“SMALL IS BEAUTIFUL” EXPERIMENTS OF MUNICIPAL REFORMS

IN HYDERABAD

DR .P. K. MOHANTY, IASEXECUTIVE DIRECTOR

CENTRE FOR GOOD GOVERNANCEHYDERABAD

Hyderabad City: Geographical Area & PopulationCity Metropolitan District

Geographical Area: 69 217(Square Kms.)

Population (Million):1971 1.62 1.821981 2.20 2.611991 3.06 4.342001 3.63 5.75

Municipal Reforms: Some Guiding Principles

• Clarity in municipal functions: Clear jurisdictions & job charts for functionaries;

• Clarity in municipal finances: well-defined revenue sources, clear expenditure norms, budgeting and accounting standards;

• Matching of municipal finances to functions;

• Functional & area cost centres: matching of outputs to funds allocated;

• Accountability: upward and downward - of functionaries and processes.

Rationalisation of Functions

Restructuring of Municipal CorporationHead Office: Departments Administration Legal Finance Planning Health & Sanitation Community Development Works Traffic & TransportationZones & Circle Offices: South: Circles 1 & 2 East Circles 3 & 6 West Circles 4 & 5 Secunderabad Secunderabad Division

Rationalisation of Functions

• Municipal “ownership” of new functions: Poverty alleviation, Slum upgradation, Environmental protection, Urban forestryand promotion of ecology;

• Cost centres - focus on cost recovery andtransparent subsidy to functions;

• Salary pegged to no more than 25% of totalrevenues;

• Urban Community Development & ServicesFund for poverty alleviation;

• City Development Fund for capital projects.

Contd…

Benefits identifiable - User Beneficiaries identifiable Charges Benefits broadly identifiable - BenefitIdentification of Beneficiaries Taxescostly or difficult Neither Benefits nor Generic Beneficiaries identifiable Taxes Administrative expenses Fees &

ChargesLong-gestation capital Borrowings/projects & works Bonds

Reforms in Municipal Finances Bahl-Linn Guidelines

Reforms in Municipal Finances

• Broad-basing of taxation –`beneficiaries pay’, `users pay’, and `polluters pay’;

• Simple and transparent tax assessment and collection systems;

• Focus on direct and indirect cost recovery and user charges;

• Use of land and land use planning permission as resources for city development;

• Self-assessment principle: applied to property tax, trade licensing and advertisement fees;

Contd….

Reforms in Municipal Finances

• Involvement of tax-payers and Resident Welfare Associations in `benchmarking’, fixation of taxes and user charges and in provision of services;

• Minimisation of concessions, exemptions and discretionary authority;

• Visible linkages of local services to local taxes: creation of geographical cost centres;

• Informed tax-payers - organised tax education campaign.

Contd….

Reforms in Municipal Finances:Some Experiments

• Property tax Self-Assessment scheme;• Self-Assessment schemes for trade licensing

and advertisement fees;• Land and planning permission as resources;• Hyderabad City Development Fund;• Hyderabad Urban Community Development &

Services Fund;• Salary Reserve and Pension Funds;• Hyderabad City Development Bond;• Functional budgeting & accrual-based

accounting.

• Historic inequity as a potential resource;• Classification of properties and inter-linking of

tax data bases;• Property Tax Identification Number (PTIN) for

all properties and computerisation of records;• “Slab” rate for “homogeneous” and case by

case levy for “heterogeneous” properties;• Involvement of tax-payers in groups in arriving

at slab tax rates and in prioritising services. • Tax camps and dialogue with Resident Welfare

Association Presidents and Secretaries.

Property Tax Reforms: Self-Assessment Scheme

Self-Assessment Scheme: Key Features

• Rationale as to “why” self-assessment;• Legal framework for property taxation; • PTIN – Property Tax Identification Number;• Separate forms for filing of returns in respect of

residential and non-residential properties;• Commercial properties divided into 10 groups;• Clarity in filing requirement – who has to file

return?• Clarity in filing procedure – by whom returns

are to be filed and tax to be paid?• Benchmarking - one month honest rent as

reference criterion for acceptance of returns;

Self-Assessment Scheme: Key Features

• Procedure for verification of 25% of tax returns;• Penal action in the event of non-filing of returns;• Assurance from the Municipal Corporation: “there

shall not be a single case of harassment or over-taxation to honest taxpayers who file their self assessment returns”;

• Assistance available from Municipal Corporation – Tax Assistance Cells;

• Development message and appeal to taxpayers on development of “their” city;

• Linking of services to taxes paid - broad formulae.

