Chapter 14 – From Competitive Federalism to Competitive Sub-Federalism – Highlights of Economic Survey 2016-17

Chapter 14 of the Economic Survey 2016-17  focuses on attempt to make cities entrusted with responsibilities, empowered with resources, and encumbered by accountability so as to make them effective vehicles for competitive federalism and, indeed, to unleash competitive sub federalism.

What’s Competitive sub federalism according to economic survey 2016-17?

The term ‘competitive sub – federalism’ has been used in close reference to highlighting the importance that urbanisation play in Indian development. Accordingly, the cities that are entrusted with responsibilities, empowered with resources, and encumbered by accountability can become effective vehicles for unleashing dynamism so that to competitive federalism India can add, and rely on, competitive sub-federalism.

Why study on Urbanisation is important for India?

Urbanisation will define the trajectory of Indian development.

The exodus of rural Indians into the cities over the coming decades will pose tremendous challenges for government.

The municipalities are primarily responsible for providing the services that the new migrants – and established residents – will need. So a performance analysis of ULBs is imperative for the nation to seize the opportunities that migration to the centres of economic activity can create.

For GS Mains:

Rising Urbanisation trend

Before we understand the content in the Chapter, we need to be clear with the basics on development of urban areas.

What are the recent initiatives by the Government on urban rejuvenation?

Impetus for many recent initiatives basically emanates from the higher grants to ULBs through the Fourteenth Finance Commission (FFC) for 2015-2020. It is estimated to be almost 277 per cent higher than the grant recommended by its 13th FC.

Higher devolution of taxes to the states and grants to the ULBs leads to increase in  the overall public funds available for urban rejuvenation. This led the Government to launch several new initiatives to rejuvenate urban areas, as a follow up to JNNURM of 2005.

Some of the key schemes are –

The emphasis is now laid on strong convergence between area based and project-based schemes so as to exploit synergy and optimize benefits while avoiding costs overlap.

Smart Cities Mission

1. What is Smart Cities Mission?

Smart Cities Mission (SCM) is a holistic city rejuvenation programme for 100 cities in India.

The SCM initially covers five years (2015-16 to 2019-20) and may be continued thereafter based on an evaluation.

2. What are the core infrastructure elements in a smart city?

This includes:

1. adequate water supply,
2. assured electricity supply,
3. sanitation, including solid waste management,
4. efficient urban mobility and public transport,
5. affordable housing, especially for the poor,
6. robust IT connectivity and digitalization,
7. good governance, especially e-Governance and citizen participation,
8. sustainable environment,
9. safety and security of citizens, particularly women, children and the elderly, and
10. health and education.

 3. How is area-based development in the SCM made achievable?

The components to area based development in the SCM include:

• city improvement (retrofitting),
• city renewal (redevelopment) and
• city extension (greenfield development)

It also includes a pan-city initiative in which smart solutions are applied covering larger parts of the city.

AMRUT

1. What is AMRUT?

Expanded, AMRUT is Atal Mission for Rejuvenation and Urban Transformation (AMRUT).

2. What does it seek to achieve?

AMRUT aims to improve basic urban infrastructure in 500 cities/ towns which would be known as Mission cities/ towns.

It aims to cover all cities and towns with a population of over one lakh with notified Municipalities, including Cantonment Boards (civilian areas) and certain other cities like capital towns, some cities on stem of main rivers and tourist and hill destinations.

Its operational period: Five years from financial year 2015–16 to 2019–20.

3. What are the core infrastructure elements in AMRUT?

The components which are to be covered under the AMRUT are:

• water supply,
• sewerage,
• septage,
• storm water drains,
• urban transport, in particular, with the focus on facilities for non-motorised transport and
• development of green space and parks with special provision for children-friendly components in 500 cities & towns.

HRIDAY

1. What is HRIDAY?

National Heritage City Development and Augmentation Yojana (HRIDAY) scheme launched in 2015, focuses on holistic development of heritage cities.

 2. What does it seek to achieve?

The scheme aims to preserve and revitalise soul of the heritage city to reflect the city’s unique character by encouraging aesthetically appealing, accessible, informative and secured environment.

Operational period:

A duration of 27 months (completing in March 2017) and a total outlay of $ 500 crore, in a mission mode.

