Budget of an Urban Local Body

CA Shilpa Mangaonkar

Mumbai is the city of financial supremacy and is a remarkable contributor for the soundness of the financial health of our country. The city of dreams for many aspirants crystallizing their ideas for building up the nation’s economy which now has a global recognition as per the list of Global Prime Cities Index 2023.

Brihanmumbai Municipal Corporation (BMC), the governing civic body of this Mumbai city, is actually in a way instrumental in the achievement of this progress as it strives for the development of the city and has undertaken huge projects for the civic infrastructure and administration of the city. The motto which drives it which means where there is Righteousness, there shall be Victory.

This actually made me curious to note as to how the budget is made of such an institution which is actually India’s highly valued and oldest Corporation as well as considered to be one of the richest Corporation in Asia. The questions pondered in my mind about the budget of BMC were about the budget governance in place, law binding provisions, the challenges it faces for forecasting with such huge amounts, the coordination it has to do for such a big coverage area, the way of presentation, the support system for its execution and so on. The Urban Local bodies generally have the Committee, the governing Act of the Corporation, the Municipal Accounts Manual of Government of India Ministry of Urban Development and the Municipal Commissioner as its frame work of operation.

Just to begin I would like to introduce the legacy of this esteemed Corporation. Bombay was the first British Indian possession, which came as a part of the royal dowry in 1661 to King Charles II of England on his marriage to the Portuguese princess, Infanta Catherine de Braganza. The civic administration of the town was vested in a Court of Petty Sessions 1807 lead by two Magistrates and a Justice of Peace. Thereafter in the year 1865 Municipal Corporation was established as a Body Corporate with one Municipal Commissioner and Justices of Peace. Sir Arthur Crawford was appointed as the first Municipal Commissioner then. After the enactment of the Bombay Act No. III regular corporation was formed with 64 Members with Rate (tax) Payers having right of voting. Sir Pherozeshah Mehta was instrumental in the drafting of the 1872 Act which led to this type of the establishment of the Corporation which continued ahead. The First Meeting of the democratic civic body was held on 4th September 1873.

Now as far as the regulatory framework, The Mumbai Municipal Corporation Act, 1888 hereafter referred to as said Act, was the most important guiding factor to conduct the operations of the Corporation for better administration of the town and assigning responsibilities to its representatives. This stands amended as on date and is stands as a blueprint for the conduct of the operations of the Corporation.

In pursuance of the 74th Amendment to the Constitution of India, the vital amendments to the B.M.C. Act were made by Maharashtra Act No. XLI of 1994 like: Five Nominated Councilors, Reservation of one-third seats for Women including Scheduled Castes/Tribes, etc,, Reservation of twenty-seven percent, out of total number of seats for the members belonging to the Backward Class of citizens, Reservation of the Office of the Mayor of all Corporations in Maharashtra State by rotation for the members belonging to the Scheduled Castes/Tribes, Backward Class of citizens and Women. In 1993 the Designation of ‘President’ was changed to that of ‘Mayor’ (vide Bombay Act No. XXI). 140 Single member constituencies being introduced in 1963 which now stand at 227. The elections were, accordingly, held for the first time (Vide Maharashtra Act No. XXXIII of 1966) in 1968.

Now let us understand the Constitution of the Corporation. The Municipal Corporation of Brihan Mumbai is constituted under the Mumbai Municipal Corporation Act, 1888 and consists of 227 Councilors directly elected at Ward elections and 5 nominated councilors with special knowledge or experience in municipal administration to be nominated by the Corporation as per sec.3 and sec 5 of the said Act.

The landscape of Mumbai is divided into seven zones which further divided into 24 administrative wards i.e Ward A to Ward T which drills down to 227 civic electoral wards or constituencies. Every electoral ward is led by a Corporator. The Corporators among themselves elect a Mayor who is the First Citizen of Mumbai. The Mayor plays the functional role of presiding over the operations of the Corporation.

