To bond with the best

The Central Public Health Engineering estimates 100 per cent coverage of safe water supply and sanitation services would cost Rs 1,729 billion by 2021.

And estimates thrown up by the Rail India Technical and Economic Services put the cost of providing transport infrastructure in cities with 1 lakh plus population over the next 20 years at Rs 2,070 billion. The 1996 India Infrastructure Report had assessed an annual investment of Rs 280 billion till 2005 at 1996 price level for urban water supply, sanitation and roads.

The Union urban development ministry suggests governments will fall short by nearly Rs 765 billion over the next five years even if they just try to operate and maintain provision of basic city services.

Municipalities earned around Rs 12,748 crore in tax and non-tax revenue in 2001-02. That accounts for just about 3.07 per cent of publicly raised resources. A classic example of how dependent local bodies are comes from Bihar. Municipalities in this state had an annual per capita revenue generation of a measly Rs 39.5 in 2001-02, half of what municipalities in Uttar Pradesh earned and more than 10 times less than what people living in municipalities across 23 states surveyed in a study for the Twelfth Finance Commission paid.

In terms of per capita expenditure to operate and maintain basic services Bihar municipalities spend just about Rs 49 annually. That kind of money would have been sufficient in 1960-61, not in the 21st century. Given what a rupee in 2001-02 could buy, they should have spent at least 10 times more to meet the norms for maintaining just four services — water supply, sewer age, roads and street-lighting — recommended by the Zakaria committee way back in 1963.

A critical analysis of municipal finances at the National Institute of Urban Affairs says municipal spending levels in India, are "abysmally low". At an annual per capita of Rs 574, this level of expenditure is at least 130 per cent lower than the 1963 norms.

It helps that central governments do transfer a share of its earnings to states, which are expected to similarly pass on a share of its earnings to the local bodies. The problem is higher levels of governments have traditionally been rather tight-fisted when it comes to urban bodies — more on that in the next section — and too heavily burdened with liabilities.

So, to spend more, Indian cities have to earn more. The general principle is to impose user charges where beneficiaries who do not pay can be excluded and raise taxes to fund general services like garbage collection and disposal.

Today, 60 to 70 per cent of municipal revenues go towards garbage disposal in smaller municipalities, 15-20 per cent in bigger cities.

Changing the way, for instance, property tax is calculated is another option. In Pune, a 2001 study demonstrated that municipal bodies were earning one-fourth of what they could potentially earn from this tax. Another demonstrated how Bangalore could double its property tax revenue by just levying the tax on market value.

Urban planners have spoken of a series of innovative systems to increase earnings and reducing expenditure. For metros, municipal bodies can outsource non-core functions and regulate private parties. Yet another potential source of revenue could be development of large amount of land owned by municipalities.

Getting municipal bodies to move the bond market to undertake capital investment is a solution as well. Since any organisation intending to float a bond has to get a credit rating, this forces the municipal body to figure out where it stands. If it wants to raise the funds, it will have to carry out reforms, adopt standard accounting procedures and think of new ways to generate the resources to satisfy credit rating agencies that it will not blow up money.

Where economists and urban planners often go wrong though is in assuming that the problems with Indian cities are only rooted in economics. True, the abysmal revenue-expenditure figures, the waste and the lack of innovative thinking are apparent to any observer. But look deeper and you will notice another problem with Indian cities — politics. The world's largest democracy hasn't been too kind to its urban population. The next section studies this political deficit and ways to bridge it.

Urban India does not even pay for four services

But per capita own revenue receipts of municipalities is only  482.14