We Have Overlooked Social Infrastructure

Q: After 18 years at Hudco, how do you perceive the growth of the housing sector over the last 50 years?

A: Even after 50 years, nearly 85 per cent of the Indian population lives in villages. Only 15 per cent live in cities. Providing housing and shelter, the third basic need after food and clothing, continues to be a daunting task. Fifty years back we had a population of around 33 crore, at present it is 95 crore. Urbanisation on the other hand has reached 27.5 per cent, and in the next three years it is expected to reach 33.4 per cent. This urban population will be concentrated in 7 per cent of the total land area of the country consisting of the six mega cities, with a population of over 40 lakh and 40 metropolitan cities and over 3,700 small and medium towns. This is essentially an urbanisation issue and it brings with it all the attendant problems of deficiency of safe drinking water, sewage, traffic bottlenecks and pollution.

 

Q: What went wrong?

A: We have largely overlooked social infrastructure like health and education facilities. Whenever people talk of infrastructure in a macro context, the prime concern is intercity roads, ports and telecom. The problem of urban city level infrastructure and industrial cities is not raised. The India Infrastructure Report talks about the quantum of investment required for the next 10 years. The Rakesh Mohan Committee has identified city level infrastructure as water supply and sewage, drainage and solid waste removal systems. Providing water supply alone would require Rs 38,000 crore.

Q: What are the needs of the housing sector in the next five years?

A: The working group on housing for the Ninth Plan has estimated that 33 million houses have to be provided in the next five years. Out of this, 16.75 million under urban housing, 10.04 million for weaker sections, 4.98 million for lower income groups and another 1.73 million houses for middle and high income groups. This means providing 6.5 million houses per year.

Q: What is the estimated fund requirement for this?

A: The Ninth Plan has estimated Rs 2,80,350 crore as investment required in urban infrastructure in the next 10 years. This is to clear the backlog upto 1995, fresh investment and the cost of operation and maintenance. However, the actual availability of funds is only one-tenth of the amount. A massive scaling of finance is required for the urban infrastructure sector. All infrastructure projects should be put on a common mode like users pay and polluters pay. If the cities get the infrastructure they deserve, they have to pay the price now. If they are asked to pay later, it will involve a much higher cost both in terms of resources and environmental degradation. Investment in infrastructure will be offset by the investment on prevention of the effect on environment.

For housing alone, the fund requirement is estimated to be Rs 1,50,000 crore. This includes Rs 1,21,371 crore for urban housing and another Rs 28,700 crore to build rural houses for the weaker sections. However, only around Rs 52,000 crore is likely to be available in the next five years. Out of this, Rs 34,000 crore will be for urban and Rs 18,000 crore for rural housing. All this points out to the need to adopt innovative methodology to raise finance. The most crucial aspect is balancing the requirement for long-term funds with the availability of short-term borrowings.

Q: What are the alternative methods of raising resources?

A: This would require two things: commercialisation of all infrastructure projects and privatisation of public-private partnerships. Commercialisation would make it necessary for user charges to be paid. Take for example, a project for providing a supply of clean water. This again may involve two parts one the initial connection charge and the other, a consumption charge or tariff based on the consumption of water in each household.

Similarly, in the case of sewerage and drainage, a cess on sewer connection charges could be introduced. A beginning has been made in Ahmedabad, Vijaywada and Jalgaon, where a development cess is levied on sewer and drainage. Also, for suburban railway stations, commercial centres can be developed since land is a resource. Like the Belapur railway station in Vashi, Navi Mumbai. CIDCO has made it both viable and profitable. At Calicut and Cochin airports, a surcharge on tickets has been proposed to make the project viable. In such projects, what is important is that a dedicated stream of financial flows is ensured whether in the form of octroi or property tax.

Secondly, public-private partnerships could be adopted for the present. This has also been suggested by the India Infrastructure Report.

In water supply projects, for example, it is possible to privatise sourcing, treatment and bulk supply. The retail distribution and pricing may remain with the public sector. Likewise, the process of solid waste disposal can be privatised fully while maintenance of roads can be entrusted to the private sector, subject to quality control. The expert group has also recommended that a state level Nodal Infrastructure Financing Corporation be set up to channelise funds available from various sources and under various programmes to various municipalities.

We also need private entrepreneurs in waste water recycling. There is not one project at the city level for such schemes. Then there is the need to develop innovative city transport systems. Since these are to be implemented on a Build Own Operate and Transfer (Boot)/Build Own Operate (BOO) basis, it is not only expertise in highway or environment engineering but also financial engineering that is needed to make the project viable.

One basic requirement is ensuring there are remunerative inflows to pay for the basic investment in the project. The development of infrastructural facilities also involves not only running and maintaining it, but also ensuring collection of appropriate user charges. We have had some success in telecom and power but not in waste water recycling or sewerage.

To begin with, Indian entrepreneurs could come together to form a joint venture for such projects. Two or three years later, institutions like Hudco can take over. This will require peoples partnership with non-government organisations (NGOs), central government organisations as well as private initiative. We have to learn from the experience of British and French water companies.

Q: What about the Infrastructure Development Finance Corporation (IDFC)?

A: We are eagerly waiting for IDFC plans to cover urban infrastructure. But there is general concern that IDFC funds will predominantly be tapped by core infrastructure needs like telecom, power, roads and ports. The genuine needs of the city level urban infrastructure and new townships may get reduced attention.

We hope at least 25 per cent of the IDFC flows get into city level infrastructure needs. However, the whole thing is in a flux. Hudco is looking for a partnership with IDFC for development of city level infrastructure, keeping in view its impressive track record in the last seven years. It has completed over 495 projects covering all infrastructure sectors with a Rs 3,800 crore loan assistance from Hudco. Over the next five years, we plan to extend fresh assistance worth Rs 5,800 crore for urban infrastructure.

Q: What role will Hudco play in providing funds to the housing sector? What are your targets for the current year?

A: Hudco has decided to increase the size of its equity by Rs 400 crore in stages from the present Rs 350 to Rs 750 crore during the Ninth Plan period. This will vastly improve our resource mobilising strength. The company has also decided to go in for a quantum leap in fresh financial sanctions to the tune of Rs 14,746 crore.

Hudco has fixed a resource mobilisation target of Rs 1,350 crore for 1997-98 as against Rs 1,248 crore for 1996-97. Its target for loan sanctions has been fixed at Rs 2,050 crore with a provision for disbursement of over Rs 2,020 crore for 1997-98, according to the MoU between Hudco and the ministry of urban affairs and employment.

We will provide medium and long-term finance and technical assistance in the housing sector, to finance and support housing and urban infrastructure projects and innovative and cost effective building materials and technology-related projects.

Of this, actual physical disbursement has been fixed at Rs 12,535 crore. This implies that Hudco will have to disburse around Rs 2,500 crore to Rs 3,000 crore in each year of the Ninth Plan.

For mobilisation of resources, Hudco has decided to take up the flexible basket approach and tap both the domestic as well as the international capital market for funds. The ratio between domestic and international borrowing has been broadly pegged at 85:15.

Q: Which are the multilateral agencies coming forward to extend a line of credit?

A: Hudco is eyeing an institutional loan from the Asian Development Bank (ADB) which, later this year, is expected to extend a $250 to $300 million external line of credit to the three premier institutions in the housing sector NHB, HDFC and Hudco. Of this, Hudco is likely to secure a $150 million line of credit.

Besides this, OECF of Japan, KfW of Germany, USAID and the Overseas Development Administration (ODA) of the UK have also extended lines of credit. In the current year, KfW is likely to release two additional tranches of DM 80 million each, out of its total assistance of DM 230. The OECF has also sanctioned a housing loan of 8.7 billion yen.

We are eagerly waiting for IDFC plans to cover urban infrastructure. But there is general concern that IDFC funds will predominantly be tapped by core infrastructure needs like telecom, power, roads and ports.