Chapter 8

URBAN DEVELOPMENT

TRENDS IN URBANIZATION

Punjab is in the midst of urban transition. At the dawn of the twentieth century, only
12.46 per cent of the total population of the then pre-partition united Punjab was urban.
At the beginning of the twenty-first century, the urban population of Punjab has
increased to 33.95 per cent, against 27.78 per cent for the country as a whole. Punjab is
now the fifth major urbanized state of India after Tamil Nadu (43.86%), Maharashtra
(42.40%), Gujarat (37.35%) and Karnataka (33.98%). Table 1 and Figure 1 present the
trends in urbanization in Punjab.

Table 1
Growth of Urban Population in Punjab
Year Total Urban Percentage Decadal growth of Total Annual
population population of urban urban population number compound
population (%) / absolute of UAs/ growth rate
towns (ACGR) (%)
Total Urban
1951 9,160,500 1,989,267 21.72 20.02/331,853 110 - -
1961 11,135,069 2,567,306 23.06 29.06/578,039 106 1.96 2.78
1971 13,551,060 3,216,179 23.73 25.27/648,873 106 1.98 2.27
1981 16,788,915 4,647,757 27.68 44.51/1,431,578 134 2.16 3.75
1991 20,281,969 5,993,225 29.55 28.95/1,345,468 120 1.90 2.57
2001 24,289,296 8,245,566 33.95 37.58/2,252,341 157 1.82 3.24
2011* 29,088,860 11,344,249 39.00 39.00/3,098,683 - 1.82 3.24
2021* 34,836,818 15,607,417 44.80 44.80/4,263,168 - 1.82 3.24
Source: Census of India 1951,1961,1971,1981, 1991 and 2001
Note: *Projections: Based on ACGR of 1991-2001 decade

Today, one out of every three persons in Punjab is urban by residence. It is the most
urbanized sate of the region and is ahead of Haryana, Jammu & Kashmir and Himachal
Pradesh. The ACGR of the urban population is higher than that of the total population.

This has resulted in high population density in urban areas. A number of towns/urban
agglomerations have come up during 1991-2001 and distance between towns has
decreased due to growth of new towns and expansion of urban area limits. The state
has thus witnessed a rapid growth in urban population due to migration from rural to
urban areas in search of employment opportunities, health and educational facilities.
There was an addition of 22.5 lakh people in urban areas in the decade of 1991-2001,
against 13.4 lakh in 1981-91.

The growth of urban population in the various size-categories of towns shows an

interesting trend. Large cities and towns (class I and II) have been increasing at a faster
pace with a larger population base. Table 2 and Figure 2 depict the growth of urban
population in different size-categories of cities and towns in Punjab from 1951 to 2001.

286
 Figure 1
Decennial Variation of Population in Punjab
400
348.37
350
290.89
Population in Lakh

300
242.89
250
202.82 192.30
200 167.89 177.45
160.43 156.07
135.51 142.89
150 111.35 121.41 113.44
91.61 103.35
85.68 82.46
100 71.72 59.93
46.48
19.89 25.67 32.16
50
0
1951

1961

1971

1981

1991

2001

(Projected)

(Projected)
2011*

2021*
Years
Total Population Urban Population Rural Population

Source : Same as in Table 1

The class I and II towns are likely to grow faster and become over-crowded with higher
population densities. Since 1951, Ludhiana city has witnessed a virtual explosion in
population growth. During 1981-91, it recorded a growth rate of 71.77 per cent, the third
highest among metropolitan towns in India. In 1991, Ludhiana became the first million-
plus metropolitan city of Punjab. Amritsar too has acquired metropolitan status and has
become the second metropolitan city of the state. One, out of every six urban dwellers
(16.92%) in the state, resides in Ludhiana city and one out of every nine urban dwellers
(11.83%) in Amritsar city. It is significant that three out of every ten urban dwellers
(29.23%) in the state reside in these two metropolitan cities. Ludhiana city has a
disproportionately high density of 8,755 persons per sq km, only slightly lower than
Delhi.
Table 2
Trends in Urban Population in Different Size-categories of Cities and Towns (1951-2001)
Years Class I Class II Class III Class IV Class V Class VI All Classes
1951 3 2 17 20 36 2 110
[33.11] [7.73] [26.17] [14.44] [13.18] [5.37] [100.00]
(658,725) (153,719) (520,558) (287,223) (262,197) (106,845) (1,989,267)
1961 4 5 23 20 35 19 106
[38.25] [10.15] [28.11] [10.44] [10.38] [2.67] [100.00]
(981,890) (260,707) (721,684) (267,913) (266,439) (68,673) (2,567,306
1971 4 8 2 31 29 12 106
[40.52] [15.84] [22.20] [13.32] [6.84] [1.28] [100.00]
(1,303,128) (509,389) (714,176) (428,413) (219,911) (41,162) (32,161,79
1981 7 10 27 36 40 14 134
[46.38] [14.39] [20.24] [11.28] [6.50] [1.21] [100.00]
(2,155,714) (668,780) (940,482) (524,505) (301,905) (56,371 (4,647,757)
1991 10 18 25 46 14 7 120
[54.16] [19.91] [12.92] [10.82] [1.72] [0.47] [100.00]
(3,246,224) (1,193,171) (774,453) (648,230) (102,945) (28,202) (5,993,225)
2001 14 19 35 54 28 7 157
[58.38] [16.45] [12.50] [9.82] [2.52] [0.33] [100.00]
(4,814,405) (1,356,386) (1,030,623) (809,366) (207,891) (26,895) (8,245,566)
Source: Census of India, 1951,1961,1971,1981, 1991, 2001
Note: - 1) Number of towns in each category (without bracket), 2) Percentage population in each class [ ]
3) Total population in each class ( )
4) Size of population:
Class I = 100,000 and above Class II = 50,000 - 99,999
Class III = 20,000 - 49,999 Class IV = 10,000 – 19,999
Class V = 5,000 – 9,999 Cass VI = Below 5,000

287
Increasing urbanization and the consequent concentration of urban population in class I
and class II cities needs to be viewed with concern by urban policy makers. The
disproportionate increase in population in these towns in particular and in the other size-
categories in general has created huge deficiencies in such civic services, as water
supply, sewerage, solid waste management and urban infrastructure, such as housing,
transport and roads. Land is becoming scarce in towns and consequently the problem
of housing is acquiring serious proportions. Provision of urban basic amenities and
upgradation of existing infrastructure for additional urban population has become a
challenging task.

Figure 2
Decennial Variation of Class-wise Urban Population in Punjab (%)
70

60
58.39
54.16
Population in percentage

50
46.38

40 40.52
38.25
33.11 33.95
30 29.55
28.11 27.68
26.17
23.06 23.73
21.72 22.2
20 20.24 19.91
15.84 16.45
14.44
13.81 13.32 14.39 12.92 12.50
10 10.44
10.38
10.15 11.28 10.82 9.82
7.73 6.84 6.50
5.37
2.67 1.72 2.52
0 1.28 1.21 0.47 0.33
1951 1961 1971 1981 1991 2001
Years
Class I Class II Class III Class IV
Class V Class VI Urban Population
Source: Same as in Table 2

Analysis of urbanization in various districts does not present a uniform pattern. Table 3
depicts the district-wise trend of urban population in Punjab. It is evident that Ludhiana,
Jalandhar and Amritsar are the top three urbanized districts and Nawashahar the least
urbanized district of the state with only 13.80 per cent of population being urban. It must
be noted that the districts with a low level of urbanization have started experiencing a
decennial rate of growth in population that is as high as in the highest urbanized districts
and even higher (Mansa and Fatehgarh Sahib).

288
 Table 3
Percentage of Urban Population to Total Population in Districts
Districts Percentage of urban population to total Decadal growth of
population in district urban population (%)
1991 2001 1991-2001
Ludhiana 51.81(20.74) 55.80 (20.51) 36.05
Jalandhar 40.63 (11.19) 47.45 (11.24) 38.28
Amritsar 34.08 (14.25) 40.00 (14.91) 44.01
Patiala 30.49 (7.78) 34.98 (7.80) 38.02
Faridkot 32.95 (2.50) 33.89 (2.27) 24.91
Kapurthala 25.76 (2.78) 32.59 (2.97) 47.14
Rup Nagar 25.82 (3.88) 32.46 (4.37) 55.11
Bathinda 26.98 (4.43) 29.78 (4.27) 32.36
Sangrur 24.80 (6.97) 29.26 (7.09) 39.91
Fatehgarh Sahib 22.17 (1.68) 28.08 (1.84) 50.26
Firozepur 25.70 (6.21) 25.81 (5.46) 20.94
Muktsar 23.40 (2.55) 25.81 (2.40) 29.44
Gurdaspur 21.99 (6.45) 25.46 (6.48) 38.15
Mansa 14.85 (1.42) 20.68 (1.73) 66.84
Moga 19.13 (2.48) 20.04 (2.16) 19.38
Hoshiarpur 17.10 (3.71) 19.66 (3.52) 30.84
Nawashahar 11.00 (0.98) 13.80 (0.98) 38.49
Punjab (Total Urban) 37.58
Source: - Census of India 1991 and 2001
Note: - Figures in parenthesis indicate percentage of urban population of the district to
total urban population of the state

Analysis of the spatial pattern of urbanization reveals a trend towards ribbon-

development along the major transport corridor such as the Grand Trunk Road (GTR)
that acts as the economic spine of the state. Three corporation towns of Punjab are
situated on GTR. Urbanization in the state is developing as a corridor, creating a linear
pattern running from southeast to northwest with large concentrations of population in
class I and class II towns. There is a haphazard growth of slums and large-scale
migration is unabated. It is creating physical, demographic and environmental
imbalances in the state and generating demand for upgradation of the urban
infrastructure and civic services. Presently, the urban infrastructure is in bad shape. It is
the worst in small and medium towns. City governments are financially weak because of
a host of reasons and are unable to provide adequate services for the growing needs of
the citizens. The cities in Punjab, with poor infrastructure, may become unlivable and
unproductive. Prioritization of development of small and medium towns/ viable regional
growth centres, convergence of programmes to improve physical, social and economic
infrastructure are essential, keeping the future scenerio of urbanization in view.
The major concern at present is the critical gap in demand and supply of basic civic
services in growing urban areas. Despite augmentation of basic services, housing and
urban infrastructure, deficiencies in quantity and quality persist. A higher growth of the
state economy will require strong urban-infrastructure support and quality services. The
strategies for urban development need to target 100 per cent coverage of urban
population with supply of safe drinking water, upgraded sewerage facility, 100 per cent
lifting, disposal and treatment of garbage and better housing facilities by the end of the
Tenth Five Year Plan. The existing concentrated urban growth would need to be
deflected through the development of smaller urban areas that will minimize the flow of

289
migrants to larger cities. The construction of roads connecting large and small towns
and even villages with an adequate and efficient transport system will help to decongest
larger urban areas. People will find affordable housing in peripheral towns. This is
possible if satisfactory infrastructure with efficient surface transport for commuting is
available.

The productivity of cities also depends upon the workforce. Migrants constitute the major
workforce. Their contribution to urban productivity is significant, but unable to find a
proper living space, they become a burden on the urban infrastructure, as they put up
temporary and illegal structures on private and public lands commonly known as slums.
The slum and shanty settlements in and on the periphery of towns become a major
burden for the urban local bodies (ULBs), as such services as drinking water supply,
sewerage and sanitation are provided to them with no or little cost-recovery. The migrant
workforce should be provided proper living space and environment for a harmonious
growth of population, settlements and resources in urban areas.
Cities are engines of economic growth as they contribute more than 60 per cent of the
state domestic product (SDP) in Punjab. With the advent of economic reforms,
liberalization and globalization, cities are emerging as important reservoirs of
employment and providers of health services, higher education and centres of art and
culture. But this positive role of urbanization is overshadowed by the deteriorating urban
infrastructure and civic services, and substandard housing. The situation calls for
innovative measures for urban development, housing, efficient delivery of services and
bridging gaps between demand and supply, starting from small and medium towns to
class I and class II towns.
The negative impact of urbanization needs to be mitigated by strategies addressing the
major constraints in the provision of urban basic civic services, housing, slum
development and poverty alleviation. The state government should prepare an
urbanization strategy encompassing an area-specific economic framework, rural-urban
linkages, and intersectoral as well as spatial and environmental dimensions of urban
development. To counter the severity of urban problems, the modes of solution have to
be coherent and comprehensive to address local problems, and cities should be able to
meet the needs of the present urban population in such a fashion that it does not affect
its future needs.
The goals of urbanization strategy involve strengthening of urban local bodies by
transferring funds and functions, adequate/sustainable provision of urban
infrastructure/basic civic services, such as water supply, sewerage, solid-waste
management, roads, street lights, drainage, environment conservation, housing, land
development and transport infrastructure. Capacity building of elected and appointed
representatives of local self-government and other urban managers is one of the major
constituents of the urbanization strategy and a prerequisite for institutional development
and functional strengthening of ULBs. The urban strategy must emphasize creation of an
enabling legal, financial and regulatory framework for urban development, housing and
poverty alleviation. Since state budgetary support, central government transfers and tax
base of ULBs are inadequate, the urban strategy should suggest ways and means of
mobilizing resources from non-budgetary sources, i.e., funds from the capital market
through bonds and other alternative sources of financing.

290
URBAN GOVERNANCE, DEMOCRATIC DECENTRALIZATION AND INSTITUTIONAL
SET-UP FOR URBAN DEVELOPMENT
Local governments under the Constitution of India, belong to the domain of the state
governments, as they are listed in List II in the Seventh Schedule. Hence, they have
historically been operating within the control system of the state governments and have
very little financial and functional autonomy.
The ULBs in Punjab, numbering 134, are governed by the Punjab Municipal Act (PMA),
1911 and the Punjab Municipal Corporation Act (PMCA), 1976, as amended in 1994, to
bring the two Acts in conformity with the Constitution (74th Amendment) Act, 1992 (CAA).
The Punjab State Assembly has passed the Punjab Municipal Bill, 1999, which has, to
some extent, broad based the functional scope of the ULBs. It is awaiting assent of the
President of India.
CAA is a milestone in the history of urban governance. It provides and stipulates that:
• Municipalities are to function as `institutions of self-government’, prepare `plans
for economic development and social justice’, perform functions and implement
schemes as entrusted to them by the state governments including functions
listed in the Twelfth Schedule [Article 243W (a)].
• With a view to reducing the distance between the local communities and the local
government, CAA provides for the constitution of Wards Committees (WCs) in
the cities with a population of three lakh or more [Article 243S(1)].
• The State Election Commission is to superintend, direct and control the
preparation of electoral rolls, and conduct elections to the urban local bodies
[Article 243K (1)].
• The State Finance Commission is to review the financial position of urban local
bodies and make recommendations to the state government regarding (i) the
‘principles’ which should govern the distribution of resources between the state
and the local bodies, the determination of the revenue sources to be assigned
and appropriated by the local bodies, and the grants-in-aid from the State
Consolidated Fund; (ii) the ‘measures’ needed to improve the financial position of
ULBs; and (iii) any other matter as the Governor may refer to it in the interest of
sound finances of the local bodies [Article 243Y (1)].
• The District Planning Committees (DPCs) are required to be constituted to
`consolidate’ the plans prepared by the Panchayats and the municipalities of the
district and to prepare a draft development plan for the district as a whole [Article
243ZD(1)].
• The Metropolitan Planning Committees (MPCs) to prepare draft development
plans for the metropolitan areas concerned as a whole [Article 243ZE (1)].
The scheme of the CAA provides for regular and fair conduct of elections. If an ULB is
superceded before the expiry of its term, elections shall be held within a period of six
months. The Election Commission was constituted in compliance with the provision of
the CAA, and two elections to local bodies have been held in Punjab. The First State
Finance Commission (FSFC) was set up in 1994 and the Second State Finance
Commission (SSFC) in 1999. The recommendations of the FSFC have been accepted
by the state government for fiscal transfers and the recommendations of the SSFC are
presently under consideration. Though reforms towards democratization of ULBs have
been set in motion, the devolution of functions to be performed by ULBs of different
sizes, transfer of funds to match these functions, and the system of accountability, is left
to the wisdom of the state government.

291
Recognizing the neglect of integrated urban development planning by the local
authorities, the CAA incorporated, inter-alia, functional decentralization to enable the
ULBs to discharge effectively their responsibilities, suitable to contemporary urbanization
and a participatory planning process to promote convergence of resources. The state
government needs to introduce improvements to overcome structural deficiencies in the
generation of revenue from such conventional sources, as property tax, octroi, user
charges, license fees and from profession tax, land-based taxes and funds through
municipal bonds etc., Also, the financial base of ULBs could be augmented through
better tax administration and adoption of an appropriate mechanism for rationalizing the
pricing of basic civic services. Since provision of municipal services rests with the ULBs,
there is need to seriously implement the reforms as envisaged in the CAA. The
suggested ways and means as discussed in subsequent sections need to be executed
and monitored regularly.
Functional Domain of Urban Local Bodies
The functional domain of municipalities in Punjab suffers from lack of clarity. It lacks
stability, as, over time, the functional responsibilities of the municipalities have either
been modified, deleted or taken over by the state agencies and fragmented amongst
several agencies.
The Twelfth Schedule of the Constitution contains an illustrative list of municipal
functions for transfer to ULBs. In Punjab there has been no change in the functional
domain of ULBs in the post-CAA regime. No doubt, the transfer of functions listed in the
Twelfth Schedule is not mandatory, but the intention to transfer these is clear. For
enabling the performance of the functions listed in the Twelfth Schedule, the Constitution
provides for supplementing local revenues through transfer of funds from the state
government, sharing of state taxes and assignment of taxes and grants-in-aid, specific
or general. The CAA thus envisages transfer of functions and finances to the municipal
bodies to enable them to act as city-level governments for discharging mandatory, core
and other civic functions delegated to them.
Presently, the State Municipal Acts make the bureaucracy the supervisory and
controlling authority of the municipal bodies. Though the Constitution envisages
empowered units of self-government, the executive powers vest with the appointed
bureaucrats. This is against the ethos of self-government. Elected members of the
municipal bodies feel that the executive wing (appointed representatives) of the state
government is influenced by the Members of the Legislative Assembly (MLAs) and
Members of Parliament (MPs) who look upon elected members of the local municipal
bodies as trespassers in the game of power sharing. Vesting of executive powers with
appointed functionaries come handy in such a system of control and authority.
Devolution of functions and tax authority and fiscal autonomy to ULBs, therefore,
demand a fresh look at the existing laws and, above all, a strong political will to translate
the spirit of CAA.
Fragmented functioning is illustrated by the performance of such parastatal agencies as
Punjab Water Supply and Sewerage Board (PWSSB), State Urban Development
Agency (SUDA) and Improvement Trusts. These organizations have encroached upon
the local functional domain of ULBs. It is time that the functions of parastatals are
transferred to the elected municipal bodies who, after two elections since 1994, have
attained enough maturity to perform these functions. Parastatal institutions should be
subordinate to ULBs and at best act as consultants to them till abolished.

292
The recommendations of the FSFC pertaining to revenue assignment, sharing of taxes
and grants should be implemented in full, to enable the ULBs perform their functions
efficiently in general and in the delivery of municipal services in particular. There should
be no interference by the State Government in such municipal affairs as fixing of rates,
rents and user charges and granting exemptions to pay taxes. This will make local
governments strong and close to the people, and the local polity vibrant and alive.
The Wards Committees, District Planning Committees and Metropolitan Planning
Committees, mandated by the CAA, should be constituted. It is time to introduce the
Mayor-in-Council system (or President-in-Council) in ULBs, to strengthen functioning of
local democracy through elected representatives.
Functional and Institutional Development of Local Self-government through
Education, Research and Training
Training and human resource development, backed by research, have a key role in
strengthening the ULBs to cope with the challenges in the context of the 74th CAA.
Capacity-building of elected representatives of ULBs will help in institutional
development and functional strengthening of local self-government. The strategy for
capacity-building of urban administrators/managers includes realistic assessment of
human, financial and technical resources required by ULBs. The elected and appointed
officials of ULBs should be aware of the salient features of the 74th CAA, the
institutional/organizational set-up, preparation and implementation of development plans,
innovative municipal management through people’s and private sector participation and
regulation of the private sector in the delivery of municipal services. An orientation for
raising funds through internal resources, borrowings from institutions and the debt
market are the other essential features of the training of functionaries of ULBs.
Managerial skills of about 5,000 senior, middle and junior level elected and appointed
representatives need to be upgraded, for maintaining the tempo of growth and good
governance in 134 local bodies, including four municipal corporations.
Fiscal Domain of Urban Local Bodies
The resources of ULBs comprise internal sources (tax and non-tax revenues) and
external sources (borrowings and grants-in-aid/share in state taxes and transfers from
the Central Government). Articles 243X, 243Y and 280(3) (c) of the Constitution of India
are relevant for strengthening the fiscal domain of ULBs. Progressive devolution of fiscal
authority will address the existing mismatch between functions and resources.
Sections 61 of PMA, 1911, and Section 90 of PMCA, 1976, deal with taxation powers of
ULBs in terms of taxes and fees. Though a number of tax and non-tax sources have
been mentioned in these Acts, octroi, property tax and water supply and sewerage
charges are the major sources of income of ULBs. Octroi, a buoyant source of income,
was abolished from 1 December 2001, except on electricity. The exclusion of octroi had
a significant negative effect on the revenue base of ULBs. However, the Hon’ble High
Court of Punjab and Haryana has provided a fiscal reprieve by reinstating the levy of
octroi and it is being collected by ULBs since 29 April 2002.
Property tax is the next major source of income of ULBs, but its contribution continues to
be meagre, due to a variety of reasons, including exemptions on self-occupied
residential properties (from 1 April 1997 onwards), poor and discretionary valuation,
deficiencies in assessment and collection procedures and a faulty rate structure.

293
The next important contributor to municipal income is water supply and sewerage
charges. ‘User charges’ from water supply and sewerage have a small share in the total
income. This is due to a host of reasons, such as faulty pricing and poor cost recovery,
system losses, theft, excessive energy consumption, poor billing and collection, high
capital cost and non-volumetric supply of water. Other sources of revenue are not
consistent and adequate to meet the growing demands of ULBs for infrastructure
development and rising wages and salaries.
Profession tax provided for in the PMCA, 1976, and PMA, 1911, development tax in the
PMCA, 1976, and scavenging tax and tax on menial domestic servants in the PMA,
1911, are not yet levied by ULBs. Income from entertainment tax (show tax), levied by
ULBs in addition to the entertainment tax charged by the state government, is negligible.
Other sources of non-tax revenue, comprising license fees for various trades, licenses,
slaughter house fee, building application fee, tehbazari (rent for temporary occupation of
vacant municipal land on road-side), sale proceeds and rents of municipal properties,
interest on investments, fees, fines and charges for performance of statutory and
regulatory functions, are nominal and do not have much impact on strengthening the
finances of ULBs. Borrowings, with the approval of the state government, have been
mainly confined to loans from the Housing and Urban Development Corporation
(HUDCO) and the Life Insurance Corporation (LIC) for water supply and sewerage
projects through PWSSB. Except Ludhiana Municipal Corporation (LMC), which issued
bonds for rupees (Rs.) 17.84 crore in 1999 through private placement, no ULB in Punjab
has raised any loan from the capital market.
ULBs receive `transfers’ and ‘grants’ from the State and the Central Governments, which
are highly erratic and unpredictable, depending upon the exigencies of the state’s own
financial resources. Own revenues of ULBs are not sufficient to meet the growing
demand of basic civic services and the urban infrastructure. The fiscal domain of ULBs
continues to remain weak and deplorable. Article 243X of CAA provides that the state
government may, by law, authorise a municipality to levy, collect and appropriate such
taxes, duties, tolls and fees and assign them such taxes, duties, tolls and fees as levied
and collected by the state government. It also provides for making grants-in-aid to the
municipalities from the Consolidated Fund of the state.
Income and expenditure of municipalities -- The income and expenditure of urban
local bodies is dependent on:
• Adequacy of tax base and its effective exploitation by ULBs.
• Effective use of non-tax sources, such as user charges and land-based non-
property taxes.
• Transfers from higher levels of government.
Income of municipalities: Income of municipalities from tax and non-tax revenue
sources, capital receipts and transfers from the State and Central Governments from
1996-97 to 2001-02 is given in Table 4. It shows remarkable financial self-sufficiency of
ULBs from their own sources. Their dependence on fiscal transfers is negligible. It is
worth noting that the generation of revenue from own sources has been increasing in
subsequent years despite several populist measures of the state government to abolish
local taxes. This suggests that if tax authority is devolved to ULBs and they are given
fiscal autonomy, the fiscal constraints presently being experienced by them will ease
substantially. Table 4 also reveals distress signals. Revenue from property tax and user
charges has been depleting over the years as a proportion of total local revenue. It also
indicates a very subdued role of fiscal transfers. This is largely because the income of

294
 urban local bodies in the form of share in taxes is not in accordance with its
recommendations of the FSFC and so is the case of transfer of grants to ULBs as
recommended by the Tenth Finance Commission (TFC). It is not regular and
predictable. Urban development projects of local bodies are affected because of
absence of assured quantum of grants and share of taxes according to the
recommendations of the State and the Central Finance Commissions. Powers of
municipalities, as stated by the FSFC, are severely inhibited by state control. A
municipal council cannot raise loans without the sanction of the state government, if the
amount exceeds rupees five lakh under the Local Authorities Loan Act, 1914, which is a
central legislation. The PMCA, 1976, also provides for borrowing by the municipal
corporation for specified purposes within the ambit of the Local Authorities Loan Act.
This adversely affects the fiscal autonomy of ULBs.
Table 4
Total Revenue Income of Urban Local Bodies from 1996-97 to 2001-02
(Rs. in crore)
Items 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02
1. Tax Revenues Estimates
a) Octroi 217.63 226.45 271.65 406.69 456.82 531.72*
(55.83) (52.82) (54.27) (59.57) (55.53) (61.03)
b) Property tax 34.7 34.92 42.42 54.31 66.73 66.64
(8.90) (8.15) (8.47) (7.95) (8.12) (7.65)
c) Share from auction money and excise duty 41.34 43.71 45.04 38.34 63.44 60.99
on liquor (10.61) (10.20) (9.00) (5.62) (7.71) (7.00)
d) Others 2.75 4.26 4.31 3.51 3.07 3.50
(0.70) (0.99) (0.86) (0.51) (0.37) (0.40)
e) Total (a+b+c+d) 296.42 309.34 363.42 502.85 590.06 662.85
(76.04) (72.16) (72.60) (73.65) (71.73) (76.08)
2. Non-Tax Revenues
a) Water supply & sewerage charges 30.05 31.18 38.04 43.68 57.73 59.62
(7.71) (7.27) (7.60) (6.40) (7.02) (6.84)
b) Others including capital receipts 43.31 44.29 56.92 87.63 101.52 112.12
(11.11) (10.33) (11.37) (12.83) (12.34) (12.87)
c) Total (a+b) 73.36 75.47 94.96 131.31 159.25 171.74
(18.82) (17.60) (18.97) (19.23) (19.36) (19.71)
3. Revenues from Own Sources
Total (1e+2c) 369.78 384.81 458.38 634.16 749.31 834.59
(94.86) (89.76) (91.57) (92.88) (91.09) (95.79)
4. Share from taxes as per -- 36.26 10.82 13.18 17.78 --
recommendations of the FSFC -- (8.46) (2.17) (1.93) (2.16) --
5. Grants:
a) As per recommendations of 10th & 11th -- -- 7.65 9.56 5.74 10.95
Finance Commissions -- -- (1.53) (1.40) (0.70) (1.26)
b) For Centrally Sponsored and State Plan 18.89 5.4 22.42 23.75 45.77 23.25
schemes (4.85) (1.26) (4.48) (3.48) (5.56) (2.67)
c) Others 1.14 2.24 1.3 2.1 4.01 2.4
(0.29) (0.52) (0.25) (0.31) (0.49) (0.28)
d) Total (a+b+c) 20.03 7.64 31.37 35.41 55.52 36.6
(5.14)
(1.78) (6.26) (5.19) (6.75) (4.21)
6. Total Revenue (3+4+5d) 389.81 428.71 500.57 682.75 822.61 871.19
(100.00) (100.00) (100.00) (100.00) (100.00) (100.00)
Source: Report of the Second Punjab Finance Commission (2002) and Local Government Department,
Punjab
Note: 1) Figures in parentheses indicate % age to total revenue income in respective years.
2) *Revenue from octroi for the year 2001-02, includes grants of Rs. 140.51 crore against losses, on
account of abolition of octroi (1 December 2001 to 31 March 2002)

295
An item-wise analysis of various sources of income in the context of the
recommendations of the FSFC, the TFC and the Eleventh Finance Commission (EFC) is
presented below. An effort has been made to give suggestions for enhancing income
from these sources.

Octroi: In view of a very high estimate of financial resources required for augmentation
of basic urban infrastructure and services, abolition of octroi is not advisable. It is the
only local tax with buoyancy and elasticity. Nevertheless, the existing drawbacks in its
administration need to be addressed. An array of concessions and exemptions given to
several goods and commodities needs review. The measures mentioned below could,
therefore, be considered:

• Switching over progressively from the age-old practice of assessment of octroi on

‘weight basis’ to ‘ad valorem basis’. This is equitable.

• Computerization of major check-posts, with connectivity with a central point, to

reduce malpractices and improve octroi collections through quick monitoring.

• Effective transit pass system, by feeding into the computers the description of
goods and vehicles entering the towns and its transmission to the octroi posts at
the exit point to

• check misuse of transit passes.

• A bench-mark for octroi staff and its monitoring to improve their efficiency and
introduction of incentives for employees and informers are other measures for
improving octroi collection.

• Leakage of revenue on account of under-invoicing in bills can be plugged by

random checking of vehicles and co-ordination with the sales tax department.

• Private sector participation in octroi collection can enhance income from octroi
through the implementation of an efficient and leak-proof system, better tax
administration and application of low-cost modern techniques.

A recent study of Ludhiana Municipal Corporation by the Centre for Research in Rural
and Industrial Development (CRRID), conducted by Gupta and Teotia (2001), indicates
that LMC has achieved significant growth in income from octroi by implementing these
measures and through effective tax administration. Table 5 shows the comparative
picture of revenue from octroi in municipal corporations and municipal councils/nagar
panchayats (MCs/NPs).

296
 Table 5
Income of Urban Local Bodies from Octroi from 1996-97 to 2001-02 (Rs. in crore)
Year MCs/NPs Municipal Corporations Total Grand Total
(A) (B) (B) (A+B)
Ludhiana Amritsar Jalandhar Patiala
1996-97 101.15 54.12 26.96 25.84 9.56 116.48 217.63
(46.48) (24.87) (12.39) (11.87) (4.39) (53.52) (100.00)
1997-98 101.73 58.68 29.86 28.1 8.08 124.72 226.45
(44.92) (25.91) (13.19) (12.41) (3.57) (55.08) (100.00)
1998-99 123.09 73.49 34.77 31.26 9.04 148.56 271.65
(45.31) (27.05) (12.80) (11.51) (3.33) (54.69) (100.00)
1990-00 182.84 114.18 46.97 50.28 12.42 223.85 406.69
(44.96) (28.08) (11.55) (12.36) (3.05) (55.04) (100.00)
2000-01 226.64 117.26 50.11 50.78 12.03 230.18 456.82
(49.61) (25.67) (10.97) (11.12) (2.63) (50.39) (100.00)
2001-02 264.17 145.5 44.95 63.24 13.86 267.55 531.72
(49.68) (27.36) (8.45) (11.89) (2.62) (50.32) (100.00)
Source: Local Government Department, Punjab
Note: Figures in parentheses indicate percentage share in the total income from octroi in a
particular year

Income from octroi in Amritsar, Jalandhar and Patiala Municipal Corporations and other
MCs/NPs has not shown adequate growth. The income of LMC has increased
substantially and it is more than the total income of Amritsar, Jalandhar and Patiala
Municipal Corporations put together. The measures adopted by LMC to enhance its
income can be adopted by other corporations and municipal councils.

Property tax: Besides octroi, property tax (PT) constitutes the most important municipal
tax in Punjab. Entry 49, read with Entry 5 of the State List in the Seventh Schedule of the
Constitution of India, enables the ULBs to levy tax on land and buildings. ULBs in Punjab
do not charge PT on all types of properties, and a large proportion of these are
exempted. These include self-occupied properties, schools (even those receiving 95%
grants from the state), many charitable and religious institutions and central government
organizations and institutions. According to the FSFC, growth of income from PT is
constrained by existing rent control laws. The Commission noticed several deficiencies
in fixation of tax base, tax rate, tax assessment, tax collection, tax
exemptions/concessions and lack of uniformity in the laws for municipal corporations
and municipal councils. Though Punjab has liberalized its Rent Control Legislation to
make it fall in line with the Model Rent Control Law, 1992, of the central government, the
desired result of boosting tax revenue, as a result of changes in the formula for
determining the standard rent, have been limited, as most of the old high-priced inner
city properties have continued to be assessed at a very low rateable value. As a part of
strategy to reform PT, the FSFC gave certain recommendations to strengthen the fiscal
domain of ULBs, which have not been implemented so far. Even for exemptions
declared by the state government in 1994, no compensation has been given to ULBs.

Property tax reforms: Income from PT has potential and its administration should be
streamlined for a higher yield. The tax base, tax rate, tax assessment, tax collection, tax
exemptions and resolution of disputes are important aspects of property tax

297
administration. According to the guidelines for PT reforms prepared by the Ministry of
Urban Development (MOUD), Government of India (GOI), a good PT structure should
have the following characteristics:
• A low rate of tax to make it acceptable.
• Assessment and collection should be simple and transparent.
• Equity between different classes of tax payers.
• Minimum discretion of assessors.
• Facilitating self-assessment by owners/occupiers.

Taking into consideration the host of administrative and legal reasons behind a subdued
revenue productivity of the existing annual rental value system, a consensus on `area
based’ property tax, which has stood the scrutiny of the courts, has now generally
evolved. The Hon’ble Supreme Court of India has held, in CWP No. 888 of 1996, that
the `property tax is the principal source of income of the urban local bodies. It is
unfortunate that the property taxes are levied at very low rates, which have been
generally rent based and not revised for five years. Regrettably, large-scale exemptions
and concessions are given to property holders. A lot of disparity is also seen in the
manner of assessment of property tax. There is a need to have area based property tax
reforms to make the system of assessment rational, transparent, simple and fair with
minimum exemptions’. The EFC too has expressed similar views and highlighted, in
particular, the need to improve revenue mobilization by ULBs through reforms in this
local tax.

Property tax models operating in Patna, Ahemedabad, Tamil Nadu and Andhra Pradesh
are worth looking at for reforming this tax in Punjab. The Hon’ble Supreme Court of
India, in a recent judgment on the Andhra Pradesh PT system, has upheld the area
detail system of property tax, provided the methodology and the procedure of valuation
and assessment of rental value are stipulated in the municipal laws. Property tax in
Punjab, therefore, needs to be refurbished by providing for determination of annual
rental value on the basis of location, quality of construction, age and use of land and
buildings, by stipulating the methodology and procedures to be followed, as in Andhra
Pradesh. The depressing effect of rent control laws on property valuation could thus be
eliminated and PT could be made a buoyant and elastic source of revenue.

