Treat cities as liveable spaces for people, not as profit-making centres

Among developing nations, the intergovernmental transfers to urban local bodies are among the lowest in India. This puts them in a perennial financial crunch

On July 3, the Government of India announced that the Smart Cities Mission (SCM), which was supposed to be the lighthouse of urban development, will be extended till March 2025. The past decade under the rule of the Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) has been full of redevelopment experiments in urban India. However, from the Swachh Bharat Mission (SBM) to the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), from the Pradhan Mantri Awas Yojana (PMAY) to the Heritage City Development and Augmentation Yojana (HRIDAY), and finally the SCM, all have failed in achieving the desired outcomes, if not miserably failed.

A different route

India’s urban trajectory has been quite different from that of developed nations, though our ruling discourse has often blindly tried to copy Western models, especially after the 1990s. The two centuries of industrial revolution have pushed millions of people from the countryside to the cities. This process of Western urbanisation had a strong stimulus from industrial capitalism that absorbed its surplus labour. The colonial rule further sustained this. Cities were creating surplus from their native labour, and from the loot of their colonies, leading to the historic accumulation of capital. British and European urban development are striking examples of this.

India’s industrialisation-induced urbanisation was too short-lived. It continued until the mid-1970s, but then manufacturing-induced industrialisation paved the way for services and real estate-driven urban development. Since the 1990s, growth in the cities has taken place not based on manufacturing but through distress migration and cities expanding into the countryside. This form of urbanisation is further impoverishing people and pushing them towards the fringes. The city’s expansion into rural areas is compounding the challenges and enhancing the vulnerabilities of the people. No wonder ~50 per cent of India’s urban population lives in slums.

Withdrawal of the State

Withdrawal of the State from providing basic services such as health, education, etc, does not mean that it has withered away; it, in fact, reinforced itself in different ways. Through various channels, like taxing, for example, the State accumulated capital. Later accumulation of capital in the cities was enhanced through the privatisation of utilities and basic civic services, including health, education, drinking water, sanitation, and even urban planning. This meant that the cost of these services shot up phenomenally, further escalating the gap between the State and the people; this further blew up urban poverty. In the process, the bargaining power of the working class dwindled considerably, and the informal sector grew phenomenally, employing more than 90 per cent of the workforce.

A paradigm shift in urban governance

The financial situation of India’s cities shows a sorry state of affairs. Intergovernmental transfers (IGTs) to the urban local bodies (ULBs) are about 0.5 per cent of GDP, much lower than the 2-5 per cent seen in other developing nations: South Africa allocates 2.6 per cent, Mexico 1.6 per cent, the Philippines 2.5 per cent, and Brazil 5.1 per cent. Although the IGTs make up about 40 per cent of the ULBs' revenue, issues persist regarding their predictability, earmarking for vulnerable groups, and horizontal equity. The IGTs are crucial for the ULBs given their current financial health.

The Goods and Service Tax (GST) reduced the ULBs' tax revenue (excluding property tax) from ~23 per cent in 2012-2013 to ~9 per cent in 2017-2018. The IGTs from states to the ULBs are very low, with state finance commissions recommending only ~7 per cent of the states' revenue in 2018-1019. Increasing the quantum of the IGTs as a percentage of GDP is necessary.

Despite the 74th Constitutional Amendment's aim to financially strengthen the ULBs, progress over three decades has been poor. Despite significant urban reforms, tax base changes post-GST, and nudges from central and state finance commissions the ULBs are under fiscal stress. Municipal revenues have been low, at ~1 per cent of GDP from 2007-2008 to 2017-2018, compared to ~6% in South Africa and 7.4 per cent in Brazil. The ULBs heavily rely on the IGTs, with the ULBs' revenue contributing less than half of their total revenue.

There are over 8,000 urban settlements classified as statutory towns and census towns. It is also estimated that around 23,000 villages are on the verge of being classified as ‘urban’. If these towns are classified as small or big towns, with small towns having a population of less than a lakh, there will be over 7,600 small and medium towns in India. In most of these towns, urban finances are in a shambles.

Imagining urban futures must start with the 16th Finance Commission, which is moving around the country to finalise its report for the coming five years. It must recommend at least 1 per cent of the GDP to the ULBs. Without strengthening urban finances, no urban futures can be sustained. The state finance commissions are parting with just 7 per cent of their total revenues to the local bodies. This must also be enhanced to at least 10 per cent. Likewise, the ULBs should be given more space in the democratic structure of governance to increase their assets and revenue shares.

Democratic decentralization is the key

Urban development is a state subject, and the centrally sponsored schemes that carry a lot of governance baggage should be shunned. The smart city model of governance with special purpose vehicles as a driving force overrides the authority of city governments. Three decades after it was passed, the 74th Constitutional Amendment has hardly been implemented. The transfer of the three Fs (functions, functionaries, and finances) is yet to be achieved. For many years now, Shillong, Mumbai, and many others have had no elected councils.

Migration, which was not as big a concern three decades ago, is now a dominating feature of our cities. Unfortunately, migrants are not even considered citizens by the city apparatus. In Kerala, where the people's plan transferred ~40 per cent of the planned budget to local bodies, this reality is also being grappled with. In the recently constituted Kerala Urban Commission (of which this author is a member), migration is being seriously discussed. Ward sabhas, neighbourhood sabhas, or other forms of urban governance like the tribal communities under the VI Schedule in states like Meghalaya need to be debated.

The kernel point is that cities are for people, not for profit. The governance model should be based on this fundamental principle to make them more liveable, sustainable, and eco-sensitive.

(Tikender Singh Panwar is former Deputy Mayor of Shimla.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.