Urbanisation
News:
A reminder of the flaws
in India’s urbanisation policies
What's
in the news?
●
A report by the World Bank, released in
November last year, on financing India’s urban infrastructure needs, focuses on
private investments ameliorating urban problems.
Key
takeaways:
●
After three decades of reforms, urban
finance predominantly comes from the government. Of the finances needed to fund
urban capital expenditures, 48%, 24% and
15% are derived from the central, state, and city governments, respectively.
Public–private partnership projects contribute 3% and commercial debt 2%.
Needs
of Urban India:
●
In the last few years, various reports
have estimated a huge demand for funding urban infrastructure such as
○
Isher
Judge Ahluwalia report - says that by 2030, nearly ₹39.2
lakh crore would be required.
○
The
McKinsey report on urbanisation has a figure of $1.2
trillion, or ₹90 lakh crore.
○
The World
Bank estimates that nearly $840 billion (₹70 lakh crore) would be needed
for investment in urban India.
Sources
of Urban Finance:
Issues
of Urban Finance:
1.
Lack of sources:
●
Most of the income generating taxes are
levied by the union and state governments and the taxes collected by the urban
bodies are not sufficient to cover
the expenses of services provided.
●
ULB’s hesitate in imposing taxes because
of the fear of backlash from the electorate. Further, the position of the
smaller municipal institutions is much worse and at times they find it
difficult to even meet their establishment costs.
2.
Ill-equipped staff:
●
The staff at the disposal of these bodies
is ill-trained and ill-equipped to
effectively collect the taxes levied.
3.
Problems with Property Tax:
●
Property
tax is the most important source of revenue for local governments.
●
There have been substantial reforms in
property tax administration in recent years. Earlier, ‘Annual Rental Value’ was
the basis of levy of this tax.
●
This mode of assessment had many drawbacks
– the manner of assessment was opaque
and gave a lot of discretion to assessing officials and it was inelastic
and non-buoyant.
4.
Smaller tax base:
●
It is estimated that only about 60-70% of the properties in urban areas are actually
assessed.
●
The boundaries of municipal bodies are not
expanded to keep pace with the urban sprawl; as a result, a large number of
properties fall outside the legal jurisdiction of the municipal bodies.
5.
User charges:
●
There has been a tendency to charge for
various services at rates that are much
lower than the actual cost of provisioning such services.
●
These user charges include water charges,
sanitation and sewerage charges, waste collection charges, charges for street
lighting, fees for parking, fees for use of congested roads by motorists etc.
6.
Corruption:
●
Corruption, favouritism, and nepotism are
rampant in the urban local bodies, they also have less power to fight all these
issues
WAY
FORWARD:
1.
World Bank Report Suggestions:
The World Bank report
suggested that “improving the fiscal base and creditworthiness of the Indian
cities and it must institute a buoyant
revenue base and be able to recover the cost of providing its services”.
●
Finding
alternative paths:
○
The basic problem in urban finances
includes a top to bottom approach, with too much of a focus on technocentric
solutions using very high capital-intensive technologies.
○
Hence, the plans must be made from below
by engaging with the people and
identifying their needs.
●
Empowering
Urban Local Bodies:
○
Empowering the city governments and the
people at large as suggested by the K.C. Sivarama krishnan committee provides
that transferring subjects to the city governments, suggesting that 10% of the income-tax collected from cities
be given back to them and ensuring that this corpus fund was utilised only
for infrastructure building.
○
This would ensure that city governments
had an advantage in ensuring rapid transformation.
●
Urban
Governance:
○
Regular elections should be held in cities
and there must be empowerment through the transferring of the three Fs:
finances, functions, and functionaries.
○
An improved urban legal framework that
includes a stable and certain fiscal
transfer regime, accords financial powers to ULBs [urban local bodies]
along with attendant rules/regulations will determine the medium to long-term
scale of investment flows for urban infrastructure.
2.
Taxation powers to ULBs:
●
Creating
a separate tax domain for local governments, by amending the Constitution.
●
States should ensure that the law gives
sufficient powers to the local bodies regarding taxes that are more
appropriately collected at local levels.
●
Introduction
of the new simplified and transparent system of taxation
would definitely improve the collection efficiency. A periodic physical
verification of the properties and taxes levied on them should be carried out
in each municipal area by a separate wing directly under the control of the
Chief Executive.
●
An impact
study should be carried out for all major developments in the city. A
congestion charge and/or betterment levy in relation to such projects may be
levied wherever warranted.
●
The power to impose fines for violation of
civic laws should be given to municipal authorities. The relevant laws may be suitably
modified.
●
State
grants-in-aid should be given on the basis of certain principles like size of
population, slums concentration, location of town, etc.
3.
Recent reforms:
●
Performance
linked grants: 14 finance commission stipulated that a
detail procedural for the disbursal of the performance grant to ULBs, based on
the various reforms in areas like auditing, reporting, etc
●
Municipal
bonds: NITI Aayog come up with utilizing the municipal bond
market which would ensure a low cost of borrowing, required for municipality
project.
Local self-governance in
India should be strengthened as it captures the local needs and ensures a
responsive government.