It’s true that governance is the weakest and most crucial link which needs to be repaired to bring about the urban transformation so urgently needed in India. Funds required for urbanisation are huge and financing the large sums required to meet the investment needs of urban infrastructure is crucially dependent on the reform of institutions and the capacity of those who run the institutions for service delivery and revenue generation. Therefore, large expenditures on Indian cities and towns have to be combined with better governance structures, strong political and administrative will to collect taxes and user charges, and improved capacity to deliver. Cities must be empowered, financially strengthened, and efficiently governed to respond to the needs of their citizens and to contribute to the growth momentum.
We all know that smart cities under Smart City Mission are governed by special purpose vehicles established for the purpose and are headed by Chief Executive Officers. But the fact is that these Smart City Corporations derive their authority from their respective urban local bodies who themselves are ill-equipped in regard to resources – both financial and human resources. Existing manpower is trained to manage the operations, including project executions, in traditional way with least regard to time schedule. Terms like governance and transparency are unheard of in their dictionaries.
Therefore, India’s municipal corporations, municipalities and nagar panchayats, commonly known as urban local bodies (ULBs) need to be strengthened as local self-government with clear functions, independent financial resources, and autonomy to take decisions on investment and service delivery. They must also be made accountable to citizens.
These municipal entities need to be strengthened as local governments with ‛own’ sources of revenue, predictable formula-based transfers from state governments, and other transfers from the central government and state governments to help them discharge the larger responsibilities assigned to them. Improved tax revenues combined with rational user charges will enable cities to leverage their own resources to incur debt and also access new forms of financing through public private partnership (PPP). Then only they will become less dependent on state and central government grants for their survival. Only then can they augment the urban infrastructure base, provide improved quality of services on a sustainable basis to their residents, and contribute to the growth momentum of the Indian economy.
Studies show that the urban local governments in India are among the weakest in the world both in terms of capacity to raise resources and financial autonomy. While transfers from state and central governments have increased in recent years, the tax bases of ULBs are narrow (especially after the introduction of GST) and inflexible and lack buoyancy, and they have also not been able to levy rational user charges for the services they deliver. The central and state governments will have to step in, both by providing substantial funds and by facilitating the use of additional mechanisms for funding, which will require the strengthening of own finances of ULBs.
Even without these reforms, urbanisation may take place as has been happening till now but citizens will have to make substantial sacrifices by way of living with substandard services. With limping ULBs, India still can become a $5 trillion economy but our cities will then be dotted with slums where people will be living with deprived basic public amenities which is not a welcome scenario.