Kolkata Municipal Corporation bonds get CRISIL A+ rating



CRISIL's A+ stable rating for the Rs100 million bond programme of the Kolkata Municipal Corporation (KMC) reflects its healthy financial profile — with its increasing revenue income and controlled revenue expenditure — leading to a revenue surplus in 2003-04 (revised estimates, April 1 to March 31). The corporation's performance has improved since 2001-02; its revenues have grown because of an increase in property tax collections by widening its base and after measures to check evasion.

Non-tax revenues have also increased owing to a rise in user charges and a growth in construction. Since KMC has largely implemented state government-funded urban infrastructure projects, its debt requirements have remained low. It posted very healthy debt protection measures in 2003-04 (revised estimates) with a debt service coverage ratio (DSCR) of 4.7x and revenue receipts to debt ratio of 11.6x.

CRISIL expects KMC to maintain its healthy revenue surplus on the back of its controlled revenue expenditure and moderate growth in tax and non-tax revenues. The corporation does not have any large capital expenditure plans currently and is not expected to raise debt in the near term. Its revenue surplus should therefore be sufficient to fund its capital expenditure plans during 2004-07. KMC's overall financial profile will continue to be characterised by a low debt level and healthy revenue surplus.

The rating is constrained at the current level by the corporation's low self-reliance in terms of revenues and its unfavourable legal and administrative framework. The Government of West Bengal (GoWB) contributes more than a third of KMC's revenues in the form of grants. Since the GoWB does not have a strong fiscal profile, such dependence reflects unfavourably on the corporation. KMC does not levy octroi, an important source of revenues for the Nashik, Thane and Ahmedabad municipal corporations. Its large component of committed expenditure by way of employee costs constrains KMC's flexibility to spend on provision of services.

KMC's jurisdiction extends over an area of 187.33 sq km, which is inhabited by a population of 4.58 million (as per the 2001 census). It is governed by the provisions of the Kolkata Municipal Corporation Act, 1980. Kolkata has witnessed a steady increase in its population and economic base in the recent past, emerging as the third-largest city in the country. It also has the distinction of being the central metropolitan city for business activities in East India.