Wednesday, November 23, 2011

India's Urban Awakening

"Indian cities matter today" – at least in print. They are on the cover pages of magazines like India Today and GEO. The scale and speed at which India will get urbanized in the next 20 years has few precedents in history, making urban India a twenty-first century celebrity whose entourage comprises scholars, planners and investors. There is concern that unless the huge increase in urban population is preempted and proactively planned for, costs of congestion will easily eclipse the benefits of scale. An important study that informs the policy discourse on Indian cities is the McKinsey 2010 Report, India’s Urban Awakening: Building inclusive cities, sustaining economic growth. This essay presents the contentions of the report and concludes with a critique.
The report finds that India performs poorly in most of the key elements of a successful urban development strategy. It uses econometric and satellite models to forecast demand for various urban services when urban population would have increased from 340 million today to 590 million in 2030. A fourfold rise in urban incomes will be accompanied by a five to sevenfold rise in demand for urban amenities which are already under supply constraints. Based on examples from China, UK, South Africa, Germany, America and Singapore, the report prescribes detailed policy recommendations for India, implementable in a single decade. It is a multi-stakeholder strategy involving reforms in five areas: Funding, Governance, Planning, Sectoral policies and Shape.

Funding: For starters, India will have to ensure that cities have the financial capacity to fund their needs. Currently India’s urban spending lags behind international standards by a huge margin. Over the next 20 years, India needs to allocate $1 trillion ($116 pc pa[i]) to operating expenditure and $1.2 trillion ($134 pc pa) to capital expenditure. While the former can be covered by increasing property tax and user charges, a mix of three additional revenue streams is recommended to fund capital investments (a) monetizing land assets (b) formula-based government funding (c) tapping into debt markets and PPPs. The potential contribution of each source is estimated at $58, $43, $26 (=$127) pc pa respectively. However, even in such an ambitious financial model, Tier 3 and 4 cities will still need additional assistance, a policy measure that government programmes like JNNURM[ii] should incorporate immediately.

Governance: Secondly, India will need a system of governance customized for the metropolitan level to manage cities larger than some countries. The only G20 country without an elected or empowered mayor, India must encourage substantial devolution of powers from the state. Although the 74th Amendment has given the green signal, it still needs to be implemented. As cities encroach upon multiple municipalities, a single authority is needed for greater accountability. A first step is the modified mayor-commissioner system built on the Kolkata model. The quality of city leadership must be improved and governance must be separated from service delivery. This can be achieved through outsourcing key services (housing, transportation, water and sewage) to corporatized agencies such as BEST in Mumbai.

Planning: Thirdly, India will have to proactively plan its future cities instead of late reactions to crisis situations. Successful cities have planning personnel of 200-500 but Indian cities have only 8-10 planners (if at all the city’s planning department is functional). India will have to build planning capacity and introduce modern planning technologies such as GIS mapping and traffic modeling. To delineate the roles of the various government institutions involved in the planning process, Metropolitan Planning Committees (MPCs) should be empowered to create statutory metropolitan plans binding on municipalities. Cascaded time plans with appropriate content can be developed by basing land-use, infrastructure and social planning on 20-40 year econometric forecasts. Finally, enforcement mechanisms must be tightened and project exemptions be made transparent.

Sectoral policies: Fourthly, India will have to target policies for the development of key urban sectors including transportation, affordable housing, employment and environment sustainability. Failure to do so would result in further deterioration in quality of urban life from present levels. The approach to developing a comprehensive set of sectoral policies is illustrated through two examples: creating a stock of affordable housing to prevent slum proliferation and reducing GHG emissions to mitigate climate-change. The role of the government is highlighted in correcting market failures, for instance, in recommending that the state subsidize housing for the estimated 38 million who will not be able to afford a house at market price in 2030.

Shape: Finally, India should actively try to ‘shape’ its future cities in line with its diversified economic portfolio. The report recommends a distributed model so that a large number of cities with a variety of size and type can develop simultaneously. For instance the largest Tier 1 cities should be renewed to drive sustained growth in high value added sectors like finance and real estate. New world class cities can be built but will be viable only if built in their proximity. Tier 2 cities should be developed with a view to avoid the mistakes of Tier 1 cities. Tier 3 and 4 cities should be developed as specialist cities specializing in an anchor sector like tourism, mining etc. Good connectivity between inter-regional clusters will encourage future urbanization along the transport corridors.

Following the above recommendations will not only improve the quality of urban services but also boost India’s GDP by 1-1.5%. Effective planning will save over 6 million hectares of potentially arable land. GHG emissions can be abated by 28%. On the other hand, if India leaves its cities to their organic fate, consequences can be disastrous. Water supply (basic standard 150L per capita per day) will drop from 105L to 65L; 70-80% of sewage will be left untreated; private cars will increase sixfold and the average journey could last five hours in peak traffic.

However the impact of the recommendations is ambiguous on some issues. Although the report estimates that 200 million rural inhabitants living near cities will benefit, it does not provide numbers of those who will be displaced. The report claims that incomes will rise but whether this will be a real increase in income depends on the corresponding rise in cost of urban living. The real increase in wages may not be as substantial given the significant proportion of property tax, user charges and debt financing in the funding model. Although the economic costs of service delivery are lower in cities, the environment costs are significantly higher. Apart from an incomplete cost-benefit analysis on such issues, the report is extremely rich in data which is no less proficiently presented.

The report provides an excellent synthesis of international best practices. But our cities will need more imagination. Re-imagination of space and time; flexible working hours in Netherlands have redefined the concept of peak hours. Re-imagination of the rural-urban dichotomy; today urban agriculture is no longer an oxymoron as terrace and hydroponic (soil-less) farming is gaining popularity in space-crunched cities like New York. Re-imagination of socio-spatial divides; slums like Dharavi in Mumbai are economically vital and not merely sites of squalor that “deface urban landscape”. Meanwhile as urban India acclimatizes to the well-deserved limelight, the spotlights should not be turned off its less glitzy rural counterpart, which will still be home to 60% of India’s population in 2030.

[i] pc pa: per capita per annum

[ii] JNNURM: Jawaharlal Nehru National Urban Renewal Mission

To read the original report DOWNLOAD HERE


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