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Small Towns, Big Problems

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In the federal governance structure that we follow, the last layer — or rather the last mile — is always a challenge as it gets the least attention both in terms of resources as well as discussion. This is the point that is brought out clearly by Paromita Shastri in her book How India's Small Towns Live or Die. We are all aware that the pace of urbanisation in India, though less than that in other emerging markets, is still impressive enough to be a brownie point for the nation. But Shastri says this achievement is more for the metropolitan cities rather than the 4,500 smaller towns struggling to maintain a semblance of respectability.

The problem is twofold. First, there are few resources available to these cities, and that is poorly administered. As a result, the entire story of urbanisation is besmirched. In fact, most of the migration is to larger cities — mainly metros, as the other towns do not fare better than their rural counterparts in terms of amenities or opportunities.

Shastri studies 29 such towns, across spread eight states, each of which actually had an inherent competitive advantage in terms of being a centre for handicrafts and small-scale industry or agriculture markets or status of pilgrimage centre, and so on. Yet, almost universally, their administration was sub-optimal, and they had problems of raising financial resources. India's Constitution has left it to the states to address this issue, which, in turn, set up state finance commissions. Invariably, these towns are dependent on transfers from states and have a limited radius within which they can operate in terms of raising their own revenue. Hence, municipal finances vary across states as there are varying rules, unlike for states which have a single formula for devolving funds from the Centre.

It is not surprising that the ratio of municipal funds to total state domestic product was just 0.63 per cent in 2002 — the latest date for which information is available. The major problem here is the availability of data. Most of these town bodies do not maintain basic accounts, and concepts of double entry book-keeping are missing. The author puts it nicely when she says municipal bodies are handicapped by birth — that is aggrandised by weak finances and fiscal over-dependence. That they are dependent on state governments is a kind of subversion of the process of democratic decentralisation.
Shastri paints a dismal picture, though the extent varies. Haryana is better off than, say, Himachal or Rajasthan, while the southern states do relatively better. As these bodies cannot raise resources by borrowing, they work within the contours. The problem is compounded as most of the funds available through ‘own collection' or grants from states are spent in salaries and maintenance. Consequently, there is hardly any money left for development purposes.
We have had the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) project, which tried to address the issue of urban development, but the author considers it to be a non-starter. While a lot of emphasis was put on e-governance, accounting practices, tax reforms, user charges and provision of basic services, the non-metro towns have not really made too much progress, which makes the scheme a bit of a disappointment.
The author suggests there is an urgent need to reform the finances and bring in the best practices, especially when politics is not a major issue. Public-private partnership would be a way out. However, she does warn that the constant bickering within the body — between councilors and executives are major roadblocks.

How would one rate this book? It is academic in nature, and is a good project considering  that besides a study by the Researve Bank of   India, there is not much literature on the subject. Even though much of the data used in this book is about a decade old, the author surmounts this by her own studies. Surely, the book has enough that our policymakers should study and address.

Author's Details:
Paromita Shastri has been an economic journalist for 25 years and has worked with Business Standard, The Economic Times, Outlook and Mint. She has also written for IFPRI, The World Bank, the Planning Commission and the M.S. Swaminathan Research Foundation, among others. Shastri holds a post-graduate degree in economics as well as one in journalism.

Sabnavis is chief economist at CARE Ratings

(This story was published in Businessworld Issue Dated 31-10-2011)