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Private Sector And Urbanization

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Private Sector And Urbanization

Proper urban planning becomes an important issue for India as it is urbanizing fast. Given The government push to the Smart City scheme, it will be needful to tap the potential of every possible candidate in this regard. One such candidate is the private sector. There are few examples where we find the sector able to develop praiseworthy townships—in certain areas beating the public sector also—though they have their own limitations, too. Two such cases have been cited by the Economic Survey 2016-17 (quoting case studies) in this regard—of two different time periods:

1. Gurgaon: It was in 2001 when Haryana the government removed restrictions on the land acquisition process and empowered the HUDA (Haryana Urban Development Authority) and allowed private builders to develop a township on the erstwhile agricultural land—and here started the development of today’s Gurgaon. Today the city is under the control of HUDA, Municipal Corporation of Gurgaon (created in 2008) and private builders. In Gurgaon, the private sector has stepped in to address many of the failings of the public sector, with mixed success:

  • Corrected the failure of the public sector by creating private sewage, water, electricity, security and fire prevention.
  • Rapid Metro in Gurgaon was built by DLF and Infrastructure Leasing & Financial Services Limited (IL&FS), with HUDA providing the requisite land.
  • Roads are of good quality.
  • Shortfall in transport facilities is covered by the private modes of transport.

Precisely speaking, private players have addressed most challenges but they have been unable to provide services beyond their own property line as cooperation lacks amongst them and the authorities. The public authorities have had limited success in providing the city with large scale infrastructure. The failures of the city are also well known:

  • It suffered from lack of cohesive urban plan and its explosive growth has outpaced the planning efforts (like in any other Indian cities).
  • Multiple layers of local and higher authorities, having greater power to extract rents, have increased the transaction costs for the private builders. Different private builders have to seek different political patronage as otherwise none would manage to function.
  • Competition among private suppliers has produced two failures:

(i) Prices of water, electricity, sewage, and so forth are close to marginal cost but the average cost is far too high (because of the failure to exploit economies of scale).
(ii) Competitive suppliers have produced negative externalities such as excess pollution with diesel fumes, overused common resources by dumping sewage waste and, groundwater dissipation leading to the unsustainable level of water table. A vibrant civil society could have been able to put checks on such issues (but the city being quite young this is almost absent by now).

1. Jamshedpur: This is a private township and one of the best-governed cities in India. Jamshedpur Utilities and Services Company Ltd. (JUSCO), a wholly-owned subsidiary of Tata Steel are responsible for the provisioning of the basic services here. The township is widely regarded as having some of the best urban infrastructures in the country and JUSCO is considered a model provider. It has a grown-up civil society which checks negative externalities of the urban expansion. The township was rated the second best in the country by ORG Marg Nielsen (the worldwide market research firm) on its “quality-oflife index” in 2008, and in 2010 the city was ranked 7th of 441 cities and towns in India on “sanitation” and “cleanliness” by the Ministry of Urban Development. India needs to take few important lessons from the experience the abovecited examples—so that the privately developed townships are ideal ones:

(i) Private sector can develop quite a competitive urban centers.
(ii) Private sector will have to bear the burden of higher transaction costs, if the city is managed by multiple authorities. Such costs would also be higher if initial cohesive development plan for the city is not put in place. Post-growth infrastructure development costs are much higher and at times prohibitive.
(iii) The active role of civil society can prevent excessive exploitation of resources and reduce the impact of negative externalities associated with rapid urbanization. We see this being present in the latter but absent in the former.

PS : How to prepare Indian Economy for UPSC ?

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