(Indian cities are not economically…)
As India celebrates its 68th year of independence, it is relevant for us to ask the state of independence of its cities. The 74th Constitutional Amendment Act (CAA) recognised cities as the third tier of government. So, 1992 may be viewed as the beginning of political independence for Indian cities. However, more than two decades of this independence has not meant much.
We do not have reliable estimates of urban poverty, let alone asking cities to alleviate the phenomenon. Only as recently as Census 2011 have we arrived at estimates of access to public services such as water supply, sanitation, sewerage access, and assets for slum households in large cities. For a long time, India was known to live in its villages. But it should be noted that industry and services, the sectors that tend to grow rapidly than other sectors, are concentrated in cities. Which is why cities must be important to growth. It is scale economies and agglomeration economies that explain the location of industry and services in cities.
Scale economies demonstrate why large factories are able to produce output at lower costs than smaller ones. While scale economies explain the existence of factory towns (such as Jamshedpur), agglomeration economies explain why large cities such as Mumbai, Shanghai, Chicago or New York exist.
Agglomeration economies enable knowledge-sharing, learning and matching, and enhance the productivity of firms and labour. Studies find that productivity increases roughly 1 per cent for every 10 per cent increase in the number of workers employed in an industry in a city. This means that by moving from a city with 1,000 workers to one with 10,000 workers, a firm would increase its productivity by a factor of 90.
Rooted in Archaic Systems
While the economics of cities makes eminent sense, the economic independence of Indian cities is not quite in sight. Most India's cities have now abolished the highly buoyant source of revenue, the octroi, which is now generally accepted to be distorting in its effects. This is because the tax led to delays at check posts, related productivity losses and corruption.
While the property tax is the biggest source of revenue for Indian cities, the property tax base in India's cities does not reflect the capitalisation that has been occurring in property value as a result of growth of the local economy. While only progressive cities such as Bangalore and Delhi have moved to the unit area system of property valuation, many other cities continue to languish with archaic systems of property valuation that hinge on rent control. Hence, the property tax has not turned out to be a buoyant source of revenue.
On the expenditure side, cities are not homogenous because their expenditure responsibilities are different, being determined by the statutory institutional arrangements for provision of urban services. For instance, the Municipal Corporation of Delhi does not supply water to its residents. This is done by the Delhi Jal Board. The case is similar with Bangalore and Chennai where water boards provide supply to residents. However, in the cases of Mumbai and Kolkata, the municipal corporations supply water, along with providing other services such as solid waste management and sanitation.
It must be the case then that some cities are more burdened than others in the discharge of their functions. Based on their revenue potential and expenditure responsibilities, different cities have differing abilities to provide public services.
Thus, Indian cities are not economically independent, but are shackled by chains of servitude. Except for the large municipal corporations such as in Bangalore, Mumbai, Delhi, Chennai, Ahmedabad and Kolkata, they do not have professional personnel to lead them.
With the exception of Kolkata and cities in West Bengal, the cities cannot represent citizen priorities or preferences. This is because the mayor is democratically elected, but is not the executive head of the city, who happens to be the commissioner whose allegiance is to the state government, not to the public.
Dearth of Data
Indian cities have not attained basic independence from data realities. We do not have much information on the city economy/GDP, per-capita income and urban poverty, let alone the value of housing or property values. The National Urban Information System (NUIS) is still very incipient, and has a long way to go in terms of presenting reliable data.
The Washington-based Cato Institute has come up with an economic freedom index for Indian states based on a variety of indicators that include size of government, legal structure, security of property rights, and regulation of labour and business. We are not in a position, even remotely, to make such an assessment for our cities.
If the new government intends to build 100 smart cities, I wish it would make existing along with these future cities independent.
The writer is professor, Centre for Research in Urban Affairs, Institute for Social and Economic Change, Bangalore