India’s urban infrastructure financing, needs and reality

India's urban population is expected to grow from 400 million in the last decade to 800 million over the next three decades, presenting both an opportunity and a challenge for urban infrastructure. The World Bank report estimates India will require Rs 70 lakh crore by 2036 to meet its urban infrastructure needs. However, the current government investment is far from sufficient, creating a significant funding gap. The financial and administrative challenges faced by municipal bodies in managing urban infrastructure are highlighted in recent reports, emphasizing the need for reforms.

Financial Challenges for Urban Infrastructure

• Investment Shortfall: The World Bank estimates India will need Rs 4.6 lakh crore annually to meet urban infrastructure requirements, while current government investment stands at only Rs 1.3 lakh crore, less than one-fourth of the required amount.
• Municipal Finance Issues: Municipal finance has stagnated at 1% of GDP since 2002, with tax revenue growth of only 8% between 2010-2018. The share of municipalities' own revenue sources has also declined from 51% to 43%.
• Collection Inefficiencies: Urban Local Bodies (ULBs) like Bengaluru and Jaipur collect only 5%-20% of their potential tax revenue, and nationwide property tax collection stands at just Rs 25,000 crore, 0.15% of GDP.

Challenges in Utilization and Public-Private Partnerships (PPP)

• Low Absorptive Capacity: Major cities like Hyderabad and Chennai only managed to utilize 50% of their capital expenditure budgets in 2018-19, indicating inefficiencies in utilizing allocated funds for urban development.
• Central Scheme Utilization: Schemes like the Smart Cities Mission and AMRUT show suboptimal fund utilization, with AMRUT achieving 80% and Smart Cities Mission reaching only 70%.
• Decline in PPPs: Investment through Public-Private Partnerships (PPPs) plummeted from Rs 8,353 crore in 2012 to just Rs 467 crore in 2018, reflecting reduced attractiveness due to lack of project-specific revenues and viability funding.

Measures for Sustainable Urban Infrastructure Development

• Structural Reforms: Strengthening state finance commissions and empowering municipal governments with greater autonomy are key to ensuring better financial management and resource allocation for urban development.
• Robust Project Pipeline: A clear pipeline of 600-800 urban projects is necessary to meet the Rs 70 lakh crore investment goal, with 15% of the funding coming from PPPs.
• Leveraging Digital Public Infrastructure: Implementing Digital Public Infrastructure (DPI) for better urban service delivery, particularly in public transport, can improve operational efficiency and management.

Practice Question:

Q. India faces significant financial challenges in meeting the urban infrastructure needs of its growing population. Discuss the key issues related to municipal finances, the role of Public-Private Partnerships, and suggest measures for sustainable urban infrastructure development.