How does the Union Budget fare in addressing challenges of cities amidst the Pandemic and towards Transforming Urban India?
Soumyadip Chattopadhyay, Arjun Kumar
Indian cities amidst the pandemic
Twenty-first century India is urbanizing at a massive scale. The country is expected to house half of its population in urban areas by the year 2040. Cities, especially the larger ones, have been placed at the centre of the economic growth strategies. However, the increasing pace of urbanization in India has not been matched by adequate planning, governance, and infrastructure development. The impacts of the COVID-19 pandemic have further exposed the shortcomings of Indian cities in addressing urban densification and the inadequacies of basic urban services including drinking water and sanitation.
The pandemic has disproportionately affected the urban poor. The cities, a.k.a., engines of economic growth have been derailed due to massive disruption in economic and related activities inflicted by COVID-19. Given the predominance of informal production and labour relations in the Indian cities, a cessation of major economic activities during the lockdowns and even beyond has had severe impacts on city dwellers’ livelihoods and earnings. Many survey reports have highlighted the economic hardships and humiliations faced by the migrants and the urban poor.
Budget 2021-22 & Urban India
The pandemic has provided a window of opportunity to rethink the glaring gaps in Indian cities and the policy rhetoric. In the backdrop of the pandemic, Finance Minister Ms Nirmala Sitharaman presented the Union Budget 2021-22 and acknowledged that it created an economic crisis and increased the plight of the citymakers. Through her announcements, she sought to facilitate greater allocations and attempted to reform the urban policies. In terms of financial allocation, the total budget estimate (BE) available for the urban development has experienced an increase of about 9 percent from Rs 50,040 crores in FY 2020-21 to Rs 54,581 crore in FY 2021–22.
However, the revised estimate (RE) for FY 2020-21 was Rs 46,791 crore, suggesting a decline from the budget estimates owing to the pandemic. The actual estimate (AE) for FY 2019-20 stood at Rs 42,054 crore. Understandably, the urban sector has been prioritized over the years and the allocations have seen a continued increase.
An important aspect of the growth in the urban sector budget 2021-22 has been the rise of capital expenditure, which stood at Rs 25,759 crores or around 47 percent of the urban BE. The urban sector RE for FY 2020-21 reports the capital expenditure at around 22 percent, as compared to the 42 percent as envisaged in the BE for the same, thereby highlighting the effect of the pandemic- especially on infrastructure projects.
Focus Missions: Jal Jeevan Mission and Swachh Bharat Mission 2.0
Given the importance of water supply and sanitation in making healthier cities, increased budgetary provisions under the second phase of the Swachh Bharat Mission (SBM 2.0), Jal Jeevan Mission (Urban) (JJM-U), and for controlling air pollution in 42 big cities having a population of more than one million are praiseworthy.
The JJM-U, with a budgetary provision of Rs 2,87,000 crore for five years, plans to provide 2.87 crore tap-water connections in 4,378 statutory towns and liquid waste management in 500 Atal Mission for Rejuvenation and Urban Transformation (AMRUT) cities.
Investment requirements of urban water supply do not match the available source of funding and historically, all such funding, projects and the institutions responsible for water have tended to focus on the creation of infrastructure (Water Aid, 2018). Universal access to water remains an issue in urban India as the advantage of the mere availability of water infrastructure is subdued either by a lack of access to the public piped water supply or by water supply being of poor quality, irregular and insufficient.
Many cities fail to prevent the wastage of 35 percent to 60 percent of the water meant for ordinary citizens due to malpractices by the citizens themselves and poor management of water infrastructure. The latter can be attributed to institutional fragmentation with regards to policymaking, financing and regulation of urban water supply. Therefore, better management of water supply through decentralized institutional and tariff rationalization, the schemes like JJM-U and SBM 2.0 would ensure sustainable and equitable water supply with specified quality standards and service level benchmarking.
With an outlay of Rs 1,41,000 crore for five years, the SBM 2.0, aims to achieve multiple objectives. These include: complete faecal sludge management and wastewater treatment, source segregation of garbage, reduction in single-use plastic, managing waste from construction and demolition activities, and bioremediation of garbage dump sites.
