Trans­form­ing Cities of Din

Fi­nan­cially em­power our ur­ban lo­cal bod­ies — and hold them to ac­count — to im­prove our cities

The Economic Times - - The Edit Page - Arvind Subramanian

Eco­nomic Sur­vey 2017-18 presents four strik­ing find­ings about ur­ban­i­sa­tion in the coun­try and the chal­lenges be­ing faced by In­dian cities. Mag­ni­tude of In­dia’s ur­ban­i­sa­tion is not un­usual but the pat­tern is: Con­trary to per­cep­tion, the level and evo­lu­tion of the coun­try’s ur­ban­i­sa­tion are sim­i­lar to those of other coun­tries. Broadly, ur­ban­i­sa­tion has in­creased with per-capita GDP, so that the dif­fer­ence in the level of ur­ban­i­sa­tion be­tween, say, In­dia and China can be at­trib­uted mainly to the dif­fer­ent lev­els of devel­op­ment (see ‘Per­Capita GDP and Ur­ban­i­sa­tion’).

How­ever, In­dia’s pat­tern of ur­ban­i­sa­tion seems un­usual. One in­di­ca­tor is Zipf ’s law, which says that the city with the largest pop­u­la­tion in a coun­try is gen­er­ally twice the size of the next big­gest, three times the size of the third big­gest, and so on. But as ‘Zipf ’s Law and In­dia’ shows, In­dia’s pat­tern does not con­form to Zipf ’s law in two ways: smaller cities are too small and, seem­ingly, the largest cities are also too small.

The rea­sons for this could be man­i­fold: over­bur­dened in­fra­struc­ture in In­dian cities; dis­torted land mar­kets lead­ing to un­af­ford­able mar­ket rents that, in turn, dis­cour­age migration; and strong place-based pref­er­ences em­bed­ded in the deep so­cial net­works in the coun­try.

Ser­vice de­liv­ery is strongly cor­re­lated with ur­ban ca­pac­i­ties, fi­nan­cial and per­son­nel: An analysis based on data of 21 ur­ban lo­cal bod­ies (ULB), com­piled by Janaa­graha, shows a strong cor­re­la­tion be­tween their ca­pac­i­ties and their ser­vice de­liv­ery, which is mea­sured by four in­di­ca­tors: ac­cess to treated tap wa­ter, con­nec­tion to piped sewer sys­tem, ac­ces­si­bil­ity to pub­lic toi­lets, and waste wa­ter out­let con­nected to closed drainage.

Forex­am­ple,bet­terser­vicede­liv­ery is pos­i­tively cor­re­lated with cap­i­tal ex­pen­di­ture and staffing (see ‘Per-Capita Cap­i­tal Ex­pen­di­ture & Ser­vices’

and ‘Ad­e­quacy of Staff and Ser­vices’). More re­sources seem to be as­so­ci­ated with bet­ter out­comes. Re­source mo­bil­i­sa­tion by ULBs, there­fore, re­mains one of the key chal­lenges.

ULBs’ fi­nan­cial ca­pac­ity is not nec­es­sar­ily con­strained by for­mal tax­a­tion pow­ers: A sur­pris­ing find­ing is the ab­sence of a clear re­la­tion­ship be­tween tax­a­tion pow­ers and ac­tual mo­bil­i­sa­tion of re­sources (see ‘Tax Power & Own Rev­enue Col­lec­tion’).

ULBs like Mumbai and Pune, even with low scores on tax­a­tion pow­ers, do very well in own rev­enue mo­bil­i­sa­tion, while ULBs like Kan­pur and Dehradun, etc, even with rel­a­tively greater tax­a­tion pow­ers, per­form poorly in terms of own rev­enue gen­era- tion. So, the con­straint on re­source mo­bil­i­sa­tion is not the law but ef­fec­tive per­for­mance even within the law.

Prop­erty tax po­ten­tial re­mains un­ex­ploited across ULBs: Prop­erty tax col­lec­tion is far be­low po­ten­tial. There are prob­lems of low cov­er­age, low rates, low col­lec­tion ef­fi­ciency and lack of in­dex­a­tion of prop­erty val­ues, mak­ing it a non-buoy­ant source of rev­enue.

Chal­lenges to the prop­erty tax col­lec­tion also in­clude in­ac­cu­rate enu­mer­a­tion and likely un­der­val­u­a­tion. An analysis based on satel­lite im­agery done for this year’s Eco­nomic Sur­vey has shown that Ben­galuru and Jaipur col­lect only 5-20% of their prop­erty tax po­ten­tial. There is con­sid­er­able scope for im­prove­ment.

Tak­ing cog­ni­sance of the po­lit­i­cal econ­omy chal­lenge — state gov­ern­ments’ re­luc­tance to cede power and share more re­sources with ULBs, evok­ing Pro­fes­sor Raja Chel­liah’s fa­mous com­ment that ev­ery­one prefers

de­cen­tral­i­sa­tion but only up to his level — per­haps fi­nance com­mis­sions could con­sider al­lo­cat­ing even more re­sources to ur­ban lo­cal bod­ies.

How­ever, this should be sub­ject to meet­ing clear cri­te­ria on good gov­er­nance, trans­parency and ac­count­abil­ity. Mu­nic­i­pal­i­ties must also make the most of their ex­ist­ing tax bases and use the lat­est satel­lite-based tech­niques to map ur­ban prop­er­ties to re­alise the un­tapped po­ten­tial.

Just as states are com­pet­ing with each other, so too must cities. Cities that are en­trusted with re­spon­si­bil­i­ties, em­pow­ered with re­sources and en­cum­bered by ac­count­abil­ity can be­come ef­fec­tive ve­hi­cles for com­pet­i­tive fed­er­al­ism and, in­deed, com­pet­i­tive sub-fed­er­al­ism to be un­leashed.

The writer is chief eco­nomic ad­viser. Co-au­thored with Shobeen­dra Akkayi, Parth Khare, Gopal Singh Negi, MRahul, Rabi Ran­jan. The writ­ers worked on this year’s Eco­nomic Sur­vey

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