Human capital, technological progress and trade: What explains India's long run growth?

Over 330 million people live in India’s 5,165 cities, and 35 cities have a population of over a million each. Three (Mumbai, Delhi, and Kolkata) of the 10 largest metropolises in the world are in India. Over two-thirds of India’s GDP originates in urban agglomerations in the country. However, urban governance and finance in India leave much to be desired in terms of providing services to the country’s burgeoning urban population while accommodating different needs and pressures and adapting to shocks, whether natural or human-caused. This paper draws on lessons from fiscal federalism theory and the experiences of governance institutions and financing systems around the world to identify some key reforms needed to ensure more citizen participation and greater accountability in urban governance, and to augment and strengthen the capacity of Indian cities to deliver more adequate services and provide needed urban infrastructure.

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Coping with Change: The Need to Restructure Urban Governance and Finance in India

Over 330 million people live in India’s cities; 35 cities have a population of over a million and three (Mumbai, Delhi and Kolkata) of the 10 largest metropolises in the world are in India. India’s cities are large, economically important, and growing. However, neither urban infrastructure nor the level of urban public services is adequate for current needs, let alone to meet growing demands. Dealing with this problem is a formidable challenge. Not only must adequate finance for the provision of services be found but it is critical to ensure that the money spent results in desired outputs and outcomes. To do so, local governance structures also need to be reformed and strengthened. This paper attempts to point the way towards some possible solutions by analyzing urban governance and finance in India in the context of lessons drawn from fiscal federalism theory and experiences of governance institutions and financing systems both in India and around the world. No one system of urban governance is likely to work equally well for all urban local bodies. However, the paper identifies some key reforms required to realize both the constitutional intent to encourage citizen participation in urban governance and the economic and politically desirable goal of ensuring greater accountability of urban governments. For example, the paper draws attention to existing ambiguities in the assignment system and underlines the need to undertake activity mapping to ensure clarity as well as to make independent agencies significantly accountable to elected governments in urban areas.The paper also discusses a variety of ways of augmenting the resources of the municipal bodies in the country including essential reforms in the property tax system and adequate exploitation of user charges and fees for various services delivered as well as ways of strengthening and improving central and state transfers to urban local governments. With respect to financing urban infrastructure, development charges should be used more effectively. More should also be done to utilize public lands more effectively. In addition, to a considerable extent capital expenditure requirements will have to be financed through borrowing so further development of the municipal bond market is important, as is more and more effective use of public private partnerships in some areas.

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Urban Governance and Finance in India

This essay comparatively examines the current urban fiscal crisis in US, Chinese, and Indian cities from the perspective of city power. The urban fiscal crisis in the USA is closely linked to the subprime mortgage crisis of 2008 as municipal governments largely depend on property tax as revenue sources. In China, municipal debt has increased sharply since 2008, not because of the recession, but because of the binge borrowing and overinvestment in infrastructure under the state stimulus programme, which was initiated by the central government to minimize the effects of the global recession on the Chinese economy. In India, cities have been in a perpetual state of fiscal crisis due to the stalled devolution of power from state to municipal governments. The comparison on authority, responsibility, and fiscal autonomy of city governments in the three countries demonstrates that the urban fiscal crisis has to be understood in plural terms, as the various assemblages of city power have given rise to a multitude...

City power and urban fiscal crises: the USA, China, and India

In the new information age in the globalized and interconnected world, metropolitan areas hold the key to the future prosperity and growth of nations. This paper takes a closer look at grant-financing regimes faced by metropolitan areas and their role in facilitating or hindering improvements in economic and social outcomes of residents of metropolitan areas. A review of 42 large metropolitan areas worldwide shows that, with a few notable exceptions, metropolitan areas in general are hamstrung from playing their potential role in economic advancement. Metro areas have large economic bases and therefore little a priori needs for grant financing, yet they have strong dependence on central transfers. This is because of the highly constrained fiscal autonomy given to these areas, especially in developing countries, with the singular exception of metro areas in China. Such a strong reliance on transfers undermines local autonomy and local accountability. General purpose transfers are formula based , transparent and predictable yet they discriminate against metropolitan areas as they utilize a one size fit all (common formula) for all local governments -- large or small. Such formula typically incorporate equal per jurisdiction component that discriminates against large metropolitan areas. Compactness is rarely rewarded and the greater needs of metro areas for transportation, education, health, culture and welfare go unrecognized. Overall the emphasis in grant financing of metro areas deals with vertical fiscal gaps or project based specific purpose grants. To ensure that metropolitan areas can play their dual roles in improving economic and social outcomes for residents, it is important to strengthen their fiscal autonomy while at the same time enhancing their accountability to local residents. The paper argues that results based grant financing of social and transportation services and tournament based approaches to encourage inter-jurisdictional competition need to be given serious consideration to ensure metropolitan autonomy while strengthening citizen based accountability.

