Urban local bodies need reforms to improve financial viability, equity, accountability, and transparency in order to achieve good governance, infrastructure development, and improved service delivery. Key reforms include improving property tax and user fee collection to increase financial viability, earmarking funds for basic services for the urban poor to improve equity, and implementing accounting, budgeting, auditing, and public disclosure reforms to improve accountability and transparency. However, the progress on implementing these important reforms across Indian cities and towns has generally been slow.

1. Ravikant Joshi

2.  Urban local bodies need to be
 Financially viable,
 Equitable and efficient in raising and spending of
their resources,
 Accountable and
 Transparent
 To achieve larger objectives of
 Good governance,
 Infrastructure creation and sustenance
 Improved service delivery

3. Municipal
Accounting
Reforms
Municipal
Public Disclosure
System
Reforms
Municipal
FRBM
Reforms
Municipal
Budgetary
Reforms
Municipal
Audit System
Reforms
Municipal
Financial
Management
Reforms
Municipal
Financial
Reforms

4. - Property Tax Reform
- User Charge
Improving Financial Viability
of a Urban Local Body
- Earmarking of internal resources for BSUP
- Provision of Basic Services for Urban Poor
- Citizens Participation Law
Improving equity in raising
and spending of ULB
resources
- Municipal Accounting Reforms
- E – Governance Reforms
- Public Disclosure Law
Improving accountability and
transparency of ULBs
Mandatory Reforms under JNNURM and
13th
Central Finance Commission Larger Financial Objective
13th
CFC Conditionalities for Incentive Grant
- Municipal Audit System Reforms
- Service delivery benchmarks
- Appointment of local ombudsmen
J
N
N
U
R
M
Reforms yet not covered / prescribed
- Financial management systems
- Fiscal Responsibility and Budgetary
Management Law for ULBs

5. Supply Side
Initiatives
The System
Reform
Vision Component
Demand Side Initiatives /
Implementation tool
Municipal
Accounting System
Reforms
- Model National
Municipal Accounting
Manual
-State Level Municipal
Accounting Manual
- Bringing together the Civil
Society to demand from the ULB
a timely publication, and
dissemination of -
- Annual accounts
- Budget Document
- Audit Report
- Financial Indicators
based financial
performance report
- Credit Rating Report
- Setting up of an independent
Web-Portal dedicated for
disclosing municipal financial and
operational performance & its
analysis.
-Formulation and running of
capacity building program for civil
society groups and individual
citizens to engage in this
municipal fiscal accountability,
transparency and efficiency drive.
- Bringing together various
academic and professional
institutions and various types of
print and electronic media to
undertake and to publish
financial analysis of the ULBs
performance.
- Instituting and giving away of
awards to ULBs for their
achievements in municipal
financial reforms
Municipal Budgeting
System Reforms
-Model National
Municipal Budgeting
Manual
-State Level Municipal
Budgeting Manual
Municipal Audit
System Reforms
-Model National
Municipal
Auditing Manual
-State Level Municipal
Auditing Manual to be
put in place by C&AG
Municipal Financial
Management
System Reforms
Legislative /
Administrative Action –
Implementation
- Prescribing Accounting
Standards and Audit System
for ULBs by C&AG and ICAI
-Amendments to Municipal
Acts by the State regarding all
municipal finance reforms
-Amendment to State Muni
Account Code and accounting
rules regarding
- Accounting System
- Accounting Standards
- Budgeting System
- Auditing System
- Fin Magt Systems
- Model FRBM and financial
indicators for ULBs by MOUD
- Amendment of Municipal Act
to incorporate FRBM for ULBs
by the States
-Model Public Disclosure Law
by MOUD
-Amendment of Municipal Acts
to incorporate PDLaw
- Credit Rating on overall basis
and on annual basis of all
ULBs above 5 lacks population
- ICAI and academic
institutions to run professional
course in Municipal Accounting
and Finance to professionalize
the sector
-Model National
Municipal Financial
Management Manual
-State Level Municipal
Financial Mgt. Manual
Colour Legends Used -
Initiatives/actions/reforms already undertaken or completed
Initiatives/actions/reforms initiated but partially achieved

6.  Municipal Accounting Reforms -
 Even after twenty years (especially after last 10 years
intense advocacy and making funding available) efforts
less than 450 ULBs (10%) out of more than 4500 ULBs
have started double entry accrual based accounting
system.
 Out of 65 JNNURM funded ULBs 45 have claimed
accounting reforms but in actual practice it seems only
30 ULBs have made substantial progress.
 Around 15 ULBs out of 65 ULBs may have completed
accounting reforms in all terms but only 10 ULBs have
put them on the web-site.

