27
Feb

In Conversation on Urbanisation with Dr. Shlomo Angel

Below post is cross-posted from our Financing Small Cities Blog.

In a three-part interview series Vishnu Prasad of IFMR Finance Foundation speaks with Dr. Shlomo (Solly) Angel, adjunct professor at NYU and senior research scholar at the NYU Stern Urbanization Project, about India’s urban housing crisis, urban governance challenges in India, the enduring legacy of the Oregon experiment, Making Room Paradigm and his personal experiences with participatory planning in Bangkok.

Excerpt:

Q: One of the most visible manifestations of the land market distortion is the preponderance of slums in Indian cities. It is estimated that 20% of all households in urban India – and a larger share in the mega-cities (42% in Mumbai) – live in slums. How should countries like India formulate policy responses to this question?

A: I think that the solution to the problem of slums in India is very simple but that doesn’t mean that it will happen. The problem is really one of paternalism.

Namely, if you were to solve the Dharavi problem tomorrow, I would simply say that the land on which this slum is located now belongs to the slum-dwellers. The government gives up the authority on this land and the slum-dwellers are now shareholders in a great economic asset in the middle of one of the most important cities in the world.

The issue would then be one of how to derive the maximum benefit for the land-owners by developing this land appropriately. The land shouldn’t be given to developers who take advantage of the slum dwellers or to corrupt politicians who do land deals.

The land must belong to the people and in my mind, there is no doubt that if and when this happens, housing conditions in Dharavi will improve rapidly.

What the government has been doing for decades is to sustain the uncertainty about the future of the land and this dissuades people from investing in that land.The government should get rid of this uncertainty by allowing people to stay where they are and give them ownership and control over their territory.

In neighbouring Pakistan there are examples of this being done, either marginally or totally. If you compare Orangi (in Karachi) to Dharavi, there is a lot more development in the former since the government has given the right of the land to the people and eliminated uncertainty.

Indian bureaucrats have always insisted that these slums are temporary, or that they don’t exist, or that according to the law (in say Maharashtra) the land is shown as vacant land and is therefore, not inhabited. India is behind other countries in terms of these policies and bureaucrats have kept these slums in a state of limbo.

To read the full interview click here.

You can also listen to the full podcast on SoundCloud below:


Also read on Cities Blog:

The Pruitt-Igoe Myth of Public Housing

Excerpt: The Pruitt-Igoe housing complex in St. Louis, USA has long served as an archetype for the failure of public housing and oftentimes for well-intentioned government policies in general. The Pruitt-Igoe Myth (2011), a documentary feature by Chad Freidrichs, attempts to systematically dispel this notion by bringing to light the often omitted explanatory factors at play in the decline of Pruitt-Igoe.

29
Nov

India’s Suburban Transformation

Below post is cross-posted from our Financing Small Cities Blog.

By Vishnu Prasad, IFMR Finance Foundation

According to the 2011 Population Census data, urban India grew by 90 million people in the previous decade. During this period, 2774 new towns were born with over 90% of the new towns belonging to the category of census towns. Census towns are defined as places that satisfy the following three criteria:

  1. a minimum population of 5,000
  2. at least 75% of the male main working population engaged in non-agricultural pursuits, and
  3. a density of population of at least 400 per sq. km.

An estimated one-third of these new towns are located in close proximity to India’s large cities (in a 50 km neighbourhood of million-plus cities). These suburbs occupying just 1% of India’s land area provide about 18% of the country’s employment. These statistics provide staggering evidence of India’s rapid suburbanization in the previous decade. Places situated on the edge of India’s cities like Sriperambudur near Chennai, Noida and Gurgaon near Delhi, and Raigarh near Mumbai have witnessed rapid growth.

A World Bank report titled ‘Urbanization beyond Municipal Boundaries’ investigates the cause of this phenomenon characterising India’s urbanisation. The report presents evidence of the stagnation of India’s metropolitan cores. As the figure shows, the metropolitan cores of India’s seven largest cities saw a decline in employment over 1998-2005 while the peripheral towns and villages witnessed rapid growth in high-technology manufacturing, real estate and other manufacturing sectors. While suburbanisation is a common phenomenon in most urbanising countries, what makes India’s predicament particularly worrying is that it is occurring at a relatively early stage of India’s urban development.

Click here to read the full post.


