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Urbanisation in India – Challenges and opportunities

Urbanisation in India – Challenges and opportunities . Rakesh Ranjan , Director, Urban Affairs, Planning Commission Currently Fellow, Australia India Institute March 21, 2013. The Big Question . Why urbanization has become central to India’s growth story?

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Urbanisation in India – Challenges and opportunities

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  1. Urbanisation in India – Challenges and opportunities RakeshRanjan, Director, Urban Affairs, Planning Commission Currently Fellow, Australia India Institute March 21, 2013

  2. The Big Question Why urbanization has become central to India’s growth story? What is the major trend in urbanisation? The rural vrs urban debate: Is attention to urbanisation elitist? Should rural sector still be accorded most of the policy space?? What are the challenges to urbanisation? What is the current strategy? Do we need to do something more? 1

  3. Why urbanisation is critical In 1954, Arthur Lewis summarised the challenges of development in terms of two parameters: How to change a low saving economy to a high saving economy? How to ensure transition of her labor force from a ‘non-modern subsistence sector’ to a ‘modern’ one!!! Saving rate : 1980s: 20% of GDP 1990s: 30% of GDP Last five years: 33.1% of GDP In 2011-12, Agriculture sector which contributed 55% of the GDP in 1950-51 contributed just 14% but employed roughly 52% of the labour force. The soul of India lives in its villages: Mahatma Gandhi. Really????? 2

  4. Urbanization Fact sheet 377 million Indian live in urban India. It is 31% of population. Compared to 45 per cent in China, 54 per cent in Indonesia, 78 per cent in Mexico, and 87 per cent in Brazil India is less urbanised. Still 53 cities - million plus popn. Projections are that by 2031, India would add another 200 million urban population. Structural transformation of the country is incomplete. Occupational shift has lagged behind changing pattern of origin of GDP. 3

  5. Urbanization Fact sheet Contrary to popular perception, so far rural migration has contributed just 20-22% in urban growth. Source: IsherAhluwalia HPEC Report (2011) 4

  6. Urbanization: Fact sheet: Structural imbalance The growth in recent decade in India is capital intensive. Foreign competition met by higher capital intensity. Growth in IT and ITES is largely knowledge intensive. Rigid labour law 5

  7. Urbanization: Fact sheet : Elitist stance or tool for inclusive growth?? On both counts, rate of creation of employment in urban area has been relatively low Number of urban poor had increased by 34.4 percent from 1973 to 2004. During the period 2004-5 and 2009-10, the unemployment rate decreased by only 1 percentage point for both, urban male and females NSSO (66th round) Informal sector dominates. Need for ensuring basic services to urban poor . Source: National Commission for Enterprise in unorganised sector (2007) 6

  8. Evidence of strong rural urban linkages Rural versus urban debate is turning increasingly irrelevant. Rising levels of disposable income is changing the consumption pattern. As urbanisation grows, demand for non-food grains rises rapidly: milk, eggs, vegetables, lentils. If supported by basic infrastructure and policy investment in logistics, processing, storage, packaging and organized retail is expected. :Potato: Jan: 2012: 10 cent/kg. Sept: 2012: 44 cent/kg. The rural economy gets integrated to the urban with a win- win situation for both. Centre to FDI debate in retail Importance of peri-urban areas. But lag in policy adjustment. Plan assistance to rural: Urban roughly 6:1 7

  9. Urbanization: Are we on an inflexion point: Yes Decadal growth rate of urban population is 3.35% as compared to 2.10 in a decade before. India has added 2477 census cities in just 10 years. Has around 7900+ cities. Projections are that in next 20 years 600 million people would live in urban area. Indian cities: How prepared they are? 8

  10. Urbanization: How prepared are our cities? Water supply: Coverage through individual connection: India: 70.6% (China: 91%; South Africa 86%; Brazil 80%. Duration of supply: India 1-6 hr; (Brazil: 24 hrs: China 24 hrs; Vietnam: 22 hrs) Per capita water supply India: 37-298lpcpd ( Paris 150 lpcpd, Mexico 171 lpcpd) In Delhi, Non-revenue water (NRW) accounts for 50% of water produced (Singapore 5 %) Delhi water charges $ 0.044 -0.55 USD /cubic meter . China average 0.61 USD per cubic meter. Very few houses have meter. Lack of 24x7 water supply and leakage implies that water reaching consumer need re-purification. 9