Innovative practices in valuation and assessment and also in tax administration as well,
would need to be adopted. These include the use of Geographical Information System
(GIS) for tax mapping, valuation and tax collection, computerization of PT records for
effective billing and collection, delivery of PT bills through courier, a scheme of
incentives and penalties for tax payers to enhance collection ratio, and strict monitoring
of tax collection through ABC Analysis. Increasing demand for augmentation of basic
urban services in the wake of rising urbanization is too serious a phenomenon to allow
populist measures of large scale tax exemptions, deficient tax system, defective system
of valuation and poor collection.

In Punjab, according to a CRRID study (Gupta and Teotia 2001), LMC has gone in for
several innovations as discussed above. It has enhanced its income from PT from Rs.
14.06 crore in 1997-98 to Rs. 32.41 crore in 2001-02. The comparative growth of PT in
Ludhiana, Amritsar, Jalandhar and Patiala Municipal Corporations and MCs/NPs is
shown in Table 6.

298
 Table 6
Income of Urban Local Bodies from Property Tax from 1996-97 to 2001-02 (Rs. in crore)
Year MCs/NPs Municipal Corporations Total Grand Total
(A) (B) (B) (A+B)
Ludhiana Amritsar Jalandhar Patiala
1996-97 12.46 12.83 3.18 3.83 2.40 22.24 34.70
(35.91) (36.97) (9.16) (11.04) (6.92) (64.09) (100.00)
1997-98 12.35 14.06 2.8 3.2 2.51 22.57 34.92
(35.37) (40.26) (8.03) (9.16) (7.18) (64.63) (100.00)
1998-99 14.81 16.94 3.41 4.12 3.14 27.61 42.42
(34.91) (39.93) (8.04) (9.72) (7.40) (65.09) (100.00)
1990-2000 19.61 22.13 3.99 5.04 3.54 34.7 54.31
(36.10) (40.75) (7.35) (9.28) (6.52) (63.90) (100.00)
2000-01 24.04 27.19 4.58 6.77 4.15 42.69 66.73
(36.02) (40.75) (6.86) (10.15) (6.22) (63.98) (100.00)
2001-02 18.83 32.41 4.51 7.01 3.88 47.81 66.64
(28.26) (48.63) (6.76) (10.53) (5.82) (71.74) (100.00)
Source: Local Government Department, Punjab
Note: Figures in parenthesis indicate percentage share in the total income from
property tax in a particular year

The contribution of LMC to total PT collection is almost 49 per cent of the total PT
income of the state. It is more than double that of three municipal corporations taken
together and almost twice all other MCs/NPs. The innovative practices adopted by LMC
are growth oriented and sustainable and can be replicated in other municipalities of
Punjab to mobilize income from PT (Gupta and Teotia 2001).

PT in Punjab has the potential to generate additional revenue for the ULBs of more than
25 per cent per year in the next five years.

User charges for civic services: The FSFC noticed that the principle of ‘user charges’
is not being properly enforced by ULBs for providing civic services. As a result, most of
these, which could be financed through ‘user charges’, are heavily subsidized or given
free. In Punjab, municipalities do not recover even one-third of the cost of maintenance
of water supply and sewerage. The FSFC noticed several deficiencies in the
management of the water supply and sewerage system. They are:
• Large-scale evasion due to unsatisfactory billing and collection of water charges.
• Expenditure on maintenance is out of proportion and far in excess of the
recovery by way of user charges from the consumers.
• There is no system of revision of rates for water supply and sewerage to provide
for cost escalation including labour cost, wages, spare parts and hike in power
tariffs.
• Too much wastage of water by public and street taps, theft through illegal
connections and supply to unauthorized settlements are the other shortcomings.

The FSFC recommended that user charges should be extended to all municipal
services, such as water supply, sewerage and parking lots and later to solid-waste
management. The principle of full cost including operation and maintenance (O&M)
costs, billing and collection costs and capital costs should be incorporated in user
charges. Periodic revision of user charges, at least every three years, and a system of

299
charges based on the level of consumption and cross-subsidies to weaker sections
should be introduced. The municipalities must ensure an efficient and desirable level of
services to justify recovery of user charges. Instead of initiating reforms to recover full
cost of water supply and sewerage, Amritsar Municipal Corporation passed a resolution
to give free water and sewerage facilities. This is an example of fiscal adventurism that
will destroy every rudiment of efficiency.

At present recovery of O&M charges of water supply and sewerage is poor in most of
the municipalities. A report on the status of water and sanitation in Ludhiana city by the
Financial Institutions Reforms and Expansion Project of United States Agency for
International Development (USAID FIRE-D Project 2000) indicates that the average
O&M recovery in LMC was only 17 per cent in 1999-2000. Though LMC has improved
by adopting a number of innovative measures, there is still scope to improve recovery of
O&M cost of water supply and sewerage.

Pricing and cost recovery through rationalization of user charges: Cost recovery
for providing urban civic services in Punjab has been low and the provision of services is
totally unrelated to its cost. Municipal services are considered ‘social goods’ and the
concept of cost recovery has not been considered seriously. Presently the rich and the
poor are charged the same rate for the services, which continues to be highly
subsidized. On the basis of recommendations of the FSFC and major findings of a
CRRID study of LMC by Gupta and Teotia (2001), the following measures can be
adopted by ULBs for recovery of user charges of municipal services, especially water
supply, sewerage and solid-waste management:
• Pricing for water needs to be rationalized on the basis of the unit-cost of
production. There should be periodic revision of charges after every three years.
Water rates should be linked to cost of production in general and with the
revision of power tariff in particular, with an annual hike of ten per cent to offset
the escalation in the cost of maintenance of staff and materials.
• Metering of water supply should be progressively introduced as the present
system encourages wastage.
• There should be no free supply of water and the system of public stand-posts
should be abolished. Beneficiaries should pay collectively for water supplied
through stand-posts, even though the rate can be low or nominal. An innovative
system of cross-subsidy from one income group to another needs to be worked
out in the interest of equity.
• Sewerage charges need to be based on water consumed and should be equal to
water tariffs.
• Commercial and industrial connections should be charged higher rates than
residential connections and higher rates should be charged for higher
consumption.
• Progressive management contracts of O&M of water supply and sewerage
system, delivery of bills and running of tube wells will enhance efficiency.
• Cost-recovery for capital investment could be effected, at least in part, by
charging upfront for new water and sewerage connections from users.
• Involvement of the local community in running tube wells, sanitation and park
maintenance through Neighbourhood Tube-well Operators, Mohalla Sanitation
Committees and Park Management Committees respectively, should be
encouraged to ensure people’s participation in municipal affairs and effect
economy in expenditure on these services.

300
The CRRID study (Gupta and Teotia 2001) shows that some of these innovative urban
management practices have been implemented by LMC, resulting in increase in revenue
from water supply and sewerage and economy in expenditure on solid-waste
management. Table 7 shows comparative growth of income of municipal corporations
and MCs/NPs from water supply and sewerage charges.
Table 7
Income of Urban Local Bodies from Water Supply and Sewerage Charges from 1996-97 to
2001-02
(Rs. in crore)
Year Grand
MCs/NPs Municipal Corporations Total Total
(A) (B) (B) (A+B)
Ludhiana Amritsar Jalandhar Patiala
1996-97 11.13 5.4 7.33 4.04 2.15 18.92 30.05
(37.04) (17.97) (24.39) (13.45) (7.15) (62.96) (100)
1997-98 10.19 6.69 7.52 4.38 2.4 20.99 31.18
(32.68) (21.45) (24.12) (14.05) (7.70) (67.32) (100)
1998-99 13.54 8.87 7.7 5.06 2.87 24.5 38.04
(35.59) (23.32) (20.24) (13.31) (7.54) (64.41) (100)
1990-2000 19.93 7.02 8.17 5.46 3.1 23.75 43.68
(45.63) (16.07) (18.70) (12.50) (7.10) (54.37) (100)
2000-01 21.38 17.4 8.31 6.18 4.46 36.35 57.73
(37.03) (30.14) (14.39) (10.71) (7.73) (62.97) (100)
2001-02 22.56 17.56 8.03 6.57 4.90 37.06 59.62
(37.84) (29.45) (13.47) (11.02) (8.22) (62.16) (100)
Source: Local Government Department, Punjab
Note: Figures in parenthesis indicate percentage share in the total income from water
supply and sewerage charges in a particular year

The increase in the percentage share of income of LMC is encouraging, as its income
from water supply and sewerage charges increased from Rs. 5.4 crore (17.97%) in
1996-97 to Rs. 17.56 crore (29.45%) in 2001-2002. According to Gupta and Teotia
(2001), the water supply and sewerage reforms initiated by LMC are growth oriented and
sustainable and can be replicated in other municipal corporations/councils.

Additional excise duty and share of auction money and excise duty: The
recommendation of the FSFC to enhance additional excise duty (AED) payable to ULBs
from seven per cent to ten per cent on country liquor has not been implemented.
Recommendations to enhance the AED payable to ULBs on Indian Made Foreign Liquor
(IMFL) from 16 per cent to 20 per cent has been considered by the government from
time to time, when time of considering the annual excise policy, but no permanent
decision has been taken so far. Table 8 shows amounts due and transferred to ULBs as
share of auction money and excise duty.

301
 Table 8
Amount Due and Transferred to Urban Local Bodies as Share of Auction Money of Country Liquor
Vends and Excise Duty on IMFL (Rs in crore)
Year Share of auction Provision in the state Amount released to Difference
money & excise duty budget ULBs between Cols. 2 &
4
(1) (2) (3) (4) (5)
1996-97 39.3 41.34 41.34 + 1.98
1997-98 58.33 43.71 43.71 -14.62
1998-99 59.98 71.97 45.04 -14.94
1999-2000 63.44 57.52 38.34 -25.10
2000-01 61.96 * 63.44 +1.48
Total 283.07 214.54 231.87 -51.20
Source: Report of the Second Punjab Finance Commission (2002)
Note: *A token provision of Rs. 1000/- was made in the budget of 2000-01.

There is thus a shortfall of Rs. 51.20 crore. Transfer of the share of ULBs should be
predictable, stable and transparent. The full share of ULBs in auction money and excise
duty, as recommended by the FSFC, should be transferred to enable municipalities to
prioritize future developmental activities.
Share of urban local bodies in state taxes: The FSFC recommended that 20 per cent
of the net proceeds of the following five taxes and duties should be transferred to ULBs
and PRIs, with defined principles of sharing inter se among them:
• Stamp Duty
• Electricity Duty
• Punjab Motor Vehicle Tax
• Entertainment Tax
• Entertainment (Cinematograph Shows) Tax.
The State Government decided to implement these recommendations with effect from
the fourth quarter of 1996-97. The devolution of 20 per cent share of five state taxes to
ULBs is shown in Table 9. It is evident that the transfers have been rather poor and
continue to be partial without any justification. Recommendations of the Central Finance
Commission are usually accepted in full and annual transfers from the Centre to the
State are the same as recommended by the Commission. This is, however, not so in the
case of recommendations of the State Finance Commission.
Table 9
Share of Urban Local Bodies in Five State Taxes (Rs. in crore)
Year Receipts Cost of Net tax 20% share Budget Amount Shortfall
from 5 collection receipts of net tax provision for transferred to (Col.6–
divisible (Col 2-Col receipts ULBs ULBs Co.7) for
state taxes 3) (PRIs + ULBs
# ULBs)
(1) (2) (3) (4) (5) (6) (7) (8)
1996-97 450.54 5.15 445.39 22.27* 11.89** - 11.89
1997-98 476.59 6.03 470.56 94.11 50.97 36.26 14.71
1998-99 542.21 12.81 529.40 105.88 45.57 10.82 34.75
1999-2000 701.26 11.36 689.90 137.98 40.00 13.18 26.82
2000-01 912.63 11.42 901.21 180.24 32.22 17.78 14.44
Total 3083.23 46.77 3036.46 540.48 180.65 78.04 102.61
Source : Report of the Second Punjab Finance Commission (2002)
Note: # 1. Stamp Duty, 2. Electricity Duty, 3. Motor Vehicle Tax, 4. Entertainment Tax, 5. Entertainment
(Cinematograph Shows) Tax.
* 20 per cent share for fourth quarter of 1996-97 calculated by taking one-fourth of total net receipts for 1996-
97.
** Revised budget outlay.

302
Transfers of shared revenue to municipalities are ad hoc, unpredictable, unstable and
discretionary. Non-transfer of the full share to ULBs affects their fiscal domain and
makes them even more dependent on the state government. Revenue sharing should be
predictable and, in principle, the full amount should be transferred to ULBs to strengthen
their fiscal base.

Taxation of central government properties: Taxation of Central Government

properties is subject to the provisions in the Constitution. The Central Government has
now settled the issue by allowing ULBs to charge only for the services provided by them.
The EFC, after considering all aspects, has recommended that ‘all government
properties whether they belong to the Central or the State Governments, should be
subject to the levy of user charges and should be regulated by a suitable legislation’.

In Punjab, only Amritsar and Ludhiana Municipal Corporations levy nominal service
charges on Central Government properties. Recommendations of FSFC that steps to tap
this source of revenue should be taken have not been considered seriously by the State
Government as well as local bodies. Recommendations of the FSFC and the EFC
should be taken seriously and ULBs should recover service charges on Central
Government properties.

Enhancing local tax authority and internal revenue efforts: Devolution of buoyant
fiscal tools to ULBs is necessary to enable them properly address the existing mismatch
between functions and tax and non-tax sources. The FSFC suggested devolution of i)
profession tax, ii) license fee on privately-bored tube wells, iii) surcharge on water
pumped into the sewerage system, iv) full potential of the tax on advertisements and
hoardings, along with periodical revision of non tax rates, and v) reduction of state
control on fixing rates of local taxes. The state government has been indifferent to these
valuable suggestions. It has not granted fiscal autonomy to ULBs to decide their own
taxation rates.

The existing position of local tax authority and internal revenue efforts indicate a status
quo situation, as nothing has been done to enhance local fiscal authority and internal
resource mobilization. All powers remain vested in the state government and devolution
of fiscal autonomy to ULBs remains unimplemented. The levy of local taxes, as
recommended by the FSFC, will help to bring stability and strength to fiscal resources
and help to build a strong and viable tax base.

Devolutions recommended by the Tenth Finance Commission and the Eleventh

Finance Commission: Article 283 (3)(c) of CAA empowers the central finance
commission to make recommendations regarding measures needed to augment the
Consolidated Fund of a state, to supplement the resources of its municipalities on the
basis of the recommendations of the state finance commission. The TFC for the first
time made a provision of Rs. 30.60 crore to be given to ULBs of Punjab, on the basis of
a ratio of the slum population derived from the urban population figures of the 1971
Census. The ULBs were required to prepare suitable schemes and provide matching
contributions. It also mandated that no amount be used on salaries and wages. Table 10
contains grants recommended by the TFC, amounts received by ULBs and the shortfall.

303
 Table 10
Grants Recommended by the Tenth Finance Commission
(Rs. in crore)
Year Grants recommended by the Received by the ULBs Shortfall
TFC (2-3)
(1) (2) (3) (4)
1996-97 7.65 - 7.65
1997-98 7.65 - 7.65
1998-99 7.65 7.65 -
1999-00 7.65 9.56 -1.91
Total 30.60 17.21 13.39
Source: Report of the Second Punjab Finance Commission (2002)
The EFC has recommended a grant of Rs. 54.70 crore, i.e., Rs. 10.94 crore per annum
to be given to ULBs for the period 2000-2005. Table 11 shows grants recommended by
the EFC, amounts received by ULBs and the shortfall in 2000-01 and 2001-02.
Table 11
Grants Recommended by the Eleventh Finance Commission (Rs in crore)
Year Grants recommended by Received by the Shortfall
the EFC ULBs
1 2 3 4 (2-3)
2000-01 10.94 5.74 5.20
2001-02 10.94 - 10.94
Total 21.88 5.74 16.16
Source: Report of the Second Punjab Finance Commission (2002)
Tables 10 and 11 indicate that ULBs have not received the full amount as recommended
by the Tenth and Eleventh Finance Commissions of India. The shortfall in grants is
detrimental to the fiscal health of ULBs. Inadequate receipt of grants may result in slow
progress of developmental activities and poverty alleviation programmes. The grants, as
recommended by the TFC and the EFC, should be transferred to ULBs for successful
implementation of urban development and poverty alleviation programmes.
Municipal expenditure: Municipal expenditure, comprising expenditure on general
administration, tax collection, provision of services and debt servicing is shown in Table
12.
Table 12
Total Expenditure of Urban Local Bodies from 1996-97 to 2001-2002 ( Rs. in crore)
Components of Expenditure 1996-97 1997-98 1998-99 1999- 2000-01 Estimates
2000 2001-02
1. General Administration 15.42 17.86 26.09 28.97 37.37 39.98
2. Tax Collection 35.9 39.14 50.85 59.54 49.75 52.24
3. Provision of Services 261.64 244.45 256.93 424.63 457.16 530.31
4. Debt Servicing
a) Interest 2.78 2.8 1.55 1.58 1.67 2.70
b) Repayment of Principal 6.86 7.2 8.07 6.84 6.87 7.17
c) Total (a+b) 9.64 10.00 9.62 8.42 8.54 9.87
5. Miscellaneous 46.17 49.19 61.72 70.59 175.74 150.1
Total Expenditure 368.77 360.64 405.21 592.15 728.54 782.5
(1+2+3+4c+5)
Source: 1) Report of the Second Punjab Finance Commission 2002)
2) Local Government Department, Punjab

304
Expenditure on establishment: According to the FSFC all municipalities incur unduly
large expenditure on staff. Excessive cadreization with fixed strength, as determined by
the government, does not leave any initiative for municipalities to reduce their
expenditure on establishment. The excessive expenditure on staff is also due to
unplanned expenditure on ad hoc and temporary workforce for sanitation, roads, water
supply, etc. The FSFC considered this matter and recommended that measures should
be taken to reduce excessive expenditure on the establishment and the limits on it upto
a permissible percentage of the income must be adhered to. The State Government
should exercise its authority to ensure that the cadre strength of various services is not
inflated.

