Reform in Practice: Prabhat Kumar (Janaagraha) on Deregulating Municipal Finance

What is one area of regulation in India that should be deregulated?

India should deregulate in municipal finances. When we think about India being a developed economy, we think about manufacturing, we think about services, we think about exports. One thing we overlook about cities.

Cities are engine of economic growth. This is where most of our GDP comes from. Still the condition of our city is the quality of life, the quality or ease of doing business, there is much to achieve there.

The way Indian cities are financially governed is highly controlled by state governments and union governments as well. They can't raise money, they can't deploy money, they can't even raise their revenues. The rate setting and everything lies with the state government.

This is one place where if we deregulate, there can be higher return.

What would a more effective alternative look like?

India should move from a very high permission-based system to a framework-based system where cities within a framework, where if they are better credit worthy, if they have stable revenues, there is financial discipline and they meet certain disclosure standards, they should go and able to raise money from the market. What this means is kind of four ideas that can be there.

The first is freedom to raise revenue from market. The second one is freedom to change their tax base or user charges so that they can tap the market, tap the kind of the local economic base. The third in it would be freedom to attract private capital, private investors.

Right now, cities don't play any role in economic growth history of a city itself. Most of the things are decided by state. And the fourth is freedom to deploy the capital itself.

Right now, if you think about a municipality, they need to run to the state government office or DMA or principal secretary's office to even kind of invest in a few crores project. So, if we are able to provide these four types of freedom, then we are able to kind of give financial autonomy to the cities which will lead to more revenues with the cities and also better infrastructure.