Education

Institutional vacuum at local level

D. Murali | Updated on: Jul 05, 2011
BL30BOOK1SMALL

BL30BOOK1SMALL

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BL30BKDEBT

Scarce resources of the urban local bodies (ULBs) are, to an unfortunately large extent, frittered away by corruption, rues Paromita Shastri in ‘ How India's Small Towns Live (or Die): Making sense of municipal finances ' ( www.academicfoundation.com ).

The author cites examples such as how development works and expenditure on regular provision of civic services get concentrated around the residences of municipal officers to the neglect of the rest of the city (in Himachal Pradesh); and how there is nexus between municipal officials, contractors and private operators to deliver basic services, be they of sanitation or solid waste management (in Haryana).

Adding to the inscrutability of the problem can be many factors. Sample these: “Capital expenditure records are poorly maintained and are kept solely with the engineering department. They are extremely difficult to access. The fact that there is no summary of grant flows available indicates the lack of interest in tracking grant flows. The stubborn resistance of the officers in sharing financial records relating to expenditure from capital grants is worthy of special mention…”

The book highlights the ‘institutional vacuum' in which ULBs take decisions; for instance, the local bodies may often have no technical competences or information base to take decisions relating to location of an industrial unit, its technology, and production links. Also, the ULBs do not have the capability to assess the long-term cost implications of any possible contracts they might enter into with private companies, notes Shastri. Insights of value, in the context of the rapid urbanisation being witnessed in the country.

Strategy for recovery

To those who keep worrying about the collection of money lent, ‘ Handbook on Debt Recovery ' from the Indian Institute of Banking & Finance ( www.taxmann.com ) can offer guidance. For instance, the book discusses ‘strategy for recovery' in five steps, beginning with the outlining of the collection process in compliance with the bank-specific recovery norms and also regulatory guidelines.

The second tip is that the collection timing should be synchronised to the cash inflow pattern of the debtors. “For example, recovery from salaried employees should be timed when salary is received by or credited to the debtor's account, normally at the month-end… In case of SME (small and medium enterprise) borrowers, the effort should coincide with cash flow on account of sales. In case a collection from agriculturist should be made, then it should be soon after the crops are sold.”

Importantly, the third step of strategy advises the recovery agent to be aware of the debtor type. The three types of debtors, who need different strategies for recovery success, are: “Normal debtors, i.e. who ‘can pay' and ‘will pay' if reminded or/and persuaded to pay; difficult debtors, i.e. those who ‘can pay,' but ‘will not pay'; and doubtful debtors, i.e. those who can pay the reduced amount as negotiated with them…”

Instructive read to know how the ‘recovery' machine works!

Published on June 30, 2011
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