Democratization and Empowerment of City Governments

The Reserve Bank of India (RBI) said in a report, “State Finance, 2021-22 Budget Study”, released in November 2021, wrote: “Third-tier governments in India are playing an advance role in combating the pandemic by implementing prevention strategies, healthcare, … and raising funds from various sources. ,

RBI further remarked that the functional autonomy of civic bodies should be increased and their governance structure should be strengthened. This can be done by ’empowering them financially through higher resource availability’.

It is interesting that the RBI echoed the recommendations of the 15th Finance Commission Report on Local Bodies, which emphasized the governance structure and financial empowerment of the city. Addition to the RBI’s report is from practice and objective reality from during the novel coronavirus pandemic – which continues even now.

However, there is only partial truth in the report. Resource availability is emphasized, but how this will happen is not highlighted. At the most, it talks about creating more resources at the local level.

Element

While correctly identifying the role of city governments in addressing the challenges posed by the pandemic, the report also points to the drain of resources. An RBI survey of 221 municipal corporations (2020-21) showed that over 70% saw a decline in revenue; In contrast, their spending increased by about 71.2%.

The RBI report also highlighted the limited coverage of property tax and its failure to augment municipal revenues. Data from the Organization for Economic Co-operation and Development (OECD) shows that India has one of the lowest wealth tax collection rates in the world – that is, the wealth tax to GDP ratio. But this explains only part of the story.

an old problem continues

During the pandemic, while leaders ranging from the prime minister to chief ministers to district magistrates were seen taking calls on disaster mitigation strategies, the city’s mayor was found missing. Why? Because under the disaster management action plan, cities are at the forefront of fighting the pandemic; However, the elected leadership finds no place in them. It is not just in disaster reduction. The old view of treating cities as subsidiaries to state governments dominates the policy paradigm.

The general approach towards urban empowerment in India remains fragmentary. Urban development is a state subject, which is more closely linked to political and democratic movements in the states. The first interventions to understand ‘urban’ (though there are references in the Five Year Plans) and planning with a pan-India vision occurred in the 1980s when the National Commission on Urbanization was formed with Charles Correa as the chairman.

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Another significant intervention was with the 73rd and 74th Amendments to the Constitution in the early 1990s. The latter refers to urban reforms – empowering urban local bodies to perform the 18 functions listed in the 12th Schedule. But it was also a period of neo-liberal reforms, so the creation of own resources and the slow return of the state could be seen.

Although democratic devolution of 18 subjects was an important element, and necessary, there was no mention of financial empowerment. This was linked more to the idea of ​​”competitive quoting” in urban centers to attract investment by making their structures and land laws flexible. We now know that there hasn’t been much investment, and cities haven’t really been able to scale up their financial capabilities.

The only exception to the rule has been Kerala’s public planning model, where 40% of the state’s plan budget was for devolution of important subjects such as planning, etc., to local bodies (directly). It paved the way for a new dimension. urban governance.

functional autonomy

The RBI report has been right in highlighting that functional autonomy of city governments should be allowed. But it must be accompanied by three F’s: devolution of ‘functions, finances and office bearers’ to city governments. Without these, functional autonomy would be empty rhetoric. There are about 5,000 statutory towns and an equal number of census towns in India. About 35% of the population lives in urban centres. And, about two-thirds of the country’s GDP comes from cities and about 90% of government revenue comes from urban centres.

Before value-added tax and other centralized taxation systems, one of the major earnings of cities used to be taxation. In fact, Pimpri-Chinchwad and Pune are examples of two very high revenue-generating municipalities dependent on octroi, as both cities have strong industrial production bases. But this source of revenue collection was snatched away by the state and central governments. Instead, finance commissions recommended grants to urban local bodies based on a formula of demographic profile. Previously, while around 55% of the total revenue expenditure of urban centers was met by octroi (eg, Shimla), now, the grant covers only 15% of the expenditure. In such a situation, it is difficult for towns to maintain their ability to perform their minimum functions, especially with the latest Pay Commission recommendations.

This has resulted in high tax burden on the people and a vicious cycle of privatization/outsourcing of municipal services. It is a pan-India phenomenon and is linked to grading of cities and urban policies.

Now with the Goods and Services Tax, the tax potential has been ‘completely robbed’; Cities find themselves in worse shape than states.

An often cited example is how well cities in Scandinavian countries manage their functions – from city planning to mobility to waste management. But the truth is that a part of the income tax received from citizens is given to the city governments. Imagine a large urban agglomeration in India like cities getting a percentage of income tax to manage the affairs of urban locations. This will be phenomenal!

A committee constituted under the United Progressive Alliance (under the Ministry of Housing and Urban Development to review the 74th Constitutional Amendment) recommended that 10% of the income tax collected from cities should be given back to them as direct revenue grants. central government. Alas, this never gets noticed.

What needs to be done? Cities should be treated as important centers of governance, where democratic decentralization can bring surprising results (as seen in Kerala). There will be transparency and adequate people’s participation.

Second, cities should not be treated as places of entrepreneurship, where the only driving force is to make them competitive to attract investment. We have seen how false this argument is. They should be treated as space for planned development by giving adequate attention to the resources.

Our cities are hardly prepared for the effects of climate change; Nor do they have adaptive strategies. The necessary resources for quantitative and qualitative data should be immediately made available to cities to ensure disaster risk reduction planning with vulnerable communities in mind.

nothing ‘smart’

Fourth, piecemeal approaches such as the concept of ‘smart cities’ should be discarded altogether. This approach further widens the gap between different groups of people. Instead, grants should be increased from the Center and cities should be asked to formulate their own plans based on the priority of city residents. Cities are people, as they say, and people should be part of the decision-making process.

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Fifth, leadership in cities should be elected for a term of five years. In some cities, the term of the mayor is one year. Similarly, the third F, i.e., office bearers should be shifted to cities with permanent cadre.

Thus, in this exercise by RBI, the good part is that at least the cities mentioned are important centers of governance along with the local bodies.

Tikendra Singh Panwar is a directly elected Deputy Mayor of Shimla and an urban businessman. He is also Senior Fellow at Impact and Policy Research Institute (IMPRI), Delhi