 "infrastructure, construction, infra")
India’s urban infrastructure would require an investment of $840 billion – that is, 1.18 per cent of the estimated GDP – over a period of 15 years till 2036, according to a World Bank report released on Monday.
The report, titled “Financing India’s Infrastructure Needs: Constraints to Commercial Financing and Prospects for Policy Action”, says India’s capital expenditure in urban infrastructure averaged 0.63 per cent of the GDP between 2011 and 2018.
Urban Local Bodies (ULBs) set up under the 74th amendment of the Constitution are administered to provide basic infrastructure services to people in urban areas.
A Business Standard analysis shows that expenditure by ULBs had declined by 16.13 per cent in 2019-20 to Rs 2281.04 crore from the previous year. In 2019-20, human resource expenses accounted for 47.04 per cent share of the total expenditure, followed by development/programme expenses (31.42 per cent).
With India moving towards urbanisation, its requirement for financing is also increasing. By 2030, 600 million people will be living in cities in India, representing 40 per cent of the population, says the report.
It also shows that state governments have remained the primary source of funds for capital expenditure by ULBs.
ULBs finance 15 per cent of the city infrastructure through their own surplus revenues. Over 75 per cent is financed by the central and state governments.
Between FY11 and FY18, the revenue of ULBs has remained at around 1 per cent of GDP. The analysis shows that grants from the government have remained the main source of revenue for ULBs, i.e., 50.22 per cent between 2015-20. Own revenue’s share was 30.04 per cent in the same period.
Own revenue of ULBs declined by 47.24 per cent to Rs 876.36 crore in 2019-20 from the previous year.
Further analysis shows that the own revenue of ULBs falls short of meeting their revenue expenditure. In 2019-20, own revenue was short of Rs 688 crore for meeting the revenue expenditure of ULBs.
The World Bank report has defined India’s policy framework for municipal borrowing as a “poorly-defined system” when compared to other countries, such as the United States, South Africa, Poland and the United Kingdom, which have a “well-defined system”.
“Cities in India need large amounts of financing to promote green, smart, inclusive, and sustainable urbanisation. Creating a conducive environment for ULBs, especially large and creditworthy ones, to borrow more from private sources will therefore be critical to ensuring that cities are able to improve living standards of their growing populations in a sustainable manner," said Auguste Tano Kouamé, country director, World Bank, India.
Only five per cent of the infrastructure needs of the cities are financed through private sources.
Municipal bonds account for a marginal share in debt financing, according to the World Bank report. Last week, the Reserve Bank of India said that the listing of municipal bonds in the stock exchange will help in raising funds for urban development.
To overcome the lack of private investments in urban infrastructure, the World Bank report has proposed a “targeted action” towards 28 “high potential” cities, among many others, to overcome the financing constraints.
The report suggests that the central government can establish a “Cities Investment Support Unit” for ongoing support to state and city governments. The unit will be responsible for planning capital investment, and debt management, among others.