The BE outlay for SBM for the FY 2021-22 was Rs 2,300 crore, the same as that of FY 2020-21. The RE for FY 2020-21 for SBM was Rs 1,000 crore. Undoubtedly, the SBM 2.0 needs the implementation push and a committed approach. Essentially, the successes of SBM 1.0 with strong leadership have to be emulated again towards creating a clean and healthy urban India.
Towards New India’s Urban Infrastructure – Public Transport
Augmentation of transport infrastructure of the cities in the form of investment in metro rails and buses in the largest cities of the country such as Chennai, Bengaluru and Nagpur is an important hallmark of this year’s budget. The total BE outlay under the MRTS and Metro Projects head for the FY 2021-22 stood at Rs 23,500 crore of which Rs 23,282 crore was on the capital expenditure; there was a 17.5 percent rise in BE outlay for FY 2021-22 as compared to FY 2020-21. It should also be noted that for FY 202-21 the MRTS and Metro Projects had BE outlay of Rs 20,000 crore and the RE was Rs 9,000 crore, demonstrating the impact of the pandemic.
An amount of Rs 18,000 crore has been allocated for urban bus transport to include 20,000 additional buses in the city transport system. ‘Innovative’ Public-Private Partnership (PPP) model is envisaged to enable private sector players to enter the domain of bus services in the cities. Expansion of metro rail network has also been emphasized with the provision of counterpart funding for the extension of the metro rail networks of Kochi (Rs 1,957 crore), Chennai (Rs 63,246 crore), Bengaluru (Rs 14,788 crore), Nagpur (59,575 crore), and Nashik (Rs 2,092 crore).
Most importantly, in the case of both bus and rail-based infrastructural development, the budget extends the transport outlay to peripheral areas of Tier-1 cities primarily through the greener and cheaper light rail systems. These initiatives would not only shorten the travel time to work and thereby facilitate effective urban labour market integration but also entail positive impacts on the urban environment and public health.
The role of Indian urbanization would receive a further boost through the National Infrastructure Pipeline (NIP) that was announced last year. A combination of an investment outlay of over Rs 103 lakh crores and more than 7000 projects; several industrial corridors like Bharatmala, Sagarmala, etc.; a thrust on exports from each district and Make in India push through the Production Linked Incentive Scheme (PLI) covering 13 sectors, and; a financial outlay of around Rs 2 lakh crores under the AatmaNirbhar Bharat, have the potential to make a positive impact.
However, an overt emphasis on PPP causes some discomfort as the outcomes of such projects have had a mixed experience in Indian cities. Even under the Smart Cities Mission, the contribution of the private sector through the PPP initiatives has been approximately 20 percent of the total fund requirement. One of the main reasons for limited private investment in infrastructure is the absence of a revenue model, for example, through levy and collection of appropriate user charges and this, in turn, makes a large part of the urban infrastructure sector financially non-viable.
Lack of enabling PPP legislation, a multiplicity of agencies, lack of ability to select and structure a PPP project, lack of political will towards project implementation, and lack of citizen participation further complicates the entire process of formulation and implementation of PPPs.
In general, technically simple projects, with small gestation periods and lesser uncertainty have become successful in Indian cities. So, the key to this approach lies in implementation and execution- crafting a PPP model with a well-defined role of the private sector as well as clear visibility on both costs and risks leading to a higher probability of long-term project viability.
The vulnerability of the urban poor can be addressed through the adoption of an independent regulatory mechanism. This would facilitate accurate assessment as well as monitoring of cost of service delivery leveraging smart technology and use of a cross-subsidy model of differential user charges across different user groups to ensure cost recovery at an overall level.
Urban Rejuvenation Missions: Smart Cities & AMRUT
Smart Cities Mission (SCM) in India was launched in 2015 to attract investment, driving economic growth, improving the quality of life for people and thereby setting a virtuous circle of growth and development. However, even after the completion of five years, the physical progress of the SCM has been disappointing and the BE for SCM remains the same between the FY 2020-21 and 2021-22 at Rs 6,450 crore. The RE for FY 2020-21 for SCM was Rs 3,400 crore, almost half of the BE, suggesting a continued trend in the implementation lag.
