Financing New Urban India challenges & solutions

As we embark on ‘New Urban Agenda” and proceed to institutionalize and localise development initiative, India has to play a very important role. We must take the challenge head on and ensure that we meet the commitments made at international forums. India must take a lead to drive the global effort to mitigate the challenges

The Indian urban population is growing every day. People are migrating to cities in search of better opportunities. Even if we go by 2011 census, the data tells us that this population has grown by thirty two percent. The urban population has grown by 32% from 2001 to 2011 as compared to 18% growth in total population count. As per Census 2011, 31% of the country’s population (377 million people) live in cities, and contribute to 63% of the country’s GDP. The urban population is projected to grow to 600 million by 2031. With increasing urban population, the need for providing better infrastructure and services in cities is increasing. The government is acting and taking steps to address urban issues. These include the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), Smart Cities Mission, Heritage City Development and Augmentation Yojana (HRIDAY), Pradhan Mantri Awas Yojana – Housing for All (Urban) (PMAY-U), and Swachh Bharat Mission (Urban).

The ministry has already announced the name of cities under the smart cities mission. In addition, the government has also announced policies and released data indicators to help with the implementation of the urban schemes. All the announcements sound good but we are confronting financing issues in the urban landscape today. We are facing challenges of implementing such schemes and the policies that are trying to address some of the urban issues.

Urbanising India

The process that began with the Jawaharlal Nehru National Urban Renewal Mission (JnNURM), launched in 2005 has now been converted into AMRUT. JNNURM was the first of its kind scheme to finance urban infrastructure. It was under this scheme that the central government specified certain mandatory and some optional reforms for cities, and provided assistance to the state governments and cities that were linked to the implementation of these reforms. JnNURM focused on improving urban infrastructure and service delivery, community participation, and accountability of city governments towards citizens. The new urban schemes moved beyond the mandate of JnNURM. While AMRUT captures almost all the elements of the earlier scheme, it has also included and has brought issues like ‘Swachh Bharat”, affordable housing (through PMAY-U), and technology into decision making. What we need to look at is that while earlier, majority of the funding came from the government, central and the state, now a significant part of the funding will have to be raised by the cities themselves. The cities will have to raise almost sixty percent of the amount that they need for execution of the work. The new scheme suggests that cities need to raise these funds either as collection of user fees or borrow from financial institutions and engage in public-private partnership.

Urban financing

The question that confronts us now is how in a new urbanizing India our cities can sustain themselves and be financially viable. At the moment municipal corporations have access to revenues in different forms such as tax revenue like property tax, toll tax, entertainment tax, and in addition non-tax revenue such as user charges, building permission fees, sale and hire charges. What the urban local bodies need to do is to urgently enhance their financing capabilities. It is very much necessary to execute the projects that citizens are looking forward to. Cities in India have a very poor track record in executing urban projects as well as raising the required financial and technical capacity. Though cities are now getting higher allocations from centre and states, their own tax base remains narrow.

Value Capture Financing (VCF) framework

This was introduced by the Ministry of Urban Development in February 2017. VCF is a principle that helps the people benefit from public investments in infrastructure. At the moment governments are investing in roads, airports, and industries and the maximum benefit is going to private citizens in the local area. The government recovery from such investment is not that big. It recovers only a limited value from such investments and therefore restricts government’s ability for further public investments elsewhere. VCF has many components like land value tax, fee for changing land use, betterment levy, development charges, transfer of development rights, and land pooling systems. For example Karnataka uses certain value capture methods to fund its mass transit projects. The Mumbai Metropolitan Region Development Authority (MMRDA), and City and  Industrial Development Corporation Limited (CIDCO) have used betterment levy (tax levied on land that has gained in value because of public infrastructure investments) to finance infrastructure projects. Municipal bonds are issued by urban local bodies to raise and finance specific projects. India’s urban population is expected to cross fifty percent by 2030. As per the census of 2011, thirty one percent of population is living in cities and contributes sixty three percent of GDP. By 2030, our urban population is expected to cross six hundred million. We must boost our infrastructure spending to meet the growing demands of the people. The need for providing better infrastructure and services in cities is increasing.

As we struggle to find the finances and meet the demands of the ever-increasing population, there is a need to innovate and look for new ideas and methods to meet the resource needs. Let there be no doubt that aspirations are growing and we cannot take a back seat. Demands must be met and resources found to enable this.

Urban financing in India has become a major problem. This issue needs to be addressed and tended to immediately. We must attain the sustainibility goals