India's municipal expenditures one of the poorest in the world, a major barrier to urbanization: UN-Habitat report

All figures in % of GDP

By Rajiv Shah
A new study by the United Nations Human Settlements Programme (UN-Habitat), “World Cities Report 2016: Urbanization and Development – Emerging Futures” has regretted extremely low levels of “aggregate municipal expenditures in India”, which happen to be of the worst in the world.
“With only 1.1 per cent of GDP, municipal expenditures in India compare very unfavourably with OECD countries, but even with other BRICS countries such as Brazil, Russia and South Africa. In Latin America, several countries have significantly changed their municipal financial systems”, the report says.
Pointing out that Colombia, previously a highly centralized country, could give a good example on how to raise municipal expenditures, the report says, it has gone through “different phases of decentralization, beginning in the late 1970s.”
The report says, “With a new constitution in 1991, more responsibility was delegated to the municipalities, accompanied by a dramatic increase in transfers from the central to the local level, so that by 1997, municipalities’ expenditures were almost seven per cent of national GDP.”
Poor municipal expenditures in India, the report suggests, is particularly regrettable, as “urban areas contribute more than 60 per cent of GDP and an extra 300 million new urban residents are projected by 2050, leading to a call by the Indian Government to build 100 new cities over the period.”
While this would mean a major challenge for climate change, the report says, this would necessitate building “denser, low-energy, low-infrastructure cities.”

And here, it underlines, “Central to this challenge are the twin bottlenecks of municipal finance, i.e. lack of tax revenues to provide urban services, and infrastructure finance for transport, electricity, communications, water supply, and sanitation in support of production.”
Pointing out why quick urbanization would pick up, the report says, “In India, between 2000 and 2005, urban employment grew at a rate of 3.22 per cent compared to rural employment, which grew by 1.97 per cent.”
It believes, “Urbanization can play a key role in eradicating rural poverty. Research in India found that an increase of 200,000 in the urban population resulted in a decrease of 1.3 to 2.6 per cent in rural poverty. Overall, these urban-rural linkages were behind a reduction of 13 to 25 per cent in rural poverty in India between 1983 and 1999.”
The report says, mega-regions – such as the Delhi-Mumbai Industrial Corridor (DMIC) – will come to play “an increasing role in various dimensions of prosperity”, the report says, at a time when due to “external and domestic factors” the economy decelerated, “one of India’s “strategic initiatives was to transform the Delhi-Mumbai highway into an industrial corridor.”
“The DMIC involves industry and infrastructure in a 150-200 km band on either side of a 1,500 km dedicated railway freight line. Approximately 180 million people, or 14 per cent of the population of India, will live there. The idea is to develop an industrial zone, with eco-cities spanning across six States, together with industrial clusters and rail, road, sea and air connectivity.
“Plans include 24 ‘market-driven’ cities comprising regions with special investment regimes and industrial zones. The scheme places a whole new meaning on the scope and scale of urban economic corridors”, the report underlines.