How Smart are Cities without Adequate Finances?: A Comparative Analysis in South Asia (SpringerBriefs in Economics) 9789811922961, 9789811922978, 9811922969

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SpringerBriefs in Economics Simanti Bandyopadhyay · Firdousi Naher · Aishna Sharma

How Smart are Cities without Adequate Finances? A Comparative Analysis in South Asia

SpringerBriefs in Economics

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Simanti Bandyopadhyay · Firdousi Naher · Aishna Sharma

How Smart are Cities without Adequate Finances? A Comparative Analysis in South Asia

Simanti Bandyopadhyay School of Management and Entrepreneurship Shiv Nadar University Delhi-NCR, India

Firdousi Naher Department of Economics University of Dhaka Dhaka, Bangladesh

Aishna Sharma School of Management and Entrepreneurship Shiv Nadar University Delhi-NCR, India

ISSN 2191-5504 ISSN 2191-5512 (electronic) SpringerBriefs in Economics ISBN 978-981-19-2296-1 ISBN 978-981-19-2297-8 (eBook) https://doi.org/10.1007/978-981-19-2297-8 © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Singapore Pte Ltd. The registered company address is: 152 Beach Road, #21-01/04 Gateway East, Singapore 189721, Singapore

Cities of Dhaka and Kolkata Disclaimer: The presentation of material and details in maps used in this book does not imply the expression of any opinion whatsoever on the part of the Publisher or Author concerning the legal status of any country, area or territory or of its authorities, or concerning the delimitation of its borders. The depiction and use of boundaries, geographic names and related data shown on maps and included in lists, tables, documents, and databases in this book are not warranted to be error free nor do they imply official endorsement or acceptance by the Publisher or Author.

Acknowledgements

We thank Muhammad Ibrahim Shah for his excellent research assistance. We express our gratitude to the Bureau of Economic Research (BER), University of Dhaka for funding. We would also like to thank the following individuals for their assistance with the collection of our data:

DSCC Shah Md Imdadul Haque, CEO, DSCC Muhammad Yusuf Ali Sardar, Chief Revenue Officer Md Saidur Rahman Khan, Former Deputy Chief Revenue Officer, DSCC Md Alamgir, Chief accountant officer, DSCC AHM Abdullah Harun, Executive Engineer, Waste Management Department, DSCC

DNCC Md. Abdul Hai, Chief Executive Officer, DNCC Mohammad Abdul Hamid Miah, Chief Revenue Officer, DNCC SM Shafiqur Rahman, Additional Chief Waste Management Officer, DNCC Abul Hasnat Md Ashraful Alam, Executive Engineer, DNCC Mahbuba Aqtar, Executive Engineer, Electricity, DNCC

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Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Setting the Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Early Dhaka—A Brief History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Evolution of the Local Government Structure in Bangladesh . . . . . . 1.4 Local Government Finances in Bangladesh . . . . . . . . . . . . . . . . . . . . . 1.5 Growth of Dhaka to a Primate City . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 Living Conditions in Dhaka City: Select Demographic, Social and Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.7 A Brief Historical Account of Kolkata . . . . . . . . . . . . . . . . . . . . . . . . . 1.8 Local Government in India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9 Local Government Finances in India . . . . . . . . . . . . . . . . . . . . . . . . . . 1.10 Declining Population in KMC: A Sharp Contrast to the DCC’s Ever Increasing Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.11 DNCC, DSCC and KMC: ULBs of Two Different Countries but many Similarities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.12 Purpose of the Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Finances of Dhaka City Corporations and Kolkata Municipal Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Revenue Receipts in Dhaka City Corporations from 2012–13 to 2018–19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Expenditures in the City Corporations in Dhaka . . . . . . . . . . . . . . . . . 2.3 Annual Growth of Revenues and Expenditures in Dhaka . . . . . . . . . 2.4 Revenue Receipts of Kolkata Municipal Corporation . . . . . . . . . . . . 2.5 Growth of Revenue Receipts in Kolkata Municipal Corporation . . . 2.6 Revenue Expenditures in Kolkata Municipal Corporation . . . . . . . . 2.7 Dhaka and Kolkata: A Comparative Picture . . . . . . . . . . . . . . . . . . . . 2.7.1 Summary Statistics of Revenues and Expenditures in Dhaka and Kolkata . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 2 3 4 6 6 8 10 12 13 14 16 16 17 19 20 23 24 24 25 27 28 28

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2.7.2 Shares of Different Components of Revenues: KMC, DNCC and DSCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7.3 Service Delivery in Dhaka . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.7.4 Service Delivery in Kolkata . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Fiscal Health of Dhaka and Kolkata . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 Revenues versus Expenditures in DNCC and DSCC . . . . . . . . . . . . . 3.2 Revenues versus Expenditures in KMC . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Revenue-Expenditure Gaps: Comparing Dhaka and Kolkata . . . . . . 3.4 Estimating Own Revenue to Gross City Product (GCP) Ratios: DNCC and DSCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.1 Method of Estimation of Gross City Product: DNCC and DSCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4.2 Simulations for Revenue Capacity: DNCC and DSCC . . . . . 3.4.3 Implications for Revenue Augmentation: DNCC and DSCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 Estimating Gross City Product: KMC . . . . . . . . . . . . . . . . . . . . . . . . . 3.5.1 Methodology for Estimating Gross City Product: KMC . . . . 3.5.2 Simulations for Revenue Capacity: KMC . . . . . . . . . . . . . . . . 3.5.3 Implications for Revenue Augmentation: KMC . . . . . . . . . . . 3.6 Comparing Dhaka and Kolkata: Revenue Capacity and Service Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29 30 32 33 35 38 40 44 45 45 48 51 54 54 55 0 58 60

4 Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Appendix B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Appendix C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

About the Authors

Simanti Bandyopadhyay is Professor of Economics in School of Management and Entrepreneurship, Shiv Nadar University, Delhi-NCR, India. Her professional experience consists of research, consultancy and teaching for more than two decades. She works on applied development economics, mainly related to public finance and public policy. She has done her Ph.D. in Economics on a UGC fellowship from the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi, and has been an International Centre for Tax and Development Post-doctoral Fellow at the Andrew Young School of Policy Studies, USA, and Institute of Development Studies, UK. She has visited various universities and research institutions of repute in India and abroad for assignments on research, teaching and research guidance and has also been a recipient of Mac Arthur Foundation Award. A regular contributor of research articles and an external reviewer to a number of international journals on public policy, economics and operations research, she has led important projects on various issues on development and has worked closely with organizations like World Bank, ADB, UNDP, IFMR, ICRIER, Planning Commission and different Ministries and government bodies. She has also been the chief researcher for the background study of the Fourth State Finance Commission of the state of Tamil Nadu in India. Firdousi Naher is Professor, Department of Economics, University of Dhaka, and obtained her Ph.D. from Jawaharlal Nehru University, New Delhi. With an experience of two decades, she has taught a range of economics courses and is a frequent guest speaker in universities in Bangladesh and abroad. She has been a post-doctoral fellow at the International Food Policy Research Institute. She has collaborated actively with researchers from national and international organisations including, BRAC, DFID, GIZ, ILO, IRRI, UNDP, UNICEF, WFP and the World Bank. A keen contributor towards inclusive policy making, Firdousi works closely with relevant ministries and departments, notably in evaluating different poverty alleviation programs of the government of Bangladesh. Also a prolific author of publications in different print media, Firdousi frequently serves as an external reviewer for international journals

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on development economics. Her research interests include poverty, social protection, agriculture, food and nutrition security, food safety, informal sector, education and public expenditure. Aishna Sharma is Assistant Professor of Economics in School of Management and Entrepreneurship, Shiv Nadar University, Delhi-NCR, India. She obtained her Ph.D. from Jawaharlal Nehru University, India. Her areas of interest include public finance, school education, higher education and public private partnerships. She has worked on various projects with British Council of India, state governments of India and the erstwhile Planning Commission of India. She started her career in National Institute of Public Finance and Policy (NIPFP), New Delhi. She later worked with Institute of Applied Manpower Research (now, National Institute of Labour Economics Research and Development) where she co-authored the India Human Development Report, 2011. She has presented her work in international and national conferences/seminars and has published extensively in different reputed outlets on varied issues.

Chapter 1

Introduction

Developing economies are experiencing an unprecedented growth in their urban populations, which have, in turn, given rise to bustling urban agglomerations. Between 2001 and 2011, the South Asian region witnessed a growth in urban population by 130 million, and this is slated to rise by 250 million by 2030 (Ellis and Roberts 2016). While the economic and social opportunities brought on by such a scale of urbanization is undeniable, accommodating this mass of people has also created many challenges. Unplanned spatial expansion, uncoordinated economic planning, increasing environmental degradation are some of the manifestations of the exodus of people into the urban areas. Urban local bodies (ULBs), with the mandate of administering and developing the urban areas, have come under huge pressure in trying to provide decent living conditions to the ever-expanding city populations. More recently, the urban local bodies have pledged to make their cities smart. In general, a smart city is conceptualized as being one that integrates smart technologies and digital networks in the provision of services. However, ensuring livable conditions and better quality of life is a prerequisite to making a city smart (Chourabi et al. 2012; Zubizarreta et al. 2016). The real challenge in many South Asian cities is ensuring basic services like housing, street lights, sanitation, waste management, roads, water supply, etc. Ensuring a sound infrastructure is the foundation for any smart urban agglomeration to emerge and this, in turn, hinges on the financial health of urban local bodies. Financial sufficiency is a fundamental requirement for a local body to provide quality services and living conditions for its people. Most urban local bodies in developing economies suffer from insufficient generation of revenues and/or lack of financial power to invest in even the basic infrastructure. In this book, we attempt to look at possibility of the emergence of smart cities in South Asian economies through the lens of financial sufficiency. We also attempt to highlight the possible financial measures for urban local bodies to build a foundation for establishing a smart city in developing economies. Two major South Asian cities have been considered— Dhaka and Kolkata. Accordingly, the fiscal health of the Dhaka North City Corporation, Dhaka South City Corporation and Kolkata Municipal Corporation have been © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 S. Bandyopadhyay et al., How Smart are Cities without Adequate Finances?, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-19-2297-8_1

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analyzed. Given the homogeneity that prevails in most South Asian cities in terms of the populace, its needs and way of life, our case studies should highlight the issues related to the fiscal health of urban local bodies in other South Asian Economies as well. We begin with a background of the cities of Dhaka and Kolkata.

1.1 Setting the Context Nested within the north-eastern wing of the Indian Union, lies the nation state of Bangladesh. Bounded by India on all three sides, both Bangladesh and India share a common heritage which has made the two nations interdependent in multifarious ways. The Indian state of West Bengal, in particular, has deep-rooted connections with Bangladesh. The historic links, cultural similarities, geographical proximity and economic interactions between West Bengal and Bangladesh bear testimonies to what was once undivided Bengal. A region crisscrossed by an extensive network of water bodies and endowed with rich alluvial soils, Bengal has been the target of many rulers stretching back to the Mughal empire and beyond. Between the sixteenth and eighteenth centuries, as, Bengal Subah under the Mughals (comprising undivided Bengal, Assam, Bihar, and Orissa), it flourished as the largest regional economy. The British entered the region in the second half of the eighteenth century and Bengal gradually rose to become the economic, cultural, and educational hub of the British Raj. In the early twentieth century, daunted by the rising tide of nationalism in Bengal, the English rulers, in a bid to dismantle unified Bengal, partitioned it into two parts: eastern Bengal and Assam with a population of 31 million and a Muslim majority (headquarters in Dhaka); and the rest of Bengal with a population of 54 million and a Hindu majority (headquarters in Kolkata). Against mounting opposition, eastern and western Bengals were reunited in 1911, although western Bengal saw a significant reduction in area as Bihar and Orissa were dismembered from it to form a new province. Undivided Bengal saw its second and final partition in 1947 with the emergence of two new nations states—India and Pakistan. The predominantly Hindudominated western part and Assam was ceded to India while the Muslim-dominated eastern part was ceded to Pakistan. Today, Dhaka, the capital city of Bangladesh, and Kolkata, the capital city of the Indian state of West Bengal, are megacities that are among the fastest-growing urban agglomerations in the South Asian region. It is against this historical context, common culture and the current pace of rapid urbanization, that the urban finances of these metropolitan cities are studied in this book.

1.2 Early Dhaka: A Brief History

3

1.2 Early Dhaka: A Brief History Geographically Dhaka (previously Dacca) lies in the center of the Padma-MeghnaJamuna delta that forms Bangladesh. Bounded by River Buriganga in the south, River Turag in the northwest, and rivers Balu and Sitalakshya in the east and southeast, respectively, Dhaka’s fertile hinterland and relatively raised topographical conditions, attracted settlements as early as the seventh century. The Dhaka region developed from a modest settlement to a provincial Mughal capital around 1608 and enjoyed the capital status under the Mughals for the next 100 years. With increasing economic activity, it became a major city and trading hub, particularly for the famed muslin, a superfine fabric, which was exported to Europe. Suburbs were built to house the growing number of civil servants and administrative officials, a commercial trading center was established and banks were set up to finance trading operations. The city’s working class was mostly housed in the industrial and trading areas. Narrow alleys characterized the city and a well-developed road network was missing, perhaps because waterways were the dominant mode of transport (Kabir and Parolin 2010). The city grew in an unplanned manner and was devoid of any municipal institutions during the Mughal period. The population had increased to about a million and Dhaka city stretched 20 km east–west and 12 km north (Ahmed 1986). A shift in the capital of Bengal from Dhaka to Murshidabad (located 60 miles north of Kolkata) in 1704 sowed the seeds of Dhaka’s downturn. In 1765, Dhaka came under the British rule but it continued to be neglected, as all attention was focused on Kolkata, the capital of British India. Almost a century later, Dhaka first became a municipality. At that time, it encompassed an area of barely 21 km2 with a population size of about 52,000 (ASB 2003). The Dhaka Municipality was entrusted to provide civic services including maintenance of roads, conservancy, health services and education, to the small township of Dhaka. The Municipality was authorized to levy rates and taxes as revenue generation towards provision of services and was occasionally assisted with government grants. At the end of nearly 200 years of British dominion over the Indian subcontinent in 1947, Dhaka, as the capital of East Pakistan province, saw a revival in its growth trajectory. It was only in 1956 that the development of Dhaka got a focus with the formation of the Dhaka Improvement Trust (DIT), later known as RAJUK (Rajdhani Unnayan Kartipakhya, which translates to Capital Development Authority). RAJUK is the principal authority on urban planning in Dhaka as well as infrastructure building and site development activities for housing, commercial and industrial use. The Authority is also empowered to exert control over development activities.

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1.3 Evolution of the Local Government Structure in Bangladesh Prior to the Mughal era, local government was in an informal form—village panchayat, which was an elected body with executive and judicial functions, headed by the village headman (Siddiqui 2005). When the Mughals came, a system of local government was introduced, that was hierarchical and ignored the voices at the grassroots. With the coming of the British, the demands for self-government increased, which ultimately led to the emergence of local government institutions. However, in real terms, there was no devolution of power to these institutions. Rather, the creation of local governments was, in effect, a rural extension of the career bureaucracy that was prevalent at the center—the British set-up, in which the bureaucrats, particularly the upper ranks, owed allegiance to the crown rather than the common man. Thus, a kind of local government system had emerged in which the local-level actors were accountable to the central authority for ‘effective’ development administration while the real development administration remained the responsibility of the upper tiers. This mindset of unwillingness to transfer political responsibility to the periphery prevailed throughout the Pakistan period and even after Independence. Rather than what to devolve and how to devolve, it has always been a question of why to devolve (Rahman 2002). Nevertheless, in accordance with the constitutional provision to develop effective local government institutions, several important legislations have been made post-independence, at different points of time. These include the Local Government Ordinance 1976, the Pourashava (municipality) Ordinance 1977, the amendment to the Local Government Ordinance in 1980 that introduced the Swanirvar Gram Sarkar (self-reliant village government), and the city corporation ordinances. The current local government structure is a multi-tiered system of sub-national governments below the central government. Administrative Divisions are the highest level of sub-national government (see Table A.1, Appendix A). These Divisions have no elected leader and are run by officers from the civil services, appointed by the central government. Although the Divisions house regional offices of all major service delivery ministries, their role is supervisory. The next administrative level is a three-tiered rural local government system, comprising of rural councils known as parishads—district council (zila parishad), sub-district council (upazila parishad), and union council (union parishad); and hill districts parishads. The city corporations and the municipalities (Pourashabha) form the single-tiered unitary urban local government in Bangladesh (see Box A.1, Appendix A) for a list of city corporations. City corporations form the upper category of urban local government while the Pourashabhas comprise the next category. The headquarter of each administrative division is under a city corporation. Only Dhaka city is governed by two city corporations. All Local Government Institutions (LGIs) are under the aegis of the Local Government Division (LGD), Ministry of the Local Government, Rural Development and Cooperatives (LGRD&C). The hill district parishads are supervised by the Ministry of Hill Tract Affairs.

1.3 Evolution of the Local Government Structure in Bangladesh

5

The Dhaka City Corporation, has gone through a number of transitions in its journey of more than a 150 years. Established in 1864, the Dhaka Municipality was awarded the status of a corporation in post-independent Bangladesh in 1978. In 1990, it underwent a name change from Dhaka Municipal Corporation to Dhaka City Corporation (DCC). By the Local Government (City Corporation) Act 2011 (amended), DCC underwent a further change, when it was bifurcated into Dhaka North City Corporation (DNCC) and Dhaka South City Corporation (DSCC). Covering an area of 196 km2 , DNCC is administratively divided into 10 zones and 58 wards. DSCC, on the other hand, covers an area of 109 km2 , divided into 10 zones and 75 wards. The consequent exercise of re-zoning and re-numbering of wards in each of the city corporations has generated some disruption, particularly with reference to previous records and their comparability with the new setup. The functions of the city corporations and municipalities are similar with some distinction made for mandatory and optional functions. They are responsible for: (i) water supply, sanitation and drainage; (ii) refuse collection and disposal; (iii) births, deaths and marriages registration; (iv) public health, hospitals, health centers and medical aid; (v) bathing places, dhobi ghats; (vi) fisheries, milk processing and markets; (vii) slaughterhouses; (viii) animal husbandry, stray animals, farms; (ix) building control and regulation; (x) development plans and community development projects; (xi) public streets, street lighting and traffic control; (xii) civil defence, flood, and fire services; (xiii) burial and cremation places; (xiv) arboriculture, gardens, open spaces and forests; (xv) maintenance of educational institutions and public libraries; (xvi) culture, fairs and shows; and (xvii) social welfare. Despite the wide range of local public goods and services that the city corporations are mandated to provide, their capacities—administrative, technical and financial— are inadequate to cope with the tremendous pressures of urban growth, particularly in Dhaka. As a result, the regular city corporation functions are largely limited to garbage collection, water supply, street lighting and maintenance of parks and gardens (Ahmed 2012). Moreover, the autonomy of the urban local bodies is restricted by the central government’s stringent control over them. This control is magnified in the case of finances. During 2018–19, local government expenditure amounted to less than 1.5% of the GDP.1 In addition to the city corporations, various national-level and specialized agencies provide services to the city dwellers. These are the Urban Development Directorate (UDD), National Housing Authority (NHA) and the Public Works Department (PWD) under the Ministry of Housing and Public Works; the Department of Public Health Engineering (DPHE) and the Local Government Engineering Department (LGED) under the Ministry of Local Government, Rural Development and Cooperatives; the Roads and Highways Department (RHD) under the Ministry of Road Transport and Bridges; the Department of Environment (DoE) under the Ministry of Environment and Forests; and the Power Development Board (PDB) under the Ministry of Power, Energy and Mineral Resources. Other ministries such 1

Calculated using relevant data from the official site of the Ministry of Finance, Government of Bangladesh. www.mof.gov.bd.

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as Commerce, Finance, Agriculture, Youth and Sports, and water resources development are also actively involved in urban development through their regional and local level agencies. Specialized agencies such as the Dhaka Water and Sewerage Authority (DWASA), Dhaka Electric Supply Authority (DESA), Bangladesh Road Transport Authority (BRTA), Dhaka Transport Coordination Board (DTCB), and the Bangladesh Bridge Authority also serve Dhaka city’s residents (Ahmed 2012).

