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.