Also read on our Cities blog:

Arts and the City

Excerpt:Outside is where art should live, amongst us. And rather than street art being a fad, maybe it’s the last 1,000 years or art history that are the blip, when art came inside in service of the church and institutions. But art’s rightful place is on the cave walls of our communities, where it can act as a public service, provoke debate, voice concerns, forge identities. The world we live in today is run, visually at least, by traffic signs, billboards and planning committees. But is that just it? Don’t we want to live in a world made by art, not just decorated by it?

So signed off Banksy, the elusive street-artist, from his month long residency in New York with this message having Frank Sinatra’s New York New York hauntingly playing in the background. His experiment garnered tremendous attention, almost frenzy, leaving people wondering whether he was a jerk or genius? Mr. Bloomberg though is clearly not a fan.

Urban Diary – Interesting reads

Our compilation of interesting news and views on urbanisation from across the world.

28
Oct

Private financing of Public Infrastructure in India – Evolution and Way Forward

Below post is cross-posted from our Financing Small Cities Blog.

By Anand Sahasranaman, IFMR Finance Foundation

Given the magnitude of investments and expertise needed for sustainable development of urban infrastructure in India, it is essential that there be substantial private sector involvement. This post explores how there has been a greater thrust towards private funding models post-1990 and what how policy can incentivize cities to move further in this direction.

Evolution of urban infrastructure financing in India

Prior to 1990, urban infrastructure in Indian cities was financed largely through government grants and Plan funds of central and state governments. Decisions on local infrastructure investments were made by state and central governments. Because of the disconnect between local needs and infrastructure plans drawn up at higher levels of government, these infrastructure investments made were without any clear understanding of local demand. In the absence of inputs on both the nature and extent of local demands, the infrastructure that was built ended up being inadequate, of poor quality and often unrelated to people’s needs.

In addition to these direct government levers of grants and Plan funds, cities were also allowed to access debt from the Housing and Urban Development Corporation (HUDCO), which was directed by the central government to lend to cities. These borrowings from HUDCO were guaranteed by state governments, thereby de-risking the investment for HUDCO by ensuring that the lender was exposed to the state government’s risk and not the particular project’s risk. By design, such an arrangement ensured that the credit discipline that is associated with prudent, commercial lending programs was missing here. The incentives of the lender were completely skewed by disconnecting the lending from the project risk, and the incentive of the city to structure a viable project was also skewed by the knowledge that the ultimate risk of default lay with the state government. This financing structure fundamentally lent itself to the design of sub-optimal, unsustainable projects.

Click here to read the full post.

Also read on our Cities blog:

Land based financing for cities – Lessons from Latin America

Excerpt: In a recent report titled “Implementing Value Capture in Latin America- Policies and Tools for Urban Development“, Martim O Smolka of the Lincoln Institute of Land Policy discusses a wide suite of land financing instruments that have been used in Latin America. The report focuses on instruments of value capture, which are based on the principle of recovery by the public of land value increments (unearned income) created by actions other than the landowner’s direct investments. Although all such increments constitute unearned income, value capture instruments focus primarily on the increment created by public investments and administrative actions.

The City that Lost its Soul: New York City in “Naked City”

Excerpt: In the early years of the twenty-first century, New York City lost its soul. Some people doubt that the city ever had a soul, because New York has always grown by shedding its past, tearing down old neighbourhoods and erecting new ones in their place, usually in a bare-faced struggle for financial gain. Others just shrug because, today, all big cities are erasing their gritty, bricks-and-mortar history to build a shiny vision of the future.

Sharon Zukin explores the notion of authenticity in a city that by placing a high premium on it is effectively destroying it. New York’s quest for authenticity might be seem contrary to the concept of “Manhattanization,” that signifies everything in a city that is not thought to be authentic: high-rise buildings that grow taller every year, dense crowds where no one knows your name, high prices for inferior living conditions, and intense competition to be in style.

Ekumenopolis – Istanbul and the Making of the ‘Global City’

Excerpt: Ekumenopolis, directed by İmre Azem is a hard-hitting Turkish documentary that reveals how the rapid growth of the city of Istanbul is engendering two polarizing visions for the future of the city. On the one hand, the Turkish state is intent on making Istanbul a global city; the cultural, artistic, economic and financial node of the region. This forms part of the larger vision of the ekumenopolis, a global network of urban areas that is expected to coalesce into a single, contiguous city-planet. On the other, the ordinary citizens of Istanbul, the migrants who come to the city seeking a better future, the quasi-visible proletariat who lubricate the city’s burgeoning service sector find themselves increasingly excluded from this vision. They want a future that they can claim a stake to- one that protects their right to the city and that they can shape themselves. This echoes of the conflict in most developing world mega-cities, including Indian cities such as Mumbai and Delhi which aspire to be global cities but at the same time struggle to provide the most basic services to large swathes of their populations.

