Author: S.G.Vombatkere
The pressure of urban growth on Bangalore, which has been behaving like a magnet to rural populations in the last 25 years, 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. It is for these reasons that Bangalore is not attracting industries and investments, thus causing concern to the Government of Karnataka (GoK) which had initiated a remedial process as long back as 1993. The strategy is to deflect the population that is attracted to the Bangalore Metropolitan Area (BMA), as recommended by a foreign consultant appointed by the Asian Development Bank (ADB). This is to be achieved by creating 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 the 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. 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 etc., is no different from the manner in which Bangalore has grown, and so in time, these cities and towns will suffer from the same ills from which Bangalore now suffers.
A public debate was held on 21 January 1999 with top Government officials of Mysore to discuss matters connected with the ADB loan. A loan of Rs.125 crores without collateral has been negotiated for the City of Mysore, and work has commenced 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). The work is under the broad heads of construction, widening, strengthening and improvement of roads, 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 year 2000. The loan is at an interest rate of 12% payable in 25 years by the City of Mysore, 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 candidly admitted during the public debate on 21 Jan 99, that there are no plans or proposals at present for raising revenue from additional taxes or cesses to meet the liability. There appear to be no means to raise Rs.21 crores every 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 about 8%, why has a loan been negotiated with ADB at 14% (including 2% payable by GoI) when India is a member? Does this have the makings of yet another scam? When a loan is negotiated, the financial institution (FI) offering the loan formally assesses the recovery of the principal and interest. The recipient on the other hand, has to consider the possibilities of using the loan funds to generate income in excess of the amount required to service the loan, in order to derive benefit from the loan. 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 recipient of the loan. Loans from large FIs are made available only after conducting detailed feasibility studies. In the case of Mysore, the fact that the recipient of the loan has prepared 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 GoI, GoK and ADB was arrived at with the knowledge that no plans for repayment exist and no collateral is involved, brings an ethical question to the fore. The concept of 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, there has been no transparency from GoK in this matter, leave alone consulting the citizens. Ethics as well as common wisdom dictate that borrowings should be limited to the extent of repayment capacity. The entire planning has been done in a vacuum and the citizens of Mysore (who will have to bear the burden of heavy taxation to raise funds) have been presented with a fait accompli with regard to the loan that has been foisted upon them. A possibility that may still be explored is to limit the scope of the works to a financial level at which the repayment burden will be affordable. But this can be done only when the financial health and capacity of MCC is known precisely. Possible repercussions of such a course on the terms of the loan agreement will have to be faced by those who are parties to it. It is a sad fact that the City Fathers have no perspective of these matters and remain unconcerned, as evidenced by their not involving themselves in the public debate. What is of immediate importance is that the citizens of Mysore should debate the issue in detail so as not to fall further into the debt trap, and rescue themselves from the financial mess triggered by the mandarins of GoI and GoK.