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Increasing Resources to Local Government in Ahmedabad, India
STRATEGYStrengthen local government
CHALLENGE
To provide basic services for an expanded urban area and growing population, and improve living conditions in slum neighborhoods in the face of cash losses and a deteriorating financial situation.
ACTION
Introduce fiscal and management reforms to enable the AMC to improve and expand basic services and initiate urban development projects.
PROFILE
Ahmedabad Municipal Corporation (AMC), India
Population: 3,515,361 (2001)
Land Area: 191 km2
Municipal Budget: US$118 million (2000)
With funds from the bond issue, AMC constructed a new water pumphouse and pipelines
to service 60% of the city's population
(photo courtesy of Indo-USAID FIRE Project).
Ahmedabad, the largest city of the state of Gujarat, is the seventh largest city in India. Known as the textile capital of India, Ahmedabad is the commercial capital of the state and is also a major industrial and financial city.
In the midst of the overall prosperity of the city, a large poor population has suffered from deprivation of basic services and amenities. In 2000, 41% of the population lived in slums and low-income housing, with the bulk of the slum residents sharing the water supply and many living without toilet facilities.
Prior to 1993, the Ahmedabad Municipal Corporation (AMC) had accumulated a cash loss of over US$9 million and their financial situation was deteriorating. In 1994, the corporation launched a major effort to strengthen its capacity to develop commercially viable projects. As a result, AMC was able to turn around its financial position and achieve a closing cash surplus of US$50 million in 1999.
The main credit for the financial turnaround and other development initiatives and administrative reforms goes to the dynamic leadership of a municipal commissioner who remained at the helm from 1994 to 1997.
One of the initial reforms addressed octroi. Octroi (an entry tax on goods) has traditionally been the AMC's major source of revenue, accounting for about 70-75% of total revenue. To increase octroi revenues, the valuation manual for tax assessment was updated based on current market prices. Octroi collection was further improved through a number of means including the deployment of police personnel for controlling touts and catching defaulters and installation of weighing machines at spot checks. Annual octroi collection increased by 60%.
Similarly, in 1994, AMC introduced a series of measures to improve property tax collection, which accounts for about 30% of tax revenues. A computer database was created to identify defaulters, while attention was focused on recovering major outstanding tax amounts. Annual property tax collection increased by 55%.
In the mid-90s, AMC also introduced a number of management improvements such as computerization of accounts and upgrading of the workforce. In April 1996, the corporation introduced a computerized double-entry accounting system, purchased new computers and recruited chartered accountants to introduce the new system. In 1997, about 40 chartered accountants and business management graduates were recruited. Placed in key administrative and operational positions, these new officers are improving Ahmedabad's service delivery while introducing a new work ethic.
In 1996, AMC prepared a five-year capital investment plan worth US$150 million for water supply, sewerage, roads, bridges and solid waste management projects. It proposed to meet 30% of the total investment requirement from internal accruals, while mobilizing the remaining amount through municipal bonds and loans from financial institutions.
Ahmedabad became the first city in India to request and receive a credit rating for a municipal bond issue. The US Agency for International Development's Financial Institutions Reform and Expansion (FIRE) Project played a multifaceted role in assisting Ahmedabad in developing the bond issue. The city was ultimately assigned an "AA" rating.
In 1998, AMC publicly issued secured redeemable bonds aggregating to a total of 1 billion Rupees. City bonds, as they are popularly known, had a face value $1,000 Rupees (US$25) each (for cash at par). AMC sold 25% of the bonds to the Indian public and the remaining 75% of the issue to institutional investors.
Under pressure of an impending water crisis, AMC was able to rapidly expend bond proceeds to successfully implement an emergency bulk water supply scheme known as the Raska Project in a record five months. Designed to supply 65 million gallons of water a day to the city, the Raska Water Project consisted of constructing a pump house and laying pipelines to bring water to 60% of the city's population.
As well, the healthy state of municipal finances also enabled AMC to partner with the business community, non-governmental organizations (NGO) and other organizations to undertake new initiatives, including:
- a partnership with a textile company to redevelop an important commercial artery;
- a Slum Networking Project in which the corporation partnered with a textile company, an NGO and the slum community to improve basic infrastructure and provide water and toilets to households.
RESULTS
Ahmedabad enjoys a high level of autonomy in revenue use in that it depends on the state government for only 10% of its total revenue in the form of grants for primary education. In addition, management innovations introduced by the municipal commissioner and supported by staff and elected officials helped AMC change its image among the local citizenry.
Because of the fiscal and management reforms, Ahmedabad built an extensive water project, developed mutual partnerships to improve traffic congestion and improved conditions in slums.
LESSONS LEARNED
Ahmedabad demonstrated that municipal bonds can work in India for raising finances for infrastructure projects. However, before actual issuance of bonds, local governments need to institute efficient project management systems and procedures to reduce time delays and cost overruns. The most critical factor for obtaining market finance is a healthy municipal revenue base.
KEY REPLICATION FACTORS
One of the main reasons for inadequate levels of urban infrastructure is the inability to tap available capital to finance infrastructure projects. Financial sector reforms offer opportunities for tapping capital markets.
To routinely access capital markets or to form successful partnerships with the private sector, local governments will have to strengthen their capacity to develop commercially viable projects. This will require appropriate pricing of services, efficient cost recovery mechanisms, sound accounting and financial management systems, professionalism of the work force, effective service delivery systems, and development of capital investment plans.
CONTACT
Mr. P. Panneervel IAS, Municipal Commissioner
Ahmedabad Municipal Corporation
Fax: +91-79/5350926
Email: mail@ahmedabadcity.org
Website: www.ahmedabadcity.org
Shenyang, China
The Sustainable Cities Programme (SCP), operated by UN-Habitat/UN Environment Programme, builds capacities in urban environmental planning and management. The SCP is founded on multistakeholder participatory approaches and promotes good urban governance. Shenyang, China, a SCP participant, is home to one of the largest heavy industry centers in China. For years economic development in Shenyang took precedent over the environment. The city is now taking a different approach. Using a Local Agenda 21 framework, a comprehensive action plan for environmental protection was developed. This approach has led to radical decisions; in 1999 it was decided to close the Shenyang Smelting Plant, one of the city's largest employers but also the largest source of air, water and land pollution.
Newcastle, Australia
In 1997, Newcastle, Australia, established a revolving energy fund (REF) to increase funds available for energy efficiency programs. Often a perceived lack of capital can prevent local governments from undertaking energy efficiency programs that require significant initial funding. Newcastle, established an AUS$300,000 REF to pay a Green Energy Coordinator and fund energy saving projects. REFs rely on identifying energy cost savings and, in future budgets, allocating these savings to a REF so that the money can be reinvested in future energy efficiency projects. Since 1995, Newcastle has reduced its energy bill by 40% and they expect to exceed 50% by 2002.
