India’s Urban Local Bodies: Tryst with Accounting Reforms
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While Indian cities were expected to modernize their finances under the National Municipal Accounting Manual, most Urban Local Bodies remain stuck between outdated cash books and half-baked accrual systems.
By P SESH KUMAR
New Delhi, November 11, 2025 — India’s Urban Local Bodies (ULBs) have spent the last two decades promising a grown-up balance sheet. On paper, they have moved from cash-only diaries to accrual-based double-entry accounting—exactly what the National Municipal Accounting Manual (NMAM) and later reform programs demanded.
In practice, the story is mixed. A few cities now publish full financial statements with balance sheets, income & expenditure accounts, and cash flows; others sport a cosmetic gloss-Excel-aged ledgers, legacy suspense balances, and one-off consultants doing period-end conversions.
The long runway to “accrual”
The modern push began with the Comptroller and Auditor General’s (CAG) Task Force and the NMAM, which explicitly advocated accrual-based, double-entry accounting for municipalities-standard formats, policies, and disclosures-so cities could actually see what they own, owe, earn, and spend. That direction was later hard-wired into national urban reform programmes-Jawahar Lal Nehru National Urban Renewal Mission (JNNURM) and successors-making accrual a mandatory reform for performance grants.
Five cities, five realities: summary
Ahmedabad (AMC): An early mover that built process plumbing (bill processing, module-wise data capture) to feed accrual statements. Its published “Notes to Accounts” show both the intent and the grit of conversion-legacy balances carried forward from fund-based systems and the march toward cleaner ledgers year on year. In short: not perfect, but real books one can audit.
Pune (PMC): Publishes audited balance sheets, income & expenditure (I&E) accounts, and cash flow statements, with an investor-relations style window for stakeholders. This is what accrual is supposed to unlock-bankable information for bonds, projects, and public scrutiny. The existence of recent, audited financials signals process maturity beyond pilot gloss.
Indore (IMC): Has produced accrual-basis financials for years, with independent audit opinions on the full set of statements. Indore’s broader governance improvements (credit ratings, service expansion, capital projects) lean on the credibility that accrual reporting confers-even as housekeeping around old balances and asset registers remains a recurring chore.
Bengaluru (BBMP): A flagship “finance reform” story that moved from cash to fund-based accrual with system changes and department restructuring. Case documentation shows why the switch is hard: chart of accounts redesign, receivables/payables capture, capitalization rules, and training. The lesson from Bengaluru is clear-without process re-engineering, accrual is just a new wrapper on old data.
Chennai (GCC) & Kerala ULBs: Chennai’s finance pages and Tamil Nadu’s audit documentation reflect a stated accrual regime, while Kerala codified policies in its KMAM and audit manuals for Local Self-Government Institutions-among the most structured state-wide rollouts, supported by detailed accounting policies and audit follow-through. These would appear to show what “ecosystem adoption” looks like when states back ULBs with manuals, training, and audit discipline.
Detailed analysis of 5 ULBs
Ahmedabad (AMC): “From receipts & payments to a real balance sheet-then the audit bites”
What improved: AMC now publishes a fund-based Comprehensive Annual Financial Statement with a combined balance sheet and detailed notes-showing land revaluations, Capital Work in Progress (CWIP), earmarked funds, contingencies, and employee-benefit obligations that were invisible in a simple cash Receipt & Payments account (R&P) world. That can be considered genuine transparency: one can now track Property, Plant & Equipment (PP&E) including revalued land, see what is under construction, and read disclosures on contingent liabilities and employee benefits.
Auditor’s caveats (last year): The 2023-24 review letter is blunt: no comparative figures, no cash-flow statement, several incomes/expenses still recognized on receipt basis, gratuity and superannuation on cash basis (no actuarial valuation), and a still-evolving fixed-asset register (including merged nagarpalikas’ assets).
Depreciation errors and incomplete CWIP review were also noted; contingent liability disclosures not fully Accounting Standards for Local Bodies (ASLB)-compliant; and a nudge for IT/system audit. Translation: disclosure has leapt forward, but some core accrual muscles need toning.
Pune (PMC): “Full accrual under NMAM-with callouts on reconciliation and benefits”
What improved: PMC’s audited financials are prepared on an accrual basis under the National Municipal Accounting Manual (NMAM), with a balance sheet, income & expenditure and cash-flow statement. One also gets clear schedules for earmarked funds, payables, receivables, reserves, municipal bonds (₹200 cr), and even property-tax arrears programs-disclosure that simply doesn’t exist in a cash-only world.
Auditor’s emphasis (recent year in sample): Unmodified opinion, but specific notes: some bank reconciliations have aged reconciling items; a few dormant bank accounts; retirement-benefit accounting needs alignment with ASLB-39; pending litigations disclosed. That is as near as possible to classic accrual-era housekeeping- the mirror is clear enough to see the dust.
Indore (IMC): “Bond-ready statements; more line-of-sight to liabilities”
What improved: IMC publishes annual financial statements with balance sheet, I&E, cash flow and schedules-meaning stakeholders can see reserves, payables, litigations and movements across funds, not just cash movements. It is the kind of accrual-style transparency one needs for capital-market credibility.
Auditor’s view (2022-23 sample): The statutory report (Jan 2024) records that books agree to accounts; litigations impacting financial position are disclosed; and the audit covered financial and non-financial points noted in an annexed report. No explicit qualification apparently-i.e., broadly clean with standard observations.
Greater Chennai Corporation (GCC): “Thick notes-and a tougher Local Fund Audit”
What improved: GCC now lays out Income & Expenditure with extensive Notes to Accounts-ranging from department-wise disclosures to schedules that surface assets, liabilities and commitments. That is a major step up from opaque cash statements.
