Author: Maj Gen S.G.Vombatkere (Retd)
Bangalore has been a magnet to industries as well as rural populations in the last 25 years. The consequent pressure of urban growth has resulted in serious overload of its infrastructural facilities (water, sewerage, solid waste disposal, electricity and transportation) with the attendant problems of pollution of air-soil-water, over-crowding and public health. The Government of Karnataka (GoK) had initiated a remedial process as long back as 1993, by means of a strategy to deflect the population that is attracted to Bangalore according to the recommendations of a foreign consultant appointed by the Asian Development Bank (ADB). The strategy is to create counter-magnets, growth-centres, and satellite towns in the Bangalore Metropolitan Region (BMR) and in the Mysore, Chamarajanagar, Mandya, Hassan, Tumkur and Kolar Districts of Southern Karnataka Region (SKR). Mysore and Hassan cities have been designated as counter-magnets, and other towns as growth centers and satellites. Infrastructural development is capital intensive, and Government of India (GoI) and GoK have negotiated a loan from ADB for over Rs.1,200 crores for infrastructural upgradation in the designated cities and towns of SKR. Similar schemes are also in place for the other regions of Karnataka, under the Karnataka Urban Infrastructure Development and Finance Corporation (KUIDFC). Mysore is the first city in SKR to receive a loan from ADB, and according to the Consultant’s Report, Mysore is meant to serve as a model to other City Corporations or Town Municipalities in SKR. The pattern of growth envisaged for the counter-magnets is no different from the manner in which Bangalore has grown, and so in time, these cities will suffer from the same ills from which Bangalore now suffers.
A public debate was held in Mysore on 21 January 1999 at the instance of concerned citizens, with top Government officials to discuss matters connected with the ADB works, which had already commenced. The work is under the Implementing Authorities (IAs) which are the Mysore City Corporation (MCC), the Karnataka Urban Water Supply and Drainage Board (KUWSDB) and the Mysore Urban Development Authority (MUDA). A loan of Rs.125 crores without collateral has been negotiated for the City of Mysore. KUIDFC has appointed a Consultant firm to keep a check on the works and ensure international quality standards. The work is under the broad heads of roads (construction, widening, strengthening and improvement), augmentation of water supply, construction and upgradation of sewerage and sewage treatment facilities, and management of solid waste. All work is to be completed by mid-2000. The loan is at an interest rate of 12% payable by the City of Mysore in 25 years, with an initial moratorium of 5 years for payment of interest. This poses some important questions.
First, MCC has an annual income of about Rs.2 crores at present. If all taxes and other dues are faithfully collected, the income may rise to about Rs.9 crores. But the annual liability on account of the ADB loan will be about Rs.21 crores. How will this loan be serviced? Second, officials have no concrete plans to raise the necessary revenue to meet the liability. In October 1999, the MCC Council passed a resolution to increase the Property Tax, but this cannot meet the figure of Rs.21 crores per year, especially since infrastructure does not yield direct returns. What are the financial and legal obligations on MCC and the citizens, in the likely event of default in servicing the loan? Third, when interest rates in the international market are around 8%, why has a loan been negotiated with ADB at 14% (including 2% payable by the Government of India (GoI)) when India is a member? Fourth, after completion of water supply schemes for which the citizens of Mysore will pay, is it not unethical to privatise water supply (to Biwater, a foreign firm) as proposed by the previous Janata Dal Government?
When a loan is negotiated, the financial institution (FI) offering the loan formally assesses the financial capacity of the borrower, and the borrower considers the means of using the loan funds to generate income in order to meet the liability of repayment of interest and principal. A certain risk is thus involved both for the FI and the recipient of the loan. Securing collateral covers the risk of the FI, but the real risk remains with the borrower. Loans from large FIs are made available only after conducting detailed feasibility studies. In the case of Mysore, the fact that there are no concrete plans for repayment even at this late stage suggests that the City of Mysore is on the verge of falling into a debt trap. Further, the fact that the loan agreement between ADB, GoI and GoK was arrived at with the knowledge that no plans for repayment exist and no collateral is involved, brings the ethics of the agreement into question. Effective local self-government requires that the concerned Municipal body be a party to any agreement that involves financial or legal liabilities of its citizens. However, far from consulting the citizens, there has been no transparency from GoK in this matter. Ethics as well as common wisdom dictate that borrowings should be limited to the extent of repayment capacity. Thus, the will of the citizens of Mysore (who have to bear the burden of heavy taxation to raise funds to repay ADB) needs to be ascertained with regard to the present fait accompli of the financial liability that has been foisted upon them. A possibility to be explored is to limit the scope of the works to a financial level at which the repayment burden will be affordable. It is sad that the City Fathers of Mysore have no perspective of these matters and remain quite unconcerned. Mysore will have to resolve its own problems, but what is of importance is that the citizens of the other designated cities and towns of SKR should be aware of what is happening in Mysore, and take their own decisions before they too are dragged into a financial mess.