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Financing Of Urban Infrastructure In India – Issues And Way Forward: Dr.Ravikant Joshi – IMPRI Impact And Policy Research Institute

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Financing of Urban Infrastructure in India - Issues and Way Forward

Session Report
Savleen Kaur

A one-month immersive online introductory certificate training course: Urban Policy & City Planning is organized by IMPRI (Impact Policy and Research Institute), Centre for Habitat, Urban and Regional Studies. The program is chaired by Dr. Rumi Aijaz and convened by Dr. Soumyadip Chattopadhyay, Dr. Tikender Singh, Mr. Sameer Unhale, Dr. Arjun Kumar, and Dr. Simi Mehta. Day 3 of the illuminating program began with a session by Dr. Ravikant Joshi on the theme ‘Economy, Finance, Infrastructure, Practice, and building environment’. He particularly touched upon the topic ‘Financing of Urban Infrastructure in India – Issues and Way Forward’.

Introduction of Urban Infrastructure

 The session began with an introduction to the importance of financing infrastructure around the globe and in India and how more than 50% of the world’s GDP is accounted for by cities around d the world. Dr. Joshi discussed how cities are responsible for more than 70% of the global CO2 production and hence are one of the key factors that contribute towards climate change. He also shared how a transformed and well-developed city and urban infrastructure can increase the society’s level of economic welfare. The paradoxical issue of building infrastructure and well-developed cities and also creating a sustainable and climate-resilient plan was also touched upon by him.

Case Study: India

Dr. Joshi further elaborated on the Indian context and how Indian cities require an estimated capital investment of USD 840 billion in urban infrastructure and municipal services in the 15 years till 2036. This is equivalent to 1.18% of the estimated gross domestic product (GDP) over this period. One of the key hurdles behind this estimation lies in the fact that it only considers the conventional infrastructure and does not take into account the low-emission, climate-resilient factors that are needed to build sustainable cities.

The session continued with a deeper look into the financing structure and demographics of urban infrastructure from 2011-18. It can be observed that merely 0.8% of GDP has been contributed towards the financing requirements of infrastructure and the structure of this investment is as follows:

  • Centre and state-funded 72% investment
  • 15% came from the surplus of ULBs
  • Other sources- 8% HUDCO loans, 3% PPP, 2& commercial debt

Issues with India

Issues of financing urban infrastructure in India further shone a light upon where one of the major hurdles was there minuscule share of municipal finance which remained much lower than national and state finance from 2002-2018. Additionally, the share of investment remained stagnant at 0.6-0.7% throughout the given period.

The shrinking of urban local bodies has also been one of the main issues in urban infrastructure investment and cities are mainly being financed by national bodies rather than local regulatory bodies. Urban financing has also been disproportionate and skewed and the four states which account for 38% of the population namely Gujrat, Maharashtra, Tamil Nadu, and Karnataka hold 60% of the urban investment. Moreover, urban local bodies are unable to augment their resources

All this is further accompanied by the inability of the government of India to devolve funds and the inability of UBLs to absorb funds. The GOI has only released 54% of the funds of what it was supposed to and the total utilization against the project outlays is only 30%.

Municipal bodies have not been able to leverage their resources and the urban local bodies have also not been able to leverage funds due to lack of creditworthiness. Also, the role of public-private partnerships (PPP) has reduced to null after a peak in 2009-2012 due to a great collapse in the risk appetite of the public sector.\

Way Forward for India

Dr. Joshi continued the session with an enlightening dialogue on the solutions to the hurdles discussed before and a way forward. The GOI must step up their transfers for urban infrastructure investment to ULB and the shrinking space of municipal finance must be remedied by giving additional resources to ULBs and augmenting revenue from existing sources.

Also, special efforts must be undertaken to reduce the disproportionate and skewed financing amongst states and link incentives to increase OSRs by ULBs. Policy and regulatory enablers must be set up for borrowing and programmatic efforts must be undertaken to enable ULBs to capture the capital market. Additionally, financial management, project management, budgetary reforms, and capacity building of ULBs must be ensured.

The role of PPP must be enhanced strategically and the impact of GST must be remedied through constitutional amendments. Lastly, the adoption of the FRBM Act (Financial Accountability and Sustainability Framework) and decentralization must be considered and implemented effectively.

Conclusion

The session was concluded with a conclusory and thanking note by Dr. Rumi Aijaz who reinstated the importance of ULBs in populous countries like India and how decentralization of power and regulation is essential for a sustainable environment. Although the government of India has been running various programs for the financial empowerment of ULBs this transformation has been taking place at a very gradual pace.

At last, a brief QnA session took place which posed questions on how the private sector impacts urban policy and how the government may affect the local level positively or negatively, how CSR funds may impact the financing of healthcare infrastructure in India, and the role of market instruments such as TDR or TR and the nexus between politicians, bureaucrats and developers and builders in cities like Mumbai and finally the role of municipal bonds in India. With this, the session came to a fruitful end.

Savleen Kaur is a Research Intern at IMPRI.

Read more session reports for Urban Policy & City Planning:

An overview of Urban planning in India

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