According to the SSFC, the cost of establishment was 42.03 per cent of the total own
revenue and 39.57 per cent of the total expenditure of ULBs in 2000-01. It was higher
than the limits fixed by Local Government Department, that not more than 35 per cent of
the total expenditure should be spent on salaries. Privatization/contracting-out is being
introduced in municipal functions, such as sanitation, streetlights, park maintenance,
delivery of bills (through courier) and O&M of tube wells in a few municipalities. There is
scope for privatization/contracting-out of municipal services in ULBs to reduce
expenditure on establishment bringing it upto 35 per cent or even less.

The Local Government Department generally insists on the ULBs to present a balanced
budget. Balancing of the budget, however, should not be at the cost of deficient
municipal services. Table 13 shows the impressive budgetary surplus that has been
increasing over the years.

Table 13
Budgetary Surplus in Urban Local Bodies from 1996-97 to 2001-02 (Rs. in crore)
Particulars 1996-97 1997-98 1998-99 1999- 2000-01 2001-02 Total
2000
Income 389.81 428.71 500.57 682.75 822.61 871.19 3695.64
Expenditure 368.77 360.64 405.21 592.15 728.54 782.50 3237.81
Revenue (+) (+) (+) (+) (+) (+) (+)
Surplus (+)/ 21.04 68.07 95.36 90.60 94.07 88.69 457.83
Deficit (-)
Source: 1) Report of the Second Punjab Finance Commission (2002)
2) Local Government Department, Punjab

ULBS should not be forced to present balanced budgets. The revenue surplus would
need to be leveraged for borrowings for much needed urban infrastructure and
augmenting the existing civic services.

Data-base on Finances of Urban Local Bodies and Management Information

System (MIS)

The FSFC and SSFC of Punjab, TFC and EFC have expressed serious concerns about
the non-availability of data on the finances of local bodies. According to the EFC `in the
absence of any reliable financial/ budgetary data, no realistic assessment of the needs
of the municipalities for basic civic and developmental functions can be made nor can
any information be generated on the flow of funds to the local bodies for the
implementation of various schemes for economic development and social justice’. The

305
SSFC has mentioned that a dependable and comprehensive database on the finances
of local bodies is necessary but the position in this regard is not satisfactory. The FSFC
and SSFC obtained the requisite data of income and expenditure of local bodies from
them ab initio, and scrutinized and rectified the deficiencies.
The process of data collection, analysis, interpretation and updating should be expedited
to strengthen policy planning for effective local self-government in Punjab. With the
increased use of computerization, ULBs should be able to create a strong database on
major aspects of municipal finances. The data will be useful for policy makers for
predicting and managing the present and future development of growing cities. The
recommendations of FSFC and SSFC regarding creation of a database should be
implemented immediately. As recommended by the SSFC, the responsibility for the
purpose may preferably be entrusted to the Director, Local Government and not to the
Examiner Local Fund Accounts, as recommended by the EFC. A regulatory mechanism
can help in continuous monitoring of data collection, evaluation and development of a
management information system and its dissemination to various stake holders, like
State and Central Governments for the finance commissions, planners, academics,
research institutions/universities and consumers. An allocation of Rs. 10.93 lakh
recommended by EFC for all ULBs of Punjab is not adequate and a specified
percentage of budgets of ULBs should be earmarked for creation of database and MIS.
Property and Asset Management
The importance of property/ asset management in ULBs can hardly be over-
emphasized. This is essential to improve the fiscal base and quantify the capital
supporting the assets. ULBs should put together all scattered assets of land and
buildings, which are possibly being eroded through encroachments or unauthorized
takeovers. With computerization and a management information system in place, this
technique will help to preserve, maintain and compute the orderly growth of assets,
comprising lands, buildings and other municipal properties, which must be inventorized
for recovery of rents and rates and the most economic use of assets. The LMC adopted
this technique, with technical support from Infrastructure Professionals Enterprise (P)
Ltd. It did a comprehensive land-inventory exercise and identified 865 additional
properties including large tracts of land. The total monetary value of these assets is
reported to be Rs. 350 crore. The potential revenue generation from these
properties/assets of LMC is over a crore of rupees per annum. According to the CRRID
study (Gupta and Teotia 2001), ‘the mapping, survey of properties and inventory of old
and newly identified assets, is a distinctive achievement of LMC towards tightening
control on taxable properties and its own assets’. This can be replicated by other
municipalities for strengthening their fiscal domain.
URBAN BASIC CIVIC SERVICES AND FINANCING URBAN INFRASTRUCTURE: A
PLAN FOR URBAN DEVELOPMENT
Water supply, sewerage, surface drainage, solid-waste management, roads and street
lighting are important urban basic civic services and core constituents of urban
infrastructure. There is an acute pressure on these services in the wake of growing
urbanization in Punjab. Most of the towns and cities of Punjab have serious deficiencies
of civic services with regard to the coverage of population and level and quality of
services. According to the FSFC of Punjab, water supply is a big casualty. Sewerage is
inadequate, and even where sewerage exists, there is no proper arrangement for
sewage disposal and its treatment. There are many pockets where even rudimentary

306
surface drainage does not exist. Solid waste collection, transportation and disposal leave
much to be desired. The condition of roads and streets is highly unsatisfactory with
about 40 per cent of the roads and streets needing extensive repairs. There are
municipal areas without pucca roads and proper street lighting. Large segments of the
population live in slums and lack access to basic civic services. The population served
with water and sewerage in Punjab is depicted in Table 14:
Table 14
Coverage of Population with Water Supply and Sewerage
Type of towns Number of Coverage of population in
towns percentage
Water supply Sewerage
Municipal Corporations 4 70 57
Municipal Councils Class I 26 74 63
Municipal Councils Class II 42 77 41
Municipal Councils Class III 30 79 14
Nagar Panchayats 32 46 5
Total 134 71 52
Source: Report of the Second Punjab Finance Commission (2002) and Punjab Water
Supply & Sewerage Board (2002)
Table 14 shows that even in corporation towns, 30 per cent people have no water facility
and 43 per cent are without sewerage connections. The coverage of population with
water supply and sewerage in Nagar Panchayats is only 46 per cent and five per cent
respectively. The coverage of solid waste management is no better either. There is not
even one operational solid waste treatment plant in the whole state. Sewage treatment
facilities are also inadequate. As the population served with water supply is more than
the sewerage, it results in environmental degradation, as excessive water is not
disposed off properly and gets accumulated in low-lying areas. It creates air-water- and
soil-pollution and adversely affects the health of the people.
The fact that infrastructure services do not pay for themselves and the government does
not have the resources to continue to subsidize the beneficiaries has resulted in low
availability of funds. With increasing requirements, there is deficiency in volume as well
as quality of services. It is high time that a commercial approach is adopted for providing
these services (NCAER 1996).
Physical Targets and Financial Requirements Projected by the First Punjab
Finance Commission
The FSFC has laid down the physical targets for the years 1996-97 to 2000-01 as shown
in Table 15.
Table 15
Physical Targets of Services Projected by the FSFC
Services Targets for coverage by the year 2000-01
Water supply 90% population with per capita supply of 150-
200 liters per day.
Sewerage & surface drainage 75% underground sewage and 25% surface
drainage.
Roads & streets 75-100% coverage by all weather roads
Solid waste management 100% disposal
Street lighting 100% coverage with an average distance of 30
metres between the light poles.
Source: Report of the First Punjab Finance Commission (1995)

307
In addition, slum improvement and upgradation of fire services were included for
assessing the requirements of funds. In order to achieve the above-mentioned targets,
the FSFC made the following projections of cost (Table 16).
Table 16
Financial Requirements for Service s Projected by the FSFC (Rs. in crore)
Services Projected cost
(1996-97 to 2000-01)
Upgradation of water supply and sewerage and escalation and 1990.00
maintenance of new assets.
Upgradation of roads and streets, surface drainage, 1797.71
scavenging, sanitation, solid waste disposal, street lighting,
slum improvement and upgradation of fire services and
maintenance of new assets.
Total 3787.71
Source: Report of the First Punjab Finance Commission (1995)

The FSFC took into account the income from the newly created infrastructure for water
supply and sewerage, in addition to the projections of incomes of municipalities from
various sources. It recommended that consumers benefiting from the services provided
should pay for them and tariffs should be so fixed as to effect recovery of the total cost of
operation and maintenance including capital costs. The FSFC, on the basis of the above
principle, projected the income from user charges, but there has been a big gap in the
projected and actual income from user charges from water supply and sewerage as
shown in Table 17.
Table 17
Shortfall in the Projected and Actual Income from Water Supply and Sewerage Charges
(1996-97 to 2000-01)
(Rs. in crore)
Year User charges from Actual income of ULBs Shortfall in the projected
water supply and from water supply and and actual Income (2-3)
sewerage projected by sewerage charges
the FSFC
(1) (2)* (3)** (4)
1996-97 100.35 30.05 70.30
1997-98 182.27 31.18 151.09
1998-99 255.09 38.04 217.05
1999-2000 355.97 43.68 312.29
2000-01 459.01 57.73 401.28
Total 1352.69 200.68 1152.01
Source: * Report of the First Punjab Finance Commission (1995)
** Report of the Second Punjab Finance Commission (2002)

The shortfall in the income from water supply and sewerage charges has been due to a
variety of reasons, such as non-implementation of the recommendations of the FSFC,
especially about revision of tariffs, recovery of user charges by linking it with the hike in
electricity charges and the recovery of expenditure on O&M, billing and collections and
the capital cost of services. The recovery of user charges has not been fully extended to
water supply, sewerage, parking lots and solid waste management and the principle of
full cost recovery has not been adopted for reasons of ‘political populism’ or otherwise.
Recently, Amritsar Municipal Corporation took a retrograde step by passing a resolution
to provide free water supply, putting aside the principle of periodic revision of user
charges recommended by the FSFC.

308
There has been a big gap in the expenditure projected by the FSFC and the actual
expenditure on the provision of services as shown in Table 18. Projected expenditure on
upgradation and maintenance of existing and new assets includes water supply,
sewerage, storm water drainage, sanitation, roads, scavenging, streetlights, slum
improvement, fire services including repayment of loans and existing expenditure of
municipalities.
Table 18
Projected and Actual Expenditure on Provision of Services (1996-97 to 2000-01) (Rs. in
crore)
Year Expenditure on Actual expenditure on Shortfalls
provision of services provision of services (2-3)
projected by the FSFC
(1) (2)* (3)** (4)
1996-97 419.99 261.64 158.35
1997-98 590.15 244.45 345.70
1998-99 736.72 256.93 479.79
1999-2000 926.64 424.63 502.01
2000-01 1114.21 457.16 657.05
Total 3787.71 1644.81 2142.90
Source: * Report of the First Punjab Finance Commission (1995)
** Report of the Second Punjab Finance Commission (2002)

The actual expenditure on provision of services has been much lower than projected by
the FSFC. The Ninth Five Year Plan has ended with a massive backlog of funds needed
for providing urban basic services in Punjab.

Physical Targets and Financial Requirements for Financing Urban Infrastructure

Projected by the Second Punjab Finance Commission

According to the Report of the SSFC (2002) only `47 per cent of expenditure on
operation and maintenance of water supply and sewerage schemes is being recovered
by ULBs. In some ULBs the recovery is even less than 25 per cent of O&M expenditure’.
This is so largely because rates of water supply and sewerage charges have not been
revised by most ULBs since March 1993, except in Ludhiana (with effect from 5 April
1999), Jalandhar (with effect from 10 December 1999) and Patiala (with effect from 28
February 2000) Municipal Corporations. The rates continue to be highly subsidized and
vary from municipality to municipality. The rates for yellow cardholders have not been
revised for more than a decade.

The SSFC has worked out the present O&M cost for water supply at Rs. 2.73/- per KL,
though the cost including depreciation and interest is rupees six per KL. The SSFC has
recommended the following targets to recover 100 per cent O&M cost of water supply
and sewerage (Table 19).
Table 19
Targets for Recovery of O&M Costs Projected by the SSFC (2002-03 to 2005-06)
Year 2002-03 2003-04 2004-05 2005-06
Targets for Recovery of 60 80 90 100
O&M Costs (%)

Source: Report of the Second Punjab Finance Commission (2002)

309
The SSFC has recommended that efforts should be made to reduce O&M expenditure to
the extent possible, through economy in energy consumption, proper maintenance of
distribution pipes, privatization of preparation and distribution of bills, and to increase
revenues by checking unauthorized connections. Much of the advantages of tariff
reforms to cover O&M expenses in terms of saving water and preventing wastage will be
lost unless water supply to the consumers is metered.
Table 20 shows estimated the targets for coverage of services and financial
requirements as recommended by the SSFC for the years 2002-03 to 2005-06.
Table 20
Physical Targets and Financial Requirements for O&M and
Creation of New Assets Projected by SSFC (2002-03 to 2005-06) (Rs. in crore)
Particulars Targets for coverage by Financial requirements for O&M and creation
the year 2005-06 of new assets from 2002-03 to 2005-06
Without escalation With escalation
(@7 % per annum)
Water Supply 85%
Sewerage 70% 642.00 728.29
Sewage Treatment Amritsar, Patiala, 166.61 189.62
Plants Gobindgarh, Rajpura,
Batala, Bathinda and
Malerkotla
Solid waste 100% 138.08 162.25
management
Solid waste Four corporation towns 87.85 103.25
treatment plants and a few class I & II
Towns
Storm water For corporation towns 291.50 342.20
drainage only
Roads & Streets 100% 586.44 689.04
Street lights 100% 270.76 318.16
Surface drainage 100% 187.81 220.71
Sanitation 100% 655.56 770.56
Other services -- 117.84 138.44
Grand Total 3144.45 3662.52
Source: Compiled from the Report of the Second Punjab Finance Commission (2002)

The suggested targets for provision of services seem to be on the lower side. The task
is challenging, as the accumulated backlog of developmental works, especially water
supply, sewerage and solid-waste management (including treatment) need massive
investments. Management and handling of municipal solid waste to comply with
Municipal Solid Wastes (Management and Handling) Rules, 2000, also require huge
investments.
The success of the New Economic Policy and the objectives of the state government to
increase economic growth and quality of life in urban areas, is critically contingent on a
strong urban infrastructure and service support. Adequate provision for these services is
essential to ensure creation of an environment-friendly, sustainable urban infrastructure
for the citizens. In this perspective, the objectives should be to achieve the targets in the
next five years in respect of core services in urban areas of Punjab as shown in Table
21. The estimates of likely expenditure on these services for the period 2002-03 to 2006-
07, taking into account the escalation in cost, have been prepared in consultation with
the Local Government Department and the Punjab Water Supply & Sewerage Board.

310
 Table 21
Physical Targets and Financial Requirements for Water Supply, Sewerage, Solid Waste
Management and other Infrastructure Services from 2002-03 to 2006-07 (Rs. in crore)
Particulars Target of Financial requirements
coverage 2002- 2003- 2004- 2005- 2006- Total
(%) by the 03 04 05 06 07 (2002-03
year 2006- to 2006-
07 07)
Water supply 100 106.0 111.0 121.0 122.0 122.0 582.0
Sewerage 100 210.0 270.0 310.0 380.0 440.0 1610.0
Drainage 25 63.0 81.0 93.0 114.0 132.0 483.0
Sewage treatment 100 168.0 168.0 168.0 168.0 171.0 843.0
Plants
Solid waste
Management
(a) Extension and
augmentation of
collection and 100 20.0 20.0 20.0 20.0 25.0 105.0
transportation
(b) Treatment and
disposal 100 25.0 25.0 25.0 25.0 25.0 125.0
O&M of water
supply & 167.5 171.0 174.0 177.5 187.0 877.0
sewerage system
Roads & Streets 100 140.0 140.0 140.0 140.0 140.0 700.0
Street lights 100 60.0 60.0 60.0 60.0 60.0 300.0
Fire services 100 35.0 35.0 35.0 35.0 35.0 175.0
Parks, gardens, - 40.0 40.0 40.0 40.0 40.0 200.0
urban forestry,
parking and bus
stands etc.
Grand Total - 1034.5 1121.0 1186.0 1281.5 1377.0 6000.0

Source: 1) Punjab Water Supply and Sewerage Board (2002)

2) Local Government Department, Punjab
3) CRRID Projections

The estimated investment to cover the total population with water supply, sewerage,
solid waste management, roads, street lights is Rs. 1,034.5 crore in the first year, i.e.,
2002-03. The total funds needed for investment from 2002-03 to 2006-07 have been
estimated at Rs. 6,000.0 crore.

Projection of Income and Expenditure of Urban Local Bodies

The projected income, expenditure and resource gap of ULBs for the next five years,
i.e., 2002-03 to 2006-07, is presented in Tables 22, 23 and 24 respectively.