  11. Urbanization: How prepared are our cities? Sanitation and solid waste: 4861 cities and towns in India do not even have a partial sewerage network. 13 per cent of urban households do not have access to any form of latrine facility and defecate in the open. 37% of urban households are connected with open drainage 18% are not connected at all. Less than 20 per cent of the road network is covered by storm water drains. Water-logging in cities like Delhi, Mumbai Only about 20% sewage generated was treated before disposal in Class I cities and Class II towns (as per 2001 census). In 2005, about 1, 15,000 MT of Municipal Solid Waste is generated daily but scientific disposal of the waste is less than 30%. 10

  12. Urbanization: How prepared are our cities? Public transport: Public transport accounts for only 27% of urban transport in India. Share of the public transport fleet has decreased from 11% in 1951 to 1.1 percent in 2001. Rapid rise in private cars. In 2009, only 20 out of 85 Indian cities with a population of 0.5 million had bus services. JNNURM has made difference. Urban poor and workers in informal sector are worst effected as they do not have private means of transport. Slow and lack of public transport prevents labour from freely participating in the job market. Lack of rail based transport in metropolis: Issue of safety of women. 11

  13. Urbanization: How prepared are our cities? Affordable housing: Total shortage of dwelling units in urban areas in 2012 to be 18.78 million unit. 9 million houses are vacant. Shortage mostly in the bottom 30% of population. Slum population is about 95 million in 2012. City like Mumbai, Faridabad has slum population of around 50%. Expensive urban land makes it impossible for private sector to provide affordable house. 12

  14. Why business as usual is unacceptable Indian cities are not able to cover their existing population. How would they cover the anticipated wave of migration? Extreme hardship to urban poor Poor quality of infrastructure - impact on ‘ease of doing business’. Smart cities across the world compete for investment and talent to foster innovation. 13

  15. Why Metropolitan cities are still important. World Bank study (2012-13) indicated that spatial distribution of manufacturing is centered around 3 clusters: NCR: Export and growth West ( Gujarat and Maharashtra urban): Manufacturing and chemicals Southern States ( Karnataka, Tamilnadu and Andhra urban) IT and ITES Within these clusters, metropolitan cities have large share in production as well as employment But their share is stagnating: hint of inefficiencies and restricted urban policies. Typically, world over, dispersal takes place after a threshold level of per capita income. Agglomeration provides competitiveness. Too early to forgo gains of agglomeration?? 14

  16. Major conclusions Migration would rise. Should we encourage it: Yes, if we want India to have an inclusive development. State of service delivery is deficient Inequitable distribution of services Strong rural-urban linkages: lots of efficiency gains possible if city is made more inclusive. Peri-urban area need serious attention What is the state of preparedness of Indian cities? 15

  17. Challenges: (1) who is in charge of Indian cities? Urban affair is largely a state subject. Federal Government can, at best provide assistance. Democratically elected Urban Local Bodies are suppose to run the cities. ULBs are weak. State Governments Departments or parastatals run cities. ULB - bypassed- no credible people- government interface Shows all the character of a paternalistic dispensation where a group of bureaucrat s/experts decide how to run the city. Social, gender auditing is missing. 16

  18. Challenges: (2) Cities have huge investment need? Estimated to need 750 billion USD of Capex and 380 billion USD of Opex over 20 years. 17 Source: Isher Ahluwalia HPEC (2011)

  19. Challenge (3): Revenue sources are weak Services are heavily under-priced, do not cover even OPEX. A household pays USD 1-4 per month for garbage collection, pays nothing for sewerage. Water charges in Delhi starts from 0.044 USD/per cubic meter and goes up to 0.55 USD: Beijing: 0.61 USD/cubic meter. (monthly water bill: 5-6 USD) Metro rail average cost is less than 3 cents per km. lowest ticket for 15-16 cent. Highest: 60 cents for 40 plus km. Public bus charges are in the range of 20-30 cents per trip. Property taxes are low and have poor coverage. No buoyant revenue source – incomplete financial devolution – fear of public anger. Anna Hazare!!! 18

  20. Challenge (4): Decision making horizon is too short Some cities have master plans. Tools for control- Heavily influenced by colonial legacy. No mixed land use. Rigid and unimaginative land use regulation. High set back areas and low FSI ( Highly land intensive) As per Government programme, cities were required to prepare city Development Plans. Neither prepared by experts nor validated by people. 19

  21. Urbanisation: FSI and infrastructure : Singapore Singapore strategically uses high FSI along trunk transport. Coupled with strict policy on vehicle, handles congestion even if city roads are narrow. 20 Source: World Bank

  22. FSI and infrastructure: Manhattan Manhattan Granular FSI: Plot to plot variation for efficient landscape. Economic efficiency, municipality citizen’s interface important in deciding land use. Source: World Bank 21

  23. FSI and infrastructure- Mumbai Low FSI with little variation rigid land use. Citizens are not consulted. Granular FSI variation needs a strong administrative structure to prevent rent seeking behaviour. Dense in terms of population, in-efficient in land use. Source: World Bank 22

