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Friday, 26 June 2015 00:39
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Without pricing reforms, a waste of time and money

With Prime Minister Narendra Modi formally launching three urban rejuvenation projects that are part of the BJP’s election manifesto—100 Smart Cities, Housing for All by 2022, and the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) for 500 cities—the stage is set for improving urban infrastructure. Since 40% of India is expected to live in cities over the next 15 years, this is a programme whose time has come. While the move is commendable, there are many issues that need to be tackled. Despite the size of the initiative, smart cities have a budget of just Rs 48,000 crore spread over five years. That works to less than Rs 100 crore a year per city. Under AMRUT, Rs 50,000 crore for 500 cities spread over five years is a mere Rs 20 crore per city each year.


While the project looks big at the overall level, the money is really too small to make a difference to any city in any meaningful manner. Unless cities are able to fund themselves, it is only a matter of time before the ‘smartest’ of cities degenerate into another Dharavi. For cities to work, even non-smart ones, water, sewerage, urban transport and electricity are critical. Right now, however, very few cities including the rich Delhi and Mumbai pay much for the first three; in the case of electricity, some segments pay a lot, but at an overall level, suppliers of electricity are running huge losses. So, a critical part of the urban rejuvenation plan has to be charging users market prices for the improved services that emanate from the initiative. For that to happen, Indian politicians need to think differently, and realise that urban India is willing to pay more for better services—more so since the alternatives, like buying water from tankers, are far more expensive.

In sharp contrast to this need for a new-age politician, Delhi’s chief ministerArvind Kejriwal’s big gameplan is to reduce tariffs to uneconomic levels—and it is not as if other party politicians are interested in higher user charges either. In other words, AMRUT and smart cities will only work if, in return for central funds, the cities move towards charging economic user-charges—clearly the impact would have been higher if the number of cities was limited, so the incentives would have been larger. Also, it is not possible to run cities efficiently unless elected representatives are given more powers to raise resources by, for instance, hiking property taxes. So far, with more votes coming from rural India, there is little evidence of any change in this mindset.


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