Non-financial challenges to sustainable urbanization in India

The main causes of urbanization in India are:

• Expansion in government services, as a result of Second World War
• Migration of people from Pakistan after partition of India.
• The Industrial Revolution
• Eleventh five year plan that aimed at urbanization for the economic development of India
• Economic opportunities are just one reason people move into cities
• Infrastructure facilities in the urban areas
• Growth of private sector after 1990

Challenges:

• The speed of urbanization poses an unprecedented managerial and policy challenge—yet India has not engaged in a national discussion about how to handle the seismic shift in the makeup of the nation.
• India will probably continue on a path of distributed model of urbanization because this suits its federal structure and helps to ensure that migration flows aren’t unbalanced toward any particular city or cities.
• As the urban population and incomes increase, demand for every key service such as water, transportation, sewage treatment, low income housing will increase five- to sevenfold in cities of every size and type. And if India continues on its current path, urban infrastructure will fall woefully short of what is necessary to sustain prosperous cities.
• Recent reports suggest that India spends $17 per capita per year in urban infrastructure, whereas the most benchmarks suggest a requirement $100. The investment required for building urban infrastructure in India, over the next 20 years, is estimated at approximately US$ 1 trillion.
• There has been an incomplete devolution of functions to the elected bodies as per 74th Constitutional Amendment Act, possibly because of the unwillingness of the state governments.
• In general, the capacity to execute the urban reforms and projects at the municipal and state level has been historically inadequate.

Solution (way forward):

India needs to work on several areas to manage its urbanization-

• Inclusive Cities: The poor and lower income groups must be brought into the mainstream in cities. Regulations intended to manage densities and discourage migration both limit the supply of land and require many households to consume more land than they would choose.
• Urban Governance: Meaningful reforms have to happen that enable true devolution of power and responsibilities from the states to the local and metropolitan bodies according to the 74th Amendment. This is because by 2030, India’s largest cities will be bigger than many countries today. India’s urban governance of cities needs an over-haul.
• Financing: Devolution has to be supported by more reforms in urban financing that will reduce cities’ dependence on the Centre and the states and unleash internal revenue sources. Consistent with most international examples, there are several sources of funding that Indian cities could tap into, to a far greater extent than today: Monetizing land assets; higher collection of property taxes, user charges that reflect costs; debt and public-private partnerships (PPPs); and central/state government funding.

Use central schemes such as JNNURM and Rajiv Awas Yojana but eventually India needs to move towards a systematic formula rather than ad-hoc grants. For large cities with deep economies, this might mean allowing them to retain 20 percent of goods and services tax (GST) revenues. This is consistent with the 13th Central Finance Commission’s assessment that GST—a consumption-based tax that creates local incentives for growth and that is therefore well suited for direct allocation to the third tier of government. For smaller cities, however, a better option would be to give guaranteed annual grants.

• Planning: India needs to make urban planning a central, respected function, investing in skilled people, rigorous fact base and innovative urban form. This can be done through a “cascaded” planning structure in which large cities have 40-year and 20-year plans at the metropolitan level that are binding on municipal development plans.
• Local capacity building: A real step-up in the capabilities and expertise of urban local bodies will be critical to devolution and improvement of service delivery. Reforms will have to address the development of professional managers for urban management functions, who are in short supply and will be required in large numbers. New innovative approaches will have to be explored to tap into the expertise available in the private and social sectors.
• Affordable housing: Affordable housing is a particularly critical concern for low-income groups—in the absence of a viable model that caters to their needs, India can meet the challenge through a set of policies and incentives that will bridge the gap between price and affordability.