1.4 Local Government Finances in Bangladesh It is widely understood that LGIs in Bangladesh face a resource crunch leading to poor or no delivery of services at all, with regard to the functions assigned to them. Urban local governments, in particular, have a propeller role to perform in the economic development of the nation, particularly when Bangladesh is slated to become a developing country by 2026. The Bangladesh Constitution, in recognition of the key roles that LGIs can play, has a clause (Article 60) that states that LGIs be given the power to levy taxes to meet their budgetary needs. However, in the absence of any formal, clear-cut arrangement between the central and local governments, the LGIs face a lack of fiscal autonomy. They remain at the discretion of the central government authorities for financial support, which is often unassured and erratic in terms of allocation. The main fiscal transfers from the central government to the local government are made through the Annual Development Program (ADP) block grant mechanism. ADP is financed by the surplus of revenue budget and domestic and external loans/aid, and it funds the development budget of the government. The ADP allocations come under four broad expenditure headings: sector/program allocation, block allocation, self-financed allocation, and food assistance. Of these, the block allocations fund the local government block grants. Only a small share of the allocations is channeled through block allocations, of which an even smaller share actually translates into transfers for local governments (Fox and Menon 2008). However during the 7th fiveyear plan, development of local government institutions was accorded the highest priority. Although allocations fell short of the 7th five-year plan target, 16% of the total ADP was devoted to this account. Despite this emphasis, annual development expenditure by local government has, on an average, fallen below the ADP allocation (BPC 2020).

1.5 Growth of Dhaka to a Primate City Bangladesh has been witnessing a rapid rate of urbanization, registering an average annual increase in urban population of more than 5% per year between 1975 and

1.5 Growth of Dhaka to a Primate City

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180,000,000 160,000,000 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 0

1971

1975

1980

1985

1990

Rural (million)

1995

2000

2005

2010

2015

2018

Urban (million)

Fig. 1.1 Change in rural and urban population of Bangladesh, 1970–2020. Source Authors’ computation, data.worldbank.org

2018 (data.worldbank.org).2 With a share of urban population of less than 10% at the time of independence in 1971, the proportion is now close to 37% at roughly 60 million people (see Fig. 1.1). The fact that over the same period, the rural population has grown at a rate of 1.1% is reflective of the remarkable urbanization that has taken place in the country. Moreover, the last census of 2011 revealed a higher absolute increase in urban population over rural population, compared to the censuses prior to that. Going by the projected figures, between 2011 and 2018, the rural population has actually declined by 0.4 million while the urban population has registered a staggering increase of 12.5 million. Thus Bangladesh seems to have reached a watershed in its demographic transition with population growth expected to be essentially an urban phenomenon. It has been projected that by 2050, an overwhelming 118 million people, constituting 61 per cent of the country’s projected population, will live in the urban areas (worldometers.info). Bangladesh has some 570 urban centers. However, the pattern of urbanization is highly skewed and there exists a lot of inter-district variation. Based on the 2011 census, the major urban districts ranked by their population are Dhaka, Chittagong, Gazipur, Narayanganj, Khulna, Rajshahi, Sylhet, Bogra, and Cumilla (BBS 2014). The population of Dhaka exceeds the cumulative population of all the other major urban areas. The stark feature of the urbanization that has taken place in Bangladesh is that it is primarily Dhaka-centric, making it the primate city of the country.3 At present, Dhaka houses nearly 20 million people making it home to almost one-third of the urban population and more than 10% of the total population of Bangladesh

2

Data from the World Bank is based on the Bangladesh population census 2011 conducted by the Bangladesh Bureau of Statistics. This source has been taken because it gives the projected population figures till 2018. 3 A primate city is defined as being at least twice as large as the next largest city and more than twice as significant (Wikipedia).

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(see Table A.2, Appendix A). This has earned Dhaka the status of a mega-city.4 The population density in the city exceeds a whopping 35,000 people per square kilometer. Understandably Dhaka has, become a hub of both administrative and economic functions. It houses the Bangladesh Secretariat and other public-sector employments, accommodating over 200,000 jobs according to Dhaka Metropolitan Development Plan 1995–2015 (Ahmed et al. 2014). As the epicenter of all economic activity, Dhaka, contributes to 34.5% of the national GDP (BPC 2020). It is the financial and banking capital of local as well as other international financial institutions.

1.6 Living Conditions in Dhaka City: Select Demographic, Social and Economic Indicators The extraordinary expansion of Dhaka city in the last few decades, almost to the exclusion of any other economic growth center in Bangladesh, has left the city authorities grappling with its phenomenal growth. Confronted with complex challenges emerging from the burgeoning urban footprint, policymakers and concerned authorities have, from time to time, taken stop-gap measures resulting in a development that has been termed as ‘messy and hidden’ (Ellis and Roberts 2016). The exodus of migrants from rural areas have been accommodated not only through a rapid growth of expansive slums with poor, often hazardous, housing and living conditions but also through a mushrooming of such slums in the peri-urban lands. The DCC area alone has about 3,400 slums (1644 in DNCC and 1755 in DSCC) inhabited by approximately 6.4 lakh people (BBS 2015). These slums have mushroomed primarily on government lands (ICDDRB 2016). The Multiple Cluster Indicator Survey 2013, reports that around 75% of slum households live in one room (Unicef 2015). Although Dhaka achieved a ‘strong’ rating in a new metric of subnational performance—the prosperity index5 —the city has clearly not been able to reap many of the benefits that accrue to urban agglomerations, particularly in terms of productivity and competitiveness. The Economic Intelligence Unit’s 2019 Liveability Index rankings of 140 global cities, places Dhaka at 138—just above Lagos and conflict-ridden Damascus (www.eiu.com). We now take a look at select socio-economic indicators as a proxy for living conditions in the city. The performance of an urban local body with respect to raising revenues and spending on the service delivery hinges, to a large extent, on the social and economic conditions prevailing in the area. For instance, having knowledge about the literacy rate could help us gauge the awareness of the population regarding their demand for service delivery. Again the population density of the area could signal the possible pressure on the service delivery. As has already been mentioned, the 4

The UN publications defines megacities as urban agglomerations with a population of over 10 million. 5 See Ellis and Roberts (2016) for details on the calculation of the Prosperity Index.

1.6 Living Conditions in Dhaka City: Select Demographic …

9

Dhaka City Corporation (DCC) got bifurcated into Dhaka North City Corporation (DNCC) and Dhaka South City Corporation (DSCC) in the year 2011. The last population census was done in 2011, prior to the bifurcation, and hence for some of the indicators, we have data available for DCC as a whole while for the others we have disaggregated data. Although the DNCC has a population that is higher than the DSCC by approximately one million people, the population density in the former is lower by almost 11,000 people per square kilometer. Understandably, the pressure on services is higher in DSCC (Table A.3, Appendix A). About three-fourth of the population in the city corporation areas is literate and the population aged 15 years and above has, on an average, six years of schooling (Table A.4, Appendix A). This is an obvious outcome of the fact that about 8% of the primary school-aged children and close to one-third of the secondary school-aged children do not go to school. Another important indicator which can inform about the vibrancy of the city, the demand for service delivery and the quantum of revenue that can be generated from the incomes of the city dwellers, is the participation of people in economic activities. The crude activity rate, which is defined as the share of economically active population in the age group 10 years and over to the total population, in Dhaka district is approximately 44 per cent. Even if the refined activity rate6 is considered, more than half the population is outside the sphere of economic activity. But they demand the services in the area. Thus there exists tremendous pressure on the city corporations to provide services vis-à-vis the revenue generated from the usage of those services. A caveat to this is that both the crude and refined activity rates pertain to 2011 and they exclude household-based economic activity. More than one-fourth of the household heads have a salaried job while 36% are either self-employed or have a business. Approximately 16% are in occupations that do not earn any cash income, such as permanent home helps who work in return for food and living or apprenticeships. In terms of access to electricity, almost all households are connected to the national grid. However close to one-fourth of the household experienced power outage in the past 7 days and among these households, 80% experienced power outage ranging from 30 min to 4 h. Seventy-five percent of the households have access to piped water for drinking purposes while almost all households have access to latrines. Piped gas is the predominant fuel for cooking. Majority of the households live in dwellings that have concrete walls but a lesser proportion—about 60%—have concrete roofs as well. Dhaka city has a disproportionately high concentration of industries, factories and other private sector investments, which attract a huge number of formal and informal jobs. The DCC area alone accounts for 9% of the total employment in Bangladesh and almost 70% of the employment in all the city corporations (Table A.5, Appendix A). A whopping 78% of urban jobs in Dhaka division are in the informal sector. As many as 6.7 million informal sector workers are working in Dhaka alone. The average duration of work of more than 50 h per week for a paltry USD 200 per

6

Defined as the share of economically active population in the age group 10 years and over to the total population in the same age group.

10

1 Introduction

month is a manifestation of the poor pay and working conditions of the informalsector dominated working class in Dhaka. A substantial proportion of the working age population between 15 and 29 years are not in education, employment or training (NEET) implying that they are neither improving their future employability through investment in skills nor gathering experience through employment. Whatever the reasons may be for such a high percentage, it does point to the over-crowding in Dhaka, which may have saturated the options available for absorbing these young people. With a mammoth migrant population of 6 million, DCC accounts for close to half of the total migrant population in Bangladesh and constitutes almost 40% of the urban workforce in Dhaka division (Table A.5, Appendix A). Interestingly, the share of female migrants is higher but that is on account of marriage or other family reasons and not for employment. Men are more than four times more likely to migrate to urban areas in search of jobs compared to women.

1.7 A Brief Historical Account of Kolkata Given that both Kolkata and Dhaka were at one time a part of greater Bengal, there are many overlaps in the early history of both the cities. Indeed, in our account of the early history of Dhaka, Kolkata sees a mention on several counts. Just like Dhaka, Kolkata is also a riverine city, sitting on the eastern bank of River Hoogli. Both River Hoogli and River Padma in Bangladesh are distributaries of the transboundary river, Ganges. Subsequent local Hindu kings established trading stations on the River and soon it served as a trade route between south and southeast Asia. The early sixteenth century saw West Bengal fall under the Mughal rule. In 1580, Mughal emperor Akbar allowed the Portuguese traders to establish a settlement on the deepest point of the River. This settlement was to later flourish as Hoogli—a city that shared its name with the River. By the end of the seventeenth century, Dutch, French and English settlements had sprouted around the River. The British East India Company made very humble beginnings in Bengal around the mid-seventeenth century when it received permission from the Mughals to trade in Hoogli and other parts of Bengal. Through subsequent concessions given to it by the Mughals (such as exemption of customs duties), the Company gradually succeeded in strengthening its presence in Bengal. In 1696, with the permission of Mughal emperor, Aurangzeb, the Company started building a defensive structure of mud and bricks on the banks of River Hoogli, which later came to be known as Fort William. In 1698, the Company acquired the zamindari (the right of revenue collection) of three large villages in the eastern bank of River Hoogli—Sutanati, Kalikata, and Govindpur. These villages soon grew into a city that came to be known as Kolkata. The British rule in Bengal was cemented in 1757 after the defeat of the last independent nawab of Bengal, Siraj ud Daulah, in the famous Battle of Plassey. Thus began a period of growth in Kolkata that would transform it into one of India’s

1.7 A Brief Historical Account of Kolkata

11

greatest cities and second only to London among the most important cities of the British empire (Ivermee 2017). Formerly known by its anglicized name, Calcutta, Kolkata became the new seat of imperial power in 1772. For the next 140 years, Kolkata remained the capital of British India. The City’s rise was centered around the River and the British made concerted efforts to improve its navigability. This had become paramount for the foreign rulers as they wanted to use the steam technology for passenger and cargo transport. The River was also used to develop a drainage system and a regular source of water supply for Kolkata’s growing population. While Dhaka’s riverfront hosted both port activities and the elites’ residences, Kolkata‘s riverfront in the seventeenth and eighteenth centuries was only used for port activities and passenger movement (Das and Rahman, undated). The riverbank, close to Fort William, housed the administrative, defense, and financial establishments. This separation of functions between riverfront and riverbank became an important determinant of the city’s landscape. The imperial efforts to elevate Kolkata from a merchant city to the status of the second capital of the British empire began to be manifest in the appearance of important buildings including the High Court, General Post Office, treasury buildings, the Indian Museum, churches, avenues and vistas connecting buildings, all of which had a touch of European architecture. (Das and Rahman, undated). In 1911, with the annulment of the partition of Bengal, the capital was shifted from Kolkata to Delhi. The colonial rule ended in 1947 and Bengal was partitioned for the second time into West Bengal and East Bengal. While East Bengal became a part of Pakistan (East Pakistan), West Bengal became a part of India and Kolkata was declared its capital city. A phase of decline began to be witnessed in post-1947 Kolkata. The partition, which had been done primarily based on religious majority, saw a huge influx of Hindu migrants to West Bengal which continued into the 1950s and 1960s. West Bengal witnessed another spate of refugees in 1971 following Bangladesh’s liberation war. While the capital city was undoubtedly affected by this large displacement of people, things were further aggravated by increased rural– urban migration within West Bengal, particularly to Kolkata. The glory that the city had once enjoyed was lost and Kolkata struggled with its congestion and consequent pollution. Kolkata’s first planned township in the post-colonial period, the Salt Lake City project, started in the 1950s. Apart from increasing housing facilities in the city, it also aimed at widening the city breadthwise to offset the ‘elongated’ development that had occurred along the River, as it was hampering the smooth provision of basic services. In 1970, the Kolkata Metropolitan Development Authority (KMDA) was set up as the planning and development authority for the Kolkata Metropolitan Area (KMA). Functioning under the administrative jurisdiction of the Department of Urban Development and Municipal Affairs, the KMDA is responsible for developing physical infrastructure as well as providing basic services like water, drainage, and waste management.

12

1 Introduction

1.8 Local Government in India India follows a three-tiered federal system of government with unitary features, the tiers being center, state, and local. While at the center there are union ministers headed by the Prime Minister, each of the country’s 28 states have a separate council of ministers, headed by a Chief Minister. Local government is a state function although the central government has the overall guiding role of supporting and promoting their development. Rural local government authorities are called the panchayats while urban local government authorities are the municipalities. Each state has its own local government legislation—state municipal or municipal corporation act for urban local government and the panchayati raj legislation for rural local government. In addition, states also have town planning acts and urban development acts which enable parastatal and para-municipal agencies to operate in close coordination with local bodies (www.clgf.org.uk/india). The 74th Amendment Act of the constitution in 1992 was a landmark development for the urban local bodies (ULBs) in India as they were devolved with more functions and finance handles, thereby rendering them greater autonomy (A list of functions and finances undertaken by Indian urban local government is given in Box A.2 and Box A.3, Appendix A).The Act stipulated three levels of ULBs: a nagar panchayat (town council) for areas in transition from rural to urban, a municipal council for smaller urban areas; and a municipal corporation for larger urban areas. Through this Act, there was constitutional recognition of the ULBs as the third tier of urban local government. Kolkata Municipal Corporation (KMC), the local government body of Kolkata, was founded in 1876. Having an administrative jurisdiction of 185 km2 , the KMC forms the nucleus of Kolkata Metropolitan Area (KMA) which covers an area of 1887 km2 . KMC is comprised of 141 wards with each ward having an elected councilor (GoWB 2014). The wards are grouped into 16 boroughs and each borough has a committee consisting of the councilors elected from the respective wards of the boroughs. The KMC, as the apex body, discharges its functions through a council, headed by a mayor, who is assisted by a deputy mayor, and ten other elected members. Since the jurisdiction of the KMC covers the area covered by the Kolkata Police, KMC and Kolkata Police are used often interchangeably in practice. The Corporation is responsible for providing basic infrastructure and services to the city dwellers that includes water purification and supply, sewage treatment and disposal, garbage disposal and street cleanliness, food inspection through KMC Food Inspectors, solid waste management, building and maintenance of roads, streets and flyovers, street lighting, maintenance of parks and open spaces, cemeteries and crematoriums, birth and death registration, conservation of heritage sites, disease control including immunization and public municipal schools.

1.9 Local Government Finances in India

13

1.9 Local Government Finances in India Although the 74th Constitutional Amendment Act formally recognized urban local government as the third tier of government, and spelt out a set of 18 municipal functions for the ULBs, there was no comparable recommendation on the finances of municipal governments.7 What the revenue sources of the ULBs would be, was left to the discretion of the state. The states were given the power to impose taxes, duties, fees, tolls, etc., and the onus was on the state to assign which would accrue towards revenue for the ULBs. The financial position of a state was to be reviewed by the State Finance Commissions and recommendations were to be made therein for devolution of tax revenues and grants-in-aid to urban local governments. Thus the devolution of power where it mattered the most was missing. Over time municipal revenues and expenditures as a proportion of GDP have waned and these have not been able to cater to the increasing demands of the urban centers. The ULBs receive transfers from both the central government and the state government, although receipts from the latter are much larger. West Bengal faces low municipal own revenue generation, which is attributed to the combined effect of a number of factors like limited devolution of functions and finances by the upper tiers of the government, the already poor service delivery by the ULBs, lack of proper assessment of properties and limited handles for non-tax revenue, to name a few. Despite the low financial autonomy granted by the upper tiers of the government, intergovernmental transfers have played a key role in supplementing own revenues. The cities in India are witnessing alarming pollution levels, in addition to existing problems of poor water supply and solid waste management. In order to address this issue, the recent 15th Finance Commission has suggested an allocation of USD 686 million for cities with population exceeding one million, for conservation, supply and management of water and efficient solid waste management. For other than millionplus cities, an allocation of USD 28,439 million has been recommended, of which 50% grant is specifically for drinking water harvesting and recycling and solid waste management. A separate grant of USD 625 million has been allocated for improving air quality in the million plus cities (GOI 2019).

7

These 18 functions include (i) urban planning including town planning, (ii) regulation of land use and construction of buildings, (iii) planning for economic and social development, (iv) roads and bridges, (v) water supply for domestic, industrial and commercial purposes, (vi) public health sanitation, conservancy and solid waste management, (vii) fire services, (viii) urban forestry protection of the environment and promotion of ecological aspects, (ix) safeguarding the interests of weaker section of the society including the handicapped and mentally retarded, (x) slum improvement and upgradation, (xi) urban poverty alleviation, (xii) provision of urban amenities and facilities such as parks, gardens and playgrounds, (xiii) promotion of cultural, educational and aesthetic aspects, (xiv) burials and burial grounds, cremations, cremation grounds and electric crematoriums, (xv) cattle pounds, prevention of cruelty to animals, (xvi) vital statistics including registration of births and deaths, (xvii) public amenities including street lighting, parking lots, bus stops and public conveniences, and (xviii) regulation of slaughter houses and tanneries.

14

1 Introduction

1.10 Declining Population in KMC: A Sharp Contrast to the DCC’s Ever Increasing Population The population in Kolkata urban agglomeration (as defined by the Census of India) has seen an average annual increase of 23% since 1901. However, interestingly, most part of this increase has been outside the KMC area. As Fig. 1.2 shows, till 1951, the population in the KMC was higher than that of the suburbs but from the 1950s onwards the increase in KMC’s population slowed down while the suburban areas began to register sharp increases. Between 2001 and 2011, KMC saw a decline in its population growth rate by 1.9% which is in sharp contrast to the increase in DCC’s population by a whopping 67% over the same period (see Fig. 1.3). The astronomical growth in Dhaka’s urban population is clearly brought out by the fact that in 1991, DCC population was less than that of KMC population but by 2011 DCC population had increased to almost double that of KMC. In the 2 decades 15,000,000 10,000,000 5,000,000 0

1901

1911

1921

1931

1941

1951

KMC

1961

1971

1981

1991

2001

2011

Suburbs

Fig. 1.2 Population growth in KMC vis-à-vis Kolkata Suburbs, 1901–2011. Source Authors based on Census of India (for 1971–2011) and Cox (2012) for data from 1901 to 1961 10

8.9

9 8 7 6 5

4.4

4.2

5.3

4.6

4.5

4 3 2 1 0

1991

2001 KMC

2011 DCC

Fig. 1.3 Population growth in KMC and DCC between 1999 and 2011 (millions). Source Authors’ computation, Census of India 2011 and Bangladesh Bureau of Statistics (2014)

1.10 Declining population in KMC: A Sharp Contrast …

15

from 1991, population in KMC increased by less than a million while that in the suburbs increased by more than 3 million. Although the population in KMC is on the decline, its population density is still high at 21,739 persons per square kilometer. Contingent on the declining population growth rate in the KMC, is the magnitude of the dependency ratio. Having an overall dependency ratio of 44.5 (Table A.6, Appendix A), old age dependency is on the rise in Kolkata city while young dependency is falling (ratios being 17.1 and 27.4, respectively). A little more than a third of the city population is employed and majority of them are so, for at least six months of the year (main workers). Approximately 5% of all main workers are engaged in the household industry or in agricultural activity, wherein the former refers to being engaged in different stages of production and distribution while operating from the premises of one’s home in the city. A fraction of the city dwellers (about 4%) do not have access to electricity. This compares to the DCC areas where almost 100% have access to electricity. Eightyeight percent of the city households have access to piped drinking water, although for a fraction of the households (about three percent), the water received is not treated water. Interviews with relevant KMC personnel revealed that the five water treatment plants, namely, Indira Gandhi water treatment plant (Palta), Garden Reach water treatment plant, Jai Hind Jal Prakalpa (Dhapa), Jorabagan water treatment plant and Watgunge water treatment plant were operating below capacity, supplying 448 million gallons per day against their daily total capacity of 488 million gallons. Approximately 88% of KMC area households use sanitary toilets. Though a slightly lesser number of households are connected to piped sewerage, the split between piped sewerage and septic tanks is close to 50:50. Dwelling structure in the Kolkata metropolis is predominantly of a permanent type with a small percentage (5.4%) living in semi-permanent houses and barely 1% living in temporary structures. Less than two-thirds use piped natural gas or liquefied petroleum gas as their cooking fuel, while almost a quarter use kerosene oil. A substantial proportion (approximately 10%) use coal, firewood, crop residue or cow dung for cooking. This is ostensibly a reflection of Kolkata’s substantial slum population of around 31% (Haque et al. 2019). In terms of service provision, there is a huge spatial inequality across the neighborhoods of the KMC (Haque et al. 2019). Studies have revealed a bias against localities having a high concentration of poor households, manifest through inadequate and a sub-standard level of basic amenities and services as compared to the city average. Kolkata’s poor localities are concentrated in the central and north-eastern parts of the city, largely inhabited by residents engaged in the low-paying urban informal sector.

