Augmenting Revenues From User Charges in Indian Cities: A Case for Delhi

User charges have often received significant attention in the literature on local government finances. From the High Powered Expert Committee Report on Indian Urban Infrastructure and Services (HPEC 2011) to the Fourteenth Finance Commission of India, all major policy documents have suggested that levy of user charges should be a major reform agenda for augmenting the revenues from the non-tax sources. Along these lines, the Municipal Corporation of Delhi (MCD) in the budget of 2011 proposed revenue increases from six sources. While some of these relate to modifying the rates of the existing revenue components, there are also suggestions for certain new components to be introduced. Among the components for which hikes from the existing rates are proposed are "parking fees", "one-time street charges", "property taxes", "fees from mobile towers". Among the new components are the "conservancy charges" and the "congestion charges". However due to political unwillingness, none of these recommendations were implemented. This paper attempts to assess the potential financial gains that MCD would have realised, had these recommendations been implemented, even with moderation. Using a simulation based approach with MCD budget data, three scenarios are created: conservative, moderate and optimistic. In the "optimistic scenario", it is assumed that all the recommendations are implemented with goals of property tax reforms also being met, the moderate scenario conforms to the recommendations, and in the conservative scenario, it is assumed that the norms are implemented with some moderation. The simulated revenues and other key indicators of fiscal health in each scenario are compared with those derived from the data available. The main findings suggest that if the recommendations were implemented, MCD could have experienced an increase in the own revenues in the range of 19 to 21 per cent and an increase in the total revenues by around 13 to 15 per cent. Further, instead of meeting 70 per cent of current expenditures in the existing state, own revenues could have covered 77 to 85 per cent of current expenditures. Similarly, the capacity of the total revenues to meet the total expenditures would have also risen from 69 per cent (in the existing state) to about 74 to 80 per cent. Due to a rejection of these proposals, these gains could not be realised. However, in recent years it has been observed that the corporations in Delhi have been making efforts to implement some of these recommendations in varied forms. The hikes in the parking fees in 2014 and increases in the one time parking charges in 2015 in Delhi are examples of such initiatives taken by the corporations to augment their resources.