3. What are the places where the HRIDAY project is implemented?

The scheme is being implemented in 12 identified cities namely, Ajmer, Amaravati, Amritsar, Badami, Dwarka, Gaya, Kanchipuram, Mathura, Puri, Varanasi, Velankanni and Warangal.

Swachh Bharat Mission

 1. What is the Swachh Bharat Mission (SBM)

Launched on 2nd October, 2014,  SBM is a mission with a target to make the country clean by 2nd October, 2019.

All 4041 statutory towns as per census 2011 are covered under SBM.

2. What are the components of SBM?

The programme includes

• elimination of open defecation,
• conversion of unsanitary toilets to pour flush toilets,
• eradication of manual scavenging,
• municipal solid waste management and bringing about a behavioural change in people regarding healthy sanitation practices.

Under the solid waste management state/cities are being encouraged to come out with innovative solutions and MoUD supports them technically and financially. Some of the initiatives being taken are waste to energy, composting plants, capping of the dumpsites.

Coming back to the basics on urban bodies,

Who has the primary responsibility for development of urban areas?

This responsibility lies with the state governments and the municipal corporations, municipalities and nagar panchayats, commonly known as urban local bodies (ULBs).

What are ULBs?

The 74th Constitutional Amendment Act of 1992 provides for the ULBs as the third tier of government and ‛recommends’ that state governments assign them a set of 18 functions under the Twelfth Schedule.

What are the Challenges faced by these levels of government?

1. Poor governance capacities,
2. Large infrastructure deficits and
3. Inadequate finances.

Discussing each of them in brief is essential.

a. Poor Governance Capacities

What are the issues faced in governance?

i. Functional overlap

Cities do not have a single city government or a local self-government. This leads to functional overlap.

ii. Fragmentation of responsibilities and service delivery across a gamut of institutions:

the municipality, state departments (Police, PWD, Health, Education, Housing), and parastatal agencies or civic agencies reporting directly to the state government.

iii. Transparency Issues/ Accountability Issues

Lack of most basic information on ULBs finances and poor quality of basic services.

(One cause identified for this has been non uniform implementation of e-governance.)

b. Large infrastructure deficits

Productive and healthy urbanisation requires efficient public services delivery.

What are the challenges faced in relation to infrastructure?

• water and power supply,
• waste management,
• public transport,
• education,
• healthcare,
• safety, and
• pollution.

Examples:

• The Millennium Development Goal (MDG) has placed a target of 77 per cent while India has managed to provide access to only 63 per cent of the population by 2015.
• As per the ranking of global cities based on urban infrastructure (State of World Cities 2012/13), New Delhi and Mumbai are placed at 47th and 50th positions, respectively, showing comparatively lower levels of infrastructure in these cities.

c.Inadequate finances

Please take a brief look at the following data:

Mobilisation of resources, therefore, is quite essential to resolve the above challenges and bring India into the trajectory of development through the urban regions.

How can resource be mobilised?

These resources could come from the Centre and the states.

The Fourteenth Finance Commission (FFC) has recommended a grant of around $ 87,000 crore to the municipalities for the period 2015-20, constituting assistance of around $ 500 per capita per annum on average.

The rest of the required funds would have to come from local resources.

What are the issues faced in raising sufficient resources from local resources.

1. The 74th amendment to the Constitution which provides for constitution of ULBs, however, leaves it to the discretion of state legislatures to devolve finances so that ULBs can fulfil these functions.(It is important to know that there are glaring inter stat disparities in terms of functional and financial powers to the ULBs. Some states have not even allowed the municipalities to levy property taxes.)
2. Exercising the powers has proved difficult.
3. Municipal own income comes from taxes; user fees; and domestic borrowing:
4. Non bouyant source of revenue:Problems of low coverage, low rates, low collection efficiency, and lack of indexation of property values
5. Inability to levy adequate user charges to cover even the operation and maintenance costs.
6. Issuing municipal bonds has been challenging owing to the poor state of ULB finances and governance.

The end result of these problems have been that :

1. Cities face grave difficulties in securing sufficient revenues.
2. Own revenue as a share of total expenditure is low.
3. Per capita expenditure is too low in most of the ULBs with few exceptions such as Mumbai and Pune.

Where and how would the ULB mobilise its resources?

Many factors, together with power to impose taxes, are important for being able to collect greater revenues. This includes:

1. size of the tax base
2. Efficiency in tax collection
3. Level of economic activity in the city area.

