Reform and empower the urban local bodies

Reform and empower the urban local bodies

Even the richest ULB, in the country, BMC, having 50k plus crore in bank balance, has to live with filthy environment and pothole filled roads because of lack of talent

It’s a well-accepted fact that the urbanisation will be the main growth driver of the economy in future. When the whole world is moving in that direction, India cannot be an exception. Therefore, it also becomes necessary that the main caretaker of the urban areas, that is, urban local bodies, is in good health and is properly empowered. However, in India most of the urban local bodies are in poor health and are in need of reforms and revitalisation on an urgent basis. All these years, reforming the ULBs had taken the back seat but it cannot remain so any longer. Reforming the ULBs and their empowerment should be one of the main tasks of the government in the coming years.

Most of the ULBs in India are resource starving – be it funds or manpower or talent. Even the richest ULB, in the country, BMC, having 50k plus crore in bank balance, has to live with filthy environment and pothole filled roads because of lack of talent. In case of other ULBs the situation is much worse than BMC. Most of these ULBs are poorly staffed. According to a survey, Mumbai has approximately 1,300 staff for every 1,00,000 citizens. New York, meanwhile, has about 5,000 employees for every 1,00,000 citizens.

Further, most of the ULBs have weak finances. Property taxes, which should be their mainstay, have yielded low revenues. Collections from user charges are also very poor. They are thus heavily dependent on state governments, which have underperformed in transferring funds. India’s property tax-to-GDP ratio, at 0.48%, is one of the lowest amongst G-20 countries. Peers like South Africa and Brazil stand at 1.39% and 1.25% respectively. The National Accounts Statistics estimate that municipal property tax revenues in the 36 largest cities are just 6% of the gross rental value of urban dwellings.

Apart from poor property tax collections, user charges on essential services — water and sewage — are subsidised. Unsurprisingly, the resultant weak finances have hamstrung ULBs in service delivery. Poor delivery has led to poor compliance, thus forming a vicious circle and deepening the financial hole ULBs find themselves in and perpetuating a low-level equilibrium.

Hiring officers with the right set of skills for highly specialised roles and low user charges are the bane of ULBs in India. Thus, reforms need to be aimed at resolving these issues and improving the condition on both the fronts.

The lack of talent has hindered strategic decision making as well. For instance, staff often lack the ability to design and evaluate bid criteria, leading to selection on the basis of cost with no emphasis on maintenance or quality. Therefore, ULBs need to lay more importance on training their employees in financial and risk management, organisational and administrative matters, design, and implementation of projects. Possibilities of tying up with academic institutions and policy think tanks, who could assist them with induction training in urban planning and management for key administrators should also be explored. Meanwhile there is also need to rethink the recruitment framework keeping in mind the technical and administrative skills required. It would be essential to ensure that an adequate number of skilled employees are on-boarded, keeping in mind the growing demands of an urbanising city.

Further, availability of adequate funds to finance various projects and programmes is essential for an ULB to be successful in its operations. Poor financial health and lack of a stable revenue stream have made it difficult for municipal bodies to raise their own capital through bonds.  Remember, first municipal bond was issued after five decades of our independence. Even after more than twenty years of first Municipal bond issue, the instrument has not become popular with only handful of corporations resorting to this mode of fund raising.

On the eve of Goods and Services Tax (GST) rollout there was a hope that the government will make direct allocation to ULBs but unfortunately nothing of that sort has happened. This is despite the fact that the GST replaced the octroi, which formed a significant part of city revenues.

It is the cities who contribute the most to the nation’s GDP and their health and well being should be of paramount importance for the government. Higher levels of government, particularly state governments, must recognise the need to devolve more money and expertise to their growth centres.

On the other hand, local bodies must increase their ability to generate their own revenue through different financing mechanisms. Property taxes should be reformed through broadening the base, improving assessment and land records through use of technology. Further, for improving user charges collections, the rates need to be rationalised. Local bodies need to improve service delivery so citizens see the benefit in paying for services. This will further enable them to rationalise user costs. Rationalising user charges will also curb overuse of resources like water.

The needs of India’s cities are manifold and policy solutions can take the form of a number of alternatives. Some of the reforms presented can be implemented relatively quickly since they are fairly easy to execute. Therefore, sequencing reforms over the short, medium, and long term will be useful. The government should also ensure that  policy making and the reform process become holistic, cross disciplinary, and multi-sectoral.

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