Context:
With the urban population set to rise exponentially, urban India’s future depends on the ability to address the key financial and structural challenges.
Answer:
India’s urban population is expected to double from 400 million to 800 million by 2050, necessitating ₹70 lakh crore in urban infrastructure investment by 2036, as per the World Bank. Urban Local Bodies (ULBs) are crucial in planning, financing, and maintaining urban services but face severe financial and structural constraints. Current annual spending of ₹1.3 lakh crore is far below the required ₹4.6 lakh crore, creating a critical gap in urban infrastructure financing.
Financial Challenges Faced by ULBs:
- Low Revenue Collection: ULBs struggle with inefficient tax collection, especially property taxes, which generate only ₹25,000 crore annually (0.15% of GDP).
- Bengaluru and Jaipur collect only 5-20% of their potential property tax revenue.
- Overdependence on Grants: Central and state transfers increased from 37% to 44%, but ULBs’ own revenue share dropped from 51% to 43%. This hampers their financial autonomy.
- Many municipalities rely on state funds, reducing incentives for independent revenue generation.
- High Debt Burden: Financing through loans increases debt, especially as service cost recovery rates are as low as 20-50%.
- ULBs in smaller cities often struggle to repay loans due to inadequate revenue streams.
- Decline in PPP Investments: Public-private partnerships in urban infrastructure fell drastically from ₹8,353 crore in 2012 to ₹467 crore in 2018, indicating reduced investor confidence.
- Viability issues in metro projects like Nagpur Metro due to insufficient revenues.
- Unutilised Budget Allocations: About 23% of municipal revenue remains unspent due to lack of absorptive capacity.
- Hyderabad and Chennai spent only 50% of their capital expenditure budgets in 2018-19.
Structural Challenges Faced by ULBs:
- Weak Institutional Capacity: ULBs often lack skilled staff for planning, implementation, and financial management.
- Only 25% of municipal engineers in Tier-2 cities are trained in advanced urban planning.
- Inadequate Empowerment: ULBs have limited financial and administrative autonomy due to excessive state control.
- State governments dictate property tax rates, limiting local flexibility.
- Poor Urban Planning: Absence of integrated urban planning leads to inefficiency and poor project outcomes.
- Delhi’s haphazard urban expansion creates congestion and inefficient service delivery.
- Delayed Project Execution: Complex approval processes and lack of coordination between multiple agencies delay project execution.
- The AMRUT scheme reported delays in over 30% of its sanctioned projects.
- Under-utilisation of central scheme funds, with the AMRUT (80%) and the Smart Cities Mission (70%).
- Fragmented Governance: Multiple parastatal agencies lead to overlapping responsibilities and inefficient resource allocation.
- Bengaluru’s water supply and road infrastructure are managed by separate agencies, causing delays.
Measures Needed to Address These Challenges:
- Empower ULBs with Financial Autonomy: Strengthen State Finance Commissions and allow ULBs greater control over revenue generation.
- Municipal bonds issued by cities like Pune have demonstrated the potential for raising local funds.
- Improve Tax Collection Efficiency: Digitisation of property tax assessments and incentivising compliance can boost revenues.
- Indore improved property tax collection by introducing GIS-based mapping.
- Expand PPP Models: Promote PPPs with viability gap funding to attract private investment.
- Hyderabad Metro Rail is a successful PPP model integrated with urban planning.
- Capacity Building for ULBs: Provide training for municipal staff in project management and financial planning.
- Initiatives like AMRUT’s capacity-building workshops have begun addressing skill gaps.
- Leverage Digital Public Infrastructure (DPI): Use technology for efficient service delivery and transparent governance.
- Smart Cities Mission implemented Integrated Command Centres in cities like Pune.
- Enhancing Citizen Participation: Encourage local stakeholders’ involvement in planning and monitoring urban projects to ensure accountability and sustainability.
- Participatory budgeting in Pune has enabled citizens to decide on local infrastructure priorities.
- Strengthening Inter-Agency Coordination: Create a single-window clearance system for urban projects to reduce delays caused by fragmented governance.
- Bengaluru’s Unified Metropolitan Transport Authority (UMTA) improves coordination between various transport agencies.
- Exploring Climate-Resilient Funding Models: Incorporate climate finance through green bonds and international funding for sustainable urban projects.
India’s sustainable urban development hinges on addressing the financial and structural challenges of ULBs. By strengthening ULBs, India can transform its urban infrastructure, making cities resilient, inclusive, and globally competitive.
‘+1’ Value Addition:
- Tax revenue grew by only 8% between 2010 and 2018, grants by 14%, and non-tax revenue by 10.5%.
- The High-Powered Expert Committee recommended decoupling project preparation from financing to enhance project feasibility and sustainability.
- Use land value capture mechanisms to fund metro and other urban transport systems. Mumbai Metro Phase III integrated land value capture, raising ₹500 crore.