The BMC is headed by an IAS officer who serves as Municipal Commissioner of the corporation and has executive powers. The Municipal Commissioner is appointed by Government of Maharashtra under sec 54 of the said Act. The Municipal Commissioner deputes various departments to the Additional Municipal Commissioners, Deputy Municipal Commissioners, Assistant Commissioners and various heads of Department in discharge of his functions. At present around 100 departments are in operation. The departments are codified as per the functions. For instance Code 31- Solid Waste Management Department, Code 30 Education Department, Code 47 Health Department, Code 49 Water Operation Department etc.

The period of term of the Corporation is of 5 years from the date of its first meeting as per Sec.6 of the said Act and the term of office of the Councilors shall be co-terminus with the duration of the Corporation as per sec Sec.6A of the said Act. After the term of the present Corporators expired in March 2022, the State Government appointed the Municipal Commissioner, Mr. Iqbal Chahal, IAS as the Administrator of the Corporation. The Additional Municipal commissioners present the BMC budget to the Municipal Commissioner for approval who acts as the Administrator.

As far as the governance is concerned there are 7 most important Committees who monitor the conduct of operations of the Corporation like the Standing Committee , Improvements Committee, Education Committee, BEST Committee, Special Committees and the Ward Committee.

Apart from the civic infrastructure and services work towards the town, full responsibility of Primary Education was entrusted to the Corporation in 1907 and B. E. S. & T. Co. Ltd. was also municipalized on 7th August 1947. As per the provisions of the Maharashtra Act, No. XLIV of 1975 the Tree Authority was constituted in the year 1976, by the Corporation. The suburbs of Mumbai were also merged with Mumbai. Thus this Corporation has a wide area of coverage for its budget preparation.

The Chapter VII Revenue and Expenditure of the said Act vividly covers the aspects of Budget Estimation like the accounting aspects of revenue and expenditure, funds to be set aside of the corporation, disposal of balances, application of the Municipal Fund, procedure when the money is expended apart from budget grant, Annual Budget Estimate procedure etc..

The Municipal Commissioner of the city is in charge of the BMC budget. The Corporation’s Standing Committee approves the budget estimate first and makes any changes required in it. Then the budget is presented to the Civic body for approval by the Municipal Commissioner before 5th day of February. At present in absence of the civic body for BMC, it is presented to the Administrator.

The modus operandi for the budget process begins with the issue of Budget Circular for the preparation and presentation of budget estimates to the departments of the BMC. The circular provides the input templates to the respective heads of the department for Budget Estimation. For instance for the budget estimation of revenue template comprises of the Linked Geographic Area Code, Cost centre codes, Function Codes, Account Codes, Account Head, Actuals of last 3 years, Budget Estimates of coming year, Explanation for increase or decrease, Brief information pertaining to Proposed Revision, New Taxes/ Fees etc. Also Budget Estimates input sheet for On-Going Project Works is also made. The Contingencies are also considered. The timeline is mentioned too for submission of the data for consolidation for budget estimation.

Thereafter the data is collated, reviewed and summarized for budget estimation under the Chief Accountant, Accounts function head. The same is laid before the Standing committee first. Thereafter under the guidance of the Municipal Commissioner it is to be presented before the Civic body for final approval and adoption of the budget of BMC.

To read the budget of BMC we need to know the Classification of the Budget. It is divided into four subheads i.e. A B G and E, each which is then divided into fund codes. The General budget, Health budget, Provident Fund Budget and Pension Budget is covered under the Budget estimate ‘A’. The Improvement Schemes, Slum Clearance and Slum Improvement is covered under the Budget estimate ‘B’. The Education budget is covered under the Budget estimate ‘E’. The Water Supply and Sewerage budget is covered under the Budget estimate ‘G’. The Tree Authority Budget is covered under the Budget estimate ‘T.A.’. There are 7 Major Fund codes and 5 Minor codes.

As per sec 125A of the said Act, The expenditure side of a budget estimate shall be classified under major heads, minor heads, subordinate heads and primary units— (a) “Major head” means the principal head of accounts corresponding to the different services under which expenditure is classified in the budget estimate and may be divided into two or more minor heads ; (b) “Minor head” means the head of accounts immediately subordinate to a major head under which each major head is classified, and may be further sub-divided into two or more subordinate heads ; (c) “ Subordinate head ” means the head of accounts immediately subordinate to a minor head under which each minor head is classified and may be further sub-divided into two or more primary units ; (d) “ Primary unit” means the ultimate group or groups into which individual items of expenditure in the budget estimates are arranged.]

The Budget Estimate of expenditure and income is to be prepared annually and presented by the Municipal Commissioner as required under sec 125 and sec126 of the said Act.

As per the said section 125, [The Commissioner] shall on or before each [fifth day of February,] have prepared and lay before [the Standing Committee, in such form as the said Committee] shall from time to time approve,— (1) (a) an estimate of the expenditure which must or should, in his opinion be incurred by the corporation in the next ensuing Official Year, other than (ii) expenditure to be incurred by reason of the obligations imposed on the corporation arising out of the transfer to the corporation of the powers, duties, assets and liabilities of the Board of Trustees for the improvement of the City of Bombay constituted under the City of Bombay Improvement Trust Transfer Act, 1925 [or for any of the purposes of Chapter XII-A]; and (iii) expenditure to be incurred on account of the [Brihan Mumbai Electric Supply and Transport Undertaking]; [(iv) expenditure to be incurred for the purposes of clause (q) of section 61;] [(v) expenditure to be incurred for the purposes of Chapters IX and X;]

(b) an estimate of the balances, if any (other than balances) shown in the [accounts maintained under sections [123A and 123C] ] which will be available for re-appropriation or expenditure at the commencement of the next ensuing official year;

(c) an estimate of the corporation’s receipts and income for the next ensuing official year other than from taxation [and from the [Brihan Mumbai Electric Supply and Transport Undertaking] and other than that referred to in clause (c) of sub-section (2) [and in clause (d) of section 126C] [and in section 126E];

(cc) an estimate of the amount due to be transferred during the next ensuing official year to the municipal fund under the provisions of sections 460KK and 460LL;]

d) a statement of proposals as to the taxation which it will, in his opinion, be necessary or expedient to impose under the provisions of this Act in the next ensuing official year ;

(2) (a) an estimate of the expenditure which must or should, in his opinion, be incurred by the corporation in the next ensuing official year by reason of the obligations imposed upon the corporation arising out of the transfer to the corporation of the powers, duties, assets and liabilities of the Board of Trustees for the Improvement of the City of Bombay constituted under the City of Bombay Improvement Trust Transfer Act, 1925 [or for any of the purposes of Chapter XII-A] ;

b) an estimate of all balances, if any in the account maintained under section 122A, which will be available for re-appropriation or expenditure at the commencement of the next ensuing official year;

c) an estimate of the corporation’s receipts and income for the next ensuing official year— (i) arising from sales, leases and other dispositions of immovable property vesting in the corporation by reason of the enactment of the City of Bombay Municipal (Amendment) Act, 1933 [or acquired by the Corporation for any of the purposes of Chapter XII-A] ; and (ii) being payments of interest on and repayments in whole or part of the capital of loans granted by the corporation and secured on the aforesaid immovable property;

d) an estimate of three times the amount of the net estimated realizations of the corporation in the then current financial year under the head of general tax (including arrears and payments in advance) divided by the rate fixed for general tax for the then current financial year ;[Provided further that, with effect from the financial year 1974-75, this sub clause shall have effect as if for the words “ three-times ” the word “twice” was substituted ;]

[(e) an estimate of the Corporation’s receipts and income, other than receipts and income referred to in other clauses of this sub-section arising from or relating to, transaction connected with the obligations imposed upon the Corporation by the transfer to the Corporation of the powers, duties, assets and liabilities of the said Board of Trustees or with the exercise of the powers and duties conferred or imposed upon the Corporation by Chapter XII-A including grants from the State Government.]