22
Sep

Land as a source of financing urban infrastructure

Below post is cross-posted from our Financing Small Cities Blog.

By Aditi Balachander and Anand Sahasranaman, IFMR Finance Foundation

At a fundamental level, it can be argued that internal revenue sources are the most critical funding levers available to a municipality because without effective, predictable generation of internal revenues, it will be impossible to attract new, external sources of funding. External sources, whether in the form of bank loans, bonds or other capital market instruments, will be available to municipalities only on the basis of the internal revenues they generate now and are expected to generate in the future. Additionally, the internal revenue generation of a municipality is but a reflection of the quality of its governance, and the transparency and accountability of its administration. Any assessment of the internal financing capability of a municipality is, therefore, a judgment on its governance standards. A better governed municipality implies better information availability, better assessment capability and better collection efficiencies that are then reflected in the quantum of revenues generated through internal funding levers. Therefore, any attempt to substantially improve the infrastructure provision scenario in India will need to begin by giving a significant thrust to improving the assessment, enforcement and collection of internal revenue levers.

While the generation of internal revenue is critical for a city, the use of land as a source of financing urban infrastructure can be a very useful supplementary mechanism. Traditionally, urban infrastructure has been financed by savings of local government, grants from higher levels of government and capital borrowings. However, at a time when government budgets are hard pressed and large-scale borrowings are hard to come by, land-based financing presents an important option for local infrastructure finance. By leveraging the sensitivity of land values to urban economic growth and the principle that benefits of infrastructure are capitalized into land values, land-based financing instruments have come to play a key role in complementing other sources of capital finance.

Click here to read the full post.

Also read on our cities blog:

Snooping into the everyday life

A scene from Minority Report gave us a flavor of what the future of personal advertising might shape to be. Renew, a start-up, has taken this concept to heart and installed what some say “Smart”, but mostly say, “Spy” bins in the city of London.

23
Jul

Analysing a city’s finances – Example of Srirangapatna TMC, Karnataka

This post first appeared on our Financing Small Cities blog.

By Vishnu Prasad, IFMR Finance Foundation

Continuing our focus on Municipal Finance, we look at the financial statements of Srirangapatna TMC in Karnataka in this post. We are currently working with the town of Srirangapatna as a part of IFMR Finance Foundation’s Financial Access for Small Cities initiative. In this post, we examine the town’s finances over the past ten years and find similarities to national trends.

The financial books of Srirangapatna Town Municipal Council (TMC) comprise three accounts- revenue receipts/payments, capital receipts/payments and extra-ordinary receipts/payments. Table 1 presents an overview of heads that are classified under each account.

The key findings from our analysis are summarized below2:

i. Dramatic Increase in Total Income and Expenditure: The finances of Srirangapatna TMC have witnessed dramatic growth over the past decade. For instance, total Income has increased from Rs. 4.22 million in FY 2000-01 to Rs. 141 million in FY 2010-11 (see Figure 1). The city ran a surplus budget for most of the previous decade, except FYs 2007-08 and 2009-10 when the city ran a deficit budget3. This seems to be part of a wider trend in Karnataka, where 90% of the TMCs have surplus budgets4.

The last FY (2010-11) saw a large increase in both total Income and total expenditure; total Income doubled over the previous FY. This large spike is explained by two items in the city’s accounts. First, the city’s capital receipts account shows a deferred income of Rs, 39.5 million received under the head of public works. Second, the city received a development grant of Rs. 33.3 million under extra-ordinary receipts.

On average, the city’s income has exceeded its expenditure by a factor of 1.23. According to the Third Karnataka State Finance Commission (SFC), on average a TMC’s income exceeds its expenditure by a factor of 1.78. (For a deeper analysis of Kanataka’s third SFC, refer to our blog post on Funds devolution from state governments to ULBs)

ii. Increasing share of devolved revenue: Table 2 shows how the share of own and devolved revenue has changed over the past five years. In FY 2010-11, devolved revenue formed 74% of total revenue. The table shows that the proportion of devolved revenue saw a rapid increase in FY 2006-07; it rose from 35% in FY 2005-06 to 70% in FY 2006-07. This rise can be attributed to an untied SFC grant of Rs. 10 million that the TMC received in FY 2006-07.

