Towards Efficient Urban Public Services in India

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Towards Efficient Urban Public Services in India AN INSTITUTIONAL CASE STUDY The urban population in India is growing consistently, placing unseen pressure on existing urban infrastructures. Public service performance is low by international standards.

Empowerment of local authorities could improve the provision of services, but there are many challenges to overcome.

India’s urban population has increased sixfold since 1951.

Compared to the global average of 50%, the country’s urbanization rate – 31.2% of its 1.2 billion inhabitants (2011) – is still low. However, in absolute terms, India’s total urban population is already larger than the total population of any other country in the world, except China, and represents more than 10% of global urban dwellers.

This rapid growth has resulted in a severe strain on the existing urban infrastructures, which have become grossly inadequate to serve current and future demand. Across the country, issues of urbanization have played out in the form of overcrowding, congestion, inadequate service provision and environmental degradation. All these factors highlight the critical need to address the challenges of delivering urban services in India.

Empowering local governance seems to be the key to achieving this goal, but India’s institutional framework remains highly complex: the responsibility for funding and creating public infrastructures and managing local services is scattered among state authorities, parastatal agencies and urban local bodies.

Moreover, the institutional set-up varies from state to state due to India’s federal institutional system.

This institutional study, based on 11 cases, analyzes the municipal and urban sector’s complexity in India, leading the way to recommendations for improved public services and urban governance.

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Complete report can be downloaded at: http://www.afd.fr/webdav/site/afd/shared/ PUBLICATIONS/RECHERCHE/Scientifiques/Focales/20Focales.pdf

Overview of the urban sector in India

for 1.1% of the country’s GDP (€6 billion), compared to 6.9% in South Africa and 9.7% in Switzerland.

Own revenues, i.e. excluding intergovernmental transfers, only make up 53% of total revenues.

Furthermore, there is a high disparity between states; for instance, the municipal bodies in the four relatively decentralized states of Maharashtra, Gujarat, Punjab and Andhra Pradesh account for 33% of the country’s urban population but generate over 75% of total municipal revenues. ULBs’ own revenues consist exclusively of property taxes, whose collection is inefficient; and tax levels remain subject to state approval. Other taxes that meet the test of immobility, e.g., land-based taxes, are appropriated by state-level entities. Finally, the measurement of financial performance is hindered by the fact that many state governments and ULBs still resort to cashbased single-entry accounting instead of modern accrual-based double-entry accounting.

Insufficient urban service performance

Indian cities showcase the lowest service delivery performance among BRICS peers (Brazil, Russia, India, China and South Africa) for urban services.

For example, duration of water supply range only from 1 to 6 hours, and 94% of cities and towns do not even have a partial sewage network. Historically, urban development in India has not received enough attention from successive governments.

Increased levels of investment is a very recent phenomenon: between 2005 and 2012, funding for urban infrastructures represented nearly 20 times the investment levels of 1980-2005. It is estimated that €550 billion will be required over the next 20 years.

The intricacies of urban governance

In line with the Constitution of India, the urban sector is considered to be a responsibility of the federated states. Responsibility for urban governance is split into three levels. The Union Government has a facilitative, supervisory, support and policy-making role. The state governments play a pivotal role in urban governance and often bear the responsibility of providing basic amenities and services through state departments, state-level boards, statutory and non-statutory bodies at the city level, and financial support in planning and implementing infrastructure projects. Urban local bodies (ULB - denomination for local governments) play an important role, but remain heavily dependent on powers and funds devolved by state governments. Generally, ULBs’ responsibility is restricted to the operation and maintenance of basic services; capital works are implemented through state parastatals or state departments.

ULBs therefore rely mainly on national or state transfers, which have been transformed in the past ten years, both in terms of scale and in terms of design. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM), launched in 2005, has allocated more than €9 billion grants for urban infrastructure development. Interestingly, to access these funds, states and municipalities were required to initiate 23 urban governance reforms. However, there is still room for improvement in the design and efficiency of these transfers. Service-level benchmarking, for example, is still in the nascent stage and most funding remains unrelated to local service performance.

