Financing India’s Urban Infrastructure

Urban Infrastructure Highlights of The Report

• Rapid Urbanization: By 2036, 600 million people will be living in urban cities in India, representing 40% of the total population, up from 31% in 2011.
  • Population growth in urban areas will account for three quarters of the total national population increase in the 25- year period from 2011 to 2036.
  • This rapid urbanization, along with existing service delivery gaps, is putting substantial pressure on infrastructure and livability in cities.
• Current urban infrastructure financing landscape in India:

• Required investments to meet India’s urbanization needs:
  • India would need to invest $840 billion over the next 15 years, that is, an average of $55 billion each year, to meet the demands of its fast-growing urban population.
  • Over half of these investment needs are in basic municipal services e., water supply, sewerage, municipal solid waste management (SWM), storm water drainage, urban roads and street lighting, while the rest are for mass transit.
• Huge financing gap:
  • Total capital expenditure in urban infrastructure averaged only 6% of GDP in the past decade (2011-18) which is still four times less than the estimated needs.
  • Current levels of spending also appear to be below international comparators, with China’s investment in urban infrastructure averaging 8% of GDP during the period 2000-14.
• Slow Implementation of Centre’s Flagship Urban Missions:
  • There has also been slow implementation performance by states and Urban Local Bodies (ULBs) on several of the Centre’s flagship Urban Missions— such as the Smart Cities Mission (SCM) and the Pradhan Mantri Awas Yojana (PMAY) for instance— due to constraints on implementation capacity at the city level.
  • ULBs across India have so far executed only about one-fifth of the cumulative cost or outlay of approved projects under SCM and Atal Mission for Rejuvenation and Urban Transformation (AMRUT) over the last six financial years.
• The unfulfilled promise of PPPs:
  • PPP transactions for urban infrastructure have seen a marked decline in the last decade both in monetary value and transaction volume.
  • Only one-third of all PPP investments awarded since 2000 came in the last decade.

Urban Infrastructure in India

Key factors impacting private financing for Urban Infrastructure in India:

Primary Constraints

The primary constraints preventing higher volume of private financing for urban infrastructure in India are on the demand side. These are:

• The policy and political economy decisions impacting revenue levels and funding base for private financing;
• Weak absorptive and implementation capacity of city agencies for capital expenditure;
• The restrictive inter-governmental framework which reduces accountability and incentives for city agencies to invest more ambitiously in infrastructure.
• State-level regulatory and policy factors which intermediate demand and supply of finance.

Secondary Constraints

• The primary constraints are  aggravated by a set of secondary constraints including factors related to the financial market that dampen supply of finance, and weak financial management and fiduciary performance.
• Recommendations by the report: The report recommended proposals for policy actions along two pathways: structural reforms and incremental actions:

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