Urban finances: need for new thinking

Urban local bodies are closest to the citizen. Besides, these ULBs have a profound effect on the quality of lives of citizens. While national and state governments work to put in place appropriate policy interventions to improve citizens’ well-being, it is the local governments that implement the programmes and policies. Whether it be the city infrastructure – roads, water supply, etc., or healthcare facilities, or primary education or pollution or waste management services, or public transport, each has a big impact.

Therefore, it is essential that ULBs are well-funded and otherwise well-equipped to perform the wide range of tasks. Funding is a crucial aspect. Generally it is seen that the sources of income for the ULB are limited – own revenues of which property tax forms the bulk, and user charges; the rest are grants from national and state governments. When it comes to property taxes, the ULBs do not have complete freedom to fix them. The subject of user charges too is often difficult as various stakeholders may have conflicting approaches.

In terms of the way forward, ULBs are being nudged to tap the debt markets by offering municipal bonds. A few of the larger corporations have done this successfully and more are looking to do so. This route however depends on financial strength of the issuer and hence it could be a chicken and egg situation. Yet all ULBs will have to work at improving their financial metrics and transparency in order to succeed in raising funds from the market. Additionally, there is need for a deep and vibrant secondary market for these bonds to ensure long term sustained investor appetite for municipal bonds.

User charges too needs to support the enhanced responsibility and activities of the local bodies. Water is a case in point. With rapid and relentless urbanisation, water as a key input to support human life will play a big role. Big investments will be needed to rejuvenate water bodies, for laying pipelines, treatment and recycling plants, and so on. And then there is the cost of day-to-day operations. Water revenues possibly do not cover even a fraction of these costs. One could also look at vehicle parking charges in our cities. Again, wherever levied, parking charges are no way reflective of the value of real estate that the cars occupy. And sadly, most street parking in our cities is free. More realistic parking charges would also encourage use of public transport while shoring up local bodies’ revenues. Realistic user charges, whether for water, parking, or other services, is equitable since the user pays based on the amount he consumes. Individual tenement metering for water will make the system even more equitable while conserving a scarce resource. Levy of realistic user charges will in due course lend more accountability to the functioning of the local bodies; as citizens pay a fair price, they are likely to demand appropriate services.

The subject of municipal finances has been discussed at various forums since long. This issue of Urban Update brings you views of several experts and thus adds to these debates.