Moreover, there has been no change in the budgetary provisions for AMRUT as well, the BE remains the same between the FY 2020-21 and 2021-22 at Rs 7,300 crore (RE for FY 2020-21 was Rs 6,450 crore). Overall, for the urban rejuvenation missions- SCM and AMRUT, the BE outlay was Rs 13,750 crore for the FY 2021-22, which was the same as FY 2020-21 (RE for FY 2020-21 was Rs 9,850 crore).
As opposed to the centralized “one-size-fits-all” approach of JNNURM, SCM and AMRUT provide, at least on paper, some degree of flexibility in the formulation, approval, and implementation of projects at the state and local level (Sadoway et al., 2018). The AMRUT statement delineates specific criteria for the selection of cities, reform conditionalities and financial provisions.
The Service Level Improvement Plans (SLIPs), containing the details of all such criteria, are evaluated and approved by the states and then combined into the State Annual Action Plan for approval by the Ministry. Similarly, city-specific plans under the SCM have greater scope for variations in program design and implementation. Nonetheless, the operationalization of these schemes portrays a worrisome picture.
As the city selection under the SCM is based on the city’s competence and smartness of the proposal, state actors engage themselves in a competitive mode to attract capital investment and to create new institutions that are directly controlled by state (regional) institutions to manage the new state space. Special Purpose Vehicles (SPVs), headed by a CEO and regulated by the Companies Act 2013, have been in charge of mission implementation.
The SPVs are headed by the state government officials and city governments do not have much role in the decision-making processes of the SCM projects, thus eventually weakening the municipal governance structure. There is some evidence that actual decision-making processes have fallen into a pattern of strict investment logic, resulting in preference to larger and costlier infrastructure over the needs of urban deprived communities (Baindur et al., 2019).
Several projects undertaken under the SCM (parking facilities or real estate development or commercial real estate or uses of water meters) seek to build the financial corpus of the city (Taraporevala, 2018). Given the SCM’s emphasis on the convergence of funds from other schemes, the possibility of transmission of the inherently unequal nature of fund allocation for Area Based Development projects into them will make all the policies more exclusionary. All these will likely have a regressive impact on the urban poor’s ability to access basic services.
Moreover, it has been observed that under AMRUT, the provision of ‘end to end support’ by the Project Development and Management Consultants (PDMCs) for planning, design, management and monitoring of urban projects will likely to lead to the splintering of resources away from the purview of democratic accountability (Sadoway et al., 2018).
Importantly, 45 smart cities in India have set up Integrated Command and Control Centres (ICCCs) as 24X7 war rooms for creating situational awareness and real-time coordination of emergency response services amid the COVID-19 crisis. In particular, these have been used as a single source for all pandemic-related action and measures (Bengaluru), tracing the infected patients as well as identifying the hotspots (Agra), providing telemedicine solutions (Kota), tracing peoples’ movement during lockdown period as well as the state of home quarantined people (Vadodara and Varanasi) and disseminating awareness videos (Kalyan Dombivali) and so on.
Acknowledging the loopholes in the implementation of SCM and AMRUT and some policy reorientation with emphasis on co-producing the bottom-up solutions could have been useful. The Budget 2021-22 launched the National Urban Digital Mission (NUDM1) and other digital initiatives for transforming urban governance.
PMAY: Housing for All by 2022 and Spurring the Urban Realty Sector!
Access to affordable housing is a major problem in Indian cities and, in general, the economically weaker sections and low-income households remain excluded from the housing market due to lack of access to credit and affordability as they are mainly engaged in the informal sector employment or are self-employed. The housing market and real estate were already suffering from several issues, including a trust deficit for consumers despite the RERA authorities coming up. COVID-19 has reignited the problems related to housing vulnerabilities of the urban poor, especially the otherwise invisible section of seasonal migrants. The pandemic has impacted the real estate and construction sector and highlighted the need for adequate housing.
The flagship program for urban housing – Pradhan Mantri Aawas Yojana – Urban (PMAY-U) – has not received any increased budgetary provision over the last financial year. For PMAY-U, the BE remains the same between the FY 2020-21 and 2021-22 at Rs 8,000 crore. The RE for FY 2020-21 for PMAY-U was a whopping Rs 21,000 crore, i.e. an increase of more than 160 percentage from the BE 2020-21 of Rs 8,000 crore.
