Urban Governance and Finance in India

43 Pages Posted: 11 Mar 2010

See all articles by M. Govinda Rao

M. Govinda Rao

National Institute of Public Finance and Policy

Richard M. Bird

University of Toronto - Joseph L. Rotman School of Management; Georgia State University - Andrew Young School of Public Policy

Date Written: March 11, 2010


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.

Keywords: India, Urban Public Finance, Urban Governance, Intergovernmental Fiscal Relations, Property Tax, Metropolitan Areas, Infrastructure Finance

JEL Classification: R51, H70

Suggested Citation

Rao, M. Govinda and Bird, Richard Miller, Urban Governance and Finance in India (March 11, 2010). Rotman School of Management Working Paper No. 1568858, Available at SSRN: https://ssrn.com/abstract=1568858 or http://dx.doi.org/10.2139/ssrn.1568858

M. Govinda Rao

National Institute of Public Finance and Policy ( email )

18/2, Satsang Vihar Marg
New Delhi 110067

Richard Miller Bird (Contact Author)

University of Toronto - Joseph L. Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
905-274-8841 (Phone)

Georgia State University - Andrew Young School of Public Policy

International Studies Program
Atlanta, GA 30303-3083
United States

HOME PAGE: http://www.aysps.gsu.edu

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