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Financing India's Urban Development
Rapid urbanisation has the potential of becoming a major engine of
India’s economic growth and improvement in the quality of life.It is
estimated that by 2021, urban agglomerations will contribute nearly 75%
of the country’s gross domestic product (GDP). By 2010, about 30% of
India’s population will be urban. This ratio will exceed 50% by 2045,
when over 700 million Indians are expected to be living in urban areas.
Enormous investment in urban infrastructure and amenities will be
needed to realise the growth potential and improve the lives of an
increasing number of urban Indians. The estimates of annual investment
vary widely (from Rs 17,000 crore to Rs 60,000 crore) depending on
methods and scope.There is unanimity among the experts that governments
cannot finance the needed investments through even reformed
conventional tax and non-tax sources (such as property tax, reasonable
cost recovery fees and user charges), and from traditional loans,
grants and statutory transfers. This does not imply that reforms should
not be undertaken to increase revenue from conventional sources. These
reforms are necessary but will not be sufficient. There are at least
four major unconventional sources of revenue available to the urban
local bodies (ULBs). The first concerns more productive use of the
assets of ULBs. This will require constructing a detailed and accurate
list of all assets owned by them. Land and real estate are likely to
constitute a major proportion of such assets. Property rights
associated with airspace and underground space and other regulatory
procedures are also an important part of total assets. But these must
be created to ensure lower transaction costs and improve economic
efficiency and not become a means of political or economic rent seeking
and misuse of public office.A good example of creation of property
rights, which are efficient and equitable, is provided by the Karnataka
government. It has permitted the Bruhat Bangalore Mahanagara Palike
(BBMP) to grant transferable development rights (TDRs) to property
owners and leaseholders who were affected by a planned road widening
scheme. As a result, BBMP could acquire land without paying
compensation and the owners had the option to either undertake
construction or sell the TDR to builders in specified zones. This
suggests there are a variety of ways such revenue-generation
initiatives can be structured.The second avenue concerns revenue
generation from switching to more efficient technology and service
delivery structures. For example, replacing existing street lights with
less energy consuming lights (as Mumbai is reportedly considering)
could generate carbon credits and save on operating costs. More
efficient fuel for transport and power generation could also lead to
similar outcomes. The third revenue generating option for the ULBs is
to access capital market funding through the issuance of municipal
bonds. Since municipal bonds need to be rated by a credit rating
agency, their issuance is likely to indirectly lead to better budgeting
and accounting systems; and to monitoring of local finances by bond
rating agencies and investors. Smaller ULBs can access such funds
through pooled financing, as has been the case with Tamil Nadu.Fourth,
public transport and public space can be efficiently utilised to
generate advertising revenue. This would, however, require proper
auction mechanisms and the contract drawing and implementing skills. An
interesting example of such an initiative is provided by the Pune
Mahanagar Parivahan Mahamandal Ltd, a public transport body. It has
reportedly awarded advertising rights at its 2,600 bus shelters and on
all its buses to a Malaysian company for 15 years in return for 2,300
air-conditioned buses. The contract design details and the ability of
both sides to implement the contract as envisaged will, however,
determine the actual outcome.Public-private partnership (PPP)
arrangements can also be utilised for delivery of basic urban
infrastructure; social amenities (health, education, old age care); as
well as for providing expertise in urban management and policy
implementation. Several ULBs in India have benefited from PPP contracts
in areas ranging from sweeping of streets to partnerships in building
large roads and highways. A creative example of PPP for greater youth
employability is provided by the Gujarat government programme for
building functional English language proficiency needed by businesses.
The target is to train 3.5 million young people over four years in more
than 1,000 centres across the state. The assessment partner in this
programme is the Cambridge University of the UK. For any PPP to be
successful, each partner must bring something of real economic value to
the project or to an activity, while exhibiting organisational
structures and attitudes which are consistent with the creation of
public or social value. The resources brought to the PPP may be in the
form of money, land, regulatory facilitation, technical expertise, and
management know-how and know-why. The PPPs should be evaluated on the
basis of overall resource cost savings to the society (or the
taxpayers) that they generate in achieving desired outcomes. It is
clear that for the ULBs to access unconventional sources of finance,
they will have to become more adept at initiating and sustaining the
PPPs. In addition to domain or technical expertise, government
officials will need to develop soft skills such as networking abilities
and proficiency in communication techniques. The transformation of
policy initiatives concerning unconventional sources and the PPPs into
tangible outcomes should not depend solely on the efforts of an
implementing officer in a local authority. Continuity of purpose and
commitment should be an integral part of the organisation culture of
the ULBs. There is recognition in official circles that this will
require fundamental reforms in the governance structure of the ULBs.
The Second Administrative Reform Commission, for example, has
recommended an elected mayor who essentially acts as a chief executive
officer (CEO) of a municipal body. The mayor should have an accountable
cabinet. As urban agglomerations involving several ULBs are becoming
more important in the country, regional planning and coordination have
become increasingly essential. Thus, development of appropriate
organisations, which make such planning feasible, should also receive
priority. Rapid urbanisation and rising incomes are increasingly
leading to demand for better quality of urban services and amenities.
Those who meet this demand are likely to reap rich electoral dividends.
Managing rapid urbanisation with competence and outcome orientation is
essential if India is to emerge as a successful and respected major
power in the 21st century.
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