Lessons for our cities

In India, there are 27 cities that have over 1 million people, according to Census 2001. And there are 35 urban agglomerations when municipal and rural areas within the urban agglomeration limits of the cities are also considered. These 27 million-plus cities are located across 13 states and union territories, with a combined population of 7.3 million, which is 25.6 per cent of the total urban population of the country.

Subhas Chandra Garg, in Chapter 3 of this book, provides a dispassionate account of the apathy, disinterest and decay of finances and governance of urban India. Here are some key insights.

Urban infrastructure in India is primarily the responsibility of the state governments, as the Constitution says.

The 74th Amendment to the Constitution in 1992 sought to bring about a major change in the institutional arrangements for urban local governments by developing a sound political and institutional framework for municipal bodies to discharge their functions. It is still entirely up to the state governments to empower the municipalities in their states to perform any or all of these functions.

However, a uniform model of empowering or entrusting urban infrastructure functions to municipal bodies has yet to emerge in India. Various states continue to follow different models. Very little additional empowerment of municipal bodies following the 74th Constitutional Amendment has been observed in the country so far.

The Ministry of Urban Development and Poverty Alleviation has developed a model municipal law to assist states with much-needed reform to their existing municipal laws in order to establish strong local governance and service delivery organisations in cities. The model law also provides for establishing a State Municipal Regulatory Commission, which will determine user charges and standards for services and will suggest avenues for private sector participation. The model law has thus far not been acted upon by any state.

Deteriorating state finances, along with a variety of other political and non-political factors, ensured that the states did not provide any notable increases in either the assignment of taxes or in the sharing of taxes with municipalities or in providing enhanced grants, even after the 74th Constitutional Amendment came into effect.

The states tried to escape the constraints of fiscal deficits by providing guarantees to their corporations and municipalities to borrow directly from financial institutions, which many did. However, as most of these borrowings were for financially non-viable projects, the GoI and the Reserve Bank of India tightened the regulatory regime to contain the same. In sum, the worsening fiscal position of the states in the 1990s led to a major reduction in infrastructure spending at both state and municipal levels.

Thus the chapter on National Frameworks highlights that India's "[m]unicipal [e]xpenditure as a % of GDP" is a tardy 0.6%, compared to 4.5% in Poland, 5% in Brazil and 6% in South Africa".

In a thoughtful foreword, Vijay Kelkar notes that "[i]n India, no management team, no institution is clearly responsible for urban infrastructure and none can be held accountable when the system fails". He also goes on to say that "... capital markets are quite responsive. If institutional arrangements are clear, with transparent rules for accountability, and authorities are fiscally responsible, capital markets will provide adequate resources for overcoming the infrastructure deficit of the urban economy".

Amid all this negativism, is there hope? The answer is a considered "yes". And that is why this book is a "must read" for all urban aficionados. Data, case studies and illustrations of positive energy to get the urban show going from countries as diverse as Brzail, China, Poland and South Africa provide lessons for India.

And India is uniquely poised. Among countries of the developing world, India has one of the deepest and most diverse financial sectors. Urban local bodies in India are allowed to borrow""with some regulatory constraints, but they do have access. Rating agencies have the capacity to assess urban local governments. Municipal bonds were pioneered 10 years ago, yet this has not been a growing source of finance for urban infrastructure. The Government of India and the States have to find the will for endowing municipalities with more substantial revenue and the administrative autonomy to manage them. And the gathering PPP movement can also provide the extra fillip.

This book provides enough pointers to the art of the possible. It looks at the practical policy dimension of reconciling two valid policy perspectives: the need to boost urban infrastructure investment levels and the need for prudent fiscal management across all levels of government""all in the context of decentralising service delivery responsibilities.

The author is Chairman of Feedback Ventures. He is also Chairman of the CII's National Council on Infrastructure

FINANCING CITIES

George E Peterson & Patricia Clarke Annez (ed)
A World Bank publication,
brought out by Sage
Price: Rs 750; Pages: 356