Auditor’s/Regulator’s flags (recent): Tamil Nadu’s Local Fund Audit has publicly highlighted revenue-side lapses-non-levy/short levy of vacant-land tax, delayed property-tax assessments, misclassification (residential vs commercial), and under-collection of labour-welfare charges. These do not appear to be “accrual problems” per se; they are more governance and enforcement issues now made visible because the books and rules are explicit.
Bruhat Bengaluru Mahanagara Palike (BBMP): “Notes exist; accrual discipline is still maturing”
What improved: BBMP’s published Notes to Accounts give visibility into bank/loan accounts, interest recognition and register-based controls-more disclosure than a cash-only R&P could ever offer. Even where reports remain receipts-and-payments oriented, the companion notes are an accrual-era artifact: they explain how balances were derived and what remains to be reconciled.
What auditors/finance notes reveal: The notes explicitly say bank-interest entries are based on bank certificates and loans are tied to internal registers-frank admissions that help users judge reliability and the to-do list for tighter accrual-grade controls. That candour can by itself be considered value addition.
Net takeaways-before vs after, in plain English
Before (cash-only lens): We saw how much money came in and went out. We did not see what the city owned, owed, was building, or was fighting in court-nor whether assets were depreciating or receivables piling up.
After (accrual/double-entry lens): One can now see PP&E, revaluations, CWIP, receivables, payables, earmarked funds, litigations and contingent liabilities, plus cash-flows (where provided). That is progressive tangible transparency: taxpayers and investors can connect policy promises to assets built, liabilities incurred and risks carried.
And the audit trail? It is sharper. Ahmedabad’s reviewers could only issue such a detailed qualified conclusion because the framework expects comparative figures, cash-flows, actuarial valuations and robust FARs-standards that do not even apply in a pure cash R&P world. Pune’s auditor could flag aged bank reconciliations and ASLB-39 alignment precisely because those now matter to the fair presentation of the balance sheet. Chennai’s revenue misses surfaced in a consolidated Local Fund Audit (LFA) report that leans on the new discipline to quantify leakages. That is the point: accrual does not magically fix governance-but it exposes what to fix.
Where it works and why
Accrual should give cities a spine: a balance sheet that tallies fixed assets and unfinished works; payables to contractors and utilities; receivables from property tax, user fees, and developer charges; and provisioning for employee benefits. The most challenging part is faithful introduction of actuarial accounting of employee benefits. Cities that embedded accrual into daily operations-procurement, billing, asset capitalization-now produce finance packs that lenders and rating agencies can trust, and they are better placed for municipal bonds and structured financing.
The NMAM/NITI literature and state manuals did notjust change formats; they offered a playbook for migration, internal control, and disclosures.
Where it stalls-and how to spot “cosmetic accrual”
The quickest red flag is the year-end conversion project: cash books all year, a hurried accrual adjustment in March, and a PDF in June. One could look for tell-tale footnotes-legacy balances awaiting reconciliation since “the time of conversion,” suspense heads that never die, and asset registers still “being compiled.” Some cities publish statements but run day-to-day on cash logic, meaning receivables are not actively aged, payables are not workflow-controlled, and WIP capitalization drifts.
The result is a sheen of modernity without the managerial bite. Several municipal “Notes to Accounts” across cities explicitly acknowledge carried-forward balances from pre-accrual regimes-useful honesty, but also proof that migration is a multi-year clean-up, not a one-season sprint.
The human factor: training, transition, and tools
Moving to accrual is less about debits and credits and more about habits. ULB accountants trained in treasury-style cash recording need to learn revenue cut-offs, capitalization thresholds, impairment, provisioning, and contract liabilities. Department engineers must raise completion certificates that trigger capitalization; revenue teams must issue invoices that create receivables; HR must compute actuarial liabilities. Cities that invested in training and aligned their ERP-GL, AP/AR, fixed assets, stores, works, revenue-are the ones that now close books predictably and face audits without panic. State-issued manuals and “ready reckoners” (notably Maharashtra’s FBAS) have helped, but handholding and audit-backed discipline remain decisive.
Did transparency actually improve?
Where accrual is embedded, yes. One can see property, plant and equipment; we can trace project WIP; one can reconcile tax receivables to collection drives; we can measure service costs and under-recovery in water/solid waste; and one can talk to bond investors with credible numbers. Pune’s and Indore’s audited packs, and Ahmedabad’s process notes, are examples of disclosures that citizens, councillors, and creditors can use. Where it is conversion theatre, the public gets glossy PDFs with little operational traction-and citizens are none the wiser.
Bottom line
Accrual accounting in Indian ULBs is not a fad-it is a fork in the road. Cities that treated it as an IT deliverable got a new font on old figures. Cities that treated it as financial plumbing now have information power: better tariff models, cleaner vendor management, credible borrowing, and fewer surprises at year-end. The difference is discipline, not décor.
Way forward—how to make it stick
The next step is to tie accrual to money and management, not just manuals. ULBs need to mandate that grants and bond issuances require timely audited accrual financials. Publish monthly dashboards that age receivables and payables, show WIP movement, and reconcile asset additions with physical verification. Make ERP workflows the source of truth so ledgers update automatically from bills, stores, and work certificates.
Fund training for accountants and engineers; make audit observations on accrual housekeeping a factor in state transfers. And keep the promises in the manuals-because when a city can finally answer, “What do we own? What do we owe? What did this service truly cost?”-that is not cosmetic. That is government growing a balance sheet and a backbone.
Finish the job: ULBs should now lock in ASLB—compliant fixed-asset registers and actuarial valuations, publish cash-flows and comparatives everywhere, and run system audits-so the newfound transparency turns into better collections, smarter capex and cheaper bonds.
(This is an opinion piece, and views expressed are those of the author only)
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