Cities as new Engines of Growth: Fiscal Considerations for Urban Centres

– This article has been originally published by Jai Venaik in the Himalayan Times on January 7, 2018.

The era of federal politics in Nepal heralds a renewed box of opportunities not only for states but also for local governments. The constitutional entrenchment of the third tier, a first in South Asia, paved way for local centres to develop their own intrinsic ideas on achieving growth and prosperity. Local bodies totalling to 753 in number are further grouped based on size, services, population and geography in the Local Governance Act 2017. Broadly, local bodies are either rural municipalities (460), urban municipalities (276), sub-metropolitan cities (11) and, metropolitan cities (6) spanning across the four geographical terrains of mountains (Himal), hills (Pahad), inner plains (Bhitri Terai) and plains (Terai). The local governments thus, also take advantage of the competitive nature of federalism to provide for efficient delivery of public services to its constituents.

Besides, the rapid rate of urbanisation in the country amounting to more than three percent with almost 19 percent of the population under their belt ushers urban centres and especially cities at the forefront of accelerated growth and development. Cities (local bodies) are empowered by the constitution with resources, responsibilities and legal provisions to effectively become engines for competitive federalism. While the current aspiration is to clinch the capital for respective states, cities have a much larger mandate in the long run since they are the closest to its constituents and hence more vulnerable to failing policies. While Kathmandu City, being the largest in the country enjoys the status of being federal capital, others will have to investigate their own comparative advantage to brand them as global cities. On a general outlook, opportunities lurk within the corner when it comes to branding with Lalitpur harnessing its arts and design proficiency while Pokhara takes advantage of its international outlook in lifestyle.

In their journey, a number of roadblocks are apparent given ambiguity over resource distribution, overlap of functions and financial constraints. Practical challenges like administrative and bureaucratic staffing and inadequate infrastructure would bring out creative process re-engineering solutions which would also act as best practises for other urban centres. But the foundational problems remain unanswered.

  1. Financial constraints would continue to haunt local bodies till the federal government completes its role in formalising the budget and the finance commission. The intergovernmental transfers act passed last year attributed a small percentage (15% transfer to local bodies) which will be insufficient to meet the mandate they set out for. Since they are responsible for delivery of basic services of all kinds including transport, road network, education and health, lack of finances would constrict developmental work brought in by these bodies. Moreover, there seems to be no forum mentioned in the constitution whereby, local bodies could directly interact with the federal government requesting for more funds to carry out their respective projects. Hence, the future Finance Commission would have to take cognisance of political economy challenge and allocate resources accordingly to these local units. Further enquiry into special grants for local bodies could thus enter the debate to jump start these sub-regional economies to be self sufficient.
  2. Though the Local Governance Act 2017 did shed detailed information on the exact nature of responsibilities local bodies are entrusted with, the lack of such detailed information on state level and federal level could lead to confusion created by an overlap of functions. This problem is further complicated since cities do not have a rigid structure of local government units and are often mismatched with provincial and federal constituencies which further creates hurdles during intergovernmental negotiations.
  3. The inadequate distribution of existing resources coupled with large infrastructural deficits would lose steam on the speed of the growth engine. Cities and urban lacks spaces adequate supply of electricity, well-connected road network and, with increasing technology penetration in common lives-a robust digital penetration. Building the infrastructure for all these services would require a large initial capital investment to jump start the process. These would have to be ushered in through creative financial solutions. Additionally, lack of bureaucratic support at the third tier might create further hindrances to speed processes.

Cities all over the world are emerging as the new forefronts of creative and holistic development.  Viewed as engines of growth, the dimension also takes a shift in development policies adopted by governments all over the world. More so in federal countries where they enjoy a certain level of autonomy when contrasted with unitary countries. The Smart Cities Mission in India is a prime example of competitive federalism which helps urban cities in India to achieve an optimum standard of living and thus add to country’s economic progress. Other cities like Ottawa in Canada, New York in the USA, Geneva in Switzerland and Munich in Germany have inspired projects which have not only made service delivery more efficient but also more transparent. The open data initiative of the city of New York is hailed as a move towards accountable government. Thus, it is time for Nepali cities to emerge as fore-bearers of the new growth story in the country.