Urban governance requires the Centre to initiate reforms
According to estimates by World Urbanization Prospects, India will see the highest increase in urban population in absolute numbers relative to all countries. By 2050, more people will be added to its cities than are currently living in them. Cities have been a relatively recent priority among policymakers and governments have become inclined to announcing the odd mission every few years. However, there are several aspects of urban governance and service delivery requiring the Central government to initiate reforms. This piece provides three policy priorities for the Centre for facilitating the urban transition.
The first reform is with respect to restructuring metropolitan governance. Metropolitan regions are growth drivers of the economy and hence worthy of policy attention. However, metropolitan governance suffers from serious problems such as lack of coordination among different public organisations for provision of services (solid waste management, transit, and mitigating pollution at a metropolitan scale). Article 243ZE of the 74th Constitutional Amendment Act specifies that every metropolitan area in India should have a Metropolitan Planning Committee (MPC). The MPC was to be a coordinating body comprising ministers from state governments, locally elected councillors, and other professionals on metropolitan issues and prepare regional plans. MPCs have not been successful in discharging this role largely due to a lack of finances and functionaries. Instead, metropolitan development authorities, which are State controlled, are playing a significant role. The existing set up needs to be restructured with a more empowered metropolitan body replacing both the MPC and development authority. This two-tier (city and metropolitan level) set up should have a clear delineation of functions at the local and regional level along with assignment of revenue handles. There is precedent for this kind of restructuring; metropolitan regions like London and Toronto have experimented extensively in order to improve outcomes at the metropolitan level. Restructuring metropolitan governance in India requires amending the 74th CAA.
The situation of affordable housing supply in cities continues to be dire despite a policy push by Central and state governments. Direct provision of public housing has not succeeded in meeting its targets. This issue cannot be successfully resolved through creating a stock of ownership housing alone, and requires rental housing to thrive. In urban India, the share of rental housing to total housing fell from 54% in 1961 to 28% in 2011. Stringent rent control laws and extremely low rental yields drastically reduced incentives to rent out houses. On the demand side, while tenants who have been fortunate to get rent control apartments enjoy the benefits, many more low-income households find it hard to find affordable rental housing in the formal sector and have to live in slums. Therefore, the second priority should be to boost rental housing by addressing both supply side and demand side issues. Supply side reform will require state governments to amend rent control laws along the lines of the Centre’s Draft Model Tenancy Act 2015. The Centre can use the levers of grant finance for this by adding a condition that states need to do this in order to access funds under different centrally sponsored schemes. On the demand side, the focus should be on creating and implementing a targeted rental housing voucher scheme. Under this scheme, households below certain income thresholds are identified as beneficiaries and provided rental vouchers that cover the difference between the monthly rent and 30% of their monthly income. The lack of information on incomes making targeting difficult, but the issue is resolvable.
The third policy reform pertains to strengthening financial decentralisation. Urban local bodies lack adequate revenue sources and revenues for fulfilling their mandated functions. A crucial way to provide predictable fund flows is through fiscal transfers directly to the third tier of government. Economist Vijay Kelkar has proposed an arrangement in which both, the states and the Centre, can share part of the Goods and Services Tax (GST) revenues with the urban local bodies. This will require a constitutional amendment. The shared revenues should be in the form of untied grants giving local bodies the freedom to utilise them as they deem fit. Such an arrangement is also justifiable on the grounds that it gives taxpayers a stronger say in how revenues generated from GST may be utilised.
While these reforms may not be as attention grabbing as creating 100 new cities or smart cities, they will be instrumental in improving the lives of millions. The new government needs to be willing to undertake these for the sake of ensuring a smooth urban transition.
Sahil Gandhi is visiting fellow, Brookings India, and postdoctoral scholar, Price School of Public Policy, University of Southern California. This is an abridged version of a piece written for a forthcoming Brookings India volume
The views expressed are personal