Tag Archives | Decentralisation

A Tale of Two Cities

The tale of Bangalore and Chennai’s growth is also the story of Karnataka and Tamil Nadu’s urbanisation.

The Indian growth story has included two actors in the past two decades, Bangalore and Chennai. Along with their parent states of Karnataka and Tamil Nadu, they have been the face of Indian progress, on everything from software to manufacturing to higher education.

Bangalore and Chennai are quite distinct from one another, and this post traces the differences in their urbanisation and their respective roles in their states. Chennai (formerly Madras) was designated as one of four ‘metro’ cities in India from independence, having been the capital of a British presidency before then. Bangalore was a more modest state capital. Till the mid-1980s, Bangalore was almost  two decades behind Chennai in its total population size*. Bangalore has since seen more rapid growth, and in 2011 the city was only a couple of lakh people smaller than Chennai.

BangalorevsChennai1

It is tempting to view population growth as a competition between two cities, but cities urbanise within the context of their states. While both Karnataka and Tamil Nadu are among India’s more urbanised states, but it is here that Tamil Nadu leaves Karnataka far behind. Tamil Nadu is the most urbanised large state in India, with almost half its population living in cities. For context, the Indian average of urbanisation is just one third. In Karnataka, about 38 per cent of its population lives in cities and towns.

Urbanisation and the successful movement of large numbers of people out of agriculture is key to prosperity for Indians, so it pays to examine what Tamil Nadu got right.

One feature of Tamil Nadu’s success is its lack of dependence on Chennai for all its urban growth. In 1991, Chennai was about 30 per cent of urban Tamil Nadu. The state’s largest spurt of urbanisation came between 1991 and 2001, increasing by over 10 percentage points. Most of this growth came from outside Chennai, with Chennai’s share of the state’s urban population steadily declining since 1991.

BangalorevsChennai2

Much of the urban growth in Tamil Naducame from the reclassification of land and the setting up of town panchayats after the 74th amendment to the constitution was enacted. A lot of it also came from other large cities springing up. Today, Coimbatore, Madurai, Trichy and likely Tiruppur all house million+ people each.

Karnataka’s urbanisation, on the other hand, continues to be led by Bangalore. The primacy of Bangalore in the state is paramount, with Hubli-Dharwad and Mysore having a population of barely a million each. Bangalore was over 35 per cent of urban Karnataka in 2011.

Not just that, but almost half of the urban growth in Karnataka came from Bangalore’s growth between 2001 and 2011. In comparison, only about a fifth of Tamil Nadu’s urban growth came from Chennai in the same decade.

BangalorevsChennai3

This stark difference can perhaps be explained by extensive industrial growth in Tamil Nadu, which is conspicuous in its absence in its neighbouring state. From the city of Hosur giving competition to areas on the far side of the TN-Karnataka border to bustling ports trying to compete with Sri Lanka’s, Tamil Nadu has been more successful in providing an alternative to agriculture for large numbers of its people. Kerala’s urban spurt last decade appears to be similar, with habitations becoming larger and denser, as well as more people leaving agriculture as a profession. When and whether this can happen in Karnataka is an open question.

For now, Karnataka and its politics are still frequently dominated by agrarian concerns. The Western Ghats continue to pose a formidable barrier to the development of the state’s ports, with its largest port Mangalore competing with larger ports at Mumbai, Kochi and Goa. Connectivity – perhaps in the form of all-weather roads and tracks across the Western Ghats and high volume ports – may be just be the most potent driver of urbanisation in the state.

As the Karnataka government is trying to figure out how to split the Bangalore city corporation into more manageable pieces, more people should start reflecting on how to get more centres of urban growth going in the state.

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*This is the population of the entire urban agglomeration. Since the Bangalore Municipal Corporation became the Bruhat Bangalore Municipal Corporation in 2006, all urban areas around Bangalore (with the exception of small census towns and Electronic City) have been governed under one municipal authority. Chennai, on the other hand has a metropolitan corporation that is co-terminal with the Chennai district and houses a little over half of the people in the Chennai urban agglomeration. Several other city councils and town councils govern the rest of it.

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The Centralisation of Public Expenditure

The Ministry of Finance released the Indian Public Finance Statistics 2012-13 earlier today on their website. Drafted by a team under the direction of the Chief Economic Advisor to the Finmin (currently the RBI Governor Raghuram Rajan), the statistics are of very high value as they are a collation of union and state government expenditures and revenues from the past several years.

When we hear the union budget every March, we get only a partial picture of what is planned for India in the coming year, as states play a significant role in allocating public resources.

Today I take a quick look at the decentralisation of public expenditure in India, between the union government and the states. Local bodies are outside the purview of the current analysis. Below is a graph of share of union and states in the total public expenditure in India.

Public Expenditure Centre and States

A few things stand out. The union government used to be a massive 65 percent of the overall government expenditure in 1990-91, which was continuously declining for the subsequent decade, until 2003-04. This is good evidence of financial decentralisation. However, the union government share started increasing from 2004-05 onwards, around the time the first UPA government came into power. The latest two years’ numbers are tentative as they refer to budget and revised estimates rather than actual expenditure, therefore we can say that union share has shot up to around 55% of the total in the recent past.

Below is a second graph, this time on the union-state shares of the total development expenditure over the past two decades. Development expenditure refers to expenses on infrastructure, health, education, agriculture, power and more; and leaves out defence, police, administration, interest repayments and several other items.

Development Expenditure - Centre and State

On the whole, union government expenditures are lower here because a few big-ticket, union-only expenses don’t get counted: defence and interest payments being the largest of them. The trends here are a little different.

While the union government share reduced from about 47 percent in 1990-91 to about 37 percent in 1996-97, it started steadily increasing from then to about 2006-07. It has spiked up even more since then, and it is notable that union government share was highest in the last 23 years in 2008-09 at 49.7 percent. This is strong evidence that fiscal decentralisation as a national policy is dead in the water.

Many commentators have noted the relentless centralisation of financial flows in the past few years, with ‘centrally sponsored schemes’ becoming bigger and more numerous by the year. The components that have contributed to this union government expenditure need to be unpacked further to understand what exactly is happening.

Government for 1.2 billion people needs as much flexibility and adaptability as one can give, and this dangerous re-centralisation of public expenditure needs to be reversed.

Notes.

  1. Data collated from Indian Public Finance Statistics Reports 2004-05, 2006-07 and 2012-13.
  2. Data is unavailable for the years 1991-92 to 1994-95.
  3. 2012-13 numbers are budget estimates and 2011-12 numbers are revised budget estimates, so they must be interpreted with care. The rest are actual expenditures.
  4. The y-axes were cropped in the graph to better illustrate the changing trends in the union/state expenditure share.
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