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The Indian government will have to comprehensively rethink its approach and empower ULBs if India is to achieve its promise of becoming an economic powerhouse by 2047
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Until 1992, the Government of India’s (GoI) role in the governance of urban local bodies (ULBs) was, at best, marginal, because the Seventh Schedule of the Constitution of India assigns local governments to the State List.[1]1 Such a largely hands-off approach was also a legacy of the past when the developmental thought prevailing in the country was to care for the villages and leave the cities largely on their own.[2]
GoI made the first substantive attempt at overhauling local urban governance in 1992 through the 74th (Constitution Amendment) Act. In its ‘Statement of Objects and Reasons’, the Amendment Act stated that local bodies had become weak and were no longer able to discharge their functions. The primary objective of the Act, therefore, was to empower ULBs so that they could function as “democratic units of self-government”. Unfortunately, this objective did not fructify, and the lacuna can be witnessed in the current plight of ULBs three decades after the Amendment. The text of the Amendment Act left several infirmities, allowing the states to continue to exercise power over the ULBs and block all reforms at local empowerment.
Given the growing economic contribution of cities to the nation’s GDP, now at above 60 percent, GoI has been attempting to channel more resources into the ULBs through centrally sponsored programmes. This process has gained weight since the launch of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) in December 2005. It was further strengthened by a large basket of GoI’s urban programmes in the last decade, including Atma Nirbhar Bharat; Atal Mission for Rejuvenation and Urban Transformation (AMRUT); Smart Cities Mission; Swaccha Bharat Mission-Urban (SBM-U); Heritage City Development and Augmentation Yojana (HRIDAY); and Pradhan Mantri Awas Yojana-Urban (PMAY-U). However, these programmes have met with limited success in facilitating reforms.
GoI has also introduced model acts for states to adopt, such as the Model Municipal Law and the Model Tenancy Act. Unfortunately, however, the states have largely ignored the guidelines set forth by these models. They feared, for instance, that the Model Tenancy Act could alienate tenants, who are more numerous than landlords. The consequence is that urban local governance in India has for long been bereft of any meaningful reform in the domains of governance, planning, and finance.
Meanwhile, India’s urbanisation rate has climbed from 17.29 percent in 1951 to 31.16 percent in 2011, when the last official census was held. In the absence of a new census, a fair estimate of the urban expansion is possible only from other sources that have worked on more recent population projections. The World Bank (WB), for example, estimates that India’s urbanisation rate stood at 35.87 percent in 2022 and the total national urban population was at 508.36 million that year. A WB study on urbanisation in South Asia also found that India was experiencing what is known as ‘hidden urbanisation’, or populations living in areas with urban characteristics being excluded from national urban records. While the urban sprawl accounted for 55.3 percent of the country’s population at around the turn of the first decade of this century, the official 2011 census figures pegged urbanisation at a far lower 31 percent.
Even so, empirical evidence over the past decade suggests that the next Indian Census should reveal that some southern and western states have crossed the 50-percent urbanisation mark, and others are very close to it. At the same time, India has seen a sharp rise in the number of megacities (those with a population above 10 million)[3] and metropolitan cities (above one million)[4] in the country. From 20 such cities in 1971, the number rose to 53 in 2011, holding about 42.3 percent of the urban population.
These cities contribute more than 60 percent of India’s GDP and are widely regarded as engines of national growth. The vibrancy of cities is critical, for as urbanisation accelerates, the cities’ role in national wealth generation ought to grow larger. Yet, many cities have been showing signs of distress and a sharp fall in their quality of life. They are also presenting symptoms of stagnating economies amid population growth. Indeed, the urban input into national GDP has slowed down. This appears to be because falling standards of life are negatively impacting productivity and growth.
GoI will have to push the long-pending urban reforms that are vital for the cities. It will also have to formulate a mechanism by which it assumes a more significant role in the planning and governance of megacities. Both of these tasks would require constitutional amendments.
They also necessitate GOI’s prompt action on multiple fronts. First, it should lay down a national policy on urbanisation articulating the broad strategies for urbanisation. Second, the centre would have to ensure that the states implement such a policy in letter and spirit. Third, GoI would have to exhort states to enunciate their own state-level policies on urbanisation that would be aligned with the national urban policy. Lastly, GoI would have to examine the financial vulnerabilities of the ULBs and devise ways for cities to supplement and maintain their assets and suitably perform all mandated functions.
