1. Our cities must get fit to get smart

Our cities must get fit to get smart

This has to start with fixing their governance, finances, planning and the capacities of their administrators

Published: February 5, 2015 3:29 AM

Tel Aviv won the World Smart Cities Award in November 2014 at the Smart City Expo World Congress, hosted in Barcelona, in which 250 cities competed. The city’s triumph was attributed to its flagship Digi-Tel Residents’ Club and City App projects. These projects are personalised web and mobile communication platforms that provide residents with individually tailored, location-specific information and services. The platform facilitates a direct and holistic connection between the city and residents, from alerting residents to neighbourhood road works or informing them of the nearest bicycle-sharing station to sending targeted reminders for school registration or cultural events and offering discounts which facilitate access to the many cultural events taking place in the city. Digi-Tel encourages residents to proactively engage the municipality as well: residents can locate cultural events and activities as well as report hazards and follow up on their handling. The city also uses social media effectively to increase citizen engagement.

In India too, the dialogue on smart cities has gathered significant momentum over the last several months. The ministry of urban development put together a draft concept note on smart cities that included a set of benchmarks for 14 different functions, ranging from fire-fighting to spatial planning. A good next step would be to ascertain current service levels at least in the 54 metropolitan cities against which their performance can be measured. After all, India’s 54 metropolitan cities are the nerve-centres of the economy. They accounted for 28% of India’s GDP in FY14 and this number will rise to 32% of GDP by 2025.

But to get smart, cities first need to get fit. They need to fix governance (institutions and policies), finances, planning and capacities to effectively utilise the technologies available to enhance service delivery and e-governance to improve the quality of life. So, what is required to make cities fit so they can be effectively smart?

Fix institutional defragmentation and undertake agencification: The multiplicity of agencies, their overlapping roles, and rotating civil servants without sufficient accountability are the core institutional issues plaguing the urban renewal and development, especially of metropolitan India. For example about 17 or more agencies are involved in service delivery in the Mumbai Metropolitan Region (MMR). The situation in Delhi is not different. About 11 agencies are involved in running India’s capital, ranging from urban local bodies to parastatals and even the government of India. Lack of a systematic coordination and cooperation mechanism between these agencies has fractured the development of cities. A directly-elected metropolitan mayor, singularly accountable to the polity, is what is eventually required. This is clearly a long way off as much political canvassing is required to achieve a Constitutional amendment to this effect. Meanwhile, state governments are yet to implement in spirit the 74th Constitutional Amendment legislated in 1992. This amendment mandates the transfer of the delivery of 18 functions from the state to the city governments. The reluctance of the state governments to concede power to city governments has severely undermined the development and authority of locally-elected representatives. In turn, this has empowered the bureaucracy that is directly controlled by the state government, squarely making state officials supreme in the administration of cities.

However, there exists as interim solution to undo this Gordian knot. Forward-looking state governments have the opportunity to implement the 74th Constitutional Amendment and create a well–functioning metropolitan planning committee for which the secretariat is the metropolitan development authority, chaired perhaps by the chief minister or the minister for urban development and housing. The metropolitan commissioner, in turn, can directly oversee the functioning of urban local bodies, in tandem with their respective municipal commissioners, to ensure systematic provision of basic services, transport, and delivery from parastatals. Seamless integration between various bodies would dramatically improve the governance of cities and, in turn, the quality of life for all citizens, especially the underprivileged, who are most afflicted by such defragmentation. Further, agencification (providing greater autonomy) of various service-providers as proposed by the 2nd Administrative Reforms Commission is required to improve the performance of these agencies.

Implementing this structure calls for amending a series of state and municipal laws, all of which are within the jurisdiction of the state government. But it is really political resolve that is needed to override the machinations of party politics and inter–party politics to move in this direction. Do our chief ministers and their respective cabinets have it?

Make long–term planning a reality: India’s planning norms and processes have been the subject of debate ever since urbanisation became a mainstream topic in India. The creation of city development plans (CDPs), undertaken as part of the JNNURM, revealed the inherent weaknesses of the planning process and capacities in India. Yet, it did set in motion an immensely useful process across the country. Many CDPs were developed for a 20–year period, but rarely did they think about the future in the true sense. The capacities they envisioned were at best those to meet historic demand, and often they were supported by insufficient data.

To ensure that a city has sufficient land to cater to population growth and economic activity—not just at present—but in the future as well requires careful planning as experiences of cities like Singapore, New York, London, Bilbao, and Copenhagen suggest. Singapore, for instance prepares a concept plan—a strategic land–use and transportation plan that sets out the direction for the next 40 -50 years and takes into consideration all projected land use demands for housing, industry and commerce, recreation, nature, transport and utility, infrastructure and defense requirements, based on robust future estimates. These plans are based on rigorous econometric forecasts, a thorough understanding of the city’s competitiveness to attract new industries and commerce, and they bring together various agencies as they are developed. This exercise is premised on five simple principles: 1) think long–term; 2) fight productively; 3) have some flexibility; 4) execute effectively; and 5) innovate systematically. This concept plan is then used to systematically create the development plans for local areas so there is a single coherent vision for the city–state. India’s metropolitan cities need to move in this direction with clear demarcation of land-use and boundary expansions to avoid illegal developments on the fringes and curtail opaque and arbitrary changes to land-use.

In India, the MMR is the only metropolis to have such a plan since 2012-13, but it is yet to be adopted by the state government. Why? Because while the Maharashtra Regional Town Planning Act has been amended, the Metropolitan Planning Committee required to present this plan to the state Cabinet for adoption is in the process of being reconstituted. So we have a situation where a city has a concept plan, but because of its weakness in governance, this plan is yet to be adopted and made binding on urban local bodies. Meanwhile, the city’s various urban local bodies have proceeded with drafting their respective development plans without any formal linkages with the concept plan, other than some dialogues. This demonstrates the tight linkage between governance and planning and how a weakness in one impacts the other.

Bolster municipal finances: Numbers running into hundreds of billions of dollars have been tossed around in an attempt to quantify the investment required to finance the sustainable development of cities. But is such quantification sufficient? As time has shown, clearly not. An example is the upcoming Delhi Assembly elections, wherein populist policies are once again at work undermining the relevance of user-charges. Water, wifi and housing are being tossed around as freebies to charm voters yet again. Such promises simply demonstrate the lack of pragmatism in India politics, as politics overtakes economics instead of a tango between the two. The consequence? Flailing municipal finances. The same is the case with property taxes. Most cities follow the area-based system of taxation versus a capital-value-based system, significantly lowering their accruals. These taxes are further punctured by deflated ready-reckoner prices used to levy stamp duties and development charges, and assess property taxes, in turn, distorting municipal finances.

Another underexploited resource is land. The government of India alone, through its various ministries, owns tens of thousands of hectares of unutilised and vacant lands across the country. So is the case with several individuals and organisations in the private sector. Taxing such lands can be prove to be a significant deterrent to hoarding, essential to bring down abnormally high land prices. Three other land–based instruments can significantly help improve municipal finances as global experiences suggest: 1) impact fees on new developments on a per square foot basis to part finance the development of trunk infrastructure, 2) betterment charges levied on properties receiving a significant boost in value due to development of transport infrastructure; and 3) land–use charges based on expected gains from land productivity. Buoyant finances can then be levered to raise funds through bonds and other instruments to finance the development of urban infrastructure.

Build capacity at scale: The single-biggest challenge facing India’s urban renewal and development is the lack of skilled manpower required to systematically drive this change in the nation’s makeup. For example, a January 2014 assessment shows that Odisha requires about 7,150 municipal staff compared to 1,550 today working across eight functional areas—administrative service, revenue and finance, engineering services, public health and habitat service, community development, e-governance, town planning and transport, and municipal subordinate ministerial service.

Multiple reviews of JNNURM stated that the lack of talent led to delays in creating bankable projects, and resulted in significant cost and time overruns. A further reaffirmation of the capacity deficit was highlighted in the CAG report tabled in Parliament in November 2012; it stated, “Capacity building in terms of finance and human resources maybe enhanced so states may achieve pending reforms.” In short, the absence of a professional and qualified municipal cadre is a core resource vacuum in our cities. Discussions to reorient existing institutions that train government officials, e.g., the Regional Centres for Urban and Environmental Studies, Indian Institute of Public Administration, State Administrative Training Institutes, and the National Institute of Urban Affairs has been underway for the past several years.

Globally, universities have dedicated departments and impart degree programmess on various urban streams ranging from finance to economics to sustainable urban development to innovation through units like MIT’s City Labs. A majority of Indian institutions are yet to introduce such courses in their curriculum or move in this direction.

To further underscore this challenge, here is a telling example. An assessment by the Indian Urban Space Foundation stated that India requires about 40,000 urban planners compared to the 3,000 or so registered with the Institute of Town Planners, India. When compared to countries with smaller urban populations, this number further pales. For example, the US has an urban population of 262 million and graduates 2,000 planners annually while India, with an urban population of over 380 million, graduates a mere 400. The CEPT in Gujarat alone graduates about 60% of these planners.

Such acute institutional vacuum is what forms the real bottleneck in India. If we don’t have the talent, who will design and implement city plans? Even if cities did import and empanel talent to develop plans, they would have to be administered by city officials who often lack the technical know–how. Equally, locally-elected representatives need to be sensitised to urban issues so they can support the development of appropriate plans and policies to facilitate smart and inclusive development. They need to be trained and exposed expeditiously and at scale. Such a bottom–up push is vital to help support the top-down push made to fix urban governance, finances, and planning. Because ultimately policies and plans, be it governance, financial, or concept and development plans are as good as their implementation. Inaction will result in a crash landing.

Building a strong world–class institution that is tasked with building capacity at scale, can work with various tiers of government and help reorient existing institutions is one way to help correct this glaring capacity deficit. Such an institution must bring together stakeholders from the public, and private sectors, civil society, experts, and academicians all of whom partake in urban renewal and development. Such a multi–stakeholder alliance will help bring to the table the best know–how from each constituency.

In summary, our cities need to get fit to be effectively smart, and, in turn, improve the quality of life for urban dwellers. As the guidelines for smart cities are being developed, there is immense merit in paying attention to these structural issues. Because after all making big changes happen requires undertaking bold actions. Perhaps merging the next-generation urban development mission with the smart cities program could be one way to move in this direction.

By Sunali Rohra and Barnik C Maitra
Sunali Rohra is an Expert who co–leads McKinsey’s work on urbanisation in India. Barnik C Maitra is a Partner who leads McKinsey’s Strategy and Corporate Finance practices in India

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