Making every Budget rupee count for cities: Fresh ideas needed for impact

As the dust settles on this year’s Budget allocation discussions, let’s look at a few measures that need attention from the three tiers of government and other involved agencies to get the most bang for the buck from allocations meant for India’s cities. 

Allocation for the urban affairs ministry has remained around 2 per cent of the Budget outlay, as it has been over the past few years.  But its distribution across urban sub-sectors and initiatives has changed. The share for urban housing has declined, with new schemes being slow to take off and the focus remaining on completing houses under earlier schemes. The share of transport, notably Metro rail, and basic services sectors has increased, as these schemes continue at a steady pace. The Smart Cities mission has been discontinued, while the Urban Challenge Fund, which also aims to re-vitalise cities, is an addition. 

Starting with urban housing, allocations have been made for subsidies under three schemes — PMAY-U Phase 1, which has been ongoing since 2015, PMAY-U Phase 2, and industrial housing schemes announced last year. More than three-fourths of the urban housing allocation is earmarked for subsidies to complete houses under PMAY-U Phase 1. With 3.2 million houses still pending, it is pragmatic to prioritise their completion before launching major new housing initiatives. 

  This is exactly what this Budget has done. However, these to-be-completed houses, primarily catering to economically weaker section (EWS) households (i.e. those with an annual income of ₹3 lakh or less), involve a subsidy component that reduces the construction cost borne by households. This subsidy has remained unchanged since 2015, but with rising construction costs, the beneficiary share has increased. 

  So, households now need access to more funds than before. One way to address this is by enhancing their access to affordable home loans. Research on PMAY-U Phase 1 has flagged the lack of access to such loans as a critical challenge for EWS households. It is, therefore, essential to ensure that PMAY-U Phase 1 beneficiaries have easier access to affordable home loans than they did previously. 

  Allocations for PMAY-U Phase 2 are solely for the home loan interest subsidy scheme (ISS), which reduces the EMI payable by households. Seventy per cent of the allocation is meant for EWS and low-income group (annual income between ₹3 lakh and ₹6 lakh) households, and the remaining for middle-income group (annual income between ₹6 lakh and 9 ₹lakh) households. Research at CSEP indicates that under a similar home loan subsidy scheme in PMAY-U Phase 1, only 21 per cent of the beneficiaries were EWS households. Greater attention is needed to ensure a higher proportion of EWS households are covered under PMAY-U Phase 2 than in Phase 1. Enabling easier access to home loans from financial institutions for these households is key in Phase 2 as well.

  Allocations for industrial housing are meant for subsidising the development (in collaboration with industries) of rental housing for industrial workers. While this will give a boost to industrial growth and employment, it can also go one step further and boost the overall rental housing availability. Developing rental units for the general public alongside those for industrial workers within the same project could provide housing for workers in the supporting service enterprises that emerge around factories. This approach would help curb the growth of unauthorised and unplanned housing as industrial hubs evolve into cities. 

  Metro rail is the lifeline for many city residents and has seen a steady rise in budgetary allocations over the years. While some experts debate the metro’s effectiveness compared to buses for smaller metro cities, it is undeniable that metro lines will become increasingly vital as these cities grow denser and larger over time. Life and livelihoods for most residents in big cities like Delhi, Mumbai, and Bengaluru is unthinkable without the metro at present. What needs priority now is well-planned, denser development along metro lines. Initiatives like the Delhi Master Plan 2041, which strongly emphasises transit-oriented development but is still in the draft stage, must be implemented without further delay. Only then will metro trains not only enhance transportation but also improve the overall quality of life for city dwellers. 

  Capital investments for the provision of basic urban services like water, sanitation, and solid waste management are covered under the AMRUT and  Swachh Bharat Mission schemes. In addition, the newly launched Urban Challenge Fund also has provisions for spending on water and sanitation projects. To make the most of the government allocations, urban local bodies (ULBs) should be able to supplement these with investments from the private sector. 

  ULBs will be able to do so if their creditworthiness improves. A good-to-have condition is that their own revenues—from tax and non-tax sources—cover their recurring day-to-day expenditures on salaries, pensions, and the operation and maintenance of physical assets like water pumping stations and sewage treatment plants. These expenses fall under “revenue expenditure”.

  According to an ICRIER report, in 2017-18, the total revenue expenditure across India’s more than 4,000 ULBs exceeded their total own revenues by ₹5,000 crore. But bridging this gap is not entirely up to the ULBs. For instance, more than three decades have passed since the 74th amendment, yet any revision in the ULBs primary source of own revenue — i.e. property tax — still needs the state government nod, in most states. So, the political and administrative goals of the state government have to align with that of the ULBs. Such alignment across domains is required not only for making the most of this year’s Union Budget allocations, but also for achieving India’s growth ambitions through its cities. 

The author is visiting fellow at CSEP. The views are personal