A new vision for urban India.
A look at the Brihan Mumbai Municipal Corporation (BMC), the richest municipal corporation in India with a revenue of about Rs.21,000 crore, gives a glimpse of the decay in the Indian cities. Every civic need and every civic amenity is inadequate – water supply and distribution, sewage collection and treatment, road construction, maintenance and repair, public transport, elementary education, open spaces, affordable housing etc. Almost 50/60 percent of the people live in slums. The same situation is repeated in other cities as well with some variation.
The civic facilities have not kept pace with the natural population growth and the exodus of poor people coming to cities from villages in search of work in all the cities of India. This is so in all cities especially in cities such as Mumbai, Delhi and Calcutta. The inadequate revenue with city governments are mainly due to the populist measures such as not recovering the cost of providing civic services and mis-management of funds (accepting the lowest tender, cost and time over-runs, corrupt practices by politicians and the bureaucrats). There is also lack of vision on the part of the elected representatives and the administration. In addition to this, there is hardly any financial support from the state and central governments to the local governments though they collect most of the revenue from the urban areas.
All these issues have been analyzed and many suggestions have been made for urban renewal in the recent study, "India's urban awakening : Building inclusive cities, sustaining economic growth", by Shirish Sankhe, Ireena Vittal and Ait Mohan of the Mckinsey's & Company's Mumbai office. The authors have summarized the reasons for urban malaise in a few sentences : " Indian cities are paying the price for years of chronic under-investment"; "India has not recognized the complexity of city management"; " Surprisingly, there is little bottom-up pressure from citizens to improve governance".
The Urban Scene in India in 2030.
The study states that the population of urban India would be 590 million in 2030 almost the double of 290 million in 2001. There would be 68 cities with more than one million, 13 with more than 4 million and 6 megacities with a population of 10 million plus. The study projects a five-fold growth in GDP in the next 20 years of which 70 percent would be from the urban areas and 70 percent employment would be created in urban areas. The middle class would be 91 million households, from the present 22 million. However, 75 percent of the urban population would earn only Rs.80 ( $1.80) per day. All these are based on the assumption that the Indian economy would grow by an average of 7.4 percent in the 20 years.
The study was initiated by The Mckinsey Global Institute (MGI) and prepared by the Mumbai office after studying the urban scene in India and other developed (UK & USA) and developing ( China, South Africa, Singapore) countries over a period of 21 months and consulting a number of urban planers, experts and economists all over the world. The 234-page study has an appendix comparing urbanization in China and India and has made 34 recommendations. This is perhaps the first study on urban India, comprehensive but compact, which all our state and central governments should discuss and adopt some of the most important recommendations to improve the civic life in our cities. Transparency and accountability, which are conspicuous by their absence now, are part of the recommendations. Common man should take up these suggestions through many NGOs who are striving for a better civic life. Politicians and political parties should be persuaded to include urban renewal agenda in their manifestos.
The study envisages need to build 700-900 million metres of commercial and residential space and 2.5 billion sq.mtrs of roads, 7400 km of metro and subways to be constructed. This would require an investment of $2.2 trillion including a capital investment of $ 1.2 trillion. About 80/85 percent of investment could generated internally through proper property taxes, user charges, sale of developed property in CBD (Central Business Districts), municipal bonds, private sector participation as has been demonstrated by some of the cities such as London, Shanghai and Johannesburg.
The mind-boggling figures of infrastructural investment is not merely needed but are feasible and could be implemented if some important structural changes are made in the administration of urban bodies, according to the study. It states that the urban scene could be changed in the next 10 years if the suggestions made by the study are implemented.
The structural changes necessary.
The authors of the study have given a number of suggestions to improve the governance through some structural changes in constitution of local bodies:
!. Powers and functions : These should be devolved to local bodies as mentioned in the 74th Constitutional Amendment. The Amendment stipulates that 18 functions to be transferred from the states to Urban Local Bodies (ULB), District Planning Committees (DPCs) and Metropolitan Planning Committees (MPCs). These functions include land use, urban planning, economic development, water, roads etc. No state government has transferred all these functions up to now.
2. Leadership : Institutionalizing metropolitan structure, elected mayor and modified mayor-commissioner system for leadership, vision and responsibility. " India is the only G20 country that has not adopted a system in which empowered mayors run cities, observes the study.
3. Improved service delivery : Modernize service delivery structure through corporatization of selected municipal functions to be headed by expert professionals with functional autonomy. Water, sewage treatment, roads, waste collection and disposal, education, affordable housing could be corporatized.
