Chinks in the Armour

Urbanisation is no longer an option for India. Urban population is expected to grow to 590 million by 2030. India needs to build 15 cities of Mumbai’s size in next 10 years to accommodate the population. Cities would also need to invest hugely on infrastructure to bridge the infrastructure gap for ensuring high-quality living standards. It is estimated that India would require, over the next 10 years, between USD 800 billion and USD 2.2 trillion of investment in infrastructure to sustain economic growth

Urban infrastructure is almost everything that helps cities run everyday life. Urban infrastructure is about many things—buildings, roads, parks, boulevards, bridges, airports, railways stations, educational institutes, hospitals, sewage and drainage systems, etc. The quality of these components of urban infrastructure determines the quality of life. Indian cities have witnessed the crumbling infrastructure in cities in adverse situation such as Chennai and Gurugram floods in previous years. Even the railway network of the country is over 100 years old and several accidents in recent past have exposed chinks in the railway armor. Though, the government has charted out their plans of modernizing railways by bringing in new technology, engaging private players and improving services provided on the wheels. Similar is the situation of many pillars of urban infrastructure in cities. The major areas which would require attention include energy, urban transport management, railways, sea ports, air ports, etc.
The major population of the country, almost 69 per cent, may still be residing in villages but the current trends and studies suggest that the demography would change soon and problems will aggravate if not addressed in due course. In the Global Ranking of Competitiveness (2016-17) released by the World Economic Forum, India performs poorly in infrastructure front and is ranked 68th among 138 countries. Hong Kong tops the chart. Though, India has improved over the years but still the wide gap remains. If India has to ride the wave of prosperity and economic growth, investing in infrastructure and overhauling the existing ones become essential.
The economic prosperity of a city is intertwined with the strength of its infrastructure. If a city has to prosper, the government has to invest in improving infrastructure and bridging the gaps, if any. The celebrated Indian economist, Dr VKRV Rao had said: “The link between infrastructure and economic development is not a once and for all affair. It is a continuous process; and progress in development has to be preceded, accompanied, and followed by progress in infrastructure, if we are to fulfill our declared objectives of generating a self-accelerating process of economic development.” Urban infrastructure is paramount because it provides benefits not just to their residents but also to those living near to cities’ boundaries. Almost 200 million people could get benefits from investing in urban infrastructure by enabling rural-urban connectivity, access to market and other services available in cities.

Urban India and infrastructure

India has a challenge at its hands. The 31 per cent population in its urban centers would gravitate to at least 40 percent by 2030. India’s urban population is expected to touch 590-million mark in 2030. If the estimation is to be believed then India will witness urban expansion at a breakneck speed. According to ‘India’s Urban Awakening’ report released by McKinsey Global Institute (MGI) in 2008, it took India nearly 40 years (between 1971 and 2008) for the urban population to rise by nearly 230 million. It will take only half the time to add the next 250 million. The report projects that, to meet urban demand, the economy will have to build between 700 and 900 square kilometers of residential and commercial space a year. It means that India would have to build 12-15 cities of Mumbai size in the next 10 years. This is a colossal challenge.
India has made considerable progress in building and improving urban infrastructure and services. The newly elected government in 2014 gave push to development in cities by launching various schemes and putting investment to rejuvenate urban ecosystem in the country. However, most of these projects, especially those were to be started under the Smart Cities Mission, remain on papers. According to a news article published in a national daily, of the 731 smart city projects worth Rs 46,366 cr approved so far, implementation has started in 49 (6.7%). And 24 projects (3.3%) have been completed as of January 2017. The main reason behind the delay mentioned by the Ministry in the report is the complex procedure involved in tendering of the projects as normally lowest bidder is awarded the project but it is important to see if the company has adequate expertise for implementing the project.
Infrastructure sector in India is marred by several issues, both structural and financial. Delay in approval of projects, clearance from relevant ministries and departments and problems in land acquisition involve a lengthy process. Since the government is pitching and attracting foreign investors to invest in infrastructure projects under Public Private Partnership (PPP), the policy makers need to give due diligence to adequate allocation of risks that discourages the private sector from investing into infrastructure. Government of India must work on policies to minimize the risk for investors to ensure fast-pace infrastructure creation.
Improving the services rendered by municipal corporations at local level cannot be improved if local bodies cannot sustain their expenses. If we compare the standard of service being provided by corporations in India with their counterparts in developed nations, there is a huge difference. All the major civic services as per capita potable water supply, solid waste management, waste water treatment, the quality of public spaces is poor in comparison to global cities.

A report by the MGI projects that, to meet urban demand, the economy will have to build between 700 and 900 square kilometers of residential and commercial space a year. It means that India would have to build 12-15 cities of Mumbai size in the next 10 years

Most of the urban local bodies are in bad financial health as most of their tax and no-tax revenue goes in paying off the salaries of their employees. Almost every municipal corporation in India is dependent on state and central government funds to manage its expenses. Even the Brihanmumbai Municipal Corporation (BMC), which has a colossal budget of Rs 37000 cr, is able to generate only 66 per cent of what it requires for managing its expenses. The state of financial affairs in other small local bodies is far worse. Local bodies with experts in the domain has to work out a mechanism through which they can ensure financial accountability, transparency and make sure people pay for using the infrastructure and services.

Funding requirements

A report by the High Powered Expert Committee (HPEC) for estimating the investment requirements for urban infrastructure and services projects the total investment requirement for urban infrastructure, over the 20-year period from 2012 to 2031, at Rs 39.2 lakh cr, at 2009-10 prices. This includes: Rs 34.1 lakh cr for asset creation, out of which the investment for the eight major sectors is Rs 31 lakh cr; Rs 4.1 lakh cr for renewal and redevelopment including slums; and Rs 1 lakh cr for capacity building. The Committee’s terms of reference specified that it should estimate investment requirements for eight major sectors of urban infrastructure, i.e. water supply, sewerage, solid waste management, storm water drains, urban roads, urban transport, traffic support infrastructure, and street lighting over the period 2008-20.

Over the next decade, we require over USD 1.5 trillion in India alone to fill up the infrastructure gap. We also use the additional resource which is available with us as a result of falling prices because that regime helps us. In investing large public finance into infrastructure, for instance, we have seven hundred thousand villages in India. We intend to connect each of them by 2019

Arun Jaitley, Union Finance Minister

It has prepared detailed estimates of investment for the eight sectors and scaled them up to arrive at an overall estimate of investment in urban infrastructure. It is significant to mention that the report does not include the increase in the cost of projects due to delay in land acquisition or due to approval from different government agencies. Though, the report has underlined the fact that most of the projects, almost 70 per cent, since 2008 delayed mainly because of these two factors.
Finance Minister Arun Jaitley has reiterated it during his speech in a seminar on Infrastructure and Global Economic Growth. He said: “Over the next decade, we require over USD 1.5 trillion in India alone to fill up the infrastructure gap. We also use the additional resource which is available with us as a result of falling prices because that regime helps us. In investing large public finance into infrastructure, for instance, we have seven hundred thousand villages in India. We intend to connect each of them by 2019.”