Background
In Sept 2001, the Central Ministry of Urban Development launched the Good Urban Governance Campaign (GUGC) in partnership with the United Nations Development Programme and the United Nations Centre for Human Settlements; this was supported by the Urban Management Programme and The Urban Governance Initiative.
Subsequently, the GUGC became overshadowed by other urban schemes, and disappeared soon after without a trace. Similarly, throughout the tenure of the NDA government, a National Urban Transport Policy, a National Slum Policy, and a National Hawkers Policy were drafted, but these were never finalised and implemented.
Now, the UPA government is leading a new charge on the old problems; last year the Centre accepted an increased disbursement of credit and grants for urban issues from the World Bank group, based on its Country Assistance Strategy 2004-07. The WB group board approved this CAS in Sept 2004. Now, almost a year later, a new more comprehensive but highly debatable urban reforms agenda has been cobbled together.
The National Urban Renewal Mission
The National Urban Renewal Mission (NURM) was launched on 3rd December, 2005 in major cities to improve infrastructure with a budget of Rs 1 lakh crore. NURM is to be a reforms-driven, fast-track, planned development of identified cities with focus on efficiency in urban infrastructure and services delivery, community participation, and accountability of local governments towards citizens. The following broad framework is proposed for the Mission:
· Central sponsorship
· Sector-wise project reports would be prepared by identified cities listing projects along with their priorities.
· The funding pattern would be 35:15:50 (between Centre, States/ULGs and financial institutions) for mega cities (>40 lakh population), 50:20:30 for cities with populations between one and four million, and 80:10:10 for other cities.
· The grant assistance (both Central and State) would act as seed money to leverage additional resources from financial institutions/capital market.
For about 5000 other (non NURM) small and medium sized towns the Urban Infrastructure Development Scheme (UIDSSMT) is to be the main driver; for this scheme funding will be in a tripartite pattern based on infrastructure needs. These towns will be required to implement the following urban reforms, by making eligibility for funding conditional on such changes.
1. Implementation of decentralisation measures as envisaged in the Constitution (Seventy-Fourth Amendment) Act to establish elected ULGs as institutions of self-government.
2. Adoption of modern, accrual-based double entry system of accounting in ULGs.
3. Passage of a "public disclosure law" to ensure preparation of medium-term fiscal plans of ULGs and release of quarterly performance information to all stakeholders.
4. Passage of a "community participation law" to institutionalise citizen participation and introducing the concept of the Area Sabha in urban areas. (One potential wrong turn here is that such a law itself would need to be developed through citizen inputs, and might otherwise run contrary to its own objectives).
5. Transferring all special agencies that deliver civic services in urban areas to ULGs over a period of five years and creating accountability platforms for all urban civic service providers in transition.
6. Introduction of e-governance using IT applications like Geographical Information Systems and Management Information Systems for various services provided by ULGs.
7. Reform of property tax with GIS, so that it becomes a major source of revenue for ULGs and arrangements for its effective implementation to ensure that collection efficiency reaches at least 85 per cent within the next five years. Complete revamping of the property tax system through detailed data gathering process, tracking and monitoring system.
8. Levy of 'reasonable' user charges by ULGs on many services that are currently free, with the objective of recovering the full cost of Operations and Management within the next five years.
Mandatory reforms under NURM include the following:
· Drawing up PPP models for development, management and financing of urban infrastructure for different sizes of ULGs.
· Introduction of independent regulators for urban services.
· Rationalisation of stamp duty to bring it down to no more than 5 per cent within next five years.
· Repeal of the Urban Land Ceiling and Regulation Act.
· Reform of rent control laws to stimulate private investment in rental housing schemes.
· Implementation of a system to improve the efficiency of drinking water supply on the basis of water audit.
Five optional reforms are to be chosen from among the following:
· Revision of by-laws to streamline the approval process for construction of buildings, development of sites etc.
· Simplification of the legal and procedural frameworks for conversion of agricultural land for non-agricultural purposes.
· Introduction of Property Title Certification System in ULGs
· Earmarking at least 25 per cent of developed land in all housing projects (both public and private agencies) for the economically weaker sections (EWS) / low-income group (LIG) category with a system of cross subsidisation.
· Introduction of a computerised process of registration of land and property.
· Revision of by-laws to make rainwater harvesting mandatory in all buildings to come up in future.
· Reuse of reclaimed water
· Adoption of water conservation measures.
· Administrative reforms i.e. reduction in the establishment cost by voluntary retirement schemes, not filling up of posts falling vacant due to retirement etc. and achieving specified milestones in this regard.
Some of the directions for these ministries are, however, now known. The Mid-Term Appraisal (MTA) of the 10th Five Year Plan was discussed by the group of Ministers who accepted it in July 2005; according to the MTA, the ministries will go about implementing the urban reforms agenda in the following manner:
· Merge all schemes of the Government of India for urban infrastructure and civic amenities. In future, make normal levels of assistance available on a platform of reforms. Such allocations would be conditional on urban reforms being carried out by the state governments and the urban local governments [ULGs].
· Take up the 35 cities with million-plus populations, the capital city in every state, and a small number of other cities that are of historical importance (about 60 cities in all) for a considerably enhanced level of Plan assistance through the National Urban Renewal Mission.
· Undertake reforms in urban land ceiling laws, rent control acts, and stamp duties (all supported by the Urban Reforms Incentive Fund that has been in place for some years now) in order to unleash housing activity in the urban areas. For the urban poor, a three-pronged approach is needed, involving availability of land, cheap and easy credit, and promotion of low cost building materials and technology.
Considering the increasing urban angst, complaints against services, hobbled local governments, land and money scams, corruption et al., the history of efforts to tackle these problems has been a tale of repeated false starts. Consider the facts from recent years alone: Like many previous efforts, this one too suffers from a poor understanding of the nature of the problems: considering that so many of the issues involved have to do with local governments and citizens' expectations of these, there has oddly been little public or civil society consultation in drafting the plans. Instead, there has been very frenetic lobbying by the private sector, especially from international and domestic real estate consultancies, financial institutions, industry confederations, etc. A predictable - and highly undesirable - consequence of these selective inputs is that the convergent interests of these players have been turned into conditionalities within the urban reforms agenda.
The proposed reforms agenda will create increased demand for the privatisation of crucial municipal services e.g. by urging States to adopt the Model Municipal law (MML), and by amending their own Corporations and Municipalities Acts. It is claimed that the Model Municipal Law will enable urban local bodies to play their roles more effectively and efficiently. The MML includes specific provisions on financial management of municipalities, municipal revenue, urban environmental infrastructure and services and regulatory jurisdiction. It is based on a set of policy postulates developed by the Times Research Foundation, Kolkata with funding from FIRE-D, New Delhi (a USAID-funded effort engaged with creating debt markets for urban water and sanitation projects).
In line with the conditionalities, the World Bank and the Asian Development Bank, along with the State governments, are initiating a plethora of urban development projects, such as the following:
· Karnataka Municipal Reform Project - Dec 2005 - WB
· Karnataka Urban Water Supply project - March 2005-2008 - WB
· North Karnataka Urban Improvement Project - 2006 - ADB
· Kerala UDP - 2006- ADB
· Uttaranchal UDP - 2006 - ADB
Looming ahead on the horizons of all these individual efforts is the National Urban Renewal Mission. With its sweeping scope, NURM will certainly impact many of these schemes in a big way; thus it is important to understand this mission, and its implications for the abundant ongoing schemes around the nation. Will NURM curb the exclusivist tendencies of the individual programs and bring in more citizen participation, or will it worsen the already poor record of these programs on civic engagement?
The National Common Minimum Programme (NCMP) adopted by the UPA govt in May 2004 included a single paragraph on urban issues, which states the intention of the government to launch the National Urban Renewal Mission. This has now crept up on us in a rather nebulous shape, catching many citizens of urban India unaware of the myriad nature and implications of this mission for our cities. The broad agenda of the NURM is purported to be to strengthen democratic governance structures and decentralisation in urban local government, though it has still not been clearly articulated by the Ministry of Urban Development or the Ministry of Urban Employment and Poverty Alleviation how this mission will be implemented to meet this objective.
A number of these proposals are to ensure functional autonomy for local bodies as much as possible. This focus is one that is needed, and surprisingly so. The State governments have for a long time argued that New Delhi does not sufficiently share its resources with them, and thus corners too much power for itself by controlling the purse strings. But this is the same complaint that panchayats and municipalities have made against the State governments for a long time! Most state governments have shied away from implementing several provisions of the Constitution (Seventy Fourth) Amendment Act, 1992, which envisaged a decentralised governance structure at the local level. In Kerala, for example, a panchayat is now arguing before the Supreme Court that it should have the right to regulate water use in its jurisdiction, an argument that would be unnecessary if true devolution had been in place.
