Tackling the challenges of urbanization in India

Urbanization is a major challenge facing most developing countries today.

This is especially true in India, where the urban population share is only about 33 percent, much lower than for other emerging market countries, for instance China (48 percent), Mexico (78 percent), South Korea (83 percent) and Brazil (87 percent).

Even so, when India’s economic growth accelerated to close to 8 percent per annum in the 2001-2011 decade, compared with 5.5 percent in the previous two decades, it led to a faster pace of urbanization and deficiencies in urban infrastructure and service delivery became very obvious.

Cities will play a very important role as engines of growth as India attempts to achieve faster growth, which will inevitably imply a structural transformation and a rising share of industry and services sectors. Planning for urbanization and better management of cities is therefore not only important for the quality of life for those living in our cities and towns, but also because it contributes to a better investment climate.

Besides being affected by the transactions costs of doing business, the investment climate is also significantly — and adversely — affected by the absence of planned urbanization.

Indian cities suffer from a huge deficit in urban infrastructure and very poor delivery of basic services including drinking water, waste water treatment, solid waste management and public transport. There is little rational land use planning, while the implementation of existing plans is poor. Preservation of water bodies, public spaces and green spaces has also been largely neglected.

The demand for connectivity

Another major demand placed on the strategy for urbanization is that of connectivity across cities and with the surrounding rural areas, as well as within cities.

Careful planning of city transport needs is particularly important as urbanization gathers momentum and cities have to cope with rising internal transport needs. These have to be met in a manner that economizes on energy and also avoids congestion and pollution, all of which depends upon an effective public transport system. It requires close cooperation among different government departments and to make use of carefully designed systems of taxes and cross subsidies to encourage the right kind of transport development.

Deficiencies in urban planning and management have to be overcome if India’s urban environment is to meet the rising expectations of an expanding urban population and provide an urban environment consistent with rapid, inclusive and sustainable growth. If cities are to grow and provide an impetus for growth, they need to attract investment — and to do so they must compete with each other in terms of the quality of the urban environment they provide.

Inadequate empowerment

Part of the problem in India is the inadequate empowerment of city governments.

In 1992, a constitutional amendment explicitly gave the mandate for the delivery of basic urban services to local governments. This was to be matched by financial empowerment through the mechanism of state governments devolving adequate finances to the local governments. This, however, has yet to happen. Most local governments remain largely dependent on ad hoc transfers from the state governments and have also, by and large, not been able to collect tax revenue in the few areas under their own purview — for instance, in areas such as property tax.

Local governments also have little autonomy to set up user charges to cover even just the operation and maintenance costs of delivering public services. Where they do, they have yet to develop the culture of persuading users that they must be willing to pay for quality services. Furthermore, there is little capacity to plan and manage at the city level. This has meant that cities have not been able to fulfil the mandates passed on to them by the constitutional amendment over 20 years ago.

In 2005, the Indian government stepped in with a major initiative of national urban renewal. With a total capital fund of about $166 million, the Jawaharlal Nehru National Urban Renewal Mission was launched to support projects with a total capital cost of close to $277 million). The mission completed its term in March 2014, providing capital funding with co-funding from the state government and the city government for urban development projects of urban infrastructure if such projects were framed within a City Development Plan endorsed by the state government and accompanied by a set of specific reforms to which the city government — as well as the state government — had to agree.

However, the expectation of leveraging public funds to attract private financing for the projects was not fulfilled. This was because the reform commitments with respect to finance and governance were largely not kept, and a credible revenue model did not emerge. In addition, in the rush to get project funding approved, capacity building was given low priority, which had an adverse effect on the quality of planning and management. Nonetheless, the experience of JNNURM showed that those cities that had the benefit of an enabling environment provided by the state government were able to bring about a major transformation in their urban scenario. This was as true for projects under JNNURM as for other urban development projects in Maharashtra, Gujarat, Andhra Pradesh, Karnataka, Tamil Nadu and Madhya Pradesh. Those states provided legislative and institutional support for better urban management, which helped in making city finances less vulnerable, and also helped with building capacity at the local government level.

Strategic leadership

In moving forward on planning and better management of urbanization, financing and governance, the agenda needs to be carefully designed, with due consideration for the responsibility of different levels of government and recognition of the ultimate accountability of the city government.

The Indian government must continue to provide strategic leadership by launching a new mission, learning from the lessons of JNNURM. But this must be accompanied by some basic reforms that are crucial for the success of such a mission.

First and foremost, city governments need to be made much less dependent for their finances on the state government. There must be predictable and guaranteed transfers to city governments in order to empower them with some basic financial resilience to plan and implement their budgets. Since an agreement between the national and state governments to amend the Goods and Services Tax is imminent, the opportunity of sharing this revenue with the local governments through agreed devolution must not be lost. In addition to devolution from state level taxes, local governments must be encouraged to raise resources locally through property taxes and the rationalization of user charges.

State governments must provide both institutional support and support to capacity building at the local government level. The Indian government also needs to promote capacity building through investing in institutions of learning, which explicitly cater to urban planning and management. Administrative reforms at all levels of government are necessary to allow for integrated planning and management. The challenge is not only to deliver for the additional urban population, which is projected to increase from 377 million in 2011 to 600 million by 2031, but also to attend to the close to 40-50 percent of people who are currently unserved.

Use of new technologies such as GIS for planning; GPS, GPRS and SCADA for better operations; and IT in general to improve efficiency in production and delivery, are crucial to make up for lost time in meeting this enormous challenge. E-governance has the added advantage of transparency in operations and better communication and better accountability vis-a-vis end-users. E-governance for better public service delivery requires a change in mindset and business process re-engineering, besides investments in the IT infrastructure and software packages. Human leadership is crucial in bringing about such a gigantic change.

For successful urbanization, policies and institutions also need to focus on employment-intensive growth and in developing sector-specific skills to meet the growing demand for these skills. The importance of skill development arises from the fact that India is at that “sweet spot” in its demographic transition where the working age population as a percentage of the total population is very high — some 66 percent — and will continue to rise until 2040. The Indian government’s Skill Development program — designed within a public private partnership framework to bridge the mismatch between demand and supply of skills — needs to be strengthened.

And, of course, a greater engagement of state governments and the private sector is an absolute must.

Join the Devex community and access more in-depth analysis, breaking news and business advice — and a host of other services — on international development, humanitarian aid and global health.