An agenda for urban reforms

The development of our cities requires overcoming several challenges.

It is now well established that cities are the engines of India’s economic dynamism. A report by the Indian Institute for Human Settlements in 2011 found that the 100 largest cities, with a population share of just 16 percent already generated 43 percent of the GDP. A 2010 McKinsey study estimated that by 2030 they would contribute 70 percent of GDP, 70 percent of all new jobs created, and 85 percent of all tax revenues.

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But despite this, India’s development priorities remain disproportionately focused on rural areas. More than two-thirds of Indians live in rural areas, with the figure being three-fourths in many states. It is therefore natural that the electoral imperatives of rural India drive the governance agenda. Urban development therefore plays a marginal role in our policy and governance priorities.

The development of our cities requires overcoming several challenges. Some of them like the need for massive investments in infrastructure creation and reforming retrograde regulations have been receiving attention. However, little or no action has taken place on more fundamental reforms essential for unlocking the potential of cities and for the sustenance of all other initiatives. I outline four of them.

One of the most important reforms revolves around the governance of urban local bodies. Currently, in most states, cities are virtually governed by state government appointed Municipal Commissioners, with the Municipal Council and Mayor as partners, at best. It has its obvious advantages in so far as it ensures a technocratic and apolitical administration.

However, it suffers from several deficiencies. A city’s development agenda is generally shaped by the Commissioner. His or her limited knowledge of the local context and requirements and short tenures naturally circumscribes this agenda. Further, their preference is more likely to be for large and visible construction projects or efficiency enhancing reforms which can be completed over 2-3 years. They are likely to be less inclined towards long drawn initiatives for planned development to promote economic growth. Finally, the Commissioners are not accountable to the city population in a way that mayor or councilors are.

India needs to emulate the example of Latin America, where several popular metropolitan mayors have gone on to head provincial and national governments. Most of the transformational achievements in these cities have been credited to the leadership of far-sighted mayors. In India too, given their large numbers and enormous growth potential, cities can become the platform to catalyse the emergence of state and national leaders. In fact, for political parties trying to groom their next generation of leaders, city mayoral races can be the ideal primaries.

So what prevents an adoption of a mayoral system? This debate is similar to that surrounding greater decentralisation. At one level, state governments are reluctant to cede authority, and the attendant power to dispense patronage, over the most vibrant parts of the state’s economy. At another level, governments fear chaos and collapse from entrusting greater powers to institutionally weak and politically raucous municipal governments. Even if the former is overcome, the latter presents a formidable challenge. There is no way to avoid a period of chaotic disequilibrium from devolution. But postponing devolution on grounds of inadequate capacity is simply a fig-leaf to retain control.

This brings to the second set of urban reforms – development of the capacity to implement an ambitious development agenda. Here the concern is two-fold. All our cities suffer from chronic shortage of functionaries across the board. This has arisen from a period of rapid growth in population and expansion of city boundaries which has been accompanied by fiscal constraint induced hiring freezes. For example, Hyderabad with over 20000 formal eateries and several times more informal ones has just 6 trained food inspectors whereas New York City with similar number of establishments has 180! Much the same is true of critical regulatory positions in town planning, property tax assessments, and so on.

The second concern arises from the dramatic shifts in urban management responsibilities over the past two decades. For example, cities today outsource a vast variety of services, whose effective execution is contingent on strong contract management capabilities. Apart from technical knowledge, city managers require the necessary economic, legal, and technological expertise to effectively manage these contracts. However, the staffing profile of cities has hardly changed to reflect these shifts in responsibilities. Cities have to develop administrative capacity, either through trainings for existing personnel or direct recruitments of qualified professionals, or hiring of external professional managers to deliver on the expanded range of responsibilities.

The third set of reforms revolves around cities’ need to focus directly on economic growth and planned development. As aforementioned, the current focus of municipal governments is on mostly piecemeal infrastructure creation and service delivery reforms. But policies aimed directly at enhancing the cities competitiveness, expanding economic activities, and creating jobs are secondary concerns. They could include initiatives to spark renewal in declining areas, promote job-creating economic clusters, and plan for long-term transportation needs. Similarly, cities need to move away from their current strategy of ad-hoc development of their suburbs and embrace a comprehensive and long-term planning and execution of suburban development. These measures are critical for sustaining the vibrancy and long-term growth of cities.

Finally, urban development needs large financing requirements. The McKinsey study estimated that India’s annual per capita spending on cities is just 14 percent of China’s and 3 percent of UK’s. It also estimates their financing requirements at $250 per capita every year, or five times the current spending, of which $134 is forecast for capital expenditure, a near seven-fold increase from the current $17.

While property tax rates are among the lowest in the world and need to be increased, it needs to be complemented with other sources. Alone among all major countries, Indian cities are predominantly reliant on property taxes and user charges and get little from the massive amounts of indirect or direct taxes collected in their jurisdictions. Further, they have limited freedom to access alternative revenue mobilisation channels like use-directed cess or fees on various activities and income sources.

Photo: Simply CVR