311
 Table 22
Projected Income of Urban Local Bodies from 2002-03 to 2006-07
Components of the Estimates* Projections (Rs. in crore)
Income
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
1. Tax revenues
a) Octroi 531.72** 584.89 643.38 707.72 778.49 856.34
b) Property tax 66.64 83.3 104.13 130.16 162.7 203.37
c) Share from auction 60.99 65.26 69.83 74.72 79.95 85.54
money & excise duty
on liquor
d) Others 3.5 3.85 4.24 4.66 5.12 5.64
e) Total (a+b+c+d) 662.85 737.3 821.58 917.26 1026.26 1150.89
2. Non-tax revenues
a) Water supply & 59.62 74.53 93.16 116.45 145.56 181.95
sewerage changed
b) Others including capital 112.12 123.33 135.67 149.23 164.15 180.57
receipts
c) Total (a+b) 171.74 197.86 228.83 265.68 309.71 362.52
3. Revenues from own
sources
Total (1e+2c) 834.59 935.16 1050.41 1182.94 1335.97 1513.41
4. Share from taxes as
per recommendations of -- 72.36 77.80 83.77 90.34 100.40
the SSFC
5. Grants
a) As per
recommendations of
10.95 10.95 10.95 10.95 10.95 10.95
11th Finance
Commission
b) For Centrally sponsored
and State Plan 23.25 23.25 23.25 23.25 23.25 23.25
schemes
c) Others 2.4 2.64 2.9 3.19 3.51 3.86
d) Total (a+b+c) 36.6 36.84 37.10 37.39 37.71 38.06
6. Total Revenue 871.19 1044.36 1165.31 1304.10 1464.02 1651.87
(3+4+5d)
Source: *Local Government Department, Punjab
Note: 1) **Revenue from octroi for the year 2001-02, includes grants of Rs. 140.51 crore
against the loss, on account of abolition of octroi (1 December 2001 to 31
March 2002)
2) Growth rates for projections (in percentage):
a) Octroi 10
b) Property tax 25
c) Share from auction money and excise duty on liquor 7
d) Water supply and sewerage charges 25
e) Others including capital receipts 10

312
 Table 23
Projected Expenditure of Urban Local Bodies from 2002-03 to 2006-07
(Rs. in crore)
Components of expenditure Estimates* Projections
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
1. General administration 39.98 40.64 43.48 46.53 49.78 53.27
2. Tax collection 52.24 55.00 55.00 55.00 55.00 55.00
3. Provision of services 530.31 609.86 701.33 806.54 927.52 1066.64
4. Debt servicing
a) Interest 2.70 4.70 4.70 4.70 4.70 4.70
b) Repayment of principal 7.17 8.50 8.50 8.50 8.50 8.50
c) Liabilities of old loan - - - 7.00 17.50 31.50
d) Total (a+b+c) 9.87 13.20 13.20 20.20 30.70 44.70
5. Miscellaneous 150.10 165.11 181.62 199.78 219.76 241.74
Total Expenditure
(1+2+3+4d+5) 782.50 883.81 994.63 1128.05 1282.76 1461.35
Source: *Local Government Department, Punjab.

Table 24
Projection of Resource Gap from 2002-03 to 2006-07 (Rs. in crore)
Particular Years Total
2002-03 2003-04 2004-05 2005-06 2006-07
Total income of ULBs 1044.36 1165.31 1304.10 1464.02 1651.87 6629.66
Total exp. of ULBs 883.81 994.63 1128.05 1282.76 1461.35 5750.60
Surplus 160.55 170.68 176.05 181.26 190.52 879.06

Table 24 projects a surplus for the next five years, but this alone cannot meet the
requirement of funds by ULBs for financing urban infrastructure. Therefore, gigantic
efforts are needed to raise funds to finance basic urban infrastructure for the entire
urban population to make cities livable.

Strategic Planning for Financing Basic Civic Services and Urban Infrastructure

Broad contours of reforms in non-tax sources, as discussed below, will enable additional
generation of resources as also direct and indirect cost recovery. The Local Government
Department should improve buoyancy of existing taxes and use tools of resource
mobilization to finance urban infrastructure. The following steps can improve pricing and
cost-recovery of water supply and sewerage and improve fiscal health of ULBs:

• Metering of water supply, as it will be fair and equitable to both providers and
consumers.
• Rationalization/revision of water supply and sewerage charges linked with
electricity tariff.
• Detection of arrears and charging interest on delayed payments.
• User charges should cover all civic services that qualify for levy of user charges.
• Involvement of citizens in fixation of tariffs, checking misuse of services including
detection of thefts.

313
These objectives can best be achieved through strong political will, peoples’ participation
and better use of information technology, i.e., computerization of billing and collection,
creation of database and display of all important information/events on websites.
According to the India Infrastructure Report (NCAER 1996) ‘cost minimization needs
appropriate technology, proper attention on maintenance, curbing misuse of services
and efficient service provisions’. Technological innovations in water supply, sewerage
and solid waste management can promote low cost options and commercial viability of
the projects. Recycling of water and re-charging/conservation of rainwater should be
promoted.

There is tremendous scope for private sector participation (PSP) in infrastructure

development and delivery of services. PSP can help in developing commercially viable
projects and ensure efficient provision/delivery of services, customer satisfaction, pricing
and cost recovery. LMC has succeeded successful in mobilizing resources and
upgrading the level and quality of environmental infrastructure through public-private
partnership. The practices adopted by LMC need to be implemented by other
municipalities as well.

Additional Resource Mobilization for Financing Urban Infrastructure

The financial targets for providing the projected basic civic services could be achieved
by revising the existing tariffs and recovery of 100 per cent cost of O&M of water supply
and sewerage in the next five years. This will create confidence among national and
international investors. Revision of water supply and sewerage tariff will generate
additional revenue of Rs. 20 crore per annum. Punjab could take the clue from ULBs of
other states with higher rates of water supply and adjust its own rate structure on the
pattern of such cities as Jaipur, Chandigarh, Bangalore and Chennai, etc., as shown in
the Table 25.

314
 Table 25
Water Tariffs in Selected Cities of India* (1998-99)
Cities Metered rates (Non-slab) Unmetered flat rates Metered slab rates
(In Rs/KL/Month) (In Rs./Year) (In Rs./KL/ Month)
Domestic Non - Industrial Domestic Non – Industrial Domestic Non-domestic Industrial
domestic domestic
Vishakhapatnam 5.00 - 12.00 480.00 - - - - -
Madurai 5.00 - 20.00 240.00 - 3360.00 - - -
Hyderabad 3.50 15.80 - 480.00 - - 55.00-up to15KL - -
3.75-15-25 KL
6.00-25-50 0KL
Ahemedabad 3.00 - - - - 25-30% of - - -
ARV
Pune 2.50 12.00 - - - - - - -
Bangalore - - 60.00 - - - 65.00 (minimum) 33.00 upto 10 KL -
3.50 upto 25 KL 39.00-10-20 KL
7.00-25-50 KL 44.00-20-40 KL
19.00-50-75 KL 51.00-40-60 KL
26.00-75-100 KL 57.00-60-100 KL
60.00 above 100 KL
Chennai - - - 600.00 - 4800.00 2.50 upto 10KL - 25.00 upto 500 KL
10.00-10-15 KL 40.00- above 500 KL
15.00-15-25 KL
25.00-above 25 KL
Bhopal - - 8.00 720.00 - - - - -
Jaipur - - - - - - 1.56 upto 15 KL 4.68- upto 15 KL 11.00- upto 15 KL
3.00-15-40 KL 8.25-15-40 KL 13.75-15-40 KL
4.00 above 40 KL 11.00- above 40 KL 16.50 above 40 KL
Chandigarh** _ 9.00 11.00 _ _ _ 1.75 upto 15 KL _ _
3.50- 15 –30 KL
5.00-30-60 KL
6.00 above 60 KL
Source: 1) * National Institute of Urban Affairs (2001), Urban Water Supply and Sanitation: Status and Investment Implications, NIUA, New Delhi
2) **Municipal Corporation of Chandigarh (August 2002)

315
The slab system is equitable as it takes care of the poorer sections of the society who
consume lesser quantities of water. Property tax reforms suggested in the previous
section will yield an additional income of Rs. 30 crore per annum. Fees and rents
constituting non-tax revenue are low and even the nominal cost of rendering these
services are not recovered. Rationalization of fees and rents is estimated to yield an
additional income of Rs. 10 crore per annum. The breakup of additional resource
mobilization is given in Table 26.
Table 26
Additional Resource Mobilization by Urban Local Bodies
Revision of tariff on user charges Rs. 20 crore per annum
Increased income from property tax Rs. 30 crore per annum
Enhanced recovery from fees and rents Rs. 10 crore per annum
Total additional income Rs. 60 crore per annum

This will strengthen the fiscal capability of ULBs and will help to raise finances form the
capital market. The proposed financing of implementing projected urban infrastructure
and services is given in Table 27.

Table 27
Proposed Financing of Projected Urban Infrastructure and Services
Contribution by urban local bodies Rs.150 crore per annum
Transfer from the Punjab Infrastructure Development Rs.75 crore per annum
Board (On the pattern of transfer to Public Works
Department (PWD)/Bridges and Roads (B&R) and
Irrigation Department)
Earmarked contribution by the State Government out of Rs.75 crore per annum
devolution of funds
Total Rs.300 crore per annum

Financing urban infrastructure and basic services requires Rs. 6,000 crore, i.e., an
average investment of Rs. 1,200 crore per annum. With an additional resources of Rs
300 crore on account of improved fiscal performance by the municipalities, consequent
upon reimposition of octroi, upward revision of tariffs and user charges, PT reforms,
better tax administration and economy in expenditure supported by political will, it is
possible to raise Rs. 900 crore per annum from national and international capital
markets. Rating agencies will give a good rating to raise tax-free municipal bonds.
Institutions such as LIC, General Insurance Corporation (GIC), HUDCO, Industrial Credit
and Investment Corporation of India (ICICI) and Infrastructure Leasing and Financial
Services (IL&FS) too will support commercially viable projects. A part of the assured
income of ULBs could be dedicated to the escrow account to assure timely payment of
principal and interest, to enhance the confidence of the investors in municipal debt
instruments.

A project report based on the above parameters, including cash flow statements, to meet
the requirements of rating agencies and lenders should be prepared by a group of
professionals. The project report should be acceptable to lenders for subscribing to the
tax-free bonds/loans in suitable tranches, for raising funds through private placement
from the capital market. The ‘aims and objects’ of raising the funds would be attractive,
being developmental, covering the entire community including the poor and the
deprived.

316
Municipal Bonds for Financing Urban Infrastructure

‘Municipal Bonds’, as an instrument to finance urban infrastructure, is relatively a new

concept in India. This mode of accessing the capital market on the strength of
commercially viable projects took its birth in the mid-nineties. The New Economic Policy
(NEP) along with liberalization and structural adjustments has led to search for an
alternative system of financing infrastructure development.

There is concern today for promoting efficient use of resources, which traditionally
comprised subsidies, grants and loans. This system of financing could not make the
municipal administrators proactive in rationalizing tariffs for ‘user charges’, to put in place
an effective system of cost recovery. Availability of funds for the development of urban
infrastructure and services from traditional sources is presently unthinkable. All this has
culminated in a change of mindset for accessing the capital market by issuing municipal
bonds. Till date, the cities of Ahemedabad (twice), Nagpur, Nasik, Indore, Ludhiana,
Bangalore, Madurai and Hyderabad have accessed the capital market for raising funds
through municipal bonds as shown in Table 28.

Table 28
Access of Municipal Bond Market in India by Municipal Corporations
Name of municipalities Year of Size of issue Government Credit
issue (Rs in crore) guarantee rating
Ahemedabad Municipal 1998 100.0 NO AA (SO)
Corporation
Bangalore Mahapalika 1997 100.0 NO A (SO)
Ludhiana Municipal 1999 17.8 NO AA (SO)
Corporation
Nasik Municipal Corporation 1999 100.0 NO AA (SO)
Nagpur Municipal Corporation 2000 50.0 NO AA- (SO)
Madurai Municipal Corporation 2001 30.0 NO A +(SO)
Indore Municipal Corporation 2001 10.0 Yes N.A
Ahmedabad Municipal 2002 100.0 NO AA (SO)
Corporation
Hyderabad Municipal 2002 82.5 NO AA+(SO)
Corporation and
LAA+(SO)
Source: Gangadhar Jha, (2002): Development of Municipal Bond Market in India, NIUA, New
Delhi

The Government of India has permitted raising of tax free bonds by city governments, for
structuring commercially viable/bankable projects and for developing a long-term debt
market. The Union Finance Ministry permitted raising tax-free municipal bonds upto Rs.
200 crore in 2001-02. This amount has been increased to Rs. 500 crore in 2002-03.
HUDCO has created a fund for project development and restructuring, for participation in
the emerging bond market. The success of raising funds from the capital market is
contingent on the internal financial strength, which will enable city governments to obtain
investment-grade credit rating, for accessing the capital market and service the debts
thus raised.

Financing of urban infrastructure through credit rating calls for certain reforms. The
accounting system has to be such that it throws light on the basic parameters of financial
strength and performance of city governments. Some states, notably Tamil Nadu, have

317
switched over to a new accrual-based double-entry accounting system for municipal
governments. Other measures include tax reforms, effective tax administration,
rationalization of user charges, effective billing and collection, asset management and
upgrading professional skills of municipal staff through extensive training.

There is need to raise low cost resources to bridge the backlog of infrastructure services.
To achieve it Tamil Nadu Urban Development Fund (TNUDF) raised Rs. 110.05 crore
from the capital market on the basis of LLA + (SO) rating. TNUDF has so far approved a
number of projects costing Rs. 669.60 crore, comprising such core amenities as
improvement of sewerage, storm-water drainage, sanitation, solid waste management
services and augmentation of water supply. Financial institutions at the national level,
such as ICICI, IDFC, IL&FS and HUDCO are important partners of the Fund. TNUDF
was able to obtain a loan also from the International Bank for Reconstruction and
Development (IBRD), linked to performance criteria. Based on this support, the it floated
the first non-guarantee unsecured bonds in the capital market, issued by a financial
intermediary with urban municipal cash flow as its base. Financial institutions,
commercial banks and insurance companies are the major subscribers to the bond
issue. This was part of TNUDF’s efforts to position itself as a pooled financial agency for
the smaller ULBs for providing funds for urban infrastructure on a long-term basis.
Lenders to the municipalities are provided escrow cover to ensure repayments (TNUDF
2001).

Punjab Infrastructure Development Board (PIDB), responsible for overall development

planning, policy formulation, regulation and single window approvals for infrastructure
development in the state, was established under the Punjab Infrastructure Development
Act, 1998. It provides for the establishment of Punjab Infrastructure Initiative Fund to
accelerate the development of infrastructure in Punjab. A cess of one per cent on the
sale of petrol/diesel and agricultural produce, except fruits, vegetables and pulses, is
credited to Punjab Urban Development Fund (PUDF). In 2000-01, PIDB raised Rs. 300
crore through private placement of bonds rated by Investment Information and Credit
Rating Agency (ICRA) as ‘LA (SO)’, indicating adequate safety and timely payment of
interest and principal. For this, the Punjab Government gave an irrevocable guarantee
for repayment of principal and interest thereon till maturity. The repayment has been
ensured through escrow mechanism. The existing financing pattern of PIDB indicates
that funds raised by it through infrastructure-cess and bonds have not been used for
urban infrastructure, which comprise water supply, sewerage disposal and treatment,
municipal roads, street lighting, solid waste management, parks and urban mass transit
system. This requires immediate intervention.

The other innovative entities are West Bengal Municipal Development Project,
Karnataka Municipal Development and Urban Infrastructure Projects, Mumbai Urban
Infrastructure Development Project, Rajasthan Urban Infrastructure Development
Project, Preparatory Technical Assistance for Calcutta Municipal Environmental
Improvement Programme and National Urban Environmental Infrastructure Fund. All
these projects/ funds have essentially a common denominator, such as assistance from
the World Bank, Asian Development Bank (ADB) or other international funding agencies
and the local capital market, for raising funds for the improvement of the quality of urban
life including the poor.

The Finance Minister, Government of India, in his budget speech (2002-03) observed,
‘we are aware of the sad plight of most of our towns and cities. This needs to be

318
changed if they have to act as engines of growth, and if they are to provide a healthy
environment for our citizens. Hence, we can no longer afford to delay reforms in this
sector.’
The Local Government Department should look for assistance from the World Bank,
ADB and other international agencies, by structuring viable and bankable projects
through escrowing a portion of the income of ULBs for credit enhancement and giving
confidence to investors. There is need to create a pooled financing mechanism in
Punjab to enable ULBs, especially in the small and medium towns, as in Tamil Nadu, to
raise funds for financing urban infrastructure.
The India Infrastructure Report (NCAER 1996), in its chapter on Urban Infrastructure,
has recommended that ‘a state level Regulatory Body be set up to monitor quality of
services provided and price charged’. It is incumbent on the state to create a strong
regulatory mechanism, to promote PSP in project development, its financing, pricing and
cost recovery (user charges) and quality control. Regulatory measures are also
important for long-term contracts, leases and concessions. The regulatory mechanism
should be independent, so that it is not influenced by short-term populist measures of
political parties for electoral interests.
The regulatory mechanism has assured significance with the implementation of the New
Economic Policy, characterized by liberalization and privatization. The Local Self
Government Department should draw up a legislative proposal, so that the proposed
regulatory body can determine and suggest suitable/viable options of public-private
sector participation in infrastructure financing, delivery of services and pricing and cost
recovery. Regulated PSP promotes competitiveness and improves quality of services.
The charges and rates of services fixed by the regulatory mechanism, after hearing the
consumers and other stakeholders, will create confidence in their authenticity and the
utilization of the revenue earmarked for development projects for the benefit of the
persons paying these charges. The regulatory mechanism will be able to identify
various types of risks in PSP projects and the inefficiencies of the organization providing
and delivering the services. The result of such an exercise would be that the consumers
would not have to pay for inefficiencies at different levels.