As per Sec 126 of the said Act, (1) The [Standing Committee] shall, on or as soon as may be after each] [fifth day of February] consider the estimates and proposal of the[Commissioner] and after having obtained from the [Commissioner] such further detailed information, if any as they shall think fit to require, and having regard to all the requirements of this Act, shall frame there from subject to such modifications and additions therein or thereto as they shall think fit, [two budget estimates] as follows :—

a) Budget Estimate “ A”- of the income and expenditure other than— (ii) income and expenditure to be received or incurred by reason of the transfer to the corporation of the powers, duties, assets and liabilities of the Board of Trustees for the Improvement of the City of Bombay constituted under the City of Bombay Improvement Trust Transfer Act, 1925 [or for any of the other purposes of Chapter XX-A]; (iii) income and expenditure in respect of the [Brihan Mumbai Electric Supply and Transport Undertaking ;][(iv) income and expenditure for, or in connection with, the purposes of clause (q) of section 61;] 2[(v) income and expenditure for, or in connection with, the purposes of Chapters IX and X;]

b) Budget Estimate “B” of the income and expenditure of the corporation for the next official year to be received and incurred by reason of the transfer to the corporation of the said powers, duties, assets and liabilities 3[or for any of the other purposes of Chapter XII-A] ;

2) In budget estimate “ A” the [Standing Committee] shall— (a) propose with reference to the provisions of Chapter VIII, the levy of municipal taxes at such rates and, in the case of [octroi] on such articles as they shall think fit ;

b) provide for the payment, as they fall due, of all sums and of all installments of principal and interest for which the corporation may be liable under this Act other than sums and installments as aforesaid (i) for which the corporation but for the enactment of the City of Bombay Municipal (Amendment) Act, 1933, would not have been liable and (ii) for which the corporation may be liable, in carrying out the duties imposed upon them by clause (i) of section 61 [and (iii) for which the corporation may be liable by reason of the acquisition, extension, administration, operation and maintenance of the [Brihan Mumbai Electric Supply and Transport Undertaking ] ; (v) for which the corporation may be liable by reason of the construction of school buildings ;]

c) allow for an appropriation to budget estimates “ B ” of the sum estimated, revised as they shall think proper, under clause (d) of sub-section (2) of section 125 ; (c-2) allow for appropriation to budget estimate “ E ” of the sum estimated revised as they shall think proper,

d) allow for a cash balance at the end of the said year of not less than one lakh of rupees.

3) In budget estimate “B” the 5[Standing Committee] shall, if necessary, make proposals to meet any deficit in such budget estimate by borrowing : Provided that the [Standing Committee] shall not make any proposal to borrow for that purpose a sum of more than twenty lakhs of rupees.

4) The [Commissioner] shall cause the budget estimates, finally approved by the [Standing Committee],[to be printed or corrected, and shall not later than the 4[first day of March], forward a printed or corrected copy] thereof to the usual or last known local place of abode of each councilor.

The estimates of expenditure and receipts of Primary Education are to be made as per sec 126C and sec 126 D of the said Act and that the Commissioner shall on or before each fifth day of February have to prepare and lay before the Education Committee under the Budget estimate E.

The Budget Estimate “G” is to be prepared by Standing Committee as per sec 126F. Sec 126 E mentions about the estimate expenditure and receipts for the purposes of Chapters IX – Drains and Drainage works and X – Construction and Maintenance of Municipal Water-works, classified in accordance with section 125A of the said Act where the Commissioner shall on or before fifth day of February have to prepare and lay before the Standing Committee in such form as the Committee shall from time to time approve. In this budget estimate, the Committee shall propose the levy of water tax, water benefit tax, sewerage tax and sewerage benefit tax at such rates, as would in the opinion of the Committee bring in adequate revenue for meeting the expenditure and all other obligation or which the Corporation may be liable for the purposes of Chapters IX and X.

The estimates of expenditure and income of the Brihan Mumbai Electric Supply and Transport Undertaking are to be prepared annually by General Manager as per sec 126A and 126B of the said Act in the Budget Estimate “C” and to be presented to the Standing Committee for approval. The Chairman of the Standing Committee is an Ex-officio member of the BEST Committee. Please note that the Budget C is prepared under the supervision of the BEST Committee which has all the powers in respect of Budget Estimate “C”.

The consideration of Budget Estimates by Corporation are done by conducting meetings of the Corporation not later than 10th day in March to review the fixing of rates of taxes for the coming year.

