Increasing Resources to Local Government in Ahmedabad, India

PROFILE
Ahmedabad Municipal Corporation (AMC), India
Population: 3,515,361 (2001)
Land Area: 191 km2
Municipal Budget: US$118 million (2000)

STRATEGY
Strengthen 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

GOAL
To reform the municipal corporation's finances and to improve human resources so that AMC could be in the position to provide basic services for its expanded urban area and growing population, and improve living conditions in the slum neighborhoods

ACTION
Introduce fiscal and management reforms to enable AMC to improve and expand basic services and initiate urban development projects

ABSTRACT
In the mid 1990s, AMC began instituting significant fiscal and management reforms, including improving tax collection, computerizing the accounting system, strengthening AMC's work force and financial management, and developing a comprehensive capital improvement program. These reforms laid the necessary groundwork for AMC to issue the first municipal bond issued in India without a state guarantee and enabled AMC to partner with the business community, NGOs and other organizations to undertake new development initiatives. The bonds represented the first step toward a fully market-based system of local government finance.

CASE
Ahmedabad, the largest city of the state of Gujarat, is the seventh largest city in India. Situated on the banks of the Sabarmati River and 35 kilometers away from the capital of Gujarat, Ahmedabad is the commercial capital of the state. Known as the textile capital of India, it is also a major industrial and financial city contributing about 14% of the total investments in all stock exchanges in India and 60% of the total productivity of the state.

In the midst of the overall prosperity of the city, a large poor population has suffered from deprivation of basic services and amenities. The proportion of the total population in slums and low-income housing was 41% in 2000. The bulk of the residents in slum areas had a shared water supply and more than a quarter of them had no toilet facilities.

AMC was formed in 1950 under the Bombay Provincial Municipal Corporation Act. The main infrastructure services as provided under the Act include a protected water supply, sewerage and storm water drainage, the construction and maintenance of roads, street-lighting, disease prevention and monitoring, solid and liquid water disposal, public transport, and parks and gardens. The city has 43 wards and the city's Mayor is elected for a term of two-and-a-half years.

Before 1993, AMC was a loss-making urban local body with accumulated cash losses of Rs. 350 million. (US $9.2 million) During a deteriorating financial situation in 1994, AMC 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 Rs. 2,142 million (Us $50 million) in March 1999.

The main credit for the financial turnaround of the Corporation and other development initiatives and administrative reforms goes to the dynamic leadership of a municipal commissioner, Mr. Keshav Verma, who remained at the helm from 1994 to 1997. The reforms first initiated under Verma's leadership included restructuring the Corporation and upgrading its workforce, and improving revenue collection, accounting and financial management systems.

Octroi (a tax on goods coming into the city) has traditionally been AMC's major source of revenue, accounting for about 70 to 75% of total revenue. Knowing that the tax was not being collected effectively, AMC increased octroi collection by updating the valuation manual for tax assessment based on current market prices. Octroi collection was further improved through deploying police personnel for controlling touts and catching defaulters; linking all check posts with a wireless network to facilitate 24-hour communication; formating 13 vigilance squads to conduct spot checks of vehicles; and installating weighing machines at the check posts. A system of backtracking of the goods (taxing items that previously went untaxed) was also introduced. Strict action was taken against corrupt and negligent employees. As a result of these measures, 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 AMC's tax revenues. The tax assessment system is based on annual ratable value, (British system of assessing property tax) which can be subjective and inequitable. A computer database was created to identify defaulters, while attention was focused on recovering major outstanding tax amounts. These measures included issue of notices and warrants, disconnection of water supply and sewerage, publishing of the defaulters' names, attachment of property, and restructuring and strengthening of the property tax department. These steps helped to increase annual property tax collection by 55%. AMC has recently introduced an area-based system for assessment of property tax which will further improve the tax collection.

Beginning in the mid-90s, AMC also introduced a number of management improvements such as computerizating the accounts and upgrading the workforce. AMC had been using a single-entry cash-based accounting system till 1996/97. In April 1996, AMC introduced a computerized double-entry accounting system, purchased new computers, developed a new accounting system and recruited chartered accountants to introduce the new system. AMC's electronic data processing department worked closely with the city's finance department to build in-house capacity. In the first year both single- and double-entry systems were operated on a parallel basis. A local chartered accounting firm was appointed to assist AMC to prepare its first balance sheet in 1996. The new system is now operational.

Traditionally, AMC based promotions on seniority and not merit. There was hardly any recruitment of new talent from outside the organization. Performance was not rewarded and the administration lacked new ideas and a professional culture. The municipal corporation decided to change its resulting negative image. It began by upgrading its workforce by recruiting a group of professional middle level managers. AMC revised its recruitment rules to enable AMC to make such direct recruitment. In 1997, about 40 chartered accountants and business management graduates were recruited. The corporation placed them in key administrative and operational positions. These new officers are improving AMC service delivery, while introducing a new work ethic.

In 1996, AMC prepared a five-year capital investment plan for investing Rs 5,973 million (US $150 million) for water supply, sewerage, roads, bridges and solid waste management projects and allocated Rs. 4,393 million ($US 110 million) for the water supply and sewerage component. It proposed to meet 30% of the total investment requirement from internal sources of financing while mobilizing the remaining amount through municipal bonds and loans from financial institutions. The project was structured within an urban financial framework that was predicated on receipt of significant transfers from general revenues such as octroi and property taxes.

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).