Budget 2017 did not say much about urban India. Urban ministries’ budgets went up, flagship scheme allocations down, and low-income housing got some incentives. The subtext on urbanization seemed to be “avoid it.”
The less well-publicized 14th chapter of the Economic Survey, on the other hand, declares that “urbanization will define the trajectory of Indian development”—and governance must catch up to meet the challenge. It offers two proposals that join long-standing calls for stronger local leadership but add some provocative twists.
The first, “competitive sub-federalism” involves devolving additional financial powers and resources to municipalities, arming them with additional information, and benchmarking their progress for all to see. The approach make sense and echoes decades of advice from urban scholars, policymakers and supporters—including some of my own work on public grievance and redressal systems and the market-worthiness financial disclosure standard discussed in the Isher Ahluwalia high-powered expert committee on urban infrastructure.
More interestingly, the Survey goes out on a limb and asks “whether Finance Commissions should … allocate even more resources to ULBs or whether to respect the sovereignty of states and hope that they will themselves be forthcoming in decentralizing down”. Local government is a state subject in the Constitution. Coming at the end of the chapter, the question seems more rhetorical than curious.
My hunch is that at least a few chief ministers would be relieved if India pulled a Brazil and, like that country, has done in all seven of its constitutions since 1891, directed a larger share of revenue to local governments and cities in particular. They could vehemently defend rural constituents, but be more confident that their cities had the wherewithal to generate the jobs and other benefits that keep the wheels moving.
The second, “proprietary cities”, tests the lengths people are willing to go to for more orderly cities. A proprietary city is a community created and provisioned by a private developer under an arrangement in exchange for some kind of land tax. It’s essentially a mega land acquisition justified by the idea that the private developer has an incentive to innovate in infrastructure, services and (in some formulations) the regulatory environment to make the place clean, safe, attractive and economically vibrant enough to generate taxable value. No more fragmentation of responsibility across unaccountable and inept public sector agencies; no more election-focused short-termism; no more neglect of the commons within the city. Implementation raises a few red flags. There are a few non-trivial loose ends to clean up before proprietary cities’ incentives would line up with national interests.
First, cities draw inputs from de facto commons outside their boundaries. Delhi, for example, produces just 14% of the water it requires. India’s cities in general obtain nearly 50% of their water from groundwater, not counting the virtual groundwater embodied in agricultural produce that typically comes from nearby areas. This trans-boundary input would not be a problem if groundwater markets existed—proprietary cities would probably be better than their peers at figuring out how to be efficient with their water footprints. But they don’t. In the absence of visible cost, high-powered incentives to increase property values may very well lead to unsustainable growth.
Second, cities generate externalities for regions outside their territory. Any incentives to focus on property values would have to be countered by penalties for air and water pollution as well as waste disposed of outside the urban boundaries. Operationalizing this restraint would require significant investment in monitors, source apportionment, waste treatment capacity, and enforcement of liquid and solid waste disposal.
The basic success metric of property values would also have to be adjusted to address costs and benefits for surrounding regions. Over 12 million non-agricultural workers cross urban-rural boundaries every day in India, most living (and claiming benefits) in rural India but working in cities. On the other side, rural employment generated through urban consumption, incubation of innovation, choices about supply chains, and remittances has not been quantified—but is clearly an important spillover that may not be especially correlated with territorial property values. I elaborated on the general importance of national-impact rather than territorial metrics for cities in an earlier column (“A New Cartography For Catalysts, Not Just Cities”).
More than the loose ends, the most provocative part of proprietary cities is that it sets city leaders’ objective function to economic growth, a focus that may come at the cost of other urban contributions. Cities have historically been places where innovations towards civic and moral goals beyond narrow economic prosperity are not only more probable, but more possible. They are the sites of new art, new ideas, new leaders and new movements, not all of which contribute to property values but which often have important long-run social value. They are inhabited by people who are forced by proximity to interact locally, but also bound to national or global communities and their interests.
This overlapping social web is an important crucible for new ways of navigating a fast-changing world. The sanctuary cities debate in the US is a recent case in point, but far from a unique example. Cities have served many roles throughout history; the economic growth that proprietary cities reward is just one of them.
Quiet, but not inconsequential.
Jessica Seddon is managing director of Okapi Research and Advisory and writes fortnightly on patterns in public affairs.