The final adoptions of Budget Estimates for the coming year to be followed are done as per sec 129 of the said Act. Sec 129 states that, subject to the requirements of sub-section (1) of section 128, the Corporation may refer [Budget Estimate ‘ A’ or Budget Estimate ‘B’ or Budget Estimate ‘E’ or all or any of those estimates back to the Standing Committee and Budget Estimate ‘C’ back to the Brihan Mumbai Electric Supply and Transport Committee and Budget Estimate ‘E’ back to the Education Committee] for further consideration, or adopt the budget estimate, or any revised budget estimates submitted to them as they stand or subject to such alteration as they deem expedient. Provided that the budget estimates finally adopted by the corporation shall fully provide for each of the matters specified in clauses (b), (c) and (d) of subsection (2) [of section 126] and for each of the matters specified in sub-section (3) of section 126B [and clauses (a) and (b) of sub-section (2) of section 126D] [and sub- section (2) of section 126F], as the case may be.]

Further as per sec 129A if for any reason the corporation has not finally adopted the Budget Estimates before the commencement of the official year to which they relate, the statement of expenditure and income prepared by the Commissioner shall be deemed to be the budget estimates for the year until the Corporation duly adopts the Budget Estimates as per the provisions of this Act.

Thus the role of Standing Committee is crucial in the budgetary process for approval of budget estimate under the different heads. The Standing Committee may at any time during an official year reduce the amount of a budget grant or sanction the transfer of any amount, not exceeding fifteen thousand rupees from one budget grant to another budget grant. The Commissioner may, at any time during an official year sanction the transfer of any amount not exceeding five thousand rupees within a budget grant if such transfer does not involve a recurring liability: Provided that, every transfer of an amount exceeding one thousand rupees made under this clause shall be reported forthwith by the Commissioner to the Standing Committee.

The annual reports of the Corporation as per the MCGM website explain the accounting aspects for budgeting. As per that statement, the directives of Central / State Government GR.No.1, AAMR–102003/22/ H.K /23/03/-8 and fulfillment of the precondition for receiving financial assistance from Central Govt. under Jawaharlal Nehru Urban Renewal Mission Scheme the Municipal Administration had undertaken the project of reforms in budgetary and accounting system of the BMC.

Therefore, the Budget is made as per the guidelines of National Municipal Accounting Manual formed for the Urban Local Bodies. There are 5 basic components of the Reformed Budget.

FUND: Fund is described as services / specific activities for which separate books of accounts are maintained. The fund code for Brihanmumbai Municipal Corporation is of ‘2’ digit code, wherein the Major Fund Codes and Minor Fund Codes are assigned ‘1’ digit each. There are 7 Major Fund Codes i.e. 10,20,30,40,50,60,70 and 5 Minor Fund Codes i.e. 11,12,21,22,23 in Brihanmumbai Municipal Corporation.
FUNCTION: The term Function represents the various services or specific functions performed by the Brihanmumbai Municipal Corporation. The Function Code is structured in accordance with the “Functions List” provided by the National Municipal Accounting Manual and adhered to the coding structure of the first ‘2’ levels which represents the Function Group.
FUNCTIONARY: The term functionary represents the department which carries out various functions / activities.
FIELD: Field represents the geographic distribution of the Brihanmumbai Municipal Corporation and it certainly differs from an “Account Unit”. Field represents the areas to which the expenditure or payment relates. The field code has been split into 2 levels. viz., Geographic Area and the Location Unit. Combination of the Functionary Code, Geographical Area and Location Unit Code identifies the Cost Centre.
ACCOUNTS HEAD: Accounts head represents the actual heads used to record the transactions. The Major Head Codes and Minor Head Codes are specified in the National Municipal Accounting Manual.

The major sources of revenue income are Property tax as per Capital value based system under Property Tax Legacy System, Collection of bills towards supply of Water under Aqua Legacy System, the Water and Sewerage taxes and charges, Grants in aid on account of Compensation in lieu of Octroi, Interest on investments, Receipts from Development Plan Department, Receipts from Roads and Bridges and Hospitals etc.