16

1 Introduction

1.11 DNCC, DSCC and KMC: ULBs of Two Different Countries but many Similarities A comparison of the Dhaka city corporations and the KMC throw up many similarities, that are typical of most developing nations. The revenue base of both DNCC and DSCC and KMC is narrow. It is apparent that the ULBs of the two cities face an almost perennial lack of funds and are the first ones to be renounced when decisions have to be taken by the central/state government(s) to allocate scare funds. In terms of raising their own money, the city corporations in Bangladesh do not have the legal mandate to do so while in India, municipal bonds were floated by some ULBs, albeit with limited success. Property tax, which is the single most important component of tax revenue is a highly under-tapped resource in both Dhaka and Kolkata. Being very densely populated, both cities face administrative challenges in exploiting the full potential of property tax. Problems of coverage, high staff cost of assessment, collection and appeal are common deterrents for enforcement. Moreover, revision of very low current rates and a broadening of the tax base are politically sensitive decisions, which are often procrastinated. An upshot of the low revenue is that the level of expenditure by the ULBs is very low in these two prominent South Asian cities-less than one percent of the GDP. For Dhaka, the expenditure is particularly low. From the last updated data, the ratio was calculated as barely 0.40% of the GDP (BBS 2021). Another common element between the two metropolitan cities is that relevant data on revenue and expenditure is not readily available. Our literature review revealed that both the Dhaka city corporations and KMC had last updated their accounts record in 2012–13! Finally, the decentralization that has taken place in both the capital cities seems to be more on paper than in practice. In Bangladesh, the last systematic decentralization was done way back in the 1990s, when the upazila system was introduced. For India too, the 1992 constitutional amendment was the last significant step that was taken in this direction. Thus, both these important regional hubs have been devoid of any noteworthy development towards real devolution of power for more than two decades. Infact the ULBs have been the worst takers of the decentralization process falling victim to the inherent power play between the center and the periphery.

1.12 Purpose of the Study As the title of the book suggests, the study would explore how a sound fiscal health can enable a city to become smart. Often in discussions on smart cities, the core challenges on local government functions and finances take a back seat. We would like to venture into an unexplored region of South Asian cities, Dhaka and Kolkata, to attempt a thorough analysis of municipal finances and service delivery. The main objective is to assess the fiscal health of these two bustling metropolises in South Asia and identify the gaps in performing certain functions with finances generated

References

17

by these cities. We also assess the potential for raising additional revenues to fill up these gaps. A comparative analysis of these two cities, which hold a common heritage and have similarities in terms of topography, language, climate, food and culture, offers important implications for policies. It also helps in identifying good practices which can be emulated for betterment of fiscal health and service delivery of the cities.

References Ahmed SU (1986) Dacca: a study in urban history and development. Curzon Press, Dhaka Ahmed S (2012) Level, structure and distribution of urban public finance. In: Hossain ZR (ed) Bangladesh: Urban dynamics. Power and Participation Research Centre, Dhaka Ahmed S, Nahiduzzaman KM, Bramley G (2014) From a town to a megacity: 400 years of growth. In Dewan A, Corner R (eds) Dhaka megacity: geospatial perspectives on urbanisation, environment and health. Springer Geography, pp 20–14. https://doi.org/10.1007/978-94-007-6735-5_2 Asiatic Society of Bangladesh (ASB) (2003) Banglapedia: national encylopedia of Bangladesh, vol 3. Asiatic Society of Bangladesh, Dhaka, pp 15–18 Bangladesh Bureau of Statistics (BBS) (2014a) Population and housing census 2011. National volume 2: union statistics. Statistics and Information Division. Ministry of Planning Bangladesh Bureau of Statistics (BBS) (2015) Preliminary report of the census of slum areas and floating population 2014. Ministry of Planning, Government of Bangladesh Bangladesh Planning Commission (BPC) (2020) 8th Five Year Plan (July 2020–June 2025): Promoting prosperity and fostering inclusiveness. General Economics Division, Bangladesh Planning Commission, Government of Bangladesh Bangladesh Bureau of Statistics (BBS) (2020) Urban socioeconomic assessment survey 2019. Ministry of Planning, Government of Bangladesh Bangladesh Bureau of Statistics (BBS) (2021) Statistical yearbook of Bangladesh 2020. Ministry of Planning, Government of Bangladesh Chaourabi H, Nam T, Walker S, Gil-Gracia JR, Mellouli S, Nahon K, Pardo TA, Scholl HJ (2012) Understanding smart cities: an integrative framework. In: Presented at 45th Hawaii international conference on system science. https://doi.org/10.1109/HICSS.2012.615 Ellis P, Roberts M (2016) Leveraging urbanization in South Asia: managing spatial transformation for prosperity and liveability. South Asia development matters. World Bank, Washington, DC. https://doi.org/10.1596/978-1-4648-0662-9. Fox WF, Menon B (2008) Decentralization in Bangladesh: change has been illusive. In: International studies program working paper 08–29. Andrew Young School of Policy Studies, Georgia State University Government of West Bengal (GoWB) (2014) District census handbook: Kolkata. Census of India 2011, Series 20, Part 12-B, Directorate of Census Operations, West Bengal Government of India (GOI) (2019) XV Finance Commission report for the year 2020–21. Ministry of Finance Haque I, Mehta S, Kumar A (2019) Towards sustainable and inclusive cities: the case of Kolkata. Special Report No. 83, Observer Research Foundation International Centre for Diarrhoeal Disease, Bangladesh (ICDDRB) (2016) Baseline population and socioeconomic census: slums of Dhaka (North and South) and Gazipur city corporations, 2015–16. Urban Primary Health Care Services Delivery Project, Local Government Division. Ministry of Local Government, Rural Development and Cooperatives (MoLGRDC) Ivermee R (2017) The Hoogly river: a sacred and secular waterway. Education about Asia, Vol 22:2: Water and Asia, Fall 2017

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Kabir A, Parolin B (2010) Planning and development of Dhaka—a story of 400 years. In: 15th international planning history society conference. Available at http://www.usp.br/fau/iphs/abstra ctsAndPapersFiles/Sessions/09/KABIR_PAROLIN.PDF Rahman HZ (2002) Re-thinking local governance: towards a livelihoods focus. In: Toufique KA, Turton C (eds) Hands not land: how livelihoods are changing in rural Bangladesh. Bangladesh Institute of Development Studies and UK’s Department for International Development Siddiqui K (ed) (2005) Local government in Bangladesh. University Press Limited, Dhaka UNICEF (2015) Multiple indicator cluster survey 2012–13: Progotir Pathey. Bangladesh Bureau of Statistics and UNICEF Zubizarreta I, Seravalli A, Arrizabalaga S (2016) Smart city concept: what is it and what it should be. J Urban Plann Dev 142(1):1–8

Chapter 2

Finances of Dhaka City Corporations and Kolkata Municipal Corporation

The objective of this chapter is to assess the current status of finances in Dhaka North City Corporation, Dhaka South City Corporation, and Kolkata Municipal Corporation with respect to their sources of revenues and the expenditures they are incurring on service delivery. This would set the stage to assess the fiscal capacities of the local bodies. The broad categories of revenues for local bodies are own revenues generated by them and the grants from upper tiers of government. The own revenues can further be divided into tax revenues and non-tax revenues. Property tax levied by the local bodies forms their major source of tax revenues. Non-tax revenues are levied in the form of user charges or fees for provision of services like parks, parking, community centers, graveyard, birth, and death registration, etc. These revenues are used by the local bodies to fund the services like water supply, waste disposal, roads, electricity, street lighting, sewerage, parking, community centers, etc. Ideally, a local body should be able to fund such services out of its own revenues. A comparison of own revenues and revenue expenditure can indicate how far a local body is self-sufficient in providing basic services to its populace. It is also imperative to know what are the investment requirements of a local body for service provision. The framework for these requirements of revenue expenditures has been developed by High Powered Expert Committee (HPEC) according to different city sizes in India. The revenue expenditure norms provide a benchmark for minimum revenue expenditures that must be incurred by a city to provide adequate levels of services to its population. A comparison with these benchmarks can measure the extent by which each city should expand its actual expenditures to provide adequate levels of service delivery. The data source is the annual budgets of the city corporations for various years. The actual numbers were converted to 2011–12 constant prices. In the absence of expenditure norms for Dhaka, the norms for Kolkata have been applied for Dhaka. This is justified, given the similarities between the cities.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 S. Bandyopadhyay et al., How Smart are Cities without Adequate Finances?, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-19-2297-8_2

19

20

2 Finances of Dhaka City Corporations and Kolkata …

2.1 Revenue Receipts in Dhaka City Corporations from 2012–13 to 2018–19 A look at the composition of revenue receipts in both DNCC and DSCC shows that own revenues (comprising of tax receipts and non-tax revenue receipts) form a major share of the total revenue. Grants, as a source of revenue, hold a much lower share (Figs. 2.1 and 2.2).1 Between 2012–13 and 2018–19 on an average, own revenues were 87% of the total revenues in DNCC and 79% in DSCC. While it reflects lesser reliance of the city corporations on external sources for funds, it could also indicate a lack of support from the upper tiers of the government. Indeed, center-local government transfers have been erratic and unrelated to measures such as the quantum of 120 100 80 60 40 20 0

Tax Revenue to Total Revenue

Non Tax Revenue to Total Revenue

Grants to Total Revenue

Other Income to Total Revenue

Fig. 2.1 Composition of revenue receipts (%) in Dhaka North City Corporation (DNCC). Source Authors’ computation based of annual budgets of DNCC 120 100 80 60 40 20 0

Tax Revenue to Total Revenue

Non Tax Revenue to Total Revenue

Grants to Total Revenue

Other Income to Total Revenue

Fig. 2.2 Composition of revenue receipts (%) in Dhaka South City Corporation (DSCC). Source Authors’ computation based on annual budgets of DSCC 1

The different components of non-tax revenue are provided in Box B.1, Appendix B.

2.1 Revenue Receipts in Dhaka City Corporations …

21

tax revenues collected or the level of economic activity (Fox and Menon 2008). In the absence of any scientific method to determine inter-governmental transfers, it is understandable that biases or discriminations can prevail. The main fiscal transfers from the central government to the local government is made through the Annual Development Program (ADP) block grant mechanism. ADP is financed by the surplus of revenue budget and domestic and external loans/aid, and it funds the development budget of the government. The ADP allocations come under four broad expenditure headings: sector/program allocation, block allocation, self-financed allocation, and food assistance. Of these, the block allocations fund the local government block grants. Only a small share of the allocations is channeled through block allocations, of which even a smaller share actually translates into transfers for local governments (Fox and Menon 2008). We now look into the components of own revenues and total revenue receipts in the two city corporations in detail. Table 2.1 gives us the shares of different components of revenue receipts. 97% of the total tax revenues comes from property Table 2.1 Proportions of different components of revenue receipts from 2012–13 to 2018–19 Components of revenue receipts

DNCC geometric mean (min, max)

DSCC geometric mean (min, max)

Property tax to total tax revenue

96.7% (95%, 98%)

96.9% (96%, 98%)

Property tax to own revenue

46.8% (46%, 49%)

43% (35%, 50%)

Property tax to total revenue

40.6% (36%,45%)

34.2% (27%, 41%)

Tax revenue to own revenue

48.4% (47%,51%)

44.4% (36%, 51%)

Non-tax revenue to own revenue

51.6% (49%,54%)

55% (49%,64%)

Tax revenue to total revenue

42% (37%, 46%)

35.2% (36%,51%)

Non-tax revenue to total revenue

44.7% (42%,47%)

43.7% (30.4%,57%)

Own revenue to total revenue

86.8% (79%,92%)

79% (58%,93%)

Grants to total revenue

7.5% (3%,19%)

13.8% (5.6%, 40%)

Other income to total revenue

2.3% (1%, 11%)

0.6% (0%,11.7%)

Source Authors’ computation based on annual budgets Note (1) Adding the share of own revenue to total revenue, the share of grants to total revenue and the share of other income to total revenue do not add up to 100% because we have taken the average values of other income to total revenue ratio (2) Other incomes include sale of unused property and others, loan, loan recovery, receipt from elimination of DCC, Interest from bank, Grants from central government, special grants from central government, government and foreign aided projects or PPP

22

2 Finances of Dhaka City Corporations and Kolkata …

tax.2 Apart from property tax, a range of revenue instruments are available for urban local bodies, which include other taxes levied on citizens within their jurisdiction such as entertainment tax and vehicle tax, charging on pro-rata basis on provision of different services; several fees and fines; rents and leases; loans as well as other income sources. When revenues from all these sources are considered, property tax constitutes, on an average, about 45% of the own revenues from the two city corporations. Tax collections are lower in DSCC but the share of grants is almost double than that in DNCC. More than half of the own revenues accrue to non-tax sources pointing to the substantial scope for better exploitation of tax revenue handles. As per the Local Government (City Corporations) Act 2009 there is a Fund for each city corporation. All the money collected by the city corporations will be kept in the respective Fund, and the Fund has to be maintained in a government bank or in any other form, as directed by the government. We now take a look at some summary statistics of absolute and per capita values of different components of the revenue receipts and compare the relative performance of the two corporations. The absolute value of own revenue generated is approximately 30% higher in DNCC compared to DSCC. Of this, the difference in tax revenues between the two bodies is much more (43%) compared to the difference in non-tax revenue (about 23%). One component of revenue in which DSCC has an advantage is grants, implying higher dependence of the body on the upper tiers of the government. This renders the total receipts to exceed in DNCC by 20%. (See Table B.1, Appendix B). However, when we analyse in per capita terms, we get a different picture. Population in DNCC is almost a quarter more than that of DSCC. This results in the per capita property tax being higher than DSCC, by only 5% and the tax revenue being higher by only 6% (compared to 43% in absolute terms for both property tax and total tax revenue) (Table B.2, Appendix B). However, despite these edges over the DSCC, the overall per capita revenue receipts in DNCC is 11% lower than DSCC even though in absolute terms it was 20% higher. This is primarily driven by the per capita grants from the upper tiers of the government, which more than two times that of DNCC. Non -tax revenue is also higher in DSCC, implying a larger capacity to reap revenues in terms of fees, fines, rents, etc. It is interesting to note here is that DNCC with a lower population density than DSCC, may not face as huge a pressure on service delivery as compared to the latter. Whether DNCC performs better or worse can be assessed by looking at the service delivery in the two corporations. We now turn to the annual average growth rates of per capita revenue receipts and its different components between from 2012–13 to 2018–19. What is worrisome to note here is that, on an average, both the cities have experienced a negative growth rate of their overall revenue receipts (Table 2.2). The DSCC has registered a greater negative growth rate of tax revenues as compared to DNCC. The DSCC has, however, shown a positive growth rate of non-tax revenue. On the other hand, for DNCC both

2

Method of valuation of property tax in Dhaka corporations is given in Box B.2, Appendix B.

2.2 Expenditures in the City Corporations in Dhaka Table 2.2 Annual growth rate of per capita revenue components (average) (from 2012–13 to 2018–19)

23

Components of revenue receipts

DNCC average (min, DSCC average max) (min, max)

Property tax

−5.8% (−12.5%, − 0.05%)

−9.9% (−16%, − 2.7%)

Tax revenue

−6.15% (−12%,−0.38%)

−9.9% (−16%, − 3.6%)

Non tax revenue

−5.2% (−15%, 4.8%)

1.9% (−30%, 30%)

Own revenue

−5.8% (−10.7%, 0.49%)

−3.9% (−25%, 10%)

Grants

48% (−75%, 294%)

53% (−87%, 294%)

Other income

7.8% (−91%, 187%) 70% (−97%, 317%)

Total revenue receipts

−6.1% (−23%, 7.9%)

−4.6% (−31%, 18%)

Source Authors’ computation based on annual budgets

tax and non-tax revenues have seen a negative growth rate during the six years since the Dhaka city corporation was bifurcated. We also see that in both the city corporations, the grants have not only registered a positive growth rate but also a tremendous one, more so with the DSCC than the DNCC. Moreover, incomes from other sources have also seen a massive annual growth of 70% in the DSCC. However, this large growth rate is offset by the negative growth rate to render the overall growth rate of revenue receipts as negative in both the corporations.

2.2 Expenditures in the City Corporations in Dhaka The Dhaka city corporation categorizes expenditures under two categories—revenue expenditure (which refers to the recurrent expenditure such as salaries, wages, and other administrative costs) and development expenditure (which refers to developmental works). The total expenditure in absolute terms in higher in DSCC as compared to DNCC by 19% approximately (Table B.3, Appendix B). When we consider the per capita revenue expenditure we see an even greater gap between the expenditures incurred by DNCC and DSCC, with DSCC higher by 61%. It is obvious that one of the reasons for this is the greater population in DNCC. However, it would be more meaningful to comment on the expenditures incurred by the city corporations after taking into account the status of their service delivery. When we look at the components of revenue expenditure in both the Dhaka cities, from 2012–13 to 2018–19, we find that the share of development expenditure in total expenditure has undergone a significant decline in both DNCC and DSCC (Table B.4,

24

2 Finances of Dhaka City Corporations and Kolkata …

Appendix B). If we look at the share of development expenditure, there is a declining trend and the share is not even half the total expenditure. In fact, for DSCC the share is less than one-third. These figures reveal that the city corporations are using a larger share of the earnings to sustain themselves compared to the expenditure for developmental purposes. The revenue expenditure, on the other hand, has registered an increase of 6% and 7% in both DNCC and DSCC respectively.

2.3 Annual Growth of Revenues and Expenditures in Dhaka For both DNCC and DSCC the per capita revenue receipts do not show a uniform pattern over the time period of the study. (The annual growth rate over years for different components of revenue receipts and revenue expenditure is given in Fig. B.1 to B.14, Appendix B). But we do see that over all there is a fall in revenue receipts in DNCC as well as DSCC. Much of this fall is attributed to a fallin own revenues and grants in both the corporations. If we consider the annual growth rates of per capita expenditures in DNCC and DSCC, we did not find any uniform pattern. However, the fall in the per capita expenditure incurred by the DNCC was much steeper than that of the DSCC. It may be mentioned here that the Local Government (City Corporations) Act 2009 provides little real powers to the city corporations and the central government holds the ultimate power to enact any legislation. As per the Act, all the money collected by the city corporations will be kept in the respective Fund, and the Fund has to be maintained in a government bank or in any other form, as directed by the government. For instance, the center has the executive authority to take charge of any entity hitherto under the city corporation or to transfer the charge of any entity currently under the center to the city corporation (Article 42 of the Act). The chief executive officer, who is the overall in-charge of administration and implementation, is appointed by the government.

