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September 18, 2013

Development Strategy

Towards 2050: The Urban Challenge

By Nitin Desai


Between 2010 and 2050 India is expected to add about 500 million to its 2011 urban population of 377 million.  This means that even at the present grossly inadequate scale of provisioning, urban housing and infrastructure of water supply, energy, transport, etc. will have to more than double. Allow for some necessary improvement in standards and the scale of expansion will be much more. The panel set up to examine urban infrastructure costs has put forward a 20 year bill of Rs.39 trillion with expenditure as a proportion of GDP rising from 1.6 % in 2010-11 to 2.1 % in 2030-31.  And this does not include urban housing.

However the central issue is not the finances required but the readiness of our urban governance and management systems to cope with the challenge of growth and of upgradation, since one cannot see how the continued unfinished and slum like  environment of our cities can be tolerated in a middle income India.  Three major changes are required to cope with the challenge-radical reform of the urban land market so that transparent transactions and rational land use are facilitated, comprehensive reconsideration of building codes and planning restrictions to encourage more compact, less transport  and energy intensive cities and decentralisation and empowerment of city administrations so that space is created for entrepreneurial city leadership.

Cities are shaped by the efficiency with which the urban land market functions. Our urban land markets are dysfunctional. They are opaque and do not encourage the optimal use of land. In major metros much of the redevelopable urban land is held by urban authorities or some public sector entitiy like the railways, the port trust or the defence ministry. The effective use of this land depends entirely on the capacity of the public sector to mobilise resources and implement projects efficiently, both of which are sadly deficient at present. Private developers trying to work to scale leap frog beyond city limits into peri-urban areas. They too often sit on land banks, so that new entrants move even further out. We end up with a patchwork of sprawling development with vast vacant areas in between, leading to unnecessary costs for   infrastructure and transport.

We need more compact cities from an environmental perspective and to reduce the costs of municipal and transport infrastructure. Publicly held lands must be put on to the market so that they can be developed more rapidly.  Developers should be charged betterment levies that truly reflect the additional cost of their particular location. And of course land records need to be cleaned up, a system of standard prices for land transactions has to be established and the fiscal system must encourage greater transparency in transactions.

The other big issue in this area is of land acquisition. When urban authorities put in infrastructure, like a ring road, they usually acquire the land through an acquisition process that compensates the losers on the basis of the value of land in its earlier use. Other land holders whose lands will benefit in value from the infrastructure become the big gainers. This inherently unfair system should be replaced with a land adjustment procedure that involves an agreement among all affected land holders to surrender part of their land for the infrastructure and get back readjusted plots in proportion to their original holdings. In such a land adjustment process all land holders, including the ones whose actual plots will be wholly required for the infrastructure, share in the increase in value. This should be the procedure used also for larger scale property development where, at present, developers acquire land at agricultural rates and then, in connivance with the authorities, get the use changed and appropriate the resulting increase in value.

Reforming urban land markets to loosen the supply of land will have to be accompanied by a reconsideration of some of the planning restrictions like the use to which each plot can be put, the extent of built up area, height restrictions on construction and so on.  The scale of urbanisation ahead of us, the costs of urban infrastructure and environmental imperatives like minimising emissions require us to look to more compact cities with more high rises than at present and a mix of commercial, industrial, residential and leisure facilities within easy reach of each other. Our master plans do not encourage this sufficiently and we need to examine land use and planning restrictions so as to discourage sprawl and encourage a much more rational use of land.

The third, and some ways the most important element in urban reform, is governance. Our city administrations are virtually powerless and the ministries at the State capitals take all the crucial decisions on finance, spending and planning more from the perspective of the State as a whole than the city itself. By 2050 the bulk of our GDP will be generated in cities  and it is absurd that they should not have fully empowered local governments with full authority over planning and spending and the fiscal capacity to finance this spending. The interaction of the city with the hinterland beyond its boundaries will of course and to be managed by the State administration, but they should avoid interfering on matters that affect only the city itself.

The ingredients of effective city governance are many - an entrepreneurial mayor (possibly directly elected), local committees to give a more direct  voice to citizens at the community level, transparency in decisions about land use changes that alter values, open information on contracts and so on. They are well known. what stands in the way is the unwillingness of State level politicians to let go of the huge opportunities for money making that arise fo planning decisions.  Perhaps some further tweaking of the. 74th amendment that sought to empower urban local bodies may be needed.  As far as independence in financing is concerned there is no reason why cities where the bulk of our GDP will be generated cannot raise enough from property taxes, betterment levies on developers, municipal bonds and other such means to be largely independent of State or Central level financing.

We have not yet begun on the reform agenda outlined here and any further delay will mean that in 2050 a middle income India will continue to live and work in low income cities.

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