In early February, the Brihanmumbai Municipal Corporation (BMC) announced a budget of Rs 33,441 crore. The body has jurisdiction over 13 million people — and Mumbai requires significant capital expenditure to upgrade the public services and infrastructure that serve them. Thus, although the revenue components (see Figure 1) seem reasonable, India’s richest municipal body faces a revenue crunch.

 

Typically, the largest share of BMC’s revenue income came from octroi, representing 35% of the total. This changed in 2017 when the central government introduced the Goods and Services Tax and abolished octroi. It decided to compensate state governments for loss of revenue for five years. The state government in turn compensates BMC to the tune of 35% of its budget. This comes to Rs 9,799 crore in this year’s budget. But there are two problems here. First, the clock is ticking on the compensation. Once the Centre turns off the tap, there is no certainty that the state government will be able to continue funding the BMC’s octroi revenue loss. Second, the BMC started drawing funds from its reserves in the same year that the compensation started. In fact, this year’s withdrawal is estimated to be three times the initial withdrawal of Rs 1,227 crore. Clearly, even with the compensation, the BMC is in financial distress and needs to grow its revenue pool.

 

The Maharashtra government should thus encourage the BMC to build capacity for a new revenue structure — a lesson other state governments should also heed. The BMC should capitalise on its assets, i.e. aim for greater revenues from the land market, which is in a dysfunctional state. Currently, BMC’s usage of land-based fiscal tools has led to unreliable, unsustainable revenue flows.

 

We break down the revenue problem by:

  • Explaining why these tools aren’t reliable
  • Recommending how to stabilise revenue generation
    • Use Local Area Plans to stabilise and enhance revenue from land
    • Build a new revenue stream by unlocking the value of public land
    • Increase revenue through property taxes