FAQs: India as Host, Source, and Guarantor

Note: This hypothetical case involving India is strictly for the purpose of illustration. It does not reflect actual projects or conversations.

Q: Why might a nation like India use a reform zone to internally charter a new city?
A: Many nations have found reform to be easier when they establish new rules in a special zone and allow people to opt in rather than force rules onto an existing group of people. For example, a new city in India might be able to enforce rules and regulations that protect infrastructure investors from ex post expropriation by local officials. The new city could also enforce rules that keep private utility providers from exploiting ex post monopoly power. Rules that prevent the abuse of government and monopoly power would unleash a large amount of private investment in infrastructure and quickly provide more urban opportunity to the country’s rural poor.

In the new cities, India could also relax the regulatory constraints and land-supply bottlenecks that prevent formal markets in other parts of the country from offering housing that low income families can afford. This could go a long way toward mitigating the slum growth that characterizes some of India’s largest existing cities. Hong Kong and Singapore accommodated rapid inflows of poor migrants without generating slums and there is no reason that new cities in India could not do the same.

Q: What other kinds of rules might be different in a charter city in India?
A: Many of the important rules in social life are enforced by norms about right and wrong. New entities create important opportunities to establish new norms. For example, the newly opened metro in New Delhi has been able to sustain norms that are different from those that all too commonly prevail in other public transit facilities elsewhere in the world. Norms such as those against spitting and urinating on or near the subway platform—behavior that, as the article above suggests, causes problems in transit facilities elsewhere in India but also in other cities around the globe such as New York. Like the Delhi Metro, a new charter city could change norms on a broader scale.

Q: How might a charter city in India be governed?
A: One of the advantages in the notion of a charter is the flexibility that it allows. The charter for a new city might provide for elections to select local leaders. Alternatively, it could allow for the type of governance used at the central bank; the central government could appoint a leader and specify a clear mandate. It could hold the executive leader accountable through the threat of removal or refusal of reappointment. The executive would have wide discretion in the day to day decision-making that is necessary to fulfill the mandate. If the central government created cities of both types, it would be interesting to see which type of city attracted more residents.

Q: Would it be hard to find unoccupied land in India where a new city could be built?
A: There is lots of land in India that is sparsely inhabited. The challenge is that property rights are not well established on this land and judicial proceeding can take a very long time. It would be difficult, but not impossible to assemble a large tract with a clear title. If a state government and the central government decided that it was a priority to give the rural poor more opportunities to move to cities, they could work together to establish an expedited judicial process for assembling land suitable for charter cities. Indeed, private developers are already working with the Indian government to assemble land on which to develop small-sized cities built around industrial and research parks.