(i) The government must commit to developing a city’s creditworthiness.
(ii) Municipal Bonds- Credit rating of cities is the first step towards raising money through the bond market, subnational governments, and international lenders. Ratings are assigned based on the assets and liabilities of urban local bodies, revenue streams, resources available for capital investments and implementation of credible double-entry accounting mechanisms.
(iii) Deployment of land value capture instruments: When a government invests in developing a particular area—for example, building a new airport outside a city—land prices around the area rise. A portion of this benefit could accrue to the government either through betterment charges, tax increment financing, developer extractions, or impact fees.
Several states like Tamil Nadu, Karnataka, Andhra Pradesh, Maharashtra, Gujarat and West Bengal are slowly beginning to explore this instrument as a method to generate revenue.
(iv) Lack of fund: Cities should be able to access a broad portfolio of taxes such as motor vehicle tax, professional tax, fuel tax, excise, business and financial taxes, entertainment tax, etc., all of which are currently appropriated by state governments.
This would involve amending the Constitution to have these taxes included in the municipal finance list.
Inclusion of a city GST rate within the state GST rate, a formula-based mechanism to ensure municipalities get their share.
(v) Local democracy deficit: India suffers from a serious local democracy deficit. Without fixing that, throwing money at the problem may not help. Without serious introspection about the nature of our urban democratic governance, innovative taxes and user charges may not help much.
The real opportunity that Indian cities offer is a chance to build a better democracy, where there is considerable local autonomy and government spending is transparent and accountable.
(vi) A rational user charge scheme for the continued provision of public services like water supply, with a fairly priced monthly lifeline charge for the poor and a graded increase in charges (based on usage) to ensure the rich don’t end up getting subsidised.
The reforms outlined above require immense political will and a real understanding of the problems cities face. Successive ASICS surveys have highlighted what needs doing for India to have a sustainable urban growth engine.
Urban local government has to be empowered, professionally run and have a mechanism whereby an involved citizenry can claim ownership and demand answers.
The rest will follow, with or without smart solutions.