Home / Specials / Union Budget 2014 /  JNNURM: Cooperative federalism lessons

Nine years after its launch, the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) is likely to be replaced with a new mission focusing on spatial planning, solid and liquid waste management, and building a hundred smart cities this budget season.

Launched in 2005, JNNURM rides into the sunset after an undistinguished career. The mission had three key objectives: improving infrastructure, providing basic services and reforming urban governance. Data from the urban development ministry shows that a mere 37% of sanctioned infrastructure projects and 52% of basic urban service-related projects had been completed between 2005 and March 2014. The governance reform project, too, made little progress. According to a January 2014 status report, reform completion rates vary between 30% and 40% in states like Gujarat, Haryana and Rajasthan, and 80% in Tamil Nadu, Himachal Pradesh and Kerala. JNNURM also leaves a financial mess in its wake. According to the Comptroller and Auditor General of India’s (CAG’s) 2012 performance review audit, large amounts of unspent JNNURM funds are parked in state and urban local body accounts. By 2010-11, the interest earned by 22 states on the unspent monies alone amounted to 210 crore.

JNNURM’s slow progress holds important lessons for the National Democratic Alliance (NDA). Reforming urban governance was the centrepiece of JNNURM. This focus on urban governance was critical. The governance landscape in India’s cities is cluttered with multiple agencies with overlapping responsibilities. For instance, in Bangalore, the Bangalore Development Authority, the Bangalore Metropolitan Regional Development Authority and city corporations are all entrusted with powers to approve building plans. Consequently, a file for clearance of a building plan has to pass through each of these agencies before final approval is granted, resulting in delays and multiple opportunities for bribe-taking. Added to this, these agencies often encroach on roles and responsibilities assigned to municipalities, leaving municipalities weak and reducing their ability to raise resources needed to provide basic services.

JNNURM was expected to change all this by pushing a “reforms-driven, fast-track approach" to empower municipalities and create spaces for citizen participation. To ensure that states walk the talk, all state governments were required to enter into memoranda of agreements with the government of India detailing their reform milestones. Funding was conditional to achieving reforms.

What happened next is a fascinating story on how federalism works in practice. For the first couple of years, as the government waited for states to meet their commitments, it held back on releasing funds. In 2005-06, only 40% of JNNURM allocations were released to states. But as time went by, the central government began facing mounting pressure to spend. In response, it began pressurizing state governments to comply with reform milestones. The result was a happy compromise. State governments, many of whom were reluctant to implement reforms but eager to get money from the central government, undertook “on-paper" reforms and the central government, faced with spending pressures, was willing to accept on-paper reforms as achieving reform milestones required to release funding. By 2008-09, 100% funds had been released. But the central government continued to exercise clout and released much of this money towards the end of the fiscal year. By 2011, this changed and the central government approved a memo to relax its conditionalities entirely. In essence, the country’s experience with JNNURM, to borrow from the prime minister, was an example of “cooperative federalism" at its best.

A close look at the implementation of these reforms gives a sense of how this cooperation worked in practice. An important reform under JNNURM was the enactment of a community participation law. The law was expected to create spaces for citizens’ participation by reorganizing city governance on the basis of area sabhas (linked to polling booths) and ward committees, peopled with elected representatives from the area sabhas. A 2011 study reports that states such as Assam and Bihar passed laws for citizen participation, thereby checking the reform box, but failed to enact rules for implementation. Others like Gujarat and Himachal Pradesh made no provision for area sabhas, and Chhattisgarh and Uttarakhand enacted participation laws, but did not mandate the creation of area sabhas or ward committees.

Municipal level e-governance reforms suffered the same fate. According to the CAG report, out of 62 parastatal and local bodies that had committed to e-governance reform, only 27 had actually implemented them. States also committed to setting up metropolitan planning committees. But having agreed on paper, only West Bengal and Uttar Pradesh went on to establish them.

JNNURM’s failed attempt at bribing state governments into reforming their cities raises important questions about Centre-state dynamics and the role the Centre can play in incentivizing change. The most important lesson to be learnt from JNNURM is that reforms will only take shape when state governments have ownership over reform processes. Signing memoranda of agreements and bullying states with financial consequences do not create this sense of ownership. Rather, the Centre needs to loosen its controls and allow state governments the autonomy to take their own implementation decisions.

The Centre can certainly use its financial clout to incentivize state governments, as we have argued throughout this series, by setting up innovation funds and offering top-up grants to support state-specific reform efforts. To avoid inevitable political jostling, it is critical that the Centre invest in building objective processes to regularly measure performance. The newly set-up independent evaluation office could be the institutional vehicle through which this can be achieved. Above all, the Centre needs to promote genuine “cooperative federalism" by reinventing itself as a platform for state governments to share experiences and dialogue solutions rather than control implementation. JNNURM is a good lesson on how not to promote cooperative federalism. Turning this around so that the Centre facilitates rather than bullies states to reform is the NDA’s greatest challenge.

Yamini Aiyar and T.R. Raghunandan are with the Accountability Initiative of the Centre for Policy Research.

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