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Need for smarter investment in cities

By Devika Kher and Adhip Amin

The Karnataka Budget has increased its investment on the development of Bangalore significantly this year. An amount of Rs. 2878 Cr was provided by the state government to BBMP in the FY 2015-2016. That amount this FY has increased to Rs. 4222 Cr. There has therefore been an increase by 46.7%. This is a very significant shift as the onus for urban development in Bangalore has been significantly passed on to the ULB’s. However, it is necessary to create the right institutional and policy conditions to get maximum returns on the investments that are made.


Bangalore is constrained by an expensive water supply, which is brought from the Kaveri a 100 kms away, and then pumped up 300 meters to reach to individual households. The BWSSB thereby faces a huge cost in provision of drinking water. This cost however does not translate into higher prices for water – with the water board making a token increase in tariffs last year after a decade. Even the most profligate users of water get highly subsidies on water. Instead, in this budget, the state plans to finance water supply and underground drainage project costing Rs. 5018 crores via loans provided by international agencies like Japan International Cooperation Agency (JICA). This will cause a further accumulation of debt which in the long run erodes the income of people, especially that of the poor. The BWSSB is already burdened with debt and  is still repaying its loan to JICA which it received in 2005 and 2006 for water supply and sewerage, respectively, amounting to around 42 billion rupees. This will take another 20 – 25 years to payback.

The BWSSB charges for water slab-wise. Though in 2014, the prices for each slab was increased after nine years; this however has not been adequate to provide better facilities to people of the city. It is important therefore that better means to price water be conceptualised and implemented.

To price more efficiently, the best option would be to charge per unit of consumption, and the second best option would be to reduce the size of the slab itself. Such pricing mechanisms ensure not only the judicious use of water by those who avail these facilities easily, but for those who can’t: such as people who live in slums or for new villages that are absorbed by the city, the government (without accumulating debt) can provide modern water and sanitation facilities.

Road Transportation

To ease the increased vehicular traffic congestion in Bangalore, various projects to build elevated roads have been initiated: from Silk Board to Hebbal Junction (North-South), K.R.Puram to Tumkur Road (East-West1) and Varthur Lake to Mysore Road (East-West2) and other areas covering approximately 100 Km, costing Rs. 18,000 crores. However, the most efficient way to tackle road congestion is not through building flyovers but through pricing congestion.

Conventionally, tackling congestion is thought about in terms of increasing the supply of roads which is thought to ease vehicular movement through the city. However, urban planners and economists have become increasingly sceptical about this view. Studies by economists show that building elevated roads induces more demand to use this new infrastructure. As a result, in the long run, the marginal benefit of the elevated roads becomes negative. It is very expensive to alter the structure of the investment because it’s a sunk cost. Additionally, the cost for marginal increase in the supply of new roads is much higher than the marginal increase in demand; the cost elasticity of supply for roads is much lesser than the cost elasticity to use an additional unit of a vehicle, simply because the building roads is much more expensive to society than when society as a whole has to buy a new car. This creates a structural problem in traffic management. Economists, therefore, have come up with ‘demand management’ techniques to deal with congestion, the most significant of which is congestion pricing.

A driver induces external costs on the rest of society; in terms of the marginal increase in pollution he contributes to, and also by being a factor in creating congestion. A charge therefore on a driver’s use of the city’s roads internalises these external costs and leads to the substitution of use of private vehicles for public transportation, as it increases the use of his private vehicle. Further, the costs of providing better public transportation facilities can be met by the government by raising revenue from such sources.


Old ideas are often recycled. The proposal for multi-level parking facilities in the city is a case in point. If the intention is to reduce the congestion on Bangalore’s roads, such a policy proposal doesn’t go very far to solve the problem. Instead we must look towards other, though admittedly harder solutions, such as charging for parking. The Takshashila Institution has estimated that the BBMP can potentially collect Rs. 500 crores a year did full pricing on just 3% of Bangalore’s roads. This not only enables the BBMP to construct such infrastructure based on its own local requirements rather than depending on the state’s finances and mandate.  Such a charge also incentivises the public to use more public transport as it increases the cost of using private vehicles.

The Karnataka government has time for the rest of the year to implement such reforms. The budget could just be the beginning.

Devika Kher and Adhip Amin are researchers at the Takshashila Institution’s Centre for Smart City Governance. 

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The Nuclear doctrines of Truman, Eisenhower, and Kissinger










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Expanding the grey area

To move forward on insurgency and secessionist movements, the line between military operations and politics must be defined.

