Indian cities generated two-thirds of GDP in 2015, which could reach 75% by 2030, according to the Indian Council for Research in International Economic Relations (ICRIER). This despite the low average score of 13.2 on a scale of 100 for the “economic capacity” of a set of 111 cities (Ease of Living Index, MoHUA, 2020).
Increased investment in cities will help. But reaching the level of 8% of GDP, recommended by the 2019 Economic Survey will depend on the generation of additional resources within cities, notably their own resources – property tax and monetization of assets.
Total funds available to urban organizations, including Union and state government grants, languish at 1% of GDP, compared to at least 7.6% in Brazil and 6% in South Africa (ICRIER 2019 ).
Moreover, it is not just a question of money. Deep governance reforms are crucial. Smarter capital allocation for higher social impact, better execution capacity and strong sustainability safeguards to guide the direction of growth.
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Four key principles can help design contextualized and location-specific strategies.
First, is the role of integrated planning. Unfortunately, urban planning in India mimics the separate constitutional mandates for the Union, state government, and municipality.
Medium-term planning is often left to local authorities with limited resources and expertise. The Union government contributes a posteriori to grafting additional modules such as finance, telecommunications, rail, motorways, air connectivity, IT services and provides environmental authorizations. State governments are similarly grafted on water, electricity, roads and bridges, health, education, and policing.
The result is that “services follow land zoning and habitat design” rather than being determinants of project design. This approach is ineffective.
Consider that the demand for additional electricity on the grid can be reduced if built-up areas are designed to maximize “face time” with the path of the Sun and the local grid is suitably strengthened to encourage solar power generation.
Second, sustainability concerns must be recognized and internalized. The socially responsible way to do this is to choose the “greenest” option – the path of least social cost (greener financial) among the options available.
Incidentally, this is also the safest way to achieve “Net Zero” as the urban population is likely to double over the next two decades, placing more emphasis on already overburdened infrastructure and resources.
The third, complementarity between services, for example electricity distribution, telecommunications networks and transport, can improve efficiency, level of service and quality of life in large municipalities and subways (more than one million inhabitants).
The conversion of the former Rural Electricity Administration in the United States to Rural Utilities Services provided access to finance, technology and know-how in the areas of electricity, water and telecommunications. Evidence in India, from Chandigarh, BEST, CIDCO, GIFT City, also highlights the benefits of functional integration at city level.
Fourth, it will be essential to give primacy to the efficiency and sustainability of electrical services. Plans for the rapid digitization of the economy and the electrification of personal vehicles will need to be supported by a quality power supply 99.999.
Institutional change, paying rich dividends in terms of increased efficiency, is to create urban public services separate from the rest of the state.
This promotes better governance, according to technical supply standards adapted to densely populated urban settlements, which translates into better services and increased financial sustainability.
Data from the United States (950 municipalities and 853 cooperatives) and Europe (Sweden, Poland) suggest that geographically small and dedicated companies serving relatively homogeneous public services produce better results.
In contrast, a recent report (NITI Aayog 2020) suggests that only 55% of customers were satisfied with the quality of electricity in the country.
State governments are also expected to benefit from additional revenues (GST and corporate tax share) due to improved economic productivity once the constraint of poor quality electricity supply is lifted.
A 10% increase in gross urban production could generate additional tax revenue, equal to the financial ‘loss’ of Rs 1.4 lakh crore in 2018-19 from supplying electricity to agriculture at well rates. lower than the average cost of procurement.
Dividing the rural segment into separate distribution licensees would better focus on energy poverty and access issues, reduce losses and optimize subsidies for the needy.
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Significantly better power quality in cities like Mumbai, Kolkata and Ahmedabad and over the past two decades in Delhi illustrates that urban utilities have a better chance of being more efficient and responsive to increased customer demands in cities .
A major restructuring of the municipal architecture is needed to strengthen the governance capacity for long-term sustainability, i.e. to adopt the green recovery path. It will improve the resilience of cities to shocks such as COVID-19 and extreme weather events. Improving public service and customer service infrastructure will increase investment, improve growth prospects and generate new green jobs.
The jury is still out on the reform model. Should municipal capacity be developed over time to manage the integrated supply of public services, or can capacity be grafted onto the municipality via specialized SPVs (special purpose vehicles) such as the newly designed Smart City Corporations? or other similar partnership platforms to manage Electricity Distribution?
You don’t have to worry about choosing one or the other as your national model. Key principles can be adopted through a policy with multiple reform options on the table, to be exercised, depending on the magnitude of the initial capacity gap and the context, best suited from a political economy perspective .
(Gaurav Bhatiani is Director, Energy and Environment, Research Triangle Institute (India) and Sanjeev Ahluwalia is Advisor, Observer Research Foundation.)