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Grant financing of metropolitan areas : a review of principles and worldwide practices

This paper provides an overview of the fiscal problems faced by five urban agglomerations in India, namely, Delhi, Hyderabad, Kolkata, Chennai, and Pune. It analyzes the fiscal health of the five urban agglomerations, quantifies their revenue capacities and expenditure needs, and draws policy recommendations on the means to reduce the gaps between revenue raising capacities and expenditure needs. The main findings suggest that, except for five small urban local bodies in Hyderabad, the others are not in a position to cover their expenditure needs by their present revenue collections. All the urban agglomerations have unutilized potential for revenue generation; however, with the exception of Hyderabad, they would fail to cover their expenditure needs even if they realized their revenue potential. Except in Chennai, larger corporations are more constrained than smaller urban local bodies. The paper recommends better utilization of"own revenue"through improved administration of property taxes, implementation of other taxes, and collection of user charges. It recommends that state governments should explore the option of allowing local bodies to piggyback a small proportion on their value-added tax collections. Another way to reduce the fiscal gap would be to earmark a portion of the sales proceeds from land and housing by state governments sold through their development agencies for improvements in urban infrastructure. The paper also recommends that the State Finance Commissions should develop appropriate norms for estimating expenditure needs, based on which transfers from the state to local governments can be decided.

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Fiscal health of selected Indian cities

The main objective of the paper is to assess the performance of urban local governments in India taking the physical levels of services provided by them as the ‘outputs’ and the expenditures on resources to provide these services as ‘inputs’ in an integrated framework and pinpoint some possible sources of mis-utilization of resources. We use nonparametric two-stage data envelopment analysis technique to derive the efficiency scores, with a subsequent analysis of slacks associated with the optimization exercise which quantifies the extent of mis-utilization of resources. The main findings suggest that the city governments can provide the same levels of services by using resources lesser by 27 % of what they currently use. We also find that the extent of unproductive spending and under-provision of services are more pronounced in smaller cities. Mis-utilization of resources in factors like establishment and laborcost is more pronounced as the establishment expenditures and contractual payments in the laborcost component involve more leakages.

Financial management and service delivery: a nonparametric analysis for Indian cities

One plausible way to assess empirically the impact of reforms in globalization on an industry is by evaluation of its performance under these reforms in the input–output framework.

Performance Evaluation Techniques: An Application to Indian Garments Industry

The paper attempts to explain and analyze the dominant role played by the chemical sector in India in both manufacturing as well as in foreign trade in the post-reform period. By using non parametric DEA for four time periods in the post reform era it has been observed that there exists technological heterogeneity across products, indicating meaningful insights in terms of internal characteristics of firms like age and size. Analyzing the performance in the open market we find between 1991 and 2006 a higher export can be explained more by price competitiveness along with a shift from finished and processed chemicals to intermediate goods. To get an idea about product and destination wise outsourcing or subcontracting practices in the sector in the presence of a considerable extent of import of inputs, Intra-Industry Trade analysis is carried out. Finally, an investigation of the performance of the sector through a decomposition of total factor productivity between 2002 and 2006 by using Malmquist Index has been attempted.

Productivity Performance of Indian Chemical Sector: Post-Reform Perspective

The paper aims to: a) estimate the research efficiency scores of Higher Educational Institutions (HEIs) in India, b) compare efficiencies in research and teaching according to characteristics like ownership, specialisation of courses and age and c) estimate the group efficiencies of HEIs categorized according to their characteristics. We estimate efficiency scores using Data Envelopment Analysis and, for the first time, find out the Meta-technology ratio for each group to identify the group which represents the operations and processes of entire higher education. Research efficiencies are higher than teaching efficiencies. In terms of research efficiency, old HEIs perform better than young HEIs, Public HEIs perform better than Private HEIs and HEIs specialising in Non-professional courses perform better than HEIs specialising in Professional courses. The teaching-learning and research processes followed by public HEIs are closer to those followed by the entire higher education system. The association between teaching and research is low.

Simanti Bandyopadhyay

Papers

Fiscal health of selected Indian cities

Financial management and service delivery: a nonparametric analysis for Indian cities

Performance Evaluation Techniques: An Application to Indian Garments Industry

Productivity Performance of Indian Chemical Sector: Post-Reform Perspective

Research, Teaching, Performance: An Analysis Using Frontiers and Meta-frontiers