User-Charges In Indian Cities

Making a case for parking fees as a beneficial enterprising instrument of municipal finances in Tier 1 cities

User Charge is nothing but a fee, it is the same as paying a toll on a highway or power or water bills. As urban residents, we use a plethora of services provided by public, private, or philanthropic agencies, for which we pay user charges. These charges fall currently under the jurisdiction of local self-government, but in the case of urban local bodies, it matters the most – where there are variety and volumes of services demanded and supplied every passing day. The rationale behind the concept of user-charges is that ‘it is not the revenues that it (user charges) produces that matters but to promote economic efficiency and boost the morale of the municipal bodies’. Then there are questions like Should everyone pay? What about differences in paying capacities? How can we tap every user, when there are many ways to get away i.e. the free-rider epidemic? The following sections of the article will seek answers to some of these questions. Also, we shall see how city services can be improved, if we bide to pay our user-charges, thus making a case for continued payment

Why User Charges?

There are many reasons why user-charges are needed, the two most common reasons cited in this regard are, firstly, its primary reason is to know and gain more insights about the services preferred and purchased by users. The prices help understand what residents want and in what quantity. Secondly, in cases of no user fees, the service will be overwhelming used and this, in turn, gives rise to associated problems. An apt example to support this conjecture would be no parking fees for road-side parking. When no fee, is charged people park their vehicles on the roadside without realising which in turn chokes the roads causing nagging traffic problems. The above two arguments provide the basis for the application of user-charges especially in rapidly urbanising Tier-2 towns because they are the ones that are urbanizing at an alarming rate of about 200%.

Where to impose these fees?

The decision to monetise a service must be based on its nature, scope, and significance. If it is non-excludable and accessible to all irrespective of time and space, then it becomes difficult to put a hard-price on it, therefore making it an uneconomical venture. However, some services which are meant as a luxury, exclusive, and not a sine qua non, these must be charged because the users here have the capacity to pay for the services but the rate of user-charge must be moderated to avoid customer (citizens of the city) emigration.

How much to charge?

For the user-fee to be efficient, it needs to be set at the ‘right price’ and should implement in the ‘right manner’. The price should be set in such a fashion that it serves its purpose of being a true indicator of user-demand. Speaking technically, it must be based on short-term marginal cost i.e. the additional per unit cost incurred when there is a corresponding rise in demand. This formula is difficult to calculate when we have to factor in costs like transaction, opportunity, etc. If not, then there is a solution from the supply-side where we need to keep continuous track of changing production trends. In either case, we need big data solutions and analysis in place to process and then predict the future course of action.

How to collect user-charges efficiently?

An efficient collection system is based on effective planning, implementation, and public compliance, there are some do’s and don’ts to be followed in this regard. These do’s and don’ts are different for different user charges. In case of parking fees collection these would be as follows:

Dos –                   

  • Set clear Parameters like fined areas; non-fined areas.
  • Create parallel Incentives like vehicle care-safety and free car-wash/cleaning service.
  • Justified charges like differential pricing as per locality, quality of parking services offered.
  • Strike a balance between ‘rationality’ and ‘fairness’ like high fines on busy streets only, non-busy streets attract moderate fines.
  • Revise periodically– to help price move both ways like how Uber charges fluctuate as per traffic, timings i.e. if the parking is too full, increase the price and otherwise. This shall gradually help us in attaining 100% compliance.

Don’ts –

  • Introduce without prior public Information, Education & Communication (IE&C).
  • Forget to train, sensitize and inculcate a sense of ownership in the administrative line-personnel.
  • Let Populism prevail over Pragmatism, and to ensure it liaisoning and lobbying with various political parties whether ruling or opposition is a must.
  • Collect and manage the fee-receipts and expenditure in an opaque manner. Practice Voluntary disclosure of treasury fortnightly or monthly. If need be, do conduct localized social audits.
Source: Creative Commons

Case Study: Parking fees in Mumbai

After a general overview understanding about the concept of user charges, and its importance for the municipal corporations. We shall look into ‘Parking Fees Policy in the city of Mumbai’, and the role it plays vis-à-vis finances, citizen disciplining, infrastructure creation and maintenance, etc. Safe and Secure Parking spaces have become a necessity in modern Indian cities, which are exploding both in terms of economy and demography. Hence, people don’t mind spending more on services, this sentiment should be tapped by our authorities to generate more revenues through parking-fees. A 2015 report by Centre for Science and Environment  (CSE) found that the New Delhi government charged on an average only a third of the actual cost of Parking. Taking a closer look at Mumbai’s plan as it shall help us get a better understanding of the operation and organization needed for similar other fees across various services in any Indian city.