7.  Municipal Audit System Reforms -
 Municipal accounting reforms at least have
two decade history (see figure 3), but audit
system reforms history’s starting point will be
13th Central Finance Commission Report
and acceptance.
 None of the ULB at present is putting its
audit report prepared by whatever agency in
whatever form in public domain.

8.  Municipal Budgetary System Reforms –
 Off late there is reference to need of this but no formal
initiative in place by central or state government in form
of policy, law, guidelines, rules etc.
 Sporadic cases regarding rationalisation and
improvement of budgetary processes by an individual
ULB starting from 1991-92 Vadodara Municipal
Corporation budget reform efforts.
 Out of 65 JNNURM funded ULBs less than 30 ULBs are
putting their budget in public domain through web site.

9.  Municipal Financial Management
System Reforms -
 In most of the ULBs even a concept of
financial management does not exists.
 Municipal Accounting System Reforms are
wrongly taken as municipal financial
management reforms.
 No concept or knowledge of applying cost
accounting and auditing in ULBs.

10.  Municipal Public Disclosure System
Reforms
 Public Record of Operations and Finance (PROOF)
Bangalore pioneered this reform and is pursuing for
past nine years
 This reform got sanctity, big push and an incentive
structure when JNNURM made it a mandatory reform
and put in place model public disclosure law
 Less than 20 out of 65 main JNNURM beneficiary ULBs
are doing public disclosure of their finances and
accounts. Only 6 out 65 ULBs are doing public
disclosure through their Websites.
 13 States have not passed Municipal Public Disclosure
Law, while 4 States have passed the law but not
enforced by issuing detailed rules

11.  Municipal Fiscal Responsibility and
Budgetary Management (FRBM) System
Reform
 In 2003-04 Government of India adopted Fiscal
Responsibility and Budgetary Management Act
(FRBM)
 With a push and incentive structure by 12th
CFC
most of the States have adopted FRBM
 No state has framed FRBM for ULBs till date.
 UP is contemplating the idea of putting in place
FRBM for ULBs and has undertaken some
preliminary efforts in this regard.

12.  Current piecemeal and linear approach of
implementing one reform after another should
be changed to comprehensive approach of
implementing these six reforms simultaneously.
 Present ‘Self defeating’ or ‘catch 22’ approach
of linking reforms implementation to
infrastructure financing need to be abandoned.
 A reform has a transition and an
implementation cost and it should be funded
 System of positive and negatives incentives

13.  Need to create conducive macro environment
to implement and sustain these reform.
 Availability of professionals
 Recruitment process /rules
 Manuals, toolkits, guidelines for each component
 NMAM – step in right direction – needs revision
 Municipal Budgeting Manual
 Municipal Financial Management Manual (MPUSP)
 Municipal Audit System Manual
 Municipal Cost Accounting Manual

14. Towards Financially Viable,
Equitable and Accountable ULBs

15. Time Line: Accounting Reforms in India
1980’s – Mumbai, Chennai, Kolkatta World Bank TA
1990-94 Anand and six municipal
Corporations of Gujarat WB -TA
Recent Reforms
2003 – Initiation of accounting reforms in Delhi, 5 MB of
Maharashtra & Jabalpur (MP) under USAID, Raipur (CG)
still not completed
c
2004 - 32 ULB of Andhra Pradesh – under DFID TA 3 + 40 ULBs of
Karnataka under Nirmal Nagara Initiative; Nagpur (own funds)
2002–C&AG Task Force,
2000 – 11th Finance Commission Recommendation to adopt
Double Entry Accrual based Accounting System
2001-Supreme Court Directives
2000 - ICAI Technical Guide
Initial Reforms at the behest of multilaterals but
no government policy level response
2005 - 2009 Accounting Reforms implemented in All 159 ULBs of
Gujarat using funds received under URIF and State Funds
2005 – Initiation of accounting reforms in 41 ULBs of West Bengal
under DFID TA still full closure not achieved
2004 – National Municipal Accounting Manual put in
place by MOUD
2002– Grant for accounting under URIF- by MOUD
Period Marked by policy, funding and facilitative
response from GOI, multi-laterals but not matched by
States except Gujarat & TN
2009-10 – 13th
CFC making NMAM
mandatory for all ULBs & States to hand
over TCG of audit system to C&AG
2005-06 – JNNURM makes DEAS & Public Disclosure
Law reforms mandatory for beneficiary ULBs.
2006 Onward – Implementation of accounting and public disclosure
reforms is mandatorily required to be undertaken by 65 JNNURM ULBs and
around 800 UIDSSMT beneficiary ULBs but more than 50% JNNURM ULBs
and more than 90% UIDSSMT ULBs yet to achieve both these reforms