Contd…

Figure 1Municipal Corporation of Hyderabad

Property Tax Collected: 1991-92 - 2002-03

24.5 27.6 30.18 29.1636.39

46.8856.95 58.47

83.3292.71

130.12

153.25

0

20

40

60

80

100

120

140

160

180

1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

Year

Rs.

in C

rore

s

Direct & Indirect Cost Recovery: Fee/User Charge Reforms

• Self-Assessment of trade licensing fee;• Self-Assessment of advertisement fee –

distinction between hoarding & advertisement;• Bulk garbage collection charges;• Administrative charges for littering –

enforcement through Nuisance Detection Squad;

• Rationalisation of development and betterment (including external betterment) charges;

• Introduction of new town planning charges: open space contribution, impact fee, etc.

Figure 2Municipal Corporation of Hyderabad

Trade Licensing Fee Collected: 1991-92 - 2002-03

72.41

180.95223.39 218.92 215.79 216.27 223.29 216.7

359.73 384.01

649.78 653.69

0

100

200

300

400

500

600

700

1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

Year

Rs.

in L

akhs

Figure 3Municipal Corporation of Hyderabad

Advertisement Fee Collected: 1991-92 - 2002-03

27 44.18 53.99 55.51114.18

173.83 174.91

300.73

536.62

701.27

793.27735.06

0

100

200

300

400

500

600

700

800

900

1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03Year

Rs.

in L

akhs

Figure 4Municipal Corporation of Hyderabad

Public Works Department Charges:1994-95 - 2002-03

3.74 4.10 4.44

0.411.88

20.45

25.08

16.96

22.09

0.00

5.00

10.00

15.00

20.00

25.00

30.00

1994 - 95 1995 - 96 1996 - 97 1997 - 98 1998 - 99 1999 - 00 2000 - 01 2001 - 02 2002 - 03

Year

Rs

in C

rore

s

Figure 5 Municipal Corporation of Hyderabad

Parks & Plantation Charges: 1994-95 - 2002-03

4.67 3.68 4.07 4.51 3.31

47.85

64.83

91.60 90.63

0

10

20

30

40

50

60

70

80

90

100

1994 - 95 1995 - 96 1996 - 97 1997 - 98 1998 - 99 1999 - 00 2000 - 01 2001 - 02 2002 - 03

Year

Rs.

in L

akhs

• Building permit fee;• Sub-division/Layout charges;• Development charges; • Betterment charges; • External betterment charges; • 5% open space contribution; • Impact fee;

City Planning as a Resource:Planning-related Fees & Charges

City Planning as a Resource:Planning-related Fees & Charges

• Road cutting charges;• Storm-water drainage charges;• Parking contribution;• Use of planning permission as a resource;

(Road-widening scheme);• Transferable Development Right; • Advertisement charges;

Contd….

City Planning as a Resource:Planning-related Fees & Charges

• Forfeiture of security deposit; • Penal amounts for violation; • Demolition charges; • Projection charges;• Building regularisation fee;• Empanelment of licensed personnel; • Sale of bits & pieces of land;• Leasehold to freehold (proposed).

Contd….

Figure 6Municipal Corporation of Hyderabad

Town Planning Charges: 1992-93 - 2002-03

4.8 5.21 5.718.26

12.28 11.699.4

19.1921.9

24.5726.78

0

5

10

15

20

25

30

1992 -1993

1993 -1994

1994 -1995

1995 -1996

1996 -1997

1997 -1998

1998 -1999

1999 -2000

2000 -2001

2001 -2002

2002 -2003

Year

Rs.

in C

rore

s

Figure 7Municipal Corporation of Hyderabad

Betterment (including External Betterment) Charges 1992-93 - 2002-03

1.65 1.53 1.92.45

1.77 1.6 1.54

5.55

9.4

10.9

12.83

0

2

4

6

8

10

12

14

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000

2000-01 2001-02 2002-03

Year

Rs.

In C

rore

s

City Planning as a Resource:New Town Planning Charges: 1998-99-2001-02

• 5% open space contribution; • Impact fee;• Forfeiture of security deposit; • Penal amount for violations;• Empanelment of licensed personnel.