As of February 2021, the housing sanction under PMAY-U stood at over 110 lakhs, of which over 73 lakhs houses were grounded and 42.7 lakh were completed, total housing demand being 112 lakhs. PMAY-U schemes, financed from Central Road and Infrastructure Fund (CRIE) has four verticals – (i) In-situ Slum Redevelopment (ISSR); (ii) Beneficiary-led Construction or enhancement (BLC); (iii) Affordable Housing in Partnership (AHP); and (iv) Credit Linked Subsidy Scheme (CLSS) (which is further categorized into CLSS I (for EWS and LIG) and CLSS II (for MIG). Among these verticals, the composition of sanctioned houses was 4.5, 68.7, 23.4, and 14.1 lakhs for ISSR, BLC, AHP, and CLSS respectively2. In CLSS, the houses sanctioned under CLSS I and II was 8.7 and 5.4 lakh, respectively.
For FY 2020-21, the BE for CLSS I and II were Rs 900 and 500 crores respectively, which was revised (RE) to Rs 3,750 and 3500 crores. The BE for CLSS for FY 2021-22 only has allocations for CLSS I, which is Rs 1000 crore. There has been a big push in the housing for the flagship scheme PMAY-U or Housing for All by 2022, and the resources have been also raised from Extra Budgetary Resources (EBR) such as the Affordable Housing Fund.
Budget 2021-22 has provided some indirect benefits for the urban housing sector as well. For instance, an additional deduction of interest amounting to Rs 1.5 lakhs for purchasing an affordable house and tax breaks for the developers of notified affordable housing projects as well as rental housing projects for one more year up to 31st March 2022, to increase the supply of affordable housing. Specific separate allocations to improve and ensure access to housing to migrant workers could have been more fruitful in tackling the housing shortages.
The Affordable Rental Housing Complexes (ARHCs3) for Migrants Workers/ Urban Poor scheme, which was launched last year amidst the migrant crisis during the lockdown did not see much push in the Budget 2021-22. PMAY beneficiaries have also faced issues due to corruption, delayed payments, lack of drainage facilities, garbage disposal; quality housing must be ensured beyond allocation. PMAY can respond to these concerns by in-situ slum development and upgaradtion. The comprehensive plan must overcome legislative hindrances, bureaucratic delays and increase amount under ISSR vertical.
Urban Poor & Pandemic Effect: Livelihoods in the Lurch
This year’s budget is also marked by the absence of any additional budgetary provisions for ongoing urban poverty alleviation programme like the Deendayal Antyodaya Yojana National Urban Livelihood Mission (DAY-NULM), whose BE for FY 2021-22 was Rs 795 crore, same as FY 2020-21 (RE for FY 2020-21 was Rs 795 crore).
The Prime Minister Street Vendor’s Aatmanirbhar Nidhi (PM SVANIDHI4), a central sector scheme, was launched in 2020, to help formalize the street vendors with the objectives- to facilitate working capital loan up to Rs 10,000; to incentivize regular repayment; and to reward digital transactions, that will open up new opportunities to street vendors such as hawkers, thelewala, rehriwala, theliphadwala etc. to move up the economic ladder. The estimate of urban street vendors in the country stood at over 70 lakhs. Till February 2021, more than 21 lakh loans have been sanctioned under PM SVANIDHI. It was allocated Rs 200 crore for FY 2021-22 and the RE for FY 2020-21 was Rs 142 crores.
Despite the success of MGNREGS scheme in providing some income security to the rural people and returned migrants and the cash transfer scheme PM-KISAN for farmer households (Rs 6,000 per annum), this budget has remained silent on any similar employment guarantee scheme or cash assistance in the urban areas. According to experts, providing employment guarantee or cash transfer to the urban poor has been the biggest miss of the Budget 2021-22. Although the financial outlay for such a scheme would amount to a financial burden to the tune of Rs 50,000 crores or more (as per Azim Premji University’s estimates), there are many issues such as identification of beneficiaries, design, etc.
There has been a renewed focus on this issue of urban and informal employment and social security through different schemes such as DAY-NULM, PM SVANIDHI, AatmaNirbhar Bharat packages, AatmaNirbhar Bharat Rozgar Yojana, EPFO, MSME Loans, MUDRA scheme, Standup India, Pradhan Mantri Gareeb Kalyan Yojana, Skill Mapping, Migrant Registry and surveys, ARHC, Online Job Fair, etc.
Yet, the budget seems to have missed the opportunity to channelize the much-needed resources to the citymakers who have lost their livelihoods during the outbreak of COVID-19. To speak of urban social security without comprehensively tackling the concerns of housing is missing the point. The state needs to build a comprehensive plan to tackle issues of congestion and affordability.
Fifteenth Finance Commission, Budget 2021 & Cities
Amidst the pandemic, the Budget 2021-22 and the Fifteenth Finance Commission (XV-FC) report have laid out transformative pathways for the cities of New India, with a budget and grant outlay of almost Rs 7 lakh crores over the next five years, for enabling to unlock the potential of our cities and instill Ease of Living and Ease of Doing Business and improving municipal performance.
Report of XV-FC has been tabled on the day of the budget presentation and, on a positive note, the XV-FC has significantly increased the overall outlay for the urban local bodies to Rs 1.21 lakh crore over the five years compared to Rs 87,000 crore during the Fourteenth Finance Commission period. Most importantly, the receipt of the grant is being made conditional upon publication of audited annual accounts and notification of floor rates for property tax.
Last year, the AatmaNirbhar Bharat Abhiyan linked Rs 50,000 crore of additional borrowing limits for states to reforms in property taxes and user charges for water and sanitation. These are expected to usher in the much-needed financial discipline among the urban local bodies to make them self-reliant. Although, the devolution of funds by the XV-FC based on performance has dampened the spirit of federalism. Centralization of urban property tax collection and reducing the autonomy in deciding floor rates negatively impact the local self-government at the urban level.
Empowering Cities towards New India #AatmaNirbharBharat
COVID-19 pandemic has highlighted the structural and institutional deficiencies in urban governance and management in India. India needs to invest in urban infrastructure to bridge the infrastructure investment deficit and to upgrade the quality of existing services, moreover, the greening dimension looking at the climate change and feasibility and financial viability aspects need immediate attention.
Institutional reforms are also crucial for involving the private sector in the provision and expansion of improved urban infrastructure. Such reform should start with an explicit focus on empowering the city governments by enhancing their capabilities to develop and implement strategies that are feasible and effective in their local contexts. Equal importance should be accorded to three Fs – functions, funds and functionaries to exploit the potential of urbanization to produce sustainable and inclusive growth and development in the new normal.
Therefore, the need of the hour is to empower the city governments by enhancing their capabilities to develop and implement their strategies that are feasible and effective in their contexts. With appropriate regulatory and institutional reforms, Indian cities can become capable to exploit the potential of urbanization, producing sustainable and inclusive growth and development.
When we compare Indian urbanization with China and other major economies, there is much to learn in terms of scale, implementation, good practices, technology, innovation, data, smartness, and so on. Therefore, Indian cities should lead by example, compete with world-class cities and harness international partnerships for shared prosperity, universal values and cooperation. The recent approach of making our cities compete among themselves by various periodic rankings such as Swachh Survekshan, Ease of Living Index, Municipal Performance Index and so on, has demonstrated limited impact. Time and again, the various global ranking of cities reports the precarious state of our cities.
Certainly, the Budget 2021-22 and the XV-FC report have ushered in a renewed era for the urban sector. Financially empowered city governments with a clear functional domain and adequate institutional capacity for effective implementation can bring “AatmaVishwas” to our cities which can, in turn, lead us towards fulfilling the vision of a New India 2047 and #AatmaNirbharBharat.
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About the Authors
Dr. Soumyadip Chattopadhyay is Associate Professor of Economics, Visva Bharti University, Santi Niketan, and Senior Fellow at IMPRI Impact and Policy Research Institute, New Delhi
Dr Arjun Kumar (firstname.lastname@example.org) is Director, IMPRI and China India Visiting Scholars (CIVS) Fellow at Ashoka University & Asian Century Foundation
Picture courtesy: Anton Petrus