2.4 Revenue Receipts of Kolkata Municipal Corporation The financial data was collected from the budget of KMC over the years, 2007–08 to 2017–18 and these were converted to 2011–12 prices, to reflect real changes. Just as we saw in the case of DNCC and DSCC, the lion’s share of the tax revenues in KMC also accrues to property tax (Table 2.3). All taxes together constitute about 61% of own revenue. The share of non-tax revenue in own revenue is 39% which is indicative of limited number of handles on which KMC currently levies fees and charges. In contrast to DNCC and DSCC, where the dominant share of the total revenues comes from own sources, approximately half of KMC’s total revenue comes

2.5 Growth of Revenue Receipts in Kolkata Municipal Corporation Table 2.3 Proportions of different components of revenue receipts in KMC from 2009–10 to 2017–18

Share (%)

Geometric mean(minimum, maximum)

Property tax to tax revenue

96.4(95, 98)

Property tax to own revenue

59 (52, 64)

Property tax to total revenue receipts

30(27, 35 )

Tax revenue to own revenue

61(54, 65)

Non tax revenue to own revenue

39(35,46)

Own revenue to total revenue

51(45, 56)

Tax revenue to total revenue

31(28, 36)

Non tax revenue to total revenue

20(16, 26)

Grants to total revenue

47(38, 55)

Other income to total revenue

0.27(0.07, 7)

25

Source Authors’ computation

from own sources while another half comes from other sources, primarily grants from the upper tiers of governments. In fact, the dependency of KMC on grants is quite high, averaging about 47% of the total revenue receipts. There has been a consistent increase in the grants from 2014 to 15 onwards. It was as high as 55% of total receipts in 2017–18.

2.5 Growth of Revenue Receipts in Kolkata Municipal Corporation The problem of lower self-sufficiency of the KMC is compounded by a negative growth rate of both tax and non-tax revenues. Between 2009–10 and 2017–18, the revenue receipts registered a negative average growth of 2.1% (Table 2.4). wherein non-tax revenues declined significantly by 6.1% per year on an average. A fall in the non-tax revenue caused the own revenue to fall by 2.4% on an average. We have seen that tax revenue is driven by property tax and this fell by 30% in a single year between 2016–17 and 2017–18. A probable explanation for this could be the shift from rent-based assessment to unit area assessment since 2017. It is possible that the property owners are not aware of how to assess their properties under the new assessment method.

26

2 Finances of Dhaka City Corporations and Kolkata … 1.1 0.8 7.2 13.3 45.4 10.3 10.1

3.6

Services

4.1 1.0

1.4

Motor Vehicles

Educaon Services

Health Services

Bustee Services

Electricity Charges

Administraon and Support

Contribuon of Pension Fund

Parks and Squares

Commerical Vehicles

Others

Fig. 2.3 Composition of revenue expenditure in KMC (Average from 2009–10 to 2017–18). Source Annual budget KMC, various years3

Table 2.4 Annual growth rate of revenue receipts in KMC (%)

Components of revenue receipts

KMC average (min, max)

Property tax

1.4% (−30.4%, 32.5%)

Total tax revenue

1.3% (−29.8%, 31.2%)

Non tax revenue

−6.1% (−28.9%, 13.9%)

Own revenue

−2.4% (−28.8%, 20%)

Grants

0.0% (−18.3%, 39.1%)

Total revenue

−2.1% (−23.4%, 20.4%)

Source Authors’ computation

3

Others include commercial services, social sector, loan charges, security arrangements, special programs, Councilors Elaka Unnayan Prakalpa, Integrated borough scheme, funds at disposal of mayor, funds at disposal of municipal commissioner, contribution from revenue for JNNURM, Reconstruction of Municipal government, Contribution from revenue for abattoir of Tangra, Contribution from revenue for KEIP, Contribution from revenue for Tally’s Nallah project, Contribution from revenue for KEIIP, Waiver of H.B.L, Group Insurance, Leave Travel Concession, Promotion of cultural activities, parks and playgrounds, special development works, Grant to charitable and educational institution, etc., miscellaneous expenditure of MPLAD/BEUP cell, Renovation and improvement of historical and other building of KMC, Promotion of sports and coaching, cost for special and advisory committee for implementation of KMC Act and rule, program on environment, contribution from revenue for various abattoirs, PPP (Capital nature), PPP (Revenue nature), Disaster management program, Contribution to multi sectoral plan for development of minorities, Contribution to river front development project, Special development fund for joka, Contribution to Rajiv Abas Yojana, Contribution to AMRUT, Contribution to Stipend for Trainee Aprentices,

2.6 Revenue Expenditures in …

27

2.6 Revenue Expenditures in Kolkata Municipal Corporation To have a comprehensive picture of the fiscal health of KMC, we look at revenue expenditures to see (a) the composition of revenue expenditures, (b) whether KMC is spending enough to provide the minimum service levels or not and (c) whether the existing revenues receipts of KMC are sufficient to finance the revenue expenditures or not. 3,000 2,500 2,000 1,500 1,000 500 0

Actual Expenditure

Average Expenditure

Fig. 2.4 Revenue expenditures on all services over time in KMC. Source Annual budget KMC, various years 1,400 1,200 1,000 800 600 400 200 0

Electricity Charges

Contribuon of Pesion Fund

Fig. 2.5 Electricity charges and contribution of pension funds (per capita) over time in KMC. Source Annual budget KMC, various years

Contribution to Green City Mission, Contribution to deal waste water from Basin, Contribution to lease premium for waste disposal, Contribution to Swachh Bharat Mission.

28

2 Finances of Dhaka City Corporations and Kolkata …

A look at the composition of revenue expenditures in KMC shows that from 2009– 10 to 2017–18, services (water supply, sewerage and drainage, roads, streetlights and solid waste management) account for an average of only 45.4% of the total revenue expenditure (Fig. 2.3). KMC spends more than one-third of its total revenue expenditure on electricity charges, pension funds and administration and support. There is obviously a trade-off between such a huge burden of these expenditures for KMC’s sustenance and the expenditure that the local body incurs on services. In fact, over time, the revenue expenditure on all services has fallen (Fig. 2.4) and has been less than the average values in the more recent years. But at the same time we see that the expenditures incurred on the other major components like pension funds and electricity charges witnessed an increase (Fig. 2.5).

2.7 Dhaka and Kolkata: A Comparative Picture We now take a look at how the two cities are performing with respect to service delivery. This section juxtaposes the summary statistics for revenues and expenditures for KMC with those of DNCC and DSCC. We also compare the expenditure incurred in KMC vis-à-vis the expenditure norms.4 These norms for service delivery are based on the recommendations of the High Powered Expert Committee (HPEC) (GOI 2011). Expenditures of all the three city corporations have been considered at 2011– 12 prices. To make the comparison easier all local currency figures were converted to US dollars by multiplying the values for each year by the prevailing exchange rates for the respective years for each country.5

2.7.1 Summary Statistics of Revenues and Expenditures in Dhaka and Kolkata When we compare the finances of DNCC and DSCC with KMC, we find a stark difference between the local bodies of the two cities (Table 2.5). Property tax, which is the more important source of revenue for all the three ULBs, is higher in KMC by over 450% (valuation method of property tax in KMC is provided in Box B.3, Appendix B). Per capita property tax is higher in KMC over that in Dhaka by more than USD 17. The same pattern is understandably reflected in the overall tax revenue also, given the predominance of property tax in all the three city corporations. Per capita non-tax revenue is higher in KMC over DNCC and DSCC by over 200%. Per capita grants are also far greater in KMC compared to the paltry US$0.6 in DNCC and US$ 1.5 in DSCC. The lack of financial support to DNCC and DSCC from 4

The analysis could not be undertaken for DNCC and DSCC due to paucity of data on expenditure on different services. 5 Source: https://www.exchangerates.org.uk/INR-USD-spot-exchange-rates-history-2020.html.

2.7 Dhaka and Kolkata: A Comparative Picture

29

Table 2.5 Summary statistics of per capita revenue and expenditure (in US dollars) Finances (in US $) KMC geometric mean (max, min)

DNCC geometric mean (max, min)

DSCC geometric mean (max, min)

Property tax

21.5 (31.8, 14.5)

3.9 (4.5, 2.9)

3.7 (4.9, 2.5)

Tax revenue

22.3 (32.5, 15.3)

4 (4.7, 3)

3.8 (5, 2.6)

Non tax revenue

14.2 (20.5, 1)

4.3 (4.9, 3.4)

4.7 (5.7, 3.9)

Own revenue

36.6 (49.8, 23.5)

8.3 (9.4, 6.4)

8.5 (9.8, 6.8)

Grants

34.2 (40.3, 28.2)

0.6 (2.2, 0.3)

1.5 (5.9, 0.7)

Total revenue receipts

72.1 (90.4, 51.7)

9.5 (11.4, 7.1)

10.8 (14.6, 7.6)

Total revenue expenditure

75.5 (112, 64)

3.6 (4.1, 2.8)

5.7 (6.5, 5)

Source Authors’ computation Note The average value is taken over the year 2010–11 to 2017–18 for KMC (due to availability of average yearly exchange rate from the year 2010 onwards). The period under consideration for both DNCC and DSCC is 2012–13 to 2018–19

the upper tiers of the government is brought out very clearly from these numbers (see Table B.5, Appendix B, for year wise data on finances in DNCC, DSCC and KMC). In keeping with the stark difference in per capita revenues, per capita revenue expenditures are also much higher in KMC than in DNCC and DSCC. KMC’s per person expenditure is as high as USD 70 and above compared to the per person expenditure in DNCC and DSCC. Needless to mention, with a substantially lower level of expenditure by both the city corporations in Dhaka, we can expect their service delivery to be falling behind KMC.

2.7.2 Shares of Different Components of Revenues: KMC, DNCC and DSCC Table 2.6 shows the shares of different components of revenue in all the three ULBs. Property tax comprises an overwhelming 97% of the tax revenue in all the three ULBs although its share in own revenue receipts is higher in KMC than either DNCC or DSCC. Tax income is the dominant source of own revenue in KMC while nontax income is the dominant source in DNCC and DSCC. As has been argued in the previous chapter, property tax has remained an under-explored option for city corporations in Dhaka. Grants, as a proportion of total revenue, can give us some idea about the extent of decentralization and self-reliance. In KMC, 44% of the total revenue is obtained from grants. The corresponding share is much lower for DNCC at 7.5% and for DSCC at 13.8%. One cannot really tout this as a self-reliance of Dhaka cities rather it is a reflection of poor decentralization of finances from the upper tiers of government.

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2 Finances of Dhaka City Corporations and Kolkata …

Table 2.6 Share of different revenue components in own revenue and total revenue (%) (average over years) Share (%)

KMC geometric mean (minimum, maximum)

DNCC geometric mean (minimum, maximum)

DSCC geometric mean (minimum, maximum)

Property tax to tax revenue

96.4 (95, 98)

96.7 (98, 95)

96.9 (96.3, 98)

Property tax to own revenue

59% (52, 64)

46.8 (46, 49)

43 (35, 50)

Property tax to total revenue receipts

30 (27, 35)

40.6 (36, 44.5)

34.2 (27, 41)

Tax revenue to own revenue

61 (54, 65)

48.4 (47, 51)

44.4 (36, 51)

Non tax revenue to own revenue

39 (35, 46)

51.6 (49, 54)

55 (49, 64)

Own revenue to total revenue

51 (45, 56)

86.8 (79, 92)

79 (58, 93)

Tax revenue to total revenue

31 (28, 36)

42 (37, 46)

35.2 (36, 51)

Non tax revenue to total revenue

20 (16, 26)

44.7 (42, 47)

43.7 (30.4, 57)

Grants to total revenue 47 (38, 55)

7.5 (3, 19)

13.8 (5.6, 40)

Other income to total revenue

2.7 (0.9, 2.7)

0.6 (0, 11.7)

0.27 (0.07, 7)

Source Authors’ computation

2.7.3 Service Delivery in Dhaka The latest census data on DNCC and DSCC pertains to the 2011 census when the DNCC and DSCC were unified as the Dhaka City Corporation. Based on this, we present data on Dhaka division (urban) and Dhaka as a district under Dhaka division, i.e., Dhaka District (Urban). The latter is being taken as a proxy for the DCC. Some data on service delivery could be collected from the DNCC and DSCC. We first take a look at the absolute levels of service delivery in Dhaka and then compare it with the physical norms, which are being proxied by the norms followed in India (GOI 2011). Table 2.7 presents the service delivery in Dhaka. In terms of having electricity as a source of lighting, both the DCC and urban areas of Dhaka division have nearcomplete coverage. Most households in the DCC have access to tap water compared to about two-thirds of the households for Dhaka district. Sanitation standards are quite low in DCC with less than 60% of the households having water sealed latrines. Barely two-thirds of the households in the urban areas of Dhaka division have a managed dustbin as an option for waste disposal. A comparable figure was not available for the DCC areas but it is evident from the overall situation with respect to sanitation and

2.7 Dhaka and Kolkata: A Comparative Picture

31

Table 2.7 Service level indicators in Dhaka Indicator

Share of households (%)

Dhaka division Households having sanitation with water seal

50.3

Households having sanitation without water seal

38

Households having managed dustbin as source of waste disposal

63.5

Households having electricity as a source of lighting

94.7

Households having tap as a source of water inside the dwelling

90.1

Households having tap as a source of drinking water (Dhaka district) 67 Dhaka city corporation Households having sanitation with water seal

59.1

Households having sanitation without water seal

35.6

Households having electricity as a source of lighting

98.6

Households having tap as a source of drinking water

85.4

Households who owned dwellings

16.4

Households whose dwelling was rented

73

Source Bangladesh Bureau of Statistics (2012), Bangladesh Bureau of Statistics (2014a), Bangladesh Bureau of Statistics (2014b)

waste management that much needs to be done for improvement. A mere 16% of the households in the city corporation areas own their dwellings. This is understandable given the very high real estate prices in the city amidst the severe man-land ratio. With a large proportion of people living in rented accommodation, the willingness of tenants to contribute in terms of charges or taxes would be expected to be less compared to the owners of those dwellings. We could collect limited data on service delivery for DNCC and DSCC separately during the field survey. These service levels are compared with the physical benchmarks (HPEC physical level norms) to estimate gaps in service delivery, if any, in each of the city corporation areas (Table 2.8). Since DNCC and DSCC have population between 1 and 5 million, these two fall under the city-size category of 1B. For this category, the recommended norm is that 11% of the area be under roads with a road density of 12.25 km/km2 . Although DSCC has a significantly higher road density than DNCC, the area under roads is less than half the recommended level. It is implied from these numbers that the DSCC roads are narrow and concentrated. For DNCC, no data was available on the proportion of area under roads. Sewerage in DNCC is 100% closed while in DSCC, it is only 52%. This is far below the norm of 100% underground sewerage, as indicated in the HPEC report. With respect to solid waste management, both DNCC and DSCC are able to collect less than 75% of the solid waste generated in the city. The remaining lies in the open unattended (Ahmed 2014). Thus one can say that the higher expenditure in the DSCC, as found earlier, is not getting reflected in the higher service delivery as compared to DNCC. DSCC falls behind DNCC in both solid waste collection and closed sewerage.

32

2 Finances of Dhaka City Corporations and Kolkata …

Table 2.8 Service delivery in DNCC and DSCCa vis-à-vis service delivery norms Service

DSCC

Norms

Road density (km/km2 ) 6.9

DNCC

9.2

12.25

Road (% age of area under roads)b

5%

11% 100% underground sewerage

Sewerage

100% closed

52% closed

Solid waste generatedc (tons/day)

4220

3300

Solid waste collection (%)

74% (2018–19) (household waste, partial construction waste, street waste and business waste)

70% (2016) (domestic waste)

100% collection efficiency

Source Field Survey, HPEC (2011), DNCC (2019), Wasim and Nine (2017) Note a Data was available for the year 2017–18 (except for road (%age), which was available for the year 2012–13) b Data was not available for DNCC c The source for DNCC for solid waste generated and collected was DNCC (2019) and for DSCC was Wasim and Nine (2017)

2.7.4 Service Delivery in Kolkata In terms of access to tap water and electricity as a source of lighting, Kolkata is very similar to the situation in Dhaka (Table 2.9). Approximately 88% of the households have access to tap water and 96% households have access to electricity as a source of lighting. The percentage of households who have access to closed drainage stands at 81%. Only 43% households have piped sewers (Census of India 2011). The five water treatment plants, namely, Indira Gandhi Water Treatment Plant (Palta), Garden Reach Water treatment plant, Jai Hind Jal Prakalpa (Dhapa), Jorabagan Water Treatment Plant, and Watergunge Water Treatment plant, are supplying under-capacity at 448 million gallons per day against a total capacity is 488 million gallons per day (Source: Field Survey in Kolkata Municipal Corporation). Table 2.9 Physical norms for different services

Service type

Physical norms

Water supply

100% piped water supply

Sewerage

100% treatment/underground sewerage network for all cities

Storm water and drainage

100% coverage/coverage on both sides

Source GOI (2011)6 6

We consider only those services for which we could find the Census data for KMC. We did not find a comparable indicator mentioned for street lighting in the HPEC norms.

References

33

3,000 2,500 2,000 1,500 1,000 500 0

Actual per capita revenue expenditure on services

HPEC revenue expenditure norm per capita

Fig. 2.6 Actual per capita revenue expenditure and HPEC per capita revenue expenditure norms over years in KMC Source Authors’ computation, KMC budget various years

The norms are provided for KMC in slightly different units as compared to the units used for service delivery. When we compare some of these service delivery indicators with physical norms for IB cities established by the High Powered Expert Committee (HPEC) (GOI 2011) we get an idea that KMC falls short of the desired service levels (See Table 2.9). A key element in improving and augmenting service delivery is enhancing expenditure on those services. We compare the existing per capita expenditures with the per capita operations and maintenance (O&M) financial norms given by the High Powered Expert Committee (GOI 2011). For all the five basic services together (that is water supply, sewerage and drainage, street lights, roads, and solid waste management), the expenditure incurred by KMC was much below the financial norms prescribed, signaling a possible lack of minimum levels of service delivery. Also when we look at the trend over time, we see (Fig. 2.6) that the gap between actual revenue expenditure and expenditure norms increases over time. While the norms remain the same for each year, we can say that there has been a consistent fall in the revenue expenditure by the KMC over time. Over almost a decade since 2009–10 there has been an average fall in revenue expenditure to the tune of 1.96% per annum. However, the silver lining is that KMC was found to be meeting the expenditure norms in case of solid waste management and streetlights.