The accounting policy adopted are double entry accrual based accounting system where revenue in respect of water charges in respect of water charges under section 92, 169 and 280 of the said Act, Property Tax with regard to Property Tax under Section 140 of M.M.C. Act and Rent on Municipal Properties is recognized at the time of demand is accounted in books as Income. In case of revenue on account of pending Octroi, Shops, Market, License, Solid Waste Management, Roads and Bridge, Development Plan Department, Grant in aid from Government, Other fees and charges etc are recognized on cash basis.

The sources of Capital Receipts are Utilization from Special funds or Reserve funds or Internal Temporary Transfer, Sale Proceeds/Premium of Land & Building etc. Sec 119 of the said Act allows Temporary payments from the municipal fund for works urgently required for public services.

The major revenue expenditure comprises of Establishment Expenses, Operation and Maintenance, Revenue Grants, Contributions and Subsidies etc. All revenue expenditures incurred are recognized on admission of the bills for payment. Other Revenue Expenditures are treated as expenditures in the period in which they are incurred

The major capital expenditure would comprise of big ticket projects, Road Projects, Water Supply Capex, Sewerage Treatment Plant (STP) etc.

Budget Estimates of BMC for the year 2024- 25 was presented by Dr. I S Chahal on 2nd February 2024 the Municipal Commissioner of the city and had the privilege to prepare the Budget Estimates consecutively for four years.

The estimates of Receipts and Expenditure of Surplus Revenue and Capital Budget ‘A’ (Fund Code 11, 12, 60, 70), Balanced Budget ‘B’ (Fund Code 21, 22, 23) and Surplus Budget ‘G’ (Fund Code 40) E (Fund Code 30) and T.A.(Fund Code 50) for the financial year 2024-25 in pursuance of Sections 125 and 126E of the MMC Act, 1888 as published are:

Rs. in crores

Sources of Income/ Receipts	Budget Estimates 2024-25	Share in %	Budget Estimate Head/Fund Code	Items of Expenditure	Budget Estimates 2024-25	Share in %
Revenue Income	35,749.03	59.63	A11	General Budget	30,435.03	50.76
Utilization from special fund/ Reserve Fund	11,773.33	19.64	G40	Water Supply & Sewerage Disposal	13,213.45	22.04
Internal Temporary Transfer	11,627.54	19.39	A12	Health Budget	7,191.13	11.99
Sale Proceeds/ Premium of Land & Building (Budget B)	550.00	0.92	A17	Pension Fund	5,561.00	9.28
Grants	243.35	0.41	E30	Primary Education	2,461.99	4.11
Other Receipts	11.50	0.02	B21	Improvement Schemes	583.79	0.97
			B23	Slum Improvement	342.77	0.57
			TA50	Tree Authority	91.05	0.15
			A60	Provident Fund	8.88	0.01
			B22	Slum Clearance	7.44	0.01
				Excess of income over expenditure	58.22	0.10
Total	59,954.75	100.00		Total	59,954.75	100

Note: ₹ 8463.87 crores is Contribution to Capital Account/Fund

The main focus of this budget was on environment protection goal with Seven Steps Strategy to tackle air pollution with Clean Air Mumbai Initiative, Chief Minister’s Deep Cleaning Drive, Mumbai Beautification Project, Chief Minister’s Zero Prescription Policy, G-20 Meeting Works etc.

No doubt the most important challenge for the budget is the funding. The BMC also has given a thought on measures for augmentation of revenue explored by the BMC in the Budget speech like exploring possibility for self-sustainability of huge projects like Coastal Road from Princess Street to Bandra-Worli Sea Link, Varsova to Dahisar and Dahisar to Mira-Bhayender, GMLR, STP, etc, increase in share of FSI to State Government, Transportation and Commercial hub on the Octroi Naka sites under BMC Jurisdiction at Dahisar and Mankhurd, Reforms in Estate Department of BMC to implement road map for generation of revenue from BMC lease hold / tenanted properties to the tune of ₹ 10000 crore annually, Revision in Sewerage Charges and Water Charges, Separate Fee Structure for outside patients etc.

Hope we now have a little glimpse of the Budget of an Urban Local Body – BMC.