O P Mathur: What's the priority: urban misery or rural poverty?

Hon'ble Prime Minister,
In the aftermath of the election results, many political analysts have suggested that the BJP-led government was voted out of power because it ignored the agricultural and farming sector and paid scant attention to the issues of rural poverty, and more generally, of rural areas and infrastructure.

Others have argued that the undoing of the previous government was because of its insensitivity to the needs of the urban poor and its unqualified support to a low employment-generating growth path.

If this assessment is valid, then, your government has a difficult choice: a choice between giving priority to agriculture and development of rural areas and infrastructure, and to enhancing the urban poor's access to basic necessities of water, road and power and to developing growth strategies that will have a large employment potential.

Indications are that the new government will give primacy to agriculture and rural areas. Almost nothing has been said about our cities and towns, the misery and decay that characterise them, or about the 60 to 70 million people who live in slums and jhuggi-jhopris.

Nor has anything been said as to how cities and towns have been consistently neglected by governments in the past, ostensibly on the ground that "India lives in villages".

Even the Common Minimum Programme (CMP) makes only a passing reference to urban renewal and slums, diluting what the Congress had committed to in its election manifesto.

The purpose of my letter is to request you not to ignore our cities and towns. They are crucial for economic growth and poverty reduction. They constitute a key component of any strategy that aims at enhancing India's competitiveness in the global markets. Nearly 52 per cent of the country's GDP originates in India's 5,500 cities and towns, making them far more productive compared to their rural counterparts.

In recent years, cities and towns have become the most-favoured destinations for foreign direct investment (FDI). The seven largest cities "" namely, Mumbai, Kolkata, Delhi, Chennai, Hyderabad, Bangalore and Ahmedabad "" are said to have garnered 40 per cent of the total FDI approved till January 2002.

With this track record, can we afford to ignore them?

Cities and towns are under severe stress and strain when we look at the level of infrastructure and services. In 1999-2000, nearly 49 per cent of the urban households were without access to potable water within their premises. Water insecurity and conflicts over water are now pervasive, and have reached alarming proportions.

Approximately 30 per cent of the urban households have no access to sanitation facilities within the premises, and are forced to use open spaces. As cities have expanded, public safety systems have broken down and led to a disproportionate rise in violence and crime.

Lest my point is misunderstood, the current strain and deterioration in city-level infrastructure and services has arisen not on account of increasing demographic pressures as is often contended; it is attributable to our inability to make appropriate investments in our cities and towns, to our inability to effectively manage and govern them, and to our inability to put in governance structures that could be held accountable when they fail to perform.

There are three areas that may need the United Progressive Alliance's attention:

Enhancing the level of investment into urban infrastructure and cities: Public investment in city-based infrastructure such as water supply, sewerage systems, solid waste disposal, roads, and public safety has been stagnating.

Current estimates place such investments at 2.25 to 2.50 per cent of the total development budget, which is one-third of the needed investment.

The private sector has been indifferent to urban infrastructure, partly because that it gets no clear signal from the government if it is needed at all for such services, and partly because the private sector is unsure if it will be able to get reasonable returns on its investment.

It is possible to attract private investment and management in urban infrastructure if conditions are made conducive for its participation.

Sure enough, at 35 paise per 1,000 litre of water that the Delhi Jal Board (DJB) charges for water in Delhi, neither can the DJB provide water to the citizens of Delhi nor can anyone be encouraged to look at this sector. The same holds for power and other services.

The argument that the urban poor will be hurt if water or power prices are raised no longer sells; the poor pay substantially more in order to purchase some of these services "" often of poor quality "" for their survival and sustenance.

There is an urgent need to remove those impediments to investment in these spheres.Failure to act on this front will put us in a disadvantageous position both domestically and in international markets. This is already happening. Chinese goods have captured a part of our market, and deprived us of our share in the global system.

Create conditions for land and property markets to function: Land and property market "" that is, a market where people can buy and sell land and property does not exist in India. One would be surprised to see how few land- and property-related transactions take place that could be sustained legally.

The processes and procedures for sale and purchase of land and property are so tenuous that households have no option but to settle for a transaction that is outside the system. To exacerbate matters, the public agencies concerned with land and housing are a major obstacle to the development of an efficient land and property market.

They hold vast tracts of land in our cities and towns, but either do not develop them at rates that would meet the domestic and non-domestic demand, or do not have the capacity to do so. The economy-wide costs of not having a land market "" estimated at 1.25 per cent of GDP "" are enormous. We need to gather the courage to deal with this upfront.

Revive municipal institutions: Municipal institutions came into existence in India in the latter part of the 19th century, and have subsisted since then, with little change in their format and even substance.

They continue to be governed by statutes that have lost their meaning and relevance. The Constitution (74th) Amendment Act, 1992, brought in with a forward-looking vision, has made little difference to either the functioning of municipal institutions or their functions and finances. They are dependent on state governments whose control over them even after the 1992 amendment remains absolute.

Their finances are in a shambles. I am not surprised when Mani Shankar Aiyar, who worked so tirelessly with former Prime Minister Rajiv Gandhi in piloting what then were the 64th and 65th amendments, laments over the lack of progress in building up the panchayats and municipalities. It is necessary to redefine the role of municipal institutions in nation-building.

It would be unfair not to acknowledge the initiatives "" the repealment of the Urban Land (Ceiling and Regulation) Act, 1976, constitution of funds aimed at improving the functioning of municipalities, and issuance of tax-free bonds "" taken by the National Democratic Alliance to reform the urban sector.

None of these initiatives, however, have yet had any effect on the functioning of municipal institutions, giving rise to doubts whether the benefits of these initiatives are indeed such that the state governments and municipal institutions would give up the age-old procedures and turn to more transparent systems.

According to recent projections, India will have approximately 550 million people living in its urban areas by 2020. This process of urbanisation must be taken forward for achieving the Tenth Plan target of 8 per cent GDP growth. And it is possible, if we direct our energies to effectively managing our cities and towns instead of notionally addressing their problems.

I have no doubt, Sir, that the cause of our cities and towns will not escape your attention. India's future lies in them.

Yours sincerely,
Om Prakash Mathur

(The writer is IDFC chair in urban economics and finance, National Institute of Public Finance and Policy, New Delhi)