References Ahmed S (2014) Public finance and urban development in Bangladesh. In: Presented at first Bangladesh economic conference, Dhaka Bangladesh Bureau of Statistics (BBS) (2012) Socio-economic and demographic report. Statistics and Information Division. Ministry of Planning

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Bangladesh Bureau of Statistics (BBS) (2014a) Population and housing census 2011. National volume 2: union statistics. Statistics and Information Division. Ministry of Planning Bangladesh Bureau of Statistics (BBS) (2014b) Population and housing census 2011. National volume 3: urban area report. Statistics and Information Division. Ministry of Planning Fox WF, Menon B (2008) Decentralization in Bangladesh: change has been illusive. International Studies Program Working Paper 08–29, Andrew Young School of Policy Studies, Georgia State University Government of India (2011) The high powered expert committee for estimating the investment requirements for urban infrastructure services. Ministry of Urban Development, New Delhi Wasim J, Nine AKMHJ (2017) Present outlook of sustainable solid waste management: a case study of Dhaka. In: Proceedings of the 5th international conference on solid waste management in South Asian countries, Khulna, Bangladesh

Chapter 3

Fiscal Health of Dhaka and Kolkata

Fiscal health refers to the capacity of a government organization to strategize, implement, and bear the expenses of vital public services and investments in a sustainable way without jeopardizing the financial stability of the organization. Local governments in big metropolitan cities are expected to have access to a large pool of funds as also greater fiscal autonomy since they have diverse fiscal handles to act upon. A common issue relating to big city governance is that the responsibility of service provision and revenue generation is not limited to the government alone, but also spans across multiple bodies within the city corporation area. Often such overlapping roles give rise to unequal sharing of resources and responsibilities. To ensure that the urban local bodies are able to provide livable conditions to their populace, and thus build a foundation for smart cities, there should exist sufficient finances. The effort of a ULB to raise revenues from all the revenue handles available to it is called fiscal effort. Thus, the fiscal effort tells us how well a ULB is able to utilize its revenue-raising capacity or its fiscal capacity. This makes it imperative to first understand the fiscal capacity of a region, i.e., the maximum potential revenue a region can generate. Several methods have been adopted by various studies to assess the fiscal capacity of governments. We briefly review these methods in terms of their relevance to developing countries. In the absence of adequate data disaggregated according to revenue handles or service heads, the estimation of fiscal capacity becomes more challenging in developing countries. The simplest measure is the value of revenue collections of the ULB (Martinez-Vanquez and Boex 1997). However, this estimate fails to assess what is the maximum potential for a region. Moreover, as argued by Bird et al. (2008), it is not in the interest of political institutions dominating the local body to collect more tax from the people. Another estimate that can reflect the revenue-raising capacity of a local body is the per capita personal income of the residents of the region (Martinez-Vanquez and Boex 1997; Dafflon 2007). The developing nations are often beset with the problem of tax evasion which leads to an underestimation of revenue, an underestimation of the personal income of

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 S. Bandyopadhyay et al., How Smart are Cities without Adequate Finances?, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-19-2297-8_3

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36

3 Fiscal Health of Dhaka and Kolkata

people. Also, a large chunk of the labor force is a part of the informal economy, where many enterprises are not registered and income generated cannot be traced. Therefore, per capita personal income will fail to reflect the true potential of a region. Also region-wise data on per capita personal income is not available for developing nations. The third measure of fiscal capacity is the Gross Regional Product (GRP), which is the regional equivalent to the gross domestic product (GDP). This tells us about the income which is available to the region and could be taxed by the local bodies. However, developing nations like India and Bangladesh do not have readily available data for Gross Regional Product or Gross City Product (GCP) to be used as a potential base for raising revenues by the local governments. A measure of fiscal capacity that is closely linked to the Gross Regional Product (GRP) is Total Taxable Resources (TTR) (Martinez-Vanquez and Boex 1997; Dafflon, 2007). This is derived by deducting any federal taxes and federal transfers from GRP and adding federal pensions and unemployment benefits to GRP. Although it reflects the revenue-raising capacity of a region better than the GRP, it faces the same issues of implementation as GRP for developing countries. Apart from the above-mentioned measures, the tax ratio (which is the ratio of tax revenue to the state income) is also used to estimate how much effort the government is making to raise tax revenue (Chelliah 1971; Chelliah and Sinha 1982). The problem with this measure is that it assumes that the income of the government is a reflection of its maximum potential. Moreover, to determine the total own revenue that a local body is generating, it is not only the tax revenue that is to be considered, but also the different non-tax handles being utilized. A more comprehensive measure to estimate the fiscal capacity of the local bodies is the Representative Tax System (RTS) (Chelliah 1971; Chelliah and Sinha 1982; Barro 1986; Martinez-Vanquez and Boex 1997). This method reflects how much revenue can a local body generate if it were to exert the average efforts to raise its revenues. We can estimate it in two ways. RTS Method 1: It consists of first defining the standard revenue base for each revenue component (where standard bases are not available, proxy revenue bases are considered). Then, for each revenue component, the actual revenues generated across all regions are added. When we divide the aggregate revenues generated by all the regions by the revenue base for that component aggregated across all the regions, we get the average fiscal effort of those regions or the average representative revenue rate for the revenue component. We multiply this ratio with the revenue base for each component for the region to determine what is the maximum revenue capacity of each region. We can then compare the actual revenue generated in each region with their revenue capacity. If the actual revenue generated is greater than the revenue capacity of that region, we can conclude that the region is exerting more than the average effort (of all the regions together) to generate its revenues. The method can be represented symbolically as follows: Let PRij be the potential revenue base for jth revenue handle and ith local body, where i = 1 ..... n, j = 1 ..... m. Let ARij be the actual revenue of the jth revenue

3 Fiscal Health of Dhaka and Kolkata

37

handle and ith local body. Then the effective revenue rate of a particular revenue handle for the ith local body is given by n A Ri j E R j = ni=1 P Ri j i=1 This effective revenue rate of a revenue handle is multiplied by the revenue base for that handle of each local body to determine the revenue capacity of each region for that particular revenue handle. We add up all such estimations for all the revenue handles for each region to determine the total revenue capacity of a region. Ri , the revenue capacity of a region can be written as Ri =

m 

E R j ∗ P Ri j

j=1

The index of revenue effort, E i , for each local body is given by a ratio of r i , which is the sum of actual revenue generated, and Ri , which gives the maximum revenue capacity of a region. Ei =

ri Ri

If E i < 1, then the ith local body can be said to be making less than the average effort in raising revenue. RTS Method 2: One can also use the regression method to estimate the fiscal capacity of a region. This is done by regressing the total collections on different revenue bases as follows: Total Collections = α0 + α1 (Revenue Base 1) + α2 (Revenue Base 2) + α3 (Revenue Base 3) + . . . Multiplying the estimated regression parameters by each of the revenue bases would give us a predicted or average amount of revenue collection for each region. This represents the fiscal capacity of each region. The residual for each region, which is the difference between the actual revenue collection and estimated revenue collection (fiscal capacity) would give us an estimate of the fiscal effort of a region. This method cannot be applied to local bodies of developing nations owing to the lack of data on tax revenue and non-tax revenue bases. Moreover, it is not clear as to how many revenue handles have actually been devolved to the cities; this may differ from one city to the other in developing economies. For the South Asian local bodies,the literature is scant on estimation of fiscal health, except for Sridhar et al. (2007) and Bandyopadhyay and Rao (2009). Both the studies first estimate the ratio of actual revenue to GCP and then attempt a

38

3 Fiscal Health of Dhaka and Kolkata

simulation with a targeted ratio above these estimated ratios. These targeted ratios are then applied to the GCP to derive the maximum revenue potential of a city. The revenue capacity is also compared with expenditure needs to estimate the fiscal health of a local body. In addition to this, Sridhar et al. (2007) also compares the revenue capacity with the actual revenues to estimate how far can a local body stretch itself to raise revenues. They also estimate the extent to which the actual expenditures on services incurred by a local body fall short of its expenditure needs. We follow a series of steps to assess the fiscal health of the cities of Dhaka and Kolkata. First, a comparison of revenue receipts and revenue expenditures states if the receipts are sufficient to meet the recurring expenditures on service delivery. Second, we estimate first the Gross City Product and then estimate the own revenue to GCP ratio as a measure of actual revenue effort for each city. As a next step, we estimate the extent to which each city can augment its own revenue handles. For this, the exploitation of the property tax and the non-tax revenue handles have been examined. We develop different scenarios of own revenue to GCP ratios and estimate the subsequent desirable increases in property tax and non-tax revenues for improving the revenue capacity of the cities. We intend to follow RTS variant 1, with the limited availability of data at our disposal. In what follows, we (a) analyse the gap between revenue receipts and revenue expenditures; (b) estimate the shares of own revenues generated by the corporations in the gross city income; and (c) estimate the maximum revenues that the ULBs can raise (revenue capacity).

3.1 Revenues versus Expenditures in DNCC and DSCC When we compare the own revenue with the revenue expenditure in DNCC, we find that, on an average, the ratio of own revenue to revenue expenditure stands at 233%, which implies that own revenue is 133% higher than the revenue expenditure. We find a similar result in DSCC where the ratio of own revenue to revenue expenditure stands at 149%, implying that own revenue is greater than revenue expenditure by 49%. The gap between per capita own revenue and per capita revenue expenditure can be seen in Figs. 3.1 and 3.2 for DNCC and DSCC, respectively. A comparison of the total revenue receipts with expenditure reveals that the former exceeds the latter by 168% in DNCC (Fig. 3.3) and 87% in DSCC (Fig. 3.4). The first impression that one forms from these results is a stark contrast to the general notion of the city corporations being in a cash crunch. We go on to probe deeper into these numbers.

3.1 Revenues versus Expenditures in DNCC and DSCC

39

900 800 700 600 500 400 300 200 100 0

Per capita Own Revenue

Per capita Revenue Expenditure

Fig. 3.1 Gap between per capita own revenue and per capita revenue expenditure in DNCC. Source Authors’ computation 900 800 700 600 500 400 300 200 100 0

Per Capita Own Revenue

Per Capita Revenue Expenditure

Fig. 3.2 Gap between per capita own revenue and per capita revenue expenditure in DSCC. Source Authors’ computation

Although the per capita revenue receipt and per capita total expenditure gap reduces when both development and revenue expenditure are accounted for, the revenue receipts still exceed the total expenditure in both the city corporations—on an average, by 13% in DNCC and by 9% in DSCC (Figs. 3.5 and 3.6). Thus, we see that, even without accounting for grants and other incomes, in most of the years the own revenues raised in both the city corporations in Dhaka are enough to meet revenue expenditure. It appears that in both DNCC and DSCC, such a gap exists because the expenditure is insufficient on services, which is corroborated by poor levels of service delivery as discussed in Chap. 2. The revenue receipts are higher irrespective of whether we consider only revenue expenditure or both revenue and development expenditures together.

40

3 Fiscal Health of Dhaka and Kolkata

1,000 900 800 700 600 500 400 300 200 100 0

Per capita Revenue receipts

Per capita Revenue Expenditure

Fig. 3.3 Gap between per capita revenue receipts and per capita revenue expenditure in DNCC. Source Authors’ computation based on annual budgets 1,200 1,000 800 600 400 200 0

Per capita revenue receipts

Per Capita Revenue Expenditure

Fig. 3.4 Gap between per capita revenue receipts and per capita revenue expenditure in DSCC. Source Authors’ computation based on annual budgets

3.2 Revenues versus Expenditures in KMC As can be seen from Fig. 3.7, the per capita revenue expenditure has persistently exceeded the own revenue of the KMC. While the total revenue expenditure from 2009–10 to 2017–18 stood at INR 4,594 per capita on an average, the own revenues were much below an average INR 2,084 per capita for the same period. It would be ideal for a ULB to depend on its own revenue to meet its expenditures and not rely on external sources for grants or loans. We take into account the quantum of grants and Public–Private Partnership (PPP)1 to see if it is sufficient to meet the 1

We also need to note here that the share of PPP was high only in the initial years of 2009–10 and 2011–12 standing at rupees 335 and 331 per capita, respectively. It fell drastically after that, with

3.2 Revenues versus Expenditures in KMC

41

1,000 900 800 700 600 500 400 300 200 100 0

Per capita Revenue receipts

Per capita total expenditure

Fig. 3.5 Gap between per capita revenue receipts and per capita total expenditure in DNCC. Source Authors’ computation based on annual budgets 1,200 1,000 800 600 400 200 0

Per capita revenue receipts

Per Capita Total Expenditure Expenditure

Fig. 3.6 Gap between per capita revenue receipts and per capita total expenditure in DSCC. Source Authors’ computation based on annual budgets 6,000 5,000 4,000 3,000 2,000 1,000 0

Per Capita Revenue Expenditure

Per Capita Own revenue

Fig. 3.7 Gap between actual per capita revenue expenditure and per capita own revenue in KMC (INR, 2011–12 prices). Source Authors’ computation, KMC budget various years

42

3 Fiscal Health of Dhaka and Kolkata

6,000 5,000 4,000 3,000 2,000 1,000 0

Per Capita Revenue Expenditure

Per Capita Total Revenue Receipts

Fig. 3.8 Gap between per capita total revenue receipts and per capita revenue expenditure in KMC (INR, 2011–12 prices). Source Authors’ computation, KMC budget various years

revenue expenditures. As Fig. 3.8 shows revenue expenditure in KMC exceeded the revenue receipts even when grants and the revenue from the Public–Private Partnership were taken into account. On an average, the per capita revenue expenditure stood at INR 4594 and per capita revenue receipts stood at INR 4141, revealing a shortfall in receipts by more than 10%. Figure 3.9 shows that the year-on-year growth rate of revenue receipts, as well as revenue expenditure in the KMC, has been rather erratic. The growth rates of revenue receipts have intermittently fallen above or below that of revenue expenditure. For a clearer picture, a look at the average values shows that, on an average, the annual growth rate of revenue expenditure has been negative (−0.48%), while the average growth rate of revenue receipts has been even less, at negative 4% per year. On an 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30

Revenue Receipts

Revenue Expenditure

Fig. 3.9 Year-on-year growth rates of revenue receipts and revenue expenditure in KMC (%). Source Authors’ computation, KMC budget various years

average figure of only 4 rupees per capita. Given the inconsistent nature of this component, the ULB cannot rely on PPP as a panacea to its relatively poor revenue receipts.

3.2 Revenues versus Expenditures in KMC 20 15 10 5 0 -5 -10 -15 -20 -25 -30 -35

43

13.9

12.0

1.1

-3.9

-8.2

-11.4 -23.3

-28.9

Fig. 3.10 Year-on-year growth rate of non-tax revenue in KMC (%). Source Authors’ computation, KMC budget various years

average, the percentage fall in revenue receipts is more than the percentage fall in revenue expenditures. A further probe to identify the components of revenue that have been falling, reveals that the tax revenue fell on an average by 0.88%, while the fall is significant in case of non-tax revenue at 6.4% per annum. Figure 3.10 shows us the year-onyear growth rate of the non-tax revenue from 2009–10 to 2017–18. In five out of the eight years under consideration, non-tax revenues have seen a negative growth rate. It is important to note that, although tax revenues comprise the larger proportion of revenue earnings, non-tax revenues are no less important as they account for more than one-fifth of KMC’s total revenue and two-fifth of its own revenue. Different components of non-tax revenues reveal that receipts from building plan constitute a major component (averaging about 28%). Between 2009–10 and 2012– 13, these receipts accounted for almost a third of KMC’s non-tax revenues. Thereafter this share fell to about one-fourth of the non-tax revenue. Of course, this source of revenue could be re-tapped by the KMC to augment revenues. The second major component of non-tax revenue is revenue obtained from roads, parks, and squares, by way of various charges, rents, and fees. These average form about 17% of the nontax revenue. The road condition in KMC becomes vulnerable particularly during the monsoons, with potholes developing on the roads due to excessive rain. Improving the condition of roads can justify raising charges in order to generate more revenue from this handle. Moreover, the KMC has witnessed a high growth in the number of private cars. The number of private cars more than double, increasing from 2.6 lakhs in 2000 to 6.5 lakhs in 2013. Such growth in the number of cars also poses a strong case for KMC to increase their parking fees. Another point to be noted is that the KMC has recently developed a master plan to improve solid waste management in the city in accordance with the Solid Waste Management rules of 2016. This is expected to augment the non-tax revenue from solid waste management beyond the current level of less than 1%. Further, receipts from sewerage and drainage account for about 6% of non-tax revenue on an average. Revenue from these handles can also

44

3 Fiscal Health of Dhaka and Kolkata

40 32.5

30 20

27.6

8.8

10 0

2.6

-3.0

2.9

-10 -20 -30

-30.4

-30.1

-40

Fig. 3.11 Year-on-year growth rate of property tax (%). Source Authors’ computation, KMC budget various years

be augmented if more households can be brought under piped sewerage, which at present is available to only 43% of the KMC households. Let us also take a look at the growth rates of property taxes, which constitute 95% of the total tax revenues and 59% of KMC’s own revenue. Figure 3.11 below shows the year-on-year growth rate of property tax. In five out of the eight years from 2010–11 to 2017–18, there has been a positive growth rate. One reason for the observed negative growth rates in property tax collection could be the change in the assessment method for property tax calculation from 2016–17 to 2017–18 from annual rental value to unit area assessment. Inadequate application of GIS for mapping the properties and alignment of GIS mapped properties with the existing manual registers might have resulted in lower collections.

3.3 Revenue-Expenditure Gaps: Comparing Dhaka and Kolkata In order to facilitate a comparison between the revenues and expenditures incurred in the Dhaka city corporations with that of KMC, the actual local currency revenue and expenditure numbers were converted to US dollars using the official exchange rates. The per capita revenue expenditure exceeds own revenue receipts (per capita) by US$ 43.4 on an average in KMC, whereas the own revenues are sufficient enough to cover revenue expenditures in DNCC and DSCC (Table 3.1). When total revenue receipts (own revenue and incomes from other sources) are considered, the revenue shortfall in KMC reduces to US$ 7.8 per capita. In DNCC and DSCC, the scenario is completely different with no shortfall arising in revenue receipts whether one considers total revenues or only own revenues. Per capita total revenues raised by DNCC and DSCC are 13% and 15% respectively of the per capita total revenues raised by KMC. As far as per capita expenditures are concerned, DNCC spends 4.5%

3.4 Estimating Own Revenue to Gross City Product …

45

Table 3.1 Revenue receipts versus revenue expenditure, 2010–11 to 2018–18 (per capita, USD)a KMC Geometric mean (Min, Max)

DNCC Geometric mean (Min, Max)

DSCC Geometric mean (Min, Max)

Own revenue

36.6 (24, 50)

8.3 (6.4, 9.4)

8.5 (6.8, 9.8)

Revenue expenditure

75.5 (64, 112)

3.6 (2.8, 4.1)

5.7 (5, 6.5)

Own revenue and revenue-expenditure gap

−43.4 (−70, −34)

4.8 (3.5, 6)

2.8 (1, 4)

Total revenue receipts

72.1 (52, 90)

9.5 (7.1, 11.4)

10.8 (7.6, 14.6)

Revenue expenditure

75.5 (64, 112)

3.6 (2.8, 4.1)

5.7 (5, 6.5)

Total revenue receipts and revenueexpenditure gap

−7.8 (−30, 1.6)

6.1 (4.3, 7.7)

5.1 (1.9, 8.1)

Source Authors’ computation a For the DNCC and DSCC, the period under consideration is from 2012–13 to 2018–19

and DSCC spends 7.5% of what KMC spends per capita. Thus, not only are the revenues in Dhaka city corporations substantially lower than those of KMC, but there is also an under-spending of these meager revenues (Bandyopadhyay et al. 2020).

3.4 Estimating Own Revenue to Gross City Product (GCP) Ratios: DNCC and DSCC The own revenue to GCP ratio is an indicator of the share of the city product generated as own revenue by the corporations. Since we did not have data on Gross City Product for Dhaka, the GCP was estimated using the data available for the Dhaka Urban Cluster. The following sub-section provides a methodology for estimating the GCP for each corporation.

3.4.1 Method of Estimation of Gross City Product: DNCC and DSCC The contribution of the Dhaka Urban Cluster to the GDP has been taken as a proxy for the gross city product for each city corporation, assuming that the city corporation areas generate as much income as generated by the Dhaka Urban Cluster. The contribution of Dhaka Urban Cluster to GDP is estimated to be 36% (Jha et al. 2019).

46

3 Fiscal Health of Dhaka and Kolkata

Fig. 3.12 Map of Dhaka Urban Cluster. 2019 Source Retrieved from Jha, Raghuram, and Awasthi (2019)

Figure 3.12 provides a map of the Dhaka Urban Cluster, which is an agglomeration of the urban core (Dhaka city), two municipal corporations (Gazipur and Narayanganj Sadar), and four upazila parishads or municipal councils (Savar, Kaliganj, Rupganj, and Keraniganj). With the GDP of Bangladesh in current prices for 2017–18 standing at BDT 22,38,498 crores, the contribution of Dhaka Urban Cluster would be BDT 8,05,859 crores. The population for Dhaka Urban Cluster is taken to be 18.9 million (Jha et al. 2019). Therefore, the per capita contribution of the Dhaka Urban Cluster works out to be BDT 4,26,381. Taking this as a benchmark, we construct three scenarios for GCPs of DNCC and DSCC. In Scenario 1, we assume that the per capita income generated in each of the corporations is the same as that generated in Dhaka Urban Cluster. Thus, we take per capita GCP to be BDT 4,26,381 in DNCC as well as in DSCC. Multiplying by the respective populations, we get the total GCP generated in each city. Table 3.2 gives the estimate of the total GCP in each city corporation. Using the own revenue generated in the year 2017–18 in DNCC and DSCC at current prices, we find the own revenue to GCP ratio to be 0.3% in DNCC and 0.28% in DSCC.

3.4 Estimating Own Revenue to Gross City Product …

47

Table 3.2 Estimates of GCP and own revenue to GCP ratios Variables

Dhaka

Dhaka’s contribution to GDP

36%

GDP of Bangladesh for the year 2017–18 in current prices in BDT

2,238,498,00,00,000

GCP (36% of GDP for 2017–18 in current prices) in 805,859,28,00,000 BDT Total population in dhaka urban cluster

1,89,00,000

Per capita GCP for Dhaka Urban Cluster

4,26,381

Scenario 1: Per capita GCP of DNCC and DSCC is equal to per capita GCP of the Dhaka Urban Cluster DNCC

DSCC

Per capita GCP

4,26,381

4,26,381

Population in 2017–18

48,35,180

35,63,376

Estimated gross city product in BDT

2061,62,69,15,157

1519,35,42,31,896

Own revenue for the year 2017–18 in current prices

612,07,36,768

422,99,41,881

Own revenue to GCP ratio (%)

0.30

0.28

Scenario 2: Per capita GCP of DSCC is equal to that of Dhaka Urban Cluster and per capita GCP of DNCC is higher than Dhaka Urban Cluster by 5% DNCC

DSCC

Per capita GCP

4,47,700

4,26,381

Population in 2017–18

48,35,180

35,63,376

Estimated gross city product in BDT

2164,71,03,27,759

1519,35,58,22,256

Own revenue for the year 2017–18 in current prices

612,07,36,768

422,99,41,881

Own revenue to GCP ratio (%)

0.28

0.28

Scenario 3: Per capita GCP in DSCC is higher than Dhaka Urban Cluster by 5% and per capita GCP in DNCC is higher than Dhaka Urban Cluster by 10% DNCC

DSCC

Per capita GCP

4,70,085

4,47,700

Population in 2017–18

48,35,180

35,63,376

Estimated gross city product in BDT

2272,94,58,44,147

1595,32,36,13,369

Own revenue for the year 2017–18 in current prices

612,07,36,768

422,99,41,881

Own revenue to GCP ratio (%)

0.27

0.27

Source Authors’ computation

Scenario 2 assumes that GCPs in the two cities are different. We assume that the city corporation which can generate a higher property tax, which is a major source of revenue for the Dhaka city corporations, would generate higher city product compared to the other city corporation. Since per capita property tax in DNCC is 5% higher as compared to that in DSCC, we estimate the GCP in DNCC to be higher by 5% as compared to the GCP in DSCC. Multiplying these per capita GCP values by

48

3 Fiscal Health of Dhaka and Kolkata

their respective populations, we find the total GCP as 2,16,471 crores BDT in DNCC and 1,51,935 crores BDT in DSCC. Own revenue to GCP ratio stands at 0.28% in both the city corporations. In Scenario 3, we assume the per capita GCP of the DSCC and DNCC to be 5% and 10% higher than the per capita income generated in the urban cluster respectively. In this scenario, the per capita GCP in DSCC is BDT 4,47,700 and BDT 4,70,085 in DNCC. The estimated own revenue to GCP ratio works out to be 0.27% in both DNCC and DSCC. On the basis of these scenarios, we undertake a few simulations to estimate the extent to which property tax and non-tax revenues in both DNCC and DSCC can be augmented.

