Indian cities generated two thirds of GDP in 2015, which could increase to 75% by 2030, according to Indian Council for Research in International Economic Relations (ICRIER). This is despite the low average score of 13.2 on a scale of 100 for the “economic ability” of a set of 111 cities (Ease of Living Index, MoHUA, 2020).

Enhancing investments in cities will help. But reaching the level of 8% of GDP, recommended by the Economic Survey 2019 will depend on the generation of additional resources within cities, particularly their own resources – property tax and monetisation of assets.

The total available funds for urban bodies, including Union and state government grants, languish at 1% of GDP compared to at least 7.6% in Brazil and 6% in South Africa (ICRIER 2019).

Also, it is not just about the money.  Deep governance reforms are crucial. Smarter capital allocation for higher social impact, better execution capability and firm sustainability guardrails to guide the direction of growth.

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Four key principles can help conceive contextualised, location specific strategies.

First, is the role of integrated planning. Sadly, urban planning in India mimics the segregated constitutional mandates for the Union, state government and the municipality.

Medium-term planning is often left to local authorities with limited resources and expertise. The union government contributes post-facto to graft add-ons like finance, telecom, rail, highways, air connectivity, IT services and provides environmental clearances. State governments similarly graft-on water, electricity, roads and bridges, health, education, and policing services.

The result is “services follow land zoning and habitat design” rather than being determinants of the project design. This approach is inefficient.

Consider, that the incremental electricity demand on the grid can be reduced if built-up areas are designed to maximise “face-time” with the trajectory of the Sun and the local grid suitably strengthened to encourage generation of solar energy.

Second, sustainability concerns must be recognised and internalised. The socially responsible manner of doing so is to choose the “greenest” option- the path of least social cost (financial plus ecological) out of the available options.

Incidentally, this is also the surest way to reach “Net Zero” given that the urban population will likely double over the next two decades, further stressing already overstretched infrastructure and resources.

Third, complementarity across services, for example, across power distribution, telecom networks and transport can enhance efficiency, standard of service and quality of life in the larger municipalities and metros (million plus population).

Converting the erstwhile Rural Electricity Administration in the US into Rural Utilities Services enabled access to finance, technology and know-how across electricity, water and telecommunications. Evidence within India, from Chandigarh, BEST, CIDCO, GIFT City, also points to the advantages of functional integration at the city level.

Fourth, giving primacy to the efficiency and sustainability of electricity services will be critical. Plans for rapid digitisation of the economy and electrification of personal vehicles will need to be supported by 99.999 quality electric power supply.

An institutional change, paying rich dividends in terms of enhanced efficiency, is to create urban utilities distinct from the rest of the state.

This promotes improved governance, per technical standards of supply appropriate for densely populated urban habitats, resulting in better services and enhanced financial viability.

Evidence from the United States (950 municipalities and 853 co-operatives) and Europe (Sweden, Poland) suggests that geographically small, dedicated companies serving relatively homogenous utilities deliver better outcomes.

In contrast, a recent report (NITI Aayog 2020) suggests that only 55% of customers were satisfied with the quality of electricity in the country.

State governments also stand to benefit from incremental revenue (GST and share in corporate tax) due to enhanced economic productivity once the constraint of poor-quality electricity supply is removed.

A 10% increase in gross urban output could generate incremental tax revenue, equal to the Rs 1.4 lakh crore financial “loss” in 2018-19 from electricity supply to agriculture at rates well below the average cost of supply.

Hiving-off the rural segment into separate distribution licensees would enhance focus on energy poverty and access issues, loss reduction and optimise subsidy for the needy.

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Significantly better power quality in cities such as Mumbai, Kolkata and Ahmedabad and over the last two decades in Delhi illustrates that urban utilities have a better chance of being more efficient and responsive to the heightened customer demands in cities.

Major restructuring of the municipal architecture is necessary to ratchet up governance capacity for long term sustainability i.e., to adopt the green recovery pathway. It will enhance resilience of cities to shocks such as COVID-19 and extreme weather events. Improved utility infrastructure and customer service will increase investments, improve growth outlook and generate new green jobs.

The jury is still out on the reform model. Should municipal capacity be developed over time to manage the integrated supply of utility services, or can capacity be grafted-onto the municipality via specialised SPVs (special purpose vehicles) like the recently conceived Smart City Corporations or other, similar, partnership platforms to manage electricity distribution?

It is unnecessary to agonise over choosing one or the other as a national template. Key principles can be adopted through a policy with multiple reform options on the table, to be exercised, depending on the scale of the initial capacity deficit and the contextual, best-fit from the political economy point of view.

(Gaurav Bhatiani is Director, Energy & Environment, Research Triangle Institute (India) and Sanjeev Ahluwalia is Advisor, Observer Research Foundation.)

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