Mumbai is richer than Norway and vital for India — and still sinks

Aug 30, 2017 01:38 PM IST | Source: Moneycontrol.com

Moneycontrol estimates that as much as Rs 5,000 crore could be lost over three days in terms of output. 

Madhuchanda Dey and Anubhav Sahu

Moneycontrol Research When a downpour brings India’s financial capital to its knees for the umpteenth time, it’s worth asking three pertinent questions: How important is Mumbai to India’s finances? How much is lost in, say, a three-day disruption? And finally, do the authorities have the money to prevent this unseemly collapse? The numbers will tell their own story. Moneycontrol estimates that as much as Rs 5,000 crore could be lost over three days in terms of output. And yes, there’s enough money to deal with it, as the tables below will illustrate. But first, the issue of Mumbai’s heft as a financial centre and its importance to India. According to Oxford Economics, Mumbai ranks 31st among 50 top metropolitan economic entities globally and has a GDP of USD 368 billion when seen in terms of purchasing power parity (PPP), using a 2012 PPP conversion rate of Rs 15.5 per dollar. More recent numbers (2016) put Norway’s economy in PPP terms at USD 365 billion.

The share of Maharashtra in the Gross Value added of the country is close to 14 percent and the share of Mumbai is 3 percent. Close to one-fifth of Maharashtra’s value added comes from Mumbai.

Mumbai is also one of the world's top 10 centres of commerce in terms of global financial flow, and contributes 10 percent of factory employment, 30 percent of income tax collections, 60 percent of customs duty collections, 20 percent of central excise tax collections, 40 percent of foreign trade and Rs 40,000 crore (USD 10 billion) in corporate taxes to the Indian economy. The cost of going under To gauge how big the output loss is in the event of Mumbai not functioning, we have taken an average of the data from Maharashtra Economic Survey and Oxford Economics. Going by the Survey figures, while Maharashtra’s per capita GVA is 1.5X the national average, for Mumbai it is 2.8X. Taking an average of the two estimates, the total output generated by the city is close to Rs 4.8 lakh crore. Considering close to 287 productive days, it works out to a daily output loss of close to Rs 1676 crore. A disruption of close to 3 days, therefore results in output loss of close to Rs 5,000 crore.

Now let us look at the importance of Mumbai airport. In the calendar year 2016, close to 3 crore domestic passengers and 1.1 crore international passengers flew out of Mumbai. Taking industry average for revenue kilometres flown and revenue passenger kilometre, Mumbai contributes significantly to the total revenue and the per day loss of Mumbai not functioning is close to Rs 80 crore for the airlines industry.

Is the sinking feeling inevitable?

Mumbai is often compared to cities like Shanghai, but its monsoon debacles are embarrassing. Rewind to July 26, 2005 when torrential rains measuring 944 mm (37.17 inches) lashed the city. The economic damage to the financial capital that houses the headquarters of most of the major corporate and financial institutions, India's main stock exchanges & capital market and commodity exchanges was enormous.So the authorities had 12 years to do something about it. But when a smaller deluge – only relatively speaking – hit the city on Tuesday, it was found wanting again.Sitting at the centre of all this is the country’s richest municipal body, the Brihanmumbai Municipal Corporation.

As per 2015-16 financial statements, BMC sits on a cash and bank balance of Rs 727 crore and investment in various funds to the tune of Rs 53,236 crore earning an interest and investment income of Rs 1,837 crore. Interestingly, funds earned from this passive investment can fund 40 percent of the capex requirement (2017-18 Budget estimates) for the crucial infrastructure needs in roads, storms water drain and water supply sewerage. However, capex deployment in these areas have been weak. FY 2016-17 budget estimates for these categories was Rs 8,035 crore which was revised down by 68 percent in the revised estimates. The size of the Budget for the current fiscal year has been cut by 32 percent.

Another figure of interest is BMC’s income surplus. For FY 2015-16, BMC’s income surplus was Rs 6,624 crore which could have funded 51 percent of the entire capital expenditure budged for FY 2016-17 (Rs 12,874 crore). Clearly, funds don’t seem to be the constraint - somewhere the execution and the will is missing.