Madhya Pradesh takes the Lead in Undertaking Urban Local Bodies Reforms

Reforms introduced through ‘Madhya Pradesh Nagarpalika Vidhi (Dwitiya Sanshodhan) Adhyadesh, 2020’. Madhya Pradesh permitted to mobilize additional financial resources of Rs. 2,373 crore through Open Market Borrowings

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New Delhi: Madhya Pradesh has taken the lead in undertaking reforms in the Urban Local Bodies (ULB). Madhya Pradesh along with Andhra Pradesh has successfully completed a set of reforms in functioning of ULBs, as specified by the Department of Expenditure, Ministry of Finance. To motivate states to undertake reforms in various citizen centric sectors, the Ministry of Finance has linked a part of additional borrowing permission granted to the states to completion of reforms in civic bodies in the states.

It may be noted that in view of the resource requirement to meet the challenges posed by the COVID-19 pandemic, the Government of India had on May 17 earlier this year increased 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 included –  (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.

On successfully undertaking the ULBs reforms, Madhya Pradesh and Andhra Pradesh have been granted permission to mobilise additional financial resources to the tune of Rs.4,898 crore through open market borrowings. Out of these, Madhya Pradesh has been permitted to mobilize additional Rs.2,373 crore, while Andhra Pradesh has received permission of Rs.2,525 crore.

Reforms in the urban local bodies and the urban utilities reforms are aimed at financial strengthening 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.

Madhya Pradesh has come up with “the Madhya Pradesh Nagarpalika Vidhi (Dwitiya Sanshodhan) Adhyadesh, 2020 to implement these reforms.

Besides additional borrowing permissions, the States completing three out of the four reforms are entitled to get additional financial assistance under the “Scheme for Financial Assistance to States for Capital Expenditure”.

The Scheme was announced by the Union Finance Minister on October 12 earlier this year as part of Aatma Nirbhar Bharat Package. It is aimed at boosting capital expenditure by the State Governments who are facing a difficult financial environment this year due to the shortfall in tax revenue arising from the COVID-19 pandemic. Under the scheme, an amount of Rs.2,000 crore is earmarked to reward the States who undertake the prescribed citizen centric reforms. 

Besides the ULBs reforms undertaken by Madhya Pradesh & Andhra Pradesh, 10 States have implemented the One Nation One Ration Card System and 6 States have implemented the ease of doing business reforms, so far.

To facilitate more States to undertake the reforms and avail additional borrowings and additional assistance for Capital Expenditure, The Department of Expenditure, had recently extended the deadline for the States to complete citizen centric reforms in various sectors. Now, if the recommendation from the nodal Ministry concerned regarding implementation of the reform is received by February 15, 2021, the State will be eligible for reform linked benefits.