Rationale behind the plan:

May 2019: The newly formed Parking Authority which consists of officers from various urban authorities like Brihanmumbai Corporation (BMC), Mumbai Police, Mumbai Traffic Police, and Transport Department under the Development Plan of 2034, of the BMC, came up with the New Parking Policy (Deshpande 2019). The salient features of this policy are:

  • Exploring the idea to allow public parking in private spaces. The idea is to allow private spaces like housing societies, offices, and other commercial spaces during peak hours within fixed timings.
  • Survey to be undertaken of all parking spots through GIS mapping.
  • Attempt to curb on-street parking and congestion caused, therefore.
  • Inviting stakeholder approach to decision making regarding parking spaces, slots, and most importantly parking charges.

Rolling out the plan:

In July 2019 the plan was rolled out with new rules where the fine on wrong parking was increased steeply to create financial deterrence. Below is the table of fine to be paid when parked within 500 meters of public parking lots (PPLs) is as follows:

Vehicle Category Fine within 500 meters (in Rs.)
Heavy MV 10,000
Medium MV 7700
Light MV 7500
Autorickshaws 6900
Other 3-Wheeler 4300
With Late Payment Up to 23,250

BMC had also compiled a list of 26 parking lots released for residents for parking during peak hours of these 10 parking lots that are free of charge.

BMC collected Rs 1.5 lakh fine on the second day of implementing the policy and the most striking factor was that this amount was collected from only 80 vehicles while on the first day of the roll-out the amount collected was Rs 1.8 lakh from 56 vehicles (Singh 2019).

Response to the plan by citizenry:

A section of the privileged class expressed their displeasure regarding the policy through social media. Their main complaint was about the shanties and slums which had cropped around the city and taken over their parking space. Some even pointed out that, the elite of the city have paid so much to the city’s revenue but haven’t received an equivalent share of the benefits like public services, quality infrastructure, etc. and on top of that such hefty fines are targeting their pockets (LiveMint 2019).

A group of citizen activists shared photographs and locations of vehicles parked carelessly and causing a nuisance to other road users like pedestrians. They also utilised the social media platform Twitter to lodge a complaint, against the violators, with Mumbai Parking Authority (MPA), Mumbai Traffic Police Department.

Analysis of the plan in terms of Practicality-Sustainability-Universality:

The above illustration of response to the plan by citizenry clearly shows that parking spots are potential precious resources whose monetisation causes strong sentiments and yet their economic potential has not been optimally harnessed. The fact that the vehicle density of a city like Mumbai is very high shall help municipal financial advisors estimate the revenue potential from parking fees. Common sense says that metropolitans will earn most from it when compared with other tier cities. As there is a direct relationship between the level of economic activity leading to the higher disposable income of urban populations and demands for a quality lifestyle which is influenced by commodification including the number of vehicles per head which further leads to demand for more parking space.

Let us do a cost-benefit analysis of the case we have selected. For this, we take the case for four-wheelers only to get an idea of the scale and scope at which user charges from parking would be beneficial for municipal finance. Taking four-wheeler data of Mumbai city from November 2018, there were around 32 lakhs four-wheelers, and if we assume a rough estimate that around 10 lakh vehicles are stationed on public spaces which are not monetized and used for free at any point in time in a day in Mumbai. A simple multiplication for per day charge and doing that for 300 days a year gives us an amount of 24 Billion INR. We shall use this calculation to place an argument a little later.