Under point (i) immediately above, reference was raised on Property tax!. Amongst all, the greatest immediate scope for revenue comes from the property tax. However, the evidences show that (Bhopal and Ranchi, for example) revenue realisation from property tax has been poor.

The major factors contributing to poor realisation from property tax are:

• the poor assessment rate,
• weak collection efficiency,
• flawed methods for property valuation,
• loss on account of exemptions, and
• poor enforcement.

It is an estimate and expectation in the Survey that cities could increase their resources five to twenty fold if all efforts are directed at realising potential of property taxes.

CONCLUDING REMARKS

The challenges that the urbanisation can place upon our municipalities are many. However, this can be over when focus is shifted to certain priority areas:

1. Empower ULBs financially.

Why this is important?

The analysis shows that municipalities that have generated more resources have been able to deliver more basic services.

Property tax potential is large and can be tapped to generate additional revenue at city level.

What can be done?

The states should empower cities to levy all feasible taxes.

Municipalities also need to make the most of their existing tax bases.

There is a need to adopt the latest satellite based techniques to map urban properties.

The Government should leverage the Indian Space Research Organization (ISRO)/ National Remote Sensing Agency (NRSA) to assist ULBs in implementing GIS mapping of all properties in the area of a ULB.

2. ULBs need to be empowered but political economy challenges exist.

This is essentially in the form of higher level bodies (state governments) needing to cede power and sharing resources. This is particularly daunting.

To address this dilemma, we have two options open:

1. Finance Commissions should take cognizance of this political economy challenge and allocate even more resources to ULBs.
2. Respect the sovereignty of states and hope that they will themselves be forthcoming in decentralizing down – fiscally and governance wise – commensurate with the needs of urbanisation.

3.  Role of Data and Transparency

MoUD should give greater priority to compile and publish comprehensive data on ULBs and urban sector.

Grants to ULBs should be more tightly linked to comprehensive and updated data disclosure and transparency by ULBs.

NITI Aayog should compile comparative indices of municipalities’ performance annually based on the actual accountability and administrative capacity to deliver the core public services.

Look at the QUESTION FOR GENERAL STUDIES MAINS Paper 3 -2016

What are ‘Smart Cities? Examine their relevance for urban development in India. Will it increase rural-urban differences? Give arguments for Smart Villages’ in the light of PURA and RURBAN Mission.

Just to know:

What is Zipf’s Law?

According to this law, used in economic circles,  it claims that the city with the largest population in any country is generally twice as large as the next-biggest; three times the size of the third biggest, and so on.  However, India faces a peculiar type of situation which is deviating from this model. We have a situation where the large cities and small cities are unusually small.

Why are large cities are unusually small?

Possible explanations:

• Overburdened infrastructure
• Scarcity of land resource

This discouraging migration particularly because distorted land markets render rents unaffordable.

By 2050, its land-to-population ratio will have declined fourfold relative to 1960, and India will be amongst the most land-scarce countries in the world

• Limited mobility due to strong place based preferences embedded in deep social networks in India.

That is, India’s urbanisation rate should begin to converge with those in similar emerging markets, rising to 40 per cent by 2030. And much of this urban growth is likely to take place in the bigger cities, possibly bringing the country in line with Zipf ’s Law.

Also Read : Top 10 Key Highlights of Economic Survey 2016-17 for UPSC Aspirants

Also Read: Chapter wise highlights of Economic Survey 2016-17

Chapter 01 – Economic Outlook and Policy Challenges

Chapter 02 – The Economic Vision for Precocious, Cleavaged India

Chapter 03 – Demonetization: To Deify or Demonize?

Chapter 04 – The Festering Twin Balance Sheet Problem

Chapter-05 – Fiscal Framework: The World is Changing, Should India Change Too?

Chapter 06 – Fiscal Rules: Lessons from the States

Chapter 07 – Clothes and Shoes: Can India Reclaim Low Skill Manufacturing?

Chapter 08 – Review of Economic Developments

Chapter 09 – Universal Basic Income

Chapter 10 – Income, Health, and Fertility: Convergence Puzzles

Chapter 11 – One Economic India

Chapter 12 – India on the Move and Churning

Chapter 13 – The ‘Other Indias’ – Highlights of Economic Survey 2016-17

Chapter 14 – From Competitive Federalism to Competitive Sub-Federalism