India is a part of the global trend towards increasing urbanisation in which more than half of world's population is living in cities towns. 31.16 per cent of India's population 377 million live in urban areas as per 2011 Census.
Enhancing the productivity of urban areas is central to the policy pronouncements of the Ministry of Urban Development. Cities hold tremendous potential as engines of economic social development, creating jobs generating wealth through economies of scale. They need to be sustained augmented through the high urban productivity for country's economic growth. National economic growth poverty reduction efforts will be increasingly determined by the productivity of these cities towns. For Indian cities to become growth oriented productive, it is essential to achieve a world class urban system. This in turn depends on attaining efficiency equity in the delivery financing of urban infrastructure.
The Thirteenth Finance Commission has, for the first time in the history of Finance Commissions, brought in an element of performance based grant in addition to basic grant, in which the onus is placed on the State Governments to empower build capacity in the local bodies through carrying out nine identified reforms.
According to the High Powered Expert Committee HPEC appointed by the Ministry of Urban Development, which gave its recommendations to the Government in the year 2011, there is a requirement of investment in urban infrastructure to the tune of ₹ 39 Billion ₹ 39.2 lakh crore at 2009-2010 prices over the next 20 years.
To overcome constraints challenges, the Ministry of Urban Development has initiated institutional, fiscal financial reforms.
The 74th Constitutional Amendment Act of 1992, recognised the importance of local self governments in the process of service delivery in the urban sector.
In August, 1996, the Central Government guidelines entitled 'Urban Development Plans Formulation Implementation UDPFI' were circulated to all State Governments for adoption. These guidelines, apart from other issues, suggest innovative approaches for fiscal resource mobilisation. In the backdrop of the New Economic Policy in the nineteen nineties, it was suggested that the traditional system of funding based on Plan budgetary allocations be reduced ultimately withdrawn due to fiscal deficit. Subsidies need to be rationalised urban development plans projects need to be placed on a commercial format by designing commercially viable urban infrastructure services area development projects. This was sought to be achieved by restoring a proper match between functions source of revenue by giving additional tax measures. Other innovative resource mobilisation measures include using l as resource, increase in the non-property taxes using Public-Private Partnership in service delivery.
The Task Force constituted by the O/o C&AG of India had recommended for introduction of accrual basis of accounting system for the urban local bodies ULBs suggested model budgeting accounting formats for that purpose. The Task Force Report was circulated to all States/UTs for adoption of accrual basis of accounting system as well as the budget accounting formats. Further to provide a simplified tool kit to the ULBs for recording the accounting entries, Ministry of Urban Development in cooperation with the Office of C&AG of India has prepared a National Municipal Accounting Manual NMAM circulated to all States/UTs in January, 2005. The Manual comprehensively details the accounting policies, procedures, guidelines designed to ensure correct, complete timely recording of municipal transactions produce accurate relevant financial reports. The NMAM would help the States prepare their state-level accounting manuals in accordance with their own requirements for use by the ULBs. This initiative is expected not only to enhance the capacities of ULBs in municipal accounting leading to increased transparency accountability of utilization of public funds for the development of urban sector but also will help in creating an environment in which urban local bodies can play their role more effectively ensure better service - delivery.
Ministry of Urban Development has laid down Service Level Benchmarks for urban services like water supply , sanitation urban transport. Working towards achieving these Benchmarks would bring about a paradigm shift in working of the urban local bodies to provide world class urban services.
Central Government will develop guidelines for involvement of the private sector in infrastructure, which will ensure competitive biding process in a transparent manner. These guidelines will not only protect the consumers but also ensure integrity of the process. This would support municipalities in designing the PPP process on the lines of the BOT Centre in Philippines or the PPP in the Ministry of Finance in South Africa.
When the 7 year JNNURM was launched in December 2005, release of Additional Central Assistance ACA under the Mission was made conditional to the States Urban Local Bodies carrying out urban reforms. The reforms include: