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Unlocking the potential of Indian cities

Please note that prior to September 2017, the Center on Global Poverty and Development was known as the Stanford Center for International Development (SCID).

Bright colored flowers line the street of the Malik Ghat flower market.

Bustling Malik Ghat flower market in Kolkata, India

Emily Miller
Oct 27 2015

Posted In:

In the News, SCID News

As India’s economy booms, incomes are rising and urbanization is accelerating. One-third of India’s population now lives in urban areas and this is projected to rise to 40 percent by 2031. Indian cities are bustling centers of business, yet poor sewerage networks, roads, and housing fail to meet the needs of rapidly swelling populations. Home to nearly a fifth of the world’s population, much is at stake in India getting urbanization right.

The Stanford Center for International Development recently hosted Dr. Isher Judge Ahluwalia, Chairperson of the Board of Governors for the Indian Council for Research on International Economic Relations, and her husband Montek Ahluwalia, former Deputy Chairman of the Planning Commission of the Government of India, for a two week visit during which they spoke extensively on urban challenges in India. They met with students and faculty, and gave lectures on India’s economic progress, strategies for urban development, and the country’s role in the global economy.

“Growth is not sustainable if you don’t fix urbanization,” Dr. Isher Ahluwalia noted in an interview. Two-thirds of India’s economic output comes from the urban sector and this is projected to increase to 75 percent by 2031. Inadequate service delivery and coverage not only impact the quality of life of those living in Indian cities, but also limit the ability of these cities to become engines of growth. Scarcity of clean drinking water, traffic congestion, bad roads, air pollution, and slums are familiar challenges in India’s cities. Water is the most urgent, Dr. Ahluwalia stressed. Less than 20 percent of sewage in Indian cities and towns is treated before returning to natural bodies of water, and only 60 percent of the urban population has access to clean drinking water.

What explains these urban deficits? One factor is the underrepresentation of urban India in parliament, Dr. Ahluwalia noted. In the 2014 general elections, rural and urban constituencies were determined on the basis of the population as surveyed in the 2001 census, when only 28 percent of India’s population lived in urban areas. As a result, urban priorities are frustrated by a rural bias in political representation.

On a more local level, cities lack adequate funds to build water and sanitation infrastructure or to improve roads. A 1992 constitutional amendment delegated responsibility and accountability for urban services to city governments, but left finances in the hands of state governments, creating unfunded mandates.

One way to “empower cities” is to help fund their mandates by shifting financing mechanisms from state to city governments and giving cities greater financial autonomy over local level decisions, Dr. Ahluwalia argues. This could involve revising property tax laws so that cities rather than state governments set rates, giving local governments the power to impose or increase user fees without state approval, or setting up a guaranteed transfer of funds to local governments.

 The private sector also represents a possible source of funds for urban development. Public-private partnerships, particularly for long-term infrastructure projects, can be used to leverage limited public funds. Securing private funds requires ensuring a rate of return on investment and detailing how operations and maintenance costs will be covered. Setting clear rules for private sector investment is crucial if India’s cities are to fulfil their potential as engines of growth.

Read Dr. Isher Judge Ahluwalia's article on "Improving Our Cities Through Better Governance"