Borrowing by ULBs to finance capital expenditures is currently very limited. Borrowing regulations only allow ULBs to borrow from Indian banks or financial institutions, and all loans are subject to state government approval. Domestic borrowing, however, is scarce due to ULBs’ lack of financial capacity and the absence of long-term exposure or project lending by Indian financial institutions. The Constitution of India bars lending by a foreign entity directly to state governments and implicitly to local governments. Urban local bodies can only borrow sovereign loans wherein all external funding is routed via the Government of India, and the state government provides guarantees against the loans. Therefore, the prevailing form of lending is “push lending”, i.e., lending to ULBs is done by the state for a specific program/ scheme/agenda, irrespective of ULBs’ financial capacity.

The decentralization agenda to empower urban local bodies was laid down in 1994 by the 74th Constitutional Amendment Act, enacting eighteen key local functions to be carried out by the ULBs. However, these functions have been unevenly devolved across Indian states, which explains the varying levels of decentralization. Moreover, the decentralization process is mostly focused on administrative functions, without the financial decentralization required by ULBs to effectively exercise their prerogatives.

Municipal finance: mobilizing resources for local services

Urban local bodies have insufficient financial resources. Municipal expenditures in India account



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Overview of case studies and urban governance trends

for inadequate implementation of the various development plans is that the agencies responsible for urban planning (development agencies) do not have any development accountability to ULBs or their constituents and therefore have little incentive to meet the urban development agenda or urban service delivery standards.

Three state and eight city case studies illustrate the institutional analysis presented above and explore the diversity of urban governance and service provision dynamics in India.

● Million plus cities of India Case studies Cities (orange): Nagpur, Nashik, Pune, Bangalore, Mysore, Kochi, Bhubaneswar and Guwahati.

Taking stock of the urban agenda's complex institutional environment, the study further analyzes national and state-level policy frameworks, which define objectives in terms of service delivery, identify stakeholders and provide funding options.

In particular, the report presents policy documents related to waste and sanitation, water supply and urban transport and explores their implementation status.

Case studies States (grey): Karnataka, Kerala and Tamil Nadu.

Urban development funding and implementation

Funding for urban infrastructures projects has not been a major constraint for the states of Tamil Nadu, Karnataka and Kerala. Tamil Nadu and Karnataka have been quite successful at attracting foreign aid, particularly through financial intermediaries such as state urban infrastructures funds like in Karnataka (KUIDFC) or Tamil Nadu (TNUIFSL). However, more funding will be required in the future. Firstly, the investment requirements are huge given the current infrastructure deficit. Secondly, “finance-plus” elements are expected in parallel to donor funding, e.g., for conditions mandating technology upgrading and institutional reforms (for better service delivery, transparency and effectiveness in operations).

Solid waste management, one of the sole functions generally devolved to ULBs, is seen as one of the most neglected sectors in terms of funding.

Karnataka

Tamil Nadu

Source: Authors.

Institutional set-up

Throughout the cases reviewed, ULBs do not have a unified governance structure. Consistently, local functions like solid waste management and street lighting are undertaken by municipal bodies.

Functions like water supply and sewerage are generally assigned to city or state parastatals, but this institutional structure varies across states.

Generally, city master plans, ULB budgets and public-private partnership infrastructure projects have to be approved by the state. However, postJNNURM, interim arrangements have been made in some cases to increase city and state parastatals’ accountability to ULBs.

In addition to funding mobilization, key constraints for urban service delivery improvements include project implementation capabilities. Using JNNURM execution rates as proxies, ULBs’ capacity to design and implement projects and carry out governance reforms varies significantly across the case studies.

The reform achievement score (under JNNURM) is highest for Bengaluru, Mysore, Nashik and Pune.

Bhubaneswar and Guwahati have shown less progress in implementing reforms than other cities.

Planning

Master plans are mainly focused on physical planning and their implementation has been confined to land use and building regulations. All other planning documents, such as city development plans, city mobility plans and city sanitation plans, are “first generation” documents, prepared by state agencies with limited experience. An overarching reason

Capacity to sustain investments

The different ULBs studied have very different financial capacities. ULBs like Pimpri-Chinchwad,

COORDINATION Consultants from Service Public 2000 and CRISIL Infrastructure Advisory.

