Andhra Pradesh and Madhya Pradesh take the lead in undertaking Urban Local Bodies reforms

Permitted to mobilise additional financial resources of ₹ 4,898 crore through open market borrowings

Andhra Pradesh and Madhya Pradesh have taken the lead in undertaking the Urban Local Bodies (ULB) reforms. The two States have successfully completed the set of reforms in functioning of ULBs, as specified by the Department of Expenditure, Ministry of Finance. To motivate the States to undertake reforms in various citizen centric sectors, the Ministry of Finance has linked a part of additional borrowing permission granted to the States to completion of reforms.

In view of the resource requirement to meet the challenges posed by the COVID-19 pandemic, the Government of India had on 17^th May, 2020 enhanced the borrowing limit of the States by 2 percent of their Gross States Domestic Product (GSDP). Half of this special dispensation was linked to undertaking citizen centric reforms by the States. The States get permission to raise additional funds equivalent to 0.25 percent of GSDP on completion of reforms in each sector. The four citizen centric areas identified for reforms were (a) Implementation of One Nation One Ration Card System, (b) Ease of doing business reform, (c) Urban Local body/ utility reforms and (d) Power Sector reforms.

On successfully undertaking the ULBs reforms, Andhra Pradesh and Madhya Pradesh have been granted permission to mobilise additional financial resources to the tune of ₹ 4,898 crore through open market borrowings. Out of these, Andhra Pradesh has received permission of ₹ 2,525 crore, while Madhya Pradesh has been permitted to mobilize additional ₹ 2,373 crore.

Reforms in the urban local bodies and the urban utilities reforms are aimed at financial strenghtening of ULBs in the State and to enable them to provide better public health and sanitation services. Economically rejuvenated ULBs will also be able to create good civic infrastructure. The reforms stipulated to achieve these objectives are: 

(i)    The State will notify (a) floor rates of property tax in ULBs which are in consonance with the prevailing circle rates (i.e. guideline rates for property transactions) and (b) floor rates of user charges in respect of the provision of water-supply, drainage and sewerage which reflect current costs/ past inflation.

(ii)   The State will put in place a system of periodic increase in floor rates of property tax/ user charges in line with price increases.

Madhya Pradesh has come up with “the Madhya Pradesh Nagarpalik Vidhi (Dwitiya Sanshodhan) Adhyadesh, 2020 to implement the reforms and Andhra Pradesh has also issued an the Ordinance to amend the Municipal corporation Act, 1995, the Andhra Pradesh Municipalities Act, 1965, the Visakhapatnam Municipal Corporation Act, 1979, the Vijayawada Municipal Corporation Act, 1981 and the Andhra Pradesh Municipal Corporations Act, 1994 to effect the reforms.       

Besides additional borrowing permissions, the States completing three out of the four reforms are entitled to get additional financial assistance under the “Scheme for Financial Assistance to States for Capital Expenditure”. The Scheme was announced by the Finance Minister on 12^th October, 2020 as part of Aatma Nirbhar Bharat Package. It is aimed at boosting capital expenditure by the State Governments who are facing difficult financial environment this year due to the shortfall in tax revenue arising from the COVID-19 pandemic. Under the scheme, an amount of ₹ 2,000 crore is earmarked to reward the States who undertake the prescribed citizen centric reforms.  

Besides the ULBs reforms undertaken by Andhra Pradesh & Madhya Pradesh, 10 States have implemented the One Nation One Ration Card System and 6 States have done the ease of doing business reforms, so far.

To facilitate more States to undertake the reforms and avail additional borrowings and additional assistance for Capital Expenditure, The Department of Expenditure, had recently extended the deadline for the States to complete citizen centric reforms in various sectors. Now, if the recommendation from the nodal Ministry concerned regarding implementation of the reform is received by 15^th February, 2021, the State will be eligible for reform linked benefits.

Reform-linked additional borrowing: States gain market borrowing permission after completing urban local body financial reforms. Reform-linked additional borrowing permission was granted to two States upon completion of Urban Local Body reforms requiring notification of floor rates for property tax aligned with prevailing circle rates and floor user charges for water, drainage and sewerage reflecting current costs and past inflation, together with a system for periodic increases in those rates in line with price increases.