,678 |
92,199 |
93,155 |
1,02,885 |
9,730 |
of which: |
|
|
|
|
|
Disinvestment |
1,00,045 |
80,000 |
80,000 |
85,045 |
5,045 |
Receipts (without borrowings) (A+B+C) |
15,50,911 |
18,17,937 |
18,22,837 |
16,66,055 |
-1,56,782 |
Borrowings |
5,91,062 |
6,24,276 |
6,34,398 |
6,45,367 |
10,969 |
Total Receipts (including borrowings) |
21,41,973 |
24,42,213 |
24,57,235 |
23,11,422 |
-1,45,813 |
Note: Centre’s net tax revenue is gross tax revenue less share of states in central taxes. Figures for GST include receipts from the GST compensation cess. Note that GST was levied for a nine-month period during the year 2017-18, starting July 2017.
Sources: Receipts Budget, Union Budget 2019-20; Controller General of Accounts, Ministry of Finance; PRS.
While the provisional figures show a considerable decrease in receipts (Rs 1,56,782 crore) as compared to the revised estimates, fiscal deficit has not shown a comparable increase. Fiscal deficit is estimated to be Rs 10,969 crore higher than the revised estimates as per the provisional accounts.
On the expenditure side, the total expenditure as per the provisional figures show a decrease of Rs 1,45,813 crore as compared to the revised estimates. Certain Ministries and expenditure items have seen a decrease in expenditure as compared to the revised estimates made by the government. As per the provisional accounts, the expenditure of the Ministry of Agriculture and Farmers’ Welfare and the Ministry of Consumer Affairs, Food and Public Distribution are Rs 22,133 crore and Rs 70,712 crore lower than the revised estimates, respectively. The decrease in the Ministries’ expenditure as a percentage of the revised estimates are 29% and 39%, respectively. The food subsidy according to CGA was Rs 1,01,904 crore, which was Rs 69,394 crore lower than the revised estimates for the year 2018-19 given in the budget documents.
[1] “Accounts of the Union Government of India (Provisional/Unaudited) for the Financial Year 2018-19”, Press Information Bureau, Ministry of Finance, May 31, 2019.
[2] Fiscal Developments, Economic Survey 2018-19, https://www.indiabudget.gov.in/economicsurvey/doc/vol2chapter/echap02_vol2.pdf.
[3] Controller General of Accounts, Ministry of Finance, March 2018-19, http://www.cga.nic.in/MonthlyReport/Published/3/2018-2019.aspx.
Recently, the Karnataka legislature passed the Bruhat Bengaluru Mahanagara Palike (BBMP) Bill, 2020. BBMP is the municipal corporation of the Greater Bengaluru metropolitan area. The BBMP Act, 2020 seeks to improve decentralisation, ensure public participation, and address certain administrative and structural concerns in Bengaluru. In this blog, we discuss some common issues in urban local governance in India, in the context of Bengaluru’s municipal administration.
The Constitution (74th Amendment) Act, 1992 provided for the establishment of urban local bodies (ULBs) (including municipal corporations) as institutions of local self-government. It also empowered state governments to devolve certain functions, authority, and power to collect revenue to these bodies, and made periodic elections for them compulsory.
Urban governance is part of the state list under the Constitution. Thus, the administrative framework and regulation of ULBs varies across states. However, experts have highlighted that ULBs across India face similar challenges. For instance, ULBs across the country lack autonomy in city management and several city-level functions are managed by parastatals (managed by and accountable to the state). Several taxation powers have also not been devolved to these bodies, leading to stressed municipal finances. These challenges have led to poor service delivery in cities and also created administrative and governance challenges at the municipal level.
BBMP was established under the Karnataka Municipal Corporation Act, 1976 (KMC Act). The BBMP Act, 2020 replaces provisions of the KMC Act, 1976 in its application to Bengaluru. It adds a new level of zonal committees to the existing three-tier municipal structure in the city, and also gives the Corporation some more taxation powers. Certain common issues in urban local governance in India, with provisions related to them in the BBMP Act, 2020 are given below.
Functional overlap with parastatals for key functions
The Constitution (74th Amendment) Act, 1992 empowered states to devolve the responsibility of 18 functions including urban planning, regulation of land use, water supply, and slum upgradation to ULBs. However, in most Indian cities including Bengaluru, a majority of these functions are carried out by parastatals. For example, in Bengaluru, the Bengaluru Development Authority is responsible for land regulation and the Karnataka Slum Clearance Board is responsible for slum rehabilitation.
The BBMP Act, 2020 provides the Corporation with the power and responsibility to prepare and implement schemes for the 18 functions provided for in the Constitution (74th Amendment) Act, 1992. However, it does not provide clarity if new bodies at the municipal level will be created, or the existing parastatals will continue to perform these functions and if so, whether their accountability will shift from the state to the municipal corporation.
