Financially empowering urban local bodies, and holding them accountable – Economic Times (blog)

ByArvind Subramanian

Economic Survey 2017-18 presents four striking findings about urbanisation in the country and the challenges being faced by Indian cities. Magnitude of Indias urbanisation is not unusual but the pattern is: Contrary to perception, the level and evolution of the countrys 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 Per-Capita GDP and Urbanisation).

However, Indias 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, Indias pattern does not conform to Zipfs 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.

For example, better service delivery 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 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 generation. So, the constraint on resource mobilisation is not the law but effective performance even within the law.

Challenges to the property tax collection also include inaccurate enumeration and likely undervaluation. An analysis based on satellite imagery done for this years 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 Chelliahs 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 years Economic Survey

DISCLAIMER : Views expressed above are the author's own.

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Financially empowering urban local bodies, and holding them accountable - Economic Times (blog)