Are ‘Smart Cities’ Enough for India?

smart  Shahana Chattaraj

Narendra Modi is a leader with an urban vision. As the chief minister of Gujarat, he transformed Ahmedabad with an award-winning sustainable bus transit system and a ‘world-class’ river-front recreation space. Modi’s most ambitious projects in Gujarat are the two planned new ‘smart cities’: the Gujarat International Finance Tec-City, on the outskirts of Ahmedabad, and Dholera, an industrial hub on the Delhi-Mumbai corridor. Still in inception, these cities are at the heart of the new administration’s ambitious plan to transform the crumbling and chaotic image of Indian urbanisation by building a hundred new smart cities.

China is an inspiration for Modi, in the country’s push for modernisation through urbanisation, as well as its state-of-the-art cities such as Tianjin’s famous Eco-city. For urbanising countries such as India and China, smart cities are an opportunity to harness urban growth to sustainable development. Top-of the-line infrastructure is a means to leapfrog the development ladder, jettisoning older, inefficient and unsustainable systems and avoiding the costs of retrofitting. Modi’s new policy has generated excitement amongst business leaders and upwardly-mobile middle-classes tired of living in ‘third-world’ environments. Whether India’s smart city policy will translate into desired outcomes—more sustainable, productive and better-governed cities—is debatable.

Megacities in India, unlike in most other countries, lack autonomous governments with the power to shape their affairs. They are controlled by provincial administrations and managed by a patchwork of state, city and municipal bodies, public and private corporations and village panchayats. For smart systems to substantively improve planning, coordination and governance, it will be necessary to have a centralised metropolitan governing structure in place, accountable to city residents.

City and local governments, responsible for basic public services, have the most direct impact on well-being, particularly that of the poor, but there is a glaring mismatch between their functions, and their finances and capabilities. In India, urban local bodies account for a third of public expenditure but just 3% of revenue. In China, they account for half of public expenditure and 25% of revenue. Property taxes, the main revenue base for municipal governments, constitute just 0.44% of India’s tax revenues, strikingly lower than in other emerging economies. This figure remained stagnant over the past decade, over period of high urban population and GDP growth. The more dependent urban local bodies are on higher-level transfers, the more they underspend on public services and amenities.

In China, unlike in India, city and local governments play a key role in urban development. China is politically centralised, but administratively and fiscally far more decentralised than India. City governments have the tools and resources to plan and manage growth. Urbanisation, historically, has been a time where public institutions are built and strengthened, from utilities to regulatory institutions to social welfare services to public libraries and hospitals. The fragility of civic institutions will have a serious impact on India’s ability to deliver broad-based improvements in well-being to its rapidly growing urban population. In situ rural urbanisation accounted for nearly 30% of urban growth in India over the past decade, creating hundreds of newly-urban settlements without municipal institutions capable of collecting taxes, planning urban development and delivering public services. As a result, slums and informal settlements, once a big city problem, are becoming more widespread.

Most so-called ‘smart city’ or ‘new city’ projects under way in India develop outside official city boundaries. They are not new cities at all, but self-contained commercial, residential or industrial enclaves adjacent to major cities. As the planned enclave grows, so does the informal city outside its bounds, catering to construction labour, domestic workers, contract workers, daily wagers and small-scale retailers, a pattern that has accompanied new city development in India since colonial times.

This pattern of privatised, enclave urbanisation undermines the potential of city governments to grow into effective, well-resourced and democratically-accountable institutions. Provincial levels of government, in charge of urban development policy, typically capture revenues from urban development, while municipal and local authorities deal with the costs. State governments have an incentive to undertake lucrative and prestigious smart city projects without taking into consideration their feasibility or real costs. Some will be vanity projects or real-estate boondoggles, diverting precious public resources that would be better spent improving existing urban settlements or providing public services and infrastructure in urbanised rural areas.