This could create a two-fold challenge in administration. First, if there are multiple agencies performing similar functions, it could lead to a functional overlap, ambiguity, and wastage of resources. Second, and more importantly, the presence of parastatals that are managed by and accountable to the state government leads to an erosion of the ULB’s autonomy. Several experts have highlighted that this lack of autonomy faced by municipal corporations in most Indian cities leads to a challenge in governance, effective service delivery, and development of urban areas.
An Expert Committee on Urban Infrastructure (2011) had recommended that activity mapping should be done for the 18 functions. Under this, functions in the exclusive domain of municipalities and those which need to be shared with the state and the central government must be specified. Experts have also recommended that the municipality should be responsible for providing civic amenities in its jurisdiction and if a parastatal exercises a civic function, it should be accountable to the municipality.
Stressed municipal finances
Indian ULBs are amongst the weakest in the world in terms of fiscal autonomy and have limited effective devolution of revenue. They also have limited capacity to raise resources through their own sources of revenue such as property tax. Municipal revenue in India accounts for only one percent of the GDP (2017-18). This leads to a dependence on transfers by the state and central government.
ULBs in states like Uttar Pradesh, Uttarakhand, Bihar, Jharkhand, Rajasthan, and Haryana are in poor financial condition. This has been attributed to limited powers to raise revenue and levy taxes, and problems in the management of existing resources. For instance, the finances of Bihar’s ULBs were assessed to be poor because of: (i) delays in release of grants, (ii) inadequate devolution of funds, and (iii) delays in revision of tax rates and assessments of landholdings.
In comparison, Karnataka ranks high among Indian states in key indicators for fiscal capacity like collection of property taxes, grants from Central Finance Commissions, and state government transfers. The BBMP Act, 2020 further increases the taxation powers of the Corporation, by allowing it to impose taxes on professions and entertainment.
Experts have recommended that the central government and the respective state government should provide additional funds and facilitate additional funding mechanisms for ULBs to strengthen their finances. The revenue of ULBs can be augmented through measures including assignment of greater powers of taxation to the ULBs by the state government, reforms in land and property-based taxes (such as the use of technology to cover more properties), and issuing of municipal bonds (debt instruments issued by ULBs to finance development projects).
Powers of elected municipal officials
The executive power with state-appointed municipal Commissioners and elected municipal officers differs across states. States like Tamil Nadu and Gujarat, and cities like Chennai and Hyderabad vest the executive power in the Commissioner. In contrast, the executive power of the Corporation is exercised by a Mayor-in council (consisting of the Mayor and up to 10 elected members of the Corporation) in Kolkata and Madhya Pradesh. This is unlike large metropolitan cities in other countries like New York and London, where elected Mayors are designated as executive heads. Experts have noted that charging Commissioners with executive power diluted the role of the Mayor and violated the spirit of self-governance.
Under the BBMP Act, 2020, both the elected Mayor and the state-appointed Chief Commissioner exercise several executive functions. The Mayor is responsible for approving contracts and preparing the budget estimate for the Corporation. He is also required to discharge all functions assigned to him by the Corporation. On the other hand, executive functions of the Chief Commissioner include: (i) selling or leasing properties owned by the Corporation, and (ii) regulating and issuing instructions regarding public streets.
The Expert Committee on Urban Infrastructure (2011) has recommended that the Commissioner should act as a city manager and should be recruited through a transparent search-cum-selection process led by the Mayor. A Model Municipal law, released by the Urban Development Ministry in 2003, provided that the executive power should be exercised by an Empowered Standing Committee consisting of the Mayor, Deputy Mayor, and seven elected councillors.
Management of staff and human resources
Experts have noted that municipal administration in India suffers from staffing issues which leads to a failure in delivering basic urban services. These include overstaffing of untrained manpower, shortage of qualified technical staff and managerial supervisors, and unwillingness to innovate in methods for service delivery.
The BBMP Act, 2020 provides that the Corporation may make bye-laws for the due performance of duties by its employees. However, it does not mention other aspects of human resource management such as recruitment and promotion. A CAG report (2020) looking at the implementation of the Constitution (74th Amendment) Act, 1992 in Karnataka has observed that the power to assess municipal staff requirements, recruiting such staff, and determining their pay, transfer and promotion vests with the state government. This is in contrast with the recommendations of several experts who have suggested that municipalities should appoint their personnel to ensure accountability, adequate recruitment, and proper management of staff.
Other states including Kerala, Maharashtra and Tamil Nadu also allow the state governments to regulate recruitment and staffing for ULBs. In cities like Mumbai, and Coimbatore, and some states like Gujarat and Madhya Pradesh, while the recruitment process is conducted by the respective municipal corporations, the final sanction for hiring staff lies with the state government.