In his book Kashmir: The Vajpayee years, A.S Dulat, the former R&AW chief, evocatively writes that “The problem with Delhi is that it sees everything in Black and White, whereas Kashmir’s favourite colour is grey.” Kashmir is complex, and a “either you are with us, or you’re against us” policy doesn’t bode well for its future. This is a thought he reiterated recently in a talk in Bangalore. In the same event, the political scientist Ashutosh Varhney stated that according to his understanding “Delhi’s policy towards insurgents has always been either you are a separatist, or you join the electoral process, and therefore accept the legitimacy of the Indian constitution, there is nothing in-between.” He also asked how one could expand the “grey” area.

Why has there been a lack of sophistication or nuance while dealing with secessionist movements in India? A lot has to do with the nature of civil-military relations in India. The civilian government, right from the time of independence, believed that the army should be under the control of the government; that the army’s role in politics should be minimised. This belief was indeed, strongly felt even during the national movement. As a result, as Steven Wilkinson has argued in his book Army and Nation, the army was subjected to various “control measures” such as the “commander in chief [of the Army] was taken out of the cabinet [such as it was in the colonial administration] and was made responsible to the Defence Minister, with overall expenditure decisions now to be approved by the Ministry of Defence (and increasingly also by the Ministry of Finance) rather than the army’s own military finance department.” Further, as Wilkinson has laid out in his book, several policies were enacted to weaken the cohesiveness of the army to deter it from undertaking coups. Further, the government made sure to informally reserve the top positions in the army to officers who don’t belong to the ethnic group who otherwise dominate the officer ranks. For instance, as Wilkinson demonstrates, Punjabis in general and Sikhs in particular, who were relatively overrepresented in the army, “were less successful than they would otherwise been in getting appointed to the corps commands, and in particular of COAS. From 1947 to 1977 all but one Army COAS was from outside the Punjabi heartland of the Army; the men appointed came from Coorg, Mysore, Rajasthan….and even from the hugely underrepresented state of West Bengal.” These were few among many other policies and conventions which subjected the army to proper governmental control.

However, as Wilkinson argues, the reason why the army seems to have acquiesced to these constraints, is because it has got a “wide degree of control in operational matters”. A tacit agreement seems to have been set between the civil administration and the military that the government will not interfere in operational matters, “especially at the periphery of the country where it has increasingly been used on counterinsurgency duties”. This has not been good for democracy, primarily because the distinction between operational matters and politics has never been clear, nor have they ever been made so. One way to expand the “grey area” is to conduct a serious debate about AFSPA, however in 2011, when Omar Abdullah, the then Chief Minister of J&K called for amendments to the policy, the army publically criticised this move and thwarted any move in this direction. Therefore, if we are to move forward it is imperative that the line between operational matters and politics be clarified; for this, what military operations are needs to be properly defined and operationalised.


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Spatial equilibrium and the economics of agglomeration

The logic of spatial equilibrium drives the process of agglomeration

Agglomeration economies are the benefits that accrue from the elimination of distances, or to put it more objectively, from the elimination of transportation cost, whether in the movement of goods, of labour and people, or more importantly, ideas and skills.

The central paradox between agglomeration and the reduction of transportation cost is this: if indeed, costs for transportation have reduced, what new incentives then drive people to come more closely together? For a long time, the general assumption was that people come together to eliminate transportation cost; to eliminate costs that distance imposes on them. But with the development of better communication technology, why has more agglomeration occurred? Indeed, this is one of the foundation questions in contemporary urban economics.

Secondly, urban economists have also spent considerable energy on trying to develop a methodology to capture the process of agglomeration. Urban economists have broadly boiled down to urban wages, real estate prices, and “growth in the number of people within an area”, to capture this process.

To capture the angle of labour, urban economists have relied on the logic of spatial equilibrium. Assuming the costs of mobility is zero; labourers will be indifferent between different cities. The indifference curve is guided by the logic that high wages in one area will be offset by high costs of living or bad amenities; hence theoretically, spatial equality across all cities will be established in wages and costs of living. However, if people all gather in one area because of the fact that high costs of living are complemented by good amenities, then more people tend to gather in that area multiplying the economics of agglomeration. Public finance economists capture this process by looking at property values or real estate prices, where: high housing prices is a function of high wages, high costs of living, and better amenities.


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Why has New York thrived and not Detroit?

