A fresh look at municipals is needed

The RBI has recently brought out a study on municipal finances and has recommended that they should be borrowing more in the market. However, for such activity to take place, several reforms are needed to ensure that they are run on sound lines

Madan SabnavisUpdated: Friday, November 25, 2022, 10:45 PM IST
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Gokhale Bridge is a name that has been in the news and is now familiar to all residents of Mumbai, and it speaks a lot about how municipalities are run and why they fail. The bridge connects the Eastern and Western sides of Andheri on the Western line, and the storyline goes like this.

During the monsoon in 2018 a part of the bridge collapsed, resulting in casualties. The bridge was under renovation for four years, during which time only half the bridge was operational for traffic moving on both sides. Simultaneously another flyover was commissioned from the highway to the start of Gokhale Bridge which is now in a precarious state. The side roads, which saw traffic crawl for four years, deteriorated with potholes and were never repaired. Curiously, post the collapse of Morbi Bridge in Gujarat, a report was flashed to say that the bridge is dangerous and cannot be used. It has been shut down. A new one is to be built now by September 2023. And more recently, VJTI and IIT have been asked to submit reports on whether the same should be open to light vehicular traffic because of public umbrage.

This story is both hilarious and serious. Wasn’t Gokhale Bridge under renovation for four years? If it could not be done in four years how it can be done in less than a year? Who takes responsibility for nothing being done all along? Why are authorities enthusiastic in getting new bridges built where the contract sizes are large, but never take responsibility for repairing roads? How can a decision to build a new connecting flyover be taken without being sure of the viability of Gokhale Bridge? Till the issue came up, no one was even sure whether it was the responsibility of the BMC or the Railways to break, renovate or construct the bridge. How can a bridge which has been certified by experts to be unsafe again be open to opinion over being selectively operational?

This is the problem with most municipal corporations in the country which are inefficient in terms of delivery of services. The stories of Bengaluru and Gurugram are well known where due to unplanned concretisation of roads, monsoon leads to flooding of magnitudes never witnessed in these cities as the drainage systems have not been provided.

The problems with municipal bodies are manifold. They are run by political parties which win popular vote. The officials are bureaucrats who move the files. Most projects are outsourced to contractors. Maintenance is outsourced. Construction and plan designs are outsourced. Consultants with the best pedigree are appointed to guide. If all the practical work is being done by outsiders, does it then make sense to privatise them? This question is far-fetched, because municipal bodies are part of the federal structure enshrined in the Constitution.

The RBI has recently brought out a study on municipal finances and has recommended that they should be borrowing more in the market. However, for such activity to take place, several reforms are needed to ensure that they are run on sound lines. The problems of the large municipal corporations is not about finance as they are cash-rich (the BMC has over Rs 90,000 crore in fixed deposits). The problems are on the operational side.

First, the governance structures are fragile as there is a lot of politics mixed with administrative and financial subjects. The link with state Governments is strong and there could be other Government agencies involved in carrying out specific functions. Second, the process of charting out responsibility is not clear. This means that while funds are allocated, there is no way of ascertaining how the money is spent and whether the terms of engagement with contractors are being enforced. Third, there are no efficiency benchmarks that are monitored on a day-to-day basis, like the case of potholes being addressed during monsoons. Fourth, given the system of governance, accounts are not available on time and are hard to understand as the systems used differ between states and the Centre. Hence, even statistical evaluation is a challenge with data coming with big lags. Budget numbers are aspirations and come long after the year begins for most local bodies.

In such a situation there will always be a trust deficit when it comes to investing in municipal bonds, as the chain of responsibility is not known. Also investors would always judge municipal corporations not entirely on their finances but also what they see around them. The case of Gokhale Bridge (and there are many such projects in different cities) is an example of how projects are undertaken and probably abandoned at times.

It will be useful to get credit rating agencies to do a detailed evaluation of how these municipal bodies are run and provide a rating which goes beyond what is revealed in outdated budgets and financial reports that are presently available. The CRAs should be empowered to have access to all possible data on the subject (which is not easily available today). Agencies like CARE, CRISIL, ICRA have had a very good track record of rating of municipals and would have to extend the approach to cover the physical side of their operations. This would mean moving around the cities and observing whether or not the basic functions of a local body are being carried out, and evaluate the status of projects when awarding a rating.

This can be extended to also use this rating as a basis for additional funding being provided to the body. Alternatively a performance-based reward can be given to the staff of the municipal body, based on this rating. We need to think differently.

The writer is Chief Economist, Bank of Baroda, and author of ‘Lockdown or Economic Destruction?’. Views are personal

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