4. Transparency and accountability through the city charters ( five-year plan for the city along with a target for each year) and MOUs between the Mayor and the agencies entrusted with the delivery of municipal services, and a state level urban regulator to monitor delivery standards, fix tariff for municipal services, set benchmarks and ensure transparency.
5. Access to managerial talent through establishing a new civic service cadre specializing in municipal administration ( just like IAS/ IFS/IPS ) and allow lateral entry for professionals from the private sector.
How to raise finance for urban development.
The recommendations to raise finance are well-tested in other well-administered cities all over the world by unlocking sources of revenue:
1.Monetize land assets to fund infrastructure : Sell prime land in CBD ( Central Business District) or creating a new CBD . For example, MMRDA ( Mumbai Metropolitan Region Development Authority) used land asset sales to fund $4.5 billion on roads, mass transit and affordable housing in the last five years. It is expected to spend more than $ 22 billion largely funded by land assets, debt, private sector participation and viability funding from the central government. Urban areas can mobilize up to $27 billion a year in India through land asset sale alone.
2.Maximize the potential of property tax and user charges: Urban India now collects only 0.04/0.08 of its property value, one of the lowest in the world and it could easily go up to 0.3 percent through better assessment and collection. Presently user charges only 60 percent of the operational expenditure and zero percent of capital expenditure on water. This could be increased to cover the operations and maintenance costs.
3.Debt and private sector participation : Municipal bond market has raised only $800 million in the last 15 years due to poor internal financial management and this can go up to fund infrastructure worth $12 billion along with private sector participation.
4.Formula-based grant system from state and central governments :The financial support from the state and the central governments is very low. JNNURM (Jawaharlal Nehru National Urabn Renewal Mission) is a good beginning but it has to be increased five-fold. The study suggests that at least 18 to 20 percent of GST ( Goods & Services Tax) should be transferred to the urban local bodies. China allows the cities to keep 25 percent of the VAT ( value added tax) collected by them.
5.Create enabling mechanism ( SPV – Special Purpose Vehicle- and City Development Fund) to facilitate use of the revenue sources.
The challenge of change.
If the remedial measures are not taken and the present approach is continued, the study observes that the urban decay would continue: the peak vehicle density would be 610 per lane kilomtre as against the benchmark of 112; water supply would drop to 65 litres per capita against the norm of 150; the slum population would go up from 17 to 38 million. This should not be allowed to happen.
India has to take up the challenge of change to make our cities productive, innovative and livable. The recommendations of the study would make this change possible.
However, three reservations have to be mentioned here. (1) There is no visionary leadership visible in the political horizon unless professionals from industry and education enter the civic arena. If we want good governance, people from these fields should be encouraged to take up the challenge of change; (2) The mega-cities tend to promote alienation and the anonymity of city life may lead to deviant behaviour. We should have more small towns which could reduce alienation and anonymity, and at the same time preserve the vitality of civic life through interaction between industry and research institutions, industry and educational institutions, industry and cultural institutions, competition and promote innovation in all spheres of life; (3) The study has praised MMRDA which has raised financial resources by auctioning land in Bandra-Kurla complex. This has raised the cost of all commercial and residential construction in the area and now it is impossible for even middle class residents to get a flat at a reasonable price. The middle class and the poor who serve in this area have to stay far away and commute daily and add to the transport bottleneck. It may be a good idea to develop an integrated township where all people who serve can stay and work, and reduce commuting which has many benefits – people will have more time for family and recreation, reduce carbon foot-print. Instead of auction, the cost of development of infrastructure could be recovered through a suitable tax over a period of time, say 20 years.
This is a visionary report which has come at the right time when the Indian GDP is on an upward trend. One hopes that the politicians, political parties and, central and state governments would discuss this study and come up with a consensus on the major recommendations to improve civic life in our urban areas.
The common people, businessmen and politicians have a stake in the future of our cities as they will generate wealth and employment. Since this requires a change in the structure of the city government, there could be some opposition to the recommendations. If the citizens want better civic facilities, they have to change the mind-set of politicians and his elected representative through constant reminder for better governance. The citizens of all urban India have to ask the politicians to 'fix the institutions that fix the roads' instead of asking them just to 'fix the roads', as the study rightly points out. McKinsey & Company's Mumbai office has done a great service to India with this study. The ball is on the court of politicians and people.
May 19,2010.
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