PRIVATE SECTOR PARTICIPATION AND PEOPLE’S INVOLVEMENT IN MUNICIPAL

AFFAIRS AND URBAN DEVELOPMENT

Urbanization in Punjab is expected to accelerate in the current decade on account of

economic reforms, industrialization, commercial growth and consequent migration to
cities for employment. It will create a demand for efficient urban infrastructure. ULBs and
other public agencies are unable to provide an adequate level of infrastructure
conforming to established standards and norms, due to lack of financial resources, poor
tax base and age-old technologies. There is pressure on city governments for
augmentation of infrastructure services.

The fiscal stress and inability to recover the full cost of services by city governments do
not permit them to even maintain the existing level of services, let alone augment them.
Therefore, PSP and peoples’ involvement in municipal affairs acquire importance for
enhancing the fiscal capacity of ULBs to provide adequate infrastructure services and
reduce expenditure on service delivery.

319
Private Sector Participation

PSP is a potential option to cope with the challenges of growing needs of financing
urban infrastructure. The volume of investment required for removing the backlog and
also for augmentation of services is massive. This gap can be met through PSP, which
may take the form of total privatization, or contracting-out, or public-private partnership.
PSP will bring much needed resources, new technology, enhance efficiency and ease
budgetary constraints. The private sector frequently acts as a contractor to build
infrastructure facilities and sometimes operates and manages them. Now, a growing
pool of domestic and international private finance is available for investing in
commercially viable urban infrastructure projects, lack of which has been a serious
constraint for accessing the capital market. It is expected that PSP can establish
sustainable partnership between the public and private sectors. The community will
benefit through PSP, as it brings in management efficiency, quick and effective decision-
making and capacity-building for more efficient delivery of services leading to greater
consumer satisfaction.

PSP can help in off-loading the financial, functional, administrative and managerial
burdens of ULBs. It can also help in augmenting and maintaining rapidly expanding
urban infrastructure services. A study of LMC by Gupta and Teotia (2001) shows that the
involvement of PSP in municipal affairs, especially in the collection, preparation and
distribution of bills, and operation and maintenance of tube wells, has improved
efficiency, along with reduction of administrative and overhead expenses and improved
delivery of services.

Hyderabad Municipal Corporation has gone for PSP for its solid waste management
services. About 60 per cent of the total work has been contracted out and work has been
divided into ‘day units’ and ‘night units’. This has improved sanitation, resulted in an
enhanced role of the community and increased participation of citizens (IHS-India 2002).

Two promising PSP projects in water supply and sanitation are the Tirupur Water Supply
and Sewerage Project and a recent initiative to provide water supply to three medium-
sized towns in Karnataka by a joint venture company. The Tirupur Project is the first
water supply and sewerage project to be structured in a commercial format. It is also the
first to use ‘index-based user charges’ and direct cost recovery for urban environmental
services. The ‘water purchase-guarantee’ provided by the beneficiary group and equity
participation by the Build-Operate-Transfer (BOT) operator are some of the good
aspects of this partnership model (Mathur 2001).

Alandur Municipality has contracted out a sewerage project to a private sector operator,
to augment its network, construct pumping houses and sewage treatment plants. Out of
the investment of Rs. 45 crore, Rs. 13.2 crore will be provided by TNUDF as a loan.
Loans from other financial institutions and internal sources of Alandur Municipality from
connection charges and sewerage charges are financing the project. Alandur Project is
unique in the sense that it is the first attempt to involve the community. The progress of
the project is reviewed on a monthly basis through public meetings. Its success is
assured as the community is responsive and the Government of Tamil Nadu is
supportive of Alandur Municipality.

Rajkot Municipal Corporation has contracted out maintenance of streetlights, solid waste
removal and transportation, cleaning of public toilets, maintenance of gardens and fire

320
stations. Pali (Rajsthan) Municipal Council has entrusted the maintenance of streetlights
to the private sector. The City and Industrial Development Corporation (CIDCO), a public
sector institution in New Mumbai, has had a successful experience with privatization,
which included maintenance of sewerage pumps and water pumps, meter reading and
billing, maintenance of parks and gardens and collection of service charges. The
Karnataka Water Supply and Sewerage Board (KWSSB) has handed over O&M and
augmentation of water supply and sewerage system of four cities, namely, Belgam,
Hubli, Dharwad and Mysore to a UK-based private company. It will first reduce
unaccounted water-use and improve operational efficiency and then arrange finance for
new investments. The KWSSB has introduced an innovative pricing structure in which
water charges are linked with O&M expenditure and debt servicing (IHS-India 2002).

Private companies have assured the Municipal Corporation of Delhi (MCD) a minimum
toll tax collection of Rs. 1 billion per annum as compared to Rs. 0.57 billion collected by
MCD, out of which about 30-40 per cent is establishment cost, resulting in a net income
of less than Rs. 0.4 billion. A South African company has been entrusted the task of toll
tax collection for NOIDA Toll Bridge, which is an exemplary infrastructure project
completed with the help of PSP (Urban Finance 2002). Surat Municipal Corporation
(SMC) has introduced PSP in delivery of municipal services especially solid waste
collection, maintenance of street-lights, construction of roads, tree planting and
operation of water treatment plants. This, along with other innovative urban management
practices, has considerably improved the environmental conditions of Surat. Several
states, such as West Bengal, Maharashtra, Rajasthan, Andhra Pradesh, Haryana and
Madhya Pradesh too have introduced privatization in the delivery and expansion of
municipal services and infrastructure development.

There is need to expand the scope of PSP to attract investment in large- and medium-
size infrastructure projects. Municipalities in small and medium towns can raise
loans/debt from private sector financial institutions, through the ‘pooled financing
mechanism’, for financing their urban infrastructure projects.

The Government of India in its Budget 2002-03, has initiated the following reforms and
sources of funds to promote PSP/ Public-Private Partnership (PPP) in urban/municipal
infrastructure development:

• The Urban Reform Incentive Fund (URIF), with an allocation of Rs. 500 crore to
provide reform-linked assistance to states. Apart from assisting other areas it
seeks to provide incentives to reforms through initiation of PPP in the provision of
civic services.
• A City Challenge Fund (CCF) has been established to support cities by funding
transitional costs of moving towards sustainable and credit-worthy institutional
systems of municipal management and service delivery. It will assist in partial
financing of the cost of developing an economic reform programme and
financially viable projects, to be undertaken by ULBs with the help of the private
sector.
• The Pooled Finance Development Scheme will help credit- augmentation to
assist small ULBs to access market borrowing on a credit-worthy basis.
• The Union Finance Minister has announced that `Public-Private Partnerships will
be encouraged for the provision of infrastructure facilities, the modalities for
which are being worked out by a Task Force’.

321
Such multilateral development banks as the World Bank, (WB) and the ADB have
developed guarantee schemes, to attract international private capital for financing urban
infrastructure projects in developing countries. The WB facilitates access by lengthening
the maturity of related borrowing. This provides ample opportunity for ULBs to go for
infrastructure-related projects with the help of international funding agencies, without the
direct backing of the state government. The WB also issues guarantees for project
financing, under the Extended Co-Financing Facility, to cover sovereign risks associated
with infrastructure projects (IHS-India 2002). This will improve access to international
capital markets and the role of PSP in financing urban infrastructure projects in Punjab.

Punjab can benefit from these reform-linked assistance initiatives by encouraging

PSP/PPP in infrastructure development and financing basic civic services. The FSFC
and the SSFC of Punjab have emphasized privatization of municipal services, tax
collection and infrastructure development activities. The recommendations of the First
and Second State Finance Commissions should be considered seriously and
implemented to pave the way for the involvement of the private sector.

People’s Participation

At present there is no involvement of people, citizen’s organizations and non-

governmental organizations (NGOs) in management of municipal affairs. Active peoples’
participation in infrastructure management, urban development and service delivery can
help ULBs enhance coverage and convergence of services. Evaluation of urban poverty
alleviation programmes in Punjab indicates that their poor implementation is due to lack
of peoples’ participation and of neighborhood groups.

Involvement of local communities has become imperative for the success of urban
development and poverty alleviation programmes, management of municipal affairs and
sustainability of cities. Innovative and best practices in urban development and poverty
alleviation schemes are unlikely to succeed without making the beneficiaries themselves
partners in the implementation. The following area-wise issues for promoting peoples’
participation in providing some of the services and implementing different programmes
need to be addressed seriously.

Water supply: There is little or no partnership of local people in the delivery of urban
water service. Consumers can be actively involved at various levels of the water supply
system. For instance, LMC involved local people in running tube wells through
Neighborhood Tube Well Operators, resulting in economy in municipal expenditure.
This practice can be replicated by other ULBs (Gupta and Teotia 2001). The other areas
of peoples’ participation can be detection of leakages, thefts, water conservation and
quality monitoring. Citizens can be involved in promoting the concept of ‘pricing and cost
recovery’ and principles of ‘user pays’ and ‘polluter pays’. People should be mobilized to
recycle waste water and use harvested rain water for lawn irrigation and other domestic
purposes. According to the Ninth Five Year Plan, financing of drinking water supply
programmes is a crucial issue in urban areas because of the massive investment
required. In this context peoples’ involvement can help to reduce ‘wasteful use’ of water
in day to day domestic activities and expenditure in service delivery, and sensitize
consumers to pay the full cost of water.

322
Sewerage: This is one of the least discussed but one of the most important and
expensive services. It needs active participation of users. Inadequate coverage and poor
maintenance of sewerage systems affect urban environment and health of the local
population. The burden on the sewerage system is increasing due to growth in urban
population and misuse of water facility. Damage of sewerage pipes, throwing of kitchen
garbage and other waste material in sewers is are common phenomena, which needs to
be tackled at the source. People are not aware of the ill impact of an overflowing
sewerage system. They should be involved in ensuring the smooth flow of sewage. This
is possible only if people do not throw non-degradable waste material in sewers and do
not damage sewer lines. The principle of ‘polluter pays’ should be applied and violators
should be brought to book. Dissemination of information to and education of sewer users
can help ULBs to maintain the system efficiently. This will result in economy in
expenditure on O&M of the sewerage system.

Baroda Citizens Council (BCC), a non-governmental organization, works intensively in

30 communities reaching 12,000 families to provide sanitation, shelter improvement,
vocational training, health and education services. BCC became a partner in a slum
networking project for environmental sanitation in Ramdev Nagar in 1994. People
contributed 50 per cent of the cost of construction of community-level infrastructures,
such as shallow-bore sewer, water line and house connections, streetlighting, roads,
community garbage collection and landscaping, and the entire cost of constructing
household toilets and facilities, such as bathing places (NIUA 2001). This shows that the
community, if made a partner in development, can contribute in many ways.

Solid waste management: Peoples’ participation in solid waste management (SWM) in

urban areas is almost non-existent. It is considered the sole responsibility of ULBs and
peoples’ attitude towards it is negative. At present they are not aware about
environmental, social, economic and health implications of poor waste management.
ULBs suffer from financial, technical and human resource constraints in efficiently
managing solid waste. Inadequate waste management in urban areas is due to lack of
peoples’ involvement in solid waste management. The CRRID study (Gupta and Teotia
2001) indicates that LMC involved people in upgrading sanitation services and
successfully implemented the ‘Mohalla Sanitation Scheme’ for efficient management of
waste. The scheme has effected economy in municipal expenditure on sanitation and
improved environmental conditions in the city. This practice should be replicated in other
cities to ensure peoples’ participation in SWM and environmental improvement of
neighbourhoods in urban areas.

NGOs like EXNORA in Chennai, Sristhi in Delhi, Muskan Jyoti Samiti (MJS) in Lucknow,
Urban Community Development (UCD) project in Pune, Surat Citizens Council (SCC) in
Surat and Baroda Citizens Council (BCC) in Baroda have demonstrated that peoples’
participation can dramatically improve sanitation in the neighbourhoods and promote
compliance to user charges. The dramatic transformation of Surat into a clean and
green city has been possible due to the combined efforts of the Surat Municipal
Corporation and the local people, whose aspirations for a clean city have been a
compelling factor in this change. The SCC, a citizen’s forum, is reported to be working
on a scheme to recruit responsible citizens to function as watchdogs to ensure that the
reforms continue (NIUA 2001). This has reduced expenditure of ULBs on SWM.
Involvement of citizens has to be ensured in segregation of waste at source, its
collection and transportation, creating awareness about the impact of littering, pricing
and cost recovery, better handling of waste at home and outside. City governments need

323
to evolve a comprehensive plan to involve local people in sanitation and other urban
environmental infrastructure schemes.

Urban poverty alleviation: The major cause of the slow progress of urban poverty
alleviation schemes has been lack of involvement of local people and absence of
convergence of different support systems. The Swarna Jayanti Shahiri Rozgar Yojana
(SJSRY), a modified scheme after the amalgamation of Urban Basic Services for the
Poor (UBSP), Nehru Rozgar Yojana (NRY) and Prime Minister’s Integrated Urban
Poverty Eradication Programme (PMIUPEP), is based on development of community-
based organizations aimed at improving the quality of life of the urban poor, by not only
providing them with the opportunity of self-employment through subsidized loans, but
also by improving prospects of wage employment. But the urban poverty alleviation
programmes have been slow in taking off due to non-involvement of the urban poor in
the formation of Community Based Organizations (CBOs) like Community Development
Societies (CDSs), Neighbourhood Committees (NHCs) and Neighbourhood Groups
(NHGs) as observed in the study conducted by the Institute for Development and
Communication (IDC) on urban poverty alleviation in Punjab. Local citizens, CBOs,
NGOs and other Self Help Groups (SHGs) are important stakeholders and ULBs should
evolve partnership relations with them to make poverty alleviation programmes
successful.

Slum improvement: Slum improvement programmes, such as the National Slum

Development Programme (NSDP), being implemented at the grassroot level by NHCs
and CDSs, have failed to provide physical and social amenities, community centres and
housing facilities. It is largely due to the lack of participation of slum dwellers, poor
convergence of sectoral and departmental programmes and non-formation of CBOs.
Active participation of local slum communities through Slum/Neighbourhood Sanitation
Committees, Thrift and Credit Societies and CDSs for the upgradation of physical and
social infrastructure has become necessary for city-friendly development of slums. ULBs
should ensure participation of slum dwellers in slum development activities and poverty
alleviation programmes.

HOUSING

Housing and basic services were generally substandard in pre-partition Punjab. The
problem multiplied after independence, with increased intensity of population in urban
areas. Slum population over the years has grown at a fast pace. This has resulted in
substandard housing and houselessness and lack of minimal basic amenities. Land has
been becoming scarce in cities and its price sky rocketing. This has constrained the
growth of private sector housing. The gap in demand and supply of housing stock has
increased, causing over-crowding in existing housing colonies and formation of new
slums. Growth of public sector housing is not keeping pace with the demand. The
situation is the worst for low-income groups, weaker sections and the Scheduled Caste
population. Since housing is beyond the affordability of the poor illegal encroachment of
government land is common, and there is mushroom growth of unauthorized slum
colonies.

Housing is a state subject, though the central government, through its different
institutions, such as HUDCO, National Housing Bank (NHB), Building Material and
Technology Promotion Council (BMTPC) and National Urban Infrastructure
Development Finance Corporation (NUIDFC) has been making efforts at different levels.

324
Currently, these organizations are striving to improve housing stock and upgrade urban
infrastructure. The state Government earlier through the Housing Board and now from
1995 onwards through Punjab Urban Development Authority (PUDA), is involved in land
development and construction of houses, commercial complexes and shops in cities and
towns of Punjab.
Despite a quantitative increase in the housing stock over successive decades, the
housing situation in Punjab continues to be unsatisfactory. A study conducted by the
Socio- Economic Research Foundation (SERF), New Delhi, for the Ministry of Urban
Affairs and Employment, Government of India, and the Department of Housing and
Urban Development, Government of Punjab, has estimated the shortage of housing in
Punjab. This is shown in Table 29.
Table 29
Estimated Housing Shortage in Urban Areas of
Punjab in 1995, 1997 and 2002
S No. Particulars Shortage in urban areas
1995 1997 2002
1 Projected urban population 66,47,080 69,88,366 78,93,802
(68,08,518) (72,56,857) (85,11,156)
2 Size of household 5.62 5.62 5.60
3 Number of households 11,82,754 12,43,481 14,09,607
4 Total housing stock 12,16,360 12,72,445 14,28,454
5 Number of vacant houses 1,01,201 1,04,086 1,12,562
6 Available housing stock 11,15,159 11,68,359 13,15,892
7 Houses needed for decongestion 93,438 98,235 1,11,359
8 Replacement of unserviceable 3,134 3,295 3,740
kutcha houses
9 Replacement of other houses 29,983 31,522 35,729
in bad condition
10 Allowance for vacancy for covering - - 8,017
Shortages
11 Housing shortages 1,94,150 2,08,174 2,52,560
(3-6) +7+8+9+10
Source: Study on Preparation of Sectoral Housing Action Plan: Punjab State, SERF,
1996, New Delhi.
Note: Population figures in parenthesis (s. no.1) have been calculated on the basis of
ACGR of urban population of Punjab recorded by the Census of India during
1991 & 2001.