(Rs. in lakhs) 1999-2000 2000-2001 2001-2002

5% open space 13.25 72.02 71.38contributionImpact fee - 169.21 203.71Forfeiture of 59.07 107.39 27.70security deposit

City Planning as a Resource:Road Widening Scheme

In cases of land freely surrendered for road widening, Commissioner, Municipal Corporation of Hyderabad is authorised to:

• grant permission for construction over and above that permitted by prevailing FSI;• permit minor relaxations to building setbacks;• rebuild compound walls and other structures demolished at the Corporation’s cost ;• grant Transferable Development Rights where permitted FSI cannot be used.

City Planning as a Resource:Road Widening Scheme: Achievements

Year No. Of Roads Widened

Amount Spent (Rs. in Crore)

1996 - 1997 7 4.161997 - 1998 7 1.631998 - 1999 8 9.741999 - 2000 7 11.202000 - 2001 16 10.092001 - 2002 23 20.00

Contd….

City Planning as a Resource:Road Widening Scheme: Achievements

Land taken over free by Municipal Corporation of Hyderabad under Road Widening Scheme

while granting building permissions or taking up widening of roads: 1996-2002

Extent taken over: 821,253 Sq. Yards

Approximate MarketValue of Land taken over: Rs.811.51 Crores

Contd….

Hyderabad City Development Fund

Earmarking city planning-related charges to create a fund for important capital

improvement works of city-wide importance

• Development charges;• Receipts towards internal/on-site/local amenities including betterment charges;• Receipts towards external/off-site amenities including external betterment charges;• Layout/sub-division/building permit fees;

• Building regularisation fees;

• Impact fees;

• Compounding fees;

• Projection charges;

• Proceeds from purchasable development rights (incentive zoning);

• Open space contribution;

• Other town planning charges/fees.

Contd…

Hyderabad City Development Fund

Hyderabad Urban Community Development & Services Fund

• 20 percent of property tax;

• 30 percent of per capita grant;

• Receipts under Centrally–sponsored schemes of: Swarna Jayanthi Shahri Rozgar Yojana (SJSRY), National Slum Development Scheme (NSDP), Balika Samrudhi Yojana (BSY), Chief Minister’s Empowerment of Youth (CMEY), Adarsh Basthi Scheme, etc.;

• Receipts under other poverty alleviation schemes.

Salary Reserve Fund & Pension Fund

Objectives: • Creation of adequate reserve for salaries and pension of municipal corporation staff;• Escrowing and using the escrowed funds as collateral for municipal bonds.

Salary Reserve : Rs. 75.60 Crores (= One year salary)

Pension Fund : Rs. 25 Crores

Hyderabad City Development BondBond size : Rs.82.50 croresOffer opening : March 21, 2002Offer closing : March 31, 2002Instrument : Un-secured (no state guarantee),

non-convertible, redeemable, tax- free bonds Credit rating : CRISIL AA+SO, ICRA LAA+(SO) Interest rate : 8.5%Tenor : 7 yearsEscrow : Non-residential property tax,mechanism professional tax, advertisement fee, entertainment tax, stamp duty & town planning charges.

Economics ofHyderabad City Development Bond

Earmarking of bond proceeds for development of key infrastructure projects - augmentation of economic growth - economies of scale, scope & agglomeration - enhanced business & trade - capitalisation into land values - growth in tax base - servicing of bonds through the tapping of tax increment – matching of debt-raising & debt-servicing capacities – upward movement on city development spiral.

Expenditure Management & Service Delivery Reforms

• Unit rate system of public works;• Out-sourcing of sanitation;• Voluntary garbage disposal scheme;• Community contracting with women’s

groups;• NGOs in heath care service delivery;• Co-ordinated service delivery – City Level

Co-ordination Committee;• Citizen’s Charter and citizen’s service centre;

Expenditure Management & Service Delivery Reforms

• Building Committee for sanction of permission to major buildings;

• Budgeting reforms;• Modified accrual-based accounting; • 100% computerisation of budget, accounts,

property tax, works, etc.;• Selected services through e-Seva counters;• e-Hyderabad;• Face-to-Face with Public.

Contd…

Municipal Reforms:

Some Important Results

Trends in:

• Expenditures• Works • Projects• Salary Ratio

Contd…

Figure 8Municipal Corporation of Hyderabad Capital Expenditure 1994-95 - 2002-03

6.86 7.5 14.64 18.5230.18

46.8159.75

189.2201.55

0

50

100

150

200

250

1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03

Year

Rs. i

n Cr

ores

Figure 9Municipal Corporation of Hyderabad

Expenditure on Public Works (Capital + Maintenance) 1994-95 - 2001-02

17.95 14.9826.05

44.6856.99

79.31

97.09

179.89

0

20

40

60

80

100

120

140

160

180

200

1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02Year

Rs.