Innovating, idea generating firms, drive urban growth.

Glaeser et al in their paper Did the Death of Distance Hurt Detroit and Help New York? advance the hypothesis that due to massive improvements in transportation and communication technology, which has, over a period of time reduced costs associated with transportation and transaction, the comparative advantage associated with distance has fallen – that distance as a primary source of economic advantage since the 1980’s has diminished. On the other hand, the authors argue that the propensity of the generation of ideas, and services, which help in innovating “more varieties of advanced goods”, has become an important source of the growth of cities. That New York, due to its vibrant financial service has not only been able to survive but also grow, and Detroit, which has been a traditional manufacturing centre, has, since 1980, declined, is an example of this theory.

The logic of the hypothesis lies in preferences: the authors assume that manufacturing firms need vast spaces of land more, unlike the innovative, or the idea generation sector, where the amount of real estate needed is relatively less. Additionally, the authors intuit that the gains that efficiency gains for innovative sector from the “innovative” sector is greater than that faced by traditional manufacturing firms. Therefore, since the 1980’s, due to improved communication and transportation technology, and due to increases in real estate prices in cities in the U.S, manufacturing firms left the city, either being replaced by “innovative firms” like New York, or being replaced by little else, like Detroit, causing a rather inert economy. Therefore, the advantage of agglomeration economies; of economic proximity, is more prominent in innovative firms.

Though so far the discussion has been restricted to New York and Detroit, but the authors empirically show that at a statistically significant level, taking 170 cities into consideration, that “successful cities are specialised in idea – producing industries”. It is shown that there is an “18 percent correlation between increases in patenting and increases in income between 1990 and 2000 is also significant, with a regression coefficient of .066 and a standard error of .015.” This means that if patenting increases by 1%, income has increased by 6.6% between 1990 and 2000 in the U.S.

What lessons can one draw from this? For the city of Bangalore, therefore, the policy idea we must draw from this experience of urban economic growth of North American cities is quite straightforward. To reap the benefits of agglomeration economics it is important to reduce the costs associated with transportation and communication, which means less road traffic, no call drops, efficient supply of basic public services like electricity and public transport, and more generally, better infrastructure to reduce transaction costs.


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Explaining urbanisation and localisation economies

Industrial diversity within cities leads to urban growth.

One of the biggest advantages of cities is that they help in generating agglomeration economies, that is, production is easier because more activity is going on nearby. This phenomenon is usually explained by spill-over effects or the generation of positive externalities in contexts of close proximity often found in cities. “Innovation and improvement occurring in one firm increases the productivity of the other firm without full competition”, occurs most dramatically in urban areas because of the presence of economic activities which have a higher value, and primarily because of the interdependence of economic activities.

However, economists have differed on what type of economic structure of cities, and therefore what form of positive externalities are crucial for the growth in cities, measured by growth of industries and growth of employment.

The forms of economic structure of cities are divided into two broad activities: a) localisation economies and b) urbanisation economies.

A localisation economy implies returns of scale that arise from having many firms of the same industry located in cities. And urbanisation economies lead to industrial growth and growth of employment in cities when people of several different kinds of industry are located together; that is, many firms of different industries are located in the same city. Both these ideas have important proponents. Handerson et al (1995) and the Marshall –Arrow – Romer (MAR) theorem, if applied in the contexts of cities, suggests that growth of industries and therefore of employment depends upon the concentration of an industry in a city. Contrarily, the urban historian Jane Jacobs has argues powerfully that it is industrial diversity which drives growth in cities.

Both, localisation and urbanisation economies can result in growth, and both have many notable examples of success, however, it is important to arrive at a statistically significant conclusion or understanding about what kinds of externalities, and what kinds of economic structure in cities has led to more growth, or which result in a higher chance of success. This is precisely what Glaeser et al seek to do. In their paper “Growth in cities”, by taking a “data set on the growth of large industries in 170 U.S cities between 1956 and 1987”, they argue that “local competition and urban variety, but not regional specialisation, encourage growth in industries. The evidence suggests that important knowledge spillovers occur between rather than within industries”. The paper therefore empirically confirms Jane Jacobs’ hypothesis. The paper states that “crucial externality in cities is cross-fertilization of ideas across different lines of work. New York grain and cotton merchants saw the need for national and international financial transactions, and so the financial service industry was born. In Jane Jacobs’ theory, industrial variety rather than specialisation is conducive to growth, because in diversified cities there is knowledge spillover of different ideas.”