Requirement of funds and land for housing in urban areas during 1995 to 2002,
estimated by SERF, is as below:

Funds Rs. 11,304.18 crore

Land 5,012.76 hectares

Out of Rs. 11,304.18 crore, required for financing urban housing (1995-2002), Rs.
11,087.74 crore was for construction of new houses, Rs. 80.89 crore for structural
upgradation of houses and Rs. 136.55 crore for additions to existing houses. Out of
5,012.76 hectares of urban land required for housing during 1995-2002, 1,065.97
hectares were needed during 1995-97 and 3,946.79 hectares during 1997 to 2002.

Requirements of funds and land, based on the projection of population growth, is on the
lower side. If the actual population growth is considered (as shown in parenthesis in

325
Table 29), which is considerably higher than the projected population, the housing
shortage will go up and so will the requirement for funds and land for housing. Housing,
being a self-help activity, has not received much attention from the public sector. The
state has been engaged in the construction of houses for its employees. Moreover, plan
outlays for housing have not been adequate. Table 30 shows approved plan outlays
and expenditure on housing in Punjab for the Eighth, Ninth and Tenth Five Year Plans.

Table 30
Approved Plan Outlay and Expenditure on Housing Including Police Housing (Rs. in crore)
Plans Approved Percentage Expenditure
outlay of total Actual Percentage of
outlay expenditure total expenditure
Eighth Five Year Plan 229.74 3.50 266.01 4.21

Ninth Five Year Plan 252.85 1.77 148.64 1.34

Tenth Five Year Plan 165.67 0.71 -- --

Source: Ninth and Tenth Five-Year Plans of Punjab, Department of Planning,

Government of Punjab

Table 30 shows that the approved outlay, percentage of total outlay, actual expenditure
and percentage share of housing in total expenditure have declined sharply. It is worth
mentioning that housing has been allocated a negligible amount in the Tenth Five Year
Plan, despite huge requirement of funds and land. The criticality of the situation is that
EWS housing for vulnerable sections is not receiving any attention, as the state
government is involved in construction and maintenance of houses for senior officers,
legislators and guest houses at Chandigarh, New Delhi and district headquarters in
Punjab. Housing for the police force is another priority area, which is siphoning off a
considerable portion of the plan outlay.

The current phase of economic development under the liberalization regime has opened
up new options for financing housing. Such specific instruments as ‘bonds’ can finance
housing and infrastructure services. Institutional finance from HUDCO, NHB, NUIDFC,
LIC and commercial banks is now available without much difficulty, if land is earmarked
and made available by ULBs or PUDA. Disbursements by housing finance institutions
have shown impressive growth.

The following steps have been taken by the Government of India to strengthen the
housing finance mechanism and promote public-private partnership to accelerate the
pace of housing construction, especially for economically weaker sections:

• Hundred per cent foreign direct investment is permitted in urban infrastructure

projects under the Foreign Investment Policy in all major areas of urban
development, such as housing, commercial premises, hotels and resorts.
• Private initiative is welcome in such sectors as water supply, sanitation, public
transport, housing and urban development. Non-Resident Indians (NRIs)/Person
of Indian Origin (PIO)/Overseas Corporate Bodies (OCBs) are permitted to invest
in housing and real estate development upto 100 per cent on a repatriable basis.

326
 • The Government of India is committed to provide investment incentives in the
form of:
§ A ten-year, 100 per cent tax holiday to enterprises responsible for
developing, maintaining or operating water supply, sanitation and
sewerage projects.
§ Interest-income and long-term gains of an approved infrastructure capital
fund or an infrastructure capital company, from investments made in
shares or long-term finance in any enterprise engaged in any area of
infrastructure development, are exempted from tax, subject to fulfillment
of prescribed conditions.
§ The Union Government has set up the URIF with an initial allocation of
Rs. 500 crore, to provide reform-linked assistance to states, incentivise
reforms in rent control laws, simplify the legal and procedural framework
for conversion of agricultural land for non-agricultural purposes and to
revise of bylaws to streamline the process of construction of buildings and
development of sites.
§ Housing has been declared a priority area and government has repealed
the Urban Land (Ceiling and Regulation) Act, 1976. It has already come
into force in Punjab and will release urban land for housing and
infrastructure development.
• The NHB has commenced securitization of housing loans and is operationalizing
foreclosure of mortgages, to strengthen housing finance, It has also decided to
launch a ‘Mortgage Credit Guarantee Scheme’, which would be provided to all
housing loans, thereby fully protecting lenders against default. This will make
housing credit more affordable, thereby increasing access to housing credit to
low income groups.
• As a follow-up of the National Agenda on ‘Housing for All’, the Government of
India formulated the National Housing and Habitat Policy in 1998. It aims at:
§ Creation of surplus in housing stocks either on rental or ownership basis.
§ Providing quality and cost-effective shelter options, especially to the
vulnerable groups and the poor.
§ Removing legal, financial and administrative barriers to facilitate access
to land, finance and technology.
§ Forging strong partnerships between private, public and co-operative
sectors to enhance the capacity of the construction industry to participate
in every sphere of housing and habitat.
§ Using technology for modernizing the housing sector, to increase
efficiency, productivity, energy-efficiency and quality.

The National Housing and Habitat Policy (NHHP) has laid down the role of all
stakeholders, i.e., the Central Government, State Government, public/private housing
finance companies, development authorities, corporate-private-co-operative sectors and
research and technology transfer organizations, to achieve the goal of ‘shelter for all’.

It is in the context of the above reforms, supporting housing projects, that the Punjab
Government should benefit from reform-linked assistance from the Union Government.
Efforts should be made to conform to the objectives set by NHHP. Since the Union
Government is committed to provide support in the form of equity contribution,
concession/incentives and a transparent regulatory mechanism, the State Government
should remove all legal, administrative and regulatory barriers to access to housing

327
finance, construction and land development. It should declare housing a priority area in
the annual plans.

The present situation indicates that HUDCO, Housing Development and Financial
Corporation (HDFC) and the nationalized banks are not helping vulnerable groups
adequately for housing activities and the housing backlog is increasing every year.
Urban infrastructural requirements, particularly land assemblage, development of land,
trunk and peripheral services, power, water and sewerage, and agencies and sources of
financing for the next five years, need to be identified and a linkage established with the
institutions concerned to ensure success of the programmes. The private sector has
plenty of money and the state government should tap this buoyant source for financing
housing and urban infrastructure activities.

The state government has constituted PIDB, to act as a nodal agency for implementing
infrastructure and urban development programmes. A PUDF has been created to meet
the needs of finances for urban infrastructure. Punjab Infrastructure Fund Rules, 2001,
and Punjab Infrastructure (Development and Regulation) Act, 2002 are landmark
measures designed to boost infrastructure development activities in the state. The Act
should promote public-private partnership and private-sector participation in
development and operation and maintenance of urban infrastructure, including housing.

The existing institutional set-up does not meet the needs of the houseless population.
Housing is a complex problem and has several dimensions. A good housing project
should have adequate basic services, such as water supply, sewerage, drainage, solid
waste management, electricity and streetlights, etc., and a good location. This requires
co-ordination with several departments and agencies. Therefore, an institutional set-up
should be identified for converging essential activities for supporting and implementing
housing projects. At the district level, ‘Housing Action Plans’ should be prepared with
special focus on houseless urban population and economically weaker sections.

As a follow-up to NHHP, the state government needs to liberalize the legal and
regulatory regime, promote participation of the private sector and co-operatives in
housing, undertake appropriate reforms for easy access to land and empower ULBs to
discharge their responsibilities in regulatory and developmental functions. The role of the
state must be changed from that of a builder to an enabler, or facilitator. Punjab Urban
Development Authority (PUDA) also needs to revamp and redefine its role for facilitating
land-assembly and development of infrastructure. It should move away from direct
construction activity and forge partnerships with the private sector and co-operatives for
housing construction in an efficient manner, by devising flexible schemes to meet the
users’ requirements. The corporates, State and Central Governments, private sector and
co-operatives should work together for land assemblage, construction of housing and
development of amenities. The private sector, co-operatives and NGOs should
collaborate with the state government/PUDA for construction of houses and work out
schemes for slum rehabilitation/reconstruction/development on a cross-subsidization
basis. Finance companies should redefine their role and devise schemes to lend at
affordable rates to those who are in dire need of housing-finance support. Funds could
be mobilized from provident funds, insurance funds and mutual funds to finance housing
activities. Low-cost and locally available material and user-friendly technologies should
be adopted to promote city-friendly and eco-friendly housing construction.

328
Social housing schemes for EWSs and LIGs, under implementation in Punjab with state
plan provision and loan assistance from HUDCO and other financial institutions, should
make housing more affordable for vulnerable groups. The rate of interest should be
brought down to promote housing for the urban poor, including pavement dwellers living
below poverty line (BPL). The Night Shelter Scheme for pavement dwellers, initiated
during the Eighth Plan and modified in 1992, should be revitalized to construct
community night shelters with basic civic amenities. Efforts should also be made to
make the Night Shelter Scheme self-supporting in maintenance.

There is a need to explore the possibility of external assistance for housing projects.
Such organizations as Kreditanstalt fur Wiederaufbau (KfW), IBRD and ADB have
provided loan assistance/grants to HUDCO for construction of houses for economically
weaker sections. Housing, being a capital-intensive activity, needs huge funds. Efforts
should be made by Central as well as State Governments to attract external assistance
from international agencies, as soft loans and grants for housing for underprivileged
sections.

The housing agenda must promote accessibility of the urban poor to housing and basic
amenities. Central and State housing agencies should concentrate on low-cost,
affordable housing for the poor, integration of income generation programmes with
housing activities, easier availability of loans and grants to purchase land and material,
assistance for construction of individual houses, and simplification of legal and
documentation procedures involved in the above activities. Such cities as Ludhiana,
Amritsar, Jalandhar, Patiala, Ferozpur and some other class I and class II towns have a
higher concentration of houseless population, as well as people below poverty line.
These cities and towns need special attention. Slums and squatter settlements should
be given preference and separate housing schemes introduced for people living below
poverty line. A viable credit system should be developed to provide services to informal-
sector housing.

SLUM DEVELOPMENT

There is lack of consensus on a uniform definition of slums. Section 3 of the Slum Areas
(Improvement and Clearance) Act of 1956 has defined slums but the definition is not
comprehensive. The Census of India, 2001, has defined slums as ‘all areas notified as
slums by the state/local government under any Act’, and ‘all areas recognized as slum
by state/local government, which have not been formally notified as slum under any Act’
and ‘a compact area of about 300 population or about 60-70 households or poorly-built
congested tenements, in unhygienic environment, usually with inadequate and lack of
any proper sanitary and drinking water facilities’.

There is mushrooming growth of urban slums in Punjab. This is largely due to shortage
of low-cost housing, high price of land and unabated migration of workforce from rural to
urban areas. Slums present a very dismal picture of an habitat unfit for human
habitation, with or without minimal basic amenities and civic services. They have serious
deficiencies of water supply, sewerage and solid waste management. Physical,
environmental and socio-economic decline is visible in every area of life in the slums.
High levels of air, water and soil pollution affect the health of the slum dwellers as well
as other urban people.

329
The Census of India, 2001, after forming ‘enumeration blocks’ for slums, collected data
from 28 towns (10 class I and 18 class II towns as per 1991 Census), except Mohali,
where no slum pocket was identified. Table 31 shows slum population in Punjab in 2001.

Table 31
Slum Population in Punjab, 2001
Particulars 2001
Population living in slum pocket/areas in the state (in lakh) 11.52
Total population of the 28 towns in which slums have been 58.88
identified (in lakh)
Percentage of slum population of 28 towns to the total population of 19.56
these towns
Percentage of slum population to total urban population of the state 13.97
Percentage of slum population to total population of the state 4.74
Source: Census of India, 2001

Table 31 shows that Punjab has 11.52 lakh slum dwellers. A considerable percentage of
urban people live in slum-like conditions, but have not been included in the overall total
of slum dwellers, as the Census has not considered slums of all the towns. If slums of all
towns were included, the slum population would go up. A Compendium on Indian Slums,
prepared by the Town and Country Planning Organization of the Ministry of Urban
Development, Government of India, has shown higher slum population in Punjab, i.e.,
14.10 lakh (23.60% of the urban population) in 1996.

The National Report on Environment and Development, submitted by the Government of

India to the United Nations Conference on Environment and Development (Rio
Conference), held in 1992, shows that ‘the growth rate of slum population in Indian
cities, largely through continuing migration is significantly faster than that of other
segments of urban population. Indian cities also have very high levels of air and water
pollution’. Poor people settle in slums because of availability of low-cost housing and
transportation close to workplaces. The National Commission on Urbanization (1988) too
states that ‘urban centres have generated the most brutal and inhuman living conditions,
with large sections of the citizens living in squatter settlements. The overcrowding in the
slums and the desperate lack of water and sanitation leads not only to severe health
problems but to abject degradation of human life’ (cited in CMAG Newsletter 2002).
Punjab is no exception to this. In this context, the pace of slums formation and the
enormous numbers involved, make it one of the major challenges for urban policy
makers.

The Central Government, through different legislations, such as Slum Areas

(Improvement and Clearance) Act, 1956, and Urban Land (Ceiling and Regulation) Act
of 1976; schemes/ programmes, such as Environmental Improvement of Urban Slums
(EIUS) of 1992; Integrated Child Development Services (ICDS), 1975; Urban Community
Development Programme, 1979; UBSP, 1990; NRY, 1989; PMIUPEP, 1995; NSDP,
1996; and SJSRY, 1997 are all aimed at eradicating poverty, improving housing and
environmental conditions and upgrading the level of basic amenities and civic services.
The EIUS has not been implemented seriously by the Government of Punjab. This is
reflected in the non-utilization of funds. Out of an approved outlay for EIUS in the Ninth
Plan, as much as Rs. five crore could not be used at all. Only Rs. 1.5 crore could be

330
actually spent on slum improvement projects. The progress of other centrally/state-
funded schemes is equally poor and the slum problem continues to loom large.
Such schemes as NSDP, which is fully funded by the Government of India, have not
been implemented effectively. The NSDP, launched in 1996-97, aims at providing basic
amenities and infrastructure in slum areas of ULBs. Though the Government of India has
so far released Rs. 34.79 crore, only Rs.14.14 crore have been released to SUDA by the
Finance Department of Punjab. The State Government must utilize the full amount
released for NSDP.
The state government, through slum rehabilitation/clearance and resettlement
programmes, has been trying to improve slums. Studies indicate that rehabilitation
schemes have not concentrated on the genuine needs of the slum dwellers. They are
provided plots/houses far from their workplaces and that too without adequate basic
amenities, civic services and transportation facilities. The corporate sector has not
provided adequate housing facilities for their employees and hence poor wages force
them to live in slums. Slum dwellers also have a tendency to sell plots/houses allotted to
them and again come back to the same location or establish new slums at some other
place. There is need to make strict rules to prevent this.

The state government must work to achieve the objectives of Draft National Slum Policy
(NSP). It needs to formulate a well thought-out state slum policy, which could be the
basis for the development of a strategy for slum improvement on a sustainable basis.
The goal of a slum development strategy should be to provide physical and social
amenities, ensure urban poverty alleviation and protection of urban environment. It
should concentrate on the establishment of community-based organizations and
strengthening the municipal support system. ULBs have to play a pivotal role in slum
development and poverty alleviation. Efforts need to be made to promote poor-friendly
urban governance through legislations, regulatory mechanisms, monitoring and
transparency, with the active participation of the slum dwellers and other stakeholders.
The convergence of sectoral and departmental schemes on housing, urban
development, poverty alleviation, education, health, self-employment and wage-
employment is important to achieve the objectives of the Draft National Slum Policy and
the proposed state slum policy.
The state government should make efforts to attract financial assistance/grants from
such international agencies as the United Nations Centre for Human Settlements
(UNCHS), which focuses on upgradation of habitat, housing and environment in urban
areas; IHS (Netherlands); United Nations Children Education Fund (UNICEF), working
for the welfare of women and children in urban areas; USAID; Ford Foundation; City
Alliance; World Bank; Department for International Development (DFID, UK) focusing on
capacity-building of city managers, reform of financial institutions and expansion and up-
gradation of urban environmental infrastructure; and such research networks as the
International Group on Law and Urban Space (IRGLUS), working for tenure-security
and related issues in urban areas.
URBAN POVERTY ALLEVIATION

Poverty is a multidimensional and multifaceted problem that represents deprivation in its

starkest form. James D. Wolfenshon, President of the World Bank, has rightly pointed
out that, ‘Poverty amid plenty is the world’s greatest challenge’ (World Development
Report 2000-01: Attacking Poverty). The Working Group on Urban Poverty, appointed by

331
the National Commission on Urbanization (1988), observed that, ‘the most demanding of
urban challenges, unquestionably, is the challenge posed by urban poverty; the
challenge of reducing exploitation, relieving misery and creating more humane
conditions for working, living and growth for those disadvantaged people who have
made the city their home already or are in the process of doing so. The task of
adequately feeding, educating, housing and employing a large and rapidly growing
number of under-nourished, semi-literate, semi-skilled, underemployed and
impoverished city dwellers who are living on pavements, in poorly serviced chawls, in
unhygienic slums, in illegal squatters and other forms of degraded and inadequate
settlements and who are struggling to make a living from low paying and unstable
occupations, in a reasonable time span is the essence of development challenge facing
the Indian planners today‘. (Cited in Sabir Ali, 2000).
According to the Economic Survey of Punjab (2000-01), ‘poverty, in a broad sense does
not refer to deprivation with reference to a minimum basket of goods and services that
are essential for existence, it also includes socially perceived deprivation with respect to
individual basic needs like shortfalls in health and education, inadequacy of shelter and
deprivation associated with rigidities in social stratification’.
Measurement of Absolute Poverty in Punjab

The poverty line is a measure of absolute poverty and the Planning Commission of India
(PCI) estimated state-specific poverty lines using their original identification by the
Lakdawala Committee and updating them to 1999-2000 prices using the Consumer
Price Index of Industrial Workers (CPIIW) for urban households and Consumer Price
Index for Agricultural Labourers (CPIAL) for rural households. The poverty line of Punjab
and some selected states is given in Table 32.
Table 32
State-specific Poverty Line in 1999-2000 (Rs. per capita per month)
State Rural Urban
Andhra Pradesh 262.94 457.40
Assam 365.43 343.99
Bihar 333.07 379.78
Gujarat 318.94 474.41
Haryana 362.81 420.20
Himachal Pradesh 367.45 420.20
Karnataka 309.59 511.44
Kerala 374.79 477.06
Madhya Pradesh 311.34 481.65
Maharashtra 318.63 539.71
Orissa 323.92 473.12
Punjab 362.68 388.15
Rajasthan 344.03 465.92
Tamil Nadu 307.64 475.60
Uttar Pradesh 336.88 416.29
West Bengal 350.17 409.22
Delhi 362.68 505.45
All India # 327.56 454.11
Source: Planning Commission of India, New Delhi
Note: # The poverty line (implicit) at all-India level is worked out from the expenditure
class-wise distribution of persons and the poverty ratio at all-India level. The
poverty ratio at all-India level is obtained as the weighted average of the state-
wise poverty ratio.