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Clémence Vidal de la Blache, Local Authorities and Urban Development Unit, AFD

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Loïc Perret, Dr. Ravikant Joshi, Abhay Kantak, Ravi Poddar, Achin Biyani, Ram J. Khandelwal, Romain Fayoux

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Nagpur and Nashik have relatively better financial capacities while Kochi, Bhubaneswar and Guwahati have low capacity to generate their own income and are highly dependent on the state government.

Bengaluru and Mysore have a very high operating

ratio, indicating low capability to service any further debt. The following table confirms the overall limited capacity of ULBs to mobilize debt funding for infrastructures.

TABLE 1. ULB PERFORMANCE ON KEY FINANCIAL INDICATORS

INCOME CAGR*

EXPENDITURE

OPERATING

REFORM

JNNURM FUND

CAGR*

RATIO

ACHIEVEMENT

UTILIZATION RATE

Bengaluru

23 %

28 %

0.97

95 %

76 %

Mysore

16 %

3%

0.80

90 %

64 %

6%

4%

0.77

99 %

35 %

Nagpur

19 %

8%

0.67

93 %

62 %

Nashik

16 %

7%

0.54

100 %

90 %

Pimpri-Chinchwad

16 %

17 %

0.43

100 %

102 %

Bhubaneswar

12 %

0%

0.67

75 %

38 %

6%

17 %

0.66

60 %

101 %

Kochi

Guwahati

* Compound annual growth rate Source: Authors.

The requirements for effective management of urban services remain to be met across most of the eleven case studies analyzed. Insufficient functional empowerment and financial autonomy of local authorities hinder their capacity to improve local public services. As an interim intervention, development accountability of state or city parastatals (towards service levels and citizens) is needed to improve local services.

Even though funding has been made available under JNNURM and externally aided projects, most of the ULBs have not demonstrated a capacity to

manage the operations and maintenance of the large infrastructure projects financed. The revenuerelated reforms did not progress adequately. This has eroded the financial base of even the bestperforming ULBs. As highlighted by the India Municipal Finance Report 2011, this finding calls for further revenue mobilization reforms: ULBs’ revenue base should be broadened with the allocation of exclusive taxes and greater resort to user charges, grants should be further linked to service delivery performance, and major capacity building programs should be undertaken.

BIBLIOGRAPHIC REFERENCES ASIAN DEVELOPMENT BANK (2007), Prospects for Sub-Sovereign Lending in India’s Urban Infrastructure: A Study of 10 Cities in India, Asian Development Bank, Manila, Philippines.

BAGCHI, S. (2004), Decentralised Urban Governance in India: Implications for Financing of Urban Infrastructure, Economic and Political Weekly, Volume 39, Number 49, New Delhi.

COMPTROLLER AND AUDITOR GENERAL OF INDIA (2013), Performance Audit of Jawaharlal Nehru National Urban Renewal Mission, Report Number 15 of 2012-13, Government of India, New Delhi.

MINISTRY OF URBAN DEVELOPMENT (2011), Report on Indian Urban Infrastructure and Services, High Powered Expert Committee (HPEC) for Estimating the Investment Requirement for Urban Infrastructure Services, Government of India, New Delhi.

JOSHI P. (2011) India Regulatory Framework Governing Municipal Borrowing, Developing a Regulatory Framework for Municipal Borrowing in India, Volume 2, World Bank, New Delhi, India.

A QUESTION OF DEVELOPMENT is an AFD Research Department publication which presents syntheses of studies and research initiated or supported by AFD. This series aims to summarize the questioning, the approach, the lessons and the prospects of the study presented. Thus, it intends to open new avenues for action and thinking. The analyses and conclusions of this document are formulated under the responsibility of its author(s). They do not necessarily reflect the point of view of AFD or its partner institutions • Publication director: Anne PAUGAM • Editorial director: Alain HENRY • Agence Française de Développement: 5, rue Roland Barthes - 75598 Paris Cedex 12 • Copyright: November 2014 • ISSN: 2271-7404 • Conception: Layout: Eric THAUVIN