A reform agenda for Indian cities

A reform agenda for Indian cities
The reforms operate at multiple levels—from setting specific checkpoints to giving local governments freedom to innovate
he Union ministry of housing and urban affairs has prepared a comprehensive road map for municipal reforms. From 2015 to 2017, some basic reforms were implemented in 500 cities under the Atal Mission for Rejuvenation and Urban Transformation. For example, 104 cities in 14 states collected more than 90% of user charges; 21 states have established municipal cadres; 256 cities started offering online citizen services; 21 states established state finance commissions; and 363 cities have completed credit rating. Now, the time has to come to go to the next level of reforms. That’s where the road map, consisting of three tiers of reforms, comes in.

As far as tier I reforms go, the purpose is to accelerate ongoing key financial and service delivery reforms. There are three sets of reforms: (1) Cities have to submit financial year audited accounts for the two years preceding the one in which the municipality seeks to claim the performance grant, (2) cities have to show an increase in their revenue over the preceding year, as reflected in the audited accounts. Specifically, urban local bodies have to recover more than 70% of their revenue expenditure from their own revenue receipts, and (3) cities have to measure and publish service levels for coverage of water supply, reduction of non-revenue water, 24x7 water supply and scientific processing of solid waste. Once these conditions are met, cities get the performance grant (Rs18,000 crore in five years) set down by the Fourteenth Finance Commission.

Tier 2 consists of five transformative reforms: (1) formulating and implementing value-capture financing policy, (2) ensuring that all urban local bodies undergo credit rating and cities with investible- grade rating issue municipal bonds, (3) professionalize municipal cadres by creating five of them, filling up posts and allowing lateral entry of professionals, (4) implementing the trust and verify model, and (5) enacting and implementing a land-titling law with a focus on using information technology.

The trust and verify model is a paradigm shift from the current process for municipal permissions. While granting building permissions, cities generally inspect first and give approvals later. This is the verify and trust model. The process of inspection results in time delays and cost overruns, and opens up opportunities for rent seeking.

Inverting this process gives us the trust and verify process in which permission is issued first and inspection taken up later. The assumption is that citizens can be trusted and will furnish correct information. Applications are submitted online with required attachments (documents), machine-checked for accuracy and completeness and building permissions issued. Inspections are only carried out after permission is issued.

Land titling in urban areas is another area of concern. A 2001 McKinsey study has reported that most, over 90% by one estimate, of the land titles in India are ‘unclear’ and land market distortions and unclear land titles cost India around 1.3% of gross domestic product. In India, ownership rights to property are proved through title deeds—a chain of documents that provide evidence of the transfer of title from one person to another over the years, all the way to the current owners. Even though the law provides that transfers of title and interest in property should be registered, this only provides limited assurance. Transfers can be challenged in several ways—from family members who may claim title through inheritance to unknown third parties who try to assert their right to specific performance.

Therefore, the need is to devise a mechanism by which transfers cannot be set aside. One way is to formulate a land-titling law. The Rajasthan government, for instance, has passed the Urban Land (Certification of Titles) Bill, 2016 to issue certificate of ownership to state residents living in urban areas. The new reform agenda incentivises all states to enact similar legislation.

States/cities are also incentivised to use leapfrog technology, such as the blockchain. Blockchain is a digital ledger of transactions—here, property—which allows digital information (of property titles and transactions) to be distributed. The database is not stored in a single location; no centralized version exists as it is hosted by millions of computers simultaneously belonging to all interested entities. Every user of the blockchain has a copy of the entire ledger of transactions concerning the property and every transaction is uploaded on each such copy of the ledger.

Thus, information is shared and continually updated and there is an immutable history of every property transaction that can be viewed by all interested parties and tampered with by no one. Moreover, each property transaction is time stamped, further reducing the possibility of fraud. Other services, such as notarial and escrow, can also be added. This is similar to the encumbrance certificates for properties being given by state government registration departments.

The focus of tier 3 is rapid and even more transformational reforms along three main avenues: governance, planning and finance. The emphasis is on (1) deepening decentralization and strengthening urban local bodies through greater devolution of funds, functions and functionaries, (2) own source revenue mobilization for self-reliance and (3) flexibility in urban planning, particularly aligning master plans to changing socio-economic conditions in cities. These involve reforms that can be pushed for enhancing downstream accountability mechanisms, like making local ward committees responsible for operation and maintenance of projects, etc. States and cities compete against each other and the incentive is given based on competition. They have the flexibility to define their reform paths and innovate; only the what of reforms is given, the how is left to states.