Opinion - Editorials   

Credit worthy local bodies

As a part of the exercise to measure the financial efficiency and to move the urban local bodies towards an era of debt-financing development projects, the Ministry of Urban Development initiated a study and found nine of them, out of 22, credit worthy. In the RBI’s assessment, municipal bodies face an annual shortfall of “at least Rs.10,000 crore (2004-05 prices), even for providing core urban services.” If the current funding regime continues, they will be compelled to approach the capital markets. Some of them have already done so. Given the size of investments needed, many would soon have to be looking for multiple avenues. Hence the significance of credit rating.

Studies have shown that over 50 per cent of the GDP comes from urban centres, but the aggregate revenue of the local bodies is under one per cent of the GDP. This means the vibrant urban economy does not contribute much to the financial strength of these units of governance. Inducting best management practices, enhancing functional autonomy, and improving the quality of their human resources require focussed attention. Credit rating does serve to underline the inefficiencies in revenue mobilisation. But these institutions, which serve larger social objectives, cannot be evaluated in the way commercial enterprises are done. Any rating method that overemphasises revenue flows or fails to take into account the imperatives of public spending to improve human development indicators will be meaningless.

Printer friendly page  
Send this article to Friends by E-Mail

Stories in this Section

Coalition of the irresponsibles
Credit worthy local bodies
Coming to terms with resurgent Taliban
Here the hedge fund managers live
Bittersweet return for Olympic star
Singur pullout
End the violence
Great photographer

Copyright © 2008, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu