Urban Governance and Municipal Finance in India

By Richard Bird (Professor Emeritus of Economics, University of Toronto)*

Editor’s Note: On March 26, 2021, UAR Co-Editor Yue Zhang participated in the webinar “How Urban is Contemporary India?”, organized by the Munk School of Global Affairs and Public Policy at the University of Toronto. The panel provided critical commentary on the State of the Cities: India Report (SOCR) published by Om Prakash Mathur and his colleagues. This forum is a collection of essays written by the panelists based on their remarks at the webinar. The forum starts with an introduction of the webinar event by Bharat Punjabi, followed by an overview of the SOCR by the lead author of the report, Om Prakash Mathur. The following essays by Jan Nijman, Richard Bird, Partha Mukhopadhyay, Yue Zhang, and Shahana Chattaraj provide reflections on the SOCR and India’s urbanization from an interdisciplinary perspective. The forum concludes with Om Prakash Mathur’s response to some of the questions raised by the panelists. In publishing this forum, we hope to invite more scholarly debates on global urbanization, especially the drastic urban transformation in the Global South.

This study provides a valuable look at urbanization in India and the major challenges currently facing the country. It does an excellent job of setting the stage and makes a plausible case for its vision of future developments. However, although this issue may be pursued in a subsequent study, it says nothing about how local governance and finance may, can or should be altered to do better for more people in the future.

The study emphasizes two points of interest in this connection. First, as in most countries, most attention has been paid to big metropolitan urban areas on one hand and poor rural areas on the other hand.  However, as this study shows, a large and increasing share of urban development in India has been in smaller cities and in areas classified as rural. Second, there are huge differences between states and also, though this is not as emphasized, within states.

How is this diverse and changing reality governed and financed? At present, state governments, most apparently following fairly closely a model municipal act set out by the central government some years ago, control both most local revenues – what taxes can be levied on what bases and at what rates – and most local governments.  In urban areas, for example, the state government appoints key senior local government officials in urban areas.

The current governance and finance structure at the local level is unlikely to be able to cope with the drastic changes in urban reality depicted in this report. The unusually sharp distinction between the structure of rural and urban local governments in India needs to be reconsidered and recalibrated to fit the existing and likely future reality. Moreover, because different states (and different localities within states), have very different needs and capacities, they should be permitted and supported in developing their own best solutions to their problems, perhaps by setting out a ‘new model’ municipal act and providing more support to improved local governance by, for instance, strengthening state finance commissions and paying more attention to intergovernmental fiscal interactions on both sides of the budget.

The Union government simply cannot ever get everything right for every part of this heterogeneous country. Its aim cannot be the impossible one of determining what every community, large or small, does or how it does it. Its task is first to set out clearly the functions of each level of government and then to ensure that state and local governments can and do play their appropriate roles in delivering services both hard (infrastructure) and soft (education, health) – as well as, ideally, providing publicly the information local residents need to understand and monitor what their governments are doing.

Politicians may not like to be so exposed, of course, and it is unclear that India can or will move towards a more autonomous and effective subnational governance structure. Making State Finance Commissions effective, bestowing more revenue autonomy on local governments, giving locally elected politicians more control over staffing and budgets, increasing and making more effective the level and nature of intergovernmental coordination in raising and spending revenues, establishing sensible and effective budgeting and reporting systems, providing more access to private financing sources e.g. for infrastructure, and upgrading administrative capacity at all levels, etc. – such moves are unlikely to be seen as high priorities by central, state, or even local officials.

Unless the glimpse of the near future that this report depicts is taken seriously even the most basic steps towards a better subnational government system seem unlikely to be taken. But India’s central government has more than enough to do that only it can do. It cannot and should not get overly involved in what should be the work of its state and local governments. Its task is not to become more directly involved in what state and local governments should be doing but to give them more freedom to do it in their own way, while keeping everyone informed about what the goals are and to what extent they are being achieved. 

* We regret to announce the death of Professor Richard Bird, University of Toronto, one of the panelists in the webinar on the State of the Cities: India, held on March 26, 2021. Comments made by him in the webinar are published in this forum.

7 Trackbacks / Pingbacks

  1. An Introduction to the Forum on the State of the Cities: India Report (SOCR) – Urban Affairs Forum
  2. Some Reflections on State of the Cities: India – Urban Affairs Forum
  3. Urbanism and Citizenship Rights in India – Urban Affairs Forum
  4. From the State of the Cities to the Future of the Cities – Urban Affairs Forum
  5. Are Indian Cities Urban? – Urban Affairs Forum
  6. How Is India Urban? – Urban Affairs Forum
  7. State of the Cities: India Report – Urban Affairs Forum

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