CITYZEN. Cities punching above their weight

It is not unusual these days to hear the view expressed in our major cities that since they contribute a substantial part of GDP they should be entitled to a similar size of the budget.

It is argued in, say, Karnataka that since Bengaluru accounts for over 60 per cent of the State’s domestic product, it must be able to access a similar share of Karnataka’s budget.

The support this argument gets is not just because of an appeal to symmetry. It is also the result of a battle between economic power and democratic politics -- a battle that has had its impact on the way Indian cities are being managed.

On the face of it there is little to justify the case for uniformity between share of GDP and share of a government’s budget. As any economist will tell you there is a difference between a tax and a fee. A fee is a payment for services rendered. Any suggestion that the amount cities get from the budget should be determined entirely by how much they pay the State, would be to treat the payment as a fee. Governments, however, tax citizens in order to take care of the interests of the State as a whole. Such an approach includes transferring resources from the rich to the poor, from the urban to the rural.

There is, then, no technical case for the share of cities in the budget of a State government to match the share of the urban in the State’s income.

The sentiment that exists in favour of this argument has more to do with the fact that economics and democratic politics are, in this stage of India’s urbanisation, pulling in opposite directions. In an advanced economy the level of urbanisation is compatible with the share of the urban in total population.

The economy is dominated by the urban sector and since a substantial majority of the population too lives in urban areas there is a consistent political demand for the bulk of State support to go to the urban sector.

The commonality of interest is so well established that in France it is not unusual for the mayor of Paris to have presidential ambitions.

In India, on the other hand, while the bulk of the GDP is generated in urban areas, around two-thirds of the population lives in rural areas. It is but natural in a democratic polity that governments will choose to allocate a substantial share of their resources to the sector which is home to the vast majority of the population.

At the same time the engines of economic growth would like to see a larger share of the resources tapped by the government being used to fuel urban growth. And the only way economic interests can force their argument through is by demanding a share of the State’s budget that is closer to the share of the urban in GDP.

Corporate and other interests focused on economic growth know that this is a battle they cannot win electorally. As long as the majority of the population is in the rural areas they will account for a majority of the votes. Their focus has thus been on public opinion, lobbying and other non-electoral instruments of influencing policy.

The argument about linking the share of State expenditure on the urban to the corresponding share of GDP is a part of this exercise. And several States have experimented with institutions designed to provide economic forces a greater role in city planning than electorally determined political systems in India would allow for.

Arguably the most widespread of these mechanisms is policymaking by stealth.

Politicians can legitimately claim that attracting investment is an important activity and the political system would benefit from rapid growth. But somewhere along the way the task of attracting investment has been seen in isolation leading to States competing with each other in offering concessions. It is not impossible, then, for governments to offer concessions that are in excess of the benefit that particular investment would provide the State. And these choices could be further distorted if the financial wheels of the government are expected to be illegally greased.

To be fair, not all State governments have responded through stealth alone. Industry-led institutions such as the Bangalore Agenda Task Force (BATF) or the Agenda for Bengaluru Infrastructure and Development (ABIDe) have been set up, raising the promise of transparency in industry plans for the city. But in practice, the active life of these institutions has tended to be coterminous with that of individual governments.

They fell way short of the goal of generating institutions that went beyond individual chief ministers to represent a mechanism through which economic interests could interact with political demands and come up with a consistent strategy for urban management.

The writer is a professor at the School of Social Science, National Institute of Advanced Studies, Bengaluru

COMMENT NOW