But the question naturally arises: what is it about industrial diversification that leads to growth in cities? Or what is it about knowledge spillover of different ideas that lead to industrial and employment growth in cities? When an industry grows in a city, it leads to increased wages and increased employment, which further leads to increased demand and therefore a (generally) positive correlated growth of different industries in the city. However, parallel to the growth of specific industries in a city, industries which are interlinked begin sprouting up in cities. The example of the growth of the financial institutions in New York has already been mentioned. The intuition is the same: “knowledge transmission takes the form of adoption of an innovation by additional sectors”, or forms where links are further established.




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Markets as institutions for the expansion of freedom













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Non-reciprocity and Democracy

A brief note on The Burden of Democracy by Pratap Bhanu Mehta.

Pratap Bhanu Mehta’s long essay The Burden of Democracy is not just about Indian democracy but is also significantly, a deep meditation about democracy itself. The essay, by avoiding, on one hand self-congratulation about procedural successes, and the outright cynicism or the disparaging attitude many of us have about its substantive nature, brings into focus particular features of the Indian democratic experience that have somewhat eluded careful analysis.

Though Indian democracy transformed Indians from “subjects to citizens”; that it gave millions of citizens to authorise authority; “that suffrage established sufferance”, the ‘centre’ of the book, however lies in the assertion that “the ideological persistence of social inequality on one hand, and a mistaken view of the state’s proper function and organisation on the other, has modified and impeded the workings of democracy and its effects in all kinds of perverse ways.” What this means is that deep seated divisions of caste and religion, have engendered a politics of non-reciprocity, where one doesn’t acknowledge another’s moral worth in society; where there are “competitive negotiations between groups, each competing for their interests, rather than a diffusion of democratic norms”. It has also led to the idea of advancement as something of a zero-sum game: ‘one can only advance at somebody else’s cost’, or ‘to put others down as a means to enhance yourself’. Therefore, as Mehta puts it ‘’all groups have acquired the right to compete, and air their demands, but could be completely indifferent to similar demands from other groups. This is why broad alliances of lower-caste groups have been relatively few and unstable.” One way such a sentiment surfaces in politics is that we have never had an “anti-caste politics”, but only an “anti upper-caste politics”.

Pratap Bhanu Mehta adds a fresh meaning to the idea of ‘’statism’’ in his analysis, that of the idea of the state as a means of social mobility. This very statism however, is attended by a deep fracture in that “ individuals and groups expend inordinate energy to colonise or capture government institutions in seeking to promote their interests over others; there is much activity in politics, but little of it directed to public purposes that all can share’’ such as the broad provision of public goods.

Though a sense of a “shared public philosophy” is necessary for a sense of reciprocity; for the diffusion of democratic norms; and for the existence of board-based collective action for the provision of public goods, and though public institutions are “required for civil purposes, to define a space for mutual acknowledgement, and reciprocity rather than domination and competition“. Mehta makes clear that the redemption and self-determination of marginalised groups lies not through the state, but the market. The entrepreneurial and commercial energy that economic growth generates is key not only to economic but social advancement as well. However, distressingly, economic growth or the market has not received much electoral appeal or political currency as the redistributive consequences of the market have not been very clear, nor have they received intellectual traction.

To conclude, it is important to recognise that “there are some things states are particularly bad at, but also recognising that we will be impoverished unless all enjoy the minimum basis for social self-respect and acknowledge each other through projects we hold in common.”


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Pakistani national movement: sufficiently imagined

A brief note on Creating a New Medina by Venkat Dhulipal.

The view that “Like other countries that brought together disparate ethnicities as the colonial era came to a close, Pakistan became a state before it was a nation” is a popularly held interpretation in the intellectual history of Pakistan’s creation. What lies beneath this understanding is the idea that up until transfer of power and later, the idea of Pakistan was vague and unformed. This has been contextualised by historians in the way political elites who demanded Pakistan, only had an equivocal idea of what Pakistan was. In the words of Salman Rushdie, Pakistan was ‘’insufficiently imagined’’. Further, Farzana Shaikh, a leading Pakistani historian, contends that Pakistan’s nationalism lacked any positive content because Pakistan only imagined itself as opposed to India. It came to be believed that the idea of a Pakistani nation came into existence after the creation of certain state institutions.

In other words, the argument has been that the instruments and institutions of a state were put in place before any substantial content could occupy this political space.

However, this view, which has become orthodox among Pakistan scholars, has recently been challenged by Venkat Dhulipala in his book Creating a New Medina. The book fleshes out in length ‘’ how the idea of Pakistan was developed and debated in the public and how popular enthusiasm was generated for its successful achievement …‘’ In the case of Pakistan, as this book makes sufficiently clear: the instrument which potentially generated nationalism was expressed through politics and the arts; beginning not in the 1935, when the Government of India Act was passed, but very much since the 19th century. Further, Dhulipala argues that the existence of Pakistan being anti-India is a limited view. In the Pakistani nationalist movement there was fusion of the religious sanctioning of the Deoband with the ground-level politics of the Muslim League. Often the role for post-independent Pakistan articulated in pre-independent India was for it to be a locus of pan-Islamism in the world; to house the new caliphate after the fall of Turkey. To come to this understanding, the techniques of the global historian were used, which is reflected in one of the main tenants of the monograph: that the intellectual arguments which went into imagining Pakistan were also the frameworks that were used to understand the world.

As this book does, good historical writing lies in complicating events and processes. Venkat Dhulipala traces the historical argument for Pakistan and contextualises it not just in national identity, but also in global aspirations. These ideas were not just restricted to the elites but were also thrashed around and debated by ordinary people.

Adhip Amin is a Research Associates at Takshashila Institution. Adhip tweets @AdhipAmin1.

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Gaps and loopholes in the Smart Cities mission statement

The Smart cities mission statement forsakes a framework for trade-offs.

The purpose of the Smart cities mission statement is to provide and construct infrastructure and technology that will lead to desirable outcomes such as better quality of life. The assumption is that installation of good physical, social and economic infrastructure will create a smart city. This is a methodological problem. The report constantly mentions the ‘what’ and not ‘how’. Among many, one example is congestion.

The report declares that the smart city will reduce congestion, and will therefore reduce commute time. However, nothing is mentioned of how this will be done: will engineering techniques be used? Will congestion pricing be installed? Will the Central Business Districts be located in one area and the resident areas all in one area, thus enabling better management and planning of traffic? As per the mission statement the outcomes are identified as: “adequate water supply including waste water recycling and storm water reuse, sanitation including solid waste management, rain water harvesting, smart metering, robust IT connectivity and digitalisation, pedestrian friendly pathways, intelligent traffic management, non-vehicle streets/zones, smart parking, energy efficient street lighting, innovative use of open spaces, visible improvement in the Area.’’

smart city image
However, the necessary inputs and their combination haven’t been worked out. The governance question is largely missing. The reasoning upon which concepts like efficiency and affordable are used are either not identified or not fleshed out.

The Smart city mission statement is rather unfocused. The mission statement seems woefully unaware of the possible trade-offs. Finance is limited: operated as a Centrally Sponsored Scheme, the Central Government proposes to give financial support to the Mission to the tune of Rs. 48,000 crore over five years i.e. on an average Rs. 100 crore per city per year (apart from equity which will likely not amount to much). Time is limited: 100 smart cities are to be built in 5 years. Both finance and time are therefore scarce resources. No framework is provided in the report on how time and capital will be allocated, given scarce resources. How does one achieve greatest benefit given these scarce inputs?

Further, the mission statement mentions that some smart cities will be a subset of a larger city (retrofitting and redeveloping). This creates a problem. The amount of rent is a function of the distance from Central Business District (CBD). Closer you are to the CBD, more will be the rent, less will be the cost you incur to reach the CBD (in terms of fuel cost, the probability of meeting with an accident, and time that is, opportunity cost). Therefore, if a smart city is built in one part of a larger city, it will increase the willingness of others to move closer to it, hence increasing rent in these areas – thus making the idea of affordable housing in the vicinity of the smart city a farce. It is therefore necessary to recognise trade-offs.

The second problem of building a smart city in just one part of the city is that development in one area will congest all the paths to it, or that lie outside it. Imagine a city which has 5 roads which go a CBD. Assume these roads are clogged, so if the government broadens one out of these five roads. What happens? It gets worse! People from the remaining 4 roads will begin using that particular road, making it even more congested. The same logic applies to the proposed smart city plan. There are real world examples as well: bad traffic at outer ring road in Bangalore because of the Manyata Embassy Business Park.

Adhip Amin and Devika Kher are Research Associates at Takshashila Institution.Adhip tweets @AdhipAmin. Devika tweets @DevikaKher

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