The important topic of urban governance is subsumed by the chapter on Urban Infrastructure in the MTA of the 10th Five Year Plan which the Planning Commission released in June 2005. The section on NURM does acknowledge "that community involvement leads to effective implementation of projects, to better designing and reduction of operational costs".
The tenth plan has acknowledged that there is a pressing need for capacity building of municipalities through training of elected and appointed officials and by restructuring of ULBs for efficient management of civic services. And towards this end a lot of funds are annually sanctioned to states governments but over 50% of these funds still lapse unused.
Public Services, Minus the Public
The most tangible impact of the activities to be initiated with funding from the NURM for the urban citizens will be in the form of City Development (Strategic) Plans, to be prepared by local governments in urban areas that are to be NURM-compliant. The development of these CDSPs has begun almost silently, and there is yet to be any public information, awareness or consultation regarding the plans or their preparation process. According to the NURM guidelines these have to be prepared after conducting a wide stakeholder consultation process, and to be preceded by the identification of a planned urban perspective framework for a period of 20-25 years.
This CDSP in the case of Bangalore and other cities is meant to integrate land use with services, urban transport and environment management. Based on eligibility and the funding pattern, the Bangalore Mahanagara Palike is likely to be eligible for about Rs.500 to Rs.1000 crores in 2005-2006. Unfortunately, without official public hearings, proposals are being finalised in the application format. The Metro rail project too - according to the Union budget this year - would be supported under the NURM funding by the central government.
The Central government is setting conditionalities and state governments so that NURM cities would have to undertake all the mandatory reforms within the prescribed time frame, with the "freedom" to opt for any five other items listed as optional (see box). The state governments and the identified cities would then have to execute Memoranda of Agreement with the Government of India and ensure that such reforms are actually undertaken. The tripartite MOAs would be submitted along with Detailed Project Reports. If state governments are now making proposals under NURM terms, then it is assumed that they have accepted some of these reforms, since that is one of the conditions. But which ones? Without public consultation or disclosure, there is no way to tell.
The Urban Reforms Incentive Fund (URIF) was launched a few years back for conditional reforms based on 'carrot and stick' financial measures to the state government to carry out reforms. Some examples:
· Repeal of the Urban Land Ceiling and Regulation Act.
· Rationalization of stamp duty in phases to bring it down to no more than 5 per cent by the end of the Tenth Plan period.
· Reform of rent control laws to stimulate private investment in rental Housing Schemes.
· Introduction of computerised process of registration.
· Reform of property tax so that it becomes a major source of revenue for ULGs, and arrangements for its effective implementation with collection efficiency of 85 per cent by the end of the Tenth Plan period.
· Levy of reasonable user charges, with full cost of operations and maintenance being collected by the end of the Tenth Plan period.
· Introduction of double entry system of accounting.
Under URIF, 28 states/Union Territories have signed the Memoranda of Agreement (MoA) with the Ministry of Urban Employment and Poverty Alleviation. Of these, 20 agreed to repeal the Urban Land Ceiling Act and rationalise the stamp duty, 22 States / UTs agreed to reform the Rent Control Act, 27 States/UTs agreed to computerise the registration process and levy of reasonable user charges. All 28 States/UTs agreed to adopt the double entry system of accrual accounting.
Urban Planning
Urban planning is done to create a balance in resource (like land, water etc.) allocation that will be desired/ demanded by various stakeholders. Master Plans essentially look at how land will be allocated for industrial and residential purposes. The Urban Land (Ceiling and Regulation) Act, 1976 came into force on 17.02.1976. The states of Andhra Pradesh, Haryana, Gujarat, Himachal Pradesh, Karnataka, Maharashtra, Orissa, Punjab, Tripura, Uttar Pradesh and West Bengal initially adopted the Act. However, the Urban Land (Ceiling and Regulation) Act, 1976 was replaced by an Ordinance promulgated on 11.01.1999 after the State Governments of Haryana and Punjab passed a resolution for repeal of the Act. The Ordinance was replaced by Urban Land (Ceiling & Regulation) Repeal Act, 1999 0n 22.03.99. Initially the repeal Act was applicable in Haryana, Punjab and all the Union Territories.