3.4.2 Simulations for Revenue Capacity: DNCC and DSCC We undertake a few simulations to estimate the fiscal capacity of the cities and see how much property tax and non-tax revenue can be raised for improving the revenue capacity of the cities. Within each of the three scenarios developed above, we now build three simulations where we gradually augment the revenue capacities, such that: (a) (b) (c)

Case 1: own revenue to GCP is 0.5%, Case 2: own revenue to GCP is 0.75% and Case 3: own revenue to GCP is 1%.

Using each of these own revenue to GCP ratios, we estimate the own revenues that could be generated in the city corporation areas. Thereafter we estimate the extent to which property tax, as well as non-tax revenues, can be raised to ensure that the cities achieve the estimated level of own revenue on the basis of each of the simulations. For this, we assess the property tax by multiplying the existing share of property tax in own revenues (which is 46.8% in DNCC and 43% in DSCC) with the newly estimated own revenues. Similarly, we find out the new estimations of non-tax revenues by multiplying the share of non-tax revenues in own revenues (which is 51.6% in DNCC and 55% in DSCC) by the newly estimated own revenues on the basis of each of the three cases mentioned above. As it is clear from the Table 3.3, if one takes the per capita GCP in the corporation areas to be the same as that in the Dhaka Urban Cluster (Scenario 1), a mere increase in the own revenue to GCP ratio by 0.20% in DNCC and by 0.22% in DSCC, increases the revenue from property tax by almost 73.4% in the former and 85% in the latter, while the non-tax revenue increases by 63% and 73%, respectively. In the second scenario, when Own Revenue to GCP ratio is assumed to be 0.75% the estimated increase in property tax and non tax revenue is more than 100%. In the third scenario, the increase in property tax and non tax revenue is by more than 200% for both the cities. It is obvious that when we assume per capita GCP of the city corporations to be higher than that of Dhaka Urban Cluster, the extent to which tax and non-tax revenue

3.4 Estimating Own Revenue to Gross City Product …

49

Table 3.3 Fiscal capacity under different scenarios of own revenue-GCP ratios: per capita GCP of DNCC and DSCC is the same as per capita GCP of Dhaka urban cluster Variables

DNCC

DSCC

Gross city product (BDT)

2061,62,69,15,157

1519,35,42,31,896

Share of property tax in own revenue

46.8%

43%

Share of non-tax revenue in own revenue

51.6%

55%

Estimated own revenue (BDT)

1030,81,34,576

759,67,71,159

Estimated property tax (BDT)

482,42,06,981

326,66,11,599

Estimated increase in property tax

73.4%

85%

Estimated non-tax revenue (BDT)

531,89,97,441

417,82,24,138

Estimated increase in non-tax revenue

63%

73%

Estimated own revenue (BDT)

1546,22,01,864

1139,51,56,739

Estimated property tax (BDT)

723,63,10,472

489,99,17,398

Estimated increase in property tax

160%

178%

Estimated non-tax revenue (BDT)

7,97,84,96,162

626,73,36,207

Estimated increase in non-tax revenue

144%

159%

Estimated own revenue (BDT)

2061,62,69,152

1519,35,42,319

Estimated property tax (BDT)

964,84,13,963

653,32,23,197

Own revenue to GCP is 0.5%

Own revenue to GCP is 0.75%

Own revenue to GCP is 1%

(continued)

Table 3.3 (continued) Variables

DNCC

DSCC

Estimated increase in property tax

247%

270%

Estimated non-tax revenue (BDT)

1063,79,94,882

835,64,48,275

Estimated increase in non-tax revenue

226%

245%

Source Authors’ computation

can be raised goes up even more (see Tables 3.4 and 3.5). Thus, it is evident that there are tremendous untapped opportunities for DNCC and DSCC, and even small improvements in augmenting their own revenue capacity can make a remarkable difference to the financial base of these two corporations. Tables 3.6 and 3.7 summarise of the increments in per capita property tax revenue and per capita non-tax revenuesunder different simulation exercises we attempted.

50 Table 3.4 Fiscal capacity under different scenarios of own revenue-GCP ratios: per capita GCP of DSCC is the same as Dhaka Urban Cluster and per capita GCP of DNCC is higher than DSCC by 5%

3 Fiscal Health of Dhaka and Kolkata Variables

DNCC

DSCC

Gross city product 2164,71,03,27,759 (BDT)

1519,35,58,22,256

Share of property tax in own revenue

46.8%

43%

Share of non-tax revenue in own revenue

51.6%

55%

Own revenue to GCP is 0.5% Estimated own revenue (BDT)

10,82,35,51,639

7,59,67,79,111

Estimated property tax (BDT)

506,54,22,167

326,66,15,018

Estimated increase in property tax

82%

85%

Estimated non-tax 558,49,52,646 revenue (BDT)

417,82,28,511

Estimated increase in non-tax revenue

73%

71%

Own revenue to GCP is 0.75% Estimated own revenue (BDT)

1623,53,27,458

1139,51,68,667

Estimated property tax (BDT)

759,81,33,250

489,99,22,527

Estimated increase in property tax

173%

178%

Estimated non-tax 837,74,28,968 revenue (BDT)

626,73,42,767

Estimated increase in non-tax revenue

159%

157%

Own revenue to GCP is 1% Estimated own revenue (BDT)

21,64,71,03,278

1519,35,58,223

Estimated property tax (BDT)

1013,08,44,334

653,32,30,036

(continued)

3.4 Estimating Own Revenue to Gross City Product … Table 3.4 (continued)

51

Variables

DNCC

DSCC

Estimated increase in property tax

264%

270%

Estimated non-tax 1116,99,05,291 revenue (BDT)

835,64,57,022

Estimated increase in non-tax revenue

245%

242%

Source Authors’ computation

3.4.3 Implications for Revenue Augmentation: DNCC and DSCC This study shows that the own revenue of the Dhaka city corporations has seen a decline over time. This is true even for property tax revenue, which is the most crucial source of revenue for DNCC and DSCC. Through the simulations above, we see that if we want to raise the revenue capacity of the city corporations, we need to enhance the existing property tax revenue. At present, in the city corporations, the properties are taxed on the basis of annual rental value. Both DNCC and DSCC charge properties at the rate of 12%.2 In the absence of the house rent control act, the probable rental value is determined by an estimate. Property tax rates were set up more than three decades back in 1987–88 and people have been paying taxes based on these rates since then. A decision to revise was taken in 2017 but this did not go down well with the property owners as the hike was huge (after incorporating more than three decades of inflation) and was eventually abandoned. The Ideal Tax Schedule of 2016 allows the city corporations to collect tax up to 30%, although this option has not yet been explored by the city corporations. Ahmed (2015) highlights that this tax rate is not affordable for many households. In an earlier study on Bhairab Pourshava, Huda and Hasan (2009) point out that people remain ignorant of the property tax rate and its collection procedures. This may also be true for households from DNCC and DSCC. In case of non-tax revenue, the common items in both the city corporations which form a large share of the non-tax revenue are trade license fees, road excavation fees, and property transfer fees. Together, the share of these components accounts for an average of 76% in DNCC and 56% in DSCC. (See Tables C.1 and C.2, Appendix C). In order to augment the non-tax revenue receipts, the corporations should revise the existing rates on these components. Another interesting point to be noted is that bazaar salaami and market rent comprise 19.3% of the non-tax revenue in DSCC, while their share is only 3.4% in DNCC. To increase its revenue capacity, DNCC could raise revenue from these sources by revising the existing rates and also through better execution of rent collection. A couple of completely unexplored avenues to 2

https://en.prothomalo.com/bangladesh/Residents-face-disparity-in-holding-tax-rates.

52 Table 3.5 Fiscal capacity under different scenarios of own revenue-GCP ratios: per capita GCP of DNCC is 10% higher than the Dhaka Urban Cluster and per capita GCP of DSCC is 5% higher than Dhaka Urban Cluster

3 Fiscal Health of Dhaka and Kolkata Variables

DNCC

DSCC

Gross city product 2272,94,58,44,147 (BDT)

1595,32,36,13,369

Share of property tax in own revenue

46.8%

43%

Share of non-tax revenue in own revenue

51.6%

55%

Own revenue to GCP is 0.5% Estimated own revenue (BDT)

1136,47,29,221

797,66,18,067

Estimated property tax (BDT)

531,86,93,275

342,99,45,769

Estimated increase in property tax

91%

94%

Estimated non-tax 586,42,00,278 revenue (BDT)

438,71,39,937

Estimated increase in non-tax revenue

81%

80%

Own revenue to GCP is 0.75% Estimated own revenue (BDT)

1704,70,93,831

1196,49,27,100

Estimated property tax (BDT)

797,80,39,913

514,49,18,653

Estimated increase in property tax

187%

191%

Estimated non-tax 879,63,00,417 revenue (BDT)

658,07,09,905

Estimated increase in non-tax revenue

172%

169%

Own revenue to GCP is 1% Estimated own revenue (BDT)

2272,94,58,441

1595,32,36,134

Estimated property tax (BDT)

1063,73,86,551

685,98,91,537

(continued)

3.4 Estimating Own Revenue to Gross City Product … Table 3.5 (continued)

53

Variables

DNCC

DSCC

Estimated increase in property tax

282%

288%

Estimated non-tax 1172,84,00,556 revenue (BDT)

877,42,79,874

Estimated increase in non-tax revenue

262%

259%

Source Authors’ computations

Table 3.6 Per capita property tax revenue augmentation in different scenarios in DNCC and DSCC (BDT, 2017–18 prices) Scenarios

Own DNCC DSCC revenue-GCP Actual Estimated Increment Actual Estimated Increment ratio (%)

Scenario 1 0.5 Per capita GCP 0.75 same as DUC* 1 Scenario 2 0.5 Per capita GCP 0.75 in DNCC 5% 1 higher than DSCC and DSCC same as DUCa Scenario 3 0.5 Per capita GCP 0.75 in DSCC 5% 1 higher than DUC and per capita GCP in DNCC higher than DUC by 10%

575

998

423

495

917

422

575

1497

922

495

1375

880

575

1995

1420

495

1833

1338

575

1048

473

495

917

422

575

1571

996

495

1375

880

575

2095

1520

495

1833

1338

575

1100

525

495

963

468

575

1650

1075

495

1443

948

575

2200

1625

495

1925

1430

Source Authors’ computations a DUC stands for Dhaka Urban Cluster

augment collections are by taxing cable operators and fees for installation of mobile towers, both of which require no charges at present. Applying congestion charges in the densely populated city corporation areas could be yet another source of nontax revenue. Streamlining and increasing the coverage of car parking fees is also an implementable option.

54

3 Fiscal Health of Dhaka and Kolkata

Table 3.7 Per capita non-tax revenue augmentation in different scenarios in DNCC and DSCC (BDT, 2017–18 prices) Scenarios

Own DNCC DSCC revenue-GCP Actual Estimated Increment Actual Estimated Increment ratio (%)

Scenario 1 Per capita GCP same as DUC*

0.5

675

1100

425

679

1173

494

0.75

675

1650

975

679

1759

1080

1

675

2200

1525

679

2345

1666

Scenario 2 0.5 Per capita 0.75 GCP in DNCC 1 5% higher than DSCC and DSCC same as DUC*

675

1155

480

679

1173

494

675

1733

1058

679

1759

1080

675

2310

1635

679

2345

1666

Scenario 3 0.5 Per capita 0.75 GCP in DSCC 1 5% higher than DUC and per capita GCP in DNCC higher than DUC by 10%

675

1213

538

679

1231

552

675

1819

1144

679

1847

1168

675

2426

1751

679

2462

1783

Source Authors’ computations

3.5 Estimating Gross City Product: KMC Unlike the Dhaka city corporations, own revenues of KMC are not sufficient to meet its revenue expenditures. The problem is exacerbated by falling receipts in the KMC. We estimate the revenue capacity of KMC using a different method than as outlined for DNCC and DSCC.The following sub-section provides a methodology for estimating the GCP in KMC.

3.5.1 Methodology for Estimating Gross City Product: KMC KMC is situated in the district of Kolkata in the state of West Bengal. We have data on district level Gross District Domestic Product (GDDP) of the district of Kolkata and the population of the district of Kolkata. We also have the sectoral bifurcation of this GDDP, from which we take the non-agricultural component of the GDDP of Kolkata district for estimating the GCP of KMC. The rationale for considering non agricultural component of GDDP for estimating the Gross City Product can be given by the predominance of non-agricultural activities in the urban areas. So we take the

3.5 Estimating Gross City Product: KMC

55

per capita non-agricultural GDDP of the district of Kolkata to be the same as that of KMC and multiply this per capita GDDP with the population of KMC to estimate the GCP of KMC (Bandyopadhyay et al. 2020).

3.5.2 Simulations for Revenue Capacity: KMC Different own revenue to GCP ratios for KMC are considered to see what level of own revenues is sufficient for KMC to meet revenue expenditures. The extent to which property tax revenues can be augmented is also assessed by multiplying the share of property tax in actual own revenue (59% when averaged across years) with the estimated own revenue to meet the revenue expenditure. Similarly, the extent to which non-tax revenue can be augmented is assessed by multiplying the share of non-tax revenue in actual own revenues (39% when averaged across years) with the estimated own revenue, to meet the revenue expenditures. This exercise was not done for the DNCC and DSCC because their own revenues exceeded their revenue expenditures. The results show that on an average, own revenues comprise 1.6% of the Gross City Product of KMC. Thus, 1.6% is taken as a benchmark and this figure is then gradually increased building up three scenarios. Scenario 1: The own revenue to GCP ratio is increased to 2%. The per capita own revenues for each year is estimated and compared with per capita revenue expenditures. Table 3.8 shows that even after raising own revenues to 2% of the GCP, the per capita revenue expenditures exceed the per capita own revenues. Since the own revenues continue to fall below the revenue expenditures, the desired increase in property taxes and non-tax revenue were not estimated in this case. Scenario 2: The benchmark ratio of revenue expenditure to GCP is taken as 3.2%. Here, the share of own revenue in GCP has been assumed to be the same as that of revenue expenditure in GCP, i.e., 3.2%. This is to see if KMC would be able to meet its revenue expenditures by raising its own revenue if the own revenue to GCP ratio is assumed to be 3.2%. As Table 3.8 shows, with this enhanced revenue-GCP ratio, KMC can cover per capita revenue expenditures only in the years 2011–12 and 2012– 13. For the rest of the years, the per capita own revenue continues to be less than the per capita revenue expenditures. On an average, the property taxes would increase by 126% and non-tax revenue would increase by 84% for own revenue to be 3.2% of the city’s income. Scenario 3: The own revenue-GCP ratio is further increased to 4%. At this rate, per capita own revenues in KMC work out to be sufficient to cover per capita revenue expenditures in all the years. Further computations show that such a scenario can be achieved if KMC raises property taxes on an average by 183% and non-tax revenues by 130% (Bandyopadhyay et al. 2020)

56

3 Fiscal Health of Dhaka and Kolkata

Table 3.8 Fiscal capacity under different scenarios of own revenue to GCP ratio for KMC (in 2011–12 prices) Variables

2007–08 2008–09 2009–10 2010–11 2011–12 2012–13

Per capita non agricultural GDDP (in INR.)

125,992

134,644

134,975

141,328

152,219

163,660

Per capita own revenue (in INR)

2,520

2,525

2,039

1,894

2,273

2,646

Per capita revenue expenditure 4,380 (in INR)

4,715

4,975

5,109

4,333

4,677

Own revenue to GCP is 2% Estimated per capita own revenue (in INR)

2,520

2,693

2,699

2,827

3,044

3,273

Actual per capita revenue expenditure (in INR)

4,380

4,715

4,975

5,109

4,333

4,677

−2022

−2276

−2283

−1289

-1404

Per capita own revenue minus −1860 per capita revenue expenditure Own revenue to GCP is 3.2% Estimated per capita own revenue (in INR)

4,032

4,309

4,319

4,523

4,871

5,237

Actual per capita revenue expenditure (in INR)

4,380

4,715

4,975

5,109

4,333

4,677

Per capita own revenue minus −347.87 −406.65 −655.83 −586.75 538 per capita revenue expenditure

560

Estimated per capita property tax revenue (in INR)

2,379

2,542

2,548

2,668

2,874

3,090

Estimated per capita non tax revenue (in INR)

1,572

1,680

1,684

1,764

1,900

2,042

Estimated per capita own revenue (in INR)

5,040

5,386

5,399

5,653

6,089

6,546

Actual per capita revenue expenditure (in INR)

4,380

4,715

4,975

5,109

4,333

4,677

Per capita own revenue minus 660 per capita revenue expenditure

671

424

544

1,756

1,869

Estimated per capita property tax revenue (in INR)

2,973

3,178

3,185

3,335

3,592

3,862

Estimated non tax revenue (in INR)

1,965

2,100

2,106

2,205

2,375

2,553

Own revenue to GCP is 4%

Source Authors’ computations

3.5 Estimating Gross City Product: KMC

57

3.5.3 Implications for Revenue Augmentation: KMC A number of issues have been identified with respect to the revenue shortfall in KMC, which have direct implications on the service delivery in the area under its jurisdiction: (a) falling non- tax revenues; (b) fall in property tax in recent years; (c) a high dependence on grants and loans; and d) insufficient expenditures by the KMC as compared to the expenditure norms. Due to limited own revenue generation, dependence on loans or transfers could be a temporary solution, but this cannot be a sustainable one. Bagchi (1999, 2001) has suggested alternatives like capital market or PPP to fund the local bodies in India. However, the private players would be willing to fund the local bodies only if they can recover the cost which is not possible unless local bodies provide adequate quality services to their populace. Indeed, the dwindling contribution of PPPs to the revenue receipts of KMC was noted earlier and it appears to be an unlikely source for supplementing revenues of KMC in the long run. The ideal strategy for KMC would, therefore, be to augment its own revenues. As noted earlier, KMC’s revenue receipts have fallen more because of a sharp fall in non-tax revenues vis-à-vis tax revenues. Thus, it is important for KMC to particularly focus on augmenting its non-tax revenue receipts alongside tax revenue receipts. As highlighted above, if the own revenue as a proportion of GCP is around 4%, then KMC can fund all its existing expenditures from its own revenues. This could be achieved by (a) revising existing handles and and; (b) introducing new handles. From the existing non-tax handles, an improvement in services like roads, sewerage, and drainage could help KMC augment revenues from these handles. Further, given the plans for improvement in solid waste, it should raise revenue from this handle as well. As also argued by Sridhar (2007), service delivery would be smoother if user charges reflect the cost of services. Raising such revenues would further improve service delivery. With growing numbers of cars and vehicles, we can also consider a revision of parking fees, which should be enhanced, given a growth in private cars. While it has been proposed that the car parking fee be raised, it is still on hold. Another potential source is cable operators. The cable operators pay a share of their fees to Multiple System Operators, as prescribed by the Telecom Regulatory Authority of India (TRAI), which is found unjustified by the operators. Some portions of this could be diverted to KMC as cable operator charges. There have been instances in the past of unrecorded (illegal) installation of mobile towers over building rooftops, which need to be mapped and charges should be levied such that non-tax revenues could be augmented. Many properties are out of the ambit of property tax coverage. To avoid this problem, the properties should be mapped by GIS and updated in the records of properties paying taxes in the jurisdiction of KMC. This would help them augment revenue from property taxes as well. KMC’s low expenditures on basic services vis-à-vis the expenditure norms is exacerbated by a consistent fall in revenue expenditures and the need to allocate a

58

3 Fiscal Health of Dhaka and Kolkata

major chunk of revenues for components like pension funds, electricity, administration and support. This puts an additional burden on KMC, and if these components could be financed from alternate sources, the expenditure on basic services could be greatly enhanced.