  24. Vision and Strategy of Government Make city Government strong: 74th Constitutional Amendment Mainstream urban planning and anchor it in ULBs. Involve people through participatory process. Rationalise user charges and property taxes. Develop land market; review land use pattern and simplify procedures Attract private investment, especially under PPP framework. 23

  25. Initiatives Jawaharlal Nehru National Urban Renewal Mission ( JNNURM) to incentivise reforms. Outlay of 13.2 billion USD. ( HPEC projected requirement of 750 billion USD in 20 years) Expenditure in last 7 years has been around 8 billion USD. Crowding out of private investment. Some reforms have taken place, but crucial one are incomplete, save a few smart cities. Major investment in Metro Rail projects and city bus services. 24

  26. Strategy for next 5 years: Government has renewed effort on capacity building. Intends to mainstream urban planning Has prescribed a larger reform basket and intend to push for rationalisation of user charges with greater effort. Despite poor show, still laying lot of emphasis on PPP. Under the 11th plan, 37% of investment of 381.5 billion USD came from private sector. For infrastructure as a whole, 12th plan estimates requirements of 1126 billion USD. Of this, it targets that around 48% would come from private sector under PPP. While PPP is suitable to some sector, why it is not a solution for urban sector. 25

  27. Conclusion –II The stance of government policy is broadly correct but unlikely to transform cities. The change is too slow. BAU would result in chaotic city with exclusionary tendencies. Would lead to huge inefficiency. Reliance on PPP where investment by private enterprise as envisaged has serious limitation and the cities have to do something more innovative. 26

  28. Limitation of PPP PPP based on annuity: cost of capital to government is much less than what it is for private sector PPP- BOT model: Serious limitation in raising user charges. Possibility and desirability of raising user charges: Public urban transport, water supply, sewerage, affordable housing have huge externalities. Except in very rich cities, world over, they are supported in varying degree by budget. Efficiency gains envisaged in PPP is not necessarily valid: DMRC. Unless cities shows appetite, Government funding crowd out PPP projects. 27

  29. Sweetening the PPP deal: Land to concessionaire- Policy dilemma Delhi International Airport: huge tract of land to concessionaire with revenue share clause. Hyderabad metro rail: Concessionaire to commercially exploit project land Yamuna expressway: Concessionaire given land at official rate DMRC was given land for commercial exploitation: miserably failed. These approaches have attracted serious criticism. Courts, financial analysts and even CAG. Value of land rises because of agglomeration and other externalities. Difficult to predict when would it peak. Who should capture its value? Private or government Major risk for foreign players because regulatory risk is very high. 28

  30. Alternative approach: Government has to take a lead. Government has a huge potential of creating value of land just by changing its use. Restrictive policies in land use in India implies that Government has huge potential to create such value. Has the added advantage of making cities more compact and efficient. Densification improves the viability of public transport projects like metro rails. Would generate enough resources for financing additional infrastructure and surplus for further investment in infrastructure. 29

  31. Alternative approach: Case of Motibagh residential project Motibagh is located in centre of Delhi. Has two storeyed old Government accommodation. Needed huge investment for repair. A part of the land (4 acre from 140 acre) carved out and auctioned with permissible commercial use. Revenue generated helped in Government making much large number of spacious residences. Used higher FSI. It eased the accommodation problem to a large extent. 30

  32. Alternative approach: Case of East Kidwai Nagar residential project 86 acre of land in prime place. Old 2500 government residences with low FSI. (double storey) Construction of 4700 dwelling units at 880 million USD. Use 10% land for commercial development. Another 10% of residential flats for giving lease to other Government organisation. Advance lease money to finance the project with no budgetary expenditure. Higher FSI used. If they had used more than 10% for commercial development, could have generated additional resources. 31

  33. What is the scope of such financing and what are the obstacles Unfortunately, there are no estimates. There is no central land registry. Organizations like Railways, Port Trust, Defense owns huge land. The government can greatly increase the value of land by changing the land use. There is no incentive to generate finance. Courts are not aligned to this approach. A good and related example is Town Planning Scheme of Gujarat. 32

  34. A possible model: Use PPP wherever possible without land. If project has to be sweetened through cross subsidization of land, Government has to take a lead. Construction stage largely Government, O&M stage – PPP This will avoid public criticism. Government has to work as a venture capitalist. Equal risk for foreign and domestic player. courts need to be aligned Foreign player are needed not mainly for capital, but management and technology. 33

  35. Urbanisation: Challenges and Opportunities: Perhaps our biggest asset is dream of our People against all odds 34

  36. Thank You

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