Telengana becomes the 3rd State to complete Urban Local Bodies reforms; Additional borrowing permission of ₹ 2,508 crore issued

Additional borrowing permission of ₹ 7,406 crore granted so far to 3 States for urban local bodies reforms

Telangana has become the 3rd State in the country to successfully undertake “Urban Local Bodies (ULB)” reform stipulated by the Department of Expenditure, Ministry of Finance. Thus, the State has become eligible to mobilise additional financial resources of ₹ 2,508 crore through Open Market Borrowings. Permission for the same was issued by the Department of Expenditure on 7^th January, 2021. Telangana has now joined the two other States namely, Andhra Pradesh and Madhya Pradesh, who have completed this reform. On completion of urban local bodies reform, these three States have been granted additional borrowing permission of ₹ 7,406 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.

In view of the resource requirement to meet the challenges posed by the COVID-19 pandemic, the Government of India had on 17th 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.

So far 10 States have implemented the One Nation One Ration Card System, 7 States have done ease of doing business reforms, and 3 States have done local body reforms. Total additional borrowing permission issued so far to the States who have done the refoms stands at ₹ 54,190 crore.

Urban Local Bodies reforms enable additional state borrowing after implementing property tax and user-charge floor rates and indexation. Completion of Urban Local Bodies reforms in Telangana makes the State eligible to mobilise additional borrowing under the enhanced fiscal dispensation. The reforms require notification of floor property tax rates aligned with circle rates, floor user charges for water, drainage and sewerage reflecting costs and inflation, and a system for periodic increases in those floor rates.