Introduction

• Urban Population Growth:
  • Expected to double from 400 million to 800 million over the next three decades.
  • Significant opportunity to transform India’s urban landscape.
• Urban Infrastructure Financing Gap:
  • Estimated requirement: ₹70 lakh crore by 2036 (World Bank report).
  • Current investment: ₹1.3 lakh crore annually (2018 figures).
  • Funding shortfall: Only 27% of the required ₹4.6 lakh crore annually is available.
  • Allocation breakdown: 50% for basic urban services, 50% for urban transport.

Challenges in Urban Infrastructure Financing

1. Stagnant Municipal Finances

• Municipal finance has remained at 1% of GDP since 2002.
• Funding Sources:
  • 45% of urban investments by municipal bodies, remaining by parastatal agencies.
  • Central and State transfers increased (37% to 44%), but municipalities’ own revenue share dropped (51% to 43%).
• Limited Revenue Growth (2010–2018):
  • Tax revenue: 8% increase.
  • Grants: 14% increase.
  • Non-tax revenue: 10.5% increase.

2. Inefficient Tax Collection

• Low Collection Rates:
  • ULBs in Bengaluru and Jaipur collect only 5%-20% of potential tax revenue.
  • Nationwide property tax collection: ₹25,000 crore (~0.15% of GDP).
• Cost Recovery Gaps:
  • Services cost recovery ranges from 20%-50%.

3. Low Absorptive Capacity

• Unspent Revenue:
  • 23% of municipal revenue remains unused (Fifteenth Finance Commission).
  • Example: Hyderabad and Chennai spent only 50% of their capital expenditure budgets (2018–19).
• Underutilization of Central Schemes:
  • AMRUT: 80% utilization.
  • Smart Cities Mission: 70% utilization.

4. Decline in Public-Private Partnerships (PPPs)

• Reduction in PPP Investments:
  • Peak (2012): ₹8,353 crore.
  • Fall (2018): ₹467 crore.
• Viability Challenges:
  • Dependent on project-specific revenues and viability funding.

The Way Forward: Reform Measures

1. Structural Reforms (Long-Term Measures)

• Strengthen State Finance Commissions:
  • Enhance autonomy and capacity of municipalities.
• Empower Municipal Governments:
  • Greater financial and administrative autonomy to improve resource allocation.
  • Mechanisms like debt borrowing and municipal bonds to attract private capital.

2. Medium-Term Measures

• Develop a Project Pipeline:
  • Investment Framework: 15% (~250–300 PPP projects annually).
  • Pipeline Requirement: 600–800 projects.
• Decouple Project Preparation from Financial Assistance:
  • Ensure projects are financially, socially, and environmentally sustainable.
• Leverage Digital Public Infrastructure (DPI):
  • Modernize urban services like public transport using digital tools.
• Capture Land Value in Urban Transport Projects:
  • Integrate metro and rail projects with urban development for efficiency.

Collaboration: The Key to Success

• Stakeholder Engagement:
  • Collaboration among all government levels and the private sector.
  • Focus on innovation and governance efficiency.
• Urgent Action Required:
  • Address financial and structural challenges to meet urban infrastructure demands.
  • Build a sustainable and inclusive urban landscape for the future.