The credit rating of ‘A/Stable’ assigned to the Nagpur Municipal Corporation’s proposed bond issue of Rs.1.50 billion is based on its favourable legal and administrative framework and expectation of comfortable debt protection measures over the medium-term. The rating strengths are partly offset by low revenue buoyancy and high establishment expenditure; the service arrangements are also inadequate as compared to other CRISIL-rated municipal corporations.

The corporation’s legal and administrative framework is superior to that of other municipal corporations in Maharashtra. It not only permits the levy of octroi, but also provides flexibility to annually revise the annual letting value (ALV) for existing property tax assessments. The corporation’s comfortable debt protection measures are characterised by stable operating surplus levels and low debt servicing requirements (post one-time settlement of Maharashtra Jeevan Pradhikaran (MJP) loans in 2006). The corporation is eligible for 70 per cent funding from the central and state governments in the form of grants under the National Urban Renewal Mission (NURM); therefore, its own contribution will be limited to 30 per cent.

The low growth in revenues (averaging 8 per cent per annum during the period between 2001-02 and 2005-06) has been constrained by weak collection and monitoring mechanisms, underutilised revenue sources of property tax (the corporation has a per capita property tax collection of Rs.312) and non-tax revenues (it has per capita non-tax revenues of Rs.338), and the large slum population, which accounts for 36 per cent of the total population. The corporation has high establishment-related expenditure (accounting for 42 per cent of the revenue receipts), which results in a low operating surplus; it also has high, unfunded pension liabilities. The corporation has an inadequate coverage of water and sewerage infrastructure and low cost recoveries, which do not compare well with other CRISIL-rated municipal corporations.

Outlook: Stable
CRISIL expects the corporation to fund its planned capital expenditure primarily from a mix of revenue surpluses and grants, thereby keeping its indebtedness levels under control.

About the corporation
Nagpur Municipal Corporation covers an area of 217 square kilometres with a population of 2.35 million; it is divided into 75 wards. The corporation is governed by the provisions of the City of Nagpur Corporation (CNC) Act of 1948.