Municipality
The principal challenges before the municipal bodies in India are: (a) strengthening the credit-worthiness of local bodies; (b) removing the huge distortions in the inter-governmental fiscal transfer framework; (c) more than per se accessing of the capital markets. The IIR 2004 [India Infrastructure Report, 2004] therefore mentions about the need for a market based system of access wherein the monitoring and other risk measurement and management functions can be brought to bear on the municipality and its projects. Strengthening municipal bond issuance, securitization of future flows, more innovative use of government and multilateral guarantee, promoting infrastructure financing by banks and housing finance institutions are some of the ways to overcome the problem of municipal financing.
In case of urban infrastructure, funding through the capital market can be in the form of debt instruments, popularly known as municipal bonds, which are more in the nature of structured financial products. Policy is already in place regarding the issue of such instruments by urban local bodies (ULBs). This, however, is at the initial public offer (IPO) level. However, among the urban infrastructure projects in India which have been perceived as commercially viable, few can have municipal bonds issued in the market. The weak financial position and revenue sources of ULBs make this even more difficult. As a consequence, a new type of credit instrument has been designed to enable local bodies to tap the capital market, called structured debt obligations (SDOs). These are arrangements through which bonds are issued on the condition that the borrowing agency pledges or escrows certain buoyant sources of revenue for debt servicing. This is a mechanism by which the debt repayment obligations are given utmost priority and kept independent of the overall financial position of the borrowing agency. It ensures that a trustee would monitor the debt servicing and that the borrowing agency would not have access to the pledged resources until the loan is repaid [Pethe and Ghodke, 2002][1].
Agencies like Development Authorities, under pressure from the Central Government and the Reserve Bank of India, are generating resources internally and borrowing from development-cum-banking institutions, and also from capital market at fairly high interest rates. There has been a fall in mandatory investments by financial institutions in social infrastructure due to loosening of the directed credit system, as a part of the financial sector reform in the country (Kundu, 2003)[2]. Some of the remedial measures suggested are: reduction of public sector intervention, ensuring appropriate prices for infrastructure and urban amenities through elimination or reduction of subsidies, development of capital market for resource mobilization simplification of legislative system to bring about optimality in land use and location of economic activities etc. (World Bank, 1995[3]; World Bank 1998[4]).
A recent research study (Joshi, 1996) based on the survey of large local bodies in the states of Gujarat, Maharastra, Rajasthan and Madhya Pradesh concludes that: “most municipal bodies lack the much needed long term planning—while small municipal bodies cannot afford it, unfortunately it is absent in big municipal corporations. The survey of 19 municipal corporations indicates that 73 per cent i.e. 14 municipal corporations had no formal long term planning process”.
Commercialisation of infrastructure has been argued because of the following reasons:
· Countries are looking for additional sources of financing to promote and maintain rising economic growth rates against the backdrop of fiscal stringencies.
· Governments world over are rethinking about the importance of efficiency in investment and delivery, in the context of tight fiscal conditions since in the past they had been unable to deliver infrastructure services in a business like fashion.
· Changes in technology make it easier to charge for marginal use of infrastructure services. Such technological changes are making possible the introduction of competition horizontally and unbundling of services vertically.
· Competition at the global level is putting additional pressure on countries to provide efficient infrastructure services to their businesses in a cost-effective and competitive manner. Firms can become globally competitive on the basis of existing infrastructure cost in terms of both price and time delays.
The new dynamism and integration of world capital markets have amplified the likelihood of raising large funds for infrastructure investment on a commercial basis whereas earlier, it was governments which had better access to resources. In many cases, it is now the private sector which has the capability of sourcing large funds internationally.
[1] Pethe, Abhay and Manju Ghodke (2002): ‘Funding Urban Infrastructure: From Government to Markets’, Economic and Political Weekly, June 22.
[2] Kundu, Amitabh (2003): ‘Chapter 13: Institutional Innovations for Infrastructural Development in India and the Emerging Urban Scenario’, in Ramprasad Sengupta and Anup K Sinha (ed.) Challenge of Sustainable Development: The Indian Dynamics, published by Centre for Development and Environment Policy, Indian Institute of Management, Calcutta.
[3] World Bank (1995): India Transport Sector: Long Term Issues, Report No 13192-IN, Washington DC.
[4] World Bank (1998): Reducing Poverty in India: Options for More Effective Public Services, World Bank, Washington DC.
