To meet the needs of the growing urban population, India needs to increase its annual investment in city infrastructure from an average of $10.6 billion a year in the past decade to an average of $55 billion a year for the next 15 years, a World Bank report released Monday said.
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The report, titled ‘Financing India’s Infrastructure Needs: Constraints to Commercial Financing and Prospects for Policy Action’, estimated that India would need $840 billion over the next 15 years.
“By 2036, 600 million people will be living in urban cities in India, representing 40% of the population. This is likely to put additional pressure on the already stretched urban infrastructure and services of Indian cities – with more demand for clean drinking water, reliable power supply, efficient and safe road transport amongst others. Currently, the central and state governments finance over 75% of city infrastructure, while urban local bodies (ULB) finance 15% through their own surplus revenues,” a World Bank statement said.
About half of the investment needed – $450 billion – in the next 15 years was in the basic municipal services sector that includes water supply, sewerage, solid waste management, roads and streetlights, while most of the remaining amount was to address urban transport requirements, the report said.
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As of now, only 5 per cent of the urban infrastructure investments were coming from the private sector.
“With government’s current (2018) annual urban infrastructure investments topping at $16 billion, much of the gap will require private financing,” the statement said.
The report studied the ULBs of Tamil Nadu and Gujarat, where it found that all-India trends for financing were reflected. Over three-quarters of the total urban capital expenditure in the two states came from the Union and state governments. About 70 per cent of the urban capital expenditure in Tamil Nadu and 55 per cent in Gujarat came from the state governments.
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“Commercial financing was negligible in Gujarat, contributing only 1% of total ULB capex state-wide. ULBs in Tamil Nadu, on the other hand, raised as much as 12% of their total capex from commercial financing – primarily loans from state-controlled FIs [financial institutions],” the report said.
The report said the relatively low charges for municipal services and a weak regulatory framework were adding to the challenges.
“Between 2011 and 2018, urban property tax stood at 0.15% of GDP compared to an average of 0.3-0.6% of GDP for low and middle-income countries. Low service charges for municipal services also undermines their financial viability and attractiveness to private investment,” the report said.
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Among its suggestions, the World Bank report recommended making the transfer of funds to cities formula-based and unconditional and increasing the mandates of city agencies gradually.
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“The Government of India can play an important role in removing market frictions that cities face in accessing private financing. The World Bank report proposes a range of measures that can be taken by city, state, and federal agencies to bend the arc towards a future in which private commercial finance becomes a much bigger part of the solution to India’s urban investment challenge,” said Roland White, a co-author of the report and the global lead of city management and finance at World Bank.
