AMRUT can transform urban reforms

India’s tryst with comprehensive urban reforms started with the 74th Constitutional Amendment Act in 1992 to empower cities. Thirteen years later, in December 2005, the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) was launched, scripting a comprehensive agenda for seven years through 23 reforms (13 mandatory and 10 optional), to be implemented by States and urban local bodies (ULBs).

But an evaluation of JNNURM in 2013 found States and ULBs unable to stick to reforms, delays in release of additional central assistance and manifold hindrances to project completion. Then in June 2015, the Atal Mission for Rejuvenation and Urban Transformation (AMRUT) programme was launched by the Ministry of Urban Development (MoUD), which included 11 reforms dotted with 54 milestones, to be implemented by all 500 mission cities in four years.

Recently, MoUD modified the AMRUT reform matrix, creating a template that enables States and cities to go beyond incrementalism and implement transformational changes over three years. The template spells out five major reforms, such as ‘Trust and verify’, which will have 40 per cent weightage, ‘Professionalisation of municipal cadre’ (25 per cent), ‘Land titling law’ (15 per cent), and ‘Credit rating’ and ‘Value capture finance’ (10 per cent each).

The takeaway from JNNURM and the initial phase of AMRUT was that comprehensive and overarching reforms are difficult to pull off in one big sweep. So AMRUT alters the approach in two ways: First, the number of reforms aimed at has been reduced and separated from project assistance. Second, shifted focus from penalisation to incentivisation.

AMRUT now sets aside 10 per cent of funds for incentives to be given based on self-assessment by ULBs and corroborated by State-level high-powered steering committees based on the report of independent monitoring agencies.

While AMRUT cascades the autonomy to design, monitor and approve projects to states and civic bodies, it also persuades local stakeholders to put more skin in the game by participating in execution.

And the corpus of the Reforms Incentive Fund, accessible to those adhering to mandates and milestones, has been increased six-fold to ₹3,300 per annum for the next three years.

The Centre is also increasingly looking at impact-oriented urban programmes where States and ULBs take more responsibility for implementation and sustaining urban infrastructure. So traditional grant-based programmes are being embedded with impact and outcome milestones.

Under AMRUT, professionalisation of municipal cadre, land titling law and policy for value capture finance are State prerogatives and have far-reaching impact on the local landscape. And all this comes at a time when expectations of citizens on livability standards across cities are growing fast.

History shows that reforms succeed when stakeholders take the ownership. That’s why the Economic Survey last fiscal reiterated ‘cooperative and competitive federalism’ as India’s unavoidable future. It argues for cities to be entrusted with responsibilities, empowered with resources, and encumbered by accountability to transform into vehicles of competitive federalism. In that context, AMRUT rightly puts states and ULBs in the driver’s seat.

JNNURM was considered to have big city bias. AMRUT has cast the net wider, reaching all urban centres with a population of one lakh and more. Under the programme, the number of reforms expected from States and ULBs has decreased, but the number of cities expected to adhere to reforms have increased.

While higher fund allocation to transform urban agenda is certainly a key part of the urban revival mission, there is a growing acknowledgement that cities that sustain themselves through enhanced revenues, less capital transfers, and efficient internal systems become the beacons of the new urban agenda.

And above all, financing remains a multi-trillion-rupee question. A high-powered expert committee of the MoUD had in 2011 estimated total capital investments in urban infrastructure at about ₹39 lakh crore over 20 years. The Smart City Mission and AMRUT have outlays of ₹48,000 crore and ₹50,000 crore, respectively. That means humongous investments have to be mobilised.

Earlier, several committees have elaborated upon various tax and non-tax revenue improvement measures for municipalities. Looking at the track record of urban reforms and estimates to fill service gaps, one of the recommendation relates to ULBs resorting to market borrowings (pooled finance, municipal bonds and institutional finance) and project execution mechanisms such as public-private partnerships and land-based financing instruments.

The ability to access alternative finance requires procedural reforms, changes in taxation and user charges, and appropriating a part of appreciation in the value of land. Two out of the five reforms under AMRUT relate to credit rating and value capture financing. Credit ratings have already begun for all AMRUT cities. Cities with investment grade rating will be encouraged to float municipal bonds and those below the rating will continue working on improving their ratings.

The Economic Survey this year made a strong case for empowering ULBs financially. Data show municipalities that generate more resources deliver more basic services. It makes a strong case for empowering cities to levy all feasible taxes, make the most of their existing tax base, and look at alternative options such as issuance of municipal bonds.

Under the new AMRUT reforms, in the initial year, States are also expected to formulate value capture financing policy, tools and rules for all cities with a million plus population. In the subsequent years, they will have to operationalise and implement it.

The list of reforms needed to overhaul cities is exhaustive and the determination of ULBs to walk the talk varies significantly. But by prioritising five core areas, AMRUT sharpens focus in the right areas. The Reform Incentive Fund also stokes competitive federalism.

The writer is a director and practice leader-urban at CRISIL infrastructure advisory

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