Since 2006-07, the TMC has received an average of Rs. 15.61 million as untied SFC grants each year, which explains the increasing share of devolved revenue. This is similar to the trend seen across smaller ULBs in Karnataka. For instance, on average devolved revenue forms 71% of a TMC’s total income in Karnataka. This trend is also seen nationally where the share of own revenue in the income of ULBs has declined from 63.48% in 2002-03 to 54.94% in 2007-085. (For a detailed discussion on national level trends, refer to our blog post on Municipal Finance-Funds)

iii. Declining revenue from property tax: Table 3 shows the mean composition of own revenue over the past five years. Property Tax, Water Charges and Fees collected form 76% of own revenue. As the third SFC notes, property taxes form the largest source of own revenue for TMCs in Karnataka, forming 12% of total revenue (as of 2007). However, over the past five years, the share of property taxes in Srirangapatna’s total revenue has reduced to 7.5% in 2010-11 from 11% in 2005-06. The own revenue of the city is heavily reliant of a variety of fees that are collected; in 2010-11 total fees collected formed a third of own revenue.

iv. Administrative expenses forms 35% of total expenditure: Administrative expenses make up a large portion of the TMC’s total expenditure. Salaries, Allowances and collection of taxes form 41.69% of total expenditure of TMCs in Karnataka. This true of larger ULBs as well, for instance, Mohanty (2007)6 finds that establishment and administrative expenditure make up 36% of total expenditure in a study of 35 Municipal Corporations.

Public work expenses form about 41% (see Table 4) and hence, the largest expenditure item for the TMC. Public works comprises work undertaken on roads, pavements, footpaths, drains and street lights. Although their mean shares are small, expenditure on sanitation, water supply and urban poverty alleviation have increased. For instance, the TMC spent 17%, 16% and 10% of the total budget on sanitation, water supply and urban poverty alleviation respectively in 2010-11.

v. Sound fiscal health and High level of under-spending: The TMC seems to have been in sound fiscal health over the past decade. Even in years where the city’s budget ran a deficit, it had closing balances of Rs. 27.14 million (2007-08) and Rs. 44.17 million (2009-10). In FY 2010-11, the city had a surplus of Rs. 49.1 million, resulting in a closing balance of about Rs. 95.73 million.

As we found in our State of Srirangapatna report 20127, the city has many areas of opportunity that require spending from the TMC. For instance, the city has a serious sanitation issue- 39% of the households surveyed reported that they defecated in the open. 50% cited the lack of availability of public toilets as the reason for defecating in the open. As Table 4 shows, the city spends only 7.5% of its budget on sanitation and solid waste management combined.

This reflects a broader trend that is seen across ULBs in India. For example, Mohanty (2007) finds that municipal corporations in India are characterized by sound fiscal health and high levels of under-spending. The study finds that the level of under-spending on core services (as compared to the norms set by the Zakaria Committee) is 76%. Heavy dependence on upper tier of government (as seen by the over-whelming share of devolved revenue) and inability to raise revenues on their own hamper delivery of basic services.

Note: Budget Statements of the last three years are available on the TMC’s official website: http://www.srirangapatnatown.gov.in/

  1. Total fees comprises fees charged under the head of planning and regulation; these include building regulation fees, town planning fees, jatra/urs fees, development charges, parking fees and fees collected from grounds rented out for civic purposes
  2. Data for FY 2008-09 is missing from the analysis
  3. The city had a deficit of Rs. 3.14 lacs in 2007-08 and Rs. 25.09 lacs in 2009-10.
  4. Source: Report of the Third State Finance Commission, Government of Karnataka. Available at: http://www.finance.kar.nic.in/others/TSFC%20Report-English-Full.pdf
  5. Report of the Thirteenth Finance Commission (2010-2015). Finance Commission, India. December 2009
  6. Mohanty, P.K et al. Municipal Finance in India: An Assessment. Development Research Group, Reserve Bank of India. December 2007
  7. A summary is available here: http://financingcities.ifmr.co.in/SOS_Summary.pdf