In C

rore

s

Municipal Corporation of HyderabadModern Lighting Programme - No of Points

Pre - 1999 - 2000

1999 -2000

2000-2001

2001 -2002

Modern Lighting 6416 700 2000 9000High Masts (Concrete) 64 - - -High Masts (M.S./Galvanised) 107 30 21 79Conversion of Tubes To SV Lamps

10326 11114 27100 15680

Lighting in Slums 6000 4714 5500 6720

Municipal Corporation of HyderabadModern Lighting Programme - Expenditure

(Rs. Crore) Pre - 1999 -

20001999 -2000

2000-2001

2001 -2002

Modern Lighting 6.04 1.75 1.58 22.87High Mast Lighting 1.88 0.32 1.15 4.34Conversion of Tube Lights to Sv Lamps

2.58 3.89 10.84 7.95

Lighting In Slums 0.6 1.65 2.20 3.40

Figure 10Municipal Corporation of Hyderabad

Trends in Salary Ratio as % of Expenditure: 1991-92 - 2002-03

46.52 45.2

35.9331.9

37.98 38.54

29.8934.12

28.6831.57

24.1420.39

05

101520253035404550

1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03Year

Perc

enta

ge

Results of Reforms• Buoyancy in revenue collection: property tax,

advertisement fee, trade licensing fee, town planning fees, user charges, etc.;

• Reduction in salary expenditure as percentage of total revenues to below 25%;

• Significant jump in expenditure on public works (capital + maintenance);

• Sizable increase in capital budget;

• Highest credit-rating accorded to any municipal bond in the country so far;

Results of Reforms

• Conspicuous improvements in civic amenities & services;

• Rise in tax-payers’ confidence & significant increase in the peoples’ willingness to pay;

• Close participation of Resident Welfare Associations in both service delivery and tax payment;

• Citizen-centric orientation of the Municipal Corporation staff - “People First”;

Contd…

Results of Reforms

• High ‘visible’ image of the Municipal Corporation as a responsive institution;

• Clean & Green City Award for 4 consecutive years at the national level - a unique distinction for any city in India;

• Lighting Society of North America Award for street lighting;

• Hyderabad rated as “best” destination for IT- enabled services;

• Visits by more than 15 Mayors and many dignitaries to Hyderabad to study reforms.

Contd…

Municipal Reforms: Lessons from Hyderabad Experience

• Infrastructure & services: key to city economic development; • Two major planks of city development policy:

− Maximising agglomeration benefits;− Minimising congestion diseconomies;

• Agglomeration and congestion are potential hidden sources of finance in mega cities;

• Broadening tax base ought to be a major reform priority;

Municipal Reforms:Lessons from Hyderabad Experience

• Pre-reform conditions are critically important for designing a reform strategy;

• Historic inefficiencies and inequities can be important sources of tax mobilisation in cities;

• Land is a potential revenue source for city development - unexploited in many cities;

• “Low tax rate – effective tax enforcement” strategy works;

• Visibility of tax reform process & results from reform in terms of services important;

Contd…

Municipal Reforms:Lessons from Hyderabad Experience

• Application of “known” principles and “best” practices help making reforms acceptable; – Involvement of tax-payers;– Demonstration of tax-service linkage;– Choice of tax calculation to tax-payer - self-

assessment;– Incentives for filing and penalties for non-filing

of returns;– Simplification of assessment and payment

procedures;

Contd….

• “Mega” city - “small” experiment strategy works;

“Not only is it remarkable that all this has happened, but that it has happened so fast.” “Vast schemes, grandiose theories can never achieve the same benefits as the accumulation of smaller, consistent, attainable goals. Hyderabad is one example of what the sum looks like when the many smaller parts that actually work are added up”. ‘Hyderabad, India: the next Silicon Valley?’

National Geographic, November 2002

Contd …

Municipal Reforms:Lessons from Hyderabad Experience

DR. P. K. MOHANTY, I. A. S. EXECUTIVE DIRECTOR

CENTRE FOR GOOD GOVERNANCEROAD NO. 25, JUBILEE HILLS,

HYDERABAD, ANDHRA PRADESH (INDIA) Tel. No. (+91- 40- 23541952), FAX NO.(+91- 40- 23541953)

E-Mail: pkmohanty@cgg.gov.in pkmohanty_cgg@yahoo.com,

www.cgg.gov.in

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