3.6 Comparing Dhaka and Kolkata: Revenue Capacity and Service Delivery After estimating the own revenue-GCP ratio for all the three city corporations, we plot these numbers in a single graph below, for the readers’ ease of comparing the two metropolises. Based on these numbers, some simulation exercises were performed to assess the level of own revenue that would make KMC self-sufficient. It is only under the most optimistic scenario (own revenue to GCP ratio raised to 4%) that the ULB is able to cover its expenditures with its own revenue receipts. This benchmark of 4% was based on the share of revenue expenditures to GCP, which worked out to be 3.2%. However, when the own revenue-GCP ratio was taken to be 3.2%, KMC’s expenditures were covered by its own receipts only in a couple of years; for the rest of the year’s expenditures still exceeded revenues. Thus, the own revenue-GCP ratio was raised to that point at which KMC could be self-sufficient, viz., 4%. At this level of own revenue-GCP, KMC was able to cover its costs with its own revenues under all the scenarios considered in Fig. 3.13. In case of DNCC and DSCC, a different approach was followed. The own revenue receipts already exceeded the revenue expenditure in both the ULBs. The lowest own revenue to GCP ratio (as found for KMC) was taken as a guide to decide the most optimistic scenario. The lowest own revenue to GCP found in KMC was in the year 2010–11 at 1.3%. As mentioned earlier, we suggest own revenue to GCP was assumed to be at least 1% in both DNCC and DSCC (which is lower than the lowest ratio found for KMC). Thus, in order to improve the fiscal performance of the cities under the study, it is suggested that the own revenue to GCP ratio be 4% for KMC, and 1% for both DNCC and DSCC. The implications of fiscal health on the service delivery in KMC, DNCC, and DSCC are discussed below.

DSCC

0.28

DNCC

0.3

KMC

1.6 0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

Fig. 3.13 Own Revenue to GCP ratio for DNCC, DSCC, and KMC Note For KMC the geometric mean (from 2007–08 till 2012–13) has been taken while for DNCC and DSCC, the value pertains to 2017 -18, for which it was feasible to estimate GCP Source Authors’ computation,

3.6 Comparing Dhaka and Kolkata: Revenue Capacity…

59

Table 3.9 Service delivery indicators for KMC and DCC Services

KMC

DCC

Electricity as a source of lighting

96%

98.6%

Households having tap as a source of drinking water

88%

85.4%

Sewerage and drainage

43% households with piped sewers 81% households having access to closed drainage

20% under sewerage network

Source (1) Bangaldesh Bureau of Statistics; 2015 (2) Census of India, 2011 for KMC

In terms of service delivery, Dhaka and Kolkata have somewhat similar performances with regard to the number of households with access to electricity as a source of lighting or having a tap as a source of drinking water. However, the difference is marked in the case of sewerage and drainage. 43% of the households under KMC are connected to piped sewers, whereas only 20% of Dhaka city is under the sewerage network (LGD 2015). Pagla sewage treatment plant is Dhaka’s only domestic sewage treatment facility with a capacity of treating 1.2 lakh cubic meters of waste per day. Although renovated in phases in keeping with the city’s expansion, this plant is operating at only one-third capacity because of its decades-old pipelines. The un-sewered areas of Dhaka mostly have their onsite sanitation system that includes septic tanks and different kinds of pit latrines. Water supply and sewerage management are the domains of the Dhaka Water Supply and Sewerage Authority (WASA). However, in the face of resource constraints and given that waste treatment is hugely expensive, the agency has been focusing on ensuring water for all first. Dhaka WASA has been working toward establishing the master plan of sewerage management in Dhaka city since 2015 and five new sewerage treatment plants are being built at Pagla, Dasherkandi, Mirpur, Rayerbazar, and Uttara. Coming to drainage, 81% of the Kolkata households have access to closed drainage. Drainage in Dhaka was also the responsibility of Dhaka WASA but the recurring problem of waterlogging in the city resulted in a loss of confidence in WASA to tackle the issue. In December 2020, the Dhaka city corporations finally took over the management and maintenance responsibilities of 26 canals and 10 km of box culverts from Dhaka WASA. Dhaka suffers from terrible waterlogging and the efficacy of the city corporations to tackle the issue remains to be seen (Table 3.9). In order to judge the adequacy of expenditure on services, the existing per capita expenditures in KMC were compared with the financial norms for per capita operation and maintenance, as given by the High Powered Expert Committee (GOI 2011). Service level data was obtained for water supply, sewerage and drainage, street lights, roads, and solid waste management. These were aggregated and the average expenditure incurred by KMC was found to be much below the prescribed financial norms (Table 3.10). A particular concern is a fact that the gap between the actual expenditure incurred and the expenditure norms has been widening since 2015–16. In

60

3 Fiscal Health of Dhaka and Kolkata

Table 3.10 Gap between revenue expenditure and expenditure norms in KMC over years (per capita US$) 2010–11 2011–12 2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 Gap 4.1 between revenue expenditure and expenditure norms

−6

−2.9

−6.2

−3.9

−6.3

−7.2

−8.3

Source Authors’ computation

the absence of similar service level data for the Dhaka city corporations, a comparison exercise could not be done for DNCC and DSCC.

References Ahmed T (2015) Bangladesh: reform agenda for local governance. BRAC Institute of Governance and Development Bagchi S (1999) Myth of empowering urban local bodies. Econ Pol Wkly 34(37):2637 Bagchi S (2001) Financing capital investments in urban infrastructure: constraints in accessing capital markets by urban local bodies. Econ Pol Wkly 36(4):385–398 Bandyopadhyay S, Rao G (2009) Fiscal health of selected Indian cities. World Bank Policy Research Working Paper No. 4863 Bandyopadhyay S, Naher F, Sharma A (2020) Towards sustainable cities: Lessons from Urban Decentralisation in India and Bangladesh. International Center for Public Policy. Working Paper 20-11, June 2020 Barro SM (1986) State fiscal capacity measures: A theoretical critique. In: H. Clyde Reeves (ed) Measuring Fiscal Capacity. Lincoln Institute of Land Policy Bird RM, Martinez-Vazquez J, Torgler B (2008) Tax effort in developing countries and high income countries: The impact of corruption, voice and accountability. Econ Anal Pol 38(1):55–71 Chelliah RJ (1971) Trends in taxation in developing countries. IMF Staff Pap 18:254–325. https:// doi.org/10.2307/3866272 Chelliah RJ, Sinha N (1982) measurement of tax effort of state governments (1973–76). Somaiya Publications, Bombay Dafflon B (2007) Fiscal capacity equalization in horizontal fiscal equalisation program. In: Boadway R, Shah A (eds) Intergovernmental fiscal transfers : principles and practice. Public Sector Governance and Accountability. Washington, DC, World Bank, pp 361–396 Government of India (2011) The high powered expert committee for estimating the investment requirements for urban infrastructure services. New Delhi, Ministry of Urban Development Jha S, Raghuram S, Avasthi S (2019) Exploring strategies for planned urban cluster development in South Asia, ADB South Asia working paper series no. 64, Manila, Asian Development Bank Local Government Division (LGD) (2015) Institutional and regulatory framework for fecal sludge management (FSM): mega City Dhaka (draft) Ministry of Local Government, Rural Development and Cooperatives, Government of Bangladesh Martinez-Vazquez J, Boex LFJ (1997) Fiscal capacity: an overview of concepts and measurements issues and their applicability in the russian federation. In: International center for public policy

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working paper series, at AYSPS, GSU paper9703, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University Sridhar K (2007) Reforming urban service delivery in developing countries: evidence from a case study in India. Econ Pol Wkly 42(33):3403–3413 Sridhar K, Bandyopadhyay S, Sikdar S (2007) Improving the fiscal health of large cities: evidence from India. National Institute of Public Finance and Policy, New Delhi

Chapter 4

Conclusions and Recommendations

The explosion in urban population that South Asia has been witnessing, has generated justifiable concern about the sustainability of these cities. Alongside its transformation into a bustling regional hub, major challenges have emerged in trying to accommodate the teeming millions and providing them with livable conditions. High levels of city pollution, rising urban poverty, widespread sickness, disease, and general malaise are glaring outcomes of the over-crowded conditions prevalent in many South Asian cities. In the quest for solutions to this state of affairs, the establishment of smart cities has taken a center stage in the discourse on city development. Being a key custodian of city health, the urban local bodies have a crucial role to play in the transformation of a city into a world-class one. This book has dealt with the financial vigor of the ULBs in two of the world’s megacities that are located in South Asia— Dhaka and Kolkata. A key objective has been to assess the fiscal capacity of these bodies to provide conditions that can make a meaningful difference to the city dwellers in terms of their quality of living. The foundation for smart cities lies in the adequate and quality provision of basic infrastructure and services including water supply, waste management, street lighting, road network, and so on. Financial sustainability is, thus, a crucial element in the building of smart cities. The ULBs studied include the two city corporations in Dhaka and the Kolkata Municipal Corporation. The study has delved in detail into the different components of revenue receipts and expenditure, their growth rates, the trend observed over the study period, and has examined the fiscal health of the ULBs. The levels of services provided by the city corporations vis-à-vis the quantum of expenditure have also been examined. The service level is found to be much below the recommended norms for cities which explains the low spending by the city corporations on account of development. In fact, over the years, the spending on development has declined significantly, while the spending on sustenance vis-à-vis salaries, wages, and other administrative costs has increased. The fiscal capacity of the corporations has been assessed through a number of simulations. It emerges that there are many untapped revenue sources, which, if utilized, could greatly augment revenues. Data also show that the city corporations © The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 S. Bandyopadhyay et al., How Smart are Cities without Adequate Finances?, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-19-2297-8_4

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64

4 Conclusions and Recommendations

receive very little from the central government. A comparison with the Kolkata Municipal Corporation reveals that the performance of both DNCC and DSCC is substantially below the standards. The study recommends raising their own revenues to 1 percent of the GCP for both DNCC and DSCC and to 4 percent of the GCP for KMC, for enhancing the performance of the local bodies in delivering their mandate. A major part of the own revenue in these cities comes from property taxes, a large part of which remains untapped. In developing economies like India and Bangladesh, registration of property is not only a cumbersome task, but also an expensive one. Consequently, many properties remain unregistered, and thus cannot be taxed. This implies that the residents of these properties continue to utilize services provided by the ULBs, without paying commensurately for them. In fact, some of these properties are even located in posh areas with a high market value of the properties due to the availability of better amenities like metro service or public transport, shops and malls, proximity to airport, etc. Apart from taxes, an important source of non-tax revenue that needs to be tapped is fees and fines. Levying user charges can enhance the revenue-raising potential of the local bodies. But many non-tax revenue handles are not exercised by the local bodies because of political reasons. Based on the previous chapters’ analyses of the financial performance of the ULBs in India and Bangladesh, the following recommendations are proposed: 1.

Property Tax Property tax constitutes a major share in the tax revenue of the urban local bodies in Dhaka. Given the potential of this handle, it is recommended that changes be brought about in the assessment, as well as in the administration, of property tax. a.

Assessment i. To ensure a better assessment of property tax, it is crucial that there is a proper mapping of all the properties. A GIS system for mapping the properties should be introduced. Following this, there should be a mapping between the properties listed in the registers of local bodies and the properties traced in GIS, such that all the properties captured in the GIS feature in the registers/records are maintained by the corporations. ii. Secondly, the corporations should adopt a more objective method for the valuation of the properties. Instead of annual rental value, they should opt for the unit area method. This requires a division of the area under each corporation into different zones based on their characteristics, such that different rates can be charged on the basis of the level of development in that locality. Next, properties should be categorized according to different features like flooring, roof type, etc. On the basis of different zones and different characteristics, the corporations need to determine the different rates per unit. Once these preparatory exercises are done, the built-up area of properties should

4 Conclusions and Recommendations

b.

65

be estimated and then the unit area value of the properties can be determined. Such clear classification would ensure easy self-assessment by the households. iii. Thirdly, the corporations should move to an IT-based system of assessment to reduce subjectivity and instill efficiency. iv. Fourthly, the rates should be revised every 5 years. Administration Efficiency i. Collection efficiency of property tax should be increased to be at least 85 percent. At present, the collection efficiency in both DNCC and DSCC, as yielded from interviews with concerned personnel, is less than 70 percent. ii. There should be a clear demarcation between commercial property tax rates and residential property tax rates. iii. Nagar tax or city tax comprises 0.38 percent of the total tax revenue on an average in DNCC and 0.54 percent in DSCC. The Ideal Taxation Schedule 2016 does not clearly mention the handles that fall under this tax, except for hotels. Even for the hotels, the tax rate is determined on the basis of the room rate, which is ambiguous as room rates are negotiable and variable. There is a need for clear specifications in this regard.

2.

Non-Tax Revenue Non-tax revenue constitutes more than half the own revenue of the corporations. Given a significance of non-tax revenue for the corporations, there is a need to tap the full potential of this revenue head. Two kinds of reforms have been proposed: (a) revision of existing handles and (b) introduction of new handles.

a.

The rates for different handles of non-tax revenue should be revised every 5 years. There should also be a proper assessment of each and every activity which falls under non-tax revenue. We recommend introducing new handles to augment the non-tax revenue of both the corporations. These could be: (i) cable operator and mobile tower charges; (ii) some conservancy charges should be introduced in the highly-crowded cities; (iii) car parking facilities must be provided in relevant areas and a differential car parking fees should be introduced depending on vehicle size (and the space they are occupying). Moreover, there should be different charges for peak hours and less-crowded hours, and also for commercial and residential areas. In addition to this, a one-time parking fees should be introduced as per the price of the car.

b.

3.

Policy Level Reforms a.

Decentralization policies need reforms. The transfers from the upper tiers of governments to the local governments should be designed following a rule. Grants should be on specified utilization heads, whereas there can be a ‘shared revenue’ component which can be shared at specific ratios between

66

4 Conclusions and Recommendations

b.

c.

the upper tier of government with the city corporations. In the initial phases of urbanization, these transfers can bring in the desired transformations needed to become a self-reliant local government. There should be an urban renewal mission introduced for the cities of Dhaka. The reform should clearly delineate the role of upper tiers of the government in supporting the urbanization in Dhaka cities. Also, physical norms should be designed, which should state the level of service delivery desired according to the size class of the cities. Corresponding to the level of service delivery, financial norms should be instituted. Such an exercise would help assess the expenditure needs of the cities. A proper audit of the accounts of the local bodies is recommended.

Appendix A

See Tables A.1, A.2, A.3, A.4, A.5 and A.6. Table A.1 Administrative hierarchy in Bangladesh Administrative unit

Number

Division Zila (District) City corporations Municipalities Upazila (Sub-district) Thana (Police Station) Union

8 64 12 316 492 644 4571

Source Bangladesh Bureau of Statistics (2021)

Table A.2 Primacy of Dhaka in different years Year

Population (million)

Share of urban population (%)

Share of total population (%)

Dhaka’s population as a multiple of second largest city’s population

1981

3.44

25.42

3.94

2.47

1991

6.84

30.46

6.13

2.91

2001

9.67

34.47

8.20

3.33

2011

14.17

33.78

9.44

3.80

2018

19.57

32.11

11.76

4.06

Source Bangladesh Planning Commission (2020)

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 S. Bandyopadhyay et al., How Smart are Cities without Adequate Finances?, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-19-2297-8

67

68

Appendix A

Table A.3 Demographics in DNCC and DSCC, 2017–18 Local body

Population

Area (km2 )

Population density (persons/km2 )

DNCC

4,832,346

197

24,530

DSCC

3,883,423

109.3

35,546

Source Authors, based on field survey

Table A.4 Socio-economic indicators in DCC areas, 2019 Indicators

Percentage

Average household size (persons)

4.02

Dependency ratio (%)

49.13

Literacy (7 + )* (%)

74.6

Years of schooling for 15 years and older (male)

6.23

Years of schooling for 15 years and older (female)

5.42

Primary school-aged children (6–11) going to school (%)

92.15

Secondary school-aged children (12–18) going to school (%)

68.33

Crude activity rate (Dhaka district)* (%)

44.34

Refined activity rate (Dhaka district)* (%)

53.34

Main occupation category (household head) (%) i Salaried ii Self-employed iii Business/trade iv Wage labor v Others vi Non-earning occupation

26.32 17.11 19.23 14.77 7.01 15.57

Households having electricity (%)

99.79

Households experiencing power outage in last 7 days (%)

23.79

Households experiencing up to 4 h of power outage in the last 7 days

79.93

Drinking water Access to piped water supply inside the house (%) Access to piped water supply outside the house (%) Tube well (own/community) (%) Others (%)

63.56 11.20 23.37 1.88

Sanitation Sanitary latrine (%) Pucca latrine (water sealed) (%) Pucca latrine (not water sealed) (%) Kancha latrine (fixed/temporary) (%) No latrine (%)

45.7 21.66 32.15 0.49 0.0 (continued)

Appendix A

69

Table A.4 (continued) Indicators

Percentage

Type of cooking fuel Piped gas (%) LPG (%) Firewood (%) Electricity (%) Others (kerosene/dried leaves/etc.) (%)

93.02 3.27 3.02 0.65 0.03

Dwelling structure Brick/cement/concrete roof (%) Tin/CI sheet roof (%) Brick/cement/concrete walls (%) Tin/CI sheet walls (%)

59.70 39.14 86.26 13.10

Source Bangladesh Bureau of Statistics (2014, 2020), *pertains to 2011 Table A.5 Employment, migration, and mean income in DCC area, 2016–17 Indicators

Dhaka city corporation

Employment Share of employment in total employment

9%

Share of employment in all CC employment

69%

Share of unemployment in total unemployment

7%

Share of unemployment in all CC unemployment

65%

Total number in informal sector*

6.7 million

Share of employment in informal sector*

78%

Not in Education, Employment or Training (NEET) Share of NEET in total urban workforce (15 + years)*

34%

Share of NEET in total urban workforce (15–29 years)*

42%

Migration Migrant population

6 million

Share of DCC migrant population in total migrant population

48%

Share of DCC migrants in Dhaka division (urban) migrant population

72%

Share of DCC migrants in Dhaka division (urban) work force (15+ years)

39%

Share of female migrants to total migrants to Dhaka*

53%

Percentage migrating to urban areas for employment (male)**

61%

Percentage migrating to urban areas for employment (female)**

13%

Percentage migrating to urban areas for marriage/family reasons (male)**

28% (continued)

70

Appendix A

Table A.5 (continued) Indicators

Dhaka city corporation

Percentage migrating to urban areas for marriage/family reasons (female)**

83%

Hours worked and income Average hours worked per week**

55.5

Mean monthly income

BDT 16,811

Source Compiled from Bangladesh Bureau of Statistics, Labour Force Survey, 2016–17 *Data is for Dhaka division (urban); **Data is for all divisions (urban) Table A.6 Socio-economic indicators in KMC areas Indicators

Percentage

Dependency ratio

44.5*

Literacy rate (7+ years)

86.3

Total workers to population

35.06

Proportion of main workers to total workers

87.8

Proportion of workers in cultivation, agricultural labor and household industry to main workers

5.0

Other workers to main workers

94.61

Households having electricity as a source of lighting

96.21%

Households having treated tap water as a source of drinking water

84.9%

Households having untreated tap water as a source of drinking water

3.21%

Households having tube well as a source of drinking water

5.74%

Households having piped sewer system

43.36%

Households having septic tank

45.09%

Households with closed drainage

81.31%

Households living in permanent houses

93.11%

Households living in semi-permanent houses

5.4%

Households living in temporary houses

0.89%

Households using firewood as a source of cooking fuel

4.91%

Households using crop residue as a source of cooking fuel

0.57%

Households using cow dung as a source of cooking fuel

0.33%

Households using coal as a source of cooking fuel

3.75%

Households using kerosene as a source of cooking fuel

24.15%

Households using LPG/PNG as a source of cooking fuel

64.67%

Households using electricity as a source of cooking fuel

0.08% (continued)

Appendix A

71

Table A.6 (continued) Indicators

Percentage

Households using bio-gas as a source of cooking fuel

0.65%

Households using other cooking fuel

0.19%

Migrant population Share of migrant population to total population of Kolkata

0.83 million 18.4%

Source Census of India, 2011, *as calculated in Mahata et al. (2017) Notes 1. Permanent houses refer to those houses whose walls and roofs are made of pucca materials, i.e., where burnt bricks, G.I. Sheets or other metal sheets, stone, cement, concrete are used for walls and tiles; slate, shingle, corrugated iron, zinc or other metal sheets, asbestos sheets, bricks, lime and stone, and RBC/RCC concrete are used for the roof 2. Semi-permanent houses refer to those houses made of other types of materials 3. Temporary houses refer to those houses having walls and roofs made of Kutcha materials, i.e., where grass, leaves, reeds, bamboo, mud, and unburnt bricks are used for the construction of walls; and grass, leaves, reeds, bamboo thatch, mud, unburnt bricks, wood, etc., are used for the roof

Box A.1 List of City Corporations in Bangladesh Chittagong Division Chattagram City Corporation Cumilla City Corporation Dhaka Division Dhaka North City Corporation Dhaka South City Corporation Gazipur City Corporation Narayanganj City Corporation Barisal Division Barisal City Corporation Khulna Division Khulna City Corporation Mymensingh Division Mymensingh City Corporation Rajshahi Division Rajshahi City Corporation Rangpur Division Rangpur City Corporation Sylhet Division Sylhet City Corporation

72

Appendix A

Box A.2: List of functions devolved under the 74th Amendment Act to Urban Local Bodies in India 1

Roads and bridges

2

Water supply for domestic industrialization and commercial purpose

3

Burials and burial ground, cremation ground, and electric crematorium

4

Public amenities including street lighting, parking lots, bus stop, and public conveniences

5

Safeguarding interest of weaker section of society, including the handicapped and mentally retarded

6

Slum improvement and upgradation

7

Urban poverty alleviation

8

Provision of urban amenities and facilities such as parks, gardens, and playground

9

Promotion of cultural, educational, and aesthetic aspects

10

Cattle pounds and prevention of cruelty to animals

11

Urban planning, including town planning

12

Regulation of land use and construction of building

13

Planning for economic and social development

14

Fire services

15

Urban forestry, protection of environment and promotion of ecological aspects

16

Vital statistics including registration of births and deaths

17

Regulation of slaughter houses and tanneries

18

Public health, sanitation conservancy

19

Solid waste management

Box A.3: List of finances devolved to Urban Local Bodies in India Tax revenue 1

Property tax

2

Profession tax

3

Sanitation/conservancy Tax (if ‘charge’, then it’s a non tax)

4

Scavenging tax (continued)

Appendix A

73

(continued) Tax revenue 1

Property tax

5

Latrine tax

6

Drainage tax

7

Education tax

8

Entry/terminal tax

9

Taxes on vehicles

10

Advertisement tax

11

Entertainment tax

12

Pilgrim tax

13

Environment tax/land revenue

14

Betterment/development tax

15

Passengers and goods tax

16

Timber tax

17

Tax/toll on animals

18

Cable operator tax

19

Toll/Tax on bridges/vehicles

Non-tax revenue 20

Sanitation/conservancy charge

21

Water charges

22

Surcharge on sales tax

23

Birth/death registration fees

24

Betterment fees

25

Mutation fees

26

Dangerous and offensive trade license fees

27

Slaughter house fees

28

Market fee

29

Fee for fire services (continued)

74

Appendix A

(continued) Tax revenue 1

Property tax

30

Fees on dogs

31

Fees for registration of animals, etc

32

Parking fees

33

Fee on building application

34

Duty on transfer of immovable property

35

Penalty for late tax payment

36

Stamp duty

37

Rent from municipal properties

38

Receipts from fines

39

Receipts from interest

40

Octroi (After the introduction of GST, this has been abolished)

Appendix B

Box B.1: Components of Non-Tax Revenue in DNCC and DSCC 1

Bazaar/market salami

2

Market rent

3

Trade license fee

4

Rickshaw license fee

5

Bus/Truck terminal

6

Cattle markets

7

Lease (Toilet, hat bazar, etc.)

8

Sale of old/scrap materials

9

Lease of slaughterhouse

10

Road excavation fee

11

Equipment hire charge

12

Sale of forms

13

Community center

14

Graveyard/crematorium fee

15

Property transfer fee

16

Electricity bill

17

Marriage, birth, and death certification fee

18

Other rents

19

Others

20

Petrol pump

21

Children park

Source Annual Budgets

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 S. Bandyopadhyay et al., How Smart are Cities without Adequate Finances?, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-19-2297-8

75

76

Appendix B

Box B.2: Valuation Method of Property tax in Dhaka cities The property tax, also called as holding tax in Dhaka, is fixed on the basis of house rent. The corporations estimate probable house rent and fix the holding tax on that. According to the tax rule, the rent of two months of a house is deducted from the total annual rent of that house for its renovation. And the tax is estimated on the basis of the remaining 10 months’ rent. If a person lives in his own house, another 40% is deducted. The disparity of holding is because the city corporations are at liberty to fix holding tax. There are six types of holding taxes collected from 11 city corporations. The rate at which property is taxed in DNCC and DSCC is 12%. Source https://en.prothomalo.com/bangladesh/Residents-face-disparity-inholding-tax-rates. See Tables B.1, B.2, B.3, B.4 and B.5. Table B.1 Summary statistics of revenue receipts from 2012–13 to 2018–19 (cr BDT, 2011–12 prices) Components of revenue receipts

DNCC geometric mean (min, max)

DSCC geometric mean (min, max)

Property tax

139.87 (122.48, 149.22)

97.88 (77.58, 119.92)

Tax revenue

144.71 (125.52, 156.67)

100.96 (80.11, 123.79)

Non tax revenue

154.16 (141.45, 171.01)

125.13 (111.21, 155.65)

Own revenue

299.05 (266.97, 319.86)

227.51 (196.07, 25.26)

Grants

25.69 (10.69, 78.32)

39.49 (16.49, 152.86)

Other income

9.23 (3.35, 39.25)

1.85 (0.12, 34.37)

Total revenue receipts

344.71 (298.27, 403.08)

286.54 (221.49,379.98)

Source Authors’ computation based on annual budgets Note Other income includes the sale of unused property and others, loan, loan recovery, receipts from the elimination of DCC, and interest from the bank

See Figs. B.1, B.2, B.3, B.4, B.5, B.6, B.7, B.8, B.9, B.10, B.11, B.12, B.13 and B.14.

Appendix B

77

Table B.2 Summary statistics of per capita revenue receipt components from 2012–13 to 2018–19 (BDT, 2011–12 prices) Components of revenue receipts per capita

DNCC geometric mean (min, max)

DSCC geometric mean (min, max)

Property tax

309 (245, 352)

294 (211, 398)

Tax revenue

320 (251, 369)

303 (217, 410)

Non tax revenue

341 (283, 398)

375 (315, 452)

Own revenue

661 (534, 767.5)

683 (550, 803)

Grants

56.7 (25.3, 173.2)

118.4 (54.6, 458)

Other income

20.4 (7, 96)

5.6 (0.33, 114)

Total revenue receipts

762 (597, 890)

860 (622, 1140)

Source Authors’ computation based on annual budgets Table B.3 Summary statistics of absolute total expenditure from 2012–13 to 2018–19 (BDT, 2011– 12 prices) Expenditure components

DNCC geometric mean (min, max)

DSCC geometric mean (min, max)

Revenue expenditure

128.45 crore (113.41 crore, 150.64 crore)

152.60 crore (140.27 crore, 170.19 crore)

Per capita revenue expenditure

284 (239, 322)

458 (417, 511)

Source Authors’ computation based on annual budgets Table B.4 Share of development expenditure in total expenditure of DNCC and DSCC (2011–12 prices, crore BDT) Expenditure heads

2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19 DNCC

Revenue expenditure

113.41

123.08

120.57

131.40

150.64

144.81

119.63

Development expenditure

234.92

203.27

170.71

150.98

201.95

197.86

96.49

Share of development 67.4% expenditure in total expenditure

62.3%

58.6%

53.5%

57.3%

57.7%

44.6%

(continued)

78

Appendix B

Table B.4 (continued) Expenditure heads

2012–13 2013–14 2014–15 2015–16 2016–17 2017–18 2018–19 DSCC

Revenue expenditure

146.37

140.27

147.58

170.19

143.61

167.02

155.78

Development expenditure

138.62

141.60

146.26

185.95

54.42

63.51

58.26

29.3%

27.5%

27.2%

Share of development 48.6% expenditure in total expenditure

50.2%

49.8%

52.6%

Source Authors’ computation based on annual budgets 0 -2 -4 -6 -8 -10 -12 -14 Growth Rate of Per Capita Property Tax Revenue

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

0.0

-2.9

-5.5

-5.5

-12.5

-8.1

Fig. B.1 Annual growth rates of per capita property tax in DNCC. Source Annual budgets, Authors’ computation 0 -2 -4 -6 -8 -10 -12 -14 -16 -18 Growth Rate of per capita Property Tax Revenue

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

-8.7

-12.5

-2.7

-11.3

-16.3

-8.3

Fig. B.2 Annual growth rates of per capita property tax in DSCC. Source Annual budgets, Authors’ computation

Appendix B

79 0 -2 -4 -6 -8 -10 -12 -14

Growth Rate of per capita Tax Revenue

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

-0.4

-2.7

-8.1

-5.3

-12.2

-8.3

Fig. B.3 Annual growth rate of per capita tax revenue in DNCC. Source Annual budgets, Authors’ computation

0 -2 -4 -6 -8 -10 -12 -14 -16 -18 Growth Rate of per capita Tax Revenue

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

-8.2

-12.4

-3.6

-11.6

-16.4

-7.6

Fig. B.4 Annual growth rate of per capita tax revenue in DSCC. Source Annual budgets, Authors’ computation

80

Appendix B 10

5

0

-5

-10

-15

-20 Growth Rate of per capita Non Tax Revenue

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

-12.7

3.8

4.8

-15.3

-2.2

-9.6

Fig. B.5 Annual growth rate of per capita non tax in DNCC. Source Annual budgets, Authors’ computation

40 30 20 10 0 -10 -20 -30 -40 Growth Rate of per capita Non Tax Revenue

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

-9.2

11.0

-12.5

30.3

-30.3

22.0

Fig. B.6 Year on year growth rate of per capita non tax in DSCC. Source Annual budgets, Authors’ computation

Appendix B

81 350 300 250 200 150 100 50 0 -50 -100

Growth Rate of per capita Grants

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

-29.9

293.7

74.0

-75.2

18.3

9.4

Fig. B.7 Annual growth rate of per capita grants in DNCC. Source Annual budgets, Authors’ computation

350 300 250 200 150 100 50 0 -50 -100 -150 Growth Rate of per capita Grants

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

293.9

10.7

92.3

-87.3

21.0

-12.7

Fig. B.8 Year-over-year growth rate of per capita grants in DSCC. Source Annual budgets, Authors’ computation

82

Appendix B 250 200 150 100 50 0 -50 -100 -150 Growth Rate of per capita Other Income

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

-9.3

-91.2

41.4

-5.3

187.2

-76.1

Fig. B.9 Annual growth rate of other income in DNCC. Source Annual budgets, Authors’ computation

350 300 250 200 150 100 50 0 -50 -100 -150 Growth Rate of per capita Other Income

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

-66.5

-89.6

317.3

-98.0

105.2

250.3

Fig. B.10 Annual growth rate of other income in DSCC. Source Annual budgets, Authors’ computation

Appendix B

83 10 5 0 -5 -10 -15 -20 -25

Growth Rate of per capita Revenue Receipt

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

-8.0

-0.2

7.9

-23.1

-2.6

-10.6

Fig. B.11 Annual growth rate of per cap revenue receipts in DNCC. Source Annual budgets, Authors’ computation

200

150

100

50

0

-50 Growth Rate of per capita Revenue Receipts

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

1.6

-1.9

17.7

-30.6

-21.5

188.1

Fig. B.12 Annual growth rate of per cap revenue receipts in DSCC. Source Annual budgets, Authors’ computation

84

Appendix B 15 10 5 0 -5 -10 -15 -20 -25 Growth Rate of per capita Revenue Expenditure

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

5.0

-5.3

5.4

10.9

-7.0

-20.1

Fig. B.13 Annual growth of per capita revenue expenditure in DNCC. Source Annual Budgets, Authors’ computation

15 10 5 0 -5 -10 -15 -20 Growth Rate of per capita Revenue Expenditure

2012-13 to 2013-14

2013-14 to 2014-15

2014-15 to 2015-16

2015-16 to 2016-17

2016-17 to 2017-18

2017-18 to 2018-19

-7.3

1.7

11.5

-18.4

12.5

-9.8

Fig. B.14 Annual growth of per capita expenditure in DSCC. Source Annual Budgets, Authors’ computation

Appendix B

85

Box B.3: Valuation Method of Property tax in Kolkata Municipal Corporation The property tax is evaluated on the basis of Annual Rental Value. The annual value is determined by multiplying the monthly rent by 12. Where property is owned by someone, the monthly rent is determined by comparing the property with similar rented properties in the locality. A 10% statutory allowance is deducted to arrive at an annual value. In case of Theater/ Cinema halls, 7.5% of Gross Annual Receipts less taxes is considered as the Annual Value of the hall. The tax rates are applicable as follows: S No Annual valuation (in rupees)

Annual tax

Rebate if tax deposited on time

1

Annual valuation less than 600

0.11*AV

0.05* Quarterly tax

2

Annual valuation greater (AV/600 + 10)*1/100*AV 0.05* Quarterly tax than 600 but less than 18,000

3

Annual valuation greater 0.4*AV than 18,000

Quarterly Tax = Annual Tax/4 Source KMC Website

0.05* Quarterly tax

86

Appendix B

Table B.5 Year-wise per capita revenue receipts and per capita revenue expenditure in KMC, DNCC, DSCC from 2012–13 to 2017–18 (US$) 2012–13 Category

KMC

DNCC

DSCC

Property tax

31.8

4.3

4.9

Tax revenue

32.5

4.5

5.0

Non tax revenue

17.3

4.9

4.8

Own revenue

49.8

9.4

9.8

Grants

33.6

0.4

0.7

Total revenue receipts

89.6

11.0

11.9

Total revenue expenditure

87.9

3.4

5.9

2013–14 KMC

DNCC

DSCC

Property tax

20.2

4.5

4.7

Tax revenue

20.9

4.7

4.8

Non tax revenue

18.0

4.4

4.6

Own revenue

38.9

9.2

9.4

Grants

31.3

0.3

2.8

Total revenue receipts

70.3

10.6

12.6

Total revenue expenditure

74.9

3.7

5.8

2014–15 Property tax

KMC

DNCC

DSCC

19.8

4.4

4.1

Tax revenue

20.4

4.6

4.3

Non tax revenue

13.1

4.7

5.1

Own revenue

33.6

9.3

9.4

Grants

30.1

1.3

3.1

Total revenue receipts

63.7

10.7

12.5

Total revenue expenditure

74.5

3.6

5.9

2015–16 Property tax

KMC

DNCC

DSCC

20.5

4.1

4.0

Tax revenue

21.6

4.2

4.1

Non tax revenue

11.5

4.8

4.4

Own revenue

33.1

9.1

8.5

Grants

39.8

2.2

5.9 (continued)

Appendix B

87

Table B.5 (continued) 2012–13 Category

KMC

DNCC

DSCC

Total revenue receipts

72.9

11.4

14.6

Total revenue expenditure

76.2

3.7

6.5

2016–17 KMC

DNCC

DSCC

Property tax

20.1

3.9

3.5

Tax revenue

20.8

4.0

3.6

Non tax revenue

11.1

4.1

5.7

Own revenue

31.9

8.0

9.3

Grants

33.4

0.5

0.7

Total revenue receipts

65.3

8.7

10.1

Total revenue expenditure

65.7

4.1

5.3

2017–18 KMC

DNCC

DSCC

Property tax

14.5

3.3

2.8

Tax revenue

15.3

3.4

2.9

Non tax revenue

8.1

3.8

3.9

Own revenue

23.5

7.2

6.8

Grants

28.2

0.6

0.9

Total revenue receipts

51.7

8.2

7.6

Total revenue expenditure

64.0

3.7

5.8

Source Authors’ computation

Appendix C

See Tables C.1 and C.2.

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2022 S. Bandyopadhyay et al., How Smart are Cities without Adequate Finances?, SpringerBriefs in Economics, https://doi.org/10.1007/978-981-19-2297-8

89

0.7

0.8

Other

Source Authors’ computation

0.7

3.3

49.6

1.6

0.3

1.0

0.3

Community center

0.2

0.1

0.3

0.2

Sale of forms

0.2

0.0

Equipment hire charge

14.1

Other rents

9.3

Road excavation fee

0.1

0.1

Marriage/ birth/ death certification fee

0.0

Lease of slaughterhouse

2.9

0.2

Sale of old/scrap materials

0.0

Electricity bill

0.1

Lease (Toilet,hat bazar, etc.)

8.8

2.9

1.0

5.3

cattle markets

57.2

2.7

Bus/truck terminal

0.0

Property transfer fee

0.0

Rickshaw license fee

10.1

1.9

4.6

2013–14

Graveyard/crematorium fee

3.2

10.9

Trade license fee

5.2

Bazaar/market salami

Market rent

2012–13

Non tax revenue components

1.1

0.7

0.7

3.4

48.8

1.5

0.7

0.3

0.0

17.5

0.0

0.0

0.1

6.5

2.0

0.0

10.0

0.1

6.6

2014–15

0.7

1.0

0.5

3.4

47.4

0.8

0.7

0.1

0.0

10.7

0.1

0.1

0.0

6.3

2.2

0.6

17.6

6.5

1.3

2015–16

2.0

0.4

1.1

2.9

50.1

0.9

0.3

0.1

0.1

10.5

0.1

0.1

0.2

6.9

2.3

0.0

17.3

3.3

1.6

2016–17

1.4

0.5

0.7

2.0

50.8

1.6

0.6

0.1

0.0

14.9

0.0

0.0

0.5

6.7

2.0

0.0

15.5

2.6

0.1

2017–18

1.0

0.5

0.2

2.5

60.6

3.3

0.6

0.1

0.1

4.3

0.0

0.0

0.1

6.8

1.8

0.3

15.0

2.3

0.4

2018–19

Table C.1 Share of different components of non-tax revenue in total non-tax revenue (%) from 2012–13 to 2018–19 in DNCC

1.0

0.6

0.5

2.9

51.9

1.4

0.4

0.1

0.0

10.7

0.1

0.0

0.1

6.7

2.3

0.4

13.4

1.9

1.5

Geometric mean

90 Appendix C

Appendix C

91

Table C.2 Share of different components of non-tax revenue in total non-tax revenue (%) from 2012–13 to 2018–19 in DSCC Non tax revenue components

2012

2013

2014

2015

2016

2017

2018

Geometric mean

Bazaar/market salami

3.3

1.4

25.2

5.0

26.5

18.7

16.4

9.0

Market rent

8.9

15.0

10.4

10.8

8.6

11.1

8.4

10.3

Trade license fee

18.2

18.0

15.8

34.3

20.2

26.3

18.2

20.9

Rickshaw license fee

0.0

0.0

1.9

0.0

0.0

2.0

1.4

1.7

Bus/truck terminal

2.5

2.1

1.5

1.9

0.9

0.9

0.9

1.4

Cattle market

4.4

4.3

1.7

1.8

2.9

3.2

1.7

2.7

Lease (Toilet,hat bazar, etc.)

1.2

0.7

1.0

0.8

0.3

0.5

0.5

0.7

Sale of old/scrap materials

0.1

0.2

0.0

0.1

0.0

0.0

0.0

0.1

Lease of slaughterhouse

0.1

0.1

0.1

0.1

0.0

0.0

0.0

0.1

10.1

6.7

5.1

13.2

4.2

0.0

10.9

7.7

Equipment hire charge

0.9

1.9

0.3

0.0

0.7

0.7

0.8

0.5

Sale of forms

0.4

0.2

0.5

0.2

0.3

0.7

0.2

0.3

Community center

1.0

1.3

0.4

1.0

0.3

1.0

0.4

0.7

Graveyard/crematorium fee

0.4

0.5

0.7

0.1

0.1

0.1

0.1

0.2

39.9

37.3

24.7

22.5

16.5

30.0

26.9

27.2

Electricity bill

4.0

4.5

3.5

1.8

0.0

0.0

0.0

3.2

Marriage, birth, and death certification fee

0.2

0.8

0.7

0.7

0.4

0.0

0.0

0.5

Children park

1.9

1.9

1.7

1.7

1.6

1.7

0.6

1.5

Petrol pump

0.0

0.0

0.0

0.0

0.5

0.8

0.8

0.7

Daycare

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Negligible

Other rents

0.8

2.0

1.8

2.2

0.8

1.0

0.5

1.2

Others

1.7

1.1

3.0

1.8

15.2

1.4

11.4

3.0

Road excavation fee

Property transfer fee

Source Authors’ computation

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