Transforming Cities of Din
Financially empower our urban local bodies — and hold them to account — to improve our cities
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