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India’s Urban Infrastructure
The Need for investment in Urban infrastructure:
World Bank in its recent report ‘Financing India’s Urban Infrastructure Needs:
Constraints to Commercial Financing and Prospects for Policy Action’ has
commented on the need for investment in infrastructure.
According to the World Bank, India would need to invest $840 billionover the next 15
years, that is, an average of $55 billion each year, to meet the demands of its fast-
growing urban population.
Source of these funds:
Financing on a repayable basis can be done either through debt, private
lendingor public-private partnership
This requires a recurrent source of revenueto meet obligations, thus, mandating raising
adequate resources.
How funding is done currently:
Most of the funding for infrastructure development currently comes from
the governmentthrough various schemes to meet certain objectives sub-nationally.

2. Of the finances needed to fund capital expenditures for Indian cities, 48% is derived
from Stategovernments, 24% from the Central government and 15% from urban local
bodies’ own surplus.
The rest includes public-private partnership (3%), commercial debt (2%)
and loansfrom Housing and Urban Development Corporation, or HUDCO (8%).
Only a handful of large cities have accessed institutional banks and/or loans.
The constraints for fundraising:
The report argues that the overall funding base to raise commercial revenues “appears
to be low” owing to weak fiscal performance of citiesand low absorptive capacity for
execution of projects.
Low service chargesfor municipal services undermine financial
sustainability and viability.
Urban bodies are unableto recover operations and maintenance costs, thus,
constraining their ability to further execute projects.
City agencies have been unableto expand their resource and funding base to support
private financing for services such as water supply, sewerage networks and bus
services, as they are highly subsidised.
Revenue sharing designs between public-private partnershipis not particularly viable
for private investors and does not fully account for risk-sharing or risk-
transfer mechanisms for project risks.
What can be done:
The central idea is to increasecities’ fiscal base and creditworthiness.
Cities must institute a buoyant revenuebase and be able to recover the cost of
providing its services.
This could be attained by revising property taxes, user fees and service charges,
among other streams, from the current low base.
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