India is experiencing rapid urban growth in a context where city governments are weak or non-existent. Deficiencies in urban governance and management in India reflect structural and institutional problems that will not be resolved by advanced data systems or sensor-equipped infrastructure networks. Public-private partnerships, the Modi government’s preferred model for smart city development and management, in order to serve the public interest as well as private interests, will require an effective and locally-accountable government partner. The trappings of a smart city—cyber highways, digital sensors, smart cards and computerised management systems—will remain just trappings, like the city development plans and environmental policies Indian cities regularly prepare but rarely implement, unless city governments have the incentives and resources to use them.

As an example, a centralised data system might help city authorities analyse where flooding is likely during the monsoons and anticipate related problems of water contamination, disease outbreaks and electrical fires. They could take steps to mitigate risks, reach out to affected communities and line up resources to respond quickly. But their incentives to take coordinated action, which localities to prioritise and which ones to disregard, have to do with politics. A city administration is more likely to be responsive if it is accountable to local citizens. And, of course, if it has the data analysts, engineers, fire-fighters and fire-trucks, public health facilities and staff to execute its plan. Even India’s largest and wealthiest cities are under-resourced and under-equipped.

The plan to build a hundred new smart cities is both grandiosely ambitious as well as deeply inadequate. By 2040, India’s urban population will be over 600 million. Amartya Sen describes India as a place where ‘islands of California’ exist amidst a ‘sea of sub-Saharan Africa’. To mitigate, rather than entrench inequities, India needs an urban agenda that is more wide-ranging, inclusive, sustainable and locally-driven than the one centred on new smart cities. To improve urban environments, support decent jobs, tackle urban poverty or adapt to climate-change, cities need not just policies and computerised management systems, but the incentives and the means to implement them.

Shahana is a post-doctoral research fellow, Blavatnik School of Government, University of Oxford. This post first appeared in Financial Express. 

Regulatory Impact Analysis: Hopefully, a prelude to ‘Make in India’

In view of the new ‘Make in India’ agenda of the Modi government, Aparajita Bharti argues for the adoption of the Regulatory Impact Analysis, a global practice to evaluate the costs and benefits of a proposed/existing regulation, that has also found favour in Planning Commission and other governmental reports.

With the new government in the driving seat and ‘Make in India’ high on its agenda, improving the regulatory environment for business is a top priority. This is, therefore, a golden chance for the government to introduce in India the practice of Regulatory Impact Analysis (RIA), which is followed worldwide to assess the costs and benefits of a proposed or an existing regulation.

The 12th five yearindiaproduction plan (2012-2017) recommends the employment of RIA for both existing and future regulations that impact the business environment in India. RIA enables the governments to judge the efficiency of the proposed regulatory framework in creating a more competitive market vis-à-vis the compliance and enforcement costs that it puts on businesses and the governments. In some countries, RIA also includes an evaluation of other regulatory options (including self regulation) to judge the most effective way in which a near perfect market can be delivered to the consumers at the lowest cost. RIA is considered an important activity as it exposes compliance and other costs arising out of the new regulations, which are ultimately passed on to the consumer. It enables the governments to weigh these costs against the benefits that accrue to the consumers as a result of the regulation. Although RIA may come across as expensive, however, in the long run, it saves huge costs that are incurred because of an inefficient regulatory framework. Continue reading

Mandatory CSR: A win-win?

Amid all the bad press the mandatory CSR has received, Akshaya Kamalnath and Ashrita Kotha attempt to demystify and look at the policy implications of the provision which is the first of its kind in the world.

Although there is panic about the government dangling the sword of ‘mandatory’ corporate social responsibility (CSR) spending over corporates, it is important to take a step back to understand what the Companies Act, 2013 (the Act) actually says about CSR. It may turn out to be a win-win for all concerned.

Section 135 of the Act requires that companies of a certain size (those with a net worth of at least ₹500 crore or turnover of at least ₹1,000 crore or a net profit of at least ₹5 crore during any financial year) must spend a minimum of 2 per cent of its average profits of the past three years on CSR activities. While this requirement definitely sounds mandatory, the only consequence for companies failing to spend this amount is that they are required to give reasons for the failure in their annual report. Thus, although it is technically a mandatory obligation, the penalty for non-fulfilment is merely drawing shareholders’ attention to the fact of non-compliance. This has the potential of making companies focus more on reputational value.

