Democratise and empower city governments

• The Reserve Bank of India (RBI) in a report, “State Finances, Study of Budgets of 2021-22”, released in November 2021 mentioned about the strain on the finances of third-tier governments in India playing a frontline role in combating the pandemic by implementing containment strategies, healthcare forcing them to cut down expenditures and mobilise funding from various sources.
• The RBI further commented that the functional autonomy of civic bodies must increase and their governance structure strengthened.
• This could happen by ‘empowering them financially through higher resource availability’.

Essence of report

• While correctly identifying the role of the city governments in meeting the challenges the pandemic has thrown up, the report also points to the draining of resources.
• An RBI survey of 221 municipal corporations (2020-21) revealed that more than 70% saw a decline in revenues; in contrast, their expenditure rose by almost 71.2%.
• The RBI report also highlights the limited coverage of property tax and its failure in shoring up municipal corporation revenues.
• Organisation for Economic Co-operation and Development (OECD) data show that India has the lowest property tax collection rate in the world — i.e., property tax to GDP ratio.

Old problem continues

• During the pandemic, while leaders from the Prime Minister to Chief Ministers to District Magistrate were seen taking a call on disaster mitigation strategies, city mayors were found missing.
• The reason for this was because under the disaster management plan of action, cities are at the forefront to fight the pandemic; however, the elected leadership finds no place in them.
• It is not just in disaster mitigation.
• The old approach of treating cities as adjuncts of State governments continues to dominate the policy paradigm.

Approaches to urban empowerment

• The general approach towards urban empowerment has remained piecemeal in India.
• Urban development is a state subject, which is more linked to political and democratic movements in States.
• The first intervention to understand ‘the urban’ (though there are references in the Five Year plans) and plan with a pan-Indian vision took place in the 1980s when the National Commission On Urbanisation was formed with Charles Correa as its chairperson.
• Another important intervention was in the first half of the 1990s with the Constitution 73rd and 74th Amendments.
• The latter refers to urban reforms — empowering urban local bodies to perform 18 functions listed in the 12th Schedule.
• But this was also the period of neo-liberal reforms, so the generation of own resources and a slow withdrawal of the state could be witnessed.
• Though the democratic transfer of 18 subjects was an important element, and necessary, there was, however, no mention of financial empowerment.
• It was linked more to the idea of “competitive cites” to attract investments in the urban centres by making their structures and land laws flexible.
• We now know that not much investment has happened, and cities have not really been able to enhance their financial capabilities.
• The only exception to the rule has been the people’s plan model of Kerala where 40% of the State’s plan budget was for local bodies (directly) with a transfer of important subjects such as planning, etc.
• This paved the way for a new dimension to urban governance.

Functional autonomy

• The RBI report has been right in highlighting that functional autonomy of city governments must be allowed.
• But this should happen with three F’s: the transfer of ‘functions, finances and functionaries’ to city governments.
• Without these, functional autonomy would be empty rhetoric.
• There are nearly 5,000 statutory towns and an equal number of census towns in India.
• Nearly 35% of the population lives in urban centres.
• And, nearly two-thirds of the country’s GDP stems from cities and almost 90% of government revenue flows from urban centres.
• Before value added tax and other centralised taxation systems, one of the major earnings of cities used to be from octroi.
• But this source of revenue collection was taken away by the State and the central governments.
• Instead, finance commissions recommended grants to urban local bodies based on a formula of demographic profile.
• Previously, while almost 55% of the total revenue expenditure of urban centres was met by octroi (e.g., Shimla), now, the grant covers only 15% of expenditure.
• In such a situation, it is difficult for the towns to sustain their ability to perform their bare minimum functions, especially with the latest Pay Commission recommendations.
• This has resulted in a vicious circle of burdening people more with taxes and further privatisation/outsourcing of the services of the municipalities.
• This is a pan-India phenomenon and the grading of cities and urban policies are linked to this.
• Now with Goods and Services Tax, the ability to tax has been ‘completely robbed’; cities find themselves in a worse state than States.

Way forward

• Cities must be treated as important centres of governance, where democratic decentralisation can bring in amazing results (as seen in Kerala).
• There will be transparency and adequate participation of the people.
• Cities should not be considered as entrepreneurship spaces where the sole driving force is to make them competitive to attract investments.
• They must be considered as spaces for planned development by giving adequate attention to resources.
• Our cities are hardly prepared for the impact of climate change; nor do they have adaptive strategies.
• The resources required for quantitative and qualitative data must be immediately provided to the cities to ensure a disaster risk reduction plan keeping vulnerable communities in mind.
• A piecemeal approach such as the concept of ‘smart cities’ must be shunned altogether.
• This approach further widens the gap between different sets of people.
• Rather, the grants from the Centre must be enhanced and cities asked to draw up their plans themselves based on priority seeking from city residents.
• Cities are people, as they say, and people must be a part of the decision-making process.
• Leadership in the cities must be elected for a term of five years.
• In some cities, the term of the mayor is for a year.
• Likewise, the third F, i.e., functionaries, must be transferred to the cities with a permanent cadre.