https://www.business-standard.com/opinion/columns/public-money-and-public-policy-124021201520_1.html
Clipped from: https://www.business-standard.com/opinion/columns/public-money-and-public-policy-124021201520_1.html
A policy recalibration is needed to reduce the need for continuous expansion of infrastructure in existing cities
)
Illustration: Binay Sinha
Discussions in Parliament and elsewhere often revolve around allocation of limited public money. While this is important, this approach often misses the elephant in the room, which is the more general public policy. This column considers one instance of the role of public money vis-a-vis public policy.
Many Indian cities are becoming denser by the day. There is a pressing need for a somewhat ongoing heavy spending on improving the city infrastructure. This includes, inter alia, many new wider roads, flyovers, bypass roads, underpasses, overbridges, elevated roads, sea-link bridges, and metro lines. All these have massive costs. So, the focus and the needed spending on other important causes such as education and health are often compromised. There is indeed a trade-off in the allocation of public money. But public policy can help.
Click here to follow our WhatsApp channel
There is an increasingly pressing need to decongest many existing cities. So, let us revisit the 2014 plan for 100 new cities in India, which soon became a mission of 100 mostly existing cities that would be made smart. All said and done, effectively the original plan has been shelved. Why?
It has been a challenge to meaningfully develop just the new GIFT City (or even Amaravati). This is despite the large subsidies, reduced taxes, and direct public spending on development of the city. This model based on public money and state capacity is indeed not meaningfully scalable.
What about a very different model? In much of what we now know of as Gurugram, the government provided the “masterplan” and used a policy of enabling competing developers in the market to build. The external and internal development charges were recovered from customers. Public money, at least in the earlier crucial phases of development, played a limited role. The experienced private real estate companies carried out the very crucial marketing (read, coordination among outsiders to encourage them to shift to the new city). All this suggests that an alternative model based on market mechanisms, under an enabling public policy, is a way out, though there is more to the story.
With some nudging, many people will cautiously shift to the new cities in a phased manner, given the compelling issues of affordability, healthy living, and prospects for jobs and businesses. And, as the new cities prosper, and economic growth and employment rise, the government can even collect more taxes.
Of course, during the initial development of Gurgaon (now Gurugram), the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, was absent. The price of rural land was low. The story is quite different now. So, the provision for a high price under the Act does need an amendment. Some attempts were made at this soon after May 2014, but these failed. However, there can be, with proper communication, greater acceptance of the needed amendment now. Why?
First, it is clear now that the high price of rural land under the Act is actually notional as there are very few transactions, given the high price. Second, if the amendment to the Act is accompanied by the mission of 100 new cities, there can be a more credible message of new opportunities for farmers selling their land. Third, the aspiration for a high price of rural land is partly rooted in a high price of urban land. But the latter can get reduced gradually as the supply of urban land is increased under the plan of 100 new cities. Fourth, the amendment can be accompanied by further extending the redistributive part of fiscal policy.
The vision to have 100 new cities makes even more sense today than it did in 2014 because, in the meanwhile, the Real Estate (Regulation and Development) Act, 2016 (Rera) came into effect. Also, the government has been investing heavily in big highways connecting distant cities better. All these highways can be even more useful if some new cities are built “on the way”. There is a need for proper planning, with restrictions to prevent building right next to the highways. Each can be a standalone city, like Chandigarh, which was not built as an extension of an existing city.
Let us now put the pieces together in this story of public money and public policy. With mainly public policy, 100 new cities can be developed and the existing cities decongested on a large scale, though in a phased manner. This substantially reduces the need for a continuous expansion of infrastructure in the existing cities. So, there can be a big saving of public money. And, this public money can be allocated for other causes like education, health, and environment, which are badly in need of funds.
To conclude, public money is important but so is public policy. This can be a powerful lever.
The writer is an independent economist. He taught at Ashoka University, ISI (Delhi) and JNU. gurbachan.arti@gmail.com; X: gurbachan_econ
aniltikotekar4sme.com 