332
The urban poverty line of Punjab is only slightly higher than in Bihar, and considerably
lower than in Uttar Pradesh, Orissa, Rajasthan and the all-India average. The data on
urban poverty estimates, based on these poverty lines, do not seem to convey the real
picture and raise a number of methodological issues. The poverty line of Punjab, with
second highest per capita income, has been fixed at the bottom along with Bihar. The
measurement of the poverty line has not captured all vulnerable sections, that do not
have access to housing, wage employment, bas ic amenities and civic services. There is
a high concentration of population below poverty line and a slight upward revision of the
urban poverty line could increase the number of poor considerably.
Changing Poverty Scene: Trend of Urban Poverty from 1973-74 to 1999-2000
The Planning Commission has estimated the incidence of poverty at national and state
levels, using the methodology formulated in the Report of the Expert Group on
Estimation of Proportion and Number of Poor (Lakdawala Committee) and applying it to
consumption expenditure data from the large sample surveys on consumer expenditure,
conducted periodically by the National Sample Survey Organization (NSSO). Poverty
estimates for the years 1973-74 to 1999-2000 are given in Table 33.
Table 33
Poverty Trend in Punjab (in lakh)
NSS Rounds Year People below poverty line
Rural Urban Total
28 1973-74 30.47 10.02 40.49
(28.21) (27.96) (28.15)
32 1977-78 18.87 11.36 30.23
(16.37) (27.36) (19.27)
38 1983 16.79 11.85 28.64
(13.20) (23.79) (16.18)
43 1987-88 17.09 8.08 25.17
(12.60) (14.67) (13.20)
50 1993-94 17.76 7.35 25.11
(11.95) (11.35) (11.77)
55 1999-2000 10.20 4.29 14.49
(30 day recall basis) (6.35) (5.75) (6.16)
Source: Planning Commission of India, New Delhi.
Note: Figures in parenthesis are percentage of people below poverty line
Table 33 shows that the proportion of urban poor in Punjab has declined from 27.96 per
cent in 1973-74 to 5.75 per cent in 1999-2000, a decline of 22.21 percentage points over
a period of 26 years. The absolute number of urban poor has also declined by 5.73 lakh
during the same period. This decrease in absolute terms was impressive during the
period 1993-94 to 1999-2000. It decreased by 3.06 lakh in six years against 3.79 lakh
during the 12 years from 1987-88 to 1999-2000.
No doubt the urban poverty in Punjab has declined considerably in the last 30 years.
The contribution of the cities to the SDP has also increased over the last three decades.
It indicates that the increase in the pace of economic growth and a decrease in urban
poverty are inversely related. But what could be termed the paradox of poverty reduction
in the state is that despite growing contribution of cities to the state and national income,
poverty exists in towns and cities, not in terms of the minimum per capita income to
consume the required calories for biological existence, but in terms of such deprivations
as miserable living conditions due to poor housing, inaccessibility to basic amenities and

333
civic services, illiteracy and poor health. Decrease in the ratio of urban poor not
withstanding, their absolute number is still substantial. If one adds to this the number of
those who are deprived of shelter, basic urban services, education and health, the
number of the poor would be much larger.
The incidence of urban poverty is alarming in some of the populous districts of the state.
A survey of below poverty-line (BPL) families conducted by the SUDA, Punjab, is
indicative of the concentration of BPL families in a few districts (Table 34).
Table 34
Distribution of Urban Poor in Different Districts in Punjab, 2002
Districts Number of families below Percentage
poverty line
Ludhiana 62431 28.27
Jalandhar 50039 22.66
Patiala 22684 10.27
Amritsar 20292 9.19
Firozepur 10854 4.92
Sangrur 9365 4.25
Gurdaspur 7467 3.38
Bathinda 6411 2.90
Mansa 5702 2.59
Kapurthala 4537 2.05
Faridkot 4224 1.91
Nawanshahr 3802 1.72
Roopnagar 3732 1.69
Muktsar 3251 1.47
Hoshiarpur 2499 1.13
Moga 1794 0.81
Fatehgarh Sahib 1753 0.79
Total 220837 100
Source: Tenth Five-Year Special Component Plan 2002-2007 and Annual Special Component
Plan 2002-03 for Scheduled Caste, Government of Punjab (June, 2002).

Table 34 shows that Ludhiana district has the largest number of families living below the
poverty line, i.e., 28.27 per cent, and more than 50 per cent of the total BPL families in
the state live in only two districts, i.e., Ludhiana and Jalandhar. Ludhiana, Jalandhar,
Patiala, Amritsar, Ferozepur and Sangrur together have about 80 per cent of the total
BPL families.
Though decrease in urban poverty in Punjab has been much faster than in several other
states, including the national average, this trend may not continue in future with the fast
growth of urban population due to migration of rural poor to urban centres and of poor
from such neighbouring states as, such Uttar Pradesh, Himachal Pradesh, Jammu and
Kashmir, Bihar and Rajasthan with high incidence of poverty. In this context, urban
poverty alleviation should be central to the urban development strategy.
The Union and State Governments have been trying to cope with this multi-dimensional
problem through various poverty alleviation and infrastructure development
programmes, such as EIUS, UBSP, NRY, PMIUPEP, Low Cost Sanitation (LCS),
Integrated Development of Small and Medium Towns (IDSMT), NSDP, and recently,
SJSRY. The strategy for poverty alleviation has focused on the development of
environmental infrastructure, generation of employment and economic growth of cities.
Most of the programmes have been directly targeted for poverty alleviation, but have
failed to make much impact on the problem, due to a variety of reasons.

334
An evaluative study of UBSP in Ludhiana and Amritsar, conducted by the IDC (1998) for
SUDA, Punjab, indicates several deficiencies in the implementation of poverty alleviation
schemes. A few of the shortcomings are mentioned below:
• Slum identification was not done according to well accepted criteria and similarly
identification of beneficiaries was not according to the norms of the UBSP.
• Inadequate support structure due to non-representation of beneficiaries, lack of
intersectoral representation and co-ordination with line departments, untrained
and non-responsive resident community volunteers (RCVs), lack of networking
within community organizations and poor community mobilization/participation.
• The quality of training was poor and training provided for skill-upgradation was a
mere formality. Such services as drainage and sanitation were poor in slums.
• Sanctioning of loans was arbitrary and beneficiaries were not identified according
to the criteria of the scheme. Judged by established norms, the majority of
beneficiaries of loans, training and other facilities under UBSP were found
ineligible.
• Leakages of loan money were as high as 12 per cent. Delay in processing of
loan applications, inadequate raw material inputs and poor marketing of
products, were the other shortcomings.
• Skill-upgradation was poor as training of women beneficiaries was limited only to
stitching and sewing. Once trained, they were unable to utilize their skills, since
there was no linkage between skill-upgradation and setting up of micro
enterprises.
It is in the context of the above factors that a plan, based on community participation,
particularly of the urban poor, should be prepared to focus on human, social and
infrastructure development in clusters occupied by the urban poor. There is need to
build partnerships with poor communities for empowering vulnerable groups, especially
women and children. Capacity-building of urban poor through Participatory Learning and
Action (PLA) techniques will help them to be aware of the range of options available,
learn to deal with their own problems and pool resources to become self-reliant. The
experience of implementation of programmes successfully in mobilizing women and
poverty-reduction in other states can be drawn upon to improve the effectiveness of
urban poverty alleviation programmes in Punjab. Special action plans should be
prepared for six districts with large numbers of BPL families and efforts made to
converge all sectoral and line-departmental schemes targeting urban poverty.
Poverty alleviation (Seventh Schedule of the Constitution) is the joint responsibility of the
Union of India and the State Government and one of the core constituents of the
Directive Principles of the Constitution of India. Urban poverty alleviation is one of the 18
functions listed in the Twelfth Schedule of the 74th Constitution Amendment Act, 1992. It
is in this context that the Union of India, the Government of Punjab and the ULBs of the
state should make joint efforts to design policy interventions and implement pro-poor
city-friendly programmes for sustainable development of urban areas. Efforts should also
be made to pool resources from international financial institutions.
An effective poverty alleviation programme would need to create a proper structure
consisting of RCVs and CDSs. They would have to be linked with urban local self-
government, as crucial stakeholders in urban governance, for ensuring accountability
and transparency. One such model is operating in Kerala, which has one of the most
effective systems of poverty alleviation. The Ward Committee, constituted in each ward,
has on it representation of the President of the Area Development Society (ADS),

335
formed by the urban poor in the ward and registered with the municipal government. The
Ward Committee’s functions include giving assistance for the preparation and
encouragement of development schemes within the ward and their implementation, and
identification of beneficiaries of welfare schemes. The UBSP strategy in Kerala has led
to a movement of urban poor women. Their organizational strength has made them
respectable, responsible and equal partners in the development process within and
outside their community. Self-Employed Women’s Association (SEWA), Ahemedabad, is
a movement that has attempted to redress the gender equation at home, the work-place
and the community. SEWA members have improved their economic conditions by
adding to their assets and work-tools, finding adequate work-space, expanding markets,
diversifying into other work activities, stabilizing incomes, gaining access to raw
materials and so on (NIUA 2001).
The Kerala Municipality Act, 1994, provides for the constitution of a Poverty Alleviation
Fund by the municipal governments. The ULBs are mandated by the Act to contribute
two per cent of their revenues to this fund every year for alleviation of poverty. This
needs to be replicated in Punjab by amending the municipal legislation. This will
integrate the urban poor with the formal system of governance and the implementation
of urban poverty alleviation programmes will be effective and sustainable.
The World Development Report 2000-01 has emphasized ‘attacking poverty’ through
‘empowerment’, by strengthening the ability of the poor people to take and shape
decisions, to ensure ‘security’ through protection of the poor from illiteracy, diseases,
shocks, disasters and violence, and to provide ‘opportunity’ by stimulation of economic
growth on the basis of ‘voices of the poor’, of more than 60, 000 people living below the
poverty line in more than 60 countries. It is in this context and also in the light of the
objectives of the national poverty alleviation programmes, that a state-level ‘urban
poverty alleviation policy’ should be formulated in Punjab. It should emphasize
grassroot-level political empowerment of urban poor through the 74th CAA, social
development/security and creation of adequate opportunities, with special attention to
convergence/integration of various activities related to urban poverty alleviation.

References

The Punjab Municipal Act, 1911.

The Punjab Municipal Corporation Act, 1976.

Report of the First Punjab Finance Commission (1995), Department of Finance, Government of
Punjab.
Report of the Second Punjab Finance Commission (2002), Department of Finance, Government
of Punjab.

Report of the Eleventh Finance Commission (2000), Department of Economic Affairs, Ministry of
Finance, Government of India, New Delhi.

The Constitution (Seventy Fourth Amendment) Act, 1992, Ministry of Urban Development,
Government of India, New Delhi.

Gupta, J. P. and Teotia, Manoj Kumar (2001), Innovative Urban Management: Resource
Mobilization and Privatization in Ludhiana Municipal Corporation, CRRID, Chandigarh
(unpublished Report, Submitted to NIUA, New Delhi under FIRE (D) programme of USAID).

336
NIUA(2001), Urban Water Supply and Sanitation: Status and Investment Implications, National
Institute Urban Affairs, New Delhi

Guidelines for Property Tax Reforms (2002), Ministry of Urban Development, Government of
India, New Delhi.

NCAER (1996), The India Infrastructure Report (known as Rakesh Mohan Committee Report),
National Council of Applied Economic Research, New Delhi.

USAID FIRE (D) Project (2000), Report on the Status of Water and Sanitation in Ludhiana City,
United States Agency for International Development, New Delhi (unpublished).

Jha, Gangadhar (2002), Development of Municipal Bond Market in India, paper presented at the
Workshop on Development of Municipal Bond Market in India, organized by NIUA, New Delhi, 31
May 2002.

The Punjab Infrastructure Development Act, 1998.

The Punjab Infrastructure (Development and Regulation) Act, 2002.

TNUDF (2001), Report on the Activities and Annual Accounts of Tamil Nadu Urban Development
Fund for the Financial Year 2000-01, Department of Housing and Urban Development,
Government of Tamil Nadu, Madras.

Descriptions of West Bengal, Karnataka, Mumbai, Rajasthan Urban Infrastructure/ Municipal

Development/Environmental Improvement Programmes, Technical Assistance for Calcutta
Municipal Environmental Improvement Programme, National Housing and Habitat Policy (1998)
and programmes/reform initiatives relating to housing, urban development and poverty alleviation,
etc., were obtained from the Ministry of Urban Affairs and Employment, Government of India’s
Website http:urbanindia.nic.in/prg.htn

Union Budget 2002-03, Ministry of Finance, Government of India, New Delhi.

Mathur, Mukesh P. (2001), Alandur Sewerage Project: A Success Story of Public-Private

Partnership Arrangements, paper prepared for the India Infrastructure Report, 2002.

Urban Finance (2001), `Bond Special’, Volume 4, Number 1 (March 2001), Quarterly Newsletter
of the NIUA, New Delhi.

Jha, Gangadhar (2002), Case Laws on Property Tax and Implications for Reforming the Tax
Base, paper presented at the National Seminar on Reforming the Property Tax System in India,
organized by NIUA at Bangalore (14-15 February 2002).

IHS -India (2002), Financing Urban Infrastructure, Training Manual, prepared by Institute of
Housing and Urban Development Studies: India for FIRE (D) Project of USAID and NIUA, New
Delhi.

IHS –India (2002), Project Development for Urban Local Bodies, Training Manual, prepared by
Institute of Housing and Urban Development Studies: India for FIRE (D) Project of USAID and
NIUA, New Delhi.

Urban Finance (2002), `MCD Decides to Privatize Toll Tax Collection’, Volume 5 Number 1,
Quarterly Journal of NIUA, New Delhi.

`Municipal Solid Wastes (Management and Handling) Rules, 2000,’ Ministry of Environment and
Forests, Notification, 25 September 2000.

337
SERF (1996), Study on Preparation of Sectoral Housing Action Plan: Punjab State, Socio-
Economic Research Foundation, New Delhi.

`A Compendium on Indian Slums (1996)’, Town and Country Planning Organization, Ministry of
Urban Development, Government of India, New Delhi.

IDC (1998), evaluation of different poverty alleviation programmes, prepared by Institute for
Development and Communication, Chandigarh for State Urban Development Agency, Punjab.

Tenth Five Year Special Component Plan, 2002-07 and Annual Special Component Plan 2002-03
for Scheduled Castes, Department of Welfare, Government of Punjab, Chandigarh.
Ali, Sabir (2000), ‘Urban Poverty in India: An Introduction,’ in Social Change, Volume 30 Numbers
1 and 2 (March-June 2000)

Economic Survey (2000-01), Poverty Alleviation, Government of Punjab, Chandigarh.

Planning Commission (1997), Estimate of Poverty, Press Information Bureau, Government of

India, 11 March 1997.

Planning Commission (2001), Estimate of Poverty, Press Information Bureau, Government of

India, 22 February 2001.

Ninth Five-Year Plan 1997-2002, Department of Planning, Government of Punjab, Chandigarh.

Tenth Five-Year Plan 2002-2007, Department of Planning, Government of Punjab, Chandigarh.

CMAG Newsletter, Slum Policy Special, a quarterly Journal of City Managers Association,
Gujarat (CMAG), Volume Numbers 10 and 11; December 2001 and March 2002, Ahemedabad.

NIUA (2001), ‘Kerala--A National Strategy Translates into a State Level System for Interaction
with Local Women’s Groups’, in Mobilizing Communities, Communities in Action Series 2,
National Institute of Urban Affairs, New Delhi.

World Bank (2001), World Development Report 2000/2001: Attacking Poverty, New York: Oxford
University Press.

NIUA (2001), ‘Surat--Civic Response to a City’s Crisis’, in Mobilizing Communities, Communities

in Action Series 2, National Institute of Urban Affairs, New Delhi.

NIUA (2001), ‘Baroda--Community Participation for Transformation of a Slum’ in Mobilizing

Communities, Communities in Action Series 2, National Institute of Urban Affairs, New Delhi.

NIUA (2001), ‘Ahemedabad--SEWA: A Women’s Self Help Organization for Poverty Alleviation’ in
Mobilizing Communities, Communities in Action Series 2, National Institute of Urban Affairs, New
Delhi.

338