19 May What will it take to transform Indian Cities?

What will it take for us to see a transformation in our cities? The Ministry of Urban Development (MoUD) and Hon. Minister Shri. Venkaiah Naidu grapple with this same question everyday. Any number of recommending guidelines, central government investments and even Training do not seem to be shaking our Municipal authorities out of their stupor. Despite a huge improvement in delivering governance, now through better digital systems, Indian cities remain far from offering a reasonable quality of life for urban citizens. Apart from this, the potential of any city to drive economic opportunities also remains restricted. So to put it in a nutshell, what this means is, that while all of us urban citizens put up with the urban inconveniences, we are, because of these, actually less efficient in contributing to the overall GDP of the nation. At least, considerably less that what Indian cities have the potential for.

So you see, this is a typical chicken and egg situation. While we don’t generate enough revenues, our infrastructure investments remain low and because our infrastructure remains undeveloped, we cannot generate revenues!

PM Shri. Narendra Modi ji in October 2016 set up 10 Groups of Secretaries to brainstorm on such sector specific issues and sought recommendations from these bureaucrats. The Report on this Group highlighted five priority reforms for cities, based on identification of issues faced.

What are these five reforms that the MoUD will take up? MoUD will need the States to be on board to be able to actually implement these reforms and accordingly, a high powered Conference on Urban Development was held in February 2017 in Delhi. The fiver priority items were listed as follows:

1. Moving to a ‘Trust & Verify’ approach

This, if implemented, will become one of the most revolutionary reforms in municipal bodies. The idea is to develop a trust with citizens for any kind of approvals / licenses while laying down conditions of compliance. This approach basically completely dismantles the license raj and the corruption around grant of approvals. Further, the transformative aspect of this reform is that it shifts the onus of compliance from the government to the applicant.

Take the case of a Building Plan approval process. Today, the officers of the municipal body bear the onus of checking, verifying and cross verifying all major and minor rules and laws before grant of approval. If there is a lapse, the applicant is free to claim that he/she were granted approval and hence do not bear the burden of ensuring that rules are followed. Minor slip ups are very very common.

Take the case of grant of Environmental Clearance. If the State Expert Appraisal Committee members grant the Clearance based on the information given to them, the onus of having sought all information to make this informed decision squarely rests on these members appointed by the government today.

What this gives rise to is DELAYS! And huge amounts of Paperwork! For the government officers or Clearance committees to make a decision time is often spent checking, cross checking documents. Since there is very little trust, to safeguard government’s decision making, NOCs (No Objections Certificates) and Affidavits line every applicant’s file. There is no end to it! And despite all these super confusing maze of paperwork, there is often a disgruntled consumer who questions the approval in Courts of law and thereby begins another paper trail. Or there is a mishap during building construction, and the liability shifts posts.

In the Trust & Verify approach, the government is shifting the onus of following the rules and the law to the applicant. The government will forgo its rights to grant approvals, thereby saving a huge amount of time. A significant component of time and money will need to be invested in compliance checking mechanisms. In fact, this will ensure implementation of all that is promised by applicants, whereas, currently, it is the exact opposite. Considerable time and efforts are spent on checking paperwork while not a single site visit is made to ensure compliance on ground.

While this Trust and Verify Approach is currently proposed at the Municipal Level, I feel that it should also be elevated to approval grants and compliance given by State governments. The entire machinery for approvals can be shifted to checking compliance.

For example, the mechanism to grant Environmental Clearance. There is a committee of 7-8 members which comprise of retired bureaucrats, academicians and experts. Instead of spending their effort on checking and cross verifying environmental compliance for a project, can these members not visit project sites to check compliance? A set of rules and guidelines will be applicable to projects based on its scale. To allow for project specificity, applicants can be given a window where presentation to the Expert Committee can be made for possible relaxation of certain specific norms due to abnormal site conditions.

And I have been arguing this for many years that the cost of delays and paper compliance that are spent for approvals will convert themselves into actual spending for compliance on ground.

2. Formulating Land Title Laws

Today, the land documents based on which ownership of land is confirmed is in a huge mess. Maximum litigation in our Courts happens due to confusions in Land titles. If this sector is reformed, there will be a huge consolidation. Currently, the losses due to this are estimated at 1.3% of the GDP as per a McKinsey Report. So while investments are low due to low revenue, badly performing and unreformed land title laws are putting a further burden on our resources.

3. Developing Credit Rating for Municipal bodies

Accountability for performance of Municipal bodies will be the only way in which we can guarantee that whatever investments are made, are actually efficiently delivered in the from of proper infrastructure in cities. Today, cities contribute about 0.75% of the GDP in revenues, which is grossly low as compared to even other comparable developing countries like Brazil and South Africa. So, our cities are underperforming, is the fact of the matter. Only 2% of the total state and central revenues and expenditures are contributed by cities. Thus, cities are actually haven of economic activity, generators of wealth, while the revenue contribution is very low. In developed countries, cities contribute 25-30% to the nation’s revenue. So its apparent that cities are financially under performing. This is due to multiple factors. But when we are thinking of pushing in investments in cities, its imperative that we undertake a reform that ensures that cities are fiscally efficient and are able to manage the financial investments properly.

The exercise to rate the first 94 cities of India was carried out recently and the following are the Credit Ratings. Its quite heartening to note that Pune is one of the top rated cities and hence can attract and manage investments efficiently.

These Credit Ratings are assigned based on assets and liabilities, revenue streams, resources available for capital investments, Double Entry Accounting practice and other governance practices of the Municipal bodies. All the cities below the BBB- will be supported to undertake fiscal & governance reforms before financial investment instruments are explored.

4. Initiating Value Capture Financing instruments

To give a most simple explanation of Value Capture Financing, consider a case where you are currently staying. Tomorrow, if the Metro rail is proposed and built on the main arterial road adjacent to your property, the commercial value of your property stands to benefit. Or other investments like River Front development may benefit the property owners adjoining the river by raising its property values. So the instruments used for Value Capture Financing basically look at how to generate revenues for the Muncipal bodies through these positive property rise.

5. Improving professionalism in Municipal bodies

A report by Goldman Sachs has said that a merit based bureaucracy will add one percentage point to India’s GDP every year. Thus, merely relying on the traditional systems of promotions by seniority, the bureaucratic overhaul is expected in making promotions based on merit and performance. Further, induction of private sector professionals and experts, who otherwise remain outside the government sector, is to be encouraged.

One of the most critical aspects of employee performance is the fact that they can be replaced. Thus job security in terms of a ‘cannot fire’ policy is most detrimental to the performance of employees. In fact, this is where the private sector scores over the government sector. Government jobs are cushy, often not requiring performance for continuance. The aspect of job retention should be tweaked to enable retrenchment of extreme non performers in the government sectors.