A key element of a national policy must be the decentralisation of urbanisation. This had already been recommended by the National Commission on Urbanisation (NCU) in 1988 through the twin concepts of Generators of Economic Momentum (GEMS) and Spatial Priority Urban Regions (SPURS). NCU identified 329 cities as GEMs—77 categorised as ‘national priority cities’, 252 cities as ‘state priority cities’, and 49 SPURS across India that were likely to urbanise rapidly. Based on an examination of demographic, economic, and administrative factors at the micro level, national and state priority cities were identified and their growth potentials were determined. The NCU report expressed “confidence” that GEMs and SPURs would change the urban settlement patterns in India and reduce “the imbalances of the present metro-dominated urban system” if sufficient investments were made. However, India’s urbanisation trends since 1988 indicate that the NCU agenda has remained unfulfilled.
Earlier national programmes, such as the GoI-sponsored Integrated Development of Small and Medium Towns (IDSMT), aimed to arrest the increasing tide of migration to big cities by helping small and medium-sized towns to generate employment. Implemented nationwide in 1979-80 in towns with a population of up to 500,000 identified by the states and Union Territories, the IDMST failed to achieve most of its targets—even drawing flak from the Comptroller and Auditor General (CAG) in 2001. The CAG noted that neither GoI nor the state governments maintained migration data—the primary requirement to achieve the programme’s core objective. It also pointed out the non-availability of financial resources as the most significant reason that impeded the scheme’s implementation.
Both the above-cited initiatives made little impact and such an approach will have to be abandoned. Nonetheless, nearly four decades later, the NCU provides a template for GoI to start afresh— though with the necessary changes aligning with the current urban scenario—to ensure a comprehensive transformation of urban India. Through a detailed study of the growth potential of various towns and cities and their impact on the nation, GoI must now select some 500 to 700 towns and cities for special focus and assistance. Learning from NCU’s experience, the developmental assistance would have to be substantial for these cities to have the potential for enhanced economic activity and employment opportunities as well as the ability to deliver quality of life.
In the past, GoI has provided cities with specific grants based on the recommendations of the Central Finance Commission (CFC) and State Finance Commissions (SFCs). However, in the context of urban infrastructure requirements, these grants have scarcely helped the urban situation. Here, GoI has a particular responsibility. The GDP size of the ULBs today stands at less than one percent, far below the international standard of 4 to 6 percent.
While GoI was commended for implementing the goods and services tax (GST), it overlooked the adverse consequences of the all-subsuming GST on municipal sources of revenue. It behoves GoI, in the background discussed in this article, to share the GST revenues with the ULBs and match their functions with the finances. The irrelevance of the SFCs, which recommend the quantum of revenue to be shared by the states with ULBs, has worsened the situation. Most states regularly set up SFCs every five years as mandated by the 74th Constitutional Amendment, but they largely ignore their recommendations. Under the GST regime, which has subsumed most ULB revenues, sincere acceptance of the SFC’s financial recommendations by the states becomes imperative.
There is no space for unfunded mandates for the well-being of the ULBs. GoI will have to comprehensively rethink its approach and get involved with its cities if India is to achieve its promise of becoming an economic powerhouse by 2047.
Ramanath Jha is a Distinguished Fellow at the Observer Research Foundation
This essay is part of a larger compendium “Policy and Institutional Imperatives for India’s Urban Renaissance”.
[1] The subjects mentioned in the State List are those over which the states exercise powers to legislate.
[2] Many analysts have sought to prove the historical anti-urban bias in the Indian political system. See, for instance: Isher Judge Ahluwalia, “Urban governance in India,” Journal of Urban Affairs, Taylor & Francis Online, https://doi.org/10.1080/07352166.2016.1271614.
[3] The United Nations Department of Economic and Social Affairs defines ‘megacities’ as urban agglomerations with over 10 million inhabitants.
[4] The 74th (Constitution Amendment) Act, 1992 defines a ‘metropolitan area’ as an area having a population of 10 lakhs or more.
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Dr. Ramanath Jha is Distinguished Fellow at Observer Research Foundation, Mumbai. He works on urbanisation — urban sustainability, urban governance and urban planning. Dr. Jha belongs ...
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