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Urban Development, Infrastructure Financing and Emerging System of Governance in India: A Perspective - Discussion Paper No. 48
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  • How can the state or local government can achieve a balanced and equitable development in India?


  • Based on the above overview of the trend at macro-level and its implications, a case can be madefor providing special assistance to the less developed states that are not in a position to allocaterequisite funds for urban development.

    Particularly, small and medium towns in these states need to be supported for launching capital projects, as their economic bases are not strong enough to mobilise resources for the purpose. This would imply increasing the resources allocated for urban development schemes. There must, however, be explicit stipulations in the schemes to ensure that most of the funds go to small and medium towns. The capacity of the state or local government to generate employment directly through anti-poverty programmes would remain limited. The past experiences suggest that there has been considerable leakage in the self-employment programmes. Banks and other financial institutions have been unwilling to give loans to the poor, as the risk of non-recovery is very high. Also, the assets created through wage employment programmes have not contributed significantly to the development potential or long-term income generating capacity of the poor.

    It is therefore recommended that the anti-poverty programmes be directed primarily to the provision of basic amenities. The state governments should take the overall responsibility of ensuring certain minimum levels of amenities in all sections of the population, in different size class of urban centres, irrespective of their income levels or affordability.

    For this purpose, it is important to set up the “standards” for the amenities in realistic terms, based on what the country can afford. The government may, however, fulfil this responsibility by engaging or supporting private organizations, NGOs and CBOs or by strengthening the local bodies. It would certainly be erroneous to depend on the capital market or the banking sector to fulfil the social obligations or implement a long-term urban development strategy.

    Furthermore, Constitutional amendment for decentralisation of financial powers is not adequate for augmenting resources of the local bodies for this purpose. This must be backed up by actual devolution of powers and responsibilities by state governments and their use by municipal bodies. The management capacities of these bodies need to be strengthened by giving more technical personnel and by training the existing staff. They should be able to organise their affairs better, including mobilisation of tax and non-tax resources. Manufacturing activities at the town level are strongly linked with the availability of infrastructure and civic services.

    One may, therefore, argue that the provision of these services in small urban settlements, besides being a goal in itself, would help in generating non-agricultural employment and diversifying their economic base. Many of the subsidised amenities provided through the governmental programmes during the 1970s and 1980s went to a few developed regions and large cities and benefited generally the high and middle-income colonies. There is no way that this can continue in the present, more liberal regime, which was introduced in the 1990s.

    However, withdrawing government support and relegating the provision of the services to the market will have adverse consequences for regional equality as well as for the micro-environment and health conditions within large cities. Institutional borrowings by public agencies (involved in the provision of the amenities) at high interest rates, reduction in their government grants, etc. are likely to erode their capacity to invest in less developed states, smaller order towns, slums and low income areas.

    To counter these, new programmes must be designed that can cover the entire urban hierarchy and all vulnerable sections of population. As the prospect of an increase in the real income of the urban poor and of people in small and medium towns in less developed states does not seem very bright, their capacity to pay for basic services will remain low during the years of structural adjustment. The programmes must, therefore, be specifically targeted and the subsidies be more explicit and transparent. The justification for all these measures must be sought in the context of a regional development plan.

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