Can China Teach In­dia About Cities?

The Economic Times - - Breaking Ideas - Vishal R & Kala S Srid­har

Ben­galuru’s civic gov­er­nance is quite typ­i­cal of In­dian cities. Re­cently, the Kar­nataka High Court di­rected the city’s mu­nic­i­pal body, the Bruhat Ben­galuru Ma­hana­gara Pa­like (BBMP), to fill up all pot­holes on the city’s roads. BBMP strug­gled to con­form to this or­der, while com­muters are still re­quired to wade through stretches called ‘roads’. It is clear that if en­tirely de­pen­dent on taxes and user fees, the re­sources needed for ur­ban de­vel­op­ment are not ad­e­quate in In­dia.

In China, land re­forms in1988 gen­er­ated rev­enue for lo­cal gov­ern­ments to in­vest in in­fra­struc­ture, and pro­vided ben­e­fits from en­abling land de­vel­op­ment. The re­form of the tax as­sign­ment sys­tem in1994 shifted more rev­enues to Bei­jing, while shift­ing more ex­pen­di­ture re­spon­si­bil­i­ties to lo­cal lev­els of gov­ern­ment, in­creas­ing their need to de­velop ex­tra-bud­getary fund­ing through de­vel­op­ment fees.

Sub­se­quent re­forms in1997 and 2002 in­cen­tivised sub­na­tional gov­ern­ments — provinces, pre­fec­tures, coun­ties and town­ships — to take con­trol over their rev­enue sources to fi­nance their ex­pen­di­tures. The re­forms led to a sharp in­crease in both cen­tral and sub­na­tional fis­cal rev­enue, with a large por­tion of the cen­tral rev­enue be­ing trans­ferred to the sub­na­tional level in the form of trans­fer pay­ments.

Lo­cal gov­ern­ments in China fi­nance ex­pen­di­tures through a com­bi­na­tion of on-bud­get rev­enue shared with the cen­tral gov­ern­ment and ‘for­mal off­bud­get’ rev­enue. The lat­ter is agreed on by Bei­jing, but not shared and re­ported. Lo­cal gov­ern­ments also re­ceive rev­enue from non-au­tho­rised fees and taxes. Among the rev­enue on which lo­cal gov­ern­ments have con­trol over, a num­ber of off-bud­get rev­enue sources are used for in­fra­struc­ture fi­nanc­ing, such as land leas­ing, de­vel­op­ment fees and as­set in­come.

In 2007, the State Coun­cil of China re­quired all land leas­ing rev­enues to be shown as part of on-bud­get ac­counts. The state coun­cil also or­dered that all mu­nic­i­pal­i­ties re­tain land-leas­ing rev­enues in a de­clin­ing re­serve for three years; hon­our the rev­enue-shar­ing ar­range­ment whereby 5-10% of land-leas­ing rev­enue was sent to Beij- ing; lo­cal gov­ern­ments are al­lo­cated a por­tion of their land-leas­ing rev­enues to land recla­ma­tion and pro­tec­tion; and all land, in­clud­ing in­dus­trial land, are leased through pub­lic auc­tion or open ten­ders.

In China, Ur­ban De­vel­op­ment and In­vest­ment Com­pa­nies (UDICs), wholly owned sub­sidiaries set up by lo­cal gov­ern­ments to hold in­fra­struc­ture-re­lated as­sets, have be­come the main way to ob­tain fi­nanc­ing for in­fra­struc­ture from banks, with the lo­cal gov­ern­ment guar­an­tee­ing that they will use all their rev­enue-rais­ing power to re­pay the loans. The use of UDICs, and the prac­tice of sell­ing land for de­vel­op­ment to com­ple­ment lim­ited lo­cal gov­ern­ments rev­enues and pay for in­vestme- nt in the pro­vi­sion of lo­cal ser­vices, has al­lowed Chi­nese cities to dra­mat­i­cally in­crease the pro­vi­sion of in­fra­struc­ture and ser­vices and ac­com­mo­date a fast pace of ur­ban­i­sa­tion.

The ma­jor rev­enue source for city gov­ern­ments in In­dia is prop­erty tax. There are a num­ber of at­tempts to lease land by ur­ban de­vel­op­ment au­thor­i­ties in In­dia, to mon­e­tise the as­set, as a study for the13th Fi­nance Com­mis­sion found. But these have not trans­lated into sub­stan­tial gains for mu­nic­i­pal bod­ies.

Given this, In­dian cities should cap­i­talise on prop­erty taxes and user charges to in­crease their rev­enues sub­stan­tially. There are many non-pay­ing and unassessed prop­er­ties in In­dian cities, which need to be brought into the tax net. Fur­ther, scarce re­sources such as wa­ter need to be me­tered.

While gov­ern­ment de­part­ments need to make more at­tempts to rise to the oc­ca­sion to de­liver, cit­i­zens’ aware­ness of rights, most im­por­tantly their re­spon­si­bil­i­ties, will go a long way in im­prov­ing In­dian cities and make them live­able.

Vishal R is for­mer di­rec­tor, Direc­torate of Mu­nic­i­pal Ad­min­is­tra­tion, Gov­ern­ment of Kar­nataka, & Srid­har is pro­fes­sor, In­sti­tute for So­cial and Eco­nomic Change, Ben­galuru

Uneasy rid­ers

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