| PYQ Relevance: Q) What are ‘Smart Cities’? examine their relevance for urban development in India. Will it increase rural-urban differences? Give arguments for ‘Smart Villages’ in the light of PURA and RURBAN Mission.(UPSC CSE 2024) |
Mentor’s Comment: UPSC Mains have focused on Urbanization with various dimensions across ‘Population and Pollution challenges’ (in 2024), and degradation in standard of living due to ‘Unavailability of Infrastructure’ (2016-18).
A recent World Bank report estimates that India will need approximately ₹70 lakh crore by 2036 to address its urban infrastructure demands. However, current government investment in this sector is only about ₹1.3 lakh crore annually, which is just over one-fourth of the required ₹4.6 lakh crore per year.
Today’s editorial focuses on the critical state of India’s urban infrastructure financing landscape. This content can be used while giving recommendations for ‘innovative financing strategies and strengthen ULBs’ capacities’.
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Let’s learn!
Why in the News?
India is experiencing rapid urbanization, with projections indicating that approximately 600 million people will reside in cities by 2036. This surge places immense pressure on urban infrastructure, necessitating substantial investments to meet the demands of this growing population.
| What are the current financing gaps in urban infrastructure in India? • India’s urban infrastructure requires an estimated $840 billion over the next 15 years, averaging $55 billion annually. • Present Scenario: ○ Basic Municipal Services: Approximately $450 billion is needed for essential services such as water supply, sewerage, solid waste management, and urban roads. ○ Current Funding Sources: ◘ State Governments: 48% ◘ Central Government: 24% ◘ Urban Local Bodies (ULBs): 15% ◘ Public-Private Partnerships (PPP) and Commercial Debt: Remaining sources. |
What are the key constraints hindering private investment in urban infrastructure?
- Weak Financial Health of ULBs: Many urban local bodies struggle with chronic fiscal deficits and cannot raise adequate resources from internal budgets.
- For example, in Kanpur and Lucknow, ULBs have reported deficits due to low revenue generation from property taxes and other local sources.
- Limited Use of Commercial Financing: Although measures have been taken to enable commercial financing, its application remains minimal even in financially robust cities. Currently, commercial financing accounts for only 5% of urban infrastructure funding.
- For example, Municipal bonds have been issued by some cities, such as Pune, to fund water supply projects; however, these instances are rare.
- Low Service Charges: The low cost of municipal services undermines financial sustainability, making it difficult for ULBs to recover operational costs and invest in infrastructure improvements.
- In many Indian cities, water supply charges are significantly lower than the actual cost of service delivery.
- For instance, a study found that while the cost of providing water services in a city may be ₹50 per kiloliter, ULBs often charge only ₹10 per kiloliter.
| Steps Taken for Urban Development: • Budget 2024-25: Creation of TOD plans for 14 major cities with populations above 30 lakh. Rs 2.2 lakh crore central assistance for urban housing over five years, with interest subsidies for affordable loans. • Smart Cities Mission: Develops 100 cities using smart solutions to enhance infrastructure and services, focusing on water supply, sanitation, waste management, urban mobility, and e-governance. • AMRUT (Atal Mission for Rejuvenation and Urban Transformation): Targets 500 cities to improve basic infrastructure services like water supply, sewerage, urban transport, and green spaces. • Swachh Bharat Mission (Urban): Aim to eliminate open defecation, improve solid waste management, and raise sanitation awareness through toilet construction and modern waste management practices. • Scheme for Special Assistance to States for Capital Investment (2023-24): Rs 15000 crore to enhance urban planning through human resource development, town planning schemes, modernization of building bylaws, in-situ slum rehabilitation, TOD, and strengthening urban ecosystems. |
What policies and collaborations are required?
- Enhancing the Creditworthiness of ULBs: ULBs must improve their financial practices and credit ratings to attract private investments.
- For example, the strong financial standing allows Brihanmumbai Municipal Corporation (BMC) to attract PPPs and private funding more effectively than less financially stable ULBs.
- Developing a Municipal Bond Market: Encouraging the issuance of municipal bonds can provide a significant source of funding for infrastructure projects.
- For example, the Pune Municipal Corporation successfully raised ₹2 billion through municipal bonds to partially fund a ₹29 billion project to provide 24×7 water supply to its citizens.
- Leveraging Public-Private Partnerships (PPP): Expanding the role of PPPs can mobilize private capital while sharing risks associated with large-scale infrastructure projects.
- For example, the New Delhi Municipal Corporation (NDMC) has implemented a PPP model for constructing Public Toilet Utilities (PTUs).
- Innovative Financing Structures: Implementing mixed financing approaches that combine government funding with private investments can create a more sustainable funding model for urban infrastructure. Pooled finance mechanisms have been introduced in states like Tamil Nadu and Karnataka.
Hence, with a projected investment need of $840 billion over the next 15 years, it is imperative for policymakers to adopt innovative financing strategies and strengthen ULBs’ capacities. By doing so, India can pave the way for resilient, inclusive cities that support economic growth and improve quality of life for its citizens.