Critics argue that companies can use CSR as a competitive strategy only if it remains voluntary. However, in the way the Act conceives CSR, while spending 2 per cent of the preceding three years’ profit is required, companies are free to spend more than this minimum and devise innovative ways of spending to have a greater impact on society.

Enhancing reputations
It is precisely for such innovation that Section 135 requires companies to which it is applicable to appoint a CSR committee comprising three or more directors, including an independent director to decide policy. Again, in the spirit of drawing shareholders’ attention to this, the Act also requires that the CSR policy is displayed on the company’s web site. The only restriction is that it has to be framed within the categories specified. But there is still ample scope for innovation as the categories are broadly listed.

Therefore, contrary to all the doom-and-gloom predictions about mandatory CSR, the Section provides an opportunity for companies to take advantage of shareholder attention and to use it not only to make meaningful social contributions but also gain reputational capital from it. From society’s perspective, the Section pushes companies to spend a miniscule portion of their profits for society, while, from shareholders’ point of view, it ensures transparency by requiring that the annual report show what activities the CSR fund was spent on or, if there was no spending, the reasons for this.

Not a tax
The 2 per cent rule does not operate as a tax. A company that does not incur the CSR expense is only required to justify the omission to its shareholders. A tax is a compulsory exaction, levied, collected and spent by the government. The CSR spend is neither imposed nor collected and spent by the government. The CSR expense structure is meant to help identify the specific social initiatives taken by a company and thus highlight its contribution to society. If it is subsumed within the framework of a tax, the prerogative of how much to spend and for which initiatives would be that of the sovereign. CSR spending that aims to form a part of the company’s competitive strategy cannot, thus, be designed as a tax.

Policy angle
One valid policy question one may ask at this juncture is whether the CSR spend is justified in light of the existing gamut of taxes a company pays. These taxes are already supposedly used by the government to finance social programmes and services. Then, what is the rationale for CSR spending, over and above these taxes?

The answer may be found by observing some other policies of the government. A company wishing to undertake foreign investment in the multi-brand retail sector has inter alia to commit to spending 50 per cent of the FDI in back-end infrastructure over a three-year period and satisfy a 30 per cent local procurement condition. Even the Defence Procurement Policy has an offset policy that seems to resonate the same idea.

While the case of foreign investment may be distinguished from domestic corporate activities, the trend of the government’s policy seems to indicate the general opinion that companies are required to increasingly legitimise their existence in society. The backdrop of scams and corruption seems to have shaken the people’s faith in corporate institutions. A CSR policy may thus be better understood as not just a mechanism to highlight a company’s social initiatives but also as part of a larger strategy to restore the position of companies in society.

This article originally appeared in The Hindu Business Line.
Akshaya Kamalnath is a doctoral student at the University of Newcastle.  Ashrita Prasad Kotha is pursuing her BCL at the University of Oxford.

Revenue Foregone statement: Reading between the lines

Rohit Sinha

taxWith the Budget presented, the debate on revenue foregone by the government in the previous financial year has resumed once again. The statement of revenue foregone presented for the first time in 2006-07 union budget rightly deserves as much commendation for promoting better transparency in government finances, as a cause for bitter arguments in parliament on tax administration.

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The 2012 wave of economic reforms: A Comparative analysis with 1991

Raphael Sujith

Since its independence in 1947, Indian economy’s growth had been slow till 1990. The country was largely isolated, at times intentionally, from the rest of the big markets. Due to its huge size, lack of visionary leaders in national economics, administrative red tapes etc. India’s dream for self-reliance remained far. The first major push for economic reforms came in 1991 when Dr. Manmohan Singh took charge of the Finance Ministry under Prime Minister Narasimha Rao.

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India’s Demographic Dividend: Where are the jobs?

Rohit Sinha

Indian-work-forceDemographic dividend is a term that policymakers have associated India with for some time now. The percentage of India’s population in the age bracket of 15-64 in the year 2016 is projected to be 67% and around 68% in 2026, of the total population. Considering the rapid pace of population increase in the country, the sustained percentage share of ‘able’ population says much about the changing demographics which are favour of India. However, this boon leads us to the long-run question – where will the good jobs come from for the ‘able’ population?

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