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Corporatisation of public services should be considered as an option

As the urban areas are the places where most of the Indians are going to live in the coming years India has to improve its urban areas to achieve objectives of economic development and ensure decent urban services to its citizens. However, urban governance and management of the services, at present, is far from satisfactory.

Corporatization is arguably the single most important trend in ‘public’ service delivery today. It refers to government ownership models that grant legal and financial autonomy to public enterprises that operate with some independence from the state. Corporatisation generally also entails a process of progressive financial ring-fencing and commercialisation. Water, solid waste collection and electricity utilities are common examples, but the practice extends to a much wider range of goods and services, from airports to universities to hospitals. But in a country like India, it’s a mammoth task and only a determined government can do something meaningful on this front.

At the same time, its also true that when a public utility is not performing well, it is difficult to make recommendations for reform unless and until it has clearly defined incentive and management reporting structures and a separate budget. In order to establish how a utility is performing, it is necessary to separate the assets, liabilities, workforce, costs and revenues attributed to that service. But its hardly found in our urban local bodies thus making the task of corporatisation difficult if not impossible.

But there are several success stories of corporatisation around the world. Corporatised water service utilities exist world-wide. In fact, the use of separate legal entities is a fairly common approach across low, medium and high income countries. The corporatisation of services does not, however, guarantee success in its own right. Whilst a shift in legal form from an ULB department to a stand-alone legal entity can make a difference this is not the only or major determinant of performance.

Utilities succeed or fail for a wide variety of reasons. Success requires a combination of factors, especially good governance, managerial independence – and a measure of luck. The regulatory framework is important, but will not in itself ensure a positive outcome.

Our regulatory system clearly still has to undergo considerable development, with national regulators likely to move from a mode of ‘assisting’ to a mode of ‘regulating’ over time. Further, our ULBs need to engage with complex economic and governance issues relating to the price and quality of services. Of course, our ULBS likely to face the problem of accessing adequate information on which to base decisions. Existing corporatisation initiatives have lead to a high level of politicisation, with standoffs between government and labour, and even between different spheres of government. However, all these are minor issues if we focus on our ultimate objective of providing quality services.

Fortunately, we have precedents to learn and follow which provide us an opportunity to make the process least painful and at the same time ensuring its success. Past experiences indicate that clear leadership and decision-making processes are crucial for success. Attention also needs to be given to transmitting the learning by successful ULBs to other local authorities.


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