Vehicle Category Parking Price per day (in Rs.)
4 Wheeler 80
2 Wheeler 35

Now just for a bit, let us learn about the cost of running hospitals in India. According to a 2013 research study supported by Public Health Foundation of India titled “Unit Cost of Medical Services at Different Hospitals in India” (Chatterjee, Levin and Laxminarayan 2013) gives cost information about different hospitals as tabulated below:

Type of Hospitals Approximate Capital Costs (INR) Total Operating Costs (INR)
Charitable 29 million 43 million
District 38 million 120 million
Private 316 million 715 million
Private & Teaching 43 million 239 million

The total operating cost includes In-Patient, Out-Patient, Emergency and Major Operation Theatre costs and the initial capital costs accommodate Land, Building, Equipment, Furniture and Instruments, all the costs given above are calculated on the basis of data from 2010-11. Moving forward, the standard rate of depreciation for Hospitals is the same as applicable to general business ranging anywhere between 10% – 33%. From the above information provided, the combined (capital and operating) cost of a district hospital is around 150 million INR, this shall be not more than 200 million INR, if we make an inflation-adjustment to present times since 2010-11.

Making a liberal maintenance cost assumption for the same District Hospital in discussion shall be not more than 70 million INR. Now bringing the parking fee earnings back into the discussion, if we make a conservative estimation of annual revenues around 24 billion INR. For a credit-crunched corporation, running 7 city hospitals, diverting a third of the amount encashed from parking’s will be a great shot in the arm for its fiscal health. Thus, the user charges generated from parking services are not a trivial amount at all to be forgone rather they are an important revenue source that should not be foregone.

Recommendations for generating higher parking revenues

To make ‘street space for all’ and create a culture of parking in designated spots there needs to some radical and out of the box solutions. One such idea is mandating purchase or renting of visitors parking space in commercial establishments and for extreme cases in residential establishments also if they are located in major Business District like areas which at times turn into ‘Congested’ Business Zones (Kanade 2018). Another idea could be to explore the option of night parking charges. This is based on the ideology that nothing should be given out for free by state and citizens should pay for all the services they avail at any time of the day. These ideas while seemingly different need to explored because with the rise in the clamor for independent municipal bodies there is a growing importance for the financial autonomy of these bodies and without multiple and varied sources of revenue the dream of a strong and financially viable municipal body might remain a pipe dream.

References

Deshpande, Tanvi. 2019. THE HINDU. May 22. Accessed January 19, 2020. https://www.thehindu.com/news/cities/mumbai/bmcs-new-parking-scheme/article27200669.ece.

2019. LiveMint. July 07. Accessed January 2020, 19. https://www.livemint.com/news/india/today-onwards-pay-up-to-rs-23-250-for-parking-your-vehicle-illegally-in-mumbai-1562506284294.html.

Singh, Divyesh. 2019. INDIA TODAY. July 8. Accessed January 19, 2020. https://www.indiatoday.in/india/story/mumbai-bmc-collects-fine-day-2-new-parking-policy-1564951-2019-07-08.

Batra, Kshitij, and Rohan Shridhar. 2018. Live Mint. January 12. Accessed January 20, 2020. https://www.livemint.com/Opinion/8S9LnrOPWGOcvid6gzD74I/The-burden-of-free-parking-on-our-cities.html.

Kanade, Dilip. 2018. Times of India. May 17. Accessed January 20, 2020. https://timesofindia.indiatimes.com/city/pune/our-love-for-cars-could-help-cities-earn-revenue/articleshow/64201712.cms.

Chatterjee, Susmita, Carol Levin, and Ramanan Laxminarayan. 2013. “Unit Cost of Medical Services at Different Hospitals in India.” PLOS One 8 (7): 1-10.

(Akshay Ramesh More is pursuing his Masters in Public Policy at Institute of Public Policy (NLSIU), Bangalore. He has a Bachelor’s degree in Chemistry from Bombay University. His interests lie in Urban Finances, Sustainable Housing, Rural Industrialization and Revitalizing Water Bodies. He can be reached at more.bharti@nls.ac.in)

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