M Govinda Rao: Urban chaos and official apathy
M Govinda Rao / New Delhi October 03, 2006
Even when we focus only on fiscal issues, there are a variety of
structural problems.
Perhaps no other area of government failure is as glaring as urban
governance. The rapid pace of urbanisation has placed heavy demands on
infrastructure and services while poor governance, obsolete laws,
ill-conceived policies and the low capacity of institutions have led to
widespread public dissatisfaction. Inability to protect the citizens
from the fury of the monsoon in Mumbai, utter disregard for the law and
the connivance and complicity of politicians and bureaucrats in
violating land use and building by-laws in Delhi, enormous public
discontent on the poor state of roads, water supply and sanitation in
all urban agglomerations and the massive discharge of untreated sewerage
polluting the river systems by municipalities along the rivers are too
serious to be ignored any longer. Indeed, responses of the executive to
these problems have been apathetic.
The problems of urban governance are multi-dimensional. In Delhi, it is
the utter disregard for the law that has confounded the situation and
courts have tried to establish order in the chaotic world of obsolete
laws and their poor implementation. Indeed, the MCD and NDMC can't even
deal with the menace of stray cattle. In Mumbai, it is the grabbing of
open spaces, non-existence of storm water drains and total apathy of the
authorities to the problems as they recur every year. In Bangalore, it
is the imperviousness of both politicians and bureaucrats in meeting the
basic infrastructure requirements. Indeed, municipal bodies do not
respond and people too have become apathetic. We no longer react when
the stray cattle take over the functions of traffic policemen, heaps of
garbage are strewn around and devoured by stray cattle, there are
potholes in roads after every monsoon and roads are under a perpetual
state of repair, there are hours of load shedding, and the state of
public transport is pathetic, and so on and so forth. The expenditure on
urban infrastructure is one-fourth of the required annual estimate by
the Rakesh Mohan Committee in 2001 of about Rs 28,000 crore and even the
expenditure incurred does not provide commensurate services.
What ails the system? The systemic failures are seen in urban
governance, administration as well as finance. Even when we focus only
on fiscal issues, there are a variety of structural problems. The first
is the lack of clarity in functional assignments. Currently, urban
service delivery is undertaken not merely by municipal bodies but also
by state governments and many independent agencies. Schedule XII of the
Constitution attempts to identify the functions of municipal bodies, but
Article 243W states: "… the Legislature of a State may, by law endow …
the municipalities with such powers and authority ... Subject to such
conditions as may be specified …" The problems this arrangement creates
are: first, many of the activities which should have been in the
municipal domain continue with the states; second, even when functions
are assigned, states continue to exercise their jurisdiction; third,
independent agencies of state governments perform several functions in
the local domain and finally the state can impose conditions on the
municipal bodies in the exercise of their powers. In the capital cities,
be it Delhi or states, overlapping jurisdictions between various state
departments, independent agencies and the urban local bodies have
resulted in lack of clarity in the service domain and indulgence in a
blame game for the failures.
Conceptually, the assignment of finance should follow functions. This,
along with the need to have a strong link between revenue and
expenditure decisions for reasons of accountability, requires that
municipal bodies should have significant revenue powers. Reform will
have to address both assigning new revenue sources and reform the
existing ones. On the former, the property tax assigned to
municipalities suffers from several infirmities. While the long-term
approach should be to remove the hindrances in the development of
organised markets and look at reforms of all laws related to property
transactions such as rent control acts and land ceiling acts and stamp
duties, in the interim, it may be useful to have an area-based levy,
differentiated by location and the quality of construction. This,
however, would require periodic revisions.
The check-post-based octroi has no place in the modern fiscal system and
its abolition is long overdue. The revenue loss can be made up by local
bodies piggybacking a 1 per cent tax on the VAT turnover at the last
point of sale within municipal jurisdictions. The municipal levy may be
collected by the states' VAT departments and the proceeds deposited
directly with them. This actually approximates a benefit tax as it is
levied on urban consumption.
In many countries proceeds from the sale of land and buildings are an
important source of financing urban infrastructure. However, in India,
the revenue is appropriated by the state governments by creating
separate land and housing development agencies. In fact, bureaucrats and
politicians in urban departments are busy with this activity due to the
large sums of money and patronage involved. It is necessary that the
proceeds from the sale of land should be clearly earmarked for financing
urban infrastructure.
Another major area of reform pertains to the states' transfer system.
The problems have been with both the adequacy and appropriateness of
allocation. The state finance commissions, except in a few states, have
been thoroughly unprofessional and have based their recommendations
neither on principles nor on reliable information. Consequently, their
recommendations have been largely unimplementable, leading to states
adopting arbitrary and ad hoc forms of transfers. Nobody has bothered to
collect reliable data on economic, demographic and fiscal variables of
municipal bodies. Bringing professionalism into the SFCs is the key to
reforming the state transfers.
Planning for urban services takes priority and states should wake up to
it. The Expert Group on Decentralised Planning has recommended bottom-up
planning from wards and consolidation by the District Planning
Committees. This would, however, require setting up a reliable
management information system. It is ironical that in most states, there
is no mechanism to collect basic information relating to municipal
bodies. The urban departments in the states should take the initiative
to collect basic information required for planning.
Notably, there are basic flaws in the urban fiscal system and the reform
should aim to get the fundamentals right. The urban renewal mission
cannot deal with structural problems. The question is, shall we always
require a crisis to wake up and forget about the problem once the crisis
wanes?
The author is Director, National Institute of Public Finance and